Reported by Giang Hoang-Burdette:
Easement deed allowing construction does not convey fee interest
The owner of a property by recorded grant deed conveyed an easement to his neighbor for parking and construction of a garage. The neighbor used the easement to park, but never built a garage. Later, both properties were sold. The new owner of the neighboring property benefiting from the easement obtained a building permit to construct a garage on the easement. The new owner of the property burdened by the easement sought to have the permit set aside, claiming that allowing the neighbor to build a permanent garage on the easement was equal to conveying a fee interest, not an easement. The neighbor claimed the building of the garage did not constitute the conveyance of a fee interest since the right to build a garage and exclusively park on the easement were use restrictions in the grant deed conveying the easement. A California appeals court held the neighbor benefiting from the easement was entitled to build a garage on the easement since the grant deed restricted the use to a garage and the exclusive use of a garage on the easement did not constitute a conveyance of the fee interest.
Also at issue in this case:
Conveyance of use restricted to a permanent garage does not violate Map Act
The owner of a property by grant deed conveyed an easement to his neighbor for parking and construction of a garage. The neighbor used the easement to park his car, but never built a garage. Later, both properties were sold. The new owner of the neighboring property benefiting from the easement obtained a building permit for a garage on the easement. The new owner of the property burdened by the easement sought to have the permit set aside, claiming that the building of the garage would be a violation of the Map Act since permitting the exclusive use of a garage by the neighbor was equivalent to the conveyance of a fee interest and thus created an illegal subdivision of the property. The neighbor claimed that allowing a garage to be build on the easement was not equal to conveying a fee interest since it limited the right to use the property as restricted in the easement deed. A California appeals court held the conveyance of an easement allowing the neighbor to build a garage on it for his exclusive use did not violate the Map Act since the restriction on the right to use the land as granted by the easement did not give the neighbor fee interest in the land, and so did not create a subdivision of the property. [Blackmore v. Powell (2007) 150 CA4th 1593]
Seller defeats option exercise by adding closing conditions, barring specific performance claim
A landlord and tenant entered into a lease agreement which included an option to purchase the leased premises at a set price. During the option period, the tenant sent a notice of exercise of the option to the landlord. The landlord then drew up a purchase agreement for the sale of property, calling for a 10% deposit into an escrow and a delay in closing to accommodate an Internal Revenue Code §1031 transaction, as well as stating the buyer was acquiring the property in an “as is” condition. These terms were not in the option agreement nor were they previously discussed. In response, the tenant sent a counteroffer to the landlord calling for a short escrow to accommodate the purchase-assist financing. The landlord ceased negotiation and refused to sell the property. The tenant sought specific performance of the option agreement, claiming it was enforceable since it contained the identity of the buyer, seller, and property, and set the price to be paid. The landlord claimed the option was not enforceable since the time and manner for payment of the price were never agreed upon by both parties. A California appeals court held the option was not enforceable since the conditions sought by the seller for the time and manner for payment of the price were essential terms of the sale which were never agreed upon by the two parties, barring the court’s implication of a cash price and a reasonable time for closing on that price. [Patel v. Liebermensch (2007) 154 CA4th 373]
Editor’s note — This case has been accepted for review by the Supreme Court of California. This decision can be tracked through first tuesday’s monthly Supreme Court Watch.
