23d Annual Real Property Law Retreat

April 24, 2004

THE LAW PROFESSORS ON RECENT DEVELOPMENTS

IN REAL PROPERTY LAW

Craig Arnold, Chapman University

Roger Bernhardt, Golden Gate University

Patrick Randolph, University of Missouri, Kansas City

Florrie Roberts, Loyola Law School

RECENT DEVELOPMENTS IN REAL PROPERTY LAW

LANDLORD & TENANT

1. Estoppel certificate failing to list any options to renew is to be taken together with lease agreement containing an option to renew as an integrated lease with an ambiguity, construed against the landlord who created the ambiguity.

Miner v. Tustin Ave. Investors, 2004 Daily Journal D.A.R. 2594, __ Cal. Rptr. 3d __ (Feb. 27, 2004).

A medical doctor leased office space for five years.  A contemporaneously executed addendum to the lease granted the tenant an option to renew for an additional five years at “the greater of the market rent, or the rent adjustment of 3% over the rent currently being paid by the Lessee at the time of exercise of the option.”  After 4 ½ years, the property was sold to a new landlord, at which time the tenant signed an estoppel certificate.  The estoppel certificate contained a statement that the tenant had no options, except as provided in following blank lines, which were not filled in.  Six months later, the tenant attempted to exercise his option to renew.  The parties negotiated but could not reach an agreement on rent.  The tenant sued for declaratory relief, and the landlord responded with an unlawful detainer action.  The trial court held that the estoppel certificate created a conclusive presumption that the tenant’ s option rights were terminated, applying Cal. Evidence Code § 622 and Plaza Freeway Ltd. Partnership v. First Mountain Bank, 81 Cal. App. 4th 616 (2000).

The appellate court reversed.  It held that the lease (including its addendum) and the estoppel certificate are to be treated as a fully integrated contract because the estoppel certificate referenced the lease as being in full force and effect.  Because the lease contained the option right and the estoppel certificate did not, there was an ambiguity, which is to be construed against the landlord who created it.  Summary judgment for the landlord was inappropriate.  The court clarified Plaza Freeway by agreeing that facts of the lease terms stated in the estoppel certificate are conclusively presumed to be true, even if erroneous in fact, provided however that the estoppel certificate does not create an ambiguity.  Here, the estoppel certificate’s statement that the lease (with its option to renew) was in full force and effect conflicted with the failure to list any options to renew.  In Plaza Freeway, in contrast, the estoppel certificate set lease terms that had been left uncertain under the original lease.  Notably, Miner contains quotable language about the benefits to tenants of options to renew and the benefits to landlords of estoppel certificates.

2. A binding arbitration provision of a residential lease covering personal injury claims violated tenants’ statutory procedural rights and was unconscionable due to lack of mutuality.

Jaramillo v. JH Real Estate Partners, 111 Cal. App. 4th 394, 3 Cal. Rptr. 3d 525 (Aug. 15, 2003).

Tenants brought tort, contract, and property claims against landlord for water and moisture in the premises’ walls and ceilings, toxic mold, and one tenant’s slip-and-fall on a concrete ramp on the premises.  The landlords sought an order compelling arbitration based on a binding arbitration clause in the lease.  The clause in small type with both bold  and non-bold print provided that any claim for personal injury arising from the condition of the premises was to be submitted to arbitration.  However, any claims by the landlord for the tenants’ breach, including any unlawful detainer action, were expressly exempted from the binding arbitration clause.  Also, the binding arbitration clause required the parties to divide equally the costs of arbitration and to pay them in advance.

