Tips for In-House Counsel
October 6, 2009
Parking Code Violations By A Landlord: A Tenant’s Opportunity to Re-Negotiate
By Michael J. Zerman of Zuber Lawler & Del Duca and Kevin I. Shenkman
In today’s difficult economic climate, some commercial tenants are paying closer attention to parking code violations that landlords and tenants may have overlooked for years. Such violations may be difficult for landlords to correct, but may support tenant claims for contractual damages, injunctive relief, lease termination and disgorgement of past profits.
In most major cities, commercial landlords are required to provide a minimum number of parking spaces, of a minimum size, for use by tenants and their customers. By requiring commercial landlords to maintain sufficient parking, cities ensure that public streets are not unduly burdened by the customers of any one commercial establishment. The number of required parking spaces may depend on several factors, including: (a) the size of the building; (b) the particular use(s) of the building by tenants; (c) the particular location of the building within the city; (d) when the building was initially constructed; and (e) if any remodeling or build-outs have been done since the initial construction.
For example, a (non-office) commercial building built today in Los Angeles, California must have one parking space per 250 square feet of floor area (or one parking space per 100 square feet of floor area for a health club). L.A.M.C. § 12.21(A)(4)(c)(1). The required parking may be even greater for a building in specific plan areas, such as the “Ventura-Cahuenga Blvd. Corridor,” which stretches from Hollywood through the San Fernando Valley, where one parking space is required for every 100 square feet of floor area devoted to restaurants and other establishments that serve food.
Because of the labyrinth of applicable regulations, landlords, tenants and even public employees responsible for enforcing these regulations are often unaware of the effect of the applicable regulations. Additionally, landlords may unknowingly violate these regulations over time, by, for example, (i) changing the use of some space from office to retail or from retail to restaurant, or (ii) entering into easements, leases and other arrangements with neighboring property owners or utility companies for the use of certain parking spaces that may be required by code, even if used infrequently.
If a lease provides that the landlord is required to comply with applicable law, then parking code violations may constitute a breach of contract for which a tenant may be entitled to contractual damages. Further, if the violation is serious enough, the tenant may contend that the violation constitutes a constructive eviction, allowing the tenant to terminate the lease and seek contractual damages. See Sierad v. Lilly, 204 Cal. App. 2d 770, 775 (1962) (landlord breached covenant of quiet enjoyment by denying retail tenant use of adjoining parking spaces which were essential to tenants use and enjoyment of the property.)
In some instances, use of a state’s unfair competition law, such as California Business and Professions Code § 17200, may be another effective litigation strategy. Section 17200 empowers any aggrieved party to file a civil lawsuit against any person or business that engages in any “unlawful, unfair, or deceptive business practice.” 1 A violation of any law or regulation, even parking regulations, can form the basis for a claim under Section 17200. See Korea Supply Co. v. Lockheed Martin Corp., 29 Cal. 4th 1134 (2003).
If successful in a claim under Section 17200, a tenant would be entitled to an injunction prohibiting the landlord’s continued violation of the law, disgorgement of the landlord’s gains resulting from the violation, and potentially attorneys’ fees incurred in pursuing the claim. For even a seemingly minor violation of the law, such as providing an insufficient number of parking spaces, this could represent an economically crippling blow to a landlord. It may be prohibitively expensive to comply with an injunction: the landlord would be required to lease or build new parking spaces, or cause a portion of the building to be vacated. Further, ordinary contract damages may pale in comparison to the disgorgement called for under Section 17200: the landlord may be required to return a percentage of all rent collected over a period of years corresponding to the floor area that the landlord could not have leased had it complied with the parking regulations.
For a tenant, such a lawsuit may be an opportunity to recover significant damages from a landlord or to gain leverage to negotiate better lease terms. 2 Where parking code violations exist, this may be one of the most effective strategies available to tenants today, especially if personal guaranties make bankruptcy impractical. Therefore, tenants have an incentive to investigate code violations that may have gone unnoticed in better times. For their part, landlords should take extra care to remedy any known violations and to avoid changing the use of tenant space or entering into parking agreements with third parties without first considering the impact on parking code requirements.
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1 Even with the passage of Proposition 64, which provides that only a competitor or party that suffers injury as a result of an unlawful, unfair, or deceptive business practice has standing to bring a claim under Section 17200, tenants will generally have standing to contest a landlord’s unlawful conduct because they are at least indirectly harmed by such conduct.
2 Of course, in employing this strategy, lawyers must be cautious not to threaten criminal or administrative action, such as reporting a violation to a public authority, to gain an advantage in negotiations or litigation. See, e.g., California Rule of Professional Conduct 5-100.