BOSTON LLC, Plaintiff and Respondent, v. JUAN JUAREZ, Defendant and Appellant.
No. B267267
Second Dist., Div. One.
Feb. 25, 2016.
245 Cal.App.4th 75
Public Counsel, Lisa R. Jaskol and Robert J. Reed for Defendant and Appellant.
Alexander Prieto, Eliza Schaffer, Lena Silver; and Maria Palomares for Neighborhood Legal Services of Los Angeles County and Western Center on Law and Poverty as Amici Curiae on behalf of Defendant and Appellant.
Anna Levine-Gronningsater; and Lorraine Lopez for Legal Aid Foundation of Los Angeles and Inner City Law Center as Amici Curiae on behalf of Defendant and Appellant.
Allen R. King for Plaintiff and Respondent.
OPINION
LUI, J.—Plaintiff and respondent Boston LLC (Boston) rented defendant and appellant Juan Juarez an apartment under the Rent Stabilization Ordinance of the City of Los Angeles (LARSO) (
Boston then sued Juarez for unlawful detainer. (Super. Ct. L.A. County, No. 14U02675.) The trial court ruled for Boston. Juarez appealed to the
We asserted jurisdiction over the matter pursuant to
BACKGROUND
Juarez rented an apartment in Los Angeles from Boston for more than 15 years under LARSO. Juarez and Boston‘s rental agreement called for Juarez to obtain renter‘s insurance. Juarez did not obtain renter‘s insurance, however. On February 14, 2014, Boston gave Juarez a three-day notice to perform by obtaining renter‘s insurance or quit.2 February 14th was a Friday and began a three-day weekend for Presidents’ Day, a legal holiday, which was on Monday, February 17th. Likely due to the holiday weekend, Juarez failed to obtain renter‘s insurance within the three-day period; he did, however, obtain it by February 21st.
Boston then sued Juarez for unlawful detainer. Boston argued the rental contract contained a forfeiture clause which allowed it to terminate Juarez‘s tenancy for any breach, regardless of the breach‘s materiality. Juarez countered that the law requires a material breach to justify forfeiture. Juarez argued he should therefore be allowed to present evidence that his breach was immaterial and, in any event, he was in substantial compliance with the insurance clause. He also asserted a number of affirmative defenses, including retaliation and waiver. The trial court, however, agreed with Boston that the forfeiture clause made any breach by Juarez, regardless of materiality, grounds for Boston to terminate Juarez‘s tenancy. Juarez agreed to a bench
DISCUSSION
On appeal, Juarez argues the law demands that a tenant‘s breach must be material to justify a landlord‘s forfeiture of a rental contract. We agree. Because we agree, we do not reach his argument that the forfeiture clause constituted an unlawful penalty or whether he should have been allowed to present certain affirmative defenses.
Whether the law requires a material breach to enforce a forfeiture clause in a residential lease is a question of law which we review de novo in the absence of disputed facts. (Cohn v. Corinthian Colleges, Inc. (2008) 169 Cal.App.4th 523, 527 [86 Cal.Rptr.3d 401] [appellate courts exercise “independent judgment” on “pure question[s] of law” where “the facts are not disputed“].)
