Fourth District, Division Three Reverses A Fee Award Based on Lack of
“Incorporation” Verbiage in Sub-Sublease.
The next case shows that use of the words “subject to”
rather than “incorporation” language may impede an award of attorney’s fees to a
winning party in a sublease dispute context.
In Head and Neck
Associates v. Coastal Vascular Specialists Medical Corp., Case No. G039159
(4th Dist., Div. 3 Oct. 17, 2008) (unpublished), landlord (a sublessee and
sub-sublessor) won a general reference dispute against sub-sublessee, with the
landlord also awarded attorney’s fees of almost $60,000 based on a fee provision
in the sub-sublease.
Sub-sublessee appealed, losing the merits determination but winning a
reversal of the fee award as a matter of law.
Justice
Aronson, writing for a 3-0 panel of the Fourth District, Division 3,
fundamentally found that the sub-sublease did not contain a fee clause providing
entitlement to an award in landlord’s favor. The appellate panel’s reasoning is
important for all drafters of real estate leases.
Landlord defended the award by contending that a fee clause in the
sublease was incorporated into the sub-sublease, which would have sustained the
award if that were really true. (Kleveland v. Chicago Title Ins. Co., 141
Cal.App.4th 761, 765 (2006).) However, the problem was that the sub-sublease
merely indicated that the sub-sublessee was “subject to” all the provisions of
the sublease. After surveying Pedro v. Potter, 197 Cal.751, 754, 758, 762-763
(1926) and Reed v. South Shore Foods, Inc., 229 Cal.2d 705, 712 (1964), the
appellate panel concluded that “subject to” language did not allow sublessees to
take advantage of master lease clauses because the “[b]enefits conferred and
considerations given for such benefits may be entirely different.” (Reed,
supra, 229 Cal.App.2d at p. 712.) Applying the rationale of these cases to the
situation before the 4/3 panel, Justice Aronson stated: “In the present case,
the attorney fee provision represents an agreement only between [sublessor] and
[sublessee], and is based on considerations separate from the exchanges in the
sub-sublease. Thus, the defendants are not subject to the attorney fee
provision.” (Slip Opn., at p. 15.)
Similar support for the appellate panel’s conclusion was also found from
Selma Auto Mall II v. Appellate Dept., 44 Cal.App.4th 1672, 1687 (1996), where a
writ of mandate was issued not requiring a sublessee to bond attorney fees as
part of an adverse unlawful detainer judgment when nothing indicted the
sublessee assumed the master lease obligations.
Finally, landlord argued that the sub-sublease did incorporate by
reference “portions of the Sublease attached [to the Sub-Sublease].” That would
have justified the fee award, but the problem with the contention was that
landlord failed to attach any portions of the sublease to the sub-sublease.
The judgment was modified to eliminate the attorney’s fees award,
reminding lease drafters to choose wisely in using “subject to” rather than
“incorporation” language.