“Section 1671, subdivision (b), provides that a liquidated damages clause ‘is valid unless the party seeking to invalidate the provision establishes that the provision was unreasonable under the circumstances existing at the time the contract was made’. Under this subdivision, a liquidated damages clause becomes an unenforceable penalty ‘if it bears no reasonable relationship to the range of actual damages that the parties could have anticipated would flow from a breach’. The amount set as liquidated damages ‘must represent the result of a reasonable endeavor by the parties to estimate a fair average compensation for any loss that may be sustained’. Absent a relationship between the liquidated damages and the damages the parties anticipated would result from a breach, a liquidated damages clause will be construed as an unenforceable penalty’. In the context of a stipulated judgment, the amount of the judgment must reasonably relate to the damages likely to arise from the breach of the stipulation, not the alleged breach of the underlying contract, because it is the breach of the stipulation that allows the plaintiff to enter judgment against the defendant. Thus, we analyze the damages flowing from the breach of the stipulation itself, not any damages that may have arisen from the tenants’ alleged breach of the underlying lease agreement.”
In Graylee v. Castro, a landlord served a three-day notice to pay rent or quit, contending his tenants owed $27,170 in unpaid rent for a house they leased, and filed an unlawful detainer action when they failed to cure the notice. The tenants answered and disputed the amount claimed in the notice. The parties settled prior to trial, pursuant to Section 664.6 of the Code of Civil Procedure, which allows parties to pending litigation to enter a settlement contract that calls for entry of a stipulated judgment (sometimes, as in this case, only in the event of breach).
Continue reading Graylee v. Castro (2020): Liquidated Damages in Stipulated Judgment Unenforceable Unless They Bear a Reasonable Relationship to Anticipated Damages Flowing from Breach
In 1041 20th St., LLC v. Santa Monica Rent Control Bd., property owners had applied for, and received, “removal permits” allowing them to take certain rental units off of the rental market, back in the 1990s. (As opposed to invoking the state-law Ellis Act, these local regulations allowed a landlord to apply for various permits under local law: “Category A permits are for landlords who are ‘unable to collect the current Maximum Allowable Rent (MAR) on the unit’. Category C permits are for landlords who prove a controlled rental unit ‘is uninhabitable and cannot be made habitable in an economically feasible manner’.”
Over the years, the Rent Board “unequivocally stated that the properties had been granted permanent exemptions from the Rent Control Law and did not need to be registered with the Board”. However, in 2016, the Rent Board notified the owners that the units were subject to the rent ordinance because they were not demolished or converted and continue to be used as residential rental units.
The owners had been charging rents that they would not have been permitted to under the rent ordinance, and so the tenants petitioned for a reduction in rent and an award of the overpayment. The owners petitioned for writ of mandate, on the theory that the Rent Board was equitably estopped from now treating the properties as subject to the rent ordinance. The trial court entered judgment reversing the rent board decisions, but the Court of Appeal disagreed.
It reasoned the equitable estoppel could, in theory, apply to a governmental entity in this context, but the Rent Board never had jurisdiction to create new categories of permanently exempt units. It did have authority to issue the permits to allow the owners to stop renting them, but that is not what the owners did. Further, the doctrine of administrative finality (i.e., a bar to revisiting a decades’ old administrative decision) did not bar the current treatment of these units for two reasons. First, the Rent Board continued to maintain that the owners could withdraw the units – but that is not what the owners did. Second, even if the decision amounted to a permanent exemption, administrative finality cannot apply to a ruling that exceeded the administrative agency’s jurisdiction.
The City was not required to prepare an EIR to address the Project’s alleged impact on the loss of rent-stabilized housing units or the displacement of tenants because the property previously had been withdrawn from the rental market pursuant to the Ellis Act; under CEQA the assessment of impacts of a proposed project ordinarily is based on conditions as they exist at the time the environmental analysis is commenced.
Hollywoodians Encouraging Rental Opportunities v. City of Los Angeles affirmed a trial court’s determination that an EIR was not required under CEQA to evaluate impacts of tenant displacement for a property withdrawn from the rental market under the Ellis Act.
When a developer sought to convert an 18 unit apartment building into a 24 guestroom boutique hotel, a neighborhood association (Hollywoodians Encouraging Rental Opportunities (“HERO”)) appealed approval of the permit. The City Council denied the appeal, so the association petitioned the superior court for writ of mandate to reverse the City Council’s decision.
Continue reading HERO v. City of Los Angeles (2019): Relevant Baseline for CEQA Analysis Properly Evaluated a Property Already Withdrawn under the Ellis Act and Therefore Properly Excluded Evidence of Impact on Housing and Population
“Allen had no contractual duty to complete the questionnaire. The parties indicated no shared understanding, discussions or advisement of the questionnaire’s binding nature. The questionnaire contained no express statement that the tenant would be bound by the assertions made in the questionnaire. The questionnaire was ambiguous on relevant terms, indicating that it was not the sort of communication that would lead to binding statements regarding terms and conditions of tenancy. And the record contains no indication that all parties were highly sophisticated or enjoyed similar bargaining power.”
Naseem and Naser Hilaly were residential landlords of a multiunit property in San Francisco. They purchased the building along with their son and his wife, who wanted to live together with each of their parents in the same property. Betty Allen was a long-term tenant who, prior to the sale of the building to the Hilalys, executed an estoppel statement describing that she did not have parking.