1. Code of Civil Procedure section 1161, subdivision 3 governs forfeiture procedure and does not create substantive rights
Boston brought its unlawful detainer action under
Boston is incorrect. Section 1161, subdivision 3 does not create a substantive forfeiture right. Rather, “[t]he purpose of the unlawful detainer statutes is procedural. The statutes implement the landlord‘s property rights by permitting him to recover possession once the consensual basis for the
2. Case law dictates a breach must be material to justify forfeiture
Case law is clear as to what kinds of “failure to perform” justify forfeiture. Courts have consistently concluded that “a lease may be terminated only for a substantial breach thereof, and not for a mere technical or trivial violation.” (Keating v. Preston (1940) 42 Cal.App.2d 110, 118 [108 P.2d 479] (Keating) [discussing breach of implied covenants].) This materiality limitation even extends to leases which contain clauses purporting to dispense with the materiality limitation. For example, in Randol v. Scott, a forfeiture clause provided “that ‘if default shall be made in any of the covenants herein contained, then it shall be lawful for the lessor to re-enter the said premises.‘” (Randol v. Scott (1895) 110 Cal. 590, 593 [42 P. 976] (Randol); see id. at pp. 597–598.) Despite the forfeiture clause‘s language that any breach permitted forfeiture, the court refused to allow forfeiture for an “entirely ... trivial” matter, especially when the lessor had permission to enter and inspect the premises at any time, which would have given the lessor the chance to detect, and demand remedy for, the complained-of breach. (Id. at pp. 597–598.) Similarly, in Keating, the lease contained a clause authorizing the lessor “to re-enter the premises ... ‘if default shall be made in any of the covenants herein contained.‘” (Keating, supra, 42 Cal.App.2d at p. 114, italics omitted.) The court held that even if the offending behavior could be considered a breach, “it was so slight and trivial a violation ... that it [did] not constitute ground for terminating the lease on that account.” (Id. at p. 117.)4
Juarez and Boston‘s agreement contained a forfeiture clause stating: “Renter‘s performance of and compliance with each of the terms hereof ... constitute a condition on Renter‘s right to occupy the Premises and any failure of compliance or performance by Renter shall allow Owner to forfeit this agreement and terminate Renter‘s right to possession.” Boston argues this clause forecloses any materiality argument or defense by Juarez. The above
3. The substantive law requiring a materiality limitation underlies, and therefore applies to, section 1161, subdivision 3
“Although not expressly set forth in
Although not binding on us, NIVO 1 demonstrates how courts apply the materiality requirement in section 1161 cases. In NIVO 1, a rental agreement required a tenant to obtain renter‘s insurance. (NIVO 1, supra, 217 Cal.App.4th at p. Supp. 3.) Under the original contract, the tenant‘s violation of the insurance clause would result only “in a waiver of the tenant‘s rights to seek damages against the landlord” (id. at p. Supp. 4) in the case of “personal property damage or loss” (id. at p. Supp. 3). The landlord attempted to unilaterally modify the rental agreement, however, by adding a forfeiture clause stating: “‘Any failure of compliance or performance by Renter shall allow Owner to declare a forfeiture of this agreement and terminate Renter‘s right to possession. Any breach of the contract is a material breach.‘” (Id. at p. Supp. 4, italics omitted.) The appellate division held that the landlord‘s attempted unilateral modification in adding the forfeiture clause was illegal under LARSO and consequently disregarded it. (NIVO 1, at p. Supp. 4, citing
Other California authorities recognize a materiality requirement as well. For example, Miller and Starr admonishes that a “landlord cannot terminate the lease unless the tenant‘s breach of the condition is material or substantial.” (10 Miller & Starr, Cal. Real Estate (4th ed. 2015) § 34:181, p. 34-566, citing NIVO 1, supra, 217 Cal.App.4th Supp. 1.) It continues, “Every default by a tenant does not necessarily justify the landlord‘s termination of the tenancy,” and this “is especially true when the breach involves a nonmonetary covenant in the lease.” (10 Miller & Starr, supra, § 34:181, p. 34-565.) Witkin concurs that a “[s]ubstantial [b]reach [i]s [r]equired” to invoke a “forfeiture clause.” (12 Witkin, Summary of Cal. Law (10th ed. 2005) Real Property, § 668, p. 785, italics omitted; id. (2015 Supp.) § 668, p. 159, citing NIVO 1, at p. Supp. 4.) Likewise, the California Practice Guide comments that a “‘trivial’ or ‘de minimis’ breach is not sufficient ground for termination and may be raised an as ‘equitable defense’ to unlawful detainer.” (Friedman et al., Cal. Practice Guide: Landlord-Tenant (The Rutter Group 2015) ¶ 7:130, p. 7-80, citing NIVO 1, at p. Supp. 5.)
