FACTS AND PROCEDURAL BACKGROUND
I. Facts
A. Commercial leases
Plaintiff James Smyth (Smyth) owns and operates plaintiff Awesome Audio (Awesome), an аudio recording company (collectively, plaintiffs). Since the mid-1990's, Smyth has leased 5725 Cahuenga Boulevard in North Hollywood (the Property) as Awesome's place of business. In 1999, Smyth bought the property next door as his residence. Also, in 1999, defendant Daryl Ann Berman (Berman) bought the Property and has since been plaintiffs' landlord.
Plaintiffs and Berman signed their most recent written lease on December 2, 2011 (the 2011 Lease). By its terms, the 2011 Lease was set to expire on December 15, 2012, but contained an option to renew the lease for an additional three years. The lease also granted plaintiffs the right to make "alterations and improvements" to thе Property and to sublet the Property as long as they obtained Berman's consent. The 2011 Lease further provided: "If the Tenant remains in possession after this lease ends, the continuing tenancy will be from month to month."
In each of the two written leases that are part of the record in this case, Smyth inserted a handwritten term granting him
B. Smyth's July 2016 offer to purchase the Property
On June 29, 2016, defendant Carmen Santa Maria (Santa Maria) submitted a written offer to buy the Property from Berman. In that offer, Santa Maria offered to pay $60,000 in cash and to have Berman loan him $440,000 that would be repaid over 10 years with four percent interest. If the loan were repaid over the full 10 year period, Santa Maria would ultimately pay Berman $676,000, but Santa Maria would not be penalized if it elected to repay the loan early (even though it would mean Berman would receive less interest).
Between July 12, 2016 and July 14, 2016, Smyth's attorney and Berman exchanged several emails. In an email to Berman, plaintiffs' attorney
On August 4, 2016, plaintiffs submitted an offer to buy the Property for $505,000, comprised of $101,000 in cash and the balance from a $404,000 loan from a third-party lender.
Berman moved forward with selling the property to Santa Maria and his business partner, defendant Pamela Ann Masters, and they recorded a grant deed and deed of trust on August 19, 2016.
II. Procedural Background
A. Original complaint and First Amended Complaint
1. Complaints
On August 16, 2016, and thus three days before Santa Maria and his partner recorded their grant deed and deed of trust, plaintiffs sued Berman
On October 11, 2016, plaintiffs filed their First Amended Complaint (FAC). Plaintiffs added four new defendants-Berman's reаl estate agent, the agent's agency, Santa Maria and Santa Maria's business partner. Plaintiffs modified the intentional misrepresentation and fraud claim to add an additional allegation-namely, that Berman had lied to Smyth about the cancellation of Santa Maria offer. Plaintiffs also added six new claims: (1) tortious interference with the contractual relations between plaintiffs and Berman (against Berman's real estate agent, the agency, Santa Maria and Berman); (2)
2. Demurrers to FAC
Santa Maria, his business partner and Berman each separately demurred to the FAC. At the hearing on the demurrer, plaintiffs' attorney referred to plaintiffs' tenancy in 2016 as a "holdover tenancy."
The trial court sustained the demurrer to the FAC with leave to amend. The court observed that all of plaintiffs' claims "appear to be based upon" the valid exercise of a right of first refusal. The court went on tо find that plaintiffs possessed no right to first refusal at the time of their August 2016 offer because (1) plaintiffs were "holdover" tenants by August 2016 because the 2011 Lease-even if extended by three years-had expired on December 16, 2015; and (2) the right of first refusal contained in the 2011 Lease did not carry forward as a term of the "holdover" tenancy under Spaulding v. Yovino-Young (1947)
B. Second Amended Complaint
1. The complaint
The Second Amended Complaint (SAC) named the same defendants and alleged the same nine claims, but for the first time alleged plaintiffs and Berman had entered into an "oral agreement" in November 2015 "to extend the lease for one year to December 201[6] under the same terms and conditions," including the term granting plаintiffs a right of first refusal.
2. Demurrers to SAC
Santa Maria and Berman (collectively, defendants) separately demurred to the SAC.
The trial court sustained both demurrers with leave to amend. In ruling on Santa Maria's demurrer, the court concluded that plaintiffs' allegation in the SAC that the 2011 Lease had been renewed through December 2016 was
C. Third Amended Complaint
1. The complaint
The Third Amended Complaint (TAC) named the same defendants and alleged the same nine claims but elaborated on the oral lease extension theory аnd added a
With regard to the oral lease extension, plaintiffs in the TAC alleged that (1) the oral lease extension satisfied the statute of frauds because the extension was confirmed in a letter by Smyth in December 2015 as well as in other "numerous writings [and] confirmations by Berman," which were sufficient because the parties had an "established practice, custom and conduct to have one person memorialize their discussions in writing," (2) Berman was estopped from alleging the statute of frauds because plaintiffs had suffered detriment as a result of the oral lease extension because they stayed on as tenants, because they had made improvements to the Property, and because Smyth had purchased the property next door, and (3) plaintiffs had a valid explanation for alleging the oral lease extension rather than a holdover tenancy in the SAC-namely, that Smyth had at some point after filing the FAC "located documentary evidence" of the oral lease extension. Plaintiffs attached a December 2015 letter from Smyth as an exhibit.