HOA claim under CC&Rs time-barred four years after making claim
A developer converted an apartment building into a condominium complex. The covenants, conditions and restrictions (CC&Rs) governing the complex required the developer to transfer parking spaces to buyers of condominiums within the complex. Any parking spaces not transferred to buyers within three years after the first condominium was purchased were to be transferred to the homeowners’ association (HOA) for the complex. Several decades passed after the first condominium unit was sold, during which period the developer retained title to parking spaces not transferred to buyers. Instead of transferring ownership to the HOA, the developer later transferred title for the parking spaces to the developer’s corporate president. Later, the HOA made a demand for conveyance of the parking spaces to the HOA, claiming the developer violated the CC&Rs since it failed to transfer title to the HOA after the three year period. The developer claimed a four-year statute of limitations for enforcing provisions in the CC&R had expired, barring the HOA claim to ownership since it had been decades since the first condominium was sold. A California appeals court held the HOA could enforce the CC&Rs and quiet title to the parking spaces since the statute of limitations to enforce a provision in a CC&R begins to run at the time the HOA made their claim for conveyance, not from the date of the violation. [Crestmar Owners Association v. Stapakis (December 13, 2007) __CA4th___]
Surplus funds from trustee’s sale paid only to recorded lienholders
A property encumbered by a first trust deed was sold at a trustee’s foreclosure sale under the trust deed. The trustee’s sale netted sales proceeds in excess of the amount owed on the first trust deed. At the time of the trustee’s sale, one abstract was of record for a money judgment obtained by the county to collect for child and spousal support the owner of the property owed. The ex-spouse had recorded a lis pendens against the property for money owed and obtained a money judgment, but never recorded an abstract of the judgment. The owner’s ex-spouse made a claim on the surplus proceeds to pay off both the child and spousal support and the money judgments. The owner claimed the abstract was not valid since the county did not have statutory standing to record the abstract as a lien against the property, and a lis pendens noticing the other judgment did not constitute a lien as an abstract of that judgment was not recorded at the time of the trustee’s sale. The ex-spouse claimed the abstract of judgment was valid since the county had the statutory authority to record the lien for child and spousal support and the recorded lis pendens noticed the other judgment and the court had the discretion to impose a lien based on the court’s authority to record a support lien. A California appeals court held the abstract of judgment for child and spousal support was a recorded lien on the property at the time of the trustee’s sale and thus was a valid claim against the surplus funds from the trustee’s sale since the county had statutory authority to record an abstract of judgment against the property, but that the second judgment was not a valid claim against the surplus since a lis pendens did not create a lien on the property and the court did not have authority to create a lien where none existed. [Cal-Western Reconveyance Corporation v. Reed (2007) 152 CA4th 1308]
Reported by Bradley Markano:
Tenant’s wrongful eviction suit dismissed under anti-SLAPP law
A tenant was served a notice to vacate. The tenant informed the landlord that his age and duration of residency prohibited the landlord from evicting him. The landlord did not withdraw his notice to vacate and indicated he would proceed with an unlawful detainer action. In response, the tenant sued the landlord for wrongful eviction. The landlord sought to have the court dismiss the wrongful eviction action under anti-SLAPP statutes since the landlord’s service of a notice to vacate in anticipation of filing and serving the tenant with an unlawful eviction action were part of his first amendment right of access to the courts under his freedom of petition. The tenant claimed the landlord’s notice to vacate was not protected by anti-SLAPP statutes since a notice to vacate is not specifically named as an activity subject to anti-SLAPP dismissal and the notice was based on the landlord’s illegal conduct. A California Appeals Court held the landlord’s service of a notice to vacate with the intent to file and serve an unlawful detainer action was activity protected from the tenant’s litigation under the anti-SLAPP law since the notice to vacate was a protected form of petition when served in preparation to file an unlawful detainer action, and a protected right of petition does not have to be specifically enumerated to be protected under anti-SLAPP statues. [Birkner v. Lam (2007) 156 CA4th 275]
