Tenant Waived Right to Damages When It Terminated Lease

A medical clinic tenant spent approximately $165,000 on improvements to space it leased in an office building. Days before the tenant was supposed to move in, a fire seriously damaged the building. The owner started to repair the damage within a few days of the fire. Soon after, the owner notified the tenant that the repairs couldn’t be completed within six months. The tenant notified the owner that it was exercising its right to terminate its lease. The tenant leased new space in another building and then sued the owner for damages, including the difference between the rent it was supposed to pay to the owner and the higher rent it had to pay for the new space, and for the cost of the improvements it never got to use.

A California appeals court dismissed the tenant’s lawsuit, ruling that the tenant had waived its right to seek damages from the owner when it terminated its lease. The court rejected the tenant’s argument that the owner had to repair the building within six months of the fire to avoid a lease violation. The court explained that the lease gave the tenant the right to terminate its lease if the owner couldn’t repair the building within six months of the fire. And the lease said that if the tenant exercised that right, as it did here, the only damages it would be entitled to were the return of its security deposit, which it got back from the owner, the court added [Family Planning Assocs. Medical Group, Inc. v. Inglewood Investments Co.].