Commercial Property Herald

California Courts Take Another Budget Blow - Time for Collaborative Arbitration, Finally?

I know that this post relates to California courts, but it probably is equally applicable to courts in other states throughout the United States. If you live anywhere else other than California, think twice about how lucky you are not to be here.

Governor Brown has just proposed an additional $544,000,000 in budgetary cuts from the California Judiciary and Court System.  These cuts are on top of the cuts to our court budgets that have gone into effect over the last few years. 

We have already seen the effect of the existing budget cuts to our court system.  Long delays when filing documents, sometimes weeks before you can get conformed copies back, where just 5 years ago and as long as I have been practicing law, you could file your documents and get file stamped copies on the spot.  Issuance of Writs and other court orders take weeks, including those for evictions and that is after you have obtained your judgment.  I can remember the days, not to long ago, when I could go to court, get the judge to sign the judgment, walk it to the clerks office along with my writ documents and Sheriff instructions and the clerk would have all of my documents to the Sheriff the same or next day.  Back then, my landlords still complained that the process took to long.

Some courts are so backed up that getting a hearing date some times takes longer than a trial date, making the motion and my arguments moot.  True, this happened to me once, down in San Diego.

Los Angeles County Superior Court will no longer automatically supply a court reporter for a hearing although you can make arrangement to have one on your own dime.  I am not sure how bad this is since I think the state courts should have gone to recorded hearings a long time ago like the federal courts did.  Nevertheless, unprepared lawyers and clients may find themselves unprepared when they need a court reporter.

My concern is that our civil court system is going to take such a hit to its operations that we will have trouble handling civil disputes in a timely fashion and efficient fashion. Ok, so it hasn't been so timely or efficient, but it is sure to get worse.

I know that I have written about this before and I am going to write about it again.  The time has come for Collaborative Arbitration where the evidence, issues, documents and arguments accumulate online for all parties to access and the dispute is resolved before an arbitrator. The other unique feature of Collaborative Arbitration is that not only do the parties exchange information in an online database shared by the parties and the arbitrator, but the arbitrator gets access to all of the information, issues and evidence from the get-go and can be in constant communication with the parties rather than only dealing with everything at the time of the hearing.  This will tend to get the parties to resolve the dispute much sooner.

When the Tenant Stops Paying Rent - What Do I Consider First

When a commercial landlord or property manager first contacts me and advises me that a tenant is no longer paying rent, I first determine if the lease was terminated or not. Lease termination could occur: 

1. By mutual agreement; 
2. By the terms of the lease; 
3. By the foreclosure; 
4. By the landlord by service of a Notice to Quit, Pay or Quit, Perform Covenant to Quit, or Notice of Belief of Abandonment.

If the lease was terminated before the filing of the suit, the landlord's  claims to rental damages in California, are usually limited to Civil Code 1951.2 damages, if the lease so provides, which include: 

• Rents owing up to the date of termination; 
• Rents owing from the date of termination of the lease until the date of trial, less what the tenant can prove we could have reasonably avoided, (mitigation); and 
• Future rents, which are calculated by determining the present value of future rents owing from the date of trial through the end of the term of the lease, less what the tenant proves we can reasonably avoid, (mitigation).

Notice that of the three measures of damages above, only the second two involve issues of mitigation.

While in this post, I am referencing California law, many other states have similar statutes that allow a landlord to collect rents through the end of the term of a lease although the lease was terminated as a result of some act or failure to act by the tenant.  You should consult your own attorney who is qualified to give legal advice in the state that the premises are located.

If the lease was not terminated prior to the filing of the lawsuit, we have the option of terminating the lease and suing for Civil Code 1951.2 damages or, if the lease so provides, suing for rents as they accrue, in which case we are only entitled to collect rents and other charges owing up through the date of trial. Note, we do not waive rents owing after trial through the end of the term. As to those future rents, we would have to file a new lawsuit to collect those rents. While the requirement of filing a new lawsuit to collect those future rents seems daunting at first glance, based upon my experience litigating these matters, I have often found that the advantages of suing for rents up through the date of the trial far outweigh the disadvantages of getting a partial judgment.  I will explain.

For one thing, when you terminate the lease and seek rents accruing at any time after the date of termination, mitigation is always an issue and proving and disproving this fact is usually the most expensive part of the litigation. I have also found that in the face of a competent lawyer defending the tenant, the landlord's proof and brokers documentation is often very deficient. Some brokers document their files well and follow legal instructions well and some don't. For the most part, brokers participate in the litigation only to the extent that they continue to do work for the landlord but otherwise see little payoff by cooperating and doing a good job in litigation. Even when the landlord can expect cooperation from the broker, brokers, as a whole are not well known for the type of detailed record-keeping that is necessary to be convincing in court. As a consequence, I try to avoid dealing with mitigation issues. A suit for rents as they accrue is far easier and quicker to win, in most cases. There are very few, if any defenses.

