A look at recent court cases affecting real estate.
Terminating a non-resident tenant’s occupancy is subject to rent control
A landlord leased an apartment unit covered by rent control to a tenant who did not occupy the property as his principal residence. Rent control ordinances enabled the landlord to obtain a Rent Control Board decision regarding whether a tenant was a non-resident tenant. If non-residency is established, the landlord is allowed to increase the rent owed by the tenant to market rates and evict the tenant if he refuses to pay the increased rent. Without prior approval by the Rent Control Board, the landlord terminated the tenancy and sought to evict the tenant, which the tenant resisted. The landlord claimed he had the right, unrestricted by rent control ordinances, to evict a tenant who did not occupy a unit as his principal residence since the existence of a non-resident tenant increases the landlord’s investment risk. The Rent Control Board claimed the landlord did not have the right to terminate the tenancy and evict the tenant since the landlord’s right to increase rent on a non-resident tenant is controlled by the rent control ordinances which take into consideration any compensation needed to cover the investment risk posed by the non-resident tenant. A California appeals court held the landlord was subject to rent control ordinances and did not have the uncontrolled right to terminate the tenancy and evict the non-resident tenant since the landlord’s right to increase rent on a non-resident tenant under rent control allowed for the landlord to be compensated for the investment risk posed by the non-resident tenant. [Borten v. Santa Monica Rent Control Board (August 14, 2006) 141 CA4th 1485]
Agent’s signing for buyer does not allow breaching seller to recover costs
A seller entered into negotiations to sell his property. The seller signed a counteroffer and submitted it to the buyers. One of the buyers signed his name to the counteroffer and instructed the buyer’s selling agent to sign the co-buyer’s name to the counteroffer. The acceptance so signed was delivered to the seller. Prior to closing, the buyers’ interest in the purchase agreement and escrow was assigned to an investment company as the substitute buyer. On learning of the assignment, the seller cancelled the purchase agreement and escrow. The investment company filed suit against the seller for specific performance of the purchase agreement. Prior to trial, the seller learned of the agent’s signing on behalf of one of the original buyers. The seller claimed the agent must indemnify the seller for his litigation costs in the specific performance suit since the agent’s signing would have invalidated the contract that led to the specific performance claim, had it earlier been known to the seller. The agent claimed his signing of the purchase agreement on behalf of one of the buyers, while unauthorized, did not make him liable for the seller’s specific performance litigation costs since it was the seller’s signature, not the buyers’, which bound the seller to the purchase agreement as was required for the investment company to pursue specific performance. A California appeals court held the agent was not liable for the seller’s litigation costs since the seller’s signature was all that was required for the substitute buyer to pursue specific performance and the specific performance suit was not triggered by the agent signing for the buyer. [Ulloa v. McMillan Real Estate and Mortgage, Inc. (March 7, 2007) __CA4th___]
Pass-through fee for mobilehome expenses is considered rent
A mobilehome park subject to local rent control ordinances was assessed a property tax increase due to a change in ownership. The landlord charged his tenants a rent adjustment fee as a pass-through to recover the increase in the property tax expenses as allowed by rent control ordinances. A tenant claimed the local rent control law violated the state Mobilehome Residency Law (MRL) by allowing the landlord to charge a pass-through fee for the property tax since the MRL preempts local rent control ordinances by barring charges for any fees in mobilehome parks separate from rent, utilities, or services rendered. The landlord claimed the local rent control law allowing a pass-through fee did not violate the MRL since the MRL considers a property tax pass-through fee as the way to collect a valid rent increase and does not prohibit the rent increase from being a separate additional charge. The California Supreme Court held the local rent control ordinance allowing a separate fee to be charged for increase in property taxes did not violate the MRL since the MRL allows landlords to increase rent to cover increases in property taxes, and in so allowing does not prohibit the landlord from charging a separate amount to collect that rent increase under local ordinances. [Cacho v. Boudreau (January 11, 2007) 40 C4th 341]
Editor’s note – Rent is anything except a security deposit or credit report fee received by the landlord. Rent must fall into one of these categories, and in real estate rental or lease agreements utilities and common area maintenance charges for the use of property are rent. There is sometimes confusion about this economic fact, even within the lower level of the judicial system.