The appellate court upheld the trial court’s denial of the motion to compel arbitration on two grounds.  First, despite the strong public policy favoring arbitration, the court read Cal. Civil Code § 1953, which precludes modification or waiver of a residential tenant’s procedural rights in litigation “involving his rights and obligations as a tenant,” as establishing a general rule that a tenant cannot validly agree in a residential lease agreement to binding arbitration.  The right to a jury trial is a procedural right of a tenant.  The court expressly avoided addressing whether Cal. Civil Code § 1942.1, which permits arbitration of tenantabilty disputes, creates an exception to § 1953, but suggested that § 1942.1 allows separate agreements to arbitrate tenantatibility, but does not authorize such agreements in the lease itself.  Second, the court held that the binding arbitration clause was unconscionable, because it was unilateral.  Claims over personal injury are virtually always tenant claims.  There was no opportunity to decline the arbitration clause.  Requirements that the tenant demand arbitration within 6 months after the claim arose and had to pay half of the costs up-front were buried in small type.  Landlord claims over tenant breaches were exempt from arbitration.  The residential tenant is the weaker party faced with a contract of adhesion.

3. A residential landlord may evict a tenant under the Ellis Act notwithstanding the tenant’s retaliatory eviction defense if the landlord proves a bona fide intent to withdraw the property from the rental market.

Drouet v. Superior Court, 31 Cal. 4th 583, 73 P.3d 1185, 3 Cal. Rptr. 3d 205 (Aug. 11, 2003).

For over 10 years, a residential landlord and two tenants in a unit clashed over rights and duties under the lease.  After the tenants deducted the landlord’s unpaid share of the garbage bill from their rent and complained of a leaking sewage drain and shower wall, the landlord commenced Ellis Act proceedings to withdraw the units from the rental market.  The tenants refused to vacate and the landlord filed an unlawful detainer action to which tenants responded with a retaliatory eviction defense.  The trial court denied summary judgment on the retaliatory eviction defense without considering whether the landlord’s intent to withdraw the units was bona fide.  The appellate division of the superior court reversed, holding that if a landlord complies with Ellis Act procedures, the landlord’s motives for withdrawing the units are irrelevant.  The Court of Appeal agreed that retaliatory eviction is not a defense to Ellis Act proceedings.

The California Supreme Court reversed in a 4-3 decision.  The Court unanimously held that the Ellis Act does not supersede the retaliatory eviction statute and that a retaliatory eviction defense can be raised by a tenant.  Four Justices further held that when a tenant raises a retaliatory eviction defense to an Ellis Act eviction, the landlord may prevail if he or she asserts a bona fide intent to withdraw the property from the rental market.  If the tenant then contests the landlord’s assertion, the landlord must show his or her bona fide intent to withdraw the units by preponderance of the evidence.  However, what the landlord needs to show is only that the units are being withdrawn, and does not need to establish that his or her motives for doing so are based on something other than the desire to retaliate against the tenant.  The majority expressly rejected a retaliatory withdrawal defense.  Thus, the tenant is left with having to prove by a preponderance of the evidence that the landlord intends to re-rent the units.  The majority also stated that the significant costs and limitations associated with withdrawing residential units from the rental market serve as a sufficient safeguard against sham withdrawals or withdrawals based solely on secret retaliatory motives.  The 3 dissenting Justices would consider the landlord’s motives in deciding to withdraw the units.

4. A redevelopment agency does not have the power to condemn a private company’s agreement with the agency to operate a parking lot and negotiate to develop the lot, even if the agreement gave the operator an option to purchase.

San Jose Parking, Inc. v. Superior Court, 110 Cal. App. 4th 1321, 2 Cal. Rptr. 3d 505 (July 29, 2003, modified Aug. 28, 2003).

A private company entered into an exclusive agreement with a city’s redevelopment agency to operate a parking lot and to negotiate a disposition and development agreement for the parking lot.  The agreement expressly stated that it did not grant any real property interest.  Three years after entering into the agreement, an Urban Land Institute study identified the parking lot as a critical piece of a downtown redevelopment plan.  The agency began to negotiate with another developer, and the company operating the parking lot sought an injunction prohibiting the agency from negotiating with anyone but the company for the development of the lot.  The agency responded by moving to condemn the company’s interest in the lot.  The agency offered approximately $3.7 million.  The company argued that the agency had not complied with the California Environmental Quality Act (CEQA) and does not have the authority to take the company’s rights under the agreement by eminent domain.  The trial court found that the agency failed to comply with CEQA, but refused to dismiss the complaint in eminent domain.

