Example of Court Annexed Arbitration Opinion: Thirteen
COMMERCIAL LEASE RENT DISPUTE
I was appointed arbitrator of the above captioned
case by the court and I held the hearing on the parties’ claims and defenses.
Landlord abandoned his claim for property taxes. Landlord was allowed
to put on proof that he was damaged in the amount of the expense of an electrical
permit and electrical repairs, in the amount of around $1,200. Landlord
moved to amend to conform to the proof. I grant the motion to amend,
but deny the claim on the merits as discussed below.
The dispute concerns rent for Premises used in a retail
business located at a suburban location. The Premises were rented for
26 months, two months of no rent, 12 months at $1,000 and 12 months at $1,030.
Rent was paid for the month that the fire occurred. The following
four months rent was not paid. The last month’s rent was prepaid.
Tenants seek return of part of the rent for the month
that the fire occurred and the last month’s rent, and Landlord seeks rent
for the four months that rent was not paid.
Landlord bought the property two weeks prior to inception
of the lease. Landlord never did any construction or repairs to the
building material to this dispute, until after the end of the lease term.
Tenants had become interested in the space by visiting
it while occupied by a prior tenant under the previous ownership. It
is not clear exactly how Tenants and Landlord connected (there are several
conflicts in the testimony), but it does not matter. For instance,
there is a conflict about who originated the lease. On this one I think
probably the property manager, but, as a commercial lease on a standard form,
I don’t think the rule of construction against the drafter has any application,
except if you reach the third step of Yogman v. Parrott analysis.
If any traditional rule of construction is applicable, it is that ambiguities,
if any, in leases are to be construed in favor of the tenant, Russell
v. Sealed Power Corp., 278 Or 243, 247 (1977); Swetland Bldg. Co. v.
Children’s Home, 127 Or 188 (1928), but quare whether this rule
survives Yogman v. Parrott, except as part of Yogman analysis.
I discuss the language of the lease further below.
There are few limitations on the terms of commercial
Nothing prohibits a landlord from leasing un-separated
space in a commercial setting. Arguably the leasing of space was partially
illegal in that with hindsight this space apparently had electrical code
violations, in that the Tenants’ Premises and Neighboring Premises were leased
separately and apparently shared a branch circuit (NEC 210.25), and an occupant
did not have access (NEC 240.24). It may be that when the two spaces
were one tenancy there were no violations, and the violations were triggered
by the separate leasing of the spaces. I can’t address the illegality
doctrine sua sponte, or without more facts.
Landlord was unfamiliar with the space. The parties
entered into a lease for the Premises. The Premises was part of larger
improvements which as managed by Landlord contained four tenancies, including
Neighboring Tenant. There was generally separated electricity as evidenced
by the fact that the Tenants paid their own electric bill. There was
no evidence either way directly as to whether Neighboring Tenant space had
a separate meter but I infer that it did, at least Tenants are not complaining
that they had to pay Neighboring Tenant’s electricity.
After the lease was signed, Tenants arranged for an
electrical safety inspection. It is not even clear that at that point in
time, the spaces were actually separated. The inspector signed off
for safety. As a general rule, a building inspection sign off is not
an approval of conditions that have not been called to the attention of the
inspector, nor of conditions other than those existing at the time of the
inspection. I find that the inspection was not because of any work
that the Tenants did.
The lease contemplated tenant improvements, paragraph
19, there is no further writing about what those would be, but it does state
they would be at the expense of the Tenants.
It is disputed whether there were discussions about
the Landlord causing or paying for separation of electrical. If before
the lease was executed such testimony is barred by the parole evidence rule,
even though there is no specific integration clause. If after the lease,
I find that the testimony does not reach the requirement of clear and convincing
evidence as required for oral modifications of written contracts. Mathis
v. Thunderbird Village Inc., 236 Or 425 (1964). The statute of
frauds does not apply, in that there is clearly a memorandum as to the length
of the lease. The statute of frauds does not require every element
of a subject contract be in writing, only those elements invoking the statute.
Clearly the separation of electrical was never done.
I have made no other conclusion on this question, finding it unnecessary.
Tenants did no electrical work. They did put
in a stud and sheetrock partition in two passage ways, which probably did
not require a building permit as a structural matter. It probably
did trigger electrical code violations.
I have read the lease in its entirety.
Paragraph 2d provided that the Lessee would comply
with all laws and regulations respecting use of the Premises. In my
opinion this does not require Tenants to pay for an after the fact correction
of an electrical condition that they were unaware of and did not cause and
did not cure during their occupancy.
Paragraph 3 of the Lease required the Tenants to pay
for their own utilities. There was testimony about misunderstanding as to
this provision but there is no issue in the case about it.
