"Thinking Outside the Box" in Commercial Leasing

            A recent court case has highlighted the importance in some commercial real estate leases of thinking well ahead of the current situation.  In 1994 the owners of an apartment building signed a one page lease form with an advertising company for the placement of a billboard on the roof of the building.  The lease was for ten years with an automatic renewal for another ten years.  The first lease term ended and the lease was renewed.  A few years after the second lease term for the billboard began, the building was converted into condominiums.  The lease had provided that it could be terminated if “the property” were sold. 

            The condominium units on the top three floors of the building were sold to a limited liability company which presumably intended to hold them or sell them.  The previous owners of the building retained two units on a lower floor.  The roof on which the billboard stood was allocated to the owners of the units on the top floor.  The limited liability company that now owned the top floor and hence the roof wanted to remodel its units and its engineers indicated that the billboard must be removed for the remodeling and because of structural damage the weight of the billboard had caused to the roof.  The previous owner of the building, which now owned only two units on a lower floor, assigned its interest in the billboard lease to the owner of the units on the top floor.

The limited liability company that now owned the roof gave notice to the billboard owner that the real estate lease was terminated due to sale of the property and for the billboard owner to remove the billboard.  The billboard owner replied that since the previous owner of the building still owned at least one unit, the billboard owner believed that the lease was still in effect.  When the billboard owner did not remove the billboard the limited liability company that owned the roof had the sign dismantled and removed.  The billboard owner sued the previous owner of the building and the limited liability company for over half a million dollars in damages for the removal of the sign.

The court considered the simple one page lease that said the lease could be terminated if “the property” were sold.  The billboard company argued that “the property” meant the whole building and since the former owner still owned a part of the building, the entire property had not been sold.  The limited liability company argued that “the property” meant the roof on which the sign stood and that had definitely been sold.  The court concluded that the lease was ambiguous because either interpretation could be correct, and decided that because the lease had been prepared by the billboard company the ambiguity would be resolved in favor of the limited liability company.  This case can be found at http://www.courts.wa.gov/opinions/index.cfm?fa=opinions.showOpinion&filename=290247MAJ

This case shows that it can be important to look to the future when working out the terms of a real estate lease of commercial property and try to envision the effect of those terms if certain fundamental conditions change over time.  The preceding is intended as instruction and should not be considered legal advice.  Please visit my website at http://www.seattle-realestate-lawyer.com/aspx/m/Real-Estate for additional information.  Thank you.