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                                  Exhibit 10.34

                                 LEASE AGREEMENT

      This Lease is made as of this 14th day of May, 1999, between MORELAND
PROPERTIES, LLC ("Landlord") and LITHIA REAL ESTATE, INC. ("Tenant")

      For and in consideration of the mutual covenants contained herein,
      Landlord and Tenant agree as follows:

      1. LEASE DATA; DEFINITIONS. Whenever used in this Lease, the following
terms shall have the meanings indicated below.

            1.1 Applicable Laws. Any law, ordinance, code, order, rule or
regulation of any Governmental Authority.

            1.2 Commencement Date. May 14, 1999

            1.3 Expiration Date. May 31, 2009, subject to extension in
accordance with Section 4 hereof.

            1.4 Governmental Authority. The United States, the State of
Colorado, and any political subdivision thereof or any local public or
quasi-public authority, agency, department, commission, board, bureau or
instrumentality of any of them including, with respect to matters pertaining to
insurance, rating bureaus or insurance carriers to the extent they have power to
impose conditions on the issuance of policies or the coverage thereof.

            1.5 Notice Addresses.

                Landlord:   Moreland Properties, LLC
                            2727 S. Havana
                            Aurora, Colorado 80014

                Tenant:     Lithia Real Estate, Inc.
                            360 E. Jackson St.
                            Medford, Oregon 97501

            Landlord or Tenant may change its Notice Address in the manner set
            forth in Section 20.5.

            1.6 Premises. That certain real property located in Arapahoe County,
Colorado, legally described in Exhibit A hereto, together with all improvements
and fixtures thereon.

            1.7 Rent. The Rent payable hereunder as set forth in Section 3 and 4
hereof.

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            1.8 Term. A ten (10) year period commencing on the Commencement Date
and expiring on the Expiration Date, subject to Tenant's right to extend the
Term for eight (8) additional five (5) year renewal terms in accordance with
Section 4 hereof.

      2. LEASE OF PREMISES. Landlord hereby leases to Tenant, and Tenant hereby
leases from Landlord, the Premises during the Term hereof, upon the terms and
conditions contained herein.

      3. RENT.

            3.1 Initial Rent. Tenant shall pay Rent for the Premises in equal
monthly installments initially of Thirty-Two Thousand, Five Hundred Dollars
($32,500) per month, in advance on the first (1st) day of each calendar month
included in the Term, as the same may be extended. All Rent shall be paid in
lawful money of the United States at the address of Landlord set forth in this
Lease or at such other place as Landlord in writing may designate, without
notice, offset, demand, or deduction (except as otherwise set forth herein). For
any portion of a calendar month included at the beginning or end of the Term,
Tenant shall pay the prorata portion of the Rent installment for each day of
such portion, payable in advance at the beginning of such portion. All monies to
be paid under this Lease by Tenant to Landlord will be Additional Rent, and will
be due and payable without offset, demand, or deduction, and Landlord will have
the same remedies for Tenant's failure to pay the Additional Rent as for the
nonpayment of Rent.

            3.2 Rent Adjustment. Commencing on the fifth anniversary of the
Commencement Date and thereafter annually on each subsequent anniversary of the
Commencement Date during the original ten (10) year Term of this Lease, monthly
Rent payable hereunder shall be increased from that payable in the immediately
preceding lease year by the lesser of (i) two percent (2%), or (ii) the same
percentage as the increase, if any, in the Consumer Price Index "U.S. City
Average, All Items, All Urban Consumers, 1982-1984" published by the United
States Department of Labor, Bureau of Labor Statistics (the "CPI"), during the
immediately preceding lease year, determined by comparing the CPI most recently
published on the first day of the immediately preceding lease year and that most
recently published at the end of said preceding lease year. In no event shall
Rent increase by more than two percent (2%) during any single year. In the event
the CPI shall hereafter be converted to a different standard reference base or
otherwise revised, the determination of the percentage increase shall be made
with the use of such conversion factor, formula, or table for converting such
index as may be published by the Bureau of Labor Statistics. If publication of
the index is discontinued, the parties hereto shall select another index which
best measures inflation in the Denver, Colorado area for purposes of making
these calculations.

      3.3 Interest. In the event any Rent or Additional Rent is not paid within
ten (10) days of when due, the amount so unpaid shall bear interest at the rate
of one percent (1%) per month until paid.

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      4. OPTIONS TO RENEW.

            4.1 Extension of Term. Tenant shall have the options to renew this
Lease and to extend the Term hereof for eight (8) additional, consecutive five
(5) year terms. Tenant may exercise the renewal options by giving written notice
to Landlord not less than one hundred eighty (180) days prior to the expiration
of the then-current term. The first renewal term shall commence on the date
following the expiration of the original term, and subsequent renewal terms
shall commence on the day following the expiration of the previous renewal term.
All terms and conditions of this Lease shall remain the same during the renewal
term(s), except that Rent to be paid hereunder shall be as provided for in
Section 4.2 hereof. The parties acknowledge that time is strictly of the essence
in this Lease, such that if Tenant does not timely give notice of such renewal,
Tenant's rights to renew as set forth in this section will immediately terminate
and be of no further force or effect.

            4.2 Renewal Term Rent.

                  (a) First Renewal Term. On the first day of the first renewal
term (if any), monthly Rent payable hereunder shall be increased from that
payable for the first five (5) years of the original lease term in accordance
with Section 3.1 by the lesser of (i) twenty-five percent (25%), or (ii) the
same percentage as the increase, if any, in the CPI during the last five (5)
years of the original lease term, determined by comparing the CPI most recently
published as of the fifth anniversary of the Commencement Date, and that most
recently published at the end of the original lease term. In no event shall Rent
increase by more than five percent (5%) during any single year within the
applicable term or twenty-five percent (25%) during the entire said term.

                  (b) Subsequent Renewal Terms. On the first day of subsequent
renewal terms (if any), monthly Rent payable hereunder shall be increased from
that payable in the immediately preceding renewal term by the lesser of (i)
twenty-five percent (25%), or (ii) the same percentage as the increase, if any,
in the CPI during the immediately preceding renewal term, determined by
comparing the CPI most recently published at the commencement date of the
immediately preceding renewal term and that published at the end of said
preceding renewal term. In no event shall Rent increase by more than five
percent (5%) during any single year within the applicable renewal term or
twenty-five percent (25%) during the entire said renewal term.

      5. USE.

            5.1 Permitted Use. Tenant may use the Premises for the operation of
automobile dealerships, servicing facilities, and related uses, and for no other
purpose without Landlord's prior written consent, which consent may be withheld
in Landlord's sole and absolute discretion.

            5.2 Operations. Tenant shall comply with all Applicable Laws
affecting the use of the Premises. Tenant shall not commit or allow to be
committed any waste upon the Premises, or any public or private nuisance or
other act or thing which disturbs the quiet enjoyment of any

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other tenants. Tenant shall, within five (5) days after receipt of Landlord's
written request, provide Landlord with copies of all documents and information,
including but not limited to permits, registrations, manifests, applications,
reports and certificates, evidencing Tenant's compliance with any Applicable
Laws specified by Landlord, and shall immediately upon receipt, notify Landlord
in writing (with copies of any documents involved) of any threatened or actual
claim, notice, citation, warning, complaint or report pertaining to or involving
failure by Tenant or the Premises to comply with any Applicable Laws.

            5.3 Landlord's Inspection. Landlord, prospective purchasers,
prospective lenders, and the holders of any mortgages, deeds of trust, option
agreements, or ground leases, or another prior right on the Premises, and their
agents, employees, contractors and designated representatives, shall have the
right to enter the Premises at any time in the case of an emergency, and
otherwise at reasonable times following reasonable notice to Tenant, for any
reasonable purpose of Landlord or such parties, including, without limitation,
to examine the Premises, to exhibit the Premises to others, or for the purpose
of performing any obligation of Landlord under this Lease or exercising any
right or remedy reserved to Landlord in this Lease. Landlord shall exercise its
rights under this section at such times and in such a manner as to minimize
interference with Tenant and its operations on the Premises. If Tenant shall not
be personally present to open and permit an entry into the Premises at any time
when such entry by Landlord is necessary or permitted hereunder, Landlord may
enter by means of a master key without liability to Tenant and without affecting
this Lease. Such entry shall not be construed as a manifestation by Landlord of
an intent to terminate this Lease. Tenant shall not, without the prior consent
of Landlord, change the locks or install additional locks on any entry door or
doors to the building.

      6. HAZARDOUS SUBSTANCES.

            6.1 Tenant's Compliance. Tenant shall not, other than in full
compliance with all Applicable Laws and as is necessary for the conduct of
Tenant's business in the ordinary course, engage in any activity in or about the
Premises involving (i) the installation or use of any above or below ground
storage tank, or (ii) the generation, possession, use, storage, transportation
or disposal of Hazardous Substances. Tenant shall, at Tenant's sole cost and
expense, fully, diligently and in a timely manner, comply with all "Applicable
Requirements," which term is used in this Lease to mean all laws, rules,
regulations, ordinances, directives, covenants, easements and restrictions of
record, permits, the requirements of any applicable fire insurance underwriter
or rating bureau, and the recommendations of Landlord's engineers and/or
consultants, relating in any manner to the Premises (including but not limited
to matters pertaining to (i) industrial hygiene, (ii) environmental conditions
on, in, under or about the Premises, including soil and groundwater conditions,
and (iii) the use, generation, manufacture, production, installation,
maintenance, removal, transportation, storage, spill, or release of any
Hazardous Substances), now in effect or which may hereafter come into effect.
Tenant shall, within five (5) days after receipt of Landlord's written request,
provide Landlord with copies of all documents and information, including but not
limited to permits, registrations, manifests, applications, reports and
certificates, evidencing Tenant's compliance with any Applicable Requirements
specified by Landlord, and shall immediately upon receipt, notify Landlord in
writing (with copies of any

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documents involved) of any threatened or actual claim, notice, citation,
warning, complaint or report pertaining to or involving failure by Tenant or the
Premises to comply with any Applicable Requirements.

