Eminent Domain
Written long-term lease not required for eminent domain compensation
Reported by Nick Love
The tenant of a commercial property was under a month-to-month tenancy without a written lease. A local government filed an eminent domain action to acquire the property without compensating the tenant for lost goodwill built up with clientele by his location at the property. The tenant claimed he was entitled to goodwill compensation for the taking, regardless of the existence of a written long-term lease, since the business suffered a loss directly attributed to the taking of the property. The local government claimed the tenant was not entitled to goodwill compensation since his tenancy was month-to-month without a written lease. A California appeals court held a local government is required to compensate the tenant for lost goodwill in the eminent domain taking since a tenant is not required to hold a written lease to receive goodwill compensation, merely show that he has lost money due to the taking. [Los Angeles Unified School District v. Pulgarin (June 23, 2009) __CA4th___]
Landlording
Affordable housing requirements, in lieu fees and rent restrictions on new construction are unenforceable
Reported by Gianna Pantanini
A developer sought to build residential units on a site designated to include affordable housing subject to rent restrictions. The developer applied for approval of the project and requested a waiver of the affordable housing requirements. A local agency denied the waiver request but conditionally approved the project, providing the developer include low income dwelling units subject to rent restrictions, or pay a fee. The developer sought to build the project without the affordable housing requirements claiming the state’s rent decontrol law preempted the affordable housing requirements and the restrictions on rent on new construction. The local agency claimed the developer had to provide affordable housing with rent restrictions or pay the fee since the proposed site was covered by the affordable housing ordinance. A California appeals court held the local agency had to waive the affordable housing requirements and eliminate the rent restrictions on approval since state rent decontrol law preempts the affordable housing requirements, the in lieu fee and the restrictions on rent on new construction, allowing the initial rental rate on new housing to be set by the owner. [Palmer v. City of Los Angeles (July 23, 2009)__CA4th__]
Surrender of improvements to landlord on termination of a lease triggers reassessment
Reported by Nick Love
An owner vested title to his property with a trustee who leased the property to a tenant. The tenant constructed improvements on the property, which were to be surrendered on termination of the lease. When the owner died, his interest in the property was transferred to a successor. The property was reassessed as a change of ownership to include the value of the tenant improvements. The successor-owner sought to have the value of the improvements removed from the assessment, claiming he had no interest in the improvements since they were constructed and maintained entirely by and for the benefit of the tenants. The county claimed the reassessment of the property to include the value of improvements was valid since the improvements would remain with the property on termination of the lease. A California appeals court held the owner held an interest in the improvements, including the value of the tenant’s improvements in the reassessed value since the improvements were to be surrendered to the fee owner on termination of the lease.
Also at issue in this case:
Beneficial use of property, not legal title controls change of ownership
An owner of property vested title in the name of a trustee who in turn leased the property to a tenant. The tenant constructed improvements on the property, which were to be surrendered on termination of the lease. When the owner died, his interest in the property was transferred to a successor. The property was reassessed as a change of ownership and included the value of the tenant improvements. The successor owner sought to correct the reassessment to eliminate the value of the tenant improvements, claiming he had no beneficial use of the property since legal title to the property was held by his trustee. The county claimed the reassessment of the property on a change in beneficial ownership under the title-holding trust agreement was valid since the owner and not the trustee received the income from the property. A California appeals court held the true owner of the property did not hold legal title for reassessment to include the value of the tenant’s improvements since the owner’s beneficial interest in the property was established by receiving rent from the tenants. [Phelps v. Orange County Assessment Appeals Board No. 1 (May 27, 2009) __CA4th___]
Editors Note – The tax increases are to be paid by the tenant, the lease agreement must so state, otherwise the tenant will escape payments of the taxes on reassessment.
[For further reading, see the August 2006 first tuesday RCD, Auerbach v. Assessment Appeals Board No. 1 for the County of Los Angeles]
Unlawful detainer action filed in reliance on opinion of counsel is not malicious
Reported by Nick Love
A landlord retained an attorney to determine whether he was permitted to increase a tenant’s rent. After reviewing the lease, the attorney informed the landlord that state law allowed the landlord to increase the rent. Based on this advice, the landlord raised the rent to the market rate. The tenant refused to pay the increased rent, and after giving all proper notices the landlord filed an unlawful detainer action. The landlord’s attorney, on further review of the matter, determined a previously overlooked paragraph in the lease agreement limited rent increases, and advised the landlord to dismiss the unlawful detainer action, which the landlord did. The tenant sought compensation from the landlord for interfering with his tenancy, claiming the landlord’s filing of the unlawful detainer action was malicious since the landlord failed to bring the existence of the rent-limiting lease provision to the attention of his attorney before raising the tenant’s rent. The landlord claimed he filed the unlawful detainer action in good faith since he relied upon the advice of an attorney who reviewed the lease agreement and advised he had the right to raise the rents and, if not paid, to evict the tenant. A California appeals court held the landlord had not maliciously pursued prosecution of the unlawful detainer action, since the landlord acted on advice of counsel who had been provided with a copy of the lease and the landlord had no duty to specifically discuss potentially relevant lease provisions with his attorney. [Bisno v. Douglas Emmett Realty Fund (June 19, 2009) __CA4th___]
City levy on landlord operations unenforceable as a tax
Reported by Gianna Pantanini
A local government agency imposed a business tax (RUBT) on owners of rental property. Later, without providing any additional services, the government agency added a levy to the RUBT to cover the cost of its collections. An owner of rental property paid the levy and then made a demand for its refund, claiming the levy was a general tax requiring a majority vote of the government agency’s electorate since the purpose of the levy was to cover costs associated with the administration of the existing authorized RUBT, not to provide any additional services. The government agency claimed the levy was a fee exempt from voter approval limitations, since the levy was imposed for both services provided to, and regulatory activities related to, operating businesses. A California appeals court held the owner was entitled to a refund of the levy since the levy is an unenforceable tax, as its purpose was to raise revenue but not to provide any additional services which required approval of a majority vote. [Weisblat v. City of San Diego (August 19, 2009) __CA4th__]
