"YOU SIGN A LEASE.
THE LANDLORD SIGNS A SEPARATE LEASE WITH A COMPETITOR.
CAN YOU SUE?"

You negotiate with a landlord of a shopping center under construction for approximately seven months!  Finally, after a major investment of time and energy, you conclude negotiations for a lease of the coin laundry location within the shopping center.  The lease, provided to you by the landlord, sets forth an initial term of 10 years.  You sign the lease as president of your corporation through which you will conduct the business, and a personal guaranty.  You return the documents to the landlord by mail.

About one month later, when your mailbox does not produce a counter signed copy of the lease from the landlord, you call the landlord's secretary for a progress report.  She informs you, in a syrupy sweet voice, that a lease has been executed by the landlord, but not with you!  She advises that the landlord signed a lease for the coin laundry location with a competitor at a slightly higher rental.

Emotionally devastated by the information, and after consuming three or four "boiler makers" at a neighborhood tavern, you decide that the landlord needs to be sued to either enforce the lease or compensate you for anticipated loss of profit and emotional distress.

Any chance for success?

Bed, Bath & Beyond of La Jolla, Inc., on somewhat similar facts, apparently thought there would be a chance of success.  Bed, Bath & Beyond had negotiated with La Jolla Village Square Venture Partners for a lease of retail space in a shopping center from May 1992 through January 1993.  During February 1993, La Jolla's attorneys presented Bed, Bath & Beyond with the lease and a guaranty to be signed by its parent corporation.  The documents were signed and returned to La Jolla.  During late March 1993, a representative of La Jolla contacted Bed, Bath & Beyond and informed the company that La Jolla had not executed the lease and instead planned to lease the property to Linen 'N Things.

Bed, Bath & Beyond filed an action against La Jolla and Linens 'N Things asserting various causes of action, including specific performance, breach of contract and fraud against the landlord and causes of action for interference with contractual relations and prospective economic advantage against Linens 'N Things.

The trial court essentially granted summary judgment against Bed, Bath & Beyond, and in favor of La Jolla and Linen 'N Things.  Bed, Bath & Beyond thereafter appealed to the California Court of Appeal.

The proposed La Jolla lease provided for a term of 10 years.  The California Civil Code requires that an agreement to lease real property for a term longer than one year must be in writing and signed by "the party to be charged."  Since the landlord, as the "party to be charged" did not sign the 10 year lease, the agreement was invalid and therefore unenforceable.

Thus, as to enforcing the lease by specific performance, the court concluded:

margin-left:1.0in;margin-bottom:.0001pt;text-align:justify'>"Whether viewed as an oral agreement or written agreement, plaintiff's alleged lease agreement is unenforceable because it is undisputed that La Jolla, the lessor and "party to be charged" never signed the draft instrument the plaintiff signed."

The plaintiff argued that the lease was not subject to the statute of frauds because, under certain circumstances, the agreement could have been performed within one year from the date of its making.  Plaintiff argued that the tenant could terminate the lease before the rental term commenced if the landlord failed to begin certain work on the property and the landlord had the right to terminate the lease before commencement of the rental term if the landlord was unable to obtain certain permits.  The court, nonetheless, held an agreement to lease real property for a period in excess of one year must be in writing and signed by the party to be charged "regardless whether such agreement provides that it may be canceled or terminated within one year of the date of its making and prior to the commencement of the lease term." 

The Court of Appeal also affirmed the trial court's decision that the plaintiff could not pursue a cause of action against Linen 'N Things for intentional interference with the contractual relationship between Bed, Bath & Beyond and La Jolla for the simple reason that such a cause of action requires:  "an underlying enforceable contract.  Where there is no existing enforceable contract, only a claim for interference with prospective advantage may be pleaded."

The Court of Appeal also dispensed with plaintiff's cause of action for interference with prospective economic advantage.

The Court notes that:

margin-left:1.0in;margin-bottom:.0001pt;text-align:justify'>"the only active interference alleged . . . was that Linen 'N Things offered La Jolla more money per square foot to rent the subject retail space.  Linen 'N Things also presented evidence that it did not act with the intention of illegally restraining trade, but only with the intent of competing with plaintiff for attractive retail space."

The Court of Appeal thus concludes:

"California law has long recognized a `competition privilege' which protects one from liability for inducing a third person not to enter into a prospective contractual relation with a business competitor.  The privilege applies where `"(a) the relation [between the competitor and third person] concerns a matter involved in the competition between the actor and the competitor, and (b) the actor does not employ improper means, and (c) the actor does not intend thereby to create or continue an illegal restraint of competition, and (d) the actor's purpose is at least in part to advance his interest in his competition with the other." . . . .' [citation].  In short, the competition privilege furthers free enterprise by protecting the right to compete fairly in the marketplace.  One may compete for an advantageous economic relationship with a third party as long as one does not act improperly or illegally."

The moral of the story?  Don't deliver a lease for execution by mule and go on a cruise.  Use a messenger service.  Make an appointment to personally deliver the lease to the landlord.  See if you can obtain the landlord's signature on the spot!  If not, call the next day to inquire as to when you can expect to receive the executed lease.  In short, if you snooze, you may lose. 

[This column is intended to provide general information only  and
is  not intended to provide specific legal advice; if you have  a
specific  question  regarding the  law,  you  should  contact  an
attorney  of your choice.  Suggestions for topics to be discussed
in this column are welcome.]


Reprinted from The Journal
Myles M. Mattenson © 2006