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March 14, 2013

Case Report

Successful settlement for commercial landord in lease dispute

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Sugarman Rogers has obtained a successful settlement for a commercial landlord in a dispute over the interpretation and effect of a condition precedent to a right to terminate a commercial lease entered into the landlord, the 275 Washington Street Trust with Banco do Brasil (the bank).

The dispute arose from an effort by the bank to expand its operations in the U.S. To do so, the bank sought to obtain regulatory approval from federal banking authorities to operate a federal savings bank, including the branch to be operated at the leased premises. The parties entered a lease which contained a provision entitling either party to terminate the lease if the bank did not obtain regulatory approval within one year. In 2008, after attempting to obtain regulatory approval for several months, the bank abandoned its efforts and ultimately withdrew its application several months before the deadline was to expire, claiming that the financial crisis made it impossible to obtain a new bank charter.

After the landlord declined to accept the banks notice of termination of the lease, a lawsuit soon followed. The landlord asserted that the bank’s notice of termination was invalid because the failure resulted from the banks own decision to abandon its efforts to seek the necessary regulatory approvals. The landlord argued that where a condition precedent depends upon obtaining the approval of a third party, the party charged with seeking the approval must make a good faith effort to do so by diligently pursuing the application and, if it fails to do so, should be estopped from relying upon the failure of the condition precedent.

After successfully defeating the bank’s motion for summary judgment, the case proceeded to trial. At trial, the landlord intended to present evidence, including expert testimony, that if the bank had not withdrawn its applications, regulatory approval could still have been obtained before the one-year deadline contained in the lease and that the bank was liable to make all lease payments and other obligations (including the payment of attorneys fees) due under the entire term of the lease. The case settled on the first day of trial shortly before the evidence was to commence.