The appellate court reversed on the issue of the agency’s eminent domain power.  The court held that the sole source of a redevelopment agency’s eminent domain power is Cal. Health & Safety Code § 33391, which authorizes the agency to “acquire real property by eminent domain.”  In granting eminent domain power to other government entities, the Legislature used broader language, and also expressly allowed redevelopment agencies to acquire any interest in property, not limited to real property, by means other than eminent domain.  The plain language of the statute therefore limited the redevelopment agency’s power to condemn to real property interests, which the company did not have.  Citing a long line of cases holding that an option to purchase does not convey an interest in land, the court deemed irrelevant the agency’s argument that the exclusive right to negotiate for development and disposition of the property was essentially an option to purchase.

Relying on Golden West Baseball Co. v. City of Anaheim, 25 Cal. App. 4th 11 (1994), the court also determined that the exclusive right to manage and operate the parking lot did not create a leasehold.  The company did not have exclusive possession of the premises because the agency retained many rights of access and established maximum parking rates.  The company did not pay rent, because the contract recited that monthly payments were consideration for the exclusive right to negotiate for the property’s development, and contained a reimbursement provision.  Rent is for possession and use rights, not development rights.  The court also noted that even if the agreement were a license, a license is not a real property interest.

5. A landlord’s demand for key money on renewal or extension of commercial lease does not violate Cal. Civil Code § 1950.8 unless there is a new or renewed lease that fails to state the amount demanded.

Edamerica v. Superior Court, 114 Cal. App. 4th 819, 7 Cal. Rptr. 3d 921 (Dec. 23, 2003).

Tenants, operators of a Korean restaurant, on several occasions sought a new or extended lease so that they could sell their business.  Landlords repeatedly refused to agree unless the tenants first paid about $1 million.  The landlords allegedly were aware that the tenants had made over $300,000 in tenant improvements and could not sell their business without a new or extended lease due to the limited amount of remaining time on the lease term.  The tenants lost an offer to purchase their business, and sued under Cal. Civil Code § 1950.8, which the Legislature added in 2002 to address under-the-table demands for “key money” (a up-front bonus payable by the tenant to the landlord in order to obtain a new, renewed, or extended lease).  The tenants sought $3.3 million under the statute’s treble damages civil penalty.  The trial court sustained a demurrer without leave to amend.

The appellate court affirmed.  The statute prohibits a landlord from demanding key money, “unless the amount of payment is stated in the written lease or rental agreement.”  The court held that the exception applies to the new, renewed, or extended lease, not the pre-existing lease as the tenants had argued.  The court followed two different lines of reasoning.  First, the tenants’ reading of the statute would impose liability on the landlord either at the time the landlord demanded key money, thus rendering the exception superfluous, or at the time that lease negotiations fell through and a written lease was not produced, thus rendering an absurd result.  Second, the legislative history shows that the Legislature was concerned with exposing, but not absolutely prohibiting, practices prevalent in Los Angeles, particularly in the downtown fashion district, of landlords pressuring tenants for “under-the-table” or “underground” payments to renew leases amid soaring rental rates and fierce competition for space.  Therefore, the statute merely aims at requiring documentation of this practice in the terms of leases (arguably to reduce suspected tax evasion for undocumented large cash transfers from tenants to landlords).

REAL ESTATE TRANSACTIONS

(Several cases have been decided in recent months that are of significance to transactional lawyers who draft real estate documents.  In addition to memorializing the specifics of the deal, contracts must also contain provisions regarding the mechanisms to resolve a dispute that might arise.  The following cases are pertinent to standard clauses that are often contained in real estate agreements.)

