Today, the Second District Court of Appeal published its decision in City of West Hollywood v. Kihagi, interpreting Ellis Act re-rental constraints and their application in the context of settlement agreements.
“A trial court acquires jurisdiction over the parties when the plaintiff serves the defendant with the unlawful detainer summons and complaint. (Borsuk v. Appellate Division of Superior Court (2015) 242 Cal.App.4th 607, 612.) Service of the notice to quit is an element of the action that must be alleged in the complaint and proven at trial, but it does not give the court jurisdiction over the parties.”
In U.S. Financial, L.P. v. McLitus, a purchaser at a trustee’s sale following non-judicial foreclosure served a three-day notice to quit on the former owner, following the purchase but before perfecting title after the sale, and brought an unlawful detainer action to recover possession. The Superior Court for the County of San Diego awarded possession to the purchaser, but the previous owner appealed to the Appellate Division of the Superior Court, which reversed and remanded.
Continue reading Second District Challenges Supreme Court on Timing of Post-Foreclosure Eviction “Three Day Notice To Quit”
“Permitting a landlord to evict a tenant for failure to pay the full market amount of rent because the landlord failed to remedy basic violations of the habitability standards of Section 8 would reward the landlord for its bad behavior, and perhaps even create an incentive for landlords to refuse to correct defects with their properties.”
In Scott v. Kaiuum, the Appellate Division for the County of Fresno considered California State unlawful detainer procedure in the context of Section 8 tenancies subject to rent abatement for habitability defects. It noted that a landlord can terminate a tenancy by serving a three-day notice to cure and quit, which states the “precise sum” that is due. However, while Congress and HUD defer to state law on terminating tenancies, HUD regulations require that the landlord maintain the unit in accordance with Housing Quality Standards (HQS), and if the landlord fails to do this, the housing authority may reduce or suspend housing assistance payments. (HUD regulation further provides that the family is not responsible for the portion of the rent covered by the housing assistance payment under the subsidy contract.)
In reversing the trial court judgment for the landlord, the Appellate Division found that the landlord had served a three-day notice after the Housing Authority abated the subsidy payment based on the landlord’s own violations of the habitability standards under Section 8. By demanding the entire amount, instead of just the tenant’s portion, the landlord overstated the amount of rent due.
The Appellate Division correctly applied federal HUD regulations to state unlawful detainer law. However, it went further to say that the landlord could not even demand rent at all (under substantive California law governing landlord-tenant relationships), because of the habitability defects as stated in the Housing Authority “abatement letter”. It stressed that the defects described in the letter would have constituted habitability defects preventing the landlord from serving a three-day notice in the first place.
In doing so, the Appellate Division seemed to be giving some form of evidentiary presumption to the abatement letter – a presumption that does not exist in California rental housing law. While those defects may indeed have existed, and while the abatement letter may have been served as incidental evidence of the defects, the tenant would have nonetheless been required to establish the existence of the defects at trial. At that point, the defects might have frustrated the issuance of the three-day notice in the first place, or they may have just justified a reduced “reasonable rental value”, and the tenant could have paid the reduced rent to remain in possession. In other words, there is not necessarily a straight line between the issuance of an abatement letter and the withholding of the subsidy portion of the rent and a complete abatement of all rental obligation.
For decades, the Second District Court of Appeals case Gruzen v. Henry (1978) 84 Cal. App. 3d 515 has stood for the proposition that a landlord may not collect “rent” under a residential lease where the premises lacks a certificate of occupancy. These agreements are void, and landlords cannot enforce these void agreements, in the event the tenant stops paying rent, with an unlawful detainer lawsuit for recovery of the putative rental payment obligations. No rent can be owed on a void agreement.
Unfortunately, Gruzen, which reviewed entry of judgment for the plaintiff/landlord for past due rent and possession of the premises, only modified the judgment to strike the money damages. It otherwise allowed the landlord to recover possession. And this has led to some confusion, especially in San Francisco, where these “unauthorized dwelling units” are still somehow considered a valuable part of the City’s rental housing stock, despite their lack of permits or building code requirements to obtain permits.
