Definition of “Gross Leasable Area” Ambiguous in Lease

Facts: An electronics franchise signed a lease with the owner of a retail lifestyle center. The lease contained a co-tenancy provision that stated: “As used herein, the Opening Co-Tenancy Condition shall mean that, as of the Commencement Date, Tenant shall not be required to open for business unless 60 percent (not including Tenant) of the gross leasable area of the Shopping Center is open and operating at the Shopping Center, or are to open concurrently with Tenant.” Additionally, under the co-tenancy provision, at least two of three specific anchor tenants were required to be open to fulfill the condition.

If the co-tenancy commitment had not been met, the franchise had the option to either delay opening its store or open and, if the co-tenancy condition remained unsatisfied when the tenancy was set to start, pay 50 percent of the monthly rent until it had been met. A site plan detailing the square footage of all the buildings on the property—completed and still under construction—listed the total gross leasable area as 743,908 square feet.

The electronics store opened concurrently with all three of the required anchor tenants, but only 320,000 square feet were occupied by other businesses. The franchise began making monthly rent payments for 50 percent of the rent, contending that the owner had failed to meet the co-tenancy condition in the lease because less than 60 percent of the gross leasable area was open and operating. The owner argued that the condition had been satisfied because buildings not fully constructed were not included in the shopping center for purposes of the condition, and, therefore, more than 60 percent of buildings that had been fully constructed were open and operating at the time the franchise opened its store for business.

The franchise sued for breach of contract. The owner asked the trial court for a judgment in its favor without a trial.

Decision: The trial court denied the owner's request for a judgment in its favor without a trial.

Reasoning: The trial court noted that the issue was the differing interpretations of the phrases “gross leasable area” and “shopping center” in the co-tenancy condition. The franchise interpreted the “gross leasable area” of the shopping center to refer to the figure in the site plan that included all buildings on the property regardless of whether they had been completed. However, the owner claimed that “gross leasable area” was calculated after a building had been constructed.

The trial court pointed out that the lease provisions were ambiguous, but that it was possible that gross leasable area referred only to constructed space and, thus, the measurement of leasable area could only occur after a building had been completed. However, this explanation of how to measure gross leasable area did not definitively prove that the owner's interpretation was correct, the trial court stated.

The definition of “shopping center” also was open to two reasonable interpretations because it had been used inconsistently in the lease. It could, as the franchise argued, be defined as the buildings outlined in the site plan. But it could, as the owner argued, refer to only those buildings already constructed for purposes of the co-tenancy condition.

Because there was no concrete evidence showing the intent of the franchise and owner regarding these terms, and the franchise had a reasonable interpretation of the lease that supported its claim against the owner, the court could not grant the owner's request for a judgment in its favor without a trial.

• Best Buy Stores, L.P. v. Manteca Lifestyle Center, LLC, May 2010