Miscalculation Of Square Feet In Lease

Written by jordan on . Posted in Blog

By

Stephen B. Fainsbert, Esq.

The case of Kelly McClain v. Octagon Plaza, LLC (“McClain vs. Octagon”) decided by a California Appellate Court on January 31, 2008, involves a dispute over the total square feet in a shopping center (“Shopping Center”) and the specific square feet in the property leased in the shopping center (“Leased Space”) by McClain (“Tenant”) from Octagon (“Landlord”). The lease was on the American Industrial Real Estate Association “Standard Industrial/Commercial Multi-Tenant Lease – Net” (“Lease”) form. The Lease provided that the square footage of the Leased Space was “approximately 2,624 square feet”. The Lease went on to say that “Unless otherwise provided herein, any statement of size set forth in this Lease, or that may have been used in calculating Rent, is an approximation which the Parties agree is reasonable and any payments based thereon are not subject to revision whether or not the actual size is more or less.

The amount of square feet was important since the Lease provided that: (1) the common area expenses (“Common Area Expenses”) paid by the Tenant were to be calculated as a percentage of the square feet in the Tenant’s property in relation to the total square feet in the Shopping Center, which percentage was stated to be 23%, and; (2) the rent was calculated on the basis of $1.45 per square foot per month.

A dispute arose concerning the calculation both of the Tenant’s Leased Space and the total space in the Shopping Center, which ended up in litigation. It turns out that in January 2003 when Tenant investigated leasing in the Shopping Center, Octagon informed her that the Leased Space she was interested in renting was exactly 2,624 square feet. Perhaps not quite trusting Octagon, Tenant attempted to confirm the size of the Leased Space. The principal owners of Octagon, Ted and Wanda Charanian, acted like they were offended by Tenant’s inquiries concerning the total square feet in the Leased Space and contended that measuring of the area would be unreasonably costly due to the unusual angles in the Leased Space. The Charanians insisted that they had “intimate knowledge of every detail of the shopping center,” and that McClain should rely on their representations regarding the size of the Leased Space and the Shopping Center. SOUND FAMILIAR? — LIKE THAT OLD NEGOTIATING TACTIC: “YOU CAN TRUST ME.”

Needless to say, Landlord defended the legal action brought by Tenant on the basis that the Lease stated that the square footage of the Leased Space and the Shopping Center was an agreed-to, fixed number. Among many different claims Tenant made in the lawsuit was “fraud in the inducement” by Landlord. Fraud in the inducement is when a misrepresentation is made, followed by a contract (in this case, a lease) in which “the promisor knows what he or she is signing but the consent is induced by fraud.

As the dispute became more intense, Tenant obtained a copy of Landlord’s application for earthquake insurance, which interestingly disclosed that the correct size of the Shopping Center actually was 12,800 square feet, rather than 11,835 square feet, as represented by Landlord in the Lease. Further investigation showed that Leased Space was 2,438 square feet, rather than the 2,624 square feet, as represented; therefore resulting in the fact that Tenant should have been allocated 19% of the common area expenses as opposed to 23% and should have been paying $3,535.10 per month rather than $3,804.00. These errors in the calculation of both the Leased Space and in the Shopping Center Space would have obligated Tenant to pay more than $90,000.00 over the term of the Lease.

It should be noted that the Appellate Court received this case after the Trial Court dismissed the lawsuit because of the language in the Lease stating that the calculations of square feet set forth in the Lease were accepted as a given, whether accurate or not. The issue raised in this case on appeal is whether you can get away with exculpatory language or disclaimers in a lease, or in any agreement, including a real estate purchase and sale agreement, if the representations are inaccurate. Of course, it did not help that the Charanians became indignant when the accuracy of their representations of the amount of space in the Leased Space was questioned. The Appellate Court determined that exculpatory language or disclaimers in the Lease did not insulate Landlord from liability for fraud or prevent Tenant from demonstrating justified reliance based on representations of Landlord. What the Appellate Court did in this case was to send this case back to the Trial Court for a judge or jury to make a factual determination if there was fraud in the inducement and to enter a Judgment for the Tenant if there was a finding of fraud in the inducement notwithstanding the exculpatory language and disclaimers in the Lease.

