## Facts

- In 1965, S.L. Kelly leased land in Carlsbad, California, for 20 years to the operators of a radio station site containing a tower, antenna, and transmitter.
- The lease required “rent” in the form of five minutes of daily radio program time to advertise the lessor’s business interests.
- The lease included an arbitration clause requiring disputes under the lease to be arbitrated.
- In 1970, the station was sold to Far West Broadcasting Corp., which knew of the radio-time rent provision and provided radio time when requested.
- In 1975, Far West sold the radio station business and its assets to Tri-Cities Broadcasting, Inc., which took over operation of the station and whatever leasehold interest existed.
- A dispute arose over whether Tri-Cities (and its president, Jeffrey Chandler) was obligated under the 1965 lease, including the radio-time rent and arbitration clause.
- The lessor’s successors (the Kellys) petitioned to compel arbitration; the trial court ordered arbitration, an arbitrator issued an award for the Kellys, and the court corrected and confirmed the award in a judgment.

## Issues

1. Whether Tri-Cities assumed the lessees’ contractual obligations under the 1965 lease by purchasing the radio station business and acquiring the leasehold interest as an asset.
2. Whether Tri-Cities and Chandler could be compelled to arbitrate under the lease’s arbitration clause absent an express (or clearly implied) assumption of the lease obligations.
3. Whether the trial court had authority to compel arbitration and confirm an award against parties not bound by an agreement to arbitrate.

## Decision

- The Court of Appeal held Tri-Cities did not become bound to the 1965 lease’s contractual obligations, including arbitration, without a clear assumption of those obligations.
- The court ruled that acquiring a leasehold interest as part of an asset purchase is not, by itself, an agreement to perform the original lessee’s covenants.
- Because Tri-Cities had not agreed to arbitrate, the trial court erred in compelling arbitration against Tri-Cities and Chandler.
- The judgment correcting and confirming the arbitration award was set aside to the extent it depended on arbitration compelled without a valid agreement.

## Legal Principles

- A transfer of a leasehold interest does not automatically impose the original lessee’s contractual covenants on the transferee; liability on lease covenants requires an express or clearly implied assumption.
- Arbitration is consensual; a party cannot be compelled to arbitrate absent an agreement to arbitrate or a recognized basis to bind a non-signatory.
- Mere knowledge of a lease, continued use of leased premises, or acquisition of a business that uses the premises does not alone establish assumption of personal contractual duties such as an arbitration clause or specialized rent covenants.
- When there is no enforceable agreement to arbitrate with the party targeted, a trial court exceeds its authority by ordering arbitration and by confirming an award issued in that compelled proceeding.

## Conclusion

The court rejected enforcement of a lease’s arbitration clause and rent covenant against a business purchaser that acquired a station’s assets and leasehold interest without clearly assuming the lease obligations, and it invalidated orders compelling arbitration and confirming an award entered on that improper premise.


Kelly v. Tri-Cities Broad., Inc., 147 Cal. App. 3d 666 (Cal. Ct. App. 1983)