6.  Clauses waiving jury trials are unenforceable:

Grafton Partners LP v. Superior Court (2004) 115 Cal.App.4th 700, 9 Cal.Rptr.3d 511

The court (First Appellate District) refused to enforce a contractual provision waiving a jury trial.  The court held that predispute jury trial waivers (waivers entered into before the parties are engaged in litigation) violate the California Constitution.  The court reasoned as follows: The Constitution (article I, section 16) provides that a jury trial may be waived only as prescribed by the Legislature.  The Legislature enacted Code of Civil Procedure section 631 which contains the only methods to waive a jury trial. A predispute contractual waiver is not one of the methods set forth in section 631. Therefore, because the Legislature has not authorized jury trial waivers by contract, a court cannot enforce them. The court also stated that even though there might be sound public policy reasons to allow predispute waivers, it is the job of the Legislature, not the courts, to evaluate competing policy concerns and select the applicable rules.

The Grafton decision is directly contrary to the holding of another Court of Appeals decision, resulting in a split of authority.  In Trizec Properties, Inc. v. Superior Court (1991) 229 Cal.App.3d 1616, 280 Cal.Rptr. 885, the Second Appellate District enforced a predispute jury waiver provision contained in a commercial lease.  The Grafton court opined that Trizec was wrongly decided.  A decision from one district of the Court of Appeal does not overrule a contrary prior decision from another district, so future cases can follow either approach.  It is no longer safe to include jury trial waivers in leases, loan documents, and other contracts and rely on Trizec for their enforceability.

The Grafton court distinguished contractual provisions providing for arbitration.  The court cited the California Supreme Court decision in Madden v. Kaiser Foundation Hospitals (1976) 17 Cal 3d 669, 131 Cal. Rptr. 882, 552 P.2d 1178, that held that the California Arbitration Act (CAA) effectively permits parties to waive a jury trial by agreeing to arbitrate.  Madden held that Code of Civil Procedure section 631 does not apply to a predispute arbitration agreement because each of the waiver methods prescribed by that section presupposes a pending action and relates only to the manner in which a party to that action can waive his right to demand a jury trial instead of a court trial.  It does not purport to prevent parties from avoiding a jury trial by not submitting their controversy to a court of law in the first instance. The court in Grafton concluded that the Legislature's authorization of agreements to resolve disputes in a nonjudicial forum in which there is no jury trial (arbitration) does not imply approval of agreements to modify the rules in the judicial forum.

The parties in Grafton were sophisticated business entities represented by counsel in the drafting of the contract.  The clause in question provided:

"In the unlikely event that differences concerning [PricewaterhouseCoopers (PwC’s)] services or fees should arise that are not resolved by mutual agreement, to facilitate judicial resolution and save time and expense of both parties, [Grafton and Allied and PwC] agree not to demand a trial by jury in any action, proceeding or counterclaim arising out of or relating to [PwC's] services and fees for this engagement."

Grafton had retained PricewaterhouseCoopers (PwC), to perform an independent audit. A dispute later arose and Grafton sued PwC. Grafton demanded a jury trial, and PwC moved to strike the demand based on the waiver clause in the engagement contract.  The trial court granted the motion, and the Court of Appeal issued a writ of mandate directing the trial court to enter an order denying the motion to strike the demand for a jury trial.

7. Clauses establishing venue are unenforceable:

Alexander v. Superior Court (2003) 114 Cal. App. 4th 723, 8 Cal. Rptr. 3d 111

The court refused to enforce a contractual provision setting venue.  Venue is the county within the state of California where the action will be tried.  The court held that it is the role of the Legislature to determine venue in a particular case.  Neither the parties nor the courts can depart from this statutory scheme.  A contractual provision attempting to set venue in a county other than that allowed by statute is against public policy. The trial court erred in determining that the contractual venue selection provision was dispositive of the question of venue.

Although the Alexander case involved contracts between providers of cellular  service and sales agents, the holding is applicable to all contracts, including agreements concerning real property.  The clause in question read as follows:

"The construction, interpretation, and performance of this Agreement shall be governed by the laws of the State of California and each party specifically stipulates to venue in Santa Clara County, California." (Only the venue provision, not the choice of law provision, was an issue in the case).