Paragraph 4 of the Lease imperfectly divides the maintenance
responsibility for the Premises and the remainder of the improvements.
I have to allocate the responsibility as set forth in the Lease. The
problem is where the parties use a form lease and the actual situation is
different than the garden variety situation contemplated by the form.
This could create an ambiguity. Paragraph 4 provides:
The lessor shall not be required to make any repairs, alterations, additions
or improvements to or upon the premises during the term of this lease, except
only hereinafter specifically provided for; the lessee hereby agrees to maintain
and keep the premises, including all interior and exterior walls and doors,
heating, ventilating and cooling systems, interior wiring, plumbing and
drain pipes to sewers or septic tank, in good order and repair during the
entire term of this lease, at lessee’s own cost and expenses . . . .
(4b) The lessor hereby agrees to make all necessary structural
repairs to the building . . . .
Electrical is not structural, therefore not within 4b.
On the other hand, problems with branch circuits outside the Premises, or
a service that is outside the Premises, or a stabilizing cord on the roof,
are not within the Premises. Maintenance and repair and responsibility
for the condition of those things was for the account of Landlord, not because
responsibility for them was allocated by the lease, but to the contrary,
they were outside the Premises and no allocation for of responsibility was
made in the lease.
Furthermore, both paragraph 4 and paragraph 14 arguably
apply in the case of damage to the wiring caused by fire. That either
creates an ambiguity or paragraph 14 governs as the more specific as applied
to this case. ORS 42.240.
Tenants conducted their business on the Premises without
event until the day there was a fire at the west end of the improvement.
The fire department responded. As a safety measure, the fire department
cut all service wires to the improvements. The only portion of the
improvements that can be said to have suffered any serious damage was the
Neighboring Tenant’s space. However, there was smoke damage - more accurately
heat and soot - to the Premises, and of course the service wire was cut,
which even though physically outside the Premises did damage the Premises.
It was agreed that the damage did not exceed 50% of the sound value of the
improvements - or the Premises - though the word used in the lease is ‘of
This invokes paragraph 14 of the Lease:
. . . provided however,
that in the event of damage to the improvements by fire or other casualty
to the extent of [50%] per cent or more of the sound value thereof, the lessor
may or may not elect to repair the same; written notice of lessor’s election
shall be given lessee within fifteen days after the occurrence of the damage;
if notice is not so given, lessor conclusively shall be deemed to have elected
not to repair; in the even lessor elects not to repair, then and in that
event this lease shall terminate with the date of the damage [so far
the paragraph does not apply]
but if the improvements in which the Premises are located
be but partially destroyed and the damage so occasioned shall not amount
to the extent indicated above, . . . , then the lessor shall repair the same
with all convenient speed [portion related to tenant vacating to enable repairs
including provision for abatement of rent not quoted]; however, if the premises
be but slightly injured and the damage so occasioned shall not cause any
material interference with the occupation of the premises by lessee, then
there shall be no abatement of rent and the lessor shall repair the damage
with all convenient speed.
This portion of the lease is very poorly drafted. It contemplated
three mutually exclusive alternatives but in the instant case, two of the
The portion of the paragraph in bold applies
because the improvements were partially destroyed but not to 50% of their
sound value and therefore Landlord was required to repair the improvements
in which the Premises are located with all convenient speed. This he
did not do and thus he breached the lease.
The provisions for repair with all convenient speed
by Landlord were for the benefit of Tenants. See, ORS 42.260: “Ambiguous
terms. * * * When different constructions of a provision are otherwise
equally proper, that construction is to be taken which is most favorable
to the party in whose favor the provision was made.”
The portion of the paragraph in italic applies
because the Premises were slightly injured, in which case, had there been
no material interference with the occupation of the Premises, rent would
not have abated and Landlord would have been obligated to repair the damage
[not the improvements] with all convenient speed. As stated above, Landlord
did not repair the “damage” with all convenient speed.
But, the Premises were ‘slightly injured’, and loss
of electricity was damage that did cause a material interference with the
occupation of the Premises. Therefore, the language regarding ‘no abatement
of rent’ is not triggered.
The lease does not address what happens when there
is slight injury to the Premises and there is material interference with
the occupation of the Premises, i.e., does absence of a missing logic branch
created by poor drafting for which neither party is responsible create an
ambiguity? And if there is an ambiguity, do I resolve it by imposing
the arguably missing logic branch? That would violate ORS 42.230.
Or do I fall back on the common law of commercial tenancy which would be that
the tenant pays for occupancy? Or is it simply for the jury?