General plan’s low-cost housing analysis complied with pre-amended law
A city’s general plan provided for low-income housing in its housing element. As required by the Housing Element Law (HEL), the city inventoried and collectively analyzed all sites available for the development of low-cost housing. Later, the HEL was amended to require a site-specific analysis of its inventory of all sites identified for the development of low-cost housing. A resident of the city sought to have the general plan set aside, claiming the housing element failed to comply with the HEL since the city’s overall analysis of available sites did not satisfy the amended HEL’s site-specific analysis requirement which clarified prior law. The city claimed the housing element complied with the prior HEL since, at the time of the general plan’s adoption, the HEL had not been amended to specify the housing element analysis had to be site-specific. A California appeals court held the city’s housing element complied with the requirements of the HEL at the time of the general plan’s adoption since the pre-amendment HEL did not require the analysis to be site-specific for low-cost housing.
Also at issue in this case:
General plan revision need not require immediate rezoning for low-cost housing
A city’s general plan included a housing element that allowed five years to rezone for the development of low-cost housing. California’s Least Cost Zoning Law (LCZL) affected the general plan’s housing element since it required the city to designate and zone land for low-cost housing development on any revision of the general plan. The city adopted a revised five-year general plan designating land and a zoning plan as required under the LCZL, but called for further studies and did not immediately begin zoning for low-cost housing. A resident sought to have the general plan set aside claiming the city failed to comply with the LCZL since it did not immediately rezone for low-cost housing upon revision of its general plan. The city claimed it was in compliance with the LCZL since the housing element allowed five years for the implementation of any low-cost housing development, including the zoning required by the LCZL. A California appeals court held the city was in compliance with the LCZL since the LCZL is to be implemented in conjunction with the city’s general plan, which allowed the city five years to rezone for low-cost housing as required by the LCZL. [Fonseca v. City of Gilroy (March 23, 2007) __CA4th___]
EIR required prior to approving development plans
A city entered into an agreement to sell property to a developer. As required by the agreement, the developer submitted a detailed development plan to the city. The city then approved a further agreement which incorporated all the details for the development of the property. Final approval of the agreed-to plan was contingent on the city’s preparation of an environmental impact report (EIR) under the California Environmental Quality Act (CEQA) since a significant impact existed. A not-in-my-backyard (NIMBY) citizens group sought a court order to set aside the agreement to develop the property, claming the city violated the CEQA by agreeing to the development plan where a significant environmental impact existed before ordering an EIR since the CEQA required the EIR to be used as a decision-making tool to alleviate environmental impacts prior to agreeing to the development plan and not a later ratification of an agreed-to plan. The city claimed the EIR was not required prior to agreeing to the development of the property since the agreement was not a final approval of the development plan. A California appeals court held the city violated the CEQA by fully setting out the details of the development and agreeing to the plans before conducting an EIR where a significant environmental impact existed, and caused the city’s development agreement to be void since an EIR is required as a decision-making tool during the approval process when a significant environmental impact exists, not as a condition to be met after the project has been agreed to with the developer by the city. [Save Tara v. City of West Hollywood (February 21, 2007) __CA4th___]
Public interest bars estoppel claim against Coastal Commission
The California Coastal Commission (Commission) recorded a conservation easement on a parcel located in an environmentally sensitive habitat area (ESHA). The owner of the parcel complied with the conditions of the easement, but later built a small golf course on the property in violation of the easement without notifying the Commission of the change. Two decades after building the golf course, the owner sold the property without disclosing the existence of the easement. The preliminary title report and issuance of a title policy did not reveal the easement and the buyer was otherwise unaware of its existence. After acquiring the property, the Commission was notified of the golf course’s existence in violation of the conservation easement. The commission ordered the buyer to comply with the easement restrictions by removing the golf course and restoring the area to its native state. The new owner refused, claiming the Commission was estopped from enforcing the easement requirements since the Commission failed to act on the violation after the golf course was built which led the new owner to believe no violation existed on the property. The Commission claimed an estoppel defense does not apply since the Commission’s inaction was based on the belief that the parcel was in compliance and not an intent to mislead the buyer, and the public interest in ESHA conservation superseded the new owner’s right to a golf course on his property. A California appeals court held the Commission was not estopped from enforcing the easement since the Commission’s inaction was based on the belief that the parcel was in compliance, and the public interest in conserving the ESHA superseded the new owner’s right to the long-standing golf course. [Feduniak v. California Coastal Commission (March 27, 2007) __CA4th___]
Editor’s note – The title insurance company and the seller may be liable to the buyer for the loss of value caused by the undisclosed easement.