This case is most instructive in giving examples of other instances where prior courts have held that you cannot understate something or say something is approximate or “As Is” and thereby insulate yourself from liability. There must be reasonable belief in the estimates or statements made. In another case cited by the Appellate Court, it was asserted by tenant that, when he leased space in the commercial center, landlord’s agent told him that other units in the shopping center would be “occupied by businesses likely to attract heavy ‘foot traffic’”. That lease also provided landlord the exclusive right to select tenants. The Appellate Court in that case said that if tenant could provide that he reasonably relied on the statements of landlord’s agent and could prove that the landlord did not attempt to obtain the type of tenants who would induce heavy foot traffic, then tenant could prevail in his lawsuit and collect damages from landlord.

In essence this comes down to making “a positive assertion of fact” which allows the basis for suing for fraud in the inducement. In this particular case, as stated above, Tenant claimed the Charanians “exaggerated the size of her unit by 186 feet, or 7.6% of its actual size, and increased her share of the common expenses by 4%, through a calculation that understated the size of the Shopping Center by 965 square feet, or 8.1% of its actual size.” While these discrepancies do not seem large, they still involve a $90,000.00 increase over the 5 years of the Lease term – not exactly pocket change!

What does this case tell us? It sends out a message that you cannot be ‘cute’. You cannot give limited disclosure or make limited statements and then expect to be insulated from any claim. Such a claim could be in a house sale, for example, where sellers say that they think there may be some construction in which no permits were obtained, but that, nonetheless, the construction complied with building code requirements. In this situation, if the sellers had clear knowledge that no permits were obtained and/or never investigated thoroughly to find out whether there was, in fact, compliance with the building codes, the sellers would be liable. You cannot make a limited or general statement and hope that you get away with stating something like the property is sold “As Is” and, expect to not be liable.

The “As Is” clause has always been both questionable and difficult issue. Currently the law is that, if you say “As Is,” you have to make that statement holding reasonable belief, having investigated whether or not it is true. This is why “As Is “ provisions drafted by sophisticated attorneys are often very detailed and will contain language that states the property is sold “As Is” without a duty of inquiry and will include other limiting, carefully drafted language.

Stephen B. Fainsbert is a partner in the West Los Angeles law firm of Fainsbert Mase & Snyder, LLP. Mr. Fainsbert has practiced law in the real estate and real estate exchange area for over forty years and has extensively written and lectured on these subjects both for the real estate industry and for attorneys through the California Continuing Education of the Bar program. Mr. Fainsbert is co-author of Real Property Exchanges, Second Edition, Continuing Education of the Bar, June 1994, which was published by the University of California Press and is recognized as the leading book on this subject. Mr. Fainsbert has been designated one of Southern California’s “Real Estate Super Lawyers” in both Los Angeles Magazine and Southern California Super Lawyers magazine every year since 2004. If you have any questions concerning this article or any other related matter, Mr. Fainsbert may be contacted at (310) 473-6400, by fax at (310) 473-8702

Getting to Know the Area Part III

Written by jordan on . Posted in Blog

Here is the third part of our introducing the area of Los Angeles, and now we are moving in the heart and downtown area of Los Angeles. The most noticeable name is Hollywood, and from this city produces the movies that have defined America as a nation and produced celebrities that we all know and love. And around we see the rough cities of LA that have had many a violent past. These cities are throughout our first 3 zone areas, which include central eastern, southern and western.


Hollywood

Yes, they still come to the mecca of the film industry — young hopefuls with stars in their eyes gravitate to this historic heart of L.A.’s movie production like moths fluttering to the glare of neon lights. But today’s Hollywood is more illusion than industry. Many of the neighborhood’s former movie studios have moved to more spacious venues in Burbank, the Westside, and other parts of the city.

