The Courts Giveth and the Courts Taketh Away.
A few months ago, a number of California landlords and their attorneys had the unusual sense that the courts had indeed given them something.
On October 1, 2015 a decision was filed in the case of Boston LLC v. Juan Juarez (Appellate Division, Los Angeles County Superior Court). The case arose out of an alleged breach of a rental agreement that the parties had entered into in 1999. The property was subject to the City of Los Angeles Rent Stabilization Ordinance (LARSO).
What the Agreement Entailed
In that agreement, Paragraph 11 said, “Insurance: Owner does not insure renter for any personal injury or property damage including that caused by the act or omission of any other renter or third party. Renter shall obtain and pay for any insurance coverage necessary to protect renter or renter’s property from any loss or expense that may be caused by such persons.”
The rental agreement also contained a forfeiture clause which said, “Owner and Renter agree that renter’s performance of and compliance with each of the terms thereof constitute a condition on renter’s right to occupy the premises and any failure of compliance or performance by renter shall allow owner to forfeit this agreement and terminate renter’s right to possession.” [my emphasis]
In February of 2014, Boston filed an unlawful detainer action against Juarez based on the tenant’s failure to obtain and maintain renter’s insurance. The Superior Court ruled in favor of the landlord.
The Tenant’s Appeal and the Appellate Division Court’s Ruling
The Tenant argued that “he should have been allowed to present evidence that his breach of paragraph 11 was not material.”
The Appellate Division Court noted, generally, “…California courts allow termination only if the breach can be classified as ‘material’, ‘substantial’, or ‘total.’
But then it went on to say, “If there had been no other provision regarding the materiality of breaches in the agreement, the question of whether the breach was material would have been one for the trier of fact to decide.”
But, due to the forfeiture clause, “evidence concerning the breach’s materiality was irrelevant…” The Appellate Division decision upheld the trial court ruling in favor of the landlord.
This was a Big Deal.
The February edition of the California Real Estate Law Newsletter put it this way: “This case clearly rejects a line of cases standing for the proposition that a material provision of a lease may be breached in such a trivial manner that to enforce a forfeiture would be inequitable. Attorneys representing landlords will want to include this case in their trial briefs.”
Then the Other Shoe Dropped.
On February 25, 2016, the Court of Appeal of the State of California (Second Appellate District) filed its decision on the tenant’s appeal from the ruling of the Los Angeles County Superior Court Appellate Division.
The State Court of Appeal Wrote:
“We asserted jurisdiction over the matter…to settle an important question of law: Whether a tenant’s breach of an LARSO rental contract, regardless of the breach’s materiality or impact on the landlord, justifies the landlord forfeiting the agreement and terminating tenancy. We hold a tenant’s breach must be material to justify forfeiture.
Here, the tenant’s obligation to obtain and pay for insurance protected the tenant’s interest, not the landlord’s; accordingly, the tenant’s failure to obtain a policy could not have harmed the landlord and therefore was not a material breach of the agreement constituting grounds for forfeiture.”
The judgment of the Superior Court Appellate Division was reversed. The tenant stays.
All is as it was before. In an unlawful detainer action it is not sufficient merely to show that there has been a breach of the rental agreement. It also must be proved that the breach was sufficiently material. No, that hasn’t been precisely defined.
Bob Hunt is a director of the California Association of Realtors® and is the author of Real Estate the Ethical Way. His email address is [email protected]