Court Opinion

ID: 9899009
Source: CourtListenerOpinion
Date Created: 2023-11-15 18:04:30.588339+00
Date Added: 2024-06-11T09:19:15.042191
License: Public Domain

Filed 11/15/23 Grosvenor Gibraltar Associates v. McMillan Bros. Electric CA1/1
                  NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publi-
cation or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or or-
dered published for purposes of rule 8.1115.

          IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                                      FIRST APPELLATE DISTRICT

                                                    DIVISION ONE

 GROSVENOR GIBRALTAR                                                      A166226
 ASSOCIATES,
           Plaintiff and Appellant,                                    (San Francisco City
                                                                    & County
 v.                                                                    Super. Ct. No.
 MCMILLAN BROS. ELECTRIC,                                           CGC21594639)
 INC.,
           Defendant and Respondent.

          This is an appeal from a judgment in a commercial lease dispute
involving the setting of fair market rent for an additional lease term. Under
the lease, the lessee McMillan Electric, Inc. was entitled to exercise a renewal
option by giving written notice to the lessor Grosvenor Gibraltar Associates.
McMillan seemingly gave such notice, triggering a multi-step process set
forth in the option provisions of the lease to determine the fair market rent
for the new term. After the parties proceeded through several of these steps,
McMillan took the position its prior written notice was not, in fact, an actual
exercise of the option but merely notice of an intent to exercise it at some
point in the future and therefore it was not contractually obligated to comply
with the option provisions of the lease. At this point, Grosvenor refused to
take the next step in the rent determination process unless and until

                                                                1
McMillan confirmed it was, in fact, exercising the renewal option.
Eventually, the parties reached a negotiated resolution that entailed
McMillan confirming in writing it was exercising the option and Grosvenor
approving a change of use of part of the premises and a sublease of the entire
premises. This agreement did not, however, resolve the rent for the new
term, and Grosvenor sued for declaratory relief.
      The matter was tried by the court solely on the basis of documents,
namely the lease and correspondence at the time between the parties.
Ultimately, the issue boiled down to whether, after McMillan announced it
had not exercised the option and was not contractually bound by the option
provisions of the lease, Grosvenor was nevertheless required to take the next
step in the fair market rent determination process (disclosing its consultant’s
opinion as to fair market rent). The trial court ruled, as a matter of law, that
Grosvenor had waived McMillan’s compliance with the first step of the option
process (written notice by McMillan that it was, in fact, exercising the
renewal option). This ruling resulted, in turn, in the court ruling McMillan’s
consultant’s fair market rent opinion, alone, set the rent.
      We reverse and remand for further proceedings consistent with this
opinion.
                               BACKGROUND
The Pertinent Option Provisions of the Lease
      The pertinent option provisions of the lease are as follows:
            “2.6 Renewal Option [¶] . . . [¶]
                  “(b) Tenant shall have the right and option . . . to extend
      the Original Term . . . , the first Renewal Term commencing on the first
      day of March, 2022. . . . Each Renewal Term shall be at the Base Rent
      provided in Section 3.1.3(b) hereof . . . and otherwise on all the same
      terms covenants and conditions contained in this Lease. Tenant may
      exercise each Renewal Option (i) no earlier than the first day of the

                                       2
twelfth (12th) calendar month prior to the Original Expiration Date
(with respect to the first Renewal Term) and (ii) no later than the first
day of the eighth (8th) calendar month prior to the Original Expiration
Date (with respect to the first Renewal Term). . . . In addition, Tenant
may exercise each Renewal Option only by giving Landlord written
notice of the exercise of the Renewal Option on any date included in the
Intervening Period (and the date when Tenant shall have timely
exercised the Renewal Option in accordance with the provisions of this
Section 2.6 is herein referred to as the ‘Exercise Date’). . . . In the event
that Tenant shall fail or, due to a default, shall be unable to validly
exercise a Renewal Option in a timely manner in accordance with the
provisions of this paragraph (b), the Renewal Option shall terminate or
be deemed to have terminated.”

        “3.1.3 Adjustment of Base Rent Upon Each Renewal Term
[¶] . . . [¶]

             “(b) ‘Fair Market Rent’ shall mean the rate being charged
to similarly situated Tenants for comparable space in similar buildings
in the appropriate vicinity. . . . Fair Market Rent shall be determined
by Landlord with written notice (the ‘Notice of Option Term Rent’)
delivered to Tenant no later than fifteen (15) days following receipt of
Tenant’s notice of exercise of the option. . . . If Tenant disagrees with
Landlord’s proposed Base Rent, the parties shall have a period of
fifteen (15) days ([]the ‘Negotiation Period’) in which to attempt to
reach agreement on the Fair Market Rent. If agreement cannot be
reached before the expiration of the Negotiation Period, each party
shall appoint a consultant. . . . Within ten (10) days after the
expiration of the Negotiation Period, each consultant shall
simultaneously submit to the other a written opinion of Fair Market
Rent (each party’s ‘best and final’ offer). If only one consultant timely
submits its ‘best and final’ opinion, then the figure proposed by that
consultant shall be fixed as the Base Rent for the first year of the
option term.

            “(c) If the two such opinions are within five (5%) percent of
the lower of the two figures, then the Base Rent for the first year of the
option term shall be the average of the two such opinions. If not, then
within ten (10) days after the exchange, the two consultants shall select
a neutral arbitrator. . . . Neither the parties nor the parties’

                                  3
      consultants shall disclose to the Neutral their ‘best and final” offers,
      nor details of any prior negotiations between the parties.

                   “(d) Within thirty (30) days after the appointment of the
      Neutral, the Neutral shall independently render an opinion of the Fair
      Market Rent. . . . The three opinions of Fair Market Rent shall be
      compared, and the Base Rent for the first year of the option shall be the
      ‘best and final’ offer of the consultant which is closest to the Neutral’s
      independent opinion.