            6.2 Indemnification. Tenant hereby agrees, at its sole cost and
expense, to be directly responsible for and to indemnify, protect, defend and
hold Landlord, its directors, officers, employees, and agents, option, harmless
from and against any and all losses, damages (whether direct or consequential),
liabilities, judgments, costs, claims, liens, expenses, fines, injunctions,
suits, proceedings, disbursements, penalties, loss of permits, attorneys',
experts' and consultants' fees and disbursements, and court costs arising out of
or involving any Hazardous Substance brought onto the Premises by or for Tenant,
its agents, contractors, subcontractors, independent contractors, employees,
invitees, licensees, or by anyone under Tenant's control, in violation of this
section or as a result of a breach of Tenant's covenant set forth in Section 6.1
above. Tenant's obligations under this Section 6.2 shall include, but not be
limited to, the effects of any contamination or injury to person, property or
the environment created or suffered by Tenant, and the cost of investigation
(including consultants' and attorneys' fees and testing), removal, remediation,
restoration and/or abatement thereof, or of any contamination therein involved,
and shall survive the expiration or earlier termination of this Lease. No
termination, cancellation or release agreement entered into by Landlord and
Tenant shall release Tenant from its obligations under this Lease with respect
to Hazardous Substances, unless specifically so agreed by Landlord in writing at
the time of such agreement.

            6.3 Landlord's Representations. Except as set forth on Schedule 6.3
attached hereto, Landlord hereby represents, warrants, and covenants to Tenant
that, as of the date of mutual execution of this Lease, to the actual, present
knowledge of Landlord, without investigation: (i) except in full compliance with
all Applicable Laws, no Hazardous Substances (a) have been used, treated,
stored, disposed of, released, spilled, generated, manufactured, or otherwise
handled on the Premises, or transported to or from the Premises, (b) have been
spilled, released, intruded, leached, or disposed of from the Premises onto
adjacent property, or (c) have otherwise come to be located on or beneath the
Premises; (ii) the Premises and all operations conducted thereon have been in
full compliance with all applicable Environmental Laws; (iii) no liens have been
placed on the Premises under any Environmental Laws, and Landlord has no actual,
present knowledge, without investigation, of any threatened or pending liens;
and (iv) Landlord has received no written notice and has no actual, present
knowledge, without investigation, of any administrative or judicial
investigations, proceedings, or actions with respect to violations, alleged or
proven, of any Environmental Laws by Landlord or otherwise involving the
Premises or the operations conducted thereon. Landlord hereby agrees, at its
sole cost and expense, to indemnify, protect, defend, and hold Tenant, its
directors, officers, employees, and agents, harmless from and against any and
all losses, damages (whether direct or consequential), liabilities, judgments,
costs, claims, liens, expenses, fines, injunctions, suits, proceedings,
disbursements, penalties, loss of permits, attorneys', experts' and consultants'
fees and disbursements, and court costs arising as a result of a breach by
Landlord of any representations and warranties contained in this Section 6.3.

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            6.4 Definitions. For purposes of this Lease, the terms
"Environmental Laws" and "Hazardous Substances" shall have the following
meanings: (i) Environmental Laws - All federal, state, and local statutes,
regulations, ordinances, directives, and rules pertaining to the protection of
human health or the environment that are applicable to the Premises, including,
without limitation, the Comprehensive Environmental Response, Compensation and
Recovery Act of 1980, as amended, the Resource Conservation and Recovery Act of
1976, the Superfund Amendments and Reauthorization Act of 1986, as amended, and
the Hazardous Materials Transportation Act, together with all regulations
pertaining thereto; (ii) Hazardous Substances - All dangerous, toxic, or
hazardous pollutants, contaminants, chemicals, waste, materials, or substances
as defined in or governed by the provisions of any Environmental Laws,
including, without limitation, polychlorinated biphenyls, dioxin, nuclear fuel
or waste, and petroleum and its fractions, or any other waste, substance,
pollutant, or contaminant which would subject the owner or operator of the
Premises to any damages, penalties, or liabilities under any applicable
Environmental Laws.

      7. MAINTENANCE AND REPAIR.

            7.1 Tenant's Obligation. Tenant agrees, throughout the Term of this
Lease, including any extensions or renewals hereof, to maintain and repair the
Premises in good order and condition, to keep the Premises clean and to remove
all refuse, trash and debris therefrom, and to surrender the Premises in the
same order and repair as at the commencement of the Term of this Lease,
reasonable wear and tear and damage by condemnation excepted, upon the
expiration or sooner termination of the Term of this Lease, and to comply with
all Applicable Laws and notices issued by any Governmental Authority having
jurisdiction of the Premises, as well as with the reasonable recommendations
with respect to Tenant's use and occupancy of the Premises made by insurance
carriers insuring the Premises. Without limiting the generality of the
foregoing, Tenant, at Tenant's sole cost and expense, shall provide (i)
maintenance, repair, and replacement of the electrical, heating, plumbing,
elevators, sprinkler and air conditioning systems in the Premises; (ii) repair,
maintain, and replace all exterior and interior doors, windows, partitions,
lighting, glass, floor surfaces, entry ways, roof, and parking areas; and (iii)
generally keep and maintain the Premises, both interior and exterior, structural
or nonstructural, in good repair and condition.

            7.2 Compliance with Laws. Tenant shall comply with and make all
repairs, alterations, additions or replacements to the Premises, including
appurtenances, equipment, facilities and fixtures therein, to fully comply with
any Applicable Law, and shall keep the Premises equipped with all safety
appliances so required because of such use or occupancy, and otherwise to comply
with the orders and regulations of any Governmental Authority.

            7.3 Condition of Premises. Landlord hereby represents, warrants, and
covenants to Tenant that, as of the date hereof, to the actual, present
knowledge of Landlord, without investigation, the structural portions of the
improvements on the Premises, including, without limitation, the roof,
downspouts, gutters, foundation, and structural supports, are in good condition
and repair.

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      8. ALTERATIONS. Except as otherwise set forth herein, Tenant may make
non-structural, cosmetic alterations to the Premises that do not affect any
building systems without the prior consent of Landlord. All other alterations,
subdivisions, installations, decorations, sign installations, improvements,
additions or other physical changes in or about the Premises, including those
which are necessary to satisfy any Applicable Laws, may only be done with
Landlord's prior written consent, which consent shall not unreasonably be
withheld or delayed, subject to Section 20.18. Landlord may condition its
consent to an alteration upon Tenant's removal of the alteration at the
expiration or earlier termination of this Lease. In the event Tenant makes an
alteration without first obtaining Landlord's consent as required by this
section, without limiting any other remedies available to Landlord, Landlord may
notify Tenant and require removal of the alteration at the end of the term of
this Lease. Any such alterations by Tenant during the term of this Lease shall
be done in a good and workmanlike manner, with good and sufficient materials,
and be in compliance with all Applicable Laws. Upon removal of an alteration,
Landlord shall repair any damage caused by such removal.

      9. INSURANCE.

            9.1 Liability Insurance. Tenant shall obtain and keep in force
during the term of this Lease a commercial general liability policy of insurance
protecting Tenant and Landlord, as an additional insured, against claims for
bodily injury, personal injury, and property damage based upon, involving, or
arising out of the ownership, use, occupancy, maintenance, or repair of the
Premises and all areas appurtenant thereto. Such insurance shall be on an
occurrence basis providing single limit coverage in an amount not less than
$2,000,000 per occurrence, which coverage limit may be increased by Landlord
during the term hereof as commercially reasonable by notice to Tenant, and
Tenant will obtain such increased insurance coverage within thirty (30) days of
such notice. Tenant will also obtain an excess liability umbrella insurance
coverage policy in an amount not less than $10,000,000, naming Landlord as an
additional insured.

            9.2 Casualty Insurance. Tenant shall also obtain and keep in force
during the Term of this Lease a policy or policies insuring against loss or
damage to the Premises and all improvements thereon, naming Landlord as the loss
payee. Such insurance shall be for full replacement cost, as the same shall
exist from time to time, and shall name Landlord and any lenders of Landlord as
additional insureds.

            9.3 Personal Property Insurance. Tenant, at its cost, shall either
by separate policy or by endorsement to a policy already carried, maintain
insurance coverage on all personal property, trade fixtures and alterations in,
on, or about the Premises. Such insurance shall be full replacement cost
coverage with a deductible not to exceed $1,000 per occurrence. The proceeds
from any such insurance shall be used for the replacement of personal property
and the restoration of fixtures and alterations.

            9.4 Garage Keeper's Insurance. Tenant shall also obtain and keep in
force during the Term of this Lease a Garage Keeper's insurance policy or
policies in an amount not less than $400,000 per occurrence.

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            9.5 Insurance Policies. Insurance required hereunder shall be from
companies duly licensed to transact business in the state in which the Premises
are located, and maintaining during the policy term a 'General Policyholders
Rating' of at least B +, V, as set forth in the most current issue of 'Best's
Insurance Guide', or such commercially reasonable greater rating that may be
specified by Landlord from time to time. Neither party shall do or permit to be
done anything which shall invalidate the insurance policies referred to in this
section. Upon reasonable request by Landlord or Tenant, the other party shall
deliver to the requesting party, within seven (7) days, certified copies of, or
certificates evidencing the existence and amounts of, the insurance required
under this section. No such policy may be cancelable or subject to modification
except after thirty (30) days' prior written notice to the other party. Nothing
herein shall prevent Tenant from maintaining the insurance required hereunder by
a blanket or umbrella policy or policies obtained by Tenant or Tenant's parent
or affiliated entity. In the event of any claim under any insurance policies,
Tenant will promptly pay the deductible.

