Daily Development for
Friday, August 20, 1997

by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law

STATUTE OF FRAUDS; LEASES: Multi year lease that has "kickout" options that can be exercised within the first year is nevertheless subject to the Statute of Frauds provision applying to leases for a term longer than one year.

Bed, Bath & Beyond of La Jolla v. La Jolla Village Square Venture Partners, 60 Cal. Rptr. 2d 830 (Cal. App. 1997)

The California Statute of Frauds has a provision that states that it applies to contracts that cannot be performed within one year. It has a second provision that applies the Statute to leases "for a term longer than one year."

Plaintiff was a prospective tenant who executed a lease for a shopping center location following extended negotiations. The landlord, however, did not execute the lease, and then rented the space to a competitor of the prospective tenant. In response to the landlord's defense that it was not bound by the lease because the Statute of Frauds applied, plaintiff cited an earlier California case that concluded that the two provisions in the California Statute of Frauds discussed above in fact both express the same idea - leases that necessarily must extend beyond one year are subject to the statute. The plaintiff argued a corollary that leases that possibly may be performed within one year are not subject to the statute. Therefore, tenant argued, an oral lease with "kickouts" within the first year is outside the statute and enforceable.

The appeals court here rejected the reasoning of the earlier appeals court decision and concluded that the provision applying the statute to leases for a term of longer than one year should stand alone and be viewed as the only provision addressing the application of the statute to leases. Consequently, where the term exceeded one year, the "kickouts" don't matter.

The court then indicated that the landlord could not be guilty of tortious interference with contract because there was no contract. The competitor, also a defendant, could not be guilty of tortious interference with prospective economic advantage because of the "competitor's privilege." Competition is not tortious in the U.S. (at least not yet.)

Comment: More than one attorney has been burned by being a bit too lackadaisical about getting final agreements reduced to writing. It is virtually impossible to push too hard on this point. Without the writing, all the negotiations mean nothing.

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