Drafting Tip:

It may be possible in some situations to establish venue by contract that is consistent with the statutory venue scheme. This can be accomplished by selecting a place where the contract is to be performed that is in a county where your client wants the suit to be tried.   Such a clause will work to establish venue in a breach of contract suit for damages.  This is because venue is proper in breach of contract suits against individual defendants where the contract is to be performed, if the place of performance is specified in writing. (Venue is also proper in the county where the defendant resides and the county where the contract was entered into.) (CCP section 395(a)).  In actions against corporations or partnerships, venue is proper "where the contract is made or to be performed".  There is no requirement of a writing specifying place of performance, but it does not hurt to have one in the contract.

Therefore, instead of drafting an unenforceable clause stating “Venue shall be proper in Los Angeles County” or “ The case shall be tried in San Diego County”, draft a clause stating specifically where the contract is to be performed.  The clause should expressly state the geographic location where payment or other performance is due.

If the lawsuit turns out to involve title to real property, (such as an action for specific performance of a contract to purchase land, an action to foreclose a lien, or an action for unlawful detainer) the only appropriate venue is in the county where the land is located (CCP section 392).  Any contractual provision attempting to establish a different venue will be unenforceable.

8. Clauses requiring a binding judicial reference can be enforced:

Woodside Homes of Cal., Inc. v. Superior Court (2003) 107 Cal.App. 4th 723, 132 Cal Rptr. 2d 35

This case involved an action by home buyers against a developer of home tracts.  A provision in the developer’s standard contract required that any dispute between a home buyer and the developer be submitted to binding judicial reference.  The court (Fourth Appellate District) held that this mandatory judicial reference provision was valid and enforceable because it was neither procedurally nor substantively unconscionable.

A judicial reference, authorized by Code of Civil Procedure sections 638 et seq., is a procedure whereby a dispute is sent to a referee for resolution.  The referee, who can be selected by the parties, decides the issues without a jury and is bound by the rules of law and evidence.

The court in Woodside reached a different result than the recent decision by Division One of the court in Pardee Construction Co. v. Superior Court (2002) 100 Cal.App. 4th 1081, 123 Cal.Rptr.2d 288. The Pardee court examined a clause that required judicial reference of disputes in the same context, sales of tract homes, and invalidated the provision.

Although the Woodside court did not expressly disapprove Pardee, it did subtly criticize some of its reasoning.  Nevertheless, the ostensible reason the Woodside court gave for reaching a different result than Pardee was the different language of the two clauses. The infirmities the Pardee court found with its clause were not present in the Woodside clause.

With respect to the issue of procedural unconscionability (the parties' relative bargaining strength and the extent to which a provision is "hidden" or unexpected), the Woodside clause passed muster because:

The clause was not hidden in the contract.  The entire contract was not misleading or hard to penetrate. Although the contract was several pages long and contained a great deal of small print, the buyers were necessarily made aware of the existence of the judicial reference provision because they had to initial the paragraph separately.

The fact that the buyers were waiving the right to a jury trial was conspicuously set forth in bold, capital letters.

The clause also noted that a reference would require the payment of fees for the referee, and set out the presumptive method of apportionment.

No evidence was presented that the buyer would not have been able to reject the clause by refusing to initial it if desired.

No lack of sophistication, education, experience, or ability to understand the contract on the part of the buyers was presented.  The court refused to assume (as the Pardee court had done) that these factors could be inferred from an inexpensive sales price or the ethnicity of the purchaser.

The court stated that even assuming factors such as an imbalance in bargaining power, that the developer prepared the contracts with an eye to its own advantage, and the developer would not have allowed  the striking of the judicial reference provisions, the buyers had nevertheless only shown a low level of procedural unconscionability because the elements of surprise and misrepresentation were not present.

In order to prevail, therefore, the buyers needed a high level of substantive unconscionability.  With respect to the issue of substantive unconscionability (whether the terms "shock the conscience" or at the least may be described as "harsh or oppressive"), the court likewise found the clause to be proper because:

The contract contained no limitation on damages – the damages the buyer could receive would be the same as if there were a trial, including punitive damages.