Owner-occupant liable for injuries cause by animals allowed on his property
A homeowner hired a contractor to remodel structures on his property. The owner also hired a gardener to maintain the property. Both were given permission to enter the property to perform their services and store materials on the site. The gardener was permitted to keep his pit bull loose in the yard as a guard dog. The contractor advised the owner the dog appeared dangerous. The owner took no action to require the gardener to keep the dog restrained. An employee of the contractor entered the yard and was bitten by the dog. The employee made a demand on the owner to recover his medical expenses and losses, claiming the owner owed him a duty of care to make the property safe from the dangerous condition presented by the dog. The owner claimed he had no duty of care and could not be held liable for the behavior of the gardener’s animal since he had been unaware the dog was dangerous. A California appeals court held the owner occupying the property had a duty of care owed to persons who came onto the property and was liable for the employee’s injuries and money damages since, unlike an absent landlord, as an occupying property owner he had the responsibility to ascertain the threat presented by the dog and prevent its danger to the employee. [Salinas v. Martin (August 28, 2008)__CA4th___]
Housing tax credits are not public funds triggering minimum wages for employees
To induce developers and investors to own and operate low-income housing projects, the federal and state governments allow taxpayers to take credits against future taxes they may owe. The credit amounts are allocated to applicants by the state of California. Applicants receiving an allocation then syndicate the project involved in the application and sell fractional ownership interests to limited partners. The investing limited partners receive the right to take their pro rata share of the state credits allocated to the project, thus reducing their state and federal tax liability according to a formula by the amount of their share of the credits. California public policy requires employers on projects paid for by public funds to meet wage requirements. A developer of a low income housing project applied to the Director of the Department of Industrial Relation for clarification as to whether a project receiving allocated tax credits was considered a public works project. The director issued a determination the project was not a public works project subject to the wage law. A workers union sought to have the director’s decision reversed. The union claimed government tax credits should be considered public funds since they are treated as a source of funding by developers who sell the allocations to investors. The director claimed the credits are not public funds since they have no inherent value, cannot be exchanged between taxpayers, and are not part of any expense arising from the operations of a project. A California appeals court held tax credits awarded to taxpayers as incentive to operate low-income housing projects are not public funds since they entail no government expenditure and are intangible assets which are not sold. [State Building and Construction Trades Council of California v. Duncan (2008) 162 CA4th 289]
City zoning authority is unimpeded by contractual restrictions
A market was allowed to operate in a residentially zoned condominium project under a city issued conditional use permit (CUP). A restriction agreement recorded on title to the condominium limited the lifespan of the market’s operations to the expiration date of the CUP. Before the expiration of the CUP the city government issued a new CUP which extended the period for the market to operate.A neighbor sought an injunction to close the market since the expiration date of the CUP referenced in the restriction agreement had passed. The market’s owner claimed the new CUP precluded closure of the market’s operations since the city had the zoning authority to extend the permit. A California appeals court held the market could remain in operation since the restriction agreement did not override the city’s power to issue a new CUP. [Richeson v. Helal (2007) 158 CA4th 268]
Contractor barred from any recovery for lacking license during entire performance
