Judge shakes up downtown L.A landlord by siding with tenant.

LOS ANGELES - Dealing a serious financial blow to a downtown L.A. office building's owner, a judge has ruled the tower's biggest occupant is a "tenant at will" liable only for "market" rent and is free to relocate long before its original lease expires.

But Pro-Tem L.A. Superior Court Judge Peter S. Smith's ruling is inconsistent with California law and will be appealed, said an attorney representing the building's current and former owners.

That attorney, Paul Malingagio of Sheppard Mullin Richter & Hampton LLP, said the ruling doesn't appear to set significant precedent in that it only applies to a tenant in the plaintiff's unique situation.

That tenant at 811 Wilshire Blvd. is California Commerce Bank, a subsidiary of Mexico's biggest bank, Banamex. CCB has been occupying more than 40,000 square feet at the renovated 21-story tower.

Smith recently ruled CCB's lease commitment to the 811 tower was "extinguished" by a complex series of events that altered the property's ownership and financial structure over the last few years. The ruling reduces the bank's rent from well above-market rate to the going rate for comparable office space. It also allows CCB to relocate to Century City once it secures approval from state and federal banking regulators and signs a new lease at its future home.

CCB in 1987 signed a lease agreement - technically a sublease - with Equitable Life Assurance Society of the U.S. Equitable actually leased the building from its "fee" owner, Prudential Life Insurance Co. of America, through a long-term groundlease.

Equitable sold its interest in the groundlease to a limited partnership called InterGen Associates, which later borrowed $31 million from Chase Manhattan Bank. InterGen eventually defaulted on the loan, and a Chase affiliate took title to the collateral - the 811 building's leasehold estate - in a "non-judicial" foreclosure action.

Then Prudential foreclosed against the Chase affiliate for defaulting on the ground rent obligation, and the Chase affiliate sought Chapter 11 bankruptcy protection.

The Chase unit's bankruptcy estate ultimately rejected the groundlease as well as CCB's lease - which had been amended twice as the bank continued to expand within the building.

That left Prudential owning the land and building outright. And in December 1994, Pru sold the property to its current owner, L.A. Wilshire Corp., controlled by Taiwanese investors.

Smith ruled the second amendment to CCB's sublease superseded its original sublease, and the amended sublease became subordinate to the deed of trust tied to the Chase loan.

All subordinate leases were terminated once the Chase trust deed was foreclosed, the ruling stated. And when the groundlease was terminated once the Chase unit rejected it and Pru took title to what had been the leasehold estate, the CCB sublease was likewise terminated "as a matter of law," the ruling added.