            9.6 Waiver of Subrogation. Without affecting any other rights or
remedies, Tenant and Landlord each hereby release and relieve the other, and
waive their entire right to recover damages (whether in contract or in tort)
against the other, for loss or damage to their property arising out of or
incident to the perils insured against under this Section 9, but only to the
extent of available insurance proceeds. Landlord and Tenant agree to have their
respective insurance companies issuing property damage insurance waive any right
to subrogation that such companies may have against Landlord or Tenant, as the
case may be, so long as the insurance is not invalidated thereby.

            9.7 Exemption of Landlord from Liability. Landlord shall not be
liable for injury or damage to the person or goods, wares, merchandise or other
property of Tenant, Tenant's employees, contractors, invitees, customers, or any
other person in or about the Premises, whether such damage or injury is caused
by or results from fire, steam, electricity, gas, water or rain, or from the
breakage, leakage, obstruction or other defects of pipes, fire sprinklers,
wires, appliances, plumbing, air conditioning or lighting fixtures, or from any
other cause, whether said injury or damage results from conditions arising upon
the Premises or from other sources or places, except for any such damage or
injury that arises out of Landlord's negligence or breach of this Lease that is
not otherwise insured.

      10. TAXES. Tenant shall pay prior to delinquency all taxes and assessments
which may be levied upon or assessed against the Premises, and all taxes or
assessments levied upon or assessed against the improvements situated thereon,
together with all taxes levied upon or assessed against the personal property,
fixtures, or equipment situated upon the Premises; provided, however, that any
taxes or assessments which may be levied or assessed for a period beginning
prior to the Commencement Date or ending after the Expiration Date shall be
prorated between Landlord and Tenant as of such date or dates. Tenant shall not
be obligated to pay any income tax or other tax, assessment, or charge which may
be levied or become due by reason of the rents and profits received by Landlord
as a result of this Lease.

      11. DAMAGE. In the event of damage to or destruction of the Premises, or
to any portion thereof, caused by fire or other casualty, and if such damage or
destruction cannot be

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restored as determined by mutual agreement of Landlord and Tenant within one
hundred twenty (120) days after commencement of the work to the condition as
existed immediately prior to such damage or destruction, then Tenant shall have
the right to terminate this Lease by notice to Landlord given no less than
thirty (30) days from the date of such casualty. If Landlord and Tenant are
unable to agree whether the Premises can or should be restored, such
determination will be submitted to arbitration pursuant to Section 21. If Tenant
elects to so terminate, this Lease shall terminate on the date specified in
Tenant's termination notice to Landlord, which termination date shall be no
earlier than thirty (30) days nor later than one hundred-eighty (180) days after
the date of such casualty, and Tenant shall pay the Rent and all Additional Rent
to that date. If this Lease is not so terminated, Landlord shall, at its sole
cost and expense, promptly repair such damage and restore the Premises to the
condition that existed immediately prior to such damage. If the damage to the
Premises or Landlord's repair thereof renders the Premises untenantable for a
period in excess of nine (9) months from the date of the casualty and the
Premises are not actually used by Tenant, Rent payable hereunder shall be abated
following such nine (9) month period to the extent the Premises are untenantable
and are not actually used by Tenant until the Premises are rendered tenantable
and available for use by Tenant.

      12. EMINENT DOMAIN.

            12.1 Entire Taking. If all of the Premises are taken by eminent
domain, this Lease shall automatically terminate as of the date title vests in
the condemning authority and all Rents, Additional Rents and other payments
shall be paid to that date. Sale by Landlord of all or part of the Premises to a
purchaser with the power of eminent domain in the face of a threat or
probability of the exercise of the power shall be treated for the purposes of
this section as a taking by condemnation, and shall be subject to the terms of
this section.

            12.2 Constructive Taking of Entire Premises. In the event of a
taking of a part but less than all of the Premises, where Tenant and Landlord
mutually agree that the remaining portions of the Premises cannot be
economically and effectively used by Tenant (whether on account of physical,
economic, aesthetic or other reasons), Tenant may elect to terminate this lease
by delivering a written notice to Landlord of such election not more than sixty
(60) days after the date of taking. The term of this Lease shall expire upon
such date as Tenant shall specify in the notice but not earlier than sixty (60)
days after the date of such notice.

            12.3 Partial Taking. In case of taking of a part of the Premises, or
a portion thereof not required for the reasonable use of the Premises, as
mutually determined by Landlord and Tenant, then this Lease shall continue in
full force and effect and Rent shall be equitably reduced effective as of the
date title to such portion vests in the condemning authority.

            12.4 Awards and Damages. Landlord reserves all rights to damages to
the Premises for any partial, constructive, or entire taking by eminent domain,
and Tenant hereby assigns to Landlord any right Tenant may have to such damages
or award. Tenant shall have the right, however, to make a separate claim and
recover a separate award from the condemning authority for compensation for any
loss incurred for Tenant's moving expenses, business

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interruption, taking of Tenant's personal property, equipment and trade
fixtures. In addition, if the taking occurs during the first fifteen (15) years
of the term of this Lease, Tenant shall be entitled to a portion of any award
equal to the depreciated book value as of the date of the taking of any
leasehold improvements owned by Tenant at the Commencement Date (but not any
improvements made or installed after the Commencement Date).

            12.5 Dispute. In the event the Landlord and Tenant cannot agree
pursuant to Section 12.2 and 12.3 above, the issue of whether the Premises can
be economically and effectively used by Tenant will be submitted to arbitration
pursuant to Section 21.

      13. DEFAULTS AND REMEDIES.

            13.1 Default By Tenant. If at any time Tenant shall fail to remedy
any default in the payment of Rent due under this Lease within fifteen (15) days
after the date of written notice from Landlord of any such failure, or shall
fail to remedy any default in any of the other provisions, covenants or
conditions of this Lease to be kept or performed by Tenant within a period of
thirty (30) days after the date of written notice from Landlord, Landlord shall
have the right to pursue any remedy available to Landlord at law or in equity or
as set forth in Section 13.2 hereof on account of such default. Provided,
however, that if such default cannot reasonably be cured within said thirty (30)
day period, Tenant shall not be in default of this Lease if Tenant commences
curative action within said thirty (30) day period and diligently, continuously
without interruption, and in good faith continues to pursue the same to
completion. Provided, further, that Landlord shall not be required to deliver to
Tenant notice of Tenant's default under the same Lease provision more than two
(2) times in any twelve (12) month period.

            13.2 Remedies of Landlord.

                  (a) Termination. If a default has occurred in accordance with
the preceding subsection, then Landlord may, without notice, institute summary
proceedings, terminate all services, dispossess Tenant and the legal
representative of Tenant or other occupants of the Premises, and remove their
effects and hold the Premises as if this Lease had not been made, and Tenant
shall remain liable for damages as provided herein.

                  (b) Landlord's Re-entry. Upon default, Landlord, in addition
to any other rights or remedies it may have, at its option, may enter the
Premises or any part thereof, either with or without process of law, and expel,
remove or put out Tenant or any other persons who may be thereon, together with
all personal property found therein. Landlord may also terminate this Lease, or
it may from time to time, without terminating this Lease and as agent of Tenant,
re-let the Premises or any part thereof for such term or terms (which may be for
a term less than or extending beyond the term hereof), with the right to repair,
renovate, remodel, redecorate, alter and change the Premises, Tenant remaining
liable for any deficiency computed as hereinafter set forth. In the case of any
default, re-entry and/or dispossession by summary proceedings or otherwise, all
Rent shall become due thereupon and be paid up to the time of such re-entry or
dispossession, together with such expenses as Landlord may incur in connection
with such default for attorneys fees, advertising

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expenses, brokerage fees and/or putting the Premises in good order or preparing
the same for re-rental.

                  (c) Re-letting the Premises. At the option of Landlord, rents
received by Landlord from such re-letting shall be applied first to the payment
of any indebtedness from Tenant to Landlord other than Rent due hereunder;
second, to the payment of any costs and expenses of such re-letting and
including, but not limited to, attorneys fees, advertising fees and brokerage
fees, and to the payment of any alteration and changes in the Premises; third,
to the payment of Rent due and to become due hereunder, and, if after so
applying said rents there is any deficiency in the Rent to be paid by Tenant
under this Lease, Tenant shall pay any deficiency to Landlord monthly on the
dates specified herein and any payment made or suits brought to collect the
amount of the deficiency for any month shall not prejudice in any way the right
of Landlord to collect the deficiency for any subsequent month. In no event
shall Tenant be entitled to receive any excess of net rents collected over sums
payable by Tenant to Landlord hereunder. No such re-entry or taking possession,
of the Premises shall be construed as an election on Landlord's part to
terminate this Lease unless a written notice of such intention be given to
Tenant. Notwithstanding any such re-letting without termination, Landlord may at
any time thereafter elect to terminate this Lease for such previous default.
Should Landlord at any time terminate this Lease by reason of such default, in
addition to any other remedy it may have, it may recover from Tenant as damages
the amount of Rent reserved in this Lease for the balance of the Term, as it may
have been extended, over the then fair market rental value of the Premises for
the same period, plus all court costs and attorneys' fees incurred by Landlord
in the collection of the same.