A general contractor hired an unlicensed corporate subcontractor to perform work on a construction project. The subcontractor’s responsible managing officer (RMO) was in possession of a valid license throughout all phases of its work on the project, but the subcontractor obtained a corporate license only after work on the project began. After the project’s completion, the general contractor failed to pay the subcontractor as agreed, and the subcontractor sued the general contractor for payment. The general contractor claimed the subcontractor was barred from any recovery since the subcontractor did not hold a contractor’s license at the time the work commenced. The subcontractor claimed it was entitled to payment since its RMO held a valid individual contractor’s license during the entire project. A California appeals court held the subcontractor was not permitted to recover any monies under the contract, or the reasonable value of work completed, since state law forbids recovery of fees or payment when the contractor is unlicensed during any part of his work, regardless of whether the RMO is licensed. [Great West Contractors Inc. v. WSS Industrial Construction Inc. (2008) 162 CA4th 581]
Buyer prevails but is denied attorney fees for not first offering to mediate
A buyer and a seller entered into a real estate purchase agreement containing a mediation provision stating that the recovery of attorney fees by the prevailing party in any action commenced by that party was conditioned on his first offering to enter into mediation as an alternative dispute resolution remedy. After acquiring the property, the buyer filed an action against the seller, seeking compensation for misrepresenting the condition of the property. At the time of filing the action, the buyer was unable to locate the seller. After initiating a diligent investigation into the whereabouts of the seller, the seller was located and served in the action. The buyer then sent the seller a letter offering to mediate the dispute while staying the action. The seller did not respond to the offer to mediate. The action proceeded to trial and the buyer prevailed and sought to recover his attorney fees. The seller claimed the buyer was barred from recovering fees since he had filed his action before offering to mediate. The buyer claimed he was entitled to attorney fees since he had offered to mediate as soon as he located the seller. A California appeals court held the buyer was not entitled to recover his attorney fees as the prevailing party even though the purchase agreement contained an attorney fee provision authorizing his recovery since the buyer initiated the action against the seller prior to offering to mediate under the purchase agreement’s mediation provision which prohibited attorney fees unless mediation was attempted first. [Lange v Schilling (2008)163 CA4th 1412]
Plat map boundary dispute resolved by 1868 surveyor’s field notes
The boundary line between two adjoining parcels of real estate was shown as a straight line between two points in a gulch on an 1868 county surveyor’s plat map. The plat map was prepared by the surveyor under authority to locate boundaries of occupied properties. The recorded description of the property included both the plat map and county surveyor’s field notes. The field notes stated the boundary followed the path of a gulch whose course the surveyor did not survey. The neighbor owning the adjoining parcel claimed the boundary between the two parcels was located as shown by the straight line boundary on the plat map. The owner sued to quiet title to the boundary line for his property, claiming the boundary was located at the center of the gulch since the surveyor’s field notes controlled the location of the boundary when the plat map’s description was less accurate. The neighbor claimed the plat map’s boundary line was definitive as drawn since the field notes were extrinsic evidence in conflict with the plat map. A California appeals court held the boundary was located at the center of the gulch since the correct legal description of the property takes into account both the surveyor’s map and field notes and gives the field notes superior authority. [Claudino v. Pereira (August 13, 2008) __CA4th__]
Reported by Anthony Renaud:
Buyer held liable for prior owner’s unlawful rent increases
An owner raised a tenant’s rent beyond what was considered lawful by a city’s rent control board, an amount which the tenant paid. A buyer acquired the property and the tenant continued paying the buyer the excess rental amount. Later, the tenant filed a complaint with the board against the buyer to recover the unlawful rent increase. The board awarded the tenant the amount of the overpayment in rent as money due the tenant from the buyer. The buyer sought to overturn the award made the tenant by the board claiming he was not liable for overpayments made by the tenant since he neither established the unlawful rent amount nor owned the property when the overpayments were made. The board claimed the buyer was liable for the tenant’s rent overpayments to the former landlord since the rent ordinance states successor landlords are liable for tenant damages incurred by former unlawful rent increases and overpayments. A California appeals court held the buyer was liable for all overpayments made by the tenant since the rent ordinance was controlling and under it successor landlords are liable for losses incurred by tenants due to the former owner’s unlawful rent increases.
