Specific Disclaimer Language in Commercial Lease May Serve as Important Protection Against Misrepresentation Claim

Prepared by Alan S. Petlak, Esq.
January 9, 2006

In their efforts to lease commercial space in new shopping centers, landlords’ leasing agents frequently provide potential tenants with leasing plans showing the anticipated layout of the shopping center and identifying other tenants that might lease space in the center. A recent California appellate court decision illustrates how the use of such plans in pre-lease negotiations can result in allegations of misrepresentation regarding the existence of those named tenants in the shopping center, and how landlords can protect themselves with properly drafted lease provisions.

Holding of Hinesley v. Oakside Town Center
In Hinesley v. Oakside Town Center, 2006 DJDAR 27 (December 29, 2005), a shopping center tenant asserted a cause of action for fraud against the landlord based upon the landlord’s agent’s purported oral misrepresentation prior to the tenant entering into the lease that three nationally prominent companies had signed leases for space at the shopping center, when, in fact, they had not. The plaintiff tenant presented evidence that the leasing agent had pointed to spaces on the site plan and “stated definitely where each of those tenants were going to be located” and that they would be open and operating by a date certain. The trial court found, and the appellate court agreed, that this could be construed to be a statement of fact that these tenants had signed leases and would be opening stores in the center.

However, the lease executed by the plaintiff provided, in pertinent part, that the landlord “reserves the right to effect such other tenancies in the shopping center as [the landlord] in the exercise of its judgment shall determine to [best] promote the interest of the shopping center” and that the tenant did “not rely on the fact nor does [landlord] represent that any specific [tenant or] type or number of [tenants] shall during the term of this lease occupy space in the shopping center.” The tenant admitted that he had read the lease and that he never expressed any concern or raised any questions about the other tenants to the landlord. The court also noted that the tenant and his attorney requested a number of changes to the lease, but did not request any changes to this lease provision.

Because of the express lease provision and the tenant’s failure to negotiate any protections in the lease, the appellate court, agreeing with the trial court’s decision in favor of defendant landlord, held that the tenant could not have justifiably relied on any material misrepresentation or concealment by the landlord’s agent regarding the status of any cotenant.

Significance of Decision
From the landlord’s perspective, the Hinesley v. Oakside Town Center decision highlights the need for landlords and their agents to be careful in how they represent the status of certain named tenants occupying space at the premises to potential new tenants. Lease plans showing potential tenants should contain a disclaimer that they do not constitute a representation as to the actual occupancy by any tenants or layout of the shopping center. The Hinesley decision also makes it advisable for a landlord to include in a shopping center lease a provision in which the tenant expressly acknowledges that no representations have been made regarding the nature of the center and the type and number of tenants. From both the landlord and tenant’s perspectives, the Hinesley decision also highlights the need to question, clarify and confirm issues of importance in the lease agreement.

If you have any questions concerning integration clauses or disclaimer language in leases, please feel free to contact any member of our Litigation Group or our Leasing Group in Los Angeles or Chicago at:

Pircher Nichols & Meeks
1925 Century Park East
Suite 1700
Los Angeles, California 90067
(Tel.) 310.201.8900

Pircher, Nichols & Meeks
900 North Michigan Avenue
Suite 1050
Chicago, Illinois 60611
(Tel.) 312.915.3112

The PN&M Litigation Bulletin is published as a service to our clients and friends. It is intended to provide general information and should not be acted upon without first obtaining professional advice appropriately tailored to your individual needs.