North 7th Street Associates v. Constante thankfully clarifies the application of the ruling in Gruzen:
“[T]he court in Gruzen was never asked to decide – and did not decide – the issue we address here, namely, whether the three-day notice alleging past-due rent of $739.35 was fatally defective because defendant’s actual rent obligation was zero, and whether defendant was consequently entitled to summary judgment as a matter of law. It is axiomatic that an opinion is not authority for a proposition that was not considered in that appeal.”
In North 7th Street Associates v. Constante, a landlord issued a three day notice to pay rent or quit, based on the tenant’s failure to pay for several months of rent under the oral lease. When the tenant failed to cure the notice, the landlord filed an unlawful detainer lawsuit, demanding the past due rent and possession.
The tenant resisted the lawsuit, filing a motion for summary judgment and advancing “a January 29, 2015 housing inspector’s Notice of Abatement which found, inter alia, that defendant’s unit (in which he had lived for approximately 15 years) had been constructed without a building permit, that it was not authorized to be used as a dwelling, and that no certificate of occupancy was ever issued for it”.
On appeal, the landlord relied on Gruzen to argue that he was nonetheless entitled to possession (and that, essentially, that the tenant could keep the 800 bucks and get out). The Appellate Division of the Los Angeles Superior Court was not convinced:
“[I]f plaintiff could not collect any rent from defendant, then defendant had no obligation to pay any rent to plaintiff. Furthermore, if defendant did not owe any rent to plaintiff, the three-day notice claiming $739.35 in past-due rent was necessarily an overstatement of defendant’s rental obligation, which could only be properly calculated as zero. Since the three-day notice which was the basis for this unlawful detainer action failed to comply with the strict statutory requirements, it was invalid and could not support the action.”
It correctly noted that unlawful detainers are creatures of statute, and if you do not comply with the provision you invoke to get into court, you may not avail yourself of this summary proceeding for possession. Neither could the landlord simply terminate the tenancy, because – while it was not technically a “rental unit” – it is nonetheless covered by the Los Angeles Rent Stabilization Ordinance.
However, it does not follow that a tenant may live in an unpermitted unit, free from both evictions and the obligation to pay rent, indefinitely. In a footnote, the Appellate Division noted, “Plaintiff is, of course, not without a remedy in this circumstance since it may initiate an unlawful detainer to recover possession of the premises from defendant in order to comply with the January 2015 Notice of Abatement. (LARSO, § 151.09A, subd. (11).)”
Ultimately, the Appellate Division decision is only binding on other trial courts, but its interpretation of Gruzen is sound, and its ruling creates a common sense distinction between a tenant’s ability to resist obligations on a void contract and a landlord’s need to recover an unpermitted unit to either legalize it or demolish it.
“As a general rule, when a judgment is reversed on appeal, the appellant is entitled to restitution for all things lost by reason of the judgment. This principle is embodied in California statutory law and settled equitable principles . . . When a landlord who has secured a writ of possession evicts a tenant before the appellate rights of the tenant have been exhausted, the landlord assumes the risk it will be subject to a full accounting and restitution if the judgment granting the writ of possession is reversed on appeal.”
Beach Break Equities is a cautionary tale to unlawful detainer plaintiffs to be strategic in how and when they recover possession.
The opinion of the First District Court of Appeals in Hjelm v. Prometheus Real Estate Group, Inc. reads like a lecture to Prometheus and its counsel. It reviewed the history of the dispute between the parties – from the execution of improperly drafted lease, through the vacating of a mismanaged property, through an over-litigated case (with two motions for summary adjudication on the single issue of entitlement to fees), which culminated in a partially untimely appeal. Hjelm teaches important lessons to property managers and attorneys on how to avoid being penalized for not following the rules.
The trial court found that the Hjelms signed a residential lease for a rental unit in San Mateo. They did not have an opportunity to negotiate their lease, which was mailed to them out of state for their signature. The family vacated a little over a year after moving in, following a persistent and unaddressed bedbug problem. At trial, management personnel testified that they had no real policy for dealing with bedbugs and that high turnover prevented new employees from effectively taking on existing problems.
The appeal sought to review the judgment itself, as well as a healthy award of $326,475.00 in attorneys’ fees (accrued in obtaining damages of only about $70,000.00). However, only the award of attorneys’ fees was properly before the Court because the appeal of the verdict was untimely.