Also at issue in this case:
Buyer’s rent control liability for seller’s excess rent charges not a due process violation
An owner raised a tenant’s rent beyond what was considered lawful by a city’s rent control board, an amount which the tenant paid. A buyer acquired the property and the tenant continued paying the buyer the excess rental amount. Despite the burden of due diligence placed on the buyer to ensure the tenant’s rent conformed to rent control ordinances, the buyer did not inspect the tenant’s rental history to ensure the rent price was fair. Later, the tenant filed a complaint with the board against the buyer to recover the unlawful rent increase. The board awarded the tenant the amount of the overpayment in rent as money due the tenant from the buyer. The buyer claimed the board violated his right to due process by holding him liable for the prior owner’s actions. The board claimed his due process rights were not violated since it was the responsibility of the buyer to ensure any rent charged by the previous owner conformed to the rent control ordinance. A California appeals court held the board’s actions did not violate the buyer’s due process rights since the provisions in the ordinance concerning rent increases and challenges were reasonably related to the ordinance’s purpose of regulating rents and it was reasonable to place the burden of due diligence on the buyer to determine if rents tenants were being charged conformed to amounts allowed by the rent ordinance when the rental property was purchased. [Baychester v. San Francisco Residential Rent Stabilization and Arbitration Board (August 3, 2008) __CA4th___]
Utility burdens power line easement by installing and leasing telecommunication lines
A utility company owned easements which allowed it to place and maintain power lines for public use. The Public Utilities Commission (PUC) controlling the utility established a policy favoring the joint use of utility property, including easements, and authorized the utility to install and share telecommunication lines with third parties. As authorized by the PUC, the utility ran telecommunication lines alongside the power lines on the easement it held on the owner’s property and began leasing or licensing capacity on the lines to third parties. This caused an increase in traffic for installation and third-party maintenance personnel on the owner’s property. The property owner sought compensation from the utility for the excessive burden placed on his property, claiming the utility burdened the easements granted to it since the utility installed and leased a use of the easement which they did not own to use or lease. The utility claimed it had not burdened the easement since PUC regulatory policy promoted the joint use of utility property for telecommunications purposes and authorized them to do so. A California appeals court held the utility company owed the property owner compensation for the invasion of the owner’s property rights since the installation of telecommunication lines and the leasing of their use to third parties had burdened the easement and the PUC can not determine the rights of property owners as against a utility under an easement. [Koponen v. Pacific Gas and Electric Company (July 28, 2008) __CA4th___]
Recorded judgment avoid homestead exemption on later purchase of principal residence
A creditor acquired a money judgment and recorded an abstract of the judgment in the name of the individual who owed the money. The individual later acquired ownership of a residential property and occupied it as his principal residence. The home was not acquired using the proceeds from the sale of a prior homestead property. The creditor then sought to have the principal residence of the individual sold to enforce collection of the money judgment. The individual claimed his principal residence qualified for a homestead exemption which barred the creditor from having the home sold to satisfy the judgment since the abstract of judgment lien did not attach to his ownership until the date of purchase when the property became his homestead. The creditor claimed the debtor’s home did not qualify for a homestead exemption since the individual did not purchase the property with proceeds from the sale of an existing homestead which subjected the home to his previously recorded abstract of judgment lien the day the individual became the owner of the property. A California court of appeals held the individual’s principal residence did not qualify for a homestead exemption and that the creditor was entitled to have the property sold to satisfy his money judgment since ownership of the principal residence was acquired after the abstract of judgment was recorded and with funds that were not from the sale, damage, or destruction of a previous homestead. [SBAM Partners v. Wang (July 9, 2008) __CA4th___]
Editor’s note—Had the debtor purchased a home in a different county, the lien would not have attached to the residence. Because the home was located in the same county as the recordation of the money judgment, the debtor’s automatic homestead exemption was not available to shield the equity in his home against this forced sale by the creditor.