                   “(e) If the foregoing process has not been concluded prior to
      the commencement of the option term . . . , Tenant shall pay the
      monthly rent at the rate submitted as Landlord’s ‘best and final’ offer
      from the first day of the option term until a decision is reached. If the
      amount of the Fair Market Rent as determined [by] the foregoing
      process is greater than or less than Landlord’s ‘best and final’ offer,
      then any adjustment required to adjust the amount previously paid
      shall be made by the appropriate party within ten (10) days after such
      determination of Fair Market Rent.”

      Thus, the lease spells out the following process for determining rent
during the first option period:
                   One, the lessee gives written notice of exercise of the
            renewal option. Such written notice is to be given between the
            first of the twelfth month and the first of the eighth month prior
            to the expiration of the original lease term.

                  Two, within 15 days of receiving the lessee’s written
            exercise of the renewal option, the lessor is to give the lessee
            written notice of lessor’s intended “base rent” for the option
            period.

                  Three, if the lessee disagrees with the lessor’s intended
            base rent, the parties are to enter into a 15-day negotiation
            period.

                   Four, if negotiations do not resolve the dispute, the parties,
            within 10 days, are to hire consultants and simultaneously share
            their consultant’s opinion as to fair market rent.

                                        4
                   Five, if the consultants’ opinions are within five percent of
            one another, the base rent for the first year is the average of the
            two. If the opinions differ more significantly, within 10 days
            after the exchange, the two consultants will select a neutral
            arbitrator.

                   Six, within 30 days after selection, the neutral arbitrator
            will render an independent opinion. The consultant’s opinion
            closest to the neutral’s opinion shall fix the base rent for the first
            year.

The Operative Events

      By letter dated January 20, 2021, McMillan, by its CEO and President
William Musgrave, sent Grosvenor a letter stating in pertinent part:
      “This letter serves to notify the Landlord that the Leasee [sic] will be
      exercising its option to renew the leases noted above for another 5 year
      term (the ‘First Renewal term’).

      “Per the Original Lease Agreements . . . , the Original Term for those
      leases ends on February 28, 2022.[1] Beginning on March 1, 2021 and
      ending on February 28, 2022 (the final period of the Original Term), the
      rent paid by McMillan Electric will be. . . .

      “In agreement with the renewal terms noted within the Original Lease
      Agreements, effective March 1, 2022, the rent will increase to Fair
      Market Rent, which shall be determined by the Landlord and provided
      to McMillan Electric with written notice no later than 15 days following
      receipt of this notice to exercise our lease option. Section 3.1.3 of the
      Original Lease clearly notes how Fair Market Rent is to be calculated
      and how McMillan Electric shall be notified. [¶] . . . [¶]

      “Other than the request to alter the rent payment for the final period of
      the Original Term, all other terms, conditions, and provisions of the
      Original Lease shall be incorporated into the First Renewal Term and

      1 Thus, the letter was dated 11 days before the commencement of the
contractually specified “ ‘Intervening Period’ ” (i.e., the “first day of the
twelfth (12th) calendar month prior to the Original Expiration Date”).

                                        5
      are to remain in full force and effect until the First Renewal Term
      agreement is duly signed. . . .”

      At some point, Grosvenor provided written notice of its intended base
rent for the option period.2 McMillan disagreed with the intended base rent,
and the parties engaged in extended, but ultimately unsuccessful,
negotiations.3
      Grosvenor eventually sent McMillan a letter dated June 30, 2021, that
stated:
      “You have exercised your option to renew this lease for another 5-year
      term (the ‘First Renewal Term’). We provided you with our proposal for
      Fair Market Rent. Since you have not agreed with that or proposed a
      compromise, then the Negotiation Period is over and the lease provides
      that each of us will appoint a qualified consultant who are to
      simultaneously submit to the other a written opinion of Fair Market
      Rent. If the two opinions are within 5% of the lower of the two figures,
      then the Base Rent for the first year of the option shall be the average
      of the two such opinions. If not, then the two consultants are to select a
      qualified Neutral consultant who shall independently render an
      opinion of the Fair Market Rate. The Base Rent for the first year of the
      option term shall be whichever consultant’s opinion is closest to that of
      the Neutral consultant.

      “Attached please find a letter from our consultant with his best and
      final opinion of Fair Market Value [sic] for this space. The .pdf is
      password protected so that you will not be able to access the
      information until you have provided us with the information from your
      consultant. If you do not provide us with the best and final opinion of
      Fair Market Value [sic] from your qualified consultant within 10 days

      2 The record does not reflect whether Grosvenor provided this notice
within 15 days of receiving McMillan’s January 20th letter.
      3  Thus, the negotiations continued for a significantly longer period
than the 15 days specified in the lease. The record does not reflect the reason
for this, although we note McMillan’s January 20th letter additionally asked
for a reduction of the rent for the final year of the original lease term due to
the economic impact of the Covid-19 pandemic.

                                       6
      of this letter, then we will provide you with the password and,
      pursuant, to Paragraph 3.1.3(b) the figure proposed by our consultant
      shall be fixed as the Base Rent for the first year of the option term.”

      Two days later, McMillan, through counsel, responded by letter dated
July 2, 2021. This letter stated in pertinent part:
      “Mr. Werby [(Grosvenor’s Manager)] claims that Tenant has exercised
      its option to renew the Lease for another five year term. That
      statement is incorrect. The Lease is very clear that the first renewal
      option may only be exercised after the first day of the 12th calendar
      month prior to the expiration date. (See Section 2.6(b)). The expiration
      date is February 28, 2022, so the earliest that the option may be
      exercised is February 1, 2021. Tenant’s letter to Landlord was sent on
      January 20, 2021.

      “Furthermore, Tenant’s letter of January 20, 2021 merely referenced an
      intention to exercise the renewal option. Tenant never followed up
      with an actual exercise of the renewal option. Quoting the letter,
      Tenant stated ‘This letter serves to notify the Landlord that the
      Leasee [sic] will be exercising its option. . . .’ This is consistent
      with the fact that Tenant was not permitted to exercise the renewal
      option until a later date. The letter goes on to propose business terms
      that would have an impact on Tenant’s final decision as to whether to
      actually exercise the option. Landlord never responded to these
      proposed terms, which requested a slight rent reduction due to Covid-
      19. . . .