Despite the downturn, visitors continue to flock to Hollywood’s landmark attractions, such as the star-studded Walk of Fame and Grauman’s Chinese Theatre. And now that the city’s $1-billion, 30-year revitalization project is in full swing, Hollywood Boulevard is, for the first time in decades, showing signs of rising out of a seedy slump, with refurbished movie houses and stylish restaurants and clubs making a fierce comeback. The centerpiece Hollywood & Highland complex anchors the neighborhood, with shopping, entertainment, and a luxury hotel built around the beautiful Kodak Theatre designed specifically to host the Academy Awards (really, you’ll want to poke your head into this gorgeous theater).

Melrose Avenue, scruffy but fun, is the city’s funkiest shopping district, catering to often-raucous youth with secondhand and avant-garde clothing shops. There are also several good restaurants in between.

The stretch of Wilshire Boulevard running through the southern part of Hollywood is known as the Mid-Wilshire district, or the Miracle Mile. It’s lined with tall, contemporary apartment houses and office buildings. The section just east of Fairfax Avenue, known as Museum Row, is home to almost a dozen museums, including the Los Angeles County Museum of Art, the La Brea Tar Pits, and that shrine to L.A. car culture, the Petersen Automotive Museum.

Griffith Park, up Western Avenue in the northernmost part of Hollywood, is one of the country’s largest urban parks, home to the Los Angeles Zoo, the famous Griffith Observatory, and the outdoor Greek Theater.

Downtown

Despite the relatively recent construction of numerous cultural centers (such as the Walt Disney Concert Hall and Cathedral of Our Lady of the Angels) and a handful of trendy restaurants, L.A.’s Downtown isn’t the tourist hub that it would be in most cities. When it comes to entertaining visitors, the Westside, Hollywood, and beach communities are all far more popular.

Easily recognized by the tight cluster of high-rise offices — skyscrapers bolstered by earthquake-proof technology — the business center of the city is eerily vacant on weekends and evenings, but the outlying residential communities, such as Koreatown, Little Tokyo, Chinatown, and Los Feliz, are enticingly ethnic and vibrant. If you want a tan, head to Santa Monica, but if you want a refreshing dose of non-90210 culture, come here.

El Pueblo de Los Angeles Historic District, a 44-acre ode to the city’s early years, is worth a visit. Chinatown is small and touristy, but can be plenty of fun for souvenir hunting or traditional dim sum. Little Tokyo, on the other hand, is a genuine gathering place for the Southland’s Japanese population, with a wide array of shops and restaurants with an authentic flair.

Silver Lake, a residential neighborhood just north of Downtown and adjacent to Los Feliz (home to the Los Angeles Zoo and Griffith Park), just to the west, has arty areas with unique cafes, theaters, graffiti, and art galleries — all in equally plentiful proportions. The local music scene has been burgeoning of late.

Exposition Park, south and west of Downtown, is home to the Los Angeles Memorial Coliseum and the L.A. Sports Arena, as well as the Natural History Museum, the African-American Museum, and the California Science Center. The University of Southern California (USC) is next door.

East and South Central L.A., just east and south of Downtown, are home to the city’s large barrios. This is where the 1992 L.A. riots were centered. It was here, at Florence and Normandie avenues, that a news station’s reporter, hovering above in a helicopter, videotaped Reginald Denny being pulled from the cab of his truck and beaten. These neighborhoods are, without question, quite unique, though they contain few tourist sites (the Watts Towers being a notable exception). This can be a rough part of town, so avoid looking like a tourist if you decide to visit, particularly at night.

Lead Capture Technology: First the Internet Now Cell Phones

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The Internet and now mobile…Will the real estate industry adopt mobile marketing applications in the same sluggish way that internet eventually became the norm? It has only been 10 years since www.realtor.com became the starting place for anyone looking to buy, sell, rent, and list properties; in those years the same people began carrying a cell phone with them eighty-plus percent of the time. Now with text messaging growing faster than any other form of communication in the world, the opportunity to capitalize has presented itself.