No showing was made that the buyer’s fees for the reference would be greater than the costs of a trial. Nor did buyers establish that the probable additional expenses of a judicial reference, if any, would be impossible or unreasonably difficult for them to pay.

The fact that the parties waived the right to a jury trial did not make the clause unconscionable, even if the developer’s motivation was that the referee would award less than a jury. The buyers got something for their jury trial waiver since the waiver was bilateral.

The court concluded by emphasizing that it was not purporting to hold that all agreements for judicial reference are valid and enforceable.  As was done by the court in Pardee, the court narrowly tailored its analysis to the particular clause and to the record of what was proven at the trial.

Drafting Tip:  If drafting a clause for a judicial reference, follow the format deemed acceptable in Woodside and avoid some of the pitfalls mentioned in Pardee: (1) Make the clause stand out -- require the parties to separately initial it and type it in bold print; (2) Do not make the clause appear to be non-negotiable – this can be accomplished by requiring the separate initials; (3) Specifically and obviously set forth that a jury trial is being waived; (4) Have the clause provide that the fees for the reference will be split (or at least how they will be allocated), and explain the costs in an obvious manner; (5) Do not attempt to waive punitive damages or otherwise limit damages.

9.  An arbitration clause incorporated by reference from a title insurance policy is enforceable:

Wolschlager v. Fidelity Nat’l. Title Ins. Co. (2003) 111 Cal. App. 4th 784, 4 Cal.Rptr.3d 179

The court held that an arbitration clause found in a title insurance policy was enforceable even though the insured saw neither the policy nor the arbitration clause prior to approving the preliminary report.  Because the preliminary report sufficiently incorporated the arbitration clause by reference, the plaintiff was bound by the agreement to arbitrate.

Prior to the close of escrow on his house, plaintiff sought to purchase title insurance from defendant. As is customary, plaintiff received a preliminary report from defendant which he read and approved.  The preliminary report did not contain an arbitration clause nor did it state that the Policy he would receive contained such a clause. Included in the preliminary report was an "Exhibit A" which contained selected portions of the policy that would be issued. The policy itself was not attached. The selected policy provisions in Exhibit A did not include or make reference to any arbitration provisions. However, Exhibit A did not purport to contain all of the provisions of the policy, and the first page of the preliminary report stated, in regular font, "Copies of the policy forms should be read. They are available from the office which issued this Report."

Approximately one month after escrow had closed, the plaintiff received the full policy which contained an arbitration clause. When defendant denied plaintiff's subsequent claim under the policy, plaintiff filed suit and the defendant petitioned to compel arbitration. The trial court denied the petition. On appeal, the court reversed and ordered arbitration.

Because the preliminary report did not itself contain an arbitration clause, the critical question was whether the arbitration clause was sufficiently incorporated into the preliminary report by reference to bind the plaintiff contractually.  The court held that it was incorporated by reference because of several factors:  the preliminary report referred to the Policy a number of times; it identified it by name; it directed the plaintiff to where he could inspect it; and the policy with the clause was easily available to him.  The defendant did not need to specify that the incorporated document contained an arbitration clause.  All that was required was that the incorporation be clear and unequivocal and that the plaintiff could easily locate the incorporated document.

The court also rejected plaintiff’s argument that defendant had waived its right to compel arbitration by failing to inform the plaintiff of the arbitration clause during a long claims and negotiations process or by failing to raise the issue as an affirmative defense in its answer to the complaint.  In order to find a waiver by the insurer of the right to arbitration, an insured must prove that defendant engaged in conduct designed to mislead policyholders.  Here, there was no prejudice to the plaintiff.  Plaintiff had the policy containing the arbitration clause in his possession and was represented by counsel who knew of the arbitration clause throughout the claims process.