      “We note that your letter indicated that the ‘negotiation period’ has
      expired. Even if Tenant had properly exercised the renewal option by
      its January 20, 2021 letter, the 15-day negotiation period would have
      expired, and Landlord would have missed its deadline to appoint a
      consultant and submit such consultant’s opinion of fair market rent, as
      defined in the Lease. Given this, Landlord would not have the right to
      unilaterally establish a new 10-day deadline. We point this out for
      informational purposes only given that Tenant did not exercise the
      option in the manner specifically required by the Lease.

      “Tenant remains interested in discussing the fair market rent for the
      Premises, based on the parameters set forth in the Lease. . . .

                                       7
      “We suggest that the parties confirm a reasonable period of time to
      negotiate the fair market rent. . . .”

      One week later, McMillan’s attorneys sent a second letter dated July 9,
2021, which stated:
      “We have not received a response to our letter dated July 2, 2021.
      Although our position is that the renewal option was not exercised by
      Tenant, and that the 10-day response deadline is not applicable, we are
      enclosing McMillan Electric’s opinion of Fair Market Rent for the
      Premises, as prepared by its real estate broker. This is submitted
      solely for the purpose of satisfying any obligations that may arise under
      Section 3.1.3(b) of the Lease (if any), and HCM Commercial
      Properties/Chris Harney is appointed for that purpose.

      “McMillan Electric is willing to discuss confirming an agreement
      concerning a reasonable timeline and process for confirming the Fair
      Market Rent. Please contact me if you would like to proceed with such
      a discussion. In the meantime, Tenant reserves all rights and defenses
      with respect to this matter. We look forward to hearing from you.”

      Two weeks later, Grosvenor responded through counsel by letter dated
July 25, 2021. This letter stated in pertinent part:
      “We understand the Tenant contests whether it has exercised an option
      terms for the premises. Suffice it to say the voluminous emails and
      actions by the Tenant, and Landlord’s good faith responses and
      reasonable reliance on Tenant’s communications and actions make it
      irrefutable that both parties were acting as if the options terms have
      been exercised. We are prepared to litigate this issue if necessary. The
      more productive route, however, would be to proceed to reach
      agreement regarding the applicable Fair Market Rent (FMR) for the
      option term rent for each of the premises at issue.

      “. . . Communications indicate Tenant rejects Landlord’s proposed
      option term base rent amounts and that negotiations are at an impasse.
      Therefore, agreement for Fair Market Rent was not reached during the
      Negotiation Period. Lease Sec. 3.1.3(b). Each party thereafter within
      10 days after the expiration of the Negotiation Period shall appoint a

                                       8
      consultant to determine Fair Market Rent with certain specified
      credentials. On June 30, 2021, our client timely provided notice of its
      consultant. The Leases provide for simultaneous exchange of
      consultant opinions. On July 9, 2021, we acknowledge receipt of
      Tenant’s consultant’s opinion of Fair Market Rent. Landlord advises
      that Tenant’s consultant’s opinions of Fair Market Rent are rejected.

      “Because the two opinions of the parties’ respective FMR opinions are
      not within five percent of each other, then within 10 days of July 9, the
      two consultants shall select a neutral arbitrator (the ‘Neutral’). Lease
      Sec. 3.1.3(c). Landlord will agree to provide Tenant with the password
      to Landlord’s consultant’s opinion of FMR only if Tenant retracts its
      position that the option term has not been exercised, and affirmatively
      represents in writing that it is bound by the lease process to determine
      FMR. This writing must occur within 10 days of the date of this
      correspondence. Assuming, your clients wish to continue to participate
      in the process to determine FMR and avoid litigation, and provides
      written representation that it agrees to be bound by the FMR process
      because the option term has been duly exercised by Tenant, then, and
      only then will Landlord direct its consultant to contact Tenant’s
      consultant directly for the [purpose] of selecting and appointing a
      neutral consultant (‘Neutral’). . . .”

      McMillian responded by letter dated July 30, 2021. This letter stated
in pertinent part:
      “For a number of reasons, relating in part to the effect of COVID on its
      business, the loss of a subtenant, issues related to the discovery of
      asbestos and of certain previously undisclosed zoning restrictions, my
      client no longer wishes to renew the Lease. This—no dispute here—is a
      change of plan. Until relatively recently McMillian intended to renew,
      and told your client of its intent. You claim that the expression of our
      intent to exercise an option is the legal equivalent of signing the Lease
      renewal. We disagree, but our first choice is not to spend money
      litigating that issue, but instead to come [to] an agreement about the
      terms of a termination of the Lease. . . .

      “As to what the rent for any option term would be, should you be
      correct that McMillan is committed to that term, that has now been

                                       9
established. It would be the amount proposed by Mr. Harney, for the
following reasons.

“. . . On June 30, 2021 Todd Werby sent a PDF document that
supposedly contained the ‘best and final’ offer of Landlord’s consultant.
Mr. Werby password-protected it, stating that the password would be
provided only when we provided our consultant’s best and final offer.
This was reasonable, in light of the requirement for simultaneous
exchange. Mr. Werby set a deadline of July 10 for us to provide our
own consultant’s best and final offer.

“On July 9, before the deadline set by Mr. Werby, we disclosed Chris
Harney as our consultant and gave you our ‘best and final offer. . . .’

“But, neither you nor Landlord nor consultant have transmitted
anything. We’ve waited three weeks. You have told us that the
numbers are more than 5% apart, but we have no way on knowing
that. . . .

“We now know from your letter of July 25th that you don’t even intend
to give us your consultant’s number, at least, not unless and until
McMillan comes around to your position on the legal effect of recent
communications. We’re not doing that. [¶] . . . [¶]

“. . . [B]ecause ‘only one consultant’ (Mr. Harney) has timely submitted
his opinion, his number is the rent for the option term. . . .

“Now, I cannot emphasize strongly enough: this does not mean that we
are agreeing to a renewal term, even at Mr. Harney’s rent number. It
simply means that if you are correct that McMillan is committed
against its current will to a renewal term, the rent will be that
determined by Mr. Harney. . . .

