Trucks Rx, Inc. v. Padilla Investments, LLC (Michigan Appeals Court Affirms $411K Lease Arbitration Award)
The Michigan Court of Appeals affirmed a $411,131.50 arbitration award in favor of landlord Padilla Investments, LLC against tenants Trucks Rx, Inc. and Jana Trucking Line, Inc., who had abandoned a Detroit retail space after the city cited it for code violations, including the lack of a required sprinkler system. The arbitrator found the tenants, who took the property "as is" under a three-year commercial lease, were contractually responsible for bringing the premises into compliance, not the landlord, and the appellate panel held that finding was not legally erroneous or in excess of the arbitrator's authority.
Why it matters
The ruling confirms that Michigan courts will give an arbitrator's interpretation of an unambiguous "as is" and compliance-with-law clause heavy deference, even where curing a code violation is costly and the tenant did not anticipate the expense. Commercial landlords leasing older or previously differently-used space can rely on such clauses to shift code-compliance risk to the tenant, while tenants and their guarantors face real personal exposure if they walk away from a lease rather than litigate or negotiate a cure.
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