31 Cal.App.5th 183
Cal. Ct. App.2019Background
- Smyth (Awesome Audio) leased commercial property from Berman under a 2011 written lease that included a handwritten, initialed “Right of 1st refusal to purchase” and stated that any continuing tenancy after expiration would be month-to-month.
- Santa Maria submitted a written purchase offer to Berman in June 2016; plaintiffs later submitted a competing offer in August 2016 that Berman rejected as materially lower.
- Plaintiffs sued (August 2016) for specific performance, breach of contract, fraud, tortious interference, quiet title, cancellation of instruments, declaratory relief, conspiracy, and related claims, alleging a valid right of first refusal (ROFR) in August 2016.
- Plaintiffs pleaded three theories to establish a ROFR in August 2016: (1) it carried into a holdover tenancy after the lease expired; (2) an oral lease extension in Dec. 2015 preserved the lease and ROFR; (3) a July 2016 email exchange created a separate ROFR contract.
- Trial court sustained demurrers (ultimately without leave to amend). On appeal the court affirmed, holding ROFRs do not presumptively carry into holdover tenancies, the oral-extension theory was barred by sham-pleading and failed the statute of frauds, and the July 2016 email exchange did not satisfy the statute of frauds or estoppel.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a lease ROFR survives into a holdover (month-to-month) tenancy | ROFR is not an option tied to fixed price; it should carry forward into holdover tenancy | ROFR is a species of purchase option and is not an "essential" lease term that presumptively carries forward unless parties express that intent | ROFRs do not presumptively carry into holdover tenancies absent clear party intent to the contrary; affirmed for defendants |
| Whether an oral December 2015 extension kept the lease (and ROFR) alive | Parties orally extended lease to Dec. 2016, preserving ROFR | Allegation conflicts with plaintiffs’ earlier pleadings that lease expired (sham pleading); oral extension also fails statute of frauds / estoppel | Oral-extension theory rejected as sham pleading and would fail statute of frauds; dismissal affirmed |
| Whether the July 2016 email exchange created an enforceable separate ROFR contract | Email from Berman’s side agreed to give ROFR; plaintiffs relied and prepared an offer | Emails are equivocal, lack essential terms and signatures; statute of frauds requires a writing; no sufficient part performance or detrimental reliance | Email exchange did not satisfy statute of frauds or show sufficient reliance/estoppel; no enforceable contract |
| Whether defendants are estopped from asserting statute of frauds | Plaintiffs spent time/money preparing offer, made improvements, paid rent, bought adjacent property — establishing reliance/detrimental change of position | Alleged reliance occurred before the alleged promise; preparing an offer and paying money is insufficient part performance; no serious change in position tied to oral promise | Estoppel fails as a matter of law; alleged acts do not constitute the serious change in position required to overcome the statute of frauds |
Key Cases Cited
- Spaulding v. Yovino-Young, 30 Cal.2d 138 (Cal. 1947) (option to purchase is not an essential lease covenant and does not presumptively carry into a holdover tenancy)
- Schmitt v. Felix, 157 Cal.App.2d 642 (Cal. Ct. App. 1958) (privity of contract ends at lease expiration and a new holdover tenancy arises by operation of law)
- Bill Signs Trucking, LLC v. Signs Family Limited Partnership, 157 Cal.App.4th 1515 (Cal. Ct. App. 2007) (right of first refusal is a species of option to purchase)
- Waller v. Trunk Insurance Exchange, Inc., 11 Cal.4th 1 (Cal. 1995) (parties’ mutual intention controls contract interpretation)
- Sterling v. Taylor, 40 Cal.4th 757 (Cal. 2007) (statute of frauds requires writing that identifies subject and essential terms; extrinsic evidence cannot supply missing essential terms)
- Monarco v. Lo Greco, 35 Cal.2d 621 (Cal. 1950) (estoppel can bar assertion of statute of frauds where refusal to enforce oral contract would result in unconscionable injury from serious change of position)