C&P Secures Appellate Reversal from D.C. Court of Appeals in Commercial Lease Case
Clinton & Peed has secured the latest in a series of victories against commercial landlord JRC Standard Properties, LLC on behalf of its long-time client U Street Music Hall, LLC (“U Hall”).
The dispute began in July 2019, when JRC sued U Hall for refusing to pay approximately $175,000 in so-called “property management fees” to JRC itself under a lease provision requiring U Hall to reimburse JRC for certain expenses either “paid or incurred” by JRC. The Landlord & Tenant Court quickly granted summary judgment for U Hall, holding that the lease provision only applied to cases in which JRC “paid or incurred” an actual financial outlay; it did not permit JRC to simply charge increased rent due to itself. JRC has threatened to appeal that decision, but is awaiting authorization from the trial court.
In the meantime, after its effort to convince the trial court to reconsider the property management fee failed, JRC then accused U Hall of overstaying the lease. The commercial lease’s original term expired in August 2019, but U Hall had exercised the lease’s five-year option provision by providing timely notice. JRC argued that the option provision was legally unenforceable because it did not state the option-term rent price with sufficient specificity. It provided that the option-term base rent throughout the entire five-year period would be “based on a Fair Market Value rental rate applicable at the expiration of the initial Term,” and that the base rent “shall escalate on an annual basis at a rate agreed to by both” parties. The trial court initially agreed with JRC, holding that the option clause was unenforceable and that U Hall was a holdover tenant.
On appeal, the D.C. Court of Appeals agreed with U Hall that the base rent had been established with sufficient specificity in accordance with longstanding precedent George Y. Worthington & Son Mgmt. Corp. v. Levy, 204 A.2d 334, 335 (D.C. 1964). The real sticking point was the significance of the escalation clause, which stated that the rent (for years 2 through 5) “shall escalate on an annual basis at a rate agreed to” by the parties. Clinton & Peed (on behalf of U Hall) argued that the escalation could safely be ignored for two alternative reasons (e.g., escalation is not a material term, as there is no inherent problem with a five-year term with the same fair-market rental price for all five years), but also posed that striking the option clause for failure to agree to rent would undermine the parties’ manifest intent to grant an option.
In its ruling for U Hall, the Court adopted the most tenant-favorable argument, announcing new law that should help future commercial tenants facing similar problems. Specifically, the “court[] adopt[ed] a more liberal view, as U Hall ask[ed] [it] to do, invoking equitable principles to enforce options whose prices are to be fixed at a later date.” Under this view, “when a lease contains an option provision that leaves the rental price for the option year(s) to be agreed upon at a later date, a court can infer that the parties would have agreed on a reasonable rental price for each option term.”
The opinion citation is U St. Music Hall, LLC v. JRC Standard Props., LLC, 285 A.3d 1250 (D.C. 2022). The court denied JRC’s petition for rehearing and rehearing en banc on February 15, 2023.
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The appeal was briefed by managing partner Tim Clinton, who frequently represents commercial parties in disputes over their contracts, including commercial leases.