A lessee terminated a lease agreement after discovering that the property size is smaller than specified in the agreement and the zoning designation does not meet its purpose (winery, wine production, and its storage).
The Court rejected the claim to obligate the lessee to pay the rent and held the lease agreement was duly terminated. A lessor must act in of good faith, which includes the duty to disclose the essential facts relevant to the leased property and the purpose for which it was leased. A substantial discrepancy in relation to the size of the property is grounds for termination of an agreement. Here, the lease agreement included a statement of the lessee that it inspected the property and found it suitable for its purposes. However, the lessor presented the lessee with a misleading positive representation regarding the size of the property even though it held a building permit under which the real area is less than stated in the lease agreement (500 square meters). In addition, the lessor did not reveal to the lessee that the property is not intended to be used as a winery and that the permitted use of the property is for packing and storing food for animals only. Under these circumstances, the failure to disclose the real size of the property and the legal designation for the use of the property constitutes misleading and therefore the agreement was duly terminated.