Others states, including Arizona, Illinois, Massachusetts, South Carolina, and Utah, likewise recognize a materiality requirement. (See, e.g., Foundation Development Corp. v. Loehmann‘s (1990) 163 Ariz. 438, 443 [788 P.2d 1189, 1194] (Loehmann‘s) [in a commercial lease context, it was unlikely that the Arizona Legislature “intended to permit forfeitures under any and all circumstances, no matter how trivial, inadvertent, non-prejudicial, or technical the breach,” given the “important interplay of property and contract law that preceded the enactment of the statute“]; Wolfram Partnership v. LaSalle National Bank (2001) 328 Ill.App.3d 207 [262 Ill.Dec. 404, 765 N.E.2d 1012, 1025] [“Regardless of the language used by the parties, a breach, to justify a ... forfeiture of a lease agreement, must have been material or substantial.“]; Banco do Brasil v. 275 Washington Street Corp. (D.Mass. 2010) 750 F.Supp.2d 279, 292 [quoting and agreeing with Loehmann‘s materiality requirement]; Kiriakides v. United Artists Communications, Inc. (1994) 312 S.C. 271, 275 [440 S.E.2d 364, 366] [agreeing with Loehmann‘s after finding that a “majority of courts have concluded that a lease may not be forfeited for a trivial or technical breach even when the parties have specifically agreed that ‘any breach’ gives rise to the right of termination“]; Cache County v. Beus (1999) 1999 UT App 134 [978 P.2d 1043, 1049–1050] [quoting and agreeing with Loehmann‘s].)
a. LARSO‘s public policy goals outweigh freedom to contract and free market rationales in this context
LARSO was born out of the shortage of affordable housing, especially for low-income individuals, in Los Angeles. (
In its decision upholding the forfeiture clause, the appellate division focused on Juarez‘s and Boston‘s general freedom to contract and held, notwithstanding NIVO 1‘s and other cases’ materiality requirement, “‘[i]f contractual language is clear and explicit, it governs [citation]’ (Bank of the West v. Superior Court (1992) 2 Cal.4th 1254, 1264 [10 Cal.Rptr.2d 538, 833 P.2d 545]).” (Boston I, supra, 240 Cal.App.4th at p. Supp. 34.) It reasoned that in Juarez and Boston‘s case, “[t]he clear and unambiguous terms of [the forfeiture] clause permitted forfeiture of the agreement and termination of the defendant‘s right to possession based on any breach, regardless of the breach‘s importance in relation to the entire agreement.” (Id. at p. Supp. 35.)
While the freedom to contract is important, as the appellate division noted, the California Supreme Court has recognized in Green v. Superior Court that free market principles, which justify, in part, the freedom to contract, do not apply to urban residential leases, such as Juarez‘s LARSO lease. (Green v. Superior Court (1974) 10 Cal.3d 616, 625 [111 Cal.Rptr. 704, 517 P.2d 1168] (Green).) This is because “the severe shortage of low and moderate cost housing has left tenants with little bargaining power ... and thus the mechanism of the ‘free market’ no longer serves as a viable means for fairly allocating” rights and duties between landlords and tenants. (Ibid.) Citing Green, courts acknowledge that due to the “unequal bargaining power [between] landlord and tenant resulting from the scarcity of adequate housing in urban areas,” tenants in urban residential leases are treated more favorably by courts than lessees in commercial leases where the “parties are more likely to have equal bargaining power.” (Schulman v. Vera (1980) 108 Cal.App.3d 552,
Permitting landlords like Boston with superior bargaining power to forfeit leases based on minor or trivial breaches would allow them to strategically circumvent LARSO‘s “good cause” eviction requirements and disguise pretext evictions under the cloak of contract provisions. Such provisions, which enable pretext evictions, are “‘unenforceable on grounds of public policy if ... the interest in its enforcement is clearly outweighed in the circumstances by a public policy against the enforcement of such terms.‘” (Bovard v. American Horse Enterprises, Inc. (1988) 201 Cal.App.3d 832, 840 [247 Cal.Rptr. 340], quoting Rest.2d Contracts, § 178.) Here, LARSO‘s public policy goals of providing stable affordable housing to low-income Angelenos and preventing pretext evictions outweigh the free market and freedom to contract principles allowing a landlord to include a unilateral forfeiture clause in an urban residential rental contract.