"In construing the relevant provisions, we apply the test set out in Yogman
v. Parrott, 325 Or 358 (1997). First, we examine the text of the
disputed provisions in the context of the document as a whole. Id.
at 361. If, based on that examination and a review of the circumstances
of the contract's formation, the meaning of the provisions is clear, we construe
the terms as a matter of law. Id. If the text, context,
and circumstances of the contract's formation show that the agreement is
ambiguous, a trier of fact, in attempting to resolve that ambiguity, is to
consider "extrinsic evidence of the contracting parties' intent." Id.
at 363. If those inquiries fail to establish the parties' intent,
the ambiguity is resolved by resort to other relevant maxims of construction.
Id. at 364.
"Whether a contract is ambiguous is a question of law.
Id. at 361. A contract is ambiguous if it is susceptible to
more than one reasonable interpretation. Batzer Construction, Inc.
v. Boyer, 204 Or App 309, 313, rev. den., 341 Or 366 (2006).
If a contract's provisions are mutually inconsistent regarding a subject,
the contract is ambiguous as to that subject, Alpine Mountain Homes
v. Bear Creek Homes, 202 Or App 390, 398 (2005); Portland Fire Fighters'
Assn. v. City of Portland, 181 Or App 85, 91, rev. den., 334 Or
491 (2002), unless the provisions can be reconciled in reading the contract
as whole. See Yogman, 325 Or at 361.
Madson v. Or. Conf. of Seventh-Day Advent., 209 Or App 380, ___
Landlord’s lawyer argues that rent and repair covenants
are independent in a commercial lease. Whether the covenant to pay
rent is independent is beside the point. It may be significant that
a covenant to pay rent is independent in an action for possession or an action
to enforce rights under a lease such as the right to renew or to exercise
an option. But this case is simply counter actions for money, with defenses
and in this context, to repeat, whether the covenant is independent is irrelevant.
Anyway, my conclusion is that the contract is ambiguous
as to whether rent was abated until repairs were made. If I put myself
in the shoes of a local jury then I find in favor of the Tenants, that the
rent was abated.
I considered all of the evidence set forth below, including
that the Tenants retained possession. Absent paragraph 14, the fact
that they retained possession would require payment of rent. But, paragraph
14 as I interpret it abates rent.
Several weeks after the fire, Tenants sent a letter
to Landlord stating that their interpretation of paragraph 14 was that rent
was abated until the electricity was restored. Landlord did not respond
in writing. Tenants did not pay rent the next month. From Tenant’s
notes it appears that there was a conversation where Landlord told Tenants
to call the county, and on that month, Tenants wrote to Landlord about that.
It does not seem that there was a discussion about who was responsible for
the repairs. Tenants did not pay rent the next month either.
It appears that in the month after the fire occurred,
there was discussion about whether Tenants would renew their lease because
at the end of that month they gave notice that they would not.
Tenants did not pay rent for a third month. Landlord
gave a notice of delinquent rent on the seventh day of that month.
Whether or not it was received, it indicates that Landlord was taking the
position that rent was not abated. There is no proof that the notice
was received; to the contrary the only proof submitted was that it was returned
by the post office.
About three months after the fire, Tenants submitted
an electrical permit application to the county for a reconnect, but not
for additional electrical work. This resulted in an inspection which
resulted in a correction notice, which was sent to the Tenants and to Landlord.
Three weeks before the lease expired, a formal notice of building code violations
was sent by the county to Landlord.
Later that month, there was further communication from
the Tenants which does not address rent. Tenants did not pay rent for
a fourth month.
After the lease expired, Landlord sent another invoice
Five days after the lease expired, the keys were returned.
The next month Tenants’ lawyer sent her demand letter.
The next or following month, Tenants’ complaint was
The next month, Landlord’s answer was filed.
One week later, an electrical permit was pulled on
behalf of Landlord.
There is a dispute in the testimony about whether Tenant
was using the Premises after the fire. On this one I would tilt towards
the Tenants, but I don’t have to decide, because it is undisputed that the
Tenants left their property in the Premise from the fire until the lease
expired. What is important is not whether they were there, or not, because
as stated above I have concluded that the lease abates rent under these circumstances.
Technically, Tenants’ theory of the case is that Landlord
terminated the lease effective when the fire occurred. Technically,
Landlord breached the lease, but he did not terminate it. My analysis
is that the lease continued, but that rent was abated.
My conclusion is that Tenants should recover rent that
was paid for the period from the fire to the expiration of the lease term,
which is 80% of the rent paid for the month when the fire occurred, plus
the rent prepaid for the last month of the term. Tenants seek a slightly
smaller amount so that will be my award. Tenants did not request
pre-judgment interest so it is not awarded.
I deny all claims and affirmative defenses not specifically
addressed in this opinion.
Plaintiffs requested attorney fees and the contract
so provides. Tenants’ lawyer to submit a cost bill and fee petition;
Landlord’s lawyer shall respond.