For the first time, plaintiffs alleged that Smyth and Berman had, by virtue of the July 2016 email exchange between Smyth's lawyer and Berman, entered into a "separately enforceable" contrаct to grant plaintiffs a right of first refusal on the Property. Plaintiffs alleged that the consideration for this new contract was Smyth's expenditure of "time, energy and money to develop and submit" his August 2016 offer as well as Berman's receipt of Smyth's better offer.
Santa Maria and Berman separately demurred to the TAC.
The trial court sustained both demurrers without leave to amend. The court ruled that a right of first refusal did not exist in August 2016 by virtue of an oral extension of the 2011 Lease because (1) such an oral extension was still invalid under the statute of frauds because the December 2015 letter signed by Smyth did not satisfy the statute of frauds's requirement of a writing "signed by Berman or her agent" and because the other, unspecific writings did not reference any right of first refusal, and (2) Berman was not estopped from asserting the statute of frauds as a defense because none of the actions plaintiffs alleged as detrimental reliance-paying rent, making improvements or buying the property next door-happened "after or because of the alleged December 2015 [oral] extension." The court also ruled that a right of first refusal did not exist in August 2016 by virtue of any July 2016 contract. Specifically, the court concluded that plaintiffs had not detrimentally relied upon any such promise by Berman because (1) plaintiffs had started their efforts to make a counter-offer long before the alleged July 2016 promise, and (2) they had not changed their position by foregoing any legal remedies (as evidenced by the currently pending lawsuit). Because this was plaintiffs' "fourth attempt to plead a valid complaint" and because they had not articulated how a fifth attempt might succeed, the court denied leave to amend.
D. Judgment and appeal
After the trial court entered a judgment of dismissal, plaintiffs filed a timely notice of appeal.
DISCUSSION
Plaintiffs challenge the dismissal of the TAC on demurrer. "In reviewing a trial court's order sustaining a demurrer without leave to amend, we must ask (1) whether the demurrer was properly sustained, and (2) whether leave to amend
The TAC alleges nine causes of action, and the eight of them at issue in this appeal ultimately turn on whether plaintiffs possessed an operative right of first refusal in August of 2016.
In the FAC, SAC and operative TAC, plaintiffs have alleged three theories under which they had a vаlid right of first refusal in August 2016: (1) as holdover tenants after the 2011 Lease expired; (2) pursuant to an oral extension of the 2011 Lease; and (3) pursuant to a separate, July 2016 contract that granted them a right of first refusal. We will examine each.
I. Right of First Refusal Under A Holdover Tenancy
When a lease expires but the tenant remains in possession, the "relationship" of the landlord and tenant "changes." ( Schmitt v. Felix (1958)
We conclude that the answer is "no," and do so for two reasons.
First, the only terms from the expired lease that are presumed to carry forward into a holdover tenancy are the "essential" terms of that lease ( Spaulding , supra ,
Second, a rule presuming that rights of first refusal do not carry forward into holdover tenancies furthers the public policy favoring the stability of commercial tenancies. Holdover tenancies exist to ensure stability because they are a mechanism by which tenants may remain in possession without disruption, albeit typically only on a month to month basis. ( Civ. Code, § 1945.) If a right of first refusal presumptively carried forward into a holdover tenancy, a landlord wishing to nullify that right could easily do so by evicting the holdover tenant and selling the property one day later, both of which would be within its rights as the landlord of a holdover tenant. This "creates an incentive for landlords to evict holdover tenants as soon as possible" ( Bateman v. 317 Rehoboth Ave., LLC (Del. Ch. Ct. 2005)
Plaintiffs make what boil down to three categories of arguments in favor of their position that rights of first refusal should automatically carry forward into holdover tenancies.
First, plaintiffs urge us to follow the precedent of several states holding that rights of first refusal (or other purchase options) presumptively carry
Second, plaintiffs contend that a right of first refusal is different from a purchase option, so Spaulding 's presumptive rule against carrying forward the latter into a holdover tenancy should not extend to the former. A presumption against carrying forward options to purchase makes sense, as Spaulding itself noted, because such options obligate a landowner to accept an offer at a fixed price, and it is reasonable to presume that the parties did not intend such an offer to continue "indefinite[ly]" under a holdover tenancy. ( Spaulding , supra , 30 Cal.2d at pp. 143-144,
Third, plaintiffs argue that Spaulding 's presumption may be rebutted by proof of the parties' contrary intent, and that intent is typically a question of fact that should not be resolved on a demurrer. Although intent is often a factual issue that can render summary judgment inappropriate ( Alexander v. Codemasters Group Limited (2002)
II. Right of First Refusal Under Oral Extension of the 2011 Lease
When a plaintiff files an amended complaint, it may not "omit harmful allegations ... from previous complaints." ( Deveny v. Entropin, Inc. (2006)
Plaintiffs' allegations in the SAC and TAC that the 2011 Lease (and, specifically, its right of first refusal) was still in effect in 2016 by virtue of an oral extension of that lease in December 2015 is invalid under the "sham pleading" doctrine. That allegation is factually inconsistent with plaintiffs' prior allegation, in the original complaint and FAC, that their lease with Berman ended in 2015 upon expiration of the three-year extension contained in the 2011 Lease. Because plaintiffs alternatively alleged no extension and then an extension, they changed the facts. (Accord, Schmitt , supra,
Plaintiffs offer three reasons why their oral lease allegation is not a sham pleading.
