Gaslamp Phase Two v. Gelateria Frizzante CA4/1 (2016) · DecisionDepot
Gaslamp Phase Two v. Gelateria Frizzante CA4/1
California Court of Appeal May 12, 2016 No. D067218Unpublished
Filed 5/12/16 Gaslamp Phase Two v. Gelateria Frizzante CA4/1 NOT TO BE PUBLISHED IN OFFICIAL REPORTS California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
COURT OF APPEAL, FOURTH APPELLATE DISTRICT
DIVISION ONE
STATE OF CALIFORNIA
GASLAMP PHASE TWO, LLC, D067218
Plaintiff, Cross-Defendant and Respondent, (Super. Ct. No. 37-2012-00092893- v. CU-BC-CTL)
GELATERIA FRIZZANTE, LLC, et al.,
Defendants, Cross-Complainants and Appellants.
APPEAL from a judgment of the Superior Court of San Diego County,
Katherine A. Bacal, Judge. Affirmed.
Blackmar, Principe & Schmelter, George B. Blackmar and Timothy D. Principe
for Defendants, Cross-complainants and Appellants.
Law Office of Edward W. Freedman and Edward W. Freedman for Plaintiff,
Cross-defendant and Respondent.
In this action for breach of contract based on a commercial lease, defendants and
appellants Gelateria Frizzante, LLC and its principals, Christine Kaufmann and Eric
Silberstein (together Gelateria) appeal a judgment following a court trial that found
Gelateria liable to the lessor, plaintiff and respondent Gaslamp Phase Two, LLC
(Gaslamp), for $110,362.43 rent owed and future rent, plus attorney fees and costs.
Gelateria contends the award of rent under Civil Code1 section 1951.2 cannot stand
because (1) a disputed additional rent amount (common area maintenance, as defined in
the lease) that Gaslamp demanded in a notice to pay rent or quit (Notice to Pay) was
incorrect, (2) Gaslamp terminated Gelateria's right to possession and the lease by serving
the Notice to Pay, which also declared a forfeiture of the lease, and therefore (3) the lease
had already been terminated and Gelateria did not breach it when it surrendered the
premises and ceased to pay rent, without any unlawful detainer action being filed
pursuant to the Notice to Pay. (Code Civ. Proc., § 1161 [unlawful detainer law].)2
In response, Gaslamp admits that the amount of additional rent that it demanded in
the Notice to Pay was incorrect, due to its then active appeal of property taxes that
allowed it later to reduce and reconcile such CAM charges made to its tenants. Gaslamp
nevertheless argues the trial court correctly determined that Gelateria had breached the
terms of the lease by failing to make full payment and then vacating the premises before
1 All statutory references are to the Civil Code unless otherwise specified. Section 1951.2, subdivision (a) provides, as relevant here, that "if a lessee of real property breaches the lease and abandons the property before the end of the term or if his right to possession is terminated by the lessor because of a breach of the lease, the lease terminates. Upon such termination, the lessor may recover [specified damages] from the lessee."
2 Gelateria paid its base rent for several years, and this dispute arose over Gaslamp's charges for "Additional Rent" under the lease, denoted as common area maintenance or "CAM expenses." 2
the lease expired. The lease included a challenge procedure for incorrect rental charges,
which was not utilized. The trial court made a related finding that the amount of
additional rent demanded by Gaslamp was not "arbitrary or capricious." (Lindenberg v.
Gaslamp thus argues the trial court reached the right result by determining that
Gaslamp's actions in seeking the additional rent amount did not preclude an award to it of
future rent due under the lease. Gelateria's breach of payment obligations was the
operative fact that led to the termination of its right to possession, while the contractual
obligation between the parties remained in force. (Walt v. Superior Court (1992) 8
Cal.App.4th 1667, 1672 (Walt) [lessor may terminate right of possession for lessee's
breach of lease and file a separate action to recover damages for remainder of term
without filing unlawful detainer].)
Our review of the record leads us to conclude that the award of future rent is well-
founded under contractual and section 1951.2 analysis, because the lease obligations
were not terminated for all purposes through any action of Gaslamp. Gelateria did not
show that it was excused from its contractual obligations. We affirm.
FACTUAL AND PROCEDURAL BACKGROUND
A. Lease Relationship
In 2006, Gelateria leased property for a small retail gelato store in a mixed use
project Gaslamp owned in downtown San Diego. Christine Kaufmann was the manager
of Gelateria, and she and Silberstein signed guarantees on the lease obligations. The
3
lease ran for five years after the store opened on April 19, 2007, and was to expire in May
2012.
