Smyth v. Berman – Lessee’s Right of First Refusal Is Not an “Essential Term” for the Purpose of Renewal of Periodic Tenancies

“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.

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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

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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”

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San Francisco Election Update (Archives): Proposition M (2008) – Adding Section 37.10B “Tenant Harassment” to the Rent Ordinance

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In 2008, San Francisco voters passed Proposition M – amending the San Francisco Rent Ordinance to include “tenant harassment” regulations (implemented as Section 37.10B). A group of petitioners (including landlords, landlord attorneys, the San Francisco Apartment Association and the SF Association of Realtors) filed a facial challenge against its provisions.

That case, Larson v. CCSF, overturned several of its provisions. The court found that the prohibition on continued buyout offers (after a tenant notified the landlord that they weren’t interested) violated free speech rights. Another provision allowing the Rent Board to award damages violated the judicial powers doctrine (by vesting judicial authority in an agency). Other provisions survived: San Francisco could prohibit offers to vacate accompanied by threats or intimidation (as a reasonable time, place and manner restriction on speech). And the Rent Board was permitted to award a reduction of rent based on a quantifiable reduction in housing services.

The full text of Proposition M is available here

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DLI Properties, LLC v. Hill (2018): Post-Foreclosure Tenant Protection Statute Inapplicable To Successor Owners Who Create New Leases with Existing Tenants

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In DLI Properties, LLC v. Hill, the Appellate Division of the Superior Court of Los Angeles parsed a state statute requiring certain notifications by new landlords to their tenants, affirming an unlawful detainer judgment for the landlord.

DLI Properties, LLC acquired a property in foreclosure that was tenant occupied. Generally, foreclosing on an earlier interest (like a deed of trust) will eliminate interests that are later in time (like a lease). But California has specific statutory protections for tenants facing foreclosures. California also requires successor owners to notify existing tenants of information how they can pay rent and how they may serve notices relating to the tenancy and civil process. These requirements (found in Civil Code §1961, et seq.) are somewhat self-policing for successor owners, who cannot serve a rent demand notice to initiate an unlawful detainer, based on rent owed during any period of non-compliance.

DLI Properties, LLC purchased the subject property in foreclosure. It hired Strategic Property Management, Inc. to manage the property, and Strategic entered into a new lease agreement with the tenant (Hill) on the date of sale. Hill had become delinquent in the payment of rent, and DLI served a three-day notice to pay rent or quit, and then filed an unlawful detainer action. Before the jury returned a verdict in favor of DLI (finding that it complied with the unlawful detainer procedures and that Hill was not entitled to offsets for habitability issues), Hill moved for nonsuit, then directed verdict, then JNOV on a single issue: failure to comply with Section 1962, et seq.

Section 1962(c) provides: “The information required by this section shall be kept current and this section shall extend to and be enforceable against any successor owner or manager, who shall comply with this section within 15 days of succeeding the previous owner or manager. A successor owner or manager shall not serve a notice pursuant to paragraph (2) of Section 1161 of the Code of Civil Procedure or otherwise evict a tenant for nonpayment of rent that accrued during the period of noncompliance by a successor owner or manager with this subdivision. Nothing in this subdivision shall relieve the tenant of any liability for unpaid rent.”

The Appellate Division upheld the trial court ruling, noting the distinction between “owners” and “successor owners” under the statute. The California Legislature was understandably concerned about the treatment of existing tenants who do not necessarily know who succeeds to their lease contracts following foreclosure. (In fact, this concern guided the California Supreme Court’s recent analysis of post-foreclosure eviction notices in Dr. Leevil, LLC v. Westlake Health Care Center.)

While DLI purchased at foreclosure, its property manager executed a new lease, and this rendered them “owner” under the statute: “This disparate treatment of owner and successor owner/manager for the same dereliction of their statutory duty indicates the prohibition is meant to specifically target successor owners and their managers to address a danger posed by the change in ownership. There is a greater likelihood a tenant would not be aware of relevant information concerning a successor owner/manager rather than an owner with which he enters into a lease agreement. Therefore, the prohibition against evictions encourages and incentivizes a successor owner/manager to disclose such information.”

Ultimately, where the owner (via its property manager) entered a new lease with an existing tenant, it created a direct relationship with the tenant, which did not resemble any of the Legislature’s concerns in enacting the statute.