First, they argue that the trial court did not rely on the sham pleading doctrine in sustaining the demurrer to the TAC. This is true, but beside the point because the issue was raised below (and again on appeal), and we may affirm on any ground supported by the record. ( Stowe v. Fritzie Hotels, Inc. (1955)
Second, plaintiffs assert that the FAC did not use the phrase "holdover tenancy," so there is no inconsistency between the FAC and later complaints. Plaintiffs' subsequent use of thе phrase "holdover tenancy" to describe the FAC's allegation at the hearing on the demurrer to the FAC, they continue, does not retroactively insert that phrase into the FAC. Even if we looked solely to what is alleged in the FAC, the FAC alleges a tenancy that ends in December 2015; this by definition renders plaintiffs' tenancy in 2016 a "holdover tenancy." Thus, plaintiffs' argument at the
Third, plaintiffs contend that any contrary allegations in the TAC cannot fall under the "sham pleading" doctrine because the trial court granted them leavе to amend the SAC. We reject this argument. The grant of a leave to
Because we conclude that plaintiffs' oral extension theory is barred by the "sham pleading" doctrine, we have no occasion to examine the trial court's alternative grounds for dismissing this theory.
III. Right of First Refusal in a Separate, July 2016 Contract
The statute of frauds provides that any agreement for "the sale of real property, or of an interest therein" is invalid unless it is "in writing and subscribed to by the party to be сharged." ( Civ. Code, § 1624, subd. (a)(3).) Because they are a species of an option to purchase, rights of first refusal to purchase real property must satisfy the statute of frauds. ( Pacific Southwest Development Corp. v. Western Pac. R. Co. (1956)
The allegations set forth in the TAC do not satisfy these requirements. The TAC alleges that the July 2016 contract is documented in the exchange of four emails between Smyth's attorney and Berman. Although Smyth's attorney in her first emаil states that Berman has agreed to give Smyth a "right of first refusal," Berman responded by saying she "requested that [her real estate agent] respond with the contracts and other requests," and responded to further emails by saying she had "retained council [sic]." Berman's equivocal and non-confirmatory responses do not "show[ ]" that plaintiffs' counsel and Berman "made a contract" or set forth the "essential contract terms with reasonable certainty." ( Sterling , supra ,
Plaintiffs respond with three arguments.
First, plaintiffs assert that the email exchange, despite its sparsity, constitutes a writing sufficient to satisfy the statute of frauds because the emails reflect what was "understood by the parties" in thе broader context of their
Second, plaintiffs contend that Berman should be estopped from asserting the statute of frauds as a defense. A party may be estopped from asserting the statute of frauds as a defense to a contract in order to "prevent fraud that would result from refusal to enforce [an] oral contract[ ]." ( Monarco v. Lo Greco (1950)
The allegations contained in the TAC do not satisfy either prong of this estoppel doctrine. Plaintiffs allege that they "seriously changed their position" because they spent time working up the offer they made in August 2016; performed their part of the agreement by making the August 2016 offer; for many years paid rent, modified and improved the Property, and bought the property next door; and ultimately lost the opportunity to make an offer on the Property. None of these allegatiоns constitutes a "serious change in position." The time and money plaintiffs spent working up the offer in August 2016 does not qualify because "the payment of money is not 'sufficient part performance to take an oral agreement out of the statute of frauds' " ( Oren Realty & Development Co. v. Superior Court (1979)
In light of our conclusion that the alleged July 2016 contract is invalid for noncompliance with the statute of frauds, we have no occasion to consider defendants' further arguments that this contract fails for lack of consideration (or plaintiffs' responsive argument that promissory estoppel supplies the requisite consideration) or to consider defendants' argument that the contract was never breached.
DISPOSITION
The judgment of dismissal is affirmed. Defendants are entitled to their costs on appeal.
We concur:
LUI, P. J.
CHAVEZ, J.
Notes
Plaintiffs made a prior offer on June 6, 2016, but the terms of this offer are not part of the record.
Plaintiff also sued Berman's husband, even though he had died in 2001.
This claim is not part of this appeal, as the real estate agent and agency did not demur to plaintiffs' Third Amended Complaint.
As noted above, plaintiffs' negligence claim names only the real estate agent and agency, neither of whom demurred to that claim.
Plaintiffs also point to Berman's cancellation of Santa Maria's offer as evidence that Berman performed the July 2016 contract, but this assertion is flatly inconsistent with plaintiffs' allegations, in the FAC, that Berman "blatantly lied that Santa Maria's offer was cancelled."