Landlord Wanted To Reset Rent From $9,488 Per Month To $26,000 Per Month . . .
Commercial leases commonly provide a mechanism for resetting the rent. Ten days after Selective purchased property for $3,425,00, subject to Goodrich's long-term commercial ground lease, Selective sought to increase the rent by $16,512 per month, based on its evaluation that the land value of the lease premises was actually $5.2 million. The matter proceeded to arbitration, pursuant to a lease stating that the rent determination shall not take into consideration the improvements on the subject property. The arbitrator determined that the fair market value of the property was the same as the purchase price, and set the new rent at 6% of the purchase price, or $17,125 per month. Selective, the landlord, appealed. Selective 901 Truman, LLC v. Goodrich & Hops Properties West, B285836 (2/3 1/22/19) (Edmon, Lavin, Dhanidina) (not published).
The landlord's chief argument was that the superior court should never have confirmed the arbitrator's award, because the arbitrator took the ground lease into consideration, and the lease explicitly provided that the rent determination shall not take into consideration the value of improvements. The arbitrator, the superior court, and the Court of Appeal, however, disagreed with the landlord, with the Court of Appeal noting that the arbitrator pointed out that the lease was silent about encumbrances, as opposed to improvements, and that the ground lease was an encumbrance affecting the value of the property.
The Court of Appeal rejected various grounds for vacatur -- that the arbitrator exceeded his authority, failed to hear material evidence, denied the landlord a fair and impartial hearing to its substantial prejudice, and made an award yielding absurd results. The Court also noted as an aside that the "absurd results" argument "does not come within the framework of section 1286.2 and thus is not a basis for vacating the award." Affirmed.
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