Nonuse of water rights becomes a partial forfeiture
Two appropriators owned water use rights allowing them to take water from a river. In addition to their previously established entitlements to withdraw water up to set amounts in the river, the appropriators, in order of seniority, were allowed to take water unused by users with senior water rights. A clash over the extent of each appropriator’s entitlement to water arose due to the more senior appropriator’s failure during the previous five-year period to take the full amount of the unused water for specific months. The junior appropriator sought to reduce the amount of the senior appropriator’s entitlement to take water to the amount actually used each month during the previous five years, claiming the senior appropriator’s nonuse forfeited a portion of his entitlement to a greater amount of water. The senior appropriator claimed he did not forfeit his rights by nonuse during certain months since the amount of unused water available in any given period was not predictable and therefore could not be forfeited as part of his established entitlement. A California appeals court held the senior appropriator’s nonuse during certain months of the five-year period prior to the clash of rights worked a forfeiture of the right to take water he did not use, entitling the junior appropriator to take the unused water up to his entitlement during those months since the ownership of the right to use water limits the senior appropriator to his reasonable and beneficial use of available water. [North Kern Water Storage District v. Kern Delta Water District (January 2, 2007) 146 CA4th 555]
Property value in quick-taking set at time of deposit
A government agency exercised its power of eminent domain to take a property from an owner. To take immediate possession of the property, called a quick-taking, the agency deposited with the court the probable amount of the property’s value set by an appraisal as just compensation for the owner to withdraw. The owner did not withdraw the funds, seeking instead to contest the legitimacy of the public use for the taking. The property’s value increased while the case proceeded to trial. The owner claimed he was entitled to the property’s increased value since the value at the time of deposit was an insufficient amount to satisfy his right to just compensation. The agency claimed the deposit was sufficient to satisfy the owner’s right to just compensation since just compensation in a quick-taking is based on the property’s probable value at the time of deposit, the first time funds are available for the owner to withdraw. The California Supreme Court held the agency’s deposit was sufficient to meet the right to just compensation since just compensation in a quick-taking is based on the property’s value at the time the funds are deposited with the court.
Also at issue in this case:
Waiver of taking challenge not a denial of compensation
A government agency exercised its power of eminent domain to take a property from an owner. To take immediate possession of the property, called a quick-taking, the agency deposited with the court the probable amount of the property’s value set by an appraisal as just compensation for the owner to withdraw. Any withdrawal by the owner would constitute a waiver of the right to contest the agency’s taking, but would not waive the owner’s right to dispute the amount he should receive in just compensation. The owner did not withdraw the funds, seeking to contest the legitimacy of the public use for the taking. The owner claimed the waiver requirement for a withdrawal of monies due him violated his right to just compensation since in contesting the taking he would be denied the deposit until after the trial if he lost. The agency claimed the waiver requirement was not a violation of the owner’s right to just compensation since the owner retained the ability to withdraw the deposit at any time, and could not expect to contest the taking and withdraw compensation for the taking at the same time. The California Supreme Court held the waiver requirement did not violate the owner’s right to a full and equivalent amount of just compensation since at all times the owner had access to the deposit and the owner could either contest the taking or withdraw the deposit and contest the amount, but not both. [Mt. San Jacinto Community College District v. The Superior Court of Riverside County (February 22, 2007) __C4th___]