Certain Tenant Disclaimers In Leases May Be Of Limited Effect

A recent California Court of Appeal decision held that a landlord could be liable for misrepresenting the square footage of premises and confirmed that the tenant had certain rights to review common area expense information, notwithstanding provisions in the lease stating that the parties agreed to accept the specified square footage as accurate and the lack of any audit provisions in the lease. McClain v. Octagon Plaza, LLC, (2008) 159 Cal.App.4th 784. The trial court had found that the lease prohibited the tenant from pursuing an action against landlord for misrepresentation as to the square footage issue, and held after trial that she was not entitled to an accounting as to expenses. The Court of Appeal reversed such holdings in certain respects, permitting the tenant to proceed with its action in the trial court for misrepresentation on the square footage issue and concluding that she was entitled to accounting information but not an audit. The landlord has filed a petition for review with the California Supreme Court, which has neither been accepted nor denied by the Court as of the end of March, 2008. The case provides guidance to landlords as to the extent to which California courts will enforce certain disclaimer provisions in leases, and as to the manner in which property managers should respond to tenant concerns.

In McClain, a retail tenant with a teaching supply store in a small shopping center in Valencia claimed that her landlord had misrepresented the square footage of her space as specified in the lease, as well as the total square footage of the shopping center on which her share of common expenses was based. The tenant also asserted that she had the right to review the landlord's records of operating expenses even though the lease provided only that she was entitled to receive "a reasonably detailed statement" of such expenses and did not provide any audit right. The lease form utilized was an American Industrial Real Estate Association (AIR) form Standard Industrial/Commercial Multi-Tenant Lease - Net. The Court found that the landlord may have misrepresented the square footage of the premises and the center, and that the tenant was entitled to review the documents used by the landlord in preparing its statement of common expenses. The Court remanded the case back to the trial court for further proceedings consistent with such holdings.

Expense Review and Audit Rights

Under her lease, Kelly McClain was expressly entitled...