After failing to negotiate a buyout agreement, the Hilalys proceeded to withdraw the property pursuant to the Ellis Act. Allen’s mother lived with her during this period, and a visiting nurse parked in the curb cut of the street, blocking the garage that the Hilalys were parking in. The Hilalys left a note that said, “I’ve told you not to park here again”.
Continue reading Hilaly v. Allen: Tenant Successfully Defends Ellis Act Eviction with “Change to Terms of Tenancy” Defense, Following Landlord’s Reliance on Estoppel Statement
In Veiseh v. Stapp, the Fifth District addressed a novel turn on an old rule – that the plaintiff in an action for trespass need not establish title, but is merely required to establish actual possession.
The plaintiff owned farmland, and though he used it for his own purposes, he attempted to transfer it to his ex-wife, for the benefit of their daughter, for estate planning purposes. However, the form of transfer implicated the Uniform Transfer to Minors Act, which required such assets to be held for the benefit of the transferee minor. Plaintiff’s transfer was defective, because he continued to use the property himself. The owner of the adjacent parcel leased to a cattle rancher, whose cattle grazed on plaintiff’s land, damaging it. Plaintiff sued for trespass.
The defendants moved for a bifurcated trial to first litigate the issue of standing. They argued that a trespass plaintiff was required to establish that he was in “lawful possession” of the trespassed land. Because the transfer violated the Uniform Transfer to Minors Act, the plaintiff was not the right plaintiff. The trial court agreed.
The Court of Appeals, however, noted the “well-settled proposition that the proper party plaintiff in an action for trespass to real property is the person in actual possession”. “The proper person to bring an action for trespass to real property is the person in actual possession. In the context of a trespass action, ‘possession’ is synonymous with ‘occupation’ and connotes a subjection of property to one’s will and control. We adopt this definition.”
While the term “lawful possession” is sometimes used to describe the trespass plaintiff’s status, the term “lawful” in this context merely means “not tortious”. The father’s occupation and possession was sufficient to maintain the action, and the Court of Appeal reversed with directions to litigate the second phase of the trial.
“Does a right of first refusal contained in a written lease expire when that leasehold ends and the tenant becomes a ‘holdover’ tenant, and when the lease specifies ‘the continuing [holdover] tenancy will be from month to month’? We conclude that a right of first refusal is not an essential term that carries forward into a holdover tenancy unless the parties so indicate.”
In Smyth v. Berman, the Second District Court of Appeal held that, when a commercial tenant has a “right of first refusal” to purchase the property, included in a term lease agreement, that right is not among the “essential terms” of the lease. Because it is not essential, it is not included among the terms and conditions of the periodic tenancy created by the tenant’s holdover and the landlord’s acceptance of rent.
“When a lease expires but the tenant remains in possession, the ‘relationship’ of the landlord and tenant ‘changes’. The ‘lessor-lessee relationship’ based on ‘privity of contract’ ends, and a new ‘landlord’-‘tenant’ relationship based on ‘privity of estate’ springs into being by the operation of law. (Civ. Code §1945.) This new ‘hold-over’ tenancy is presumed to continue under the same terms contained in the now-expired lease except as those terms may have been modified by the landlord and tenant. (Civ. Code, § 1945) This case tees up the question: If the expired lease contained a right of first refusal, is that right one of the ‘terms’ that presumptively carries forward into the holdover tenancy? We conclude that the answer is ‘no’.”
The court added that this is merely a presumption, and the parties could contract for this term to renew. But absent such intention, this presumption added to the stability of commercial tenancies, by allowing the holdover tenant to remain on a month-to-month basis, under terms and conditions that didn’t give the landlord an incentive to nullify the right of first refusal by evicting their tenant.
In Dr. Leevil, LLC v. Westlake Health Care Ctr., a property owner leased its property to a skilled nursing facility and later obtained a secured loan. It defaulted. Dr. Leevil, LLC purchased the defaulted loan and initiated a nonjudicial foreclosure sale, ultimately buying the property at the trustee’s sale. Dr. Leevil, LLC served a three day notice to quit the next day, but did not record title for five more days.
Serving the notice before becoming “record owner” seems counterintuitive. However the nonjudicial foreclosure statutes arguably condoned the practice. Cal. Civ. Code § 2924h(c) states, “the trustee’s sale shall be deemed final upon the acceptance of the last and highest bid, and shall be deemed perfected as of 8 a.m. on the actual date of sale if the trustee’s deed is recorded within 15 calendar days after the sale, or the next business day following the 15th day if the county recorder in which the property is located is closed on the 15th day.”
The unlawful detainer statutes refer to the nonjudicial foreclosure statutes, in setting forth cases of post-foreclosure evictions. Applicable here, “a person who holds over and continues in possession of . . . real property after a three-day written notice to quit the property has been served . . . may be removed therefrom . . . Where the property has been sold in accordance with Section 2924 of the Civil Code, under a power of sale contained in a deed of trust executed by such person, or a person under whom such person claims, and the title under the sale has been duly perfected.” Cal. Code Civ. Proc., §1161a(b)(3).
In other words, Dr. Leevil, LLC believed it could serve the notice to quit first, because it was already the owner, and title could be (and ultimately was) retroactively perfected as of the actual purchase date. The Court of Appeal adopted this interpretation.
Continue reading Dr. Leevil, LLC v. Westlake Health Care Ctr. (2018): Title Must Be “Duly Perfected” Before Service of Unlawful Detainer Three-Day Notice, Despite Retroactive Perfection of Title Under Nonjudicial Foreclosure Statutes