Tenant’s agent has no duty to owner after lease is signed to disclose client’s financial difficulties
A landlord entered into a lease agreement with a tenant for the improvement of property to be occupied by the tenant. Both the landlord and the tenant retained separate agents; each agent exclusively represented their client. After the landlord improvements were underway but prior to the tenant taking possession, the tenant disclosed to his agent he was experiencing financial difficulties and was considering terminating his lease. The tenant’s agent did not inform the landlord of his client’s developing financial condition or plans to terminate the lease agreement. The tenant and the landlord later canceled the lease agreement. The landlord made a demand on the agent for lost rent, claiming the tenant’s agent owed him a fiduciary duty to advise of the change in the tenant’s financial situation which continued after the lease agreement was entered into since the agent was aware of information that negatively affected the business relationship of the landlord and the tenant, causing the landlord to lose rent due under the lease. The tenant’s agent claimed he owed the owner no duty to disclose confidential information about his client’s changed financial condition after the lease agreement had been entered into since the agent was under no contractual obligation with the landlord to disclose information about the tenant. A California appeals court held the tenant’s agent owed no duty of care to the landlord and was not liable for any losses the landlord may have incurred due to a breach or termination of the lease since the tenant’s agent was under no obligation to disclose information about the tenant’s finances he had received in confidence from his client after the lease agreement had been entered into, information which would not have aided the landlord in avoiding losses under the lease agreement. [Turkus v. MF Downtown Sunnyvale, LLC (April 30, 2008) __CA4th___]
Interest rate differential on lost loan barred as expired claim for lost property value
The prior owner of a property polluted the property with chemical solvents. The current owner applied to refinance the first trust deed. As a condition for making a loan, the lender required an environmental assessment of the property. The environmental assessment report revealed the property’s soil was contaminated with solvents. The current owner requested the former owner to either clean up the property to the lender’s satisfaction or enter into an indemnity agreement with the lender. The former owner refused and the lender declined the application for the new loan.The purchase agreement entered into by the current and the former owner contained no representations, warranties or indemnity regarding the condition of the soil. The time period for suing to recover the current owner’s losses based on the claim of a permanent nuisance had expired since lost property value may only be recovered for permanent, not continuing nuisances. The current owner then sought to recover his losses as the interest rate differential between the rate of the existing loan and the rate quoted by the new lender under the loan application, claiming the former owner was liable for his inability to refinance the first deed trust loan due to the contamination of the soil by the former owner. The former owner claimed he was not liable for the current owner’s inability to refinance the first trust deed since the purchase agreement for the property did not include a warranty for the condition of the soil. A California court of appeals held the former owner was not liable for the current owner’s losses incurred for the interest rate differential between the rate on the existing loan and the rate quoted by the new lender, since the current owner’s claim amounted to a reduction in property value due to the cost of financing the property, a claim which was barred by the statute of limitations as the contamination was a continuing nuisance, not a permanent one. [Gehr v. Baker Hughes Oil Field Operations, Inc. (July 30, 2008) __CA4th___]
Editor’s Note—A purchase agreement provision in this case placed the due diligence investigation and satisfaction of the property’s soil condition on the buyer as a condition of the buyer closing escrow.
Employer has no duty to protect employee against unforeseeable assault
An employee was required to park his vehicle in an unfenced area of his employer’s parking lot. The area was dimly lit at night and isolated from the main work area. The employee was attacked and injured while exiting his parked vehicle during a period of darkness. Employees had seen transients trespassing on the premises in the weeks and months prior to the attack. However, no prior assaults had occurred at the employer’s facility. The employee made a demand on his employer to recover the monetary losses he incurred due to his injuries, claiming the employer failed to implement security measures necessary to prevent criminal activity resulting from the presence of transients. The employer claimed he did not have a duty to prevent the assault and thus was not liable for the employee’s losses since no prior assaults had occurred on the property despite the presence of transients. A California appeals court held the employer was not liable for the employee’s injuries since the assault was not foreseeable and no duty arose to protect employees due to the lack of prior assaults by transients on the employer’s property.
