700 Valencia Street LLC v. Farina Focaccia & Cucina Italiana, LLC
3:15-cv-04931
N.D. Cal.Feb 27, 2017Background
- Farina Focaccia & Cucina Italiana, LLC leased commercial space at 700 Valencia Street from 700 Valencia Street LLC under a 5-year lease (May 1, 2010–Apr 30, 2015) with two five-year renewal options; rent due 1st of each month and no grace period.
- Farina operated Farina Pizza at 700 Valencia; John O’Connor (agent for 700 Valencia) acted as landlord and supervised construction by O’Connor/700 Valencia. Relations between Kostelni (Farina worker) and O’Connor were strained.
- An ABC (liquor) application was filed in James Kostelni’s name; to satisfy ABC, Farina produced a backdated sublease to Kostelni (signed Oct. 2013, dated May 1, 2012) without obtaining landlord’s written consent as required by Lease ¶ 26.
- Farina claims it timely exercised the first renewal option by mailing a December 1, 2014 notice by certified mail; evidence of mailing was unreliable and the Court found Farina did not send the option notice by certified mail as required.
- 700 Valencia served a Notice of Expiration and Non-Renewal (Mar 30, 2015) and the lease expired on Apr 30, 2015; the Court held Farina remained in unlawful possession thereafter.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Farina validly exercised the option to extend by complying with Lease ¶ 56 (notice by certified mail in specified window) | Farina: mailed option notice (Dec 9, 2014) by certified mail; receipt shows O’Connor received it | 700 Valencia: no certified-mail option notice was received; evidence of mailing is unreliable | Court: Farina did not send the option notice by certified mail; option not validly exercised |
| Whether Farina’s unauthorized sublease to Kostelni constituted a default barring exercise of the option under Lease ¶ 56 | Farina: argued equitable relief from forfeiture could apply; disputed whether sublease was material | 700 Valencia: sublease was unauthorized, made without financial disclosures, and tied to misconduct; landlord would have refused consent | Court: failure to obtain landlord’s written consent was a material, willful breach that barred option exercise |
| Whether landlord’s refusal to renew constituted an inequitable forfeiture warranting relief under Cal. Civ. Code § 3275 / equitable principles | Farina: sought equitable relief to avoid forfeiture and preserve option despite technical defaults | 700 Valencia: breach was material and willful; equity does not relieve tenant here | Court: equitable relief inappropriate; forfeiture principles do not apply to save Farina’s option |
| Whether 700 Valencia entitled to judgment for unlawful detainer and related claims | Farina: contested ownership of rights and facts around notice/mailing | 700 Valencia: lease expired, tenant remained in possession and breached lease terms | Court: 700 Valencia entitled to judgment on unlawful detainer and all claims except two construction/security-deposit claims |
Key Cases Cited
- Simons v. Young, 93 Cal. App. 3d 170 (Cal. Ct. App.) (option must be exercised strictly per terms)
- Bekins Moving & Storage Co. v. Prudential Ins. Co. of Am., 176 Cal. App. 3d 245 (Cal. Ct. App.) (tenant must unequivocally exercise option within time and manner stated)
- Palo Alto Town & Country Vill., Inc. v. BBTC Co., 11 Cal. 3d 494 (Cal. 1974) (strict adherence to prescribed manner of exercising option)
- Superior Motels, Inc. v. Rinn Motor Hotels, Inc., 195 Cal. App. 3d 1032 (Cal. Ct. App.) (breaches limiting subletting can be material)