            13.3 Default by Landlord. Landlord shall be in default under this
Lease if Landlord fails or refuses to perform any of Landlord's obligations
under this Lease within thirty (30) days after notice of the default has been
given by Tenant to Landlord and the holder of any Encumbrance (as hereinafter
defined) of which Tenant has been given written notice. If the default cannot
reasonably be cured within said thirty (30) day period, Landlord shall not be in
default of this Lease if Landlord or the holder of any encumbrance commences to
cure the default within said thirty (30) day period and diligently and in good
faith continues to pursue the same to completion. Should Landlord fail to pay or
discharge any obligation which Landlord is obligated under this Lease to pay or
discharge, Tenant shall have the right, but not the obligation, at any time to
pay or discharge any such obligation. Should Tenant elect to pay or discharge
any such obligation, Landlord shall, upon demand, reimburse Tenant for the full
amount thereof, together with interest at the rate of ten percent (10%) per
annum as well as Tenant's expenses incurred in connection therewith, including
reasonable attorney's fees.

            13.4 Trial by Jury. Landlord and Tenant shall and hereby do waive
trial by jury in any action, proceeding or counterclaim brought by either of the
parties hereto against the other arising out of or in any way connected with
this Lease, the relationship of landlord and tenant, Tenant's use or occupancy
of the Premises, and any emergency statutory or any other statutory remedy.

            13.5 Holdover by Tenant. In the event Tenant remains in possession
of any portion of the Premises after the expiration of the Term without the
written permission of

                                     - 11 -
<PAGE>

Landlord, Tenant shall be deemed to be occupying such portion of the Premises as
a tenant from month to month, at a monthly rental equal to 200% of the monthly
installment of Rent payable during the last month of the Term, subject to all
the other conditions, provisions and obligations of this Lease insofar as the
same are applicable to a month-to-month tenancy.

            13.6 Waiver of Default. No consent or waiver, express or implied, by
Landlord or Tenant to or of any breach of any covenant, condition, or duty of
the other shall be construed as a consent or waiver to or of any other breach of
the same or any other covenant, condition, or duty of the other party, unless in
writing signed by the party against whom waiver is sought.

      14. ASSIGNMENT, SUBLETTING. Tenant may assign this Lease or sublet all or
any portion of the Premises to any entity that is owned at least seventy-five
percent (75%) by Lithia Motors, Inc. without the prior consent of, but with
prior written notice to, Landlord. Tenant may so assign or sublet to any other
party only with the prior consent of Landlord, which consent shall not
unreasonably be withheld or delayed if the proposed assignment or subletting is
in connection with the sale of the business located on the Premises, subject to
Section 20.18, but otherwise may be withheld in Landlord's sole and absolute
discretion in all other circumstances, and provided further that: (1) such
consent to any assignment or subletting shall not relieve Tenant from its
obligations as primary obligor (and not as surety or guarantor) for the payment
of all rental due hereunder, and for the full and faithful observance and
performance of the covenants, terms and conditions herein contained; (2) the
proposed subtenant or assignee is engaged in a business and the Premises will be
used in a manner which is in keeping with the use provisions contained herein;
(3) the proposed subtenant or assignee is a reputable party of reasonable
financial worth in light of the responsibilities involved, and Tenant shall have
provided Landlord with reasonable proof thereof; (4) Tenant is not in default
hereunder at the time it makes its request; and (5) Landlord's obligation not to
unreasonably withhold consent to an assignment in connection with a sale of the
business is subject to Section 20.18. Any dissolution, merger, consolidation or
other reorganization of Tenant, or the sale or transfer of a controlling
percentage of the corporate stock of Tenant, shall constitute and be deemed an
assignment for purposes of this section. Consent by Landlord to an assignment or
subletting shall not be construed to relieve Tenant from obtaining the consent
of Landlord to any further assignment or subletting, nor shall the collection of
Rent by Landlord from any assignee, subtenant or other occupant be deemed a
waiver of this covenant or an acceptance of the assignee or subtenant as Tenant
or a release of Tenant from the covenants in this Lease on Tenant's part to be
performed. Tenant and any assignee or subtenant shall be jointly and severally
liable for the obligations of this Lease. Tenant shall not permit any part of
the Premises to be used or occupied by any persons other than Tenant and the
employees of Tenant, nor shall Tenant permit any part of the Premises to be used
or occupied by any licensee or concessionaire, or permit any persons to be upon
the Premises other than Tenant, and employees, customers and others having
lawful business with Tenant.

      15. RIGHT OF REFUSAL TO PURCHASE. During the Term hereof, should Landlord
receive a bona fide offer from any third party to purchase the Premises which
Landlord desires to accept, Landlord shall, before accepting such offer, notify
Tenant in writing of all of the terms and conditions thereof and shall first
offer in writing to sell the Premises to Tenant upon the

                                     - 12 -
<PAGE>

same terms and conditions. Upon receipt of any such notice and offer from
Landlord, Tenant shall have twenty (20) days thereafter within which to accept
the same. Should Tenant fail to accept any such offer within said twenty (20)
day period, Landlord shall be free to sell the Premises to the original offeror
upon the same terms and conditions offered to Tenant without further notice to
Tenant, which sale shall be subject to this Lease, except that Tenant's right of
first refusal contained herein shall thereupon terminate. Should Landlord, after
having made such offer to Tenant as above-described, fail to sell the Premises
to the original offeror upon the same terms and conditions offered to Tenant
within one hundred-eighty (180) days of making such offer to Tenant, Landlord
shall give Tenant notice in the manner set forth above of any further or
different offers received by Landlord for the purchase of the Premises and shall
first offer to sell the same to Tenant upon the same terms and conditions before
accepting any such further or different offer. In the event Tenant does not
exercise its right to purchase the Premises and the same is sold in accordance
with this section to the original offeror, Tenant's rights under this section
shall terminate upon such sale. The foregoing notwithstanding, Tenant's right of
first refusal contained in this section shall not be effective and shall not
apply in the event of, and Landlord shall not be required to first offer to sell
the Premises to Tenant prior to: (a) the transfer of the Premises to and among
(i) entities or trusts, directly or indirectly owned, controlled, controlling,
or under common control by or with Landlord, (ii) W. Douglas Moreland or Carol
Moreland, or any person who is a descendant, by blood relation or adoption, of
W. Douglas Moreland or Carol Moreland, or any spouse or adopted child of any of
the foregoing (the "Related Parties"), or (iii) any entity or trust, directly or
indirectly owned, controlled, controlling, or under common control by or with
Landlord or one or more Related Parties; (b) the granting of a bona fide
mortgage, deed of trust, ground lease, or other financing arrangement, or the
foreclosure or deed in lieu of foreclosure thereunder; or (c) the exercise by
any holder of any prior rights in and to the Premises, including, without
limitation, any option holders; provided, however, that any such transfer of the
Premises shall be subject to this Lease, including Tenant's right of first
refusal contained herein.

      16. TENANT FINANCING

            16.1 Leasehold Mortgages. Tenant shall have the unrestricted right
to mortgage or otherwise encumber its leasehold interest under this Lease.
Tenant shall notify Landlord of the existence, identity, and address of any
Leasehold Mortgagee, and shall provide Landlord with a copy of all recorded
instruments constituting the Leasehold Mortgage.

            16.2 Protection of Leasehold Mortgagees. So long as any such
Leasehold Mortgage shall remain unsatisfied of record, the following provisions
shall apply:

                  (a) No cancellation, surrender or modification of this Lease
shall be effective as to any Leasehold Mortgagee unless consented to in writing
by such Leasehold Mortgagee.

                  (b) Landlord, upon providing Tenant any notice of (i) a
default under this Lease, (ii) a termination of this Lease, or (iii) a matter on
which Landlord may predicate or

                                     - 13 -
<PAGE>

claim a default, shall at the same time provide a copy of such notice to every
Leasehold Mortgagee of which Landlord has been provided notice in accordance
with this section. No such notice by Landlord to Tenant shall be deemed to have
been duly given unless and until a copy thereof has been so provided to every
Leasehold Mortgagee of which Landlord has been provided notice in accordance
with this section. From and after the date such notice has been given to
Leasehold Mortgagee, such Leasehold Mortgagee shall have the same period, after
the giving of such notice upon it, for remedying any default or acts or
omissions which are the subject matter of such notice which can be remedied by
such Leasehold Mortgage, or causing the same to be remedied, as is given Tenant
after the giving of such notice to Tenant. Landlord shall accept such
performance by or at the instigation of such Leasehold Mortgagee as if the same
had been done by Tenant.

                  (c) In the event a Leasehold Mortgage acquires Tenant's
leasehold interest under this Lease by foreclosure of the Leasehold Mortgage or
otherwise, Landlord agrees to recognize said Leasehold Mortgage as the tenant
hereunder, subject to all of the terms and conditions of this Lease, including,
without limitation, the subordination provisions in Section 18 hereof.

                  (d) Subject always to Section 20.18 hereof, Landlord agrees to
consent to any commercially reasonable amendment to this Lease as may be
reasonably requested by any Leasehold Mortgagee of Tenant. If Landlord and
Tenant disagree as to the reasonableness of such a request, the dispute shall be
submitted to arbitration pursuant to Section 21.

      17. LANDLORD'S WAIVER. If Tenant (or its affiliated or related entities)
shall acquire trade fixtures, equipment, machinery, inventory, or other goods
and effects ("Personal Property") subject to a purchase money security interest,
or shall lease any of the same, or if any lender provides Tenant with financing,
the proceeds of which are intended to enable Tenant to use and occupy the
Premises or to operate Tenant's business, and such financing is secured in whole
or in part by a lien on such Personal Property, Landlord shall, upon request
from Tenant, execute a waiver, in a commercially reasonable form and content
acceptable to the holders of any such security interest or the lessor under any
such lease, of any right it may have to distrain upon or secure a lien against
such Personal Property for Tenant's failure to pay Rent, or any other event of
default under the terms, covenants, conditions and provisions of this Lease, and
to allow the holders of any such security interest or the lessor under any such
lease to remove such Personal Property from the Premises.

