Background
Pacific Collective, LLC, a real estate developer, entered into a lease with TGS CC Ventures, LLC in September 2018. The agreement provided that Pacific would purchase a property in Culver City and build a cannabis dispensary, which TGS would rent for 15 years. TGS's parent company, Jushi, Inc., guaranteed TGS's lease obligations. The lease was contingent on Pacific acquiring fee title to the property from ExxonMobil pursuant to a purchase agreement. Although TGS applied for a cannabis license and was selected by the City to move forward with the permitting process, Pacific repeatedly delayed entering into a purchase agreement with ExxonMobil and sought to extend its closing date.
TGS rescinded the lease in February 2020, asserting that Pacific had failed to perform its obligations within a reasonable time. Pacific sued TGS and Jushi for breach of contract, contending that defendants rescinded the lease without legal cause. The case was tried to a referee, retired Judge Gerald Rosenberg, who found that defendants were within their rights to rescind the lease because Pacific breached its obligation to purchase the property within a reasonable time. The trial court entered judgment for defendants on May 28, 2024, and Pacific timely appealed. The Court of Appeal filed its opinion on October 12, 2026, and the modification order filed October 13, 2026 corrected the superior court case number to 22SMCV02016.
The Court’s Holding
The Court of Appeal affirmed the judgment. The court first addressed Pacific's contention that its time to acquire the property was governed by the terms of the amended purchase agreement with ExxonMobil, which had a closing date of March 31, 2020. The court rejected this argument, explaining that while the lease's language was reasonably susceptible of an interpretation that Pacific had to purchase the property 'pursuant to' the purchase agreement, interpreting the lease in that manner would allow Pacific to extend its time to perform indefinitely, rendering the lease unenforceable. Instead, the court agreed with the referee that Civil Code section 1657 and the implied covenant of good faith and fair dealing required Pacific to complete the purchase within a reasonable time.
The court then considered whether substantial evidence supported the referee's conclusion that Pacific did not acquire the property within a reasonable time. The court found no error, noting that the lease provided that 'time is of the essence' and that the option agreement contemplated that Pacific would close on the property by September 25, 2019. Testimony at trial suggested that TGS, Jushi, and ExxonMobil all anticipated that Pacific would close in summer or fall 2019. Further, the evidence did not compel the conclusion that Pacific's failure to purchase the property by February 28, 2020 was due to factors beyond its control; to the contrary, Paliwal testified that he intentionally delayed the purchase 'to save on expenses.'
Finally, the court rejected Pacific's contention that its failure to purchase the property was excused by TGS's failure to timely submit its Preliminary Project Review (PPR) request. The court noted that Paliwal conceded at trial that nothing in the lease's plain language required TGS to acquire a cannabis permit before Pacific obtained title to the property. The lease described Pacific's obligation to purchase the property and TGS's obligation to seek a cannabis permit as independent obligations to be performed simultaneously. The court concluded that it would not read into the lease a term the parties did not include. The modification order corrected the superior court case number to 22SMCV02016, with no change in judgment.
Key Takeaways
- A lease is a contract subject to ordinary rules of contract interpretation, and courts will not enforce contract terms that give a party complete discretion over its own performance.
- If no time is specified for the performance of an act required to be performed under a contract, Civil Code section 1657 provides that 'a reasonable time is allowed.'
- What constitutes a reasonable time is a question of fact, depending upon the situation of the parties, the nature of the transaction, and the facts of the particular case.
- A party to a contract may rescind a contract if there is a material breach by the other party.
- Courts will not add a term about which a contract is silent.
Why It Matters
This case illustrates the application of the 'reasonable time' standard in contract law, particularly in the context of real estate transactions. It underscores that even when a contract does not specify a deadline for performance, a party cannot indefinitely delay its obligations. The decision also highlights the importance of the implied covenant of good faith and fair dealing in preventing a party from exercising complete discretion over its own performance in a way that would render a contract illusory.
The ruling provides guidance on how courts interpret contracts with interdependent obligations, emphasizing that courts will not read into a contract terms that the parties did not include. It also serves as a reminder that a party's intentional and strategic delay in performance can be deemed a material breach, justifying rescission by the other party.
Read the full opinion (PDF) · Court docket