Background
Pacific Collective, LLC, a real estate developer, agreed in 2018 to buy a Culver City property, construct a 5,000-square-foot cannabis dispensary, and lease it to TGS CC Ventures, LLC for 15 years. Jushi, Inc., TGS's parent, guaranteed the lease. Pacific's option agreement with ExxonMobil contemplated a $4.2 million purchase with a closing no later than ten days after a due-diligence period, while the lease capped construction costs at $1.75 million, made time of the essence, and required Pacific to deliver possession after construction, but stated no specific purchase deadline.
Pacific repeatedly let purchase deadlines pass, signing a purchase agreement only on November 5, 2019, and obtaining an extension of the closing date to March 31, 2020 on February 7, 2020, yet still had not acquired the property when TGS rescinded the lease on February 28, 2020, citing Pacific's failure to perform within a reasonable time. Pacific sued TGS and Jushi for breach of the lease and guaranty, alleging more than $20 million in damages. A referee tried the case under a general reference, found that Pacific lacked the necessary funds and loan commitments and had stalled, and the superior court entered judgment for defendants on May 28, 2024.
The Court’s Holding
The Court of Appeal agreed that the lease's reference to acquiring title 'pursuant to' the ExxonMobil purchase agreement could reasonably be read as incorporating that agreement's timing, but it rejected Pacific's interpretation because the purchase agreement had not yet been drafted when the lease was signed, and Pacific's reading would let it postpone its central performance obligation indefinitely. Civil Code section 1657 and the implied covenant of good faith and fair dealing instead required Pacific to complete the purchase within a reasonable time.
Substantial evidence supported the referee's finding that Pacific's delay was unreasonable. The original option agreement contemplated closing by September 25, 2019; TGS, Jushi, and ExxonMobil all expected a summer or fall 2019 closing; and Pacific's principals testified that they intentionally delayed the purchase to save on expenses and mitigate risk. The court also rejected Pacific's claim that an internal Jushi email consented to the later closing date, and held that the lease's termination provisions addressing city licensing or permits did not govern Pacific's independent duty to buy the land.
The court further held that TGS's failure to submit its preliminary project review request did not excuse Pacific's nonperformance. The lease required TGS to pursue a cannabis license diligently but did not make Pacific's purchase contingent on licensing; by contrast, it expressly delayed construction until permits were obtained. The court declined to decide whether Pacific's purchase was a condition precedent to TGS's PPR obligation because Pacific's own failure to perform or establish excuse independently defeated its contract claims. It affirmed the judgment and awarded appellate costs to TGS and Jushi.
Key Takeaways
- A purchase agreement's later closing deadline did not control the developer's lease obligations when that interpretation would allow indefinite postponement of its primary duty to acquire title.
- The court applied a reasonable-time requirement through Civil Code section 1657 and the implied covenant of good faith and fair dealing rather than the amended purchase agreement's March 31, 2020 closing date.
- Evidence of expired options, missed closing expectations, absent financing, and testimony describing an intentional strategy of delay supported the referee's finding of unreasonable performance.
- The lease's licensing and construction provisions did not make the developer's land purchase contingent on the tenant first obtaining a cannabis permit, since only the construction obligation was expressly conditioned on permits.
- The appellate court left the PPR condition-precedent issue unresolved because Pacific's failure to perform or establish excuse independently required affirmance of the judgment for the defendants.
Why It Matters
The decision illustrates how California courts prevent a contracting party from using a separate, later-negotiated agreement to control indefinitely the timing of its own performance, applying Civil Code section 1657 and the implied covenant of good faith and fair dealing to fill an open-ended obligation. It also distinguishes independent purchase and licensing obligations from an expressly conditioned construction obligation, refusing to read a condition the parties did not include.
The unpublished opinion is not certified for publication and is subject to California's restrictions on citation and reliance under California Rules of Court, rule 8.1115. Its ruling resolves this dispute without deciding every contractual issue Pacific raised, including whether Pacific's purchase was a condition precedent to TGS's obligation to submit its preliminary project review request.
Read the full opinion (PDF) · Court docket