XAP Realty, a Los Angeles based real estate marketing company has created a lead capture solution to utilize the fact that cell phones are now carried by all buyers. The concept is extremely simple, www.xaprealty.com provides real estate agents, apt. owners, individual sellers, and property management companies with interactive yard and rider signs. The signs allow prospects to request the listing information of a particular property by sending a text message. The prospect is immediately sent the listing details including: address, price, beds, baths, acreage, MLS#, agent’s contact information, and more. Simultaneously, the agent or property manager is sent an email that includes the prospects phone number and the listing that he/she is interested in viewing. The service acts like an on-site assistant, reporting full property details and taking down new lead information 24 hours a day 7 days per week.

XAP Realty benefits realtors by capturing more leads using the non-invasive communication medium of text messaging. XAP Realty saves realtors time and money by providing prospects with the relevant information they need, and reducing materials. Last of all XAP Realty simplifies the process by providing prospects with an effective means of saving the listing information they require, thus making the job easier the realtor.

The question of whether realtors will stay on the cutting edge of technology remains unknown, however, with regards to cell phones XAP Realty interactive signs are already being used in a city near you.

Getting to Know the Area Part II

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Again we look at the surrounding areas of greater Los Angeles, and hopefully become aware of all the different neighborhoods found in our megalopolis of Souther California. While there can be found only rich celebrity houses lining up the streets of these areas, there are also many apartment complexes needed for the students living in LA and thriving artists and professionals that live in West LA. Most of these cities are located in our Western LA (zone 3) magazine. This info can be found on frommers.com.

Beverly Hills is politically distinct from the rest of Los Angeles — a famous enclave best known for its palm tree lined streets of palatial homes, famous residents (Jack Nicholson, Warren Beatty, Annette Bening), and high-priced shops. But it’s not all glitz and glamour; the healthy mix of filthy rich, wannabes, and tourists that peoples downtown Beverly Hills creates a unique — and often snobby-surreal — atmosphere.

West Hollywood is a key-shape community whose epicenter is the intersection of Santa Monica and La Cienega boulevards. Nestled between Beverly Hills and Hollywood, this politically independent — and blissfully fast-food-free — town is home to some of the area’s best restaurants, clubs, shops, and art galleries. WeHo, as it’s come to be known, is also the center of L.A.’s gay community — you’ll know you’ve arrived when you see the risqué billboards. Encompassing about 2 square miles, it’s a pedestrian-friendly place with plenty of metered parking. Highlights include the 1 1/2 miles of Sunset Boulevard known as Sunset Strip, the chic Sunset Plaza retail strip, and the liveliest stretch of Santa Monica Boulevard.

Bel Air and Holmby Hills, located in the hills north of Westwood and west of Beverly Hills, are old-money residential areas featured prominently on most maps to the stars’ homes.

Brentwood is best known as the famous backdrop to the O. J. Simpson melodrama. If Starbucks ever designed a neighborhood, this is what it would look like — a generic, relatively upscale mix of track homes, restaurants, and strip malls. The Getty Center looms over Brentwood from its hilltop perch next to I-405.

Westwood, an urban village founded in 1929 and home to the University of California at Los Angeles (UCLA), used to be a hot destination for a night on the town, but it lost much of its appeal in the past decade due to overcrowding and even some minor street violence. Although Westwood is unlikely to regain its old charm, the vibrant new culinary scene has brought new life to the village. Combined with the high concentration of movie theaters, it’s now the premier L.A. destination for dinner and a flick.

Century City is a compact and rather bland high-rise area sandwiched between West Los Angeles and Beverly Hills. The primary draws here are the 20th Century Fox studios, Shubert Theatre, and the Westside Pavilion, a huge open-air shopping mall. Century City’s three main thoroughfares are Century Park East, Avenue of the Stars, and Century Park West.

West Los Angeles is a label that generally applies to everything that isn’t one of the other Westside neighborhoods. It’s basically the area south of Santa Monica Boulevard, north of Venice Boulevard, east of Santa Monica and Venice, and west and south of Century City.

Special Promotion from Apartment Management

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We want to hear stories from you, our readers, and we’ll pay you to tell them. All you have to do is write a 1,500 word or less story about your personal apartment management experience.