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Division Four of First District Court of Appeal Harmonizes Litigation Privilege with Tenant Anti-Retaliation Statute in Winslett v. 1811 27th Avenue, LLC

“The litigation privilege is ‘not without limit’, as the Action Apartment court took pains to point out. (Action Apartment, supra, 41 Cal.4th at p. 1242.) Because recognition of the privilege here would neuter section 1942.5 by removing eviction from the statutory remedy of retaliatory eviction, we view the clash between section 47, subdivision (b), on the one hand, and section 1942.5, subdivisions (d) and (h), on the other, as irreconcilable. To be consistent with the high court’s guidance that we give section 1942.5 a liberal construction designed to achieve the legislative purpose, we conclude that the litigation privilege must yield to it.”

In Winslett v. 1811 27th Avenue, LLC (2018), a former tenant filed a complaint against a landlord for retaliation and retaliatory eviction, under Section 1942.5 of the Civil Code, as well as violations of Oakland’s just cause for eviction ordinance. The trial court granted the landlord’s anti-SLAPP motion to strike. The tenant appealed the trial court’s ruling that the litigation privilege barred the retaliation claims and that her claims under the eviction control ordinance were based on protected activity under the anti-SLAPP statute. The Court of Appeal agreed and reversed.

Continue reading “Division Four of First District Court of Appeal Harmonizes Litigation Privilege with Tenant Anti-Retaliation Statute in Winslett v. 1811 27th Avenue, LLC”

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Multani v. Knight (2018): Second District Court of Appeal Takes Expansive Approach To Discharging Landlord’s Obligations Following Expiration of Rent Demand Notice

Knight argues, and the trial court agreed, that Salima became a tenant at sufferance no later than when Knight filed the unlawful detainer action against her; therefore, she had only the right of “naked possession,” i.e., the right not to be forcibly evicted without legal process. Salima argues that despite her nonpayment of rent, she retained all legal rights as a month-to-month tenant until she was dispossessed following the conclusion of the unlawful detainer action.

In Multani v. Knight, a commercial tenant (Multani) leased a commercial space from Knight, to use as a medical clinic. As she was winding down her practice, her sons contracted to sell to another physician. However, because of medical issues, Multani stopped maintaining the business. Landlord Knight served a three-day rent demand notice, filed an unlawful detainer when it went uncured, and took possession by default.

In the meantime, plumbing problems lead to water damage to the personal property/medical equipment in the clinic. After the default judgment for possession, Multani sued for conversion of the personal property/fixtures, breach of the covenant of quiet enjoyment (later re-characterized as “constructive eviction” from a commercial tenancy), interference with contract, and a handful of other claims. Knight cross-complained for the unpaid rent.

Knight filed for summary judgment, arguing that Multani, “could not prevail on any of her claims because she was unlawfully on the premises at all times after July 1, 2011, and was illegally on the premises after December 9, 2011”. This argument, adopted by the trial court, became the architecture for an aggressive published appellate opinion about when the law discharges a landlord’s obligations to a defaulting tenant.
Continue reading “Multani v. Knight (2018): Second District Court of Appeal Takes Expansive Approach To Discharging Landlord’s Obligations Following Expiration of Rent Demand Notice”

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Aron v. WIB Holdings (2018): Tenant’s Premature Filing of “Malicious Prosecution” Action Justifies Affirming Anti-SLAPP Motion Following Remittitur in Underlying Action

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“Defendants argue that the appellate division’s remittitur affirming the underlying unlawful detainer judgment, issued after the trial court’s order granting the anti-SLAPP motion and dismissing tenant’s complaint in the instant case, is not newly discovered evidence and cannot be the basis for a new trial because it did not exist at the time of the anti-SLAPP hearing. We agree.”

In Aron v. WIB Holdings, a tenant prevailed in an unlawful detainer lawsuit for breach of lease. The landlord appealed, and while the appeal was pending, the tenant sued his landlord for damages. The landlord filed an anti-SLAPP motion, arguing that the tenant’s complaint for damages, based on Santa Monica’s tenant harassment ordinance, arose from the landlord’s unsuccessful prosecution of the unlawful detainer – conduct that is protected activity. It also found that the tenant couldn’t prevail on the merits, because the unlawful detainer judgment was not final; the tenant’s lawsuit was premature. Tenant appealed.