10.  An invalid liquidated damages provision remains unenforceable even though contained in a settlement agreement:

Timney v. Lin (2003) 106 Cal. App. 4th 1121, 131 Cal. Rptr. 2d 387

The question presented in the case was whether the fact that a forfeiture provision was located in a settlement agreement, as opposed to in a contract, made a difference as to whether it was enforceable.

The case involved a settlement agreement that was entered into by parties to an action arising from a residential real estate transaction. The settlement agreement included a deposit forfeiture provision allowing for the forfeiture of the buyers' deposit, without regard to damages, if they did not deposit a quitclaim deed in escrow within five days of the closing date of the transaction.

The buyers had been unable to secure financing for the purchase of the home and had failed to deposit the quitclaim deed until nearly three weeks after the closing date. The trial court granted the sellers' motion to enforce the agreement, thereby permitting the sellers to retain the buyers' deposit. The Court of Appeal reversed and remanded the matter to the trial court with instructions to issue a new judgment severing and invalidating the deposit forfeiture provision and ordering the sellers to return the buyers' deposit.

The court held that the illegal deposit forfeiture provision was unenforceable even though it was included in the settlement agreement. The validity of a provision in a settlement agreement is judged by the same legal principles applicable to contracts generally and may not be enforced if illegal, unjust, or against public policy.

The court concluded, without much analysis, that if the provision had been included in a real property sales contract, it would be void as an illegal forfeiture. The court based its statement on the fact that the liquidated damages provision exceeded 3 percent of the purchase price, but the court did not analyze whether this amount was reasonable.  The court also characterized the clause as authorizing the forfeiture of a substantial deposit by reason of a minor delay in delivery of the quitclaim deed.

REAL ESTATE FINANCE

11. Parol evidence can overcome the scope of an overbroad boilerplate dragnet clause

Fischer v First Int’l Bank (2003) 109 CA4th 1433, 1 CR3d 162.

The parties had executed two different notes for two different loans, intending each to be separately secured by different properties. However, a provision in the deed s of trust defined indebtedness as including “all obligations, debts and liabilities” of the borrower. The court of appeal held that the provision did not prohibit the borrower from showing by parol evidence the intent not to cross-collateralize the two loans.  Thus the lender was not entitled to apply the surplus proceeds arising from the sale of a parcel securing one loan towards payment of the other loan.

12. Foreclosure trustee may refuse to deliver trustee’s deed when it perceives the sale was improper.

Residential Capital, LLC v Cal-W. Reconveyance Corp. (2003) 108 CA4th 807, 134 CR2d 162

After the fall of the hammer at a foreclosure sale, the trustee learned that the beneficiary had agreed with the trustor to postpone the sale. The trustee then refunded the foreclosure bidder’s payment and refused to deliver a trustee’s deed to it.  The court of appeal held that a high bidder has no enforceable contract rights at an improperly conducted foreclosure sale even though its bid had been had been accepted. Therefore, it could recover neither contract or tort damages for being denied a trustee’ s deed; return of its payment plus interest was all that it could claim.

13. Local predatory lending ordinance may or may not be preempted by state law.

American Fin. Servs. Ass’n v City of Oakland (2003), 4 CR3d 745; Review Granted.

The City of Oakland enacted an anti-predatory lending ordinance covering “high-cost home loans”, defined as loans carrying an interest rate three or more points over national benchmarks, or imposing fees and points greater than 5 percent of the loan amount or $800. For those loans, lenders were prohibited from imposing prepayment penalties, default interest rate increases, and excess financing charges; the ordinance also mandated consumer counseling, required the lender to certify suitability, and imposed penalties upon secondary market purchasers of such loans.  The Court of Appeal held that these provisions were not preempted by the provisions of California Financial Code §4970 et seq, imposing somewhat comparable restrictions on “covered loans”, which was enacted in 2001.  The California Supreme Court has granted review and this decision has been depublished.

