Must Tenant Pay Rent If Improvements Aren't Done Yet?

   What Happened    A new shopping center lease says that a restaurant tenant doesn’t have to pay rent until the landlord “delivers possession of the premises.” Unfortunately, the lease doesn’t define the phrase. So, when construction delays and cost increases occurred, the question arose: Did the landlord meet its duty to deliver possession when it handed the tenant the keys and access to the space in broom clean condition? Or did delivery of possession require that the improvements be completed? After a jury reached the latter interpretation, the landlord appealed.

Decision: The California court took the unusual step of not only vacating the jury’s ruling but also reaching the opposite conclusion.

Reasoning: The jury believed the expert witness testimony that in the commercial rental business, delivering premises is commonly understood to mean delivering the premises in a way that the tenant can operate its business. But while the expert may or may not have been right, the lower court shouldn’t have asked a jury to decide this question. Instead, it should have used “extrinsic evidence” to make its own interpretation. And when you look at the parties’ behavior, the only “commonsense interpretation” was that they intended the tenant’s lease duties to kick in right after it got access to the premises in broom clean condition. It was at that point that the tenant got a certificate of occupancy, began constructing improvements, and started selling food and beverages out of the space, the court explained.

• Phxcap II v. Ag Mobile Rest. Concepts: 2019 Cal. App. Unpub. LEXIS 5782, 2019 WL 4053868