Chen v. Kraft: Illegal Hotel Use Not Mitigated by Illegal Contract

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In Chen v. Kraft, a rent-controlled tenant used her apartment for “transient occupancy” (listing it on Airbnb), and her landlord was successful in enforcing provisions of the Los Angeles Municipal Code, prohibiting bed and breakfasts in “R1 Zones”.

The Appellate Division of the Superior Court reasonably found a violation of law where someone (whether tenant or not) uses their dwelling unit as a hotel in violation of zoning law. (Compare, for example, San Francisco, whose “Airbnb law” constituted a city-wide zoning change in favor of short term rentals.)

However, the language of the opinion suggests a gross misunderstanding of unlawful detainer law. Generally, under the unlawful detainer statutes, a landlord will have to serve a three-day notice for, e.g., non-payment of rent, breach of lease or illegal use. The tenant’s lease required a ten day notice period (which is fine) for breaches of covenants of the lease (including non-payment of rent). It is not clear whether one of these covenants included using the apartment for “legal purposes”.

The tenant understandably opposed the landlord’s motion for summary judgment in seeking to prove a case, other than what was put at issue by the complaint – specifically, whether the tenant was making an illegal use of the apartment, as opposed to, e.g., breaching a provision of the lease prohibiting illegal use. And, while this may seem like a distinction without a difference, the unlawful detainer statutes provide for specific bases for standing to bring an action for unlawful detainer. The court upheld the trial court determination that the landlord had standing under Cal. Code Civ. Proc., §1161(4) (for illegal use). However, among the three distinct notices to cure or quit that the landlord served, not one of them was under section 1161(4). Where the unlawful detainer statutes are supposed to be strictly construed, this ruling was incorrect as a matter of law.

Now, a three day notice based on illegal use (under section 1161(4)) is the only such notice that cannot be “cured”. (The Appellate Division also got this wrong, concluding that one element of this claim was that the “defendant continued to use the premises for an unlawful purpose after expiration of the period stated in the notice”. As this notice cannot be “cured”, it doesn’t matter if the tenant ceases the offending behavior.) Therefore, in the long term, the landlords would most likely have prevailed in a second action to recover the unit based on Airbnb use. But this should not have mitigated the failure to correctly plead a case for unlawful detainer based on illegal use, and the court’s conflation of illegal use and breach of covenant pervaded its analysis.

For instance, the tenant offered as a defense a lease addendum, executed by the prior landlord, authorizing Airbnb use. The Appellate Division correctly noted that Cal. Civ., §1598 regards contracts with a single unlawful object as void. However, it was not clear that the addendum was an insular contract (as opposed to a revision of a broader contract for leasing the property), making suspect the wisdom in completely ignoring it. More importantly, if this truly were a “breach of covenant” case, the landlord (or successor) should probably have been estopped from enforcing conduct he condoned under a theory of breach. Again, this would unlikely vindicate the illegal use itself, and a subsequent, correctly pled case for unlawful detainer under the proper statute would seem to have been successful, but this kind of “shotgun” pleading and prosecuting, based on three three-day notices, none of which was for 1161(4) illegal use, has no place in strict compliance “five day land” (as we call it in San Francisco).