Under Gaslamp's net-type lease, Gelateria was to pay a monthly base or minimum
rent, and as additional rent, CAM expenses, based on its proportionate share of Gaslamp's
operating expenses for the property, including taxes. Gaslamp's initial estimated CAM
expenses for Gelateria's premises in 2007 were $1,299 per month. Gaslamp was to bill
CAM expenses monthly, based on Gaslamp's estimate of the projected operating costs for
the year. Gaslamp was allowed under paragraph 4.4(a) of the lease to make adjustments
for those charges, based on its reconciliation of actual operating costs after the end of the
year. Gaslamp billed and Gelateria paid a lump sum reconciliation surcharge based on
the landlord's reconciliation of the actual operating expenses incurred during 2007 and
2008.
Under the lease, paragraph 4.5, the tenant was required to pay all rent (base rent or
CAM) when due without any right to offset, even if the tenant did not believe the charges
were proper. The lease contained paragraph 15.4(i), a procedure for challenging a
demand for CAM charges if the tenant believed the amount sought was incorrect,
allowing access to the landlord's books and records. This procedure included the
statement, "Tenant's rights and remedies with respect to any errors and/or overcharges
made by landlord with respect to expenses shall be limited to those expressly set forth in
this Paragraph 15.4."
4
For several years, Gelateria continued its business and paid the rent owed. By the
end of 2009, Gaslamp's estimated CAM expenses for Gelateria's premises went up to
$1,918 per month, which Gelateria paid.
On July 12, 2010, Gaslamp's property manager, Courtney Pease, sent Gelateria a
letter billing Gelateria for $7,003.86 for an additional "2009 CAM reconciliation amount
due and 2010 retroactive charges for the increase in your monthly CAM payment." The
letter contained attachments and explained that Gaslamp was in the process of appealing
its property taxes, and that if Gaslamp were successful on its appeal, the benefits would
be passed on to the tenants. Gaslamp supplied a breakdown of actual 2009 CAM
expenses to explain how they were calculated, including taxes, and similarly detailed how
the 2010 CAM estimates were calculated. This demand increased Gelateria's estimated
CAM expenses charges to $2,373 per month, retroactive to January 1, 2010.
In response, Gelateria asked for more supporting documentation. It did not pursue
the challenge procedures under the lease for disputing CAM charges. Gelateria's
manager Kaufmann did not believe that the charged balance for 2009 or the estimated
amount for 2010 were due, because they were based on a number of things in the
reconciliation that she did not believe were correct.
In late October 2010, there was an armed robbery at Gelateria's store, and the
business closed temporarily. Through November 2010, Gelateria paid its base rent but
did not pay the CAM amounts being charged.
5
B. Lease Default Provisions
On November 10, 2010, Gaslamp served on Gelateria its Notice to Pay. The
Notice to Pay required payment within three days of $7,003.86, representing the disputed
2009 reconciliation CAM charges and the 2010 estimated CAM charges. Alternatively,
the Notice to Pay demanded that within three days after service, Gelateria deliver
possession of the premises, and notified it that upon failure to pay or quit, "legal
proceedings will be instituted against you [Gelateria] to declare forfeiture of the lease . . .
and to recover possession of said premises . . . as a result of your failure to comply with
the terms of this notice." The Notice to Pay next stated that Gaslamp "does elect to
declare the forfeiture of your [Gelateria's] Lease."
Gelateria retained legal counsel to discuss the matter with Gaslamp's counsel and
object to the CAM charges. Gaslamp's counsel responded to Gelateria's attorney with
this e-mail:
"[Gelateria] is left with few options. Specifically: 1. Pay the CAM charges; 2. Litigate the UD, and if your client is wrong, get evicted and have continued financial liability on the Lease (or if able to cure post judgment, also have to pay my fees); or 3. Move out, and deal with only a collection action for back CAMs and rent due on the lease through expiration (less any successful mitigation efforts.)"
Kaufmann testified she had been told by Gaslamp's chief executive, Bob
Champion, that Gaslamp had been successful in its appeal to reduce the County's tax
assessments, and so she was surprised to receive the bill for additional CAM expenses.
At that point, she understood that Gelateria's choices were to "pay or quit or litigate."
She decided that the best option was to give the property back to the landlord, let it cancel
6
the lease, and deal with the repercussions later. On November 29, 2010, Gelateria turned
in the keys and Kaufmann signed a "Receipt for Possession of Realty." The portion of
the receipt for signature by Gaslamp made note that it reserved its right to bring an action
for rental damages pursuant to the lease and section 1951.2, although its representatives
did not sign the copy as provided in the record.
C. Lawsuit; Cross-Complaint
On February 27, 2012, Gaslamp filed its breach of contract complaint, seeking to
recover damages under section 1951.2 for the unpaid rent that Gaslamp would have
earned after termination, for the balance of the lease term. It also claimed breach of
contract against Kaufmann and Silberstein on their guaranty obligations.
Gaslamp contended that Gelateria breached paragraph 19.1(b) of the lease, by
abandoning or vacating the premises. Under its paragraph 19.2, the tenant's default was
a condition precedent to Gaslamp's right to lease remedies, including the right to
terminate the lease and recover damages under section 1951.2.
