Tenant Improvements Did Not Violate Lease Restriction

Facts: In exchange for a significant rent increase, an owner agreed not to lease space to any business that sold the same types of products as the tenant.

The owner eventually leased space to a company that sold products similar to the tenant's product line. In response, the tenant decided to expand its product line, but needed to make improvements outside the building to support the expansion. Before making the improvements, the tenant's attorney sent a letter to the owner, letting it know what the tenant's intentions were for the space and asked for a written response if there were any objections. The owner never responded, so the tenant proceeded with the improvements.

After the tenant had almost completed the improvements, the owner objected to the final stages and sued, arguing, for multiple reasons, that the tenant's lease did not allow it to make improvements outside the building. The trial court ruled in favor of the tenant, and the owner appealed.

Decision: A California appeals court ruled in favor of the tenant.

Reasoning: After reviewing the lease, the court found that the only limitation on the tenant's right to make improvements was that the tenant needed written permission to make alterations to load-bearing walls. In this case, the improvements were made outside the building and had no impact on the space's load-bearing walls, so there was no need to seek the owner's permission.

In addition, the court noted that the tenant requested a response regarding the improvements, but the owner did not respond within the time frame offered by the tenant's attorney.

• San Marcos Enterprises, Inc. v. Young Joo Park, October 2008