Reported by Ai M. Kelley:

Resident managers paid only for hours worked

A resident manager was hired by a property manager for an elderly housing complex. They entered into a resident employee employment agreement which required the resident manager to live on the premises and be on call 15 hours daily, except on weekends. The agreement required the resident manager to remain within hearing distance of the emergency alarms while on call. Only the time spent responding to emergencies, outside the regular eight-hour workday, would be counted as hours worked. The resident manager filled out time sheets for his regular eight-hour workday and additional time spent responding to emergencies, and was paid accordingly. The resident manager later resigned and sought money losses for unpaid overtime wages for all the extra hours while on call, claiming he was entitled to payment for all of the hours spent on call since he was required to be within hearing distance of the alarms located inside the resident manager’s apartment unit. The property manager claimed the resident manager was not entitled to payment for all of the hours spent on call since resident employees are only paid for time spent performing assigned work. A California appeals court held the resident manager was not entitled to payment for all of the hours spent on call and within hearing distance of the alarms but not carrying out assigned work since resident employees are only paid for time spent carrying out assigned work. [Isner v. Falkenberg (2008) 160 CA4th 1393]

Editor’s note: See first tuesday’s Resident Manager Agreement form, Form 591, and see Chapter 9 of our Landlords, Tenants and Property Management book, entitled “Resident Managers.”

Property granted for a specific public use cannot be otherwise used

A property owner conveyed property to a county by grant deed. The grant deed stated the use of the property was restricted to use as a fair ground and prohibited the county from disposing of the property. The county accepted the deed by resolution. The grantor died. The county then sought to eliminate the restrictions from title, claiming the restrictions became unenforceable on the grantor’s death as they were personal covenants since the deed did not state the restrictions were in perpetuity. The grantor’s heir claimed the restrictions were enforceable since the property was privately dedicated to the county for a specific public use, the county agreed to them, and public policy prevented the county from diverting the use of the property from its dedicated purpose. A California appeals court held the restrictions limiting use and prohibiting disposition of the property were enforceable after the grantor’s death since the county agreed to the restrictions by resolution, imposing a “trust-like” obligation on the county not to divert the use of the property from its dedicated public purpose. [County of Solano v. Handlery (2007) 155 CA4th 566]

Editor’s note: The county also claimed only tideland property fell under the public policy which prevents the diversion of use from its dedicated purpose. This court, consistent with prior California decisions on point, disagreed.


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Late charge unrecoverable on final balloon payment under note provisions

A borrower executed a note and trust deed to a lender. The note provided for monthly interest-only installments with a final balloon payment of the principal and unpaid interest. The note provided for a 10% late charge should “any installment” not be paid on time. The borrower failed to make the final balloon payment. The lender recorded a notice of default (NOD) demanding full payment of the balloon payment, plus a late charge of 10% on the principal and interest now due. The borrower paid the balloon payment, but refused to pay the late charge claiming a late charge only applied to the installments of interest, not the final balloon payment of principal and interesting, since 10% of the much larger balloon payment of principal plus interest was not a reasonable estimate of the costs incurred by the lender for late payment of the balloon payment, i.e., an unenforceable liquidated damages provision. The lender claimed the late charge applied to the final balloon payment since the note referred to “any installment” and the balloon payment was an installment. A California appeals court held the late charge did not apply to the final balloon payment of principal and interest since it did not bear any reasonable relationship to the actual money losses the lender incurred, an unenforceable penalty. [Poseidon Development, Inc. v. Woodland Lane Estates, LLC (2007) 152 CA4th 1106]

Editor’s note: A final balloon payment can be considered an installment. However, the various provisions in this note made it clear that the final balloon payment was not intended to be considered an “installment”, especially in regards to the late charge provision. For example, the note provided for an increased interest rate should “any payment” be late from the date due until paid, called a default rate. This default rate applies to both the interest-only installments and the final balloon payment of principal and interest, as both are payments. However, the note also provided an acceleration clause in the case of any late “payment of any installment”. This provision could not apply to the late payment of the final balloon payment as the entire principal and any unpaid interest would already be due and payable. “Installments” clearly refer specifically to the interest-only payments, and “payments” to both the interest-only payments and the payment of the final balloon, principal and interest payment.

While the late charge was held not to apply to the final balloon payment, the borrower did owe the lender his actual money losses incurred due to the late payoff, i.e., collection expenses, and the amount due for the increased interest rate applied at the note’s default from the date due until paid.

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Life estate conveyance not a change in ownership for reassessment

A property owner created a living trust and transferred property into it. Under the terms of the trust, a life estate in the property would be granted on the owner’s death. The owner died and the life estate was granted to the life tenant who was not the decedent’s spouse. The County reassessed the property at the current value of its fee simple due to the conveyance of the life estate. A tax bill was issued to the life tenant. The life tenant paid the tax bill and then sought a refund of the excess property taxes paid due to the reassessment of value, claiming the acquisition of a life estate was not a change in ownership that triggered reassessment under Proposition 13 since the value of the life estate was substantially less than the value of the fee interest. The County denied the request for a refund, claiming the acquisition of a life estate was a change in ownership that triggered reassessment since the life estate was transferred to a non-spouse third party, and was not exempt from reassessment. A California appeals court held the life tenant was due a refund for the increased property taxes paid due to the reassessment since the transfer of a life estate is never a change in ownership that triggers reassessment and it is only when the life estate ends that the value of the fee is known and a change in ownership occurs triggering reassessment. [Steinhart v. County of Los Angeles (2007) 155 CA4th 1082]

Editor’s note: This case has once again hit the appellate court. The outcome of the latest appeal will be reported once it has been decided.

Reported by Giang Hoang:

Tenant recovers attorney fees on landlord’s dismissal of UD action

A lease agreement between a landlord and tenant expired. The tenant remained in possession of the unit after the expiration of the lease. The landlord filed an unlawful detainer (UD) action against the tenant to recover possession of the unit he alleged the tenant was possessing maliciously. Later, the landlord dismissed the UD action. The tenant sought to recover the attorney fees he incurred defending the UD action based on a provision in the lease agreement authorizing the prevailing party in an action arising from the lease agreement to receive his attorney fees. The landlord claimed the tenant was not entitled to attorney fees since recovery of attorney fees is barred in contract actions which end in a dismissal. The tenant claimed he was entitled to recover his attorney fees since the UD action was not based on the expired lease, but on the landlord’s claim of malicious possession. A California appeals court held the tenant was entitled to recover his attorneys’ fees since the UD action was based on a non-contract claim of malicious possession (a tort) rather than the expired lease agreement. [Drybread v. Chipain Chiropractic Corporation (2007) 151 CA4th 1063]