In defense, Gelateria answered and filed a cross-complaint. It contended that
Gaslamp had terminated the lease without any breach by Gelateria, since Gelateria had
paid all the specified rent due through the date of Gaslamp's termination, with the
exception of the disputed CAM charges. Because Gaslamp had caused a premature
termination of the lease, Gelateria asserted that Gaslamp could not recover the rent that
would have been due for the remainder of the original lease term. Gelateria sought an
accounting with respect to Gaslamp's allegedly excessive charges for the CAM expenses.
7
In preliminary proceedings, the trial court ruled that the cross-complaint had not
been filed in a timely manner and was barred. However, Gelateria's counsel pursued its
allegations in the form of its affirmative defenses, including excuse from performance.
D. Trial and Statement of Decision
At trial, the parties stipulated that Gaslamp had made appropriate efforts to
mitigate its damages, by hiring a qualified real estate broker and obtaining a replacement
tenant. Testimony at trial by Gaslamp's chief financial officer, David Lichterman,
explained the source of its demands for the actual 2009 CAM expenses and estimates for
the 2010 CAM expenses. Lichterman admitted that some of the CAM expenses in
Exhibit 27 were overcharges (insurance, association dues, and management and
administrative fees).
The main discrepancy in proof about the CAM charges was the amount
attributable to Gaslamp's estimated property taxes. Gaslamp filed tax appeals for the
2009-2010 tax year. On October 29, 2010, Gaslamp's property tax consultant and agent
reached an agreement with the county assessor's office, to stipulate to a reduction in the
assessed value of Gaslamp's retail property from $18,130,218 to $11,590,000. Gaslamp's
property tax charges and bills retroactive to 2009-2010 were accordingly corrected and
reduced. At argument, Gaslamp's counsel stated that the refund checks were not actually
received until 2011.
Eventually, Gaslamp calculated that Gelateria was entitled to a credit in 2010 of
$6,475.01 for the estimated CAM expenses that Gelateria had overpaid in 2010, based on
Gelateria's actual share of CAM expenses for 2010. Lichterman admitted that when
8
Gaslamp served the Notice to Pay, the $7,003.86 amount demanded in the Notice to Pay
was not due and owing, but instead, Gaslamp actually owed Gelateria $6,475.01 for
overpaid CAM charges.
As its key findings in the statement of decision, the court concluded that "the
entire amount demanded in the notice to pay rent was not owed. However, the amount
stated was not arbitrary and capricious. Further, the Court finds that the law and facts did
not allow [Gelateria] to vacate the premise on November 29, 2010 prior to the expiration
of the Lease in May 2012 without any future lease liability just because [Gelateria] was
served with Gaslamp's apparently defective Notice to Pay or Quit on November 10,
2010." The court also found that Gaslamp had indicated it was reserving its right to and
would bring an action for damages under section 1951.2, and there was never any
estoppel, waiver or release by mutual agreement.
The court interpreted lease paragraph 19.1(b), stating that a default is an
abandonment or vacation of the premises by the tenant, as requiring Gaslamp to prove
that Gelateria had breached the lease, entitling it to damages. The court relied on section
1951.2 as allowing the landlord to recover damages when "a lessee of real property
breaches the lease and abandons the property before the end of the term." The court
expressly found that Gelateria "abandoned" the premises prior to the expiration of the
lease, because it had relinquished all rights to the premises. Accordingly, Gaslamp had
proved all elements of its breach of contract cause of action, as well as the guaranty
obligations.
9
The court ruled that according to the stipulation at trial, Gaslamp adequately
showed mitigation efforts. The court also found that Gelateria did not make any
arguments related to their affirmative defenses and had failed to prove them. From the
amount of base rent not received pursuant to the lease from December 2010 until May
2012, the court deducted a credit for Gelateria's security deposit, and further deducted a
credit associated with the 2009-2010 additional rent reconciliation (ruling that it would
have been applied on July 1, 2011 after Gaslamp received the refund checks). Interest
was allowed as provided by the lease, for a total award of $110,362.41, jointly and
severally, with attorney fees and costs to be determined.
Gelateria appeals from the resulting judgment for rents due. It also separately
appealed the trial court's order of May 8, 2015, awarding Gaslamp attorney fees and
costs.