      18. MORTGAGE PRIORITY; SUBORDINATION. It is agreed that this Lease may, at
the option of Landlord, be made subordinate to any ground or underlying leases,
mortgages, or deeds of trust which may hereafter affect the real property of
which the Premises forms a part, and that Tenant, or Tenant's
successors-in-interest, will execute and deliver upon the demand of Landlord,
any and all instruments reasonably requested by Landlord subordinating this
Lease to such lease, mortgage, or deed of trust. Tenant's agreement to
subordinate this Lease is subject to and is conditioned upon its receipt from
the holder or any such lease, mortgage, or deed of trust, a commercially
reasonable form of non-disturbance agreement, that provides that, as long as
Tenant

                                     - 14 -
<PAGE>

pays the rent and observes and performs all of the provisions of this Lease, and
as long as the Lease is not otherwise terminated pursuant to its terms, no
foreclosure, deed given in lieu of foreclosure, or sale pursuant to the terms of
such lease, mortgage, or deed of trust, or other steps or procedures taken
thereunder, shall affect Tenant's rights under this Lease. Tenant agrees that,
at the option of the landlord under any ground lease hereafter affecting the
real property of which the Premises forms a part, Tenant will attorn to said
landlord in the event of the termination or cancellation of such ground lease
and, if requested by said landlord, enter into a new lease with said landlord
(or a successor ground lessee designated by said landlord) for the balance of
the term then remaining under this Lease upon the same terms and conditions as
those herein provided. In the event of foreclosure or exercise of power of sale
under any mortgage or deed of trust hereafter affecting the real property of
which the Premises forms a part, the holder of any such mortgage or deed of
trust (or purchaser at any sale pursuant thereto) will have the option of (a)
supplementing this section to require Tenant to attorn to such holder or
purchaser, or to enter into a new lease with such holder or purchaser (as
landlord) for the balance of the term then remaining under this Lease upon the
same terms and conditions as those provided in this Lease, or (b)
notwithstanding this section, to elect that this Lease become or remain, as the
case may be, superior to said mortgage or deed of trust.

      19. OWNERSHIP, REMOVAL, SURRENDER, AND RESTORATION.

            19.1 Ownership. Subject to Landlord's right to require their removal
at the expiration or earlier termination of this Lease in accordance with
Section 8 hereof, all alterations made to the Premises by Tenant shall be the
property of and owned by Tenant, but considered a part of the Premises. Unless
otherwise instructed by Landlord pursuant to Section 8, all Tenant-owned
alterations shall, at the expiration or earlier termination of this Lease,
become the property of Landlord and remain upon the Premises and be surrendered
with the Premises by Tenant.

            19.2 Surrender/Restoration. Tenant shall surrender the Premises by
the end of the last day of the Lease term or any earlier termination date, broom
clean and free of debris, and in the similar operating order, condition, and
state of repair that existed as of the Commencement Date, ordinary wear and tear
excepted. Ordinary wear and tear shall not include any damage or deterioration
that would have been prevented by the maintenance, repair, and replacement
practice required under this Lease. Except for those alterations required to be
removed by Landlord, the Premises, as surrendered, shall include the
alterations. Tenant shall remove Tenant's trade fixtures, furnishings,
equipment, and alterations required to be removed by Landlord pursuant to
Section 8, and shall repair any damage caused by such removal, Tenant shall also
remove any storage tank installed by or for Tenant, and the removal,
replacement, or remediation of any soil, material or ground water contaminated
by Tenant, all as may then be required by Applicable Laws. Tenant's trade
fixtures shall remain the property of Tenant and shall be removed by Tenant
subject to its obligation to repair and restore the Premises in accordance with
this Lease.

                                     - 15 -
<PAGE>

20. MISCELLANEOUS PROVISIONS.

            20.1 Quiet Possession. Upon payment by Tenant of the Rent for the
Premises and the performance of all of the covenants, conditions and provisions
on Tenant's part to be observed and performed under this Lease, Tenant shall
have quiet possession of the Premises for the entire term hereof subject to all
of the provisions of this Lease. Landlord warrants that Landlord has full right
and sufficient title to lease the Premises for the term and upon the terms and
conditions set forth herein, subject to covenants, conditions, restrictions,
rights, options, encumbrances, and rights-of-way of record. Landlord hereby
agrees, at its sole cost and expense, to indemnify, protect, defend, and hold
Tenant, its directors, officers, employees, and agents, harmless from and
against any and all losses, damages (whether direct or consequential),
liabilities, judgments, costs, claims, liens, expenses, fines, injunctions,
suits, proceedings, disbursements, penalties, loss of permits, attorneys',
experts' and consultants' fees and disbursements, and court costs arising as a
result of a breach by Landlord of the representations and warranties contained
in this Section 20.1.

            20.2 Liens. Neither Landlord nor Tenant shall permit any judgment
lien, lien for payment of real property taxes, or construction or materialman's
lien for any work done, materials furnished, or for the performance of any other
construction work for which each such respective party is responsible, to be
placed against the Premises; provided, however, that the responsible party may
contest the validity of any such lien to the extent the responsible party posts
a bond to cover the lien as provided by Applicable Law or provides other
security acceptable to the other party that such contest will not unreasonably
jeopardize the other party's interest in the Premises, and upon a final
determination of the validity of the contested lien, shall cause the same to be
satisfied and released of record.

            20.3 Time of Essence. Time is of the essence with respect to each
and every provision of this Lease.

            20.4 Attorneys Fees. In the event either Landlord or Tenant shall
institute any action or proceeding against the other relating to any of the
terms, covenants, conditions or provisions of this Lease, or any default herein,
the unsuccessful party in such action or proceeding shall reimburse the
successful party for reasonable attorney's fees and other costs and expenses
incurred therein by the successful party, including fees, costs and expenses
incurred in any appellate proceeding.

            20.5 Notices. Any notice or demand from Landlord to Tenant or from
Tenant to Landlord shall be in writing and shall be deemed duly served if mailed
by registered or certified mail, return receipt requested, or by overnight
courier, addressed to the address of each party set forth herein, or to such
other address as either party shall have last designated by notice in writing to
the other party. The foregoing notwithstanding, Landlord may give a notice to
pay or quit pursuant to state law and any notices under the forcible entry and
detainer laws by posting the same on the Premises in accordance with state law,
with a courtesy copy thereof sent to Tenant in accordance with this section,
provided that the failure of Tenant to receive such courtesy copy so sent by
Landlord shall not affect Landlord's eviction procedure.

                                     - 16 -
<PAGE>

            20.6 Brokerage. Tenant and Landlord warrant that they have had no
dealings with any broker or agent in connection with this Lease and each
covenants to pay, hold harmless and indemnify the other from and against any and
all cost, expense or liability for any compensation, commissions and charges
claimed by any broker or agent with respect to this Lease or the negotiation
thereof with whom they had dealings.

            20.7 Estoppel Certificates. Each of the parties agrees that it will,
at any time and from time to time, within ten (10) business days following
written notice by the other party hereto (or any lender of such party)
specifying that it is given pursuant to this section, execute, acknowledge and
deliver to the party who gave such notice a statement in writing certifying that
this Lease is unmodified and in full force and effect (or if there have been
modifications, that the same is in full force and effect as modified and stating
the modifications), and the dates to which the Rent and any other payments due
hereunder from Tenant have been paid in advance, if any, and stating whether or
not, to the best of knowledge of the signer of such certificate, the other party
is in default in performance of any covenant, agreement or condition contained
in this Lease, and, if so, specifying each such default of which the signer may
have knowledge.

            20.8 Applicable Law and Construction. The laws of the state of
Colorado shall govern the validity, performance and enforcement of this Lease.
The invalidity or unenforceability of any provision of this Lease shall not
affect or impair any other provision All negotiations, considerations,
representations and understandings between the parties are deemed merged into
this Lease. The headings of the several articles and sections contained herein
are for convenience only and do not define, limit or construe the contents of
such articles or sections. Whenever herein the singular number is used, the same
shall include the plural, and the neuter gender shall include the masculine and
feminine genders. This Lease has been negotiated at arms length and shall not be
construed for or against any party by reason of the authorship or alleged
authorship of any provision hereof.

            20.9 Relationship of the Parties. Nothing contained herein shall be
deemed or construed by the parties hereto, or by any third party, as creating
the relationship of principal and agent or partnership or joint venture between
the parties hereto, it being understood and agreed that no provisions herein,
nor any acts of the parties hereto, shall be deemed to create any relationship
between the parties hereto other than the relationship of landlord and tenant.

            20.10 Binding Effect of Lease. The covenants, agreements and
obligations herein contained, except as herein otherwise specifically provided,
shall extend to, bind and inure to the benefit of the parties hereto and their
respective personal representatives, heirs, successors and permitted assigns.
Each covenant, agreement, obligation or other provision herein contained shall
be deemed and construed as a separate and independent covenant of the party
bound by, undertaking or making the same, not dependent on any other provision
of this Lease unless otherwise expressly provided. At the request of either
party, a memorandum of this Lease and the right of first refusal contained
herein will be executed by both parties and may be recorded in the public
records of the county in which the Premises is located. Upon signing of this
Lease, Tenant

                                     - 17 -
<PAGE>

will deposit with Landlord a quitclaim deed to release said memorandum, that
Landlord agrees not to record until the termination or expiration of this Lease.

            20.11 Transfer of Landlord's Interest. In the event of any transfers
of Landlord's interest in the Premises, other than a transfer for security
purposes only, the transferor shall be automatically relieved of any and all
obligations and liabilities on the part of Landlord accruing from and after the
date of such transfer and such transferee shall have no obligation or liability
with respect to any matter occurring or arising prior to the date of such
transfer. Tenant agrees to attorn to the transferee.

