Second District Court of Appeal Champions Public Policy Above “Freedom To Contract” in Boston, LLC v. Juarez (2016)

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“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.)