DISCUSSION
I
RULES OF REVIEW; STATEMENT OF DECISION
Gelateria seeks to have a de novo standard of review applied to this appeal, which
it argues raises pure questions of law. (See, e.g., Ghirardo v. Antonioli (1994) 8 Cal.4th
791, 799; International Engine Parts, Inc. v. Feddersen & Co. (1995) 9 Cal.4th 606, 611
[application of law to undisputed facts is subject to de novo review].) Gelateria contends
the decisive facts relevant to the appeal are undisputed and only issues of law remain for
resolution, and claims that the trial court ruled in its favor "on the key factual issue at
trial," by finding that "the entire amount demanded in the notice to pay rent was not
10
owed." According to Gelateria, "This factual finding establishes the foundational basis
for Gelateria's legal arguments in this appeal." Gelateria thus contends this court can
independently interpret the terms of section 1951.2, and the legal effect of the Notice to
Pay, without being bound by the trial court's interpretation of the law. (Silicon Valley
Taxpayers Assn., Inc. v. Santa Clara Open Space Authority (2008) 44 Cal.4th 431, 441,
449-450.)
In response, Gaslamp takes the position that although issues of law are presented
here, about whether the service of the Notice to Pay entitled Gelateria to vacate the
premises, there were additional disputed factual issues that were resolved by the trial
court, concerning whether the amount of additional rent demanded in the Notice to Pay
was proper and whether Gelateria breached the lease by vacating the premises. (Sonic
Mfg. Technologies, Inc. v. AAE Systems, Inc. (2011) 196 Cal.App.4th 456, 465 [applying
substantial evidence test to record containing conflicting evidence].)
Examination of the record and the statement of decision discloses that the trial
court was required to resolve relevant disputed facts and to draw legal conclusions based
upon those findings. The court heard testimony from representatives of each side, and
then interpreted the lease and other documents as necessary to resolve the issues
presented. Where, as here, the key documentary and statutory interpretation issues were
decided on conflicting evidence, and by means of a statement of decision, "any conflict in
the evidence or reasonable inferences to be drawn from the facts will be resolved in
support of the determination of the trial court decision." (In re Marriage of Hoffmeister
(1987) 191 Cal.App.3d 351, 358.) The ultimate facts found in the court's statement of
11
decision necessarily include findings on the intermediate evidentiary facts that sustain
them. (Muzquiz v. City of Emeryville (2000) 79 Cal.App.4th 1106, 1125.)
Under substantial evidence principles, " ' "every intendment and presumption not
contradicted by or inconsistent with the record on appeal must be indulged in favor of the
orders and judgments of superior courts." ' " (Jara v. Suprema Meats, Inc. (2004) 121
the trial court's resolution of the factual issue is supported by substantial evidence, it must
be affirmed." (Winograd v. American Broadcasting Co. (1998) 68 Cal.App.4th 624,
632.)
II
FRAMEWORK FOR ANALYSIS
To analyze Gelateria's main contention that the service on it of the Notice to Pay,
containing erroneous demands, conclusively altered the parties' respective legal rights,
we examine the sequence of events shown in the evidence, in light of statutory and case
law requirements. Although in 2010, Gaslamp utilized a Notice to Pay and threatened to
bring an unlawful detainer action, it did not need to pursue such a remedy, because
Gelateria vacated the premises. This contract action was filed in 2012 and went to trial
after the lease term expired. Gelateria's arguments throughout these proceedings have
combined concepts found both in lease (contract) cases and constructive eviction (tort)
cases, and the trial court's ruling expressly found a constructive eviction case,
Lindenberg, supra, 34 Cal.2d 678, 686, to be on point. We address whether either party
12
forfeited their rights under the lease, in terms of breach of their legal duties imposed by
contract and statute.
" ' "A lease is both a contract and a conveyance; under such an agreement there are
rights and obligations based upon the relationship of landlord and tenant as well as upon
the contractual promises." ' [Citation.] 'In every lease the landlord impliedly covenants
that the tenant shall have quiet enjoyment and possession of the premises . . . . [T]he
landlord is bound to refrain from action which interrupts the tenant's beneficial
enjoyment.' [Citation.] 'It should be unnecessary to observe that a breach of contract is
actionable without requiring the plaintiff to establish bad faith or malice.' " (Munoz v.
MacMillan (2011) 195 Cal.App.4th 648, 655-656; Guntert v. City of Stockton (1976) 55
Cal.App.3d 131, 138 (Guntert).)
Section 1951.2 has been described as " 'an admirable attempt to engraft the
contract remedy of loss of bargain onto real property law.' " (Danner v. Jarrett (1983)
144 Cal.App.3d 164, 166.) " 'It abrogates the common law rule that the lessee's
obligation to pay rent depends on the continued existence of the term. It encourages the
lessor to mitigate damages by no longer requiring the reletting of the property to be for
the benefit of the lessee. Its formula for damages permits the lessee to prove what rental
loss could have been avoided.' [¶] Thus, section 1951.2 provides contract remedies to the
landlord that would have been unavailable at common law upon termination of the lease
by surrender or otherwise. These remedies are defined by the landlord's contract with its
tenant, not by rules derived from the common law of real property." (Millikan v.
