Wins

GMSR’s client, VMA Palomar, LLC (VMA), is the commercial tenant under a 42-year ground lease with landlord Farmers and Merchants Trust Company of Long Beach (FMT).  The monthly rent was based on the property’s fair market value in the 1970s, when the lease began.

The lease gives VMA the unconditional right to extend the lease for another 42 years.  It also mandates a process for adjusting the rent for the extended term so that it reflects the property’s current value, setting a deadline by which “either party desiring to establish the fair market value of the leased premises shall” commence the process.  VMA exercised its right to extend the lease.  Neither party commenced the process for adjusting the rent by the mandatory deadline.  FMT attempted to do so nearly a year later, claiming that the property’s fair market value was now $10 million.  Adopting this fair market value would have raised the rent by nearly $64,000 per month during the extended term—a difference of over $30 million over the life of the extended term.  When FMT claimed that VMA had breached the lease by refusing to participate in the valuation process, VMA sued for declaratory relief and breach of contract.  FMT filed a cross-complaint alleging, among other things, that VMA Palomar’s failure to initiate the appraisal process invalidated its exercise of the option to extend the lease.

VMA prevailed at trial before a judicial referee.  Rejecting each of FMT’s 11 arguments challenging the judgment, the Court of Appeal agreed with GMSR that the lease’s plain language set a condition precedent to the valuation process that FMT failed to satisfy.  Accordingly, there will be no rent adjustment.

Click here to read the Court of Appeal opinion: VMA Palomar, LLC v. Farmers & Merchants Trust Company of Long Beach (July 21, 2025, B340167) 2025 WL 2028217 [Second District, Division Five], review denied November 19, 2025.