California Landmark Cases on Commercial Lease Termination Provision
California courts have developed a specific rule that applies to termination provisions in commercial leases. The rule was stated by the California Supreme Court in C. M. Staub Shoe Co. v. Byrne (1915) 169 Cal. 122 145 P. 1032 (Staub Shoe), which involved a commercial lease with a provision stating the lease shall cease and become null and void if the premises were damaged by fire and the damage was so severe that it could not be repaired within 60 days. (Id. at pp. 126-127.)
After a fire occurred, the tenant wanted to remain in possession and claimed the repairs could be completed within 60 days. The landlord disagreed and seized the property. The tenant filed an action for damages resulting from its exclusion from the property. (Id. at p. 124.)
After a bench trial, a judgment was entered in favor of the landlord. (Id. at p. 125.)
The California Supreme Court upheld the judgment for the landlord, stating, "the ... clause makes entirely reasonable provision for the various contingencies that might result in case of fire or other injury to the building or premises. There is here no basis for applying the rule of strict interpretation against conditions involving forfeiture. (Civ. Code, sec. 1442.) The clause terminating the lease in certain contingencies does not declare a forfeiture.
It fixes events, having no relation to any act or default of the parties, upon which it is agreed that the lease shall end." (Id. at p. 129; see Caswell v. Gardner (1936) 12 Cal.App.2d 597, 600 5 P.2d 1222 contingent termination provision in lease did not result in a forfeiture; see also 7 Miller & Starr, Cal. Real Estate (3d ed. 2011) Landlord and Tenant, 19:186, pp. 578-579 exercise of an option to terminate lease.)
Similarly, in 11382 Beach Partnership v. Libaw (1999) 70 Cal.App.4th 212 82 Cal. Rptr. 2d 533, a landlord and a tenant entered into a commercial lease that stated either party could cancel the lease if a fire destroyed the premises within two years before the lease expired. (Id. at p. 215.)
After a fire, the tenant exercised a five-year option under the lease. The landlord canceled the lease, returned the tenant's latest rent check and threatened legal action to recover possession of the premises.
The tenant filed a declaratory relief action and the landlord filed a cross-complaint for damages and quiet title. The trial court found for the landlord, holding the cancellation provision prevailed over the tenant's option to extend the lease.
On appeal, the judgment quieting title in the landlord was affirmed. (Id. at p. 220.)
The appellate court relied upon Staub Shoe to conclude the tenant had failed to establish a forfeiture occurred when the lease was cancelled. (11382 Beach Partnership v. Libaw, supra, at pp. 217-218.)