13
American Spectrum Real Estate Services California, Inc. (2004) 117 Cal.App.4th 1094,
1101; italics omitted.)
A landlord may recover damages as specified in section 1951.2 under two types of
circumstances: "if a lessee of real property breaches the lease and abandons the property
before the end of the term," or "if his right to possession is terminated by the lessor
because of a breach of the lease." In either event, the lease terminates. (Ibid.)3
Gelateria contends it was justified in vacating the premises on several grounds,
and therefore there should be no statutory or contractual basis for Gaslamp to recover
damages. We examine its claims of justification for any support in case law.
3 Section 1951.2 is lengthy and we need not discuss its measures of damages, as no issues were raised about them. As relevant here, section 1951.2, subdivision (a) provides that "if a lessee of real property breaches the lease and abandons the property before the end of the term or if his right to possession is terminated by the lessor because of a breach of the lease, the lease terminates. Upon such termination, the lessor may recover from the lessee: [¶] (2) The worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that the lessee proves could have been reasonably avoided . . . . (4) Any other amount necessary to compensate the lessor for all the detriment proximately caused by the lessee's failure to perform his obligations under the lease or which in the ordinary course of things would be likely to result therefrom. [¶] (b) The 'worth at the time of award' of the amounts referred to in paragraphs (1) and (2) of subdivision (a) is computed by allowing interest at such lawful rate as may be specified in the lease or, if no such rate is specified in the lease, at the legal rate . . . . [¶] (d) Efforts by the lessor to mitigate the damages caused by the lessee's breach of the lease do not waive the lessor's right to recover damages under this section." 14
III
EFFECT OF "DEFECTIVE" NOTICE TO PAY
A. Contentions; Relevant Rulings
Gelateria first argues its right to possession was not terminated as a result of any
breach it committed, and therefore there was no basis for the damages awarded to
Gaslamp, either under contract law or section 1951.2, subdivision (a). In Gelateria's
view, the scenario described in section 1951.2, subdivision (a) does not apply to it: a
lessor may recover damages if the lessee's right to possession was terminated by the
lessor because of a breach of the lease, in which case the lease also terminates. Rather,
Gelateria focuses upon the November 10 Notice to Pay, as constituting different kinds of
breaches of contract by Gaslamp.
Gelateria argues the Notice to Pay is defective, because the CAM expenses
charged in it were later determined to be inaccurate. Under the terms of the lease, only a
failure to make payments due is a breach of the lease, and Gelateria argues these
payments were not due. (Lease, para. 19.1(a).) On this contractual theory, Gelateria
argues that Gaslamp breached the lease with its defective Notice to Pay, and effectively
caused the lease and its obligations to terminate.
In its oral statement of decision, the trial court noted that this defense argument
was effectively a constructive eviction theory, that Gaslamp had breached the lease's
covenant of quiet enjoyment. However, the court rejected Gelateria's contention that
Gaslamp's service of the Notice to Pay, when some or all of the amounts contained in the
Notice to Pay were not owed, constituted a breach of the lease which allowed Gelateria to
15
vacate the premise prior to the expiration of the lease without any future lease liability.
Although the court found that the entire amount demanded in the Notice to Pay was not
owed, it said "the amount stated in the Notice was not arbitrary and capricious. . . . ."
Gelateria also argues that Gaslamp repudiated and forfeited the lease and can no
longer seek damages under it, because the Notice to Pay states that legal proceedings to
declare a forfeiture will commence unless payment is made within three days after
service of the notice. (See Bell v. Listle (1946) 74 Cal.App.2d 638, 645 [landlord's
unjustified declaration of forfeiture of an oil lease repudiated the lease and excused
performance by the tenant].) Also, the Notice to Pay contains an election to declare the
forfeiture of the lease under which Gelateria held possession of the premises.
In support, Gelateria cites to In re Windmill Farms, Inc. (9th Cir. 1988) 841 F.2d
1467. In that case, the federal court applied California landlord-tenant law to resolve
bankruptcy court disputes over assumptions of a commercial lease. The court considered
whether a landlord's three-day notice to pay rent or quit was properly given, and stated
that if so, the lease terminated at least by the time the landlord filed an unlawful detainer
action. The court declined to decide "whether the lease terminated before [landlord] filed
its unlawful detainer action." (Id. at p. 1470, italics omitted.) Accordingly, the Windmill
Farms case is distinguishable because it does not decide the questions presented to us
concerning the times that a lease may have terminated, in the absence of any filing of an
unlawful detainer action. (Ibid.) However, Windmill Farms is instructive in its
observations:
16
"[T]here is a tendency of the courts to collapse into one concept the two separate concepts of 'the time at which a lease is terminated,' on the one hand, and 'the time at which there is a final judicial determination that a lease is terminated,' on the other. Importantly, these two events are not necessarily coincident. It is possible to define termination in such a way that events sufficient to constitute termination of a lease occur long before a court determines that the termination is valid under state law. [Citation.] After the three- days' notice period has expired, if the lessee has failed to pay the rent in default, the lessee from that point forward is unlawfully detaining the premises if he remains in possession. [Citation.] Because his detention is 'unlawful,' he has lost his right to possession. His right to possession has been 'terminated by the lessor because of a breach of the lease [and] the lease terminates.' " (Windmill Farms, supra, at pp. 1470-1471, citing § 1951.2, subd. (a).)