“Perhaps your client does not wish to enter an option term with the
rent set by Mr. Harney, in which case we should reach an agreement.
As stated above, my client is willing to modestly extend out the original
term, so that your client has all the contractually required time (eight
months) to find a replacement. The rent for any extension . . . can be
negotiated, and it can be more than the current monthly rent.”

                                10
      The record does not indicate what transpired during the following
month. Apparently, McMillan’s CEO and President, sent an e-mail directly
to Grosvenor’s board of directors, which precipitated a letter dated August 26,
2021, from Grosvenor’s attorneys to McMillan’s attorneys. This letter stated
in pertinent part:
      “We are in receipt of a copy of an email dated August 25, 2021, sent by
      your client, William Musgrave, directly to our client’s board of
      directors. We request that all future communications to the lessor
      regarding this commercial lease dispute are sent to my attention. In
      addition, our client takes exception with several items in Mr.
      Musgrave’s email:

      “There has been no delay in response to a request for determining a fair
      market rent because your client continues to take the position it has
      not exercised the option term. In effect, your client wants to negotiate
      a fair market rent and if it does not achieve a desired result then claim
      it has no obligation under the option term that our client contends has
      been duly exercised. This is a fundamental first step before option
      term rent can be negotiated. Either the option term is in play or it is
      not. . . .

      “We propose that our client will agree to enter forthwith into lease
      negotiations with the prospective tenant provided that such discussions
      do not constitute any waiver of lease rights under the respective leases
      for the Premises. . . .”

      Nearly three months later, a string of e-mails commencing November
15, 2021 confirmed an agreement to allow a change of use to part of the
leased premises and that McMillan would confirm that “the option to extend
the lease term has been exercised.” McMillan’s e-mail stated: “In light of the
very favorable sublease opportunity with Mantle, and assuming good faith in
Grosvenor’s approvals and review of this matter, we hereby confirm, as
requested by your e-mail, that the option to extend the lease term has been
exercised and ask that you now approve all outstanding requests relating to

                                      11
the sublease so that we may move to conclusion this week.” Grosvenor
approved the sublease of the entire premises a month later, on December 10,
2021.
        The record does not reflect what transpired during the following month
and a half. On February 20, 2022, Grosvenor sent McMillan a letter
providing the password to the .pdf containing Grosvenor’s consultant’s
opinion of the fair market rent and stating “[d]emand is made for the tenant
to pay rent consistent” with that opinion “commencing March 1, 2022[,] when
the option term commences as required by Lease Section 3.1.3(e).”4
        McMillian, through its CEO and President, responded by letter dated
March 7, 2022. This letter stated in pertinent part:
        “As per the terms of the lease and as noted by Todd Werby on June 30,
        2021, both parties were to provide their ‘best and final’ opinions by July
        10, 2021. At that time, a PDF was provided to ME that supposedly
        included the ‘best and final’ opinion of GGA, but the document was
        locked with a password. On July 9, 2021, ME disclosed Chris Harney
        as our consultant and gave GGA our ‘best and final’ opinion. . . .
        [¶] . . . [¶]

        “As a result of GGA not providing its ‘best and final’ opinion timely . . .
        we believe fair market rent is [as opined by Harney].”

The Trial Court Rulings
        As to whether Grosvenor was required to proceed with the rent
determination process after McMillan stated it had not exercised the option
for an additional lease term, the court ruled as follows:

        4As we have recited, Section 3.1.3(e) becomes operative when “the
foregoing [fair market rent determination] process has not been concluded
prior to the commencement of the option term” and spells out the interim
rent (“at the rate submitted as Landlord’s ‘best and final’ offer”) until the fair
market rent process is concluded, with appropriate adjustments then made to
the rent paid to date.

                                         12
       “Despite its July 2 protestations [that it had not exercised the
option for an additional lease term], on July 9, McMillan nevertheless
in ‘satisfying any obligations that may arise under Section 3.1.3 (b)’
submitted the opinion by its consultant Mr. Harney of its assessment of
FMR with supporting documentation. (Exhibit E) This opinion was
effectively the only timely opinion submitted as Grosvenor did not
reveal the password for its consultant’s opinion, even after receiving
McMillan’s July 9 disclosure.”

      “Paragraph 3.1.3 (b) of the lease provides:

       “ ‘Within ten (10) days after the expiration of the Negotiation
Period, each consultant shall simultaneously submit to the other a
written opinion of Fair Market Rent (each party’s “best and final”
offer). If only one consultant timely submits its “best and final” opinion,
then the figure proposed by that consultant shall be fixed as the Base
Rent for the first year of the option term.’ . . . (Exhibit C)

       “The issue is whether, when McMillan provided its consultant’s
evaluation on July 9, that in turn obligated Grosvenor to unlock its
password protected information for a ‘simultaneous’ exchange of
information. (Section 3.1.3 (b)) Or, because McMillan claimed on July
2 that it had not exercised its option to renew, did that instead trigger a
condition precedent, namely Section 2.6 of the lease contract–requiring
McMillan to first ‘retract’ its July 2 position even when it ultimately
timely complied with Grosvenor’s demands for consultant information,
in its July 9 letter?

      “The Court declares, once McMillan complied with the
requirement to simultaneously exchange FMR information, pursuant to
section 3.1.3(b), and as set forth in the explicit conditions outlined in
Grosvenor’s letter of June 30, it had complied with the terms of the
lease(s) and Grosvenor was then obligated to do the same.

       “Indeed, in its letter of July 25, 2021, Grosvenor acknowledged, ‘it
is irrefutable that both parties were acting as if the options terms have
been exercised[.]’ (Exhibit F) Grosvenor noted: ‘The leases provide for
simultaneous exchange of consultant opinions.’ They further
acknowledge ‘On July 9, 2021, we acknowledge receipt of Tenant’s
consultant’s opinion of Fair Market Rent.’ (Exhibit F)

                                 13
            “Yet, rather than comply with the clear terms of the leases (and
      its own demands), once McMillan timely provided its data, Grosvenor
      did not release the password protection. Instead, Grosvenor simply
      advised that McMillan’s consultant’s opinions of FMR were ‘rejected.’
      (Exhibit F)

            “Grosvenor added: ‘We trust this process will proceed as the
      Lease provides. . . . .’ (Exhibit F) Despite its expressed desire to
      adhere to the terms of the lease, it [Grosvenor] now seeks to effectively
      bypass the clear requirements of section 3.1.3(b) and move directly to
      section 3.1.3(c), notwithstanding its own failure to timely
      simultaneously submit (by providing the password to unlock) its
      consultant’s opinions.”