            20.12 Effect of Unavoidable Delays. The provisions of this section
shall be applicable if there shall occur, during the Term, or prior to the
commencement thereof, any (i) strike(s), lockout(s) or labor dispute(s); (ii)
inability to obtain labor or materials, or reasonable substitutes therefor; or
(iii) acts of God, governmental restrictions, regulations or controls, enemy or
hostile governmental action, civil commotion, fire or other casualty, or (iv)
other conditions similar or dissimilar to those enumerated in this section
beyond the reasonable control of the party obligated to perform. If Landlord or
Tenant shall, as the result of any of the above-described events, fail
punctually to perform any obligation on its part to be performed under this
Lease, other than the payment of money, then such delay in performance shall be
excused and not be a breach of this Lease by the party in question, but only to
the extent such delay is occasioned by such event. If any right or option of
either party to take any action under or with respect to this Lease is
conditioned upon the same being exercised within any prescribed period of time
or at or before a named date, then such prescribed period of time and such named
date shall be deemed to be extended or delayed, as the case may be, for a period
equal to the period of delay occasioned by any above-described event.

            20.13 No Oral Changes. Neither this Lease nor any provision hereof
may be changed, waived, discharged or terminated orally, but only by an
instrument in writing signed by the party against whom enforcement of the
change, waiver, discharge or termination is sought.

            20.14 Executed Counterparts of Lease. This Lease may be executed in
any number of counterparts and each of such counterparts shall for all purposes
be deemed to be an original, and all such counterparts shall together constitute
but one and the same Lease.

            20.15 Invalid Provisions. If any provision of this Lease is held
unlawful or invalid, then this Lease shall continue in full force and effect but
such unlawful or invalid provision shall be deemed omitted. If any portion of
the Rent shall at any time be held to be higher than the amount which the
Landlord may lawfully reserve, then the amount thereof shall be reduced to the
highest lawful amount.

            20.16 Entire Agreement. This Lease is the final and complete
expression of Landlord and Tenant relating in any manner to the leasing, use and
occupancy of the Premises and other matters set forth in this Lease. No prior
agreement or understanding pertaining to the same shall be valid or of any force
or effect.

                                     - 18 -
<PAGE>

            20.17 Exculpation. All personal and separate liability of Landlord
or any officer or partner of Landlord under this Lease, of every kind or nature,
if any, is waived by Tenant, and by every person now or later claiming by,
through, or under Tenant, and Tenant shall look solely to the equity of Landlord
in the Premises for any claims against Landlord under this Lease. Such
exculpation of liability is absolute and without exception.

            20.18 Landlord's Loan. Notwithstanding any other provision of this
Lease to the contrary, Landlord and Tenant agree that all rights of Tenant and
all obligations of Landlord under this Lease, except Landlord's obligation to
obtain a non-disturbance agreement in accordance with Section 18 hereof, are
subject to the terms of any mortgage, deed of trust, or other instrument
encumbering the Premises. If the exercise of any such right or the performance
of any such obligation would constitute a breach of or default under any such
instrument, the right shall not be exercised or the obligation performed unless
a consent or waiver is first obtained from the beneficiary of such instrument.
The parties agree to use reasonable commercial efforts to obtain a consent or
waiver from the beneficiary, but neither party shall have any liability if such
consent or waiver cannot be so obtained. This provision shall apply to
encumbrances created after the date hereof only if the encumbrance secures a
loan from an institutional lender regularly engaged in the business of making
loans secured by real estate. In the case of a subsequent encumbrance to which
this provision applies, Landlord shall also use reasonable commercial efforts
(i) to include provisions in the governing loan documents to permit, or (ii) to
exclude provisions in such loan documents that would prohibit, the exercise of
all such rights and the performance of all such obligations as set forth in this
Lease, but shall have no liability if it is unable to do so.

      21. DISPUTE RESOLUTION.

            21.1 Mediation. The parties hope there will be no disputes arising
out of this Lease. To that end, each commits to cooperate in good faith and to
deal fairly in performing its duties under this Lease in order to accomplish
their mutual objectives and avoid disputes. But if a dispute arises, the parties
agree to resolve all disputes by the following alternate dispute resolution
process. The parties will seek a fair and prompt negotiated resolution, but if
this is not successful, and except as otherwise set forth herein, all disputes
shall be resolved by binding arbitration; provided, however, that during this
process, at the request of either party made not later than twenty-five (25)
days after the initial arbitration demand, the parties will attempt to resolve
any dispute by nonbinding mediation (but without delaying the arbitration
hearing date). The parties recognize that negotiation or mediation may not be
appropriate to resolve some disputes and agree that either party may proceed
with arbitration without negotiating or mediating. Except as set forth in the
following sentence, the parties confirm that by agreeing to this alternate
dispute resolution process, they intend to give up their right to have any
dispute decided in court by a judge or jury. Anything to the contrary contained
herein notwithstanding, the provisions of this Section 21 shall not apply to the
exercise by Landlord of any of its rights or remedies contained in Sections 13.1
and 13.2 hereof following a default by Tenant, and the same may be pursued by
Landlord without complying with the alternative dispute resolution procedures
set forth in this

                                     - 19 -
<PAGE>

section, except that the determination of any damages that may be owed by Tenant
following its default shall be made in accordance with this section.

            21.2 Binding Arbitration. Except as otherwise set forth in Section
21.1, any claim between the parties arising out of or relating to this Lease
shall be determined by arbitration in Reno, Nevada (or some other place as the
parties may agree). The arbitration shall be conducted before one neutral
arbitrator; provided, however, that if either party demands a total award
greater than $250,000, including interest, attorneys' fees and costs, then
either party may require that there be three (3) neutral arbitrators. If the
parties cannot agree on the identity of the arbitrator(s) within ten (10) days
of the arbitration demand, the arbitrator(s) shall be selected by the
administrator of the American Arbitration Association (AAA) office having
jurisdiction over Reno, Nevada. Each arbitrator shall be an attorney with at
least fifteen (15) years' experience in real estate law. Whether a claim is
covered by this Lease shall be determined by the arbitrator(s). All statutes of
limitations which would otherwise be shall apply to any arbitration proceeding
hereunder.

            21.3 Procedures. The arbitration shall be conducted in accordance
with the AAA Commercial Arbitration Rules with Expedited Procedures, as modified
by this Lease. There shall be no dispositive motion practice. As may be shown to
be necessary to ensure a fair hearing, the arbitrator(s) may authorize limited
discovery, and may enter pre-hearing orders regarding (without limitation)
scheduling, document exchange, witness disclosure and issues to be heard. The
arbitrator(s) shall not be bound by the rules of evidence or of civil procedure,
but may consider such writings and oral presentations as reasonable business
people would use in the conduct of their day-to-day affairs, and may require the
parties to submit some or all of their case by written declaration or such other
manner of presentation as the arbitrator(s) may determine to be appropriate. The
parties intend to limit live testimony and cross-examination to the extent
necessary to ensure a fair hearing on material issues.

            21.4 Hearing and Award. The arbitrator(s) shall take such steps as
may be necessary to hold a private hearing within ninety (90) days of the
initial demand for arbitration and to conclude the hearing within three (3)
days; and the arbitrator(s)'s written decision shall be made not later than
fourteen (14) calendar days after the hearing. The parties have included these
time limits in order to expedite the proceeding, but they are not
jurisdictional, and the arbitrator(s) may for good cause afford or permit
reasonable extensions or delays, which shall not affect the validity of the
award. The written decision shall contain a brief statement of the claim(s)
determined and the award made on each claim. In making the decision and award,
the arbitrator(s) shall apply applicable substantive law. Absent fraud,
collusion or willful misconduct by an arbitrator, the award shall be final, and
judgment may be entered in any court having jurisdiction thereof. The
arbitrator(s) may award injunctive relief or any other remedy available from a
judge, including the joinder of parties or consolidation of this arbitration
with any other involving common issues of law or fact or which may promote
judicial economy, and may award attorneys' fees and costs to the prevailing
party, but shall not have the power to award punitive or exemplary damages. If
the arbitration is conducted by three arbitrators, the decision and award of

                                     - 20 -
<PAGE>

the arbitrators need not be unanimous; rather, the decision and award of two
arbitrators shall be final.

            21.5 Chrysler Option Agreement. Landlord and Tenant acknowledge that
the Premises is subject to that certain option agreement between Landlord, as
optionee, and Chrysler Realty Corporation, as optionor ("Chrysler"), presently
recorded against the Premises (the "Option Agreement"). Tenant acknowledges that
the Premises may only be leased, if at all, to a franchise dealer of Chrysler
Corporation products, that this Lease is subject and subordinate to the terms of
the Option Agreement, that the terms of the Option Agreement are incorporated in
this Lease by this reference as if fully set forth herein, and that in the event
of a reconveyance of the Premises to Chrysler, this Lease will automatically
cease and terminate as of the date of such reconveyance. In the event this Lease
is so terminated upon a reconveyance that occurs as a result of Landlord's act
or failure to act in violation of a duty to act, the same shall constitute a
breach by Landlord of the representation and warranty of quiet possession
contained in Section 20.1 hereof.

      Landlord and Tenant have executed this Lease as of the day and year set
forth at the beginning of this Lease.

                                          LANDLORD

                                          MORELAND PROPERTIES, LLC

                                          By:___________________________________
                                          Its:__________________________________

                                          TENANT

                                          LITHIA REAL ESTATE, INC.