Also at issue in this case:
An employee was attacked and injured in his employer’s parking lot. Surveillance cameras were mounted on the exterior of the building and a security guard was posted at the main entrance to the employer’s property in a guard house. Their existence was voluntary on the part of the employer and not in response to prior criminal activity. The security guards view of the scene of the crime was fully obstructed and the cameras placed on the building’s perimeter were inoperative. The injured employee claimed his employer negligently undertook security measures since the security cameras placed on the building’s perimeter were not being monitored and the security guard failed to control unauthorized persons from entering the parking lot. The employer claimed he was not negligent since the presence of a security guard and surveillance cameras neither created a duty to protect employees nor caused the employee’s injuries. A California appeals court held the employer was not negligent in the maintenance and use of cameras and security guards since they were not meant to reduce the employee’s risk of harm or cause the employee to rely on them for his personal safety. [Ericson v. Federal Express Corporation (May 14, 2008) __CA4th__]
Replacement cost coverage limited by notice eliminating full replacement cost coverage
A homeowner purchased homeowner’s insurance that initially covered the full replacement cost for his property. Later, the insurance company notified the homeowner that replacement cost coverage had been eliminated and replaced with a stated limit for replacement coverage. The homeowner was sent yearly reminders that maintaining adequate amounts of replacement coverage was the responsibility of the homeowner. The insured home was destroyed by fire and the homeowner filed a claim for the full cost of replacement. The insurance company adjusted the homeowner’s claim to reflect the terms of the policy in effect and paid the amount due under the policy. The homeowner demanded payment of the full cost of replacement by the insurer claiming the insurance policy included misleading replacement language inducing him to believe his destroyed home would be replaced without cost limitations. The insurance company claimed the homeowner’s current policy did not include a provision covering the cost of replacement without limit, rather the policy included payment of replacement costs up to policy limits which the insurer paid. A California appeals court held the insurance company did not breach its contract with the homeowner by paying the amount due under the terms of the current policy since the homeowner’s policy did not include any language guaranteeing limitless replacement cost coverage. [Everett v. State Farm General Insurance Company (April 29, 2008) __CA4th__]
No prescriptive easement when boundary road accommodates family members
A married couple divorced and split land they owned into two parcels, parcel A to the wife and parcel B to the husband. A boundary road existed between the parcels, which was not recorded as an easement. The divorced couple’s son inhabited a residence located on parcel A and the couple allowed the son to use the road to access the residence on parcel A. Three years later, both parcels were sold to separate owners. The new owner of parcel B posted signs safeguarding against any further use which would establish the boundary road as a prescriptive easement appurtenant to parcel A. The owner of parcel A claimed a prescriptive easement existed on parcel B for use of the boundary road based on the prior owner’s son’s continuous use of the road as adverse to the prior owner of parcel B, his father. The owner of parcel B claimed a prescriptive easement had not been established since the son’s three-year use of the boundary road was not adverse to the prior owner of parcel B. A California appeals court held a prescriptive easement had not been established since the son’s use of the boundary road was not adverse to the prior owner of parcel B, but an accommodation for a family member of the prior owners of both parcels which did not meet the five-year period of continuous adverse use required to establish the easement. [Grant v. Ratliff (July 16, 2008) __CA4th___]
Option unenforceable for lack of option money paid to the seller
A buyer interested in purchasing and developing land entered into a purchase agreement with the seller to buy the land contingent on the buyer securing all approvals and permits prior to closing the sale. The agreement further provided that the buyer could cancel the agreement at any time, for any reason and without any obligation to apply for or obtain permits. After the buyer deposited funds in escrow towards the purchase price and obtained the permits and approvals necessary to waive contingencies, the seller canceled escrow. The buyer claimed an enforceable option existed in the purchase agreement since he deposited money in escrow and expended large sums of time and money obtaining approvals and permits The seller claimed the purchase agreement was an unenforceable option since the money deposited in escrow applied to the purchase price on closing and the terms of the agreement allowed for withdrawal at the discretion of the buyer, all of which created an option. A California appeals court held the purchase agreement between the seller and the buyer was an unenforceable option since the buyer could cancel the agreement at any time and neither the buyer’s voluntary expenditure of time and money to secure permits and approvals, nor the funds deposited in escrow qualified as consideration (option money) paid for the grant of an option. [Steiner v. Thexton (May 30, 2008) __CA4th___]
Editor’s note—The buyer in Steiner entered into what was entitled a purchase agreement, but which in fact was a mere letter of intent to buy real estate. It would have been helpful to the buyer if he had agreed to obtain permits and approval and, should he cancel the agreement, they would become the property of the seller. [See first tuesday Form 185]
This case has been accepted for review by the Supreme Court of California. This decision can be tracked through first tuesday’s monthly Supreme Court Watch.