      The court went on to rule that Grosvenor “apparently waived the 15-
day negotiation period,” “chose not to timely respond to the arguments
McMillan raised about whether it had ‘exercised’ the option to renew,” and
“failed to adhere to the 10-day simultaneous disclosure [period] set forth in
its own letter of June 30 and as clearly required in Section 3.1.3(b).”
      It further ruled Grosvenor, as a matter of law, “waived” the
requirement that McMillan actually exercise the renewal option as a
predicate to proceeding with the fair market rent determination process
because Grosvenor “accepted the ‘benefit’ of McMillan’s consultant’s opinions
and supporting documentation without providing its own consultant’s
information.” “Whatever McMillan’s protestations, the fact is it timely
complied with Section 3.1.3(b) and the demands set forth in Grosvenor’s
letter of June 30.” McMillan “did not fail to fulfil a term of the contract
because it turned over its consultant’s opinions.” Accordingly, “by its own
words and actions, Grosvenor waived the right to insist that McMillan first
retract its position regarding exercising the option to renew (Exhibit F, July
25 letter), or its right to proceed directly to Section 3.1.3 (c) (selecting a
neutral arbitrator), as it did not first comply with Section 3.1.3(b).”

                                         14
                                 DISCUSSION
Standard of Review
      The parties agree our standard of review of the judgment interpreting
the parties’ obligations under the lease is de novo.
      McMillan suggests the standard of review pertaining to the trial court’s
waiver ruling is more nuanced. McMillan recognizes that “ ‘where there are
no disputed facts and only one reasonable inference may be drawn, [waiver]
can be determined as a matter of law.’ ” (DuBeck v. California Physicians’
Service (2015) 234 Cal.App.4th 1254, 1265, quoting Gill v. Rich (2005)
128 Cal.App.4th 1254, 1264, fn. 10.) But it asserts that if the trial court’s
inference “was reasonable” we are “bound by it under the deferential
substantial evidence standard even if a different reasonable inference might
have been drawn.” This assertion is pertinent to cases where waiver has
been decided as a question of fact. (See Bower v. Inter-Con Security Systems,
Inc. (2014) 232 Cal.App.4th 1035, 1043 (Bower).)5 Here, however, the trial
court, citing DuBeck, decided waiver as a matter of law, a legal ruling we
review de novo. (See Bower, at p. 1043.)

      5 As Division Three of this court explained in Bower, “[t]he question of
waiver is generally a question of fact, and the trial court’s finding of waiver is
binding on us if it is supported by substantial evidence. [Citation.] ‘We infer
all necessary findings supported by substantial evidence [citations] and
“construe any reasonable inference in the manner most favorable to the
judgment, resolving all ambiguities to support an affirmance.” ’ [Citation.]
Reversal is not justified simply because the trial court could have potentially
reached a different conclusion on the question of waiver. ‘[R]ather, we may
reverse the trial court’s waiver finding only if the record establishes a lack of
waiver as a matter of law.’ ” (Bower, supra, 232 Cal.App.4th at p. 1043.)

                                       15
Lessor Did Not Waive Requirement That Lessee Exercise Renewal
Option
      As our Supreme Court has “explained in various contexts, ‘ “waiver”
means the intentional relinquishment or abandonment of a known right.’
(Bickel v. City of Piedmont (1997) 16 Cal.4th 1040, 1048. . . .)[6] Waiver re-
quires an existing right, the waiving party’s knowledge of that right, and the
party’s ‘actual intention to relinquish the right.’ (Bickel, at p. 1053.)
‘ “Waiver always rests upon intent.” ’ (City of Ukiah v. Fones (1966) 64 Cal.2d
104, 107 . . . [(Fones)].) The intention may be express, based on the waiving
party’s words, or implied, based on conduct that is ‘ “so inconsistent with an
intent to enforce the right as to induce a reasonable belief that such right has
been relinquished.” ’ (Savaglio v. Wal-Mart Stores, Inc. (2007)
149 Cal.App.4th 588, 598 . . . .)” (Lynch v. California Coastal Com. (2017)
3 Cal.5th 470, 475 (Lynch).) The burden of proof lies with “ ‘ “ ‘the party
claiming a waiver of a right to prove it by clear and convincing evidence that
does not leave the matter to speculation, and “doubtful cases will be decided
against a waiver.” ’ ” ’ ” (Southern Cal. Edison Co. v. Public Utilities Com.
(2000) 85 Cal.App.4th 1086, 1107 (Southern Cal. Edison), quoting DRG/Bev-
erly Hills, Ltd. v. Chopstix Dim Sum Cafe & Takeout III, Ltd. (1994)
30 Cal.App.4th 54, 60 (DRG/Beverly Hills).) “Equivocal or speculative evi-
dence of a waiver is insufficient.” (Southern Cal. Edison, at p. 1109.)
      In ruling Grosvenor waived the first step of the renewal option pro-
cess—that McMillan give written notice of its exercise of the option—the trial
court relied on the principle that “[w]aiver may be implied by conduct that is

