Tufeld Corp. v. Beverly Hills Gateway, L.P.
86 Cal.App.5th 12
Cal. Ct. App.2022Background
- Tufeld (landlord) owned Beverly Hills commercial property subject to a 1960 ground lease originally expiring in 2058 (98 years). Douglas Emmett was the tenant by 2003.
- In October 2003 BHG acquired Douglas Emmett’s lease interest via assignments that the lease permitted; the court found this transfer effectuated a novation creating a new lease relationship between Tufeld and BHG.
- In May 2007 Tufeld and BHG executed an amendment extending the lease to December 31, 2123 (65‑year extension), increased rent, and BHG paid $1.5 million; Tufeld executed estoppel certificates in later refinancings confirming the 2123 termination date and BHG made substantial renovations.
- Tufeld sued in January 2018 seeking cancellation or reformation after learning Civil Code § 718 bars leases exceeding 99 years; BHG counterclaimed seeking declarations, reformation, and restitution.
- The trial court held the lease is void to the extent it exceeds 99 years, found the 2003 assignment was a novation that reset the 99‑year clock, awarded BHG restitution ($484,615) for the partial invalidation, and denied prejudgment interest; both parties appealed.
- The Court of Appeal affirmed that the portion of the lease beyond 99 years is void, upheld the novation finding and the restitution amount, but remanded for the trial court to consider awarding prejudgment interest on restitution.
Issues
| Issue | Plaintiff's Argument (Tufeld) | Defendant's Argument (BHG) | Held |
|---|---|---|---|
| Whether a lease term exceeding 99 years under Civ. Code § 718 is void or voidable | § 718 does not automatically render the lease void; equitable defenses should permit enforcement | § 718 invalidates excessive terms only to the extent necessary; equitable defenses apply | The court held the portion of the lease exceeding 99 years is void (not merely voidable) and equitable defenses cannot salvage the void period |
| Whether the 2003 assignment created a novation that reset the 99‑year limit | The 2003 transfer did not create a new lease that restarts the § 718 clock; original 2058 expiration controls | The 2003 assignment operated as a novation, extinguishing the old lease and creating a new lease subject to § 718 measured from 2003 | The court held the 2003 transactions amounted to a novation and reset the 99‑year limit (so the maximum lawful term ended in 2102) |
| Whether the 2007 amendment that extended term to 2123 voids the entire lease or only the excess period | The amendment tainted the whole contract making it unenforceable | The illegal extension is severable; only the excess years are invalid and the remainder of the lease stands | The court held the illegality was collateral; only the period beyond 99 years is void and the rest of the lease remains enforceable |
| Whether restitution and prejudgment interest are appropriate and correctly calculated | Tufeld argued against restitution or the amount awarded | BHG sought restitution for the value it paid in exchange for the now‑void portion and sought prejudgment interest | The restitution award ($484,615) was affirmed as a reasonable pro rata approximation; the denial of prejudgment interest was error because the trial court failed to exercise its equitable discretion — remand to consider prejudgment interest |
Key Cases Cited
- Yvanova v. New Century Mortgage Corp., 62 Cal.4th 919 (Cal. 2016) (distinguishes void vs. voidable contracts and explains legal effect of voidness)
- Harter v. San Jose, 141 Cal. 659 (Cal. 1904) (lease invalid only as to the excess period)
- Kendall v. Southward, 149 Cal.App.2d 827 (Cal. Ct. App. 1957) (lease exceeding statutory term is void per se to that extent)
- Wells Fargo Bank v. Bank of America, 32 Cal.App.4th 424 (Cal. Ct. App. 1995) (novation nullifies prior lease and creates new obligations)
- Shaver v. Clanton, 26 Cal.App.4th 568 (Cal. Ct. App. 1994) (read § 718 with Uniform Statutory Rule Against Perpetuities; commercial leases beyond 99 years not valid)
- Asdourian v. Araj, 38 Cal.3d 276 (Cal. 1985) (statutory violations can bar enforcement, but courts analyze whether enforcement would defeat the statute’s policy)
- Vitek, Inc. v. Alvarado Ice Palace, Inc., 34 Cal.App.3d 586 (Cal. Ct. App. 1973) (contracts violating licensing statutes may still be enforceable where enforcement does not defeat statutory policy)
- Armendariz v. Foundation Health Psychcare Services, Inc., 24 Cal.4th 83 (Cal. 2000) (severance doctrine: illegal provision may be severed if collateral to contract’s central purpose)
- Cortez v. Purolator Air Filtration Products Co., 23 Cal.4th 163 (Cal. 2000) (trial court’s equitable powers include restitution remedies)