These principles require us to focus on the right to possession of the premises
under the lease, as it was affected by the service of the Notice to Pay.
B. Authorities and Analysis
In Walt, the lessor served the lessee with a three-day notice for nonpayment of
rent, declaring a forfeiture of the lease. (Walt, supra, 8 Cal.App.4th at p. 1669.)
Although the lessee did not make payment or vacate the premises within three days, the
lessor did not file an unlawful detainer action; instead, the lessor and lessee entered into
negotiations to attempt to sublease a portion of the premises to a third party, during which
time the lessor allowed the lessee to remain in possession for 17 months. (Ibid.) When
the negotiations proved unsuccessful, the lessor abandoned the premises with
approximately 13 months left of the original lease term. (Ibid.)
In Walt, the appellate court held the lessor was entitled to section 1951.2 damages,
even though he did not bring an unlawful detainer action. (Walt, supra, 8 Cal.App.4th at
pp. 1671, 1678.) "Neither the lease itself nor the language of section 1951.2 requires a
17
termination of possession for [lessor] to recover damages. All that is required is lessee's
breach and a termination of the lessee's right of possession." (Id. at p. 1678.) The court
explained that a lessor's right to recover damages for loss of the benefits of the lease is
independent of his right to bring an action for unlawful detainer to recover possession of
the property. (Ibid.) "It would be an anomaly to permit a landlord who evicts a tenant
through an unlawful detainer action to recover damages under section 1951.2, but
disallow the same remedy to a landlord who for whatever reason allows the tenant to
remain in possession after forfeiture of the lease." (Walt, supra, at p. 1678; fn. omitted.)
On this record, there was no termination of Gelateria's right to possession of the
premises by any judgment in an unlawful detainer action, or by an established
abandonment that utilized the formal procedures of section 1951.3. (Walt, supra,
8 Cal.App.4th at pp. 1677-1678.) The "receipt for possession of realty" Gelateria signed
on November 29, 2010 reserved the party's rights and positions pertaining to remaining
claims for rental value due under the lease. However, Gelateria continues to argue that
Gaslamp's service of the Notice to Pay, which included a declaration the lease under
which possession was held was forfeited, also served to forfeit the lease as a whole and
all the rights under it. (Ibid.)
This argument is too broad. Generally, the Notice to Pay related to the lawfulness
of possession of the premises and the possibility of an unlawful detainer proceeding.
Termination of the lessee's right to possession is deemed termination of the lease for the
purpose of recovery of damages under section 1951.2. (Walt, supra, 8 Cal.App.4th at
pp. 1677-1678). Further, a lessor's right to recover section 1951.2 damages remains
18
intact even where the lessor did not bring an unlawful detainer action and the lessee
remained in possession for some time, even after the lessee's right to possession has
ended. (Walt, supra, at p. 1678; compare Guntert, supra, 55 Cal.App.3d at p. 151 [where
lessee remained in possession and paid rent while suing lessor for partial breach of the
lease].)
Accordingly, Gelateria can show no support for its theory that its lease obligations
entirely disappeared, upon the landlord's service of a Notice to Pay containing an
erroneous calculation of the CAM expenses due. The service of the Notice to Pay started
the time running for the tenant's loss of the right of possession. However, the Notice to
Pay did not terminate the lease relationship, which was contractual in nature. Although
Gelateria remained in possession of the premises for a few weeks after the Notice to Pay
was served, it was not in lawful possession, because the lease required it to make
payments first and obtain reconciliations later.
The trial court correctly concluded that Gelateria could not vacate the premises
prior to the expiration of the lease without any future lease liability, simply because some
or all of the amounts contained in the Notice to Pay were not owed. Gaslamp retained the
right to seek remedies under section 1951.2, after the lessee's right of possession had
been terminated following the expiration of the time period given by the Notice to Pay.4
4 In its reply brief, Gelateria makes a new argument that the statement of decision failed to resolve a material legal issue on when the lease terminated. However, the trial court adequately addressed that issue through its findings that Gelateria's actions in failing to pay rent and abandoning the premises prior to the expiration date of the lease, had given up any right to possession. 19
IV
EFFECT OF VACATING THE PREMISES; "ELECTION OF REMEDIES"
A. Contentions
Gelateria argues that since Gaslamp acted to terminate the lease by serving its
Notice to Pay, Gelateria did not commit any separate breach of an already terminated
lease when it vacated the premises. Effectively, it is arguing that Gaslamp had repudiated
the lease in advance, thus excusing Gelateria as a tenant from further performance, in this
way:
"Unless one pretends that Gaslamp never served the improper Notice or threatened an eviction action, Gaslamp had already terminated and repudiated the Lease when Gelateria quit. Gelateria could not be liable for breaching a lease that had already been terminated by Gaslamp."
