Commercial Lease Litigation: “Lack of Foot Traffic”

Commercial lease litigation by shopping center tenants is usually brought about when a failing retail store is being evicted but counter claims against the landlord for fraud. “You promised me foot traffic!” Or “You promised me quality tenants were moving in next door and their business would be my business.” These retail tenants will sue the landlord for fraud based on misrepresentation, fraudulent concealment of material facts and rescission. In cases where the landlord and tenant have entered into a good shopping center lease, these claims will usually fail for a number of reasons, including express language in the lease that the lessor has not made any representations regarding other tenants in the shopping center and an enforceable integration clause that prevents claims of oral representations outside the written terms of the lease.

Express Language In The Shopping Center Lease
Well-drafted shopping center leases will include language that explicitly disclaims any responsibility for representations about the tenancy in the shopping center. For example, the AIR Commercial Realty Association’s Standard Multi-Tenant Shopping Center Lease, which is used by many landlords, tenants, brokers and commercial leasing attorneys in Los Angeles, includes a paragraph which states that “Lessor, at its sole discretion, reserves the absolute right to establish procedures to control other tenancies in the Shopping Center. Regardless of whether any specific tenants are shown on any site plan attached hereto, Lessee does not rely on that fact, nor does Lessor represent that any specific tenant or number or type of tenants shall or shall not during the Term occupy any portion of the Shopping Center, nor does Lessee rely on any other tenant operating its business in the Shopping Center at any particular time or times. Further, no conduct by any tenant, subtenant or other occupant of, or any customer of, or any supplier to or use of any portion of the Shopping Center shall constitute an eviction, constructive or otherwise, of Lessee from the Premises, and Lessee hereby waives any and all claims that it might otherwise have against Lessor by reason thereof.”

In a 2005 California Court of Appeal case entitled Hinesley v. Oakshade Town Center (135 Cal.App.4th 289), a tenant sued a landlord for fraud and rescission of a commercial lease based on fraud in the inducement (and the landlord filed a cross-complaint for rent due). The tenant alleged that the shopping center representative told Hinesley that the regional restaurant chain Dos Coyotes, Starbucks coffee and Baskin-Robbins would be leasing suites near the space Hinesley was to lease. Hinesley argued that the representative did not have any contractual commitments from these tenants and concealed this in order to lure Hinesley into the center. The resulting lack of foot traffic led to Hinesley’s business failure.

The trial court granted the landlord’s motion for summary judgment, finding that the alleged statements were nonactionable opinions (rather than misrepresented facts) and that the alleged concealment was not material because the lease provided that Hinesley was not relying on the existence of other tenants in entering the contract. Moreover, Hinesley did not advise the landlord that the existence of the other tenants was important to his decision, did not ask if other tenants had signed leases, and did not advise the landlord that the start date of his lease should be tied to the arrival of other tenants. The trial court concluded that the tenant had a duty of discovery, meaning that the tenant should have investigated the potential tenancies if he thought it was important to his decision.

The trial court and the Court of Appeal both found that a triable issue of fact existed as to whether the representations were actionable misrepresentations of fact or nonactionable opinions about the future.

No Justifiable Reliance On Any Material Misrepresentation Or Concealment
The landlord opposed the motion for summary judgment in part on the grounds that any representations were not material assertions on which Hinesley justifiably relied because of the language in the lase which expressly repudiated any such reliance and Hinesley never expressed any concern or raised any question about the other tenants to the landlord. Hinesley admitted that the lease included such language (and that he had an attorney peruse the lease), but argued that the paragraph was not “emphasized in any manner.”

The California Court of Appeal noted that a party “may claim fraud in the inducement of a contract containing a provision disclaiming any fraudulent misrepresentations and introduce parol evidence to show such fraud.” However, while a party may not contractually insulate itself from its own fraud by language in its contract, that express language “should have conveyed the implication that the lease did not come with a guarantee that any particular businesses would be or stay cotenants with Hinesley. The clause should have put Hinesley on notice to ask further questions. The clause is certainly a factor to consider in determining whether Hinesley justifiably relied on [the landlord’s] representations regarding the particular tenants locating close to the suite Hinesley was considering leasing.”

The court held that “[i]n the complete absence of any actions taken to question, clarify, or confirm the contractual status of the three cotenants, to notify his attorney of the representations or to modify [the relevant] paragraph, Hinsley could not justifiably rely on his understanding of the representations and gestures made by” the landlord’s representative. His testimony on this issue is contradicted by his actions.

Judgment was affirmed in favor of the landlord.

Integration Clause and Parol Evidence

Commercial leases also contain what are called integration clauses. These clauses declare that the written contract constitutes the “entire understanding” between the parties and that “there are no representations, promises or agreements” that are not expressly set forth in the writing. This is in keeping with California Civil Code section 1625 which holds that the execution of a written contract “supersedes all the negotiations or stipulations concerning its matter which preceded or accompanied the execution of the instrument.”

In the case of a signed, written agreement, the parol evidence rule applies. This rule bars extrinsic oral or written evidence of prior or contemporaneous agreements that contradict, add to, or modify the terms of an unambiguous integrated written instrument. The purpose of the rule is to protect the parties’ written statement of intent and to allow them to rely on the certainty of that written instrument so that “it will not be rendered meaningless by the oral revisionist claims of a party who, at the end of the game, does not care for the result.” This is particularly true where the parties are experienced businessmen and the deal is negotiated at arms length.

Integration clauses, however, do not insulate parties from the consequences of making fraudulent representations that are independent of and consistent with the written instrument. But parol evidence cannot be used to prove the fraudulent promises if the alleged promises contradict the terms of the written agreement.

Commercial shopping center leases which include a clause disclaiming any representations about the tenancy of the shopping center and an integration clause will almost always defeat a claim by a dissatisfied tenant over claims that “you promised me more foot traffic.”

Los Angeles real estate litigation attorney Laine T. Wagenseller handles numerous cases involving breach of lease, fraud, rescission and more. He is the founder of Wagenseller Law Firm in Los Angeles. For more information on breach of contract and real estate litigation, visit our website. You can contact Mr. Wagenseller at (213) 286-0371 or ltw@wagensellerlaw.com.