b. Forfeiture is avoided where possible and forfeiture clauses are strictly construed against the party they benefit
“A condition involving a forfeiture must be strictly interpreted against the party for whose benefit it is created.” (
The insurance clause provides that Boston “does not insure Renter for any personal injury or property damage” (italics added) and that Juarez “shall obtain and pay for any insurance coverage necessary to protect Renter” from such damage. This provision is overreaching. Boston cannot absolve itself of liability for “any ... property damage” to Juarez by demanding that Juarez obtain insurance when that damage could be caused by Boston itself or could be damage Boston is liable for as a landlord. (Italics added.) In the balance of our analysis, the overreaching and unrealistic nature of the clause weighs against enforcing it, especially when enforcing it would benefit Boston, “the party for whose benefit it [was] created.” (
c. A materiality requirement potentially prevents unmeritorious litigation
Permitting forfeiture for trivial breaches could unleash a torrent of unmeritorious unlawful detainer litigation.6 Without the protection of a materiality requirement, tenants potentially are in jeopardy of defending frivolous unlawful detainer actions for trivial breaches. For example, Juarez‘s lease prevents him from even bringing a musical instrument on the premises, “unless noted in ... Owner‘s copy of this Agreement.” If we upheld the forfeiture clause as Boston argues, Juarez could risk forfeiture of the rental agreement, and eviction, for absurdly trivial reasons, e.g., if he hung a violin with no strings on his wall for decoration because it was a family heirloom or if for a few days he had in his apartment a gift-wrapped plastic piano for a niece‘s upcoming birthday. Litigation over these types of trivial breaches is not a proper or efficient use of court resources.7
The appellate division attempted to refute this argument, holding that “[i]n evictions based on three-day notices to perform or quit . . . breaches would only constitute valid grounds for eviction if they [a]re not cured within the notice period, meaning tenants could not be evicted based on single incidents . . . .” (Boston I, supra, 240 Cal.App.4th at p. Supp. 36.) Even if that were true, Juarez would still be subject to the risk of eviction if he refused to
5. Given the facts, Juarez‘s failure to obtain renter‘s insurance within the three-day notice period was not a material breach
“‘Normally the question of whether a breach of an obligation is a material breach ... is a question of fact,” however “‘if reasonable minds cannot differ on the issue of materiality, the issue may be resolved as a matter of law.‘” (Brown v. Grimes (2011) 192 Cal.App.4th 265, 277–278 [120 Cal.Rptr.3d 893], quoting Insurance Underwriters Clearing House, Inc. v. Natomas Co. (1986) 184 Cal.App.3d 1520, 1526–1527 [228 Cal.Rptr. 449].)
The primary purpose of renter‘s insurance is to protect the tenant, not the landlord. As such, Boston has little ground to argue that Juarez‘s failure to obtain insurance harmed it. For example, Boston does not argue Juarez made claims against it that should have been covered by renter‘s insurance but were not because Juarez lacked it. Instead, Boston argues it was harmed because there was a chance Juarez‘s noncompliance encouraged other tenants’ noncompliance. In the absence of evidence of actual harm, the chance Juarez‘s temporary noncompliance incited other tenants to not comply with their insurance obligations is insufficient to demonstrate harm justifying forfeiture. (See Feder v. Wreden Packing etc. Co., Inc. (1928) 89 Cal.App. 665, 673 [265 P. 386] [a court cannot “overlook[]” when a complaint fails to allege actionable harm]; Rest.2d Contracts, supra, ch. 16, Introductory Note, p. 109 [“The initial assumption” in awarding damages “is that the injured party is entitled to full compensation for his actual loss” (italics added)].) Boston also fails to explain how Juarez lacking insurance for a mere handful of days after he was noticed harmed Boston, given the 15 years Juarez lacked insurance, a defect which Boston could have easily discovered at any time and demanded Juarez remedy. Also, although technically permissible, Boston giving Juarez the three-day notice to obtain insurance on the Friday preceding a three-day weekend which encompassed a widely celebrated legal holiday smacks of gamesmanship, or possibly even retaliatory motives, in light of the 15 years Boston failed to enforce the insurance clause. Given the facts of this case, Juarez‘s slight delay in obtaining renter‘s insurance was not a material breach sufficient to justify forfeiture.
Because Juarez‘s breach was immaterial, we need not address his arguments that the forfeiture clause constituted an unlawful penalty or that he should have been allowed to present certain affirmative defenses.
The judgment is reversed. Juarez is awarded his costs on appeal under
Chaney, Acting P. J., and Johnson, J., concurred.
A petition for a rehearing was denied March 18, 2016, and respondent‘s petition for review by the Supreme Court was denied May 11, 2016, S233543.