It also argues:
"By serving the Pay Rent or Quit Notice that declared forfeiture of the lease, Gaslamp made an election of remedies to terminate Gelateria's right of possession by utilizing the summary procedures of California's unlawful detainer procedures."
Gelateria is claiming the language of section 1951.2, subdivision (a) did not apply
to its own actions, because Gaslamp did not show that Gelateria breached the lease and
"abandoned" the property before the end of its term. (Ibid.) Although Gelateria signed a
relinquishment of possession, it claims this was not the equivalent of voluntary
abandonment. (See Asell v. Rodrigues (1973) 32 Cal.App.3d 817, 824-825 [landlord's
unsuccessful attempt to oust tenant with a notice of termination is actionable if done with
bad faith or malice].)
20
In its statement of decision, the court relied on lease paragraph 19.1(b) as stating
that a default is an abandonment or vacation of the premises by the tenant. Further: "The
Court finds [Gelateria] "abandoned" the premise on November 29, 2010 when [Gelateria]
vacated the premise prior to the expiration of the Lease in May 2012. There is no dispute
that [Gelateria] vacated the premises and relinquished all rights in the premises on
November 29, 2010. [Gelateria] signed the possession receipt on November 29, 2010
which established that [Gelateria] no longer had any right to possession of the premise.
Abandonment may be inferred where the tenant's nonuse is coupled with an intent to
relinquish all rights in the premises." The court thus ruled that Gaslamp established all
elements of its breach of its contract cause of action against Gelateria.
As a threshold matter, we conclude the trial court properly interpreted lease
paragraph 19.1(b) (which includes "vacating" the premises as a breach of the lease), as
falling within the scope of section 1951.2, subdivision (a). This was a correct application
of the statutory requirements. The language of the lease states that a breach of the lease
may occur if the tenant either abandons or vacates the premises (para. 19.1(b)). Thus, the
tenant's actions to "vacate" property may qualify as a breach not only within the meaning
of the lease, but also within the meaning of the statute, which uses only the term
"abandonment" in this context (although there is another statutory scenario set forth in
section 1951.2, subdivision (a), identifying breaches of the lease as terminating the
tenant's right of possession).
We next address whether Gelateria's assumption is correct, that due to previous
breaches of the lease by Gaslamp, Gelateria was excused from remaining in possession of
21
the premises and therefore from further payment obligations under the remaining term of
the lease.
B. Authorities and Analysis
Although Gelateria claims it was forced to vacate, " '[a] threat made in good faith
to resort to legal process does not constitute duress.' " (Lindenberg, supra, 34 Cal.2d at
p. 683.) In its oral statement of decision, the trial court took note that Gelateria had
chosen not to stand on the lease, but instead had moved out and effectively chosen to
forfeit possession and grant the landlord entitlement to collect damages for the remaining
term of the lease. This finding is well supported by the evidence.
A lessor's right to recover section 1951.2 damages remains intact even where the
lessor does not bring an unlawful detainer action, but allows the lessee to remain in
possession for some time after the lessee's right to possession has ended. (Walt, supra,
8 Cal.App.4th at p. 1678.) "Neither the lease itself nor the language of section 1951.2
requires a termination of possession for [lessor] to recover damages. All that is required
is lessee's breach and a termination of the lessee's right of possession." (Walt, supra, at
p. 1678.)
Even when a lessor has properly terminated the lessee's right to possession, the
lease may continue for other purposes. For example, the lessee's obligation to pay rent
continues. (Danner v. Jarrett, supra, 144 Cal.App.3d at pp. 166-167; Guntert, supra, 55
Cal.App.3d at p. 151.) The three-day notice of termination does not relieve the lessee of
monetary obligations imposed by the lease, nor would an unlawful detainer judgment, if
obtained. (Walt, supra, 8 Cal.App.4th at pp. 1672-1673.)
22
Under this line of authority, the court correctly found that Gelateria was not
excused from further performance for the remainder of the lease term, because of the
errors in the Notice to Pay. Its right to possession had been properly terminated upon the
expiration of the Notice to Pay, when a breach occurred through the failure to make
payment. (§ 1951.2, subd. (a).) Gelateria's contractual obligations remained in force, to
pay the base rent and also the additional rent as charged, subject to available lease
remedies. We next consider the related questions raised by the trial court's finding of a
lack of bad faith in the service of the Notice to Pay.
