Grosvenor Gibraltar Associates v. McMillan Bros. Electric CA1/1

Filed 11/15/23 Grosvenor Gibraltar Associates v. McMillan Bros. Electric CA1/1 NOT TO BE PUBLISHED IN OFFICIAL REPORTS California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publi- cation or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or or- dered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FIRST APPELLATE DISTRICT

DIVISION ONE

GROSVENOR GIBRALTAR A166226 ASSOCIATES, Plaintiff and Appellant, (San Francisco City & County v. Super. Ct. No. MCMILLAN BROS. ELECTRIC, CGC21594639) INC., Defendant and Respondent.

This is an appeal from a judgment in a commercial lease dispute involving the setting of fair market rent for an additional lease term. Under the lease, the lessee McMillan Electric, Inc. was entitled to exercise a renewal option by giving written notice to the lessor Grosvenor Gibraltar Associates. McMillan seemingly gave such notice, triggering a multi-step process set forth in the option provisions of the lease to determine the fair market rent for the new term. After the parties proceeded through several of these steps, McMillan took the position its prior written notice was not, in fact, an actual exercise of the option but merely notice of an intent to exercise it at some point in the future and therefore it was not contractually obligated to comply with the option provisions of the lease. At this point, Grosvenor refused to take the next step in the rent determination process unless and until

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McMillan confirmed it was, in fact, exercising the renewal option. Eventually, the parties reached a negotiated resolution that entailed McMillan confirming in writing it was exercising the option and Grosvenor approving a change of use of part of the premises and a sublease of the entire premises. This agreement did not, however, resolve the rent for the new term, and Grosvenor sued for declaratory relief. The matter was tried by the court solely on the basis of documents, namely the lease and correspondence at the time between the parties. Ultimately, the issue boiled down to whether, after McMillan announced it had not exercised the option and was not contractually bound by the option provisions of the lease, Grosvenor was nevertheless required to take the next step in the fair market rent determination process (disclosing its consultant’s opinion as to fair market rent). The trial court ruled, as a matter of law, that Grosvenor had waived McMillan’s compliance with the first step of the option process (written notice by McMillan that it was, in fact, exercising the renewal option). This ruling resulted, in turn, in the court ruling McMillan’s consultant’s fair market rent opinion, alone, set the rent. We reverse and remand for further proceedings consistent with this opinion. BACKGROUND The Pertinent Option Provisions of the Lease The pertinent option provisions of the lease are as follows: “2.6 Renewal Option [¶] . . . [¶] “(b) Tenant shall have the right and option . . . to extend the Original Term . . . , the first Renewal Term commencing on the first day of March, 2022. . . . Each Renewal Term shall be at the Base Rent provided in Section 3.1.3(b) hereof . . . and otherwise on all the same terms covenants and conditions contained in this Lease. Tenant may exercise each Renewal Option (i) no earlier than the first day of the