Must Landlord or Tenant Pay for Required Earthquake Retrofit?

What Happened: The town of Santa Monica passed an ordinance requiring a commercial building leased to a delicatessen/catering firm to be retrofitted for earthquakes. The landlord claimed that the tenant, who had leased the building since 1973, was the real owner and thus financially responsible for complying with the ordinance; the tenant claimed just the opposite. The trial court ruled that the landlord had to pay for the seismic retrofit.

Ruling: The California state court agreed and tossed the landlord’s appeal.

Reasoning: There was no language in the lease specifying which party must pay for seismic retrofit upgrades. So, the court applied a two-part test based on California case law holding tenants liable for retrofit costs if:

• The duration and scope of the lease suggests that it passes full ownership of the property to the tenant; and
• If so, the parties exhibited an intent that the tenant should pay for the retrofit work.

The court concluded the lease didn’t pass “substantially all of the responsibilities of property ownership” to the deli, noting that the landlord retained control over the type of business the tenant could operate and banned it from subleasing the premises without its consent. And there was no evidence that the sides intended for the tenant to pay for the retrofit work, given that it would benefit the landlord and substantially impair the deli’s business.

• Izzy's Deli v. LMA & Sai 1433 Wilshire LLC, 2022 Cal. App. Unpub. LEXIS 2870