Then, when remittitur issued (i.e., when the baton was passed from the reviewing court back down to the trial court), the tenant moved for a new trial in his own lawsuit. He argued that the remittitur was newly discovered evidence justifying a new “trial” (in this case, a new hearing on the anti-SLAPP motion). The trial court agreed, granting the motion, and the landlord appealed.
Continue reading “Aron v. WIB Holdings (2018): Tenant’s Premature Filing of “Malicious Prosecution” Action Justifies Affirming Anti-SLAPP Motion Following Remittitur in Underlying Action”

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Hsieh v. Pederson (2018): Three Day Rent Demand Notice Need Not Allow for Personal Payment of Rent, Nor Does Personal Acceptance Extend the Notice Period

“Where an unlawful detainer proceeding is based on the tenant’s breach, the cause of action does not arise until the expiration of the notice period without the default being cured by the tenant. (§ 1161, subd. 2; Downing v. Cutting Packing Co. (1920) 183 Cal. 91, 95-96.) The complaint cannot be filed until the full notice period has expired, since the tenant is not guilty of unlawful detainer until the full three days — or in the instant matter, 14 days – have expired. (Nicolaysen v. Pacific Home (1944) 65 Cal.App.2d 769, 773 [‘tenancy is not terminated upon the giving of the notice but upon the expiration of the period therein specified’]”

In Hsieh v. Pederson (2018), a landlord appealed from a judgment for a tenant on the procedural basis that the entire action was untimely. A cause of action for unlawful detainer is (commonly) created by the service and expiration of an uncured notice. The tenant moved for judgment on the pleadings, and the trial court granted it on the basis that the notice – which allowed as an alternative cure that the tenant may pay personally during weekdays – could only count those weekdays as part of the “cure period”. Excluding weekends, the action was filed before the expiration of the notice; the Appellate Division of the Los Angeles Superior Court reversed.

Section 1161(2) of the Code of Civil Procedure describes a notice to pay rent or quit. (This is probably the quintessential “eviction notice”, described by statute as a “three day notice”, although for some reason unclear from the record, this case involved a “fourteen day notice”.)

A notice to pay rent or quit must state the essentials – the rent due and the name, number and address of the person who can receive the “cure”. The notice may also allow payment by personal delivery, in which case, it must also state the usual days/hours the personal delivery can be made.

The court held that, “Under the clear language of the [unlawful detainer] statute, the decision to allow personal payment of the rent, in addition to allowing payment by mail by the tenant, is up to the landlord.”

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Sayta v. Chu (2017) – Parties Must Obtain Court Order To Retain Jurisdiction To Enforce After Dismissal

“Sayta subsequently brought a motion to enforce the settlement pursuant to section 664.6, alleging breach of a confidentiality provision and seeking liquidated damages. The trial court denied the motion on the merits and Sayta appeals Because the parties failed to request, before dismissal, that the trial court retain jurisdiction to enforce the settlement, or alternatively seek to set aside the dismissals, we find the court lacked jurisdiction to entertain the motion. We therefore reverse on that basis and do not reach the merits.”

Sayta v. Chu represents the importance of understanding civil procedure in crafting effective and enforceable settlement agreements.

Very few cases actually go to trial. Through all the posturing, law and motion, discovery and settlement discussions, attorneys are generally able to anticipate likely outcomes to obtain “good enough” results, without their clients paying for an answer to the question “who was right?”. (Or, put another way, settlement allows the parties to determine the outcome, while trial gives control over the outcome to the judge and jury.)

A “settlement agreement” is essentially a contract and is generally interpreted and enforced like a contract. This could create a problem of regression: settling a claim (like one for “breach of contract”) results in a “settlement contract”. The settlement contract could also be breached and enforced with a lawsuit, which can be settled with a settlement contract, which can be breached, etc., etc. Lawsuits could never be settled because the claim would only be deferred to the next lawsuit.
Continue reading “Sayta v. Chu (2017) – Parties Must Obtain Court Order To Retain Jurisdiction To Enforce After Dismissal”

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SFAA v. CCSF (2018) – 9th Circuit Affirms N.D. Cal. Judgment on the Pleadings for San Francisco in Buyout Challenge

San Francisco Apartment Association and Small Property Owners of San Francisco Institute appealed the 2015 district court ruling upholding San Francisco’s Buyout Ordinance. The U.S. Court of Appeals for the 9th Circuit upheld the ruling of the U.S. District Court for the Northern District of California, affirming its judgment on the pleadings, and upholding the ordinance on constitutional grounds.

In so ruling, the Court concluded that the Buyout Ordinance did not violate the various constitutional rights asserted (e.g., free speech rights, equal protection of the laws, liberty to contract, right to privacy) under any of the distinct provisions challenged: (1) the “Disclosure Provision”, (2) the “Notification Provision”, (3) the “Rescission Provision”, (4) the “Database Provision”, (5) the “Penalty and Fee Provision”, and (6) the “Condominium Conversion Provision”.
Continue reading “SFAA v. CCSF (2018) – 9th Circuit Affirms N.D. Cal. Judgment on the Pleadings for San Francisco in Buyout Challenge”

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