      6Abrogated by statute in regard to its construction of the Permit
Streamlining Act (Stats. 1998, ch. 283, § 5).
                                        16
so inconsistent with an intent to enforce a right as to induce a reasonable be-
lief that such right has been relinquished,” citing Lynch. It further observed
that in Gould v. Corinthian Colleges, Inc. (2011) 192 Cal.App.4th 1176
(Gould), the appellate court stated “ ‘acceptance of benefits under a lease is
conduct that supports a finding of waiver.’ ” Based on these two propositions,
the court concluded Grosvenor “accepted the ‘benefit’ of McMillan’s consult-
ant’s opinions and supporting documentation without providing its own con-
sultant’s information” and thus “waived” the threshold requirement that
McMillan actually exercise the option to renew. Neither Lynch nor Gould
warrant such a conclusion.
      In Lynch, the plaintiffs obtained a development permit from the Cali-
fornia Coastal Commission that was subject to several special conditions.
(Lynch, supra, 3 Cal.5th at p. 474.) Additionally, before the permit could is-
sue, the plaintiffs had to record deed restrictions stating the special condi-
tions were covenants, conditions, and restrictions on the use and enjoyment
of their premises, which they did. (Id. at p. 475.) About this same time, the
plaintiffs filed a petition for writ of mandate, challenging the conditions.
(Ibid.) The commission moved for judgment on the ground the plaintiffs
“waived” their challenges to the conditions by “accepting the permit condi-
tions and constructing the project.” (Ibid.) The trial court granted the peti-
tion, and the Court of Appeal affirmed in a split decision. (Ibid.)
      The Supreme Court reversed, concluding the issue was not one of
waiver, but of “equitable forfeiture.” (Lynch, supra, 3 Cal.5th at p. 476, ital-
ics omitted.) “In the land use context,” explained the high court, “a land-
owner may not challenge a permit condition if he has acquiesced to it either
by specific agreement, or by failure to challenge the condition while accepting

                                       17
the benefits afforded by the permit.” (Ibid.) Rather, the owner must gener-
ally first challenge allegedly unlawful conditions in administrative manda-
mus proceedings. (Id. at p. 477.) Further, “permit holders” are generally
“obliged to accept the burdens of a permit along with its benefits.” (Id. at
p. 478.) The court declined to carve out a severability exception based on as-
serted exigencies necessitating the construction of the seawall. It “could be
difficult,” said the court, “to determine whether a particular condition is truly
severable,” the instant conditions being ones in point. (Id. at p. 480.) Thus,
while the plaintiffs had timely filed an administrative mandamus challenge,
“they forfeited their objections [to the permit] by constructing the project.”
(Id. at p. 482.) Accordingly, other than setting forth the fundamental require-
ments of waiver, to which we will return, Lynch is wholly inapposite to the
case at hand.
      In Gould, the lessor of a commercial property sought a declaration that
the lessee had not satisfied one of the conditions to permit early termination
of the lease, specifically that the lessee pay the lessor $136,500 “ ‘in cash or
immediately available funds’ ” on or before the early termination date.
(Gould, supra, 192 Cal.App.4th at p. 1178.) The lessee had already paid the
lessor $136,500 at the time it delivered notice of exercising its right to early
termination, as also required by the lease. (Ibid.) The lessee sent the lessor
a check for $120,057.10 in conjunction with applying $16,442.90 of its secu-
rity deposit to which it believed it was entitled (for a total of $136,500).
(Ibid.) The lessor responded that the lessee had breached the lease by apply-
ing a portion of the security deposit, but retained the check and other funds
the lessee had paid. The trial court ruled the lessee had, in fact, satisfied the
lease condition, that even if it had not, it had substantially complied, and

                                        18
that in any case, by retaining the monies, the lessor had waived any sup-
posed noncompliance with the final payment condition. (Id. at p. 1179.) The
Court of Appeal affirmed on the latter ground, i.e., that the lessor had “ac-
cepted and retained” the payments. (Ibid.)
      Notably, the lessee in Gould never took the position it had not exercised
its right to early termination of the lease and thus was not contractually re-
quired to satisfy the payment requirements. To the contrary, it maintained it
was in compliance with the early termination provisions. McMillan, in con-
trast, maintained (repeatedly) that it had not exercised the renewal option
and therefore had no obligation to comply with any of the option provisions of
the lease, including the requirement that it share its consultant’s fair market
rent opinion. Neither party cites, nor are we aware of, any authority that
supports waiver where the party seeking to invoke the doctrine insisted at
the time that it was not bound by contractual provisions it belatedly claims
were waived.
      The trial court ruled, specifically, that Grosvenor “accepted the ‘bene-
fit’ ” of McMillan’s disclosure of its consultant’s fair market rent opinion. We
cannot agree with this characterization of Grosvenor’s conduct.
      As we have recited, after Grosvenor sent McMillan its consultant’s fair
market rent opinion with an encryption pending McMillan’s timely exchange
of its consultant’s opinion, McMillan unequivocally responded that it had not,
in fact, exercised the renewal option and therefore it was under no contrac-
tual obligation to timely share its consultant’s opinion. Instead, McMillan
“suggest[ed] that the parties confirm a reasonable period of time to negotiate
fair market rent.” One week later, McMillan sent a follow up letter complain-
ing Grosvenor had not yet responded. McMillan began by reiterating it had

                                       19
not, in fact, exercised the renewal option and therefore it was under no con-
tractual obligation to share its consultant’s opinion. McMillan then stated it
nevertheless had enclosed its consultant’s opinion “solely for the purpose of
satisfying any obligations that might arise under Section 3.1.3(b) of the Lease
(if any).” McMillan closed by repeating its desire “to discuss confirming an
agreement concerning a reasonable timeline and process for confirming the
Fair Market Rent.” Thus, McMillan began and ended its follow up letter by
reiterating it had not exercised the renewal option and it had no obligation
under the option provisions to provide its consultant’s opinion, making it
clear that as far as McMillan was concerned it was voluntarily providing
Grosvenor with its consultant’s opinion.
      Two weeks later, Grosvenor responded to McMillan’s letters. It took is-
sue with McMillan’s assertion it had not, in fact, exercised the renewal op-
tion, summarized the option provisions pertaining to simultaneous disclosure
of consultant opinions, “acknowledge[d] receipt of” McMillan’s consultant’s
opinion, and “rejected” the opinion, stating the parties’ consultants’ opinions
were more than five percent apart and therefore, under the lease, a neutral
arbitrator should be selected. Grosvenor went on to state it would provide
the password to its consultant’s opinion “only if Tenant retracts its position
that the option term has not been exercised, and affirmatively . . . represents
in writing that it is bound by the lease provisions to determine FMR.” If
McMillan “provide[d] written representation that it agrees to be bound by the
[FMR] process because the option term has been duly exercised by Tenant,
then, and only then will Landlord direct its consultant to contact Tenant’s
consultant directly for the purpose of selecting and appointing a neutral con-
sultant.”