Continue reading Hjelm v. Prometheus Real Estate Group, Inc. – First District Court of Appeals Instructs on the Importance of Following the Rules
In Morlin Asset Management, LP v. Murachanian, the Second District Court of Appeals found that an indemnity clause in a tenant’s lease did not cover claims by a cleaning service against the building owner, when their employee slipped on stairs attempting to service the tenant’s unit. The employee spilled a bucket of soapy water on the stairs while ascending, slipped, and hit his head. When the employee sued the owner for negligence and premises liability (on the theory that defective stairs caused the fall), the landlord cross-complained for indemnity against the tenant – a dentist who hired the cleaning service.
The Second District Court of Appeals held that, while there was an indemnity clause in the tenant’s lease, for the benefit of the landlord, and while these clauses are construed broadly in the context of insurance coverage, it could not be said that the plaintiff’s injury arose out of the tenant’s use of the property.
“Permitting landlords like Boston with superior bargaining power to forfeit leases based on minor or trivial breaches would allow them to strategically circumvent LARSO’s “good cause” eviction requirements and disguise pretext evictions under the cloak of contract provisions. Such provisions, which enable pretext evictions, are unenforceable on grounds of public policy if . . . the interest in its enforcement is clearly outweighed in the circumstances by a public policy against the enforcement of such terms.”
A 2015 case from the Appellate Division of the Superior Court of Los Angeles – Boston LLC v. Juarez (2015) 240 Cal. App. 4th Supp. 28 – awarded a landlord judgment for possession following the failure of a tenant to cure a “material” term of the lease. The term required the tenant to obtain insurance for the tenant’s benefit. This might otherwise seem like a trivial breach, but the lease agreement contained a forfeiture provision stating that any breach was a material breach.
In hazarding its interpretation of the materiality of the provision, the Appellate Division noted another Appellate Division case, NIVO 1 LLC v. Antunez (2013) 217 Cal. App. 4th Supp. 1, urging that some breaches of lease agreements are immaterial and will not result in forfeiture allowing a landlord to recover possession in an unlawful detainer action.
It nonetheless exalted the “forfeiture clause” in determining that the requirement of obtaining renters insurance could constitute a lawful covenant of the lease, the breach of which could be considered material.
Dissenting Judge Kumar was the first to jump on the rigidity of this thinking, in noting that the majority’s acceptance of the forfeiture clause at face value – that is, that any breach is a material breach – essentially takes away the question of materiality from the finder of fact, who is supposed to determine whether a particular breach is sufficient to support an eviction. (He also commented on the fact that Juarez cured the breach in seven days, which was pretty close to three days… although, this effort to mitigate the forfeiture is much less persuasive.)
Ultimately, the Second District Court of Appeal in Boston LLC v. Juarez (2016) 245 Cal. App. 4th 75 agreed with the reasoning in Judge Kumar’s dissent and the NIVO 1, LLC opinion, finding that the violation of lease provisions amounted to “breach” but that only “material breaches” can support an eviction, whereas trivial breaches would only justify nominal damages
The Court of Appeal acknowledged the importance of a parties’ freedom to contract, which justified the Appellate Division opinion, but it noted that freedom to contract is limited by public policy, like a rent ordinance, citing to the seminal Supreme Court case Green v. Superior Court (1974) 10 Cal.3d 616, 625 for the notion that disparate bargaining power in urban residential leases justifies the primacy of the public policy of the rent ordinance over inconsistent lease provisions. (Or, in other words, a lease term is not “material” merely because the lease says so.)
“The question is whether the tenant may challenge the landlord’s alleged failure to comply with this requirement by moving to quash service of summons under section 418.10. We conclude that the tenant may not, and in doing so we disagree with the leading case on the point, Delta [Imports v. Municipal Court].”
On November 23, 2015, Division Four of the Second Appellate District interpreted a long-standing doctrinal procedure for attacking an unlawful detainer complaint: Borsuk v. Appellate Division of the Superior Court of Los Angeles County (2015) 242 Cal.App.4th 607 has the potential to eliminate the “Delta Motion” and change how unlawful detainer actions are litigated.