                                          By:___________________________________
                                          Its:__________________________________

                                     - 21 -
<PAGE>

                                    EXHIBIT A
                               TO LEASE AGREEMENT

                             DESCRIPTION OF PREMISES

That certain real property situated in Arapahoe County, Colorado, legally
described as follows:

<PAGE>

                                    GUARANTY

      For good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, and in consideration for, and as an inducement to
Landlord to make the foregoing lease with Tenant, the undersigned absolutely and
unconditionally guarantees, to Landlord and its successors, the full payment and
performance and observation of all of the terms, covenants, conditions,
provisions and agreements therein provided to be performed or observed by
Tenant, without requiring any notice of nonpayment, non-performance or
non-observance, or proof, or notice, or demand, all of which the undersigned
expressly waives. The undersigned expressly agrees that the validity of this
guaranty and the obligations of the undersigned as guarantor hereunder will in
no way be terminated, affected or impaired by reason of the assertion by
Landlord against Tenant of any of the rights or remedies reserved to Landlord
pursuant to the provisions of the lease. Landlord may grant extensions of time
and other indulgences and may modify, amend and waive any of the terms,
covenants, conditions, provisions or agreements of the lease, and discharge or
release any party or parties to the lease, all without notice to the undersigned
and without in any way impairing, releasing or affecting the liability or
obligation of the undersigned. The undersigned agrees that Landlord may proceed
directly against the undersigned without taking any action under the lease and
without exhausting Landlord's remedies against Tenant; and no discharge of
Tenant in bankruptcy or in any other insolvency proceedings will in any way or
to any extent discharge or release the undersigned from any liability or
obligation under this guaranty. The undersigned further covenants and agrees
that this guaranty will remain and continue in full force and effect as to any
renewal, modification or extension of the lease, and that no subletting and no
assignment of the lease, with or without Landlord's consent, will release or
discharge the undersigned. As a further inducement to Landlord to make the lease
and in consideration of the lease, Landlord and the undersigned covenant and
agree that in any action or proceeding brought by either Landlord or the
undersigned against the other on any matter whatsoever arising out of, under, or
by virtue of any of the terms, covenants, conditions, provisions or agreements
of the lease or of this guaranty, Landlord and the undersigned will and do
hereby waive trial by jury. The undersigned agrees to pay, in addition to any
damages which a court of competent jurisdiction may award, such amount or
amounts as the court may determine to be reasonable attorneys' fees and costs
incurred by Landlord or its successors or assigns in the enforcement of this
guaranty. In the event Landlord or the undersigned institute any action or
proceeding against the other relating to this guaranty, the unsuccessful party
in such action or proceeding shall reimburse the successful party for reasonable
attorneys' fees and other costs and expenses incurred therein by the successful
party. All rights under this guaranty will inure to the benefit of any
successors or assigns of Landlord.

      Dated as of the ___________ day of ______, 1999.

                              GUARANTOR:

                              LITHIA MOTORS, INC.

                              By: ____________________________
                              Its: ___________________________

                              Address:
                              360 E. Jackson St.
                              Medford, Oregon 97501<PAGE>

                                  Exhibit 10.35

                               SUBLEASE AGREEMENT

      This Sublease Agreement (this "Sublease") is made May 14, 1999, between
Moreland Properties LLC ("Sublessor") and Lithia Real Estate, Inc. (Sublessee").

                                    RECITALS

      A. On February 3, 1978, J. William Crouch, as tenant and successor in
interest to Bill Crouch, Inc., entered into that certain lease (the "Capra
Lease") with David E. Capra and Gloria A. Capra, as landlords (the "Capra
Lessors"), for the demise of certain premises more particularly described in the
Capra Lease and more commonly referred to as 50 East Chenango. Englewood,
Colorado (the "Capra Premises"). On March 23, 1994, Monaco Finance, Inc., as
tenant, entered into that certain lease (the "Crouch Lease") with J. William
Crouch, as landlord (the "Crouch Lessor ), for the demise certain premises more
particularly described in the Crouch Lease and including both the Capra Premises
and certain premises more commonly referred to as 4940 South Broadway,
Englewood, Colorado. On February 29, 1996, Moreland Properties LLC, as tenant
and as successor in interest to W. Douglas Moreland, entered into that certain
lease (the "Prime Lease") with Monaco Finance, Inc. (the "Prime Lessor") for the
demise of certain premises more particularly described in the Prime Lease and
including both the property commonly referred to as 50 East Chenango, Englewood,
Colorado and the property commonly referred to as 4940 South Broadway,
Englewood, Colorado (the "Premises").

      B. Pursuant to the terms of that certain lease (the "Rosen Auto Lease")
dated January 29, 1999, by and between Moreland Properties LLC, as landlord and
successor in interest to W. Douglas Moreland, and Rosen Auto Leasing, Inc., as
tenant, Rosen Auto Leasing, Inc. leased a portion of the Premises more
particularly described in the Rosen Auto Lease (the "Rosen Auto Premises").

      C. Sublessor desires to sublease to Sublessee and Sublessee desires to
sublease form Sublessor certain premises more particularly described below.

                                    AGREEMENT

      1. Sublease. Sublessor subleases to Sublessee, and Sublessee accepts and
agrees to sublease, all of Sublessor's rights, title and interest as tenant
(except as otherwise may be excluded below) in and to the Prime Lease for the
Sublease Premises (defined below). The Prime Lease is incorporated herein, and
except as expressly excluded or limited by this Sublease, the provisions of the
Prime Lease will be the provisions of this Sublease and will govern the
occupancy of the Sublease Premises by Sublessee, the rights, privileges, duties
and obligations of Sublessee and the rights and privileges of Sublessor. For the
purposes of this Sublease, the following defined terms of the Prime Lease will
have the following meanings: "Tenant" means the Sublessee; "Landlord" means the
Prime Lessor with respect to obligations and duties of the landlord, and both
Prime Lessor and the Sublessor with respect to the rights and privileges of the
landlord; "Rent: means the

                                                                               1
<PAGE>

rent set forth in Paragraph 4 below and all other sums to be paid by the tenant
under the Prime Lease (other than minimum base rental payable under Section 6 of
the Prime Lease) or by Sublessee under this Sublease; and, "Term" means the Term
set forth in this Sublease. However, Sublessee acknowledges that Sublessor is
not agreeing to perform any of the obligations or covenants of Prime Lessor, as
both parties acknowledge that these are retained by Prime Lessor and will
continue to be performed by Prime Lessor.

      2. Rights and Duties. Sublessee agrees to perform and observe each and
every covenant, duty and obligation of the Sublessor, as tenant, under the Prime
Lease with respect to the Sublease Premises (except as may be expressly excluded
or limited by this Sublease). Sublessee acknowledges that the Sublessor will be
deemed to be substituted for the Prime Lessor under the Lease with respect to
the rights of the Prime Lessor, and the Sublessor will be entitled to exercise
all of the rights and privileges of the Prime Lessor as set forth in the Prime
Lease (except as may be modified by this Sublease). By way of illustration and
not by way of limitation, the Sublessor will be entitled to exercise any remedy
provided to the Prime Lessor under the Prime Lease in the event the Sublessee
breaches any condition, provision or covenant of this Sublease or the Prime
Lease. All consents under the Prime Lease required to be obtained by Sublessee
as tenant under the Prime Lease must be first obtained from the Prime Lessor and
the Sublessor, and all standards of and conditions to obtaining such consent
form Prime Lessor will also apply to the consent to be obtained from Sublessor.
All covenants of the tenant under the Prime Lease will be deemed to run for the
benefit of both Prime Lessor and Sublessor as if expressly set forth therein for
all purposes under this Sublease and the Prime Lease.

      3. Sublease Premises. The premises subleased to Sublessee consists of the
Premises, however, excluding therefrom the Rosen Auto Premises, and is more
commonly identified as 4940 South Broadway, Englewood, Colorado and 50 East
Chenango Avenue, Englewood, Colorado (the "Sublease Premises").

      4. Term. The sublease term commences on May 14, 1999, and expires one day
before the expiration of the Prime Lease. Sublessor hereby grants Sublessee the
right to exercise any renewal options expressly set forth in the Prime Lease,
and Sublessor hereby appoints Sublessee as its attorney-in-fact for the sole
purpose of giving any exercise notice(s) under the Prime Lease on behalf of
Sublessor in order to exercise any renewal option(s) thereunder.

      5. Rent. In consideration of this Sublease, Sublessee will pay to
Sublessor (a) base rent in the amount of $150,000.00 per year, payable in twelve
equal monthly installments of $12,500.00, and (b) additional rent equal to any
other amounts to be paid by the tenant under the Prime Lease or to be paid by
Sublessee under this Sublease. Payments will be paid in advance without notice,
set off or deduction on the first day of each month during the term. The monthly
installment of rent for any partial month will be prorated by the number of days
in such month.

      6. Use. The Sublease Premises may be used only for the operation of an
automobile dealership. servicing facilities and related uses. and for no other
purpose without Sublessor's consent, which may be withheld in Sublessor's sole
and absolute discretion.

      7. Notices. Any notice or demand from Sublessor to Sublessee or from
Sublessee to

                                                                               2
<PAGE>

Sublessor will be in writing and will be deemed duly served if mailed by
registered or certified mail, return receipt requested, or by overnight courier,
addressed to the address of each party set forth herein, or to such other
address as either party will have last designated by notice in writing to the
other parry. The foregoing notwithstanding, Sublessor may give a notice to pay
or quit pursuant to state law and any notices under the forcible entry and
detainer laws by posting the same on the Sublease Premises in accordance with
state law, with a courtesy copy thereof sent to Sublessee in accordance with
this paragraph, provided that the failure of Sublessee to receive such courtesy
copy so sent by Sublessor will not affect Sublessor's eviction process.

      Sublessee's Address for notices.  The Sublease Premises

      With a courtesy copy to           Lithia Real Estate, Inc.
                                        360 E. Jackson St.
                                        Medford, Oregon 97501

      Sublessor's Address for notices:  W. Douglas Moreland
                                        Moreland Properties LLC
                                        2727 S. Havana
                                        Aurora, Colorado 80014

      8. Prime Lease. This Sublease is subject and subordinate to the Prime
Lease. It is also subject and subordinate to any agreement to which the Prime
Lease is subject and subordinate Sublessee represents and warrants to Sublessor
that it has read the Prime Lease.