                                       20
      The trial court focused primarily on Grosvenor’s “acknowledge[d] re-
ceipt” of and “rejection” of McMillan’s consultant’s opinion as evidencing
Grosvenor’s supposed acceptance and retention of McMillan’s performance
under the lease. However, we fail to see how Grosvenor’s mere receipt of
McMillan’s follow up letter enclosing its consultant’s opinion constitutes any
kind of affirmative act by Grosvenor, let alone, an act waiving compliance
with the option provisions of the lease, including the threshold requirement
that McMillan actually exercise the option. (See Southern Cal. Edison, su-
pra, 85 Cal.App.4th at p. 1109 [“Equivocal or speculative evidence of a waiver
is insufficient.”]; see also DRG/Beverly Hills, supra, 30 Cal.App.4th at p. 60
[“ ‘ “doubtful cases will be decided against a waiver” ’ ”].) This is not akin to
the situation in Gould, where the lessee parted with and the lessor retained
money. McMillan did not part with anything. It sent Grosvenor a copy of its
consultant’s opinion and, according to McMillan, did so voluntarily because
the option provisions were not yet in play.
      Moreover, before waiver can be predicated on a party’s conduct, that
conduct must be “ ‘ “so inconsistent with an intent to enforce the right as to
induce a reasonable belief that such right has been relinquished.” ’ ” (Lynch,
supra, 3 Cal.5th at p. 475, quoting Savaglio v. Wal-Mart Stores, Inc., supra,
149 Cal.App.4th at p. 598.) Grosvenor’s mere receipt of McMillan’s follow up
letter enclosing its consultant’s opinion was not conduct that was “incon-
sistent” with an intent to enforce the threshold requirement that McMillan
actually exercise the renewal option, let alone conduct that “ ‘ “induce[d] a
reasonable belief” ’ ” by McMillan that Grosvenor relinquished its right to en-
force that condition precedent to any other obligations under the option provi-
sions. The trial court appears to have overlooked this latter requirement—
that McMillan must have reasonably believed that Grosvenor’s mere receipt

                                        21
of its letter induced McMillan to believe Grosvenor waived the requirement
that McMillan actually exercise the renewal option in order to trigger the
lease provisions pertinent thereto. As the record reflects, it is clear McMillan
did not believe Grosvenor had waived any lease provision. Rather, McMillan
believed (or purported to believe), and repeatedly told Grosvenor, that the op-
tion provisions were not operative because it had never actually exercised the
option. Indeed, in its letter responding to Grosvenor’s letter, McMillan re-
peated what it had previously said—that the renewal option provisions were
not operative because it had not yet exercised the option.
      The remainder of Grosvenor’s letter further underscores that there is
no clear and convincing evidence that Grosvenor waived McMillan’s compli-
ance with the threshold requirement—that McMillan actually exercise the re-
newal option before the parties had any further contractual obligation under
the option provisions. Indeed, Grosvenor could not have stated any more ex-
plicitly that it would not comply with the mutual exchange requirement un-
less and until McMillan provided the requisite notice that it was exercising
its option and agreed it was bound by the option provisions of the lease.
      In short, read in context and in its entirety, Grosvenor’s response to
McMillan’s July 2d and 9th correspondence, as a matter of law, did not waive
Grosvenor’s right to insist that McMillan actually exercise the renewal option
before Grosvenor took any further steps under the option provisions. Even
assuming there could be any doubt as to Grosvenor’s intent (see Lynch, su-
pra, 3 Cal.5th at p. 475, quoting Fones, supra, 64 Cal.2d at p. 107 [“ ‘
“[w]aiver always rests on intent’ ”]), which in our view there cannot, that does
not, and cannot, establish a waiver by Grosvenor. (DRG/Beverly Hills, su-
pra, 30 Cal.App.4th at p. 60 [“ ‘ “doubtful cases will be decided against a
waiver” ’ ”].)

                                       22
      As we see it, McMillan essentially tried to “have it both ways.” On the
one hand, it insisted at the time that it had not exercised the renewal option
and therefore the option provisions of the lease were not operative and it had
no contractual obligation to comply with any of those provisions, including
simultaneous sharing of its consultant’s opinion on fair market rent. Rather,
what it wanted at that time, was for Grosvenor to agree to a rent determina-
tion process outside the option provisions of the lease. On the other hand, af-
ter it was sued, McMillan took the opposite position—that the option provi-
sions were operative. It asserted Grosvenor both waived the (operative) re-
quirement that McMillan provide written notice exercising the renewal op-
tion and was required to comply with the (operative) requirement that the
parties simultaneously exchange consultant opinions. Moreover, since
Grosvenor had not complied with the (operative) exchange requirement,
McMillan was entitled under the (operative) rent determination provisions to
rent set solely on the basis of its own consultant’s opinion.7 Again, the par-
ties have not cited, nor are we aware of, any authority suggesting this is a
scenario that can support waiver.8

      7  This enabled McMillan to skip over the process the option provisions
otherwise called for, which was for the parties’ consultants to agree upon a
neutral third party who would render an independent opinion as to fair
market rent. The consultant’s opinion closest to the neutral’s opinion would
fix the base rent for the first year.
      8  Although we need not, and do not reach, the issue, McMillan could
well be equitably estopped to assert waiver. The doctrine of estoppel
“ ‘affirms that “a person may not lull another into a false sense of security by
conduct causing the latter to forebear to do something which he otherwise
would have done and then take advantage of the inaction caused by his own
conduct.’ ” (Southern Cal. Edison, supra, 85 Cal.App.4th at p. 1110, quoting
Tresway Aero, Inc. v. Superior Court (1971) 5 Cal.3d 431, 437–438.) This
would appear to be a fair description of what transpired here.