V
FINDING OF LACK OF BAD FAITH IN SERVING THE NOTICE TO PAY
Gelateria additionally argues that the trial court focused on an irrelevant issue
when it relied on Lindenberg, supra, 34 Cal.2d 678, to conclude that Gaslamp's service of
the termination notice was not arbitrary, capricious or in bad faith. In effect, Gelateria
argues that Gaslamp nevertheless breached the lease terms and thus failed to prove its
own breach of contract claim.
In Lindenberg, supra, 34 Cal.2d 678, 679, the plaintiff sublessee sued its lessor for
damages, asserting a bad faith, unlawful attempt to terminate the sublease by giving a
notice to vacate that was accompanied by disclosures that the defendant lessors were
attempting to obtain permits to proceed with demolition and redevelopment of the
property. The court upheld a directed verdict for the defendant lessors, stating that "in
order for plaintiff to recover damages for constructive unlawful eviction, or on any
conceivable appropriate theory, it was incumbent upon him to establish bad faith by
23
defendants." (Lindenberg, supra, at p. 683.) However, no evidence had been introduced
"which on any tenable view could support a finding of bad faith." (Ibid.) " 'A threat
made in good faith to resort to legal process does not constitute duress. [Citations.] By
the same token, it cannot amount to a constructive eviction. Whether or not the threat is
made in good faith may or may not be a question of fact for the jury to decide. That
depends upon the state of the evidence." (Id. at pp. 683-684.)
The court in Lindenberg further rejected the claim by the plaintiff that the notice to
vacate was premature as a matter of law, because the redevelopment permits had not yet
been finally approved. The court said that although a premature notice may be legally
ineffective, a proper and timely notice to vacate is not. (Lindenberg, supra, 34 Cal.2d at
p. 686.) "We are satisfied that under these circumstances the mere giving of the notice
did not constitute a constructive eviction and that by voluntarily departing from the
premises, having full knowledge of all the facts which [plaintiff] now claims rendered the
notice premature, he precluded the raising of any such question as would have arisen if he
had chosen to remain in possession and resist a possible unlawful detainer action."
(Ibid.)
As noted, the court in this case determined that Gaslamp's act of serving the
Notice to Pay was not arbitrary, unreasonable or in bad faith, and thus did not allow
Gelateria to vacate the premises prior to the expiration of the lease without any future
lease liability. It is significant here that the trial court found that the tax refund credit
Gelateria was entitled to receive, relating to the 2009-2010 CAM reconciliation, would
have been applied on July 1, 2011, because Gaslamp received the refund checks in 2011.
24
The trial court impliedly found that due to the methods of accounting used, it was not
unreasonable for Gaslamp to have some delay in making the reconciliation of CAM
expenses after the resolution of its property tax appeal.
To the extent the court relied on the authority of Lindenberg, supra, 34 Cal.2d
678, its reasoning by analogy was supported by the record. Although Lindenberg was a
constructive eviction case, it was instructive under these circumstances because it
analyzed a similar sequence of events and concluded a tenant is not entitled to relief in
tort based on receipt of a notice to vacate, unless there are factors indicating that the
landlord was acting in bad faith. (Id. at pp. 683-686.) In our case, there was a procedure
provided under the lease to challenge rent amounts being charged, and Gelateria as the
tenant was made aware of the ongoing reconciliation process concerning tax liabilities as
they affected the CAM expenses. Gelateria cannot properly rely upon its initial
objections to the CAM amounts being charged, to constitute a legal excuse from its
continued performance of the obligations under the lease.
Moreover, where the decision of a lower court is correct on any theory of law
applicable to the case, the judgment or order must be affirmed regardless of the
correctness of the grounds upon the lower court reached its conclusion. (Davey v.
statutory principles to the established facts. Its decision is supported by the evidence and
reasonable inferences drawn from the evidence. (In re Marriage of Hoffmeister, supra,
191 Cal.App.3d 351, 358.)
25
DISPOSITION
The judgment is affirmed. Costs on appeal are awarded to Gaslamp.
HUFFMAN, J.
WE CONCUR:
McCONNELL, P. J.
BENKE, J.
26
AI Brief
AI-generated · verify before citing
Holding. The court held that a commercial tenant who vacates premises after receiving a notice to pay rent or quit is liable for future rent under Civil Code section 1951.2, even if the notice contained an incorrect amount, provided the demand was not arbitrary or capricious and the tenant failed to utilize contractual challenge procedures.
Issues
Whether a landlord's service of a notice to pay rent or quit containing an incorrect amount constitutes a breach of the lease that excuses the tenant's performance.
Whether a tenant's vacation of premises following a notice to pay rent or quit constitutes an abandonment under Civil Code section 1951.2, triggering liability for future rent.
Disposition. Affirmed
Quotations verified verbatim against the opinion
“Gelateria did not show that it was excused from its contractual obligations.”