We want to hear from anyone who can tell us about their experiences in the apartment industry; whether it was a first-time purchase night or a spur-of-the-moment purchase that changed your life. If you have a WWII era story, either from your own experience or parents, let us know.

We will be looking at all the stories sent in and choose one to be our Featured Article of the month. The winner will also receive a $100 American Express gift card for their submission.

Mortgage Frauds

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In a recent article published in the LA Times by Lew Sichelmen, he paints a distressing picture of the ways white-collar, and now blue-collar, thieves steal millions of dollars from home buyers and investors who are unaware of the scams. Lately the FBI has reported a sharp increase in the reports of suspicious activity in the real estate market.

“The bureau will get more than 60,000 suspicious-activity reports this year, he said at a recent conference in Chicago. By comparison, it received a record 46,700 reports of suspicious activity in fiscal 2007, up from 35,600 in 2006.” That is quite a great leap in the two years.

It is important to look at the details, and to watch for some of these cons. One is the old trick of an inflated appraisal to pay for the “incentives” that home builders are giving to buyers. These incentives are build into the appraisal without the notice of the appraisers. Also many are using con men to have the home buyers pay, and in the end the con man does not make the payments and the house ends up in foreclosure. Never be too careful who you trust with your home, especially in these crunching times.

“Broshears, the FBI’s point man on mortgage fraud, estimated that the feds’ investigation is likely to uncover $3 billion in mortgage losses.”

Forbes "Boost Your Business" Contest

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Forbes is hosting their annual “Boost Your Business” Contest for small business’ across the country. They are giving away 100,000 to the best business pitch. So start writing down your plans and go over to their website to check it out here. Hurry because May 31 is the deadline for submissions.

Here are some of the requirements:
1. have at least one salaried employee, aside from the owner
2. be incorporated for less than five (5) years (at the time of entry)
3. be a for-profit entity
4. have annual revenues between $0 and $5,000,000

The Inland Empire

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We are excited to inform everybody that we are now going to reach the Inland Empire. This upcoming June, we will be finally getting our 6th zone published. Recently it has only been able to viewed online as a pdf.

If you are interested in getting a copy of the June issue for the Inland Empire, or wish to advertise in the new zone, give us a call at (714) 893-3971 or email me at js@aptmags.com.

Car Wash Apartment Combo

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Driving down PCH, around Sunset Beach, I never noticed this odd apartment building. Yet while taking pictures of the surrounding area, I caught glimpse of this car wash plus apartment complex combination. I was truly in awe of it, and wondered if this was successful; and if the residents enjoyed living here?

Living in a wide open, traffic congested, commuter, never know your neighbor environment, I never looked at this type of building suitable for southern California. I have been recently been hearing about residential plus commercial, tight night communities making a comeback. If that is so, and why not in Southern California, it might be important to start researching.

Slow Growth

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Southern California is still hurting from the credit crunch, and DataQuick has produced some stats that do not show promise for the market. There are spikes in the market between months, but overall the median prices have fallen dramatically over the past year. Yet foreclosures are at an all-time high.

“Indicators of market distress continue to move in different directions. Foreclosure activity is at record levels, financing with adjustable-rate mortgages is at a six-year low. Down payment sizes and flipping rates are stable, non-owner occupied buying activity is increasing, DataQuick reported. “

All Homes #Sold Feb-07 #Sold Feb-08 Pct. Chng $Median Feb-07 $Median Feb-08 Pct. Chng
Los Angeles 6,300 3,468 -45.0% $528,000 $460,000 -12.90%
Orange 2,449 1,471 -39.9% $620,000 $520,000 -16.10%
Riverside 3,057 2,147 -29.8% $410,000 $325,000 -20.70%
San Bernardino 2,274 1,242 -45.4% $368,750 $290,000 -21.40%
San Diego 2,863 1,954 -31.7% $480,000 $415,000 -13.50%
Ventura 737 495 -32.8% $584,000 $445,000 -23.80%
SoCal 17,680 10,777 -39.0% $495,000 $408,000 -17.60%
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