                                       23
       Our conclusion that Grosvenor did not waive McMillan’s compliance
with the threshold requirement of the renewal option—that McMillan actu-
ally exercise the option—as a predicate to any other obligations or entitle-
ments under the option provisions of the lease, has the following conse-
quences: First, Grosvenor was not contractually required to proceed with the
exchange of its consultant’s opinion. Second, McMillan cannot use
Grosvenor’s decision not to proceed with the exchange as a basis to invoke the
provision set forth in section 3.1.3(b) stating, “If only one consultant timely
submits its ‘best and final’ opinion, then the figure proposed by that consult-
ant shall be fixed as the Base Rent for the first year of the option term.”
Third, since McMillan has now provided written notice that it has exercised
the renewal option, the parties must, once this opinion becomes final, com-
mence the rent determination process as set forth in, and in the procedural
order set forth in, sections 3.1.3(b), (c), and (d). Fourth, since the rent deter-
mination process set forth in these provisions was not concluded prior to the
commencement of the option term, the provisions of section 3.1.3 (e) also ap-
ply.
The Attorney Fee Award
       In its order after trial, the trial court found McMillan “to be the prevail-
ing party, and thus entitled to attorney fees and costs subject to proof.”
Thereafter the parties filed fee motions. McMillan sought an award of fees.
Grosvenor filed a counter-motion, maintaining neither party should be
deemed to have prevailed. The court ultimately ruled there was no prevail-
ing party, reasoning there were “two causes of action” and the parties had

                                        24
each prevailed on one.9 Since we have reversed the “cause of action” on
which McMillan prevailed, we also reverse the fee order predicated on that
“cause of action” and remand for further proceedings as to fees and costs.10
Motion For Restitution
      In conjunction with its opening brief, Grosvenor filed a “Motion For
Restitution,” asking, if it succeeded on appeal, for a directive to the trial
court, pursuant to Code of Civil Procedure section 908, “that the parties be
returned so far as possible to the positions they occupied before the enforce-
ment of or execution on the judgment or order.”11 Grosvenor alerted McMil-
lan such a motion would be forthcoming in a letter responding to McMillan’s
assertion that, pursuant to the trial court’s ruling, it would be reducing its
rent payment to that consistent with its consultant’s opinion. Grosvenor also

      9 We grant Grosvenor’s “Motion For Judicial Notice” filed December
16, 2022. We deny its “Supplemental Motion For Judicial Notice” filed March
30, 2023 as the attached exhibit is irrelevant to our disposition.
      10  We therefore need not, and do not, examine whether the parties’ and
the trial court’s use of the terminology “causes of action” is technically
correct.
      11   Code of Civil Procedure section 908 states:
            “When the judgment or order is reversed or modified, the
      reviewing court may direct that the parties be returned so far as
      possible to the positions they occupied before the enforcement of or
      execution on the judgment or order. In doing so, the reviewing court
      may order restitution on reasonable terms and conditions of all
      property and rights lost by the erroneous judgment or order, so far as
      such restitution is consistent with rights of third parties and may direct
      the entry of a money judgment sufficient to compensate for property or
      rights not restored. The reviewing court may take evidence and make
      findings concerning such matters or may, by order, refer such matters
      to the trial court for determination.”

                                        25
made reference to its motion for restitution in its opening brief. McMillan
filed opposition to the motion.
      There is no question that, to the extent possible, Grosvenor should be
placed in as good a position as it would have been in had McMillan not, on
July 2, 2021, taken the position it had not exercised the renewal option and
therefore the renewal provisions of the lease were not operative. (See Beach
Break Equities, LLC v. Lowell (2016) 6 Cal.App.5th 847, 852 (Beach Break
Equities) [“[a]s a general rule, when a judgment is reversed on appeal, the ap-
pellant is entitled to restitution for all things lost by reason of the [erroneous]
judgment,” italics omitted].) Had McMillan not taken that position, the re-
newal rent setting process would have proceeded and, under the terms of the
renewal provisions, the new rent would have been determined within 40 days
(10 days for consultants to select neutral arbitrator and 30 days for arbitrator
to render an independent opinion). As it was, pursuant to the trial court’s
ruling, McMillan took the position, in a letter dated August 25, 2022, that its
own consultant’s opinion, alone, set the rent. Because it had been paying a
higher rent, McMillan further asserted it had been “overpay[ing]” and was
entitled to a credit for the overage plus interest on the overage.
      Depending on the outcome of the arbitration process that will take
place pursuant to our opinion, it may or may not be determined that McMil-
lan has since at least August 25, 2022, been underpaying Grosvenor. If it is
determined McMillan has been underpaying, Grosvenor should be “returned
so far as possible to the position[] [it] occupied before” McMillan effectively
“commenced enforcement” of the trial court’s order (which regardless of its
nomenclature is a declaratory judgment). How this should be accomplished—
by order of the neutral arbitrator or restitution ordered by the trial court—is,
under the circumstances, a question we are in no position to answer. We

                                        26
shall therefore return the matter to the trial court for further proceedings un-
der Code of Civil Procedure section 908.
      In its opposition to Grosvenor’s motion, McMillan points out restitution
to a successful appellant can be denied where it “would be inequitable”
(Beach Break Equities, supra, 6 Cal.App.5th at p. 853) and it hints Grosvenor
might have engaged in inequitable conduct at some point during the litiga-
tion. (See Gunderson v. Wall (2011) 196 Cal.App.4th 1060, 1065–1068 [af-
firming denial of restitution in light of postjudgment efforts to evade collec-
tion that forced partially successful appellant to incur substantial additional
attorney fees].) We are compelled to observe that at least with respect to the
record before us we see no evidence whatsoever of such conduct.
                                DISPOSITION
      The judgment is REVERSED and the matter remanded for entry of
judgment in favor of appellant Grosvenor and for further proceedings con-
sistent with this opinion. Costs on appeal to appellant.

                                       27
                                          _________________________
                                          Banke, J.

We concur:

_________________________
Richmond, Acting P.J.

_________________________
Bowen, J.*

* Judge of the Contra Costa County Superior Court, assigned by the Chief
Justice pursuant to article VI, section 6 of the California Constitution.

A166226, Grosvenor Gibraltar ass. V. McMillian Elec

                                     28