NATIONAL CASES

14. Landlord/tenant; tenant's duty to repair; damages:

Corbello v. Iowa Production, 850 So.2d 686 (La. 2003 )

Where tenant contractually agreed to "reasonably restore the premises as nearly as possible to their present condition," in a lease for an oil and gas terminal, jury may properly award $33 million in damages for cost of restoration even when property, as restored, will be worth $106,000 and even when landlord has no duty to use the damages proceeds actually to restore the property.


15. Landlord/tenant; characterization;  use and occupancy taxes:


Northeast Oxford Enterprises LP v. City of Philadelphia Tax Review Board, 834 A.2d 650 (Pa. Cmwlth. 2003).

Users of self-storage facility, even though their rights are denominated "leases" by the parties, do not have sufficient control over the property so that the rights constitute interests in real estate for purposes of  a local tax.on the "use or occupancy of real estate." Consequently, landlords must pay the tax, as they are in the business of providing services, not leasing property..

16. Bankruptcy; landlord/tenant; security deposits; letters of credit: latest pronouncement from 9th circuit BAP:

In re Mayan Networks Corp.  (Redback Networks, Inc. v. Mayan Networks Corp.,) BAP No. NC-0201483-JRyK (2/05/04)

Issuers of letters of credit have exposure to amount of letter for tenant defaults if issuers have not contracted to be reimbursed from assets of the estate.  If there is such reimbursement right, then issuers remain liable, but are limited by 502(b)(6) limits in collecting the reimbursement.  In any event, application of letter of credit is taken into account in applying the cap on landlord's claims against the debtor.



17. Options; exercise; lease options:

Brunswick Hills Racquet Club., Inc. v. Route 18 Shopping Center Assoc., No. A-1648-02T3 (N.J. Sup. Ct. App. Div.  2/04/04) (unpublished opinion)

Where an option provides for a fixed price a ninety-nine year lease term, the option is exercised by tender of notice of exercise together with the required price, and a simple notice of exercise is a nullity, even where the optionor never indicates that it regards the exercise as unsatisfactory.


18. Fraudulent conveyances; common law resulting trust:

Valente v. Fleet Nat'l Bank, (1st Cir. 3/2/04)

Despite adoption of Uniform Fraudulent Conveyances Act, state common law still will set aside fraudulent conveyances using resulting trust theory and other equitable theories even in cases where the Uniform Act would not apply



19. Landlord/tenant; extensions and renewals; acceptance by implication:

Grand Investment  Corporation v. Connaughton, Boyd & Kenter,
119 S. W. 3d 101 (Mo. App. W.D. 2003).


A holding over by a lessee and the  waiver of notice by a lessor combine to exercise an option to extend a lease upon the original lease terms, despite different lease extension terms, if no extension is exercised.



20. Mortgages; due on sale; restraints on transfer; installment land contracts:


Bank Midwest, Minnesota, Iowa N.A. v. Lipetzky,  2004 Minn. LEXIS
4 (Minn. 1/15/04)

Mortgaging of the interest of a installment contract purchaser is a "transfer of [the] property" within the meaning of a due on transfer clause in the contract.



21. Miner v. Tustin Ave. Investors, 2004 WL 362362 (2/27/04)

Landlord/Tenant; Extension And Renewal; "Reasonable Rent:"

An option to renew stating that the renewal rent shall be the "market rentis not, at least as a matter of law,  unenforceable for vagueness.


Landlord/tenant; estoppel certificates; conflicts with incorporated agreement:

Where estoppel certificate signed by tenant indicates that tenant has no renewal options, but it refers to lease in which such options are set forth, an ambiguity arises that will be resolved by construing against the party in a position to avoid the ambiguity - in this case the party drafting both the lease and the certificate.



22. Daniel G. Kamin Kilgore Enterprises v. Brookshire Grocery Company, 81 Fed. Appx. L827, 200d U.S. App. LEXIS 24299 (5TH Cir. 12/03/03)

Landlord/tenant; commercial; continuous operation; implied duty:

Use clause in lease that states that parties "shall use premises solely for the . . . business of a grocery" does not impose a continuous operation obligation.