Background
Trucks Rx, Inc., and Jana Trucking Line, Inc., leased Detroit commercial property from Padilla Investments, LLC, intending to sell tires there. Their owners, Mazen Abueleawah and Ala Abu Qattam, personally guaranteed the three-year lease. The lease limited the permitted use to selling new vehicle tires, required the tenants to comply with applicable laws and ordinances at their own expense, and provided that they accepted the premises “as is.”
City inspections revealed code and zoning violations, including the absence of an automatic sprinkler system required for tire storage. The tenants stopped paying rent and later abandoned the property. After the parties submitted their competing contract claims to arbitration, the arbitrator found that the tenants had breached the lease, concluded that they bore responsibility for making the premises legally suitable for their business, and awarded Padilla Investments $411,131.50 plus interest. The circuit court denied Trucks Rx and Abueleawah’s motion to vacate the award and entered judgment confirming it.
The Court’s Holding
The Michigan Court of Appeals affirmed. It held that the arbitrator neither exceeded his authority nor committed an error of law discernible on the face of the award. The lease unambiguously placed on the tenants the expense and responsibility of complying with laws governing their tire business, required them to accept the property without a sprinkler system “as is,” and did not obligate the landlord to perform the necessary work.
The court rejected the appellants’ impossibility or impracticability and mutual-mistake theories. The sprinkler requirement did not excuse performance because the lease allocated responsibility for legal compliance and necessary improvements to the tenants. Nor did the parties’ alleged lack of awareness about the sprinkler requirement concern the whole substance of the agreement: the lease contemplated that the tenants might need to make the premises suitable for their intended use. Any challenge to the arbitrator’s factual findings or risk allocation would improperly require judicial examination of the arbitrator’s reasoning process.
Key Takeaways
- Judicial review of an arbitration award is narrow, and an award will not be vacated unless a consequential legal error is apparent on its face or the arbitrator exceeded the authority granted by the parties.
- An “as is” commercial lease may allocate to tenants the risk and expense of bringing premises into compliance with laws applicable to their intended business.
- Unexpected compliance costs do not establish impossibility, impracticability, or mutual mistake when the contract assigns those obligations and risks to the party seeking relief.
Why It Matters
The decision reinforces both the finality of arbitration awards and the importance of explicit risk-allocation provisions in commercial leases. Businesses leasing premises for regulated uses should investigate permitting, zoning, fire-suppression, and other compliance requirements before signing, particularly when the lease shifts those duties to the tenant and disclaims representations about the property’s condition.