      9. Prime Lessor's Duties. If the Prime Lessor fails to perform under the
Prime Lease. Sublessee must send Sublessor written notice detailing the default
and non-performance by Prime Lessor. Sublessor will then promptly notify the
Prime Lessor and demand that the Prime Lease agreements be carried out by the
Prime Lessor, and Sublessor agrees to use commercially reasonable efforts to and
agrees to cooperate with Sublessee to enforce the Prime Lease at the sole cost
and expense of Sublessee, subject to any reimbursement to Sublessee from the
Prime Lessor as may be provided in the Prime Lease. Notwithstanding the
foregoing. nothing in this Sublease grants Sublessee the right to (a) declare a
default of Prime Lessor under the Prime Lease. (b) terminate the Prime Lease, or
(c) modify the Prime Lease or waive any rights of Sublessor thereunder.

      10. Assignment or Subletting. Any assignment or subletting will be subject
to the terms and conditions of the Prime Lease, and if no consent is required by
Prime Lessor under the terms of the Prime Lease, then the following provision
will control the agreement between Sublessor and Sublessee regarding any
assignment of this Sublease or subletting of the Sublease Premises:

            Sublessee may assign this Sublease or sublet all or any portion of
      the Sublease Premises to any entity that is owned at least seventy-five
      percent (75%) by Lithia Motors, Inc. without the prior written consent of,
      but with prior notice to, Sublessor. Sublessee may so assign or sublet to
      any other party only with the prior written consent of Sublessor. which
      consent shall not be unreasonably withheld or delayed if the proposed
      assignment or subletting is in connection with

                                                                               3
<PAGE>

      the sale of the business located on the Sublease Premises, or otherwise
      may be withheld in Sublessor's sole and absolute discretion in all other
      circumstances, and provided further that: (1) such consent to any
      assignment or subletting shall not relieve Sublessee from its obligations
      as primary obligor (and not as surety or guarantor) for the payment of all
      rental due hereunder, and for the full and faithful observance and
      performance of the covenants, terms and conditions herein contained; (2)
      the proposed subtenant or assignee is engaged in a business and the
      Sublease Premises will be used in a manner which is in keeping with the
      use provisions contained herein: (3) the proposed subtenant or assignee is
      a reputable party of reasonable financial worth in light of the
      responsibilities involved, and Sublessee shall have provided Sublessor
      with reasonable proof thereof: and (4) Sublessee is not in default
      hereunder at the time it makes its request. Any dissolution. merger.
      consolidation or other reorganization of Sublessee, or the sale or
      transfer of a controlling percentage of the corporate stock of Sublessee.
      shall constitute and be deemed an assignment for purposes of this
      Paragraph. Consent by Sublessor to an assignment or subletting shall not
      be construed to relieve Sublessee from obtaining the consent of Sublessor
      to any' further assignment or subletting, nor shall the collection of rent
      by Sublessor from any assignee, subtenant or other occupant be deemed a
      waiver of this covenant or an acceptance of the assignee or subtenant as
      Sublessee or a release of Sublessee from the covenants in this Sublease on
      Sublessee's part to be performed Sublessee and any assignee or subtenant
      shall be jointly and severally liable for the obligations of this
      Sublease. Sublessee shall not permit any part of the Sublease Premises to
      be used or occupied by any persons other than Sublessee and the employees
      of Sublessee, nor shall Sublessee permit any part of the Sublease Premises
      to be used or occupied by any licensee or concessionaire, or permit any
      persons to be upon the Sublease Premises other than Sublessee. and
      employees, customers and others having lawful business with Sublessee.

      11. Amendments to Prime Lease. Sublessor agrees that it will not amend the
Prime Lease in any- manner without first obtaining the prior written consent of
Sublessee, which will not be unreasonably withheld if such amendment does not
materially adversely affect Sublessee.

      12. No Authority. Except as otherwise expressly set forth herein,
Sublessee has no authority to contact or make any agreement with the Prime
Lessor regarding the Sublease Premises or the Prime Lease. Sublessee will
immediately send to Sublessor a copy of any written notice from Sublessee to
Prime Lessor.

      13. Changes. This Sublease can be modified only by an agreement in writing
signed by .the Sublessor and the Sublessee

      14. Counterparts. This Sublease may be signed in two or more counterparts,
all of which when taken together will constitute one original agreement.

      15. Additional Provisions.

                                                                               4
<PAGE>

            A. Sublessor covenants that it holds a valid leasehold estate for
the Sublease Premises and has the full right to make this Sublease. Sublessor
further warrants to Sublessee that the Prime Lease is in full force and effect,
that Sublessor is not in default in the payment of rent under the Prime Lease
and has received no written notice from Prime Lessor of any default by Sublessor
under the Prime Lease, and that there have been no amendments thereto other than
have been provided to Sublessee.

            B. Sublessor hereby covenants that it will pay to Prime Lessor, as
and when due, all rents and other amounts required to be paid pursuant to the
terms of the Prime Lease, and Sublessor will not do any act, nor fail to do any
act, which would cause the Prime Lease to become in default. Sublessor hereby
agrees to protect. defend, and hold harmless Sublessee from and against any
loss, liability, or claim arising out of Sublessor's breach of the Prime Lease.
except for any such breach arising out of Sublessee's failure to perform its
obligations hereunder. Sublessee hereby covenants that it will not do any act,
nor fail to do any act, which would cause the Prime Lease to become in default
Sublessee hereby agrees to protect. defend, and hold harmless Sublessor from and
against any loss, liability, or claim arising out of Sublessee's breach of the
Prime Lease, except for any such breach arising out of Sublessor's failure to
perform its obligations hereunder

            C. Sublessor agrees to immediately forward to Sublessee a copy of
any written notices received by Sublessor from Prime Lessor. In the event that
Sublessor fails to make any payments when due under the Prime Lease, or is
otherwise in default thereunder. Sublessee may. but is not obligated to. make
such payments on behalf of Sublessor, or take such other action as may be
necessary, in Sublessee's estimation to cure such default, or to prevent the
Prime Lease from being terminated. All amounts paid by' Sublessee to Prime
Lessor to cure Sublessor's default and all costs of taking such actions on
behalf of Sublessor. together with any interest or penalty required to be paid
in connection therewith, shall be payable on demand by Sublessor to Sublessee.
and if not so paid by' Sublessor. may be applied by' Sublessee to reduce
subsequent rent payments owed to Sublessor under this Sublease Notwithstanding
the foregoing. the covenants of Sublessor and Sublessee are deemed independent
covenants of the parties.

      16. Condition Precedent. This Sublease, if consented to by Prime Lessor
and Crouch Lessor in writing, will be effective as of May 14, 1999. If Prime
Lessor and Crouch Lessor do not give their consent to this Sublease on or before
August 12, 1999, this Sublease will be ineffective and void.

SUBLESSEE                               SUBLESSOR:

LITHIA REAL ESTATE, INC.                MORELAND PROPERTIES LLC

By: /s/                                 By: /s/
   --------------------------------        -------------------------------------
   Its: Vice President                     Its: Member
        Acquisitions

                                                                               5
<PAGE>

                                    GUARANTY

      For good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, and in consideration for, and as an inducement to
Sublessor to make the foregoing Sublease with Sublessee, the undersigned
absolutely and unconditionally guarantees, to Sublessor and its successors, the
full payment and performance and observation of all of the terms, covenants,
conditions, provisions and agreements therein provided to be performed or
observed by Sublessee, without requiring any notice of nonpayment,
non-performance or non-observance, or proof, or notice, or demand, all of which
the undersigned expressly waives. The undersigned expressly agrees that the
validity of this guaranty and the obligations of the undersigned as guarantor
hereunder will in no way be terminated, affected or impaired by reason of the
assertion by Sublessor against Sublessee of any of the rights or remedies
reserved to Sublessor pursuant to the provisions of the Sublease. Sublessor may
grant extensions of time and other indulgences and may modify, amend and waive
any of the terms, covenants, conditions, provisions or agreements of the
Sublease, and discharge or release any party or parties to the Sublease, all
without notice to the undersigned and without in any way impairing, releasing or
affecting the liability or obligation of the undersigned. The undersigned agrees
that Sublessor may proceed directly against the undersigned without taking any
action under the Sublease and without exhausting Sublessor's remedies against
Sublessee; and no discharge of Sublessee in bankruptcy or in any other
insolvency proceedings will in any way or to any extent discharge or release the
undersigned from y liability or obligation under this guaranty. The undersigned
further covenants and agrees that this guaranty will remain and continue in full
force and effect as to any renewal, modification or extension of the Sublease,
and that no subletting and no assignment of the Sublease, with or without
Sublessor's consent, will release or discharge the undersigned. As a further
inducement to Sublessor to make the Sublease and in consideration of the
Sublease, Sublessor and the undersigned covenant and agree that in any action or
proceeding brought by either Sublessor or the undersigned against the other on
any matter whatsoever arising out of, under, or by virtue of any of the terms,
covenants, conditions, provisions or agreements of the Sublease or of this
guaranty, Sublessor and the undersigned will and do hereby waive trial by jury.
In the event Sublessor or the undersigned institute any action or proceeding
against the other relating to this guaranty, the unsuccessful party in such
action or proceeding shall reimburse the successful party for reasonably
attorneys' fees and other costs and expenses incurred therein by the successful
party. All rights under this guaranty will inure to the benefit of any
successors or assigns of Sublessor.

      Dated as of the 14th day of May, 1999.

                                        GUARANTOR:

                                        LITHIA MOTORS, INC.

                                        By: /s/
                                           -------------------------------------
                                           Vice President, Acquisitions

                                        Address:
                                        360 E. Jackson Street
                                        Medford, Oregon  97501

                                                                               6

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