When the lease is not terminated, in essence, the tenant is treated as if they continue to have control of the premises and thus, the landlord's efforts to mitigate are unnecessary. This is so, even when the tenant voluntarily abandons the premises and turns over the keys. The tenant usually cannot unilaterally terminate the lease, unless the lease allows for it, so the landlord can refuse to terminate the lease, in which case the lease continues to run and rents continue to accrue. When the tenant abandons the premises and turns over the keys unilaterally, most leases allow for the landlord to take possession only for the purpose of releasing the premises for and on behalf of the tenant, clean up the premises for re-leasing, secure the premises and for the purpose of safety. This usually puts the landlord in a perfect position of mitigating its damages since it is usually the most common sense and practical approach, without giving up any rights.

Other reasons why I tend to favor avoiding terminating a lease and just suing for rents as they accrue, include: 

1. Because there are so few defenses to a suit for rents as they accrue, the landlord has a much better chance of winning a Motion for Summary Judgment (avoiding a trial and just getting judgment by a motion), avoiding the longer process; 
2. Even if you get to trial, the damages are often very substantial, forcing a quicker resolution. For example, if the tenant owes $20,000.00 per month and it takes you 12 months to get your judgment, you will get a judgment for at least $240,000, plus interest, late fees and attorneys fees in addition to any other damages that you can prove. This is nothing to sneeze at in a breach of lease action. That judgment can get entered and you can file a UCC Judgment lien which, if properly perfected and seasoned, can be a secured lien if the tenant files for bankruptcy protection. 
3. In many instances, the landlord can immediately, upon filing of the complaint, obtain a pre-judgment Writ of Attachment whereby the court, if it is convinced that the Landlord will probably win the suit, can allow the landlord to attach any or all of the tenant's assets in an amount equal to what the court anticipates the tenant will owe up to the anticipated date of trial, plus anticipated attorneys fees and costs of suit. This is a very effective way to force a quick settlement; and
4. After you get your first judgment, it is relatively simple to get a judgment for rents accruing after the date of the first judgment and even another pre-judgment Writ of Attachment. That's because in the second suit, you do not have to re-prove anything that you had already proven in the second suit. We lawyers use the latin term for this as "Res Judicata." All of the facts proven and issues resolved in the first suit are taken as admitted and proven in the second suit and a pre-judgment Writ of Attachment is almost guaranteed.

It is important to note that additional factors that I consider are the type of property, i.e. retail vs. office, industrial, warehouse, etc., the financial resources of the tenant, (to what extent we believe they can pay on a judgment) and the state of the economy, (the ease of re-leasing the premises at a rental rate equal to or greater than the rate owed by the tenant in accordance with their lease.

 

Serving Legal Documents by Mail or Overnight Carrier

I just finished a conversation with my paralegal reiterating how I wanted her to serve a Notice of Belief of Abandonment on a tenant.  For the uninitiated, A Notice of Belief of Abandonment is a document that a California landlord can send to the tenant, via mail, that might allow the landlord to regain legal possession of leased premises without the necessity of filing an eviction or unlawful detainer lawsuit. This possessory remedy is allowed by statute, the requirements of which must be strictly followed. It is important to note that the statute does allow this notice to be served by mail.

In my office, how we send something by mail is very important because, not only do we want to prove that we actually sent what we said we sent but also we want to prove that we actually intended for the recipient to receive the notice.  Therefore, it is our customary practice to send a notice that is allowed to be sent by mail, by certified mail, return receipt accepted, (“RRA”), priority mail AND duplicates to the same recipient by first class mail.

Now, you may ask, why do we send duplicates by first class mail, particularly when sending something by first class mail does not provide any written or verifiable proof that we actually sent the notice?  Well, the answer is borne from experience and in my case good and bad experience. 

When I send something by certified mail or priority mail, it may not actually get delivered.  As a matter of fact, when I send a notice to a tenant who I believe is no longer in the premises, I would gather to say that most of the time, the certified letter never actually gets to the tenant because they are not at the premises and the certified letter often gets returned to me.  Also, it is not uncommon for a tenant to ignore or avoid the delivery of a certified or priority letter. When I send a letter by first class mail, it can get forwarded to the tenant if they have left a forwarding address.

If I ever have to go to court and the tenant argues that they did not get the notice, I can then present to the court proof that the notice was sent by certified mail or priority mail, which may have been returned but yes, I also sent it by first class mail, which was not returned, increasing the likelihood that tenant did receive the notice and at the very least, elevating me in the eyes of the court and making it clear that I went beyond what was statutorily required and do everything reasonably necessary to make sure that the tenant received the notice and had an opportunity to respond.  It never fails to work.

In a later post, I will discuss more about a statutory Notice of Belief of Abandonment and why and when to use it.

Waiver of Jury Trial in a Commercial Lease

Every commercial landlord wants a waiver of jury trial provision in their lease and nearly every commercial lease in California contains such a provision.  Why do landlord's feel that this provision is so important?

The answer is relatively simple.  Most jurors have been tenants albeit, residential tenants at some point in their lives and few have been in the position of a landlord.  Far more jurors will be able to relate to and sympathize with the tenant's position.  Obviously, the landlords fear that a jury will stray from the strict dictates of the law and come to a verdict based more on emotion than the law. As a landlord attorney, I almost never want to be in front of a jury and will do what ever I can to avoid the situation.  On the other hand, when representing a tenant, I almost always want, or at the very least threaten to have the matter heard in front of  a jury.

The real question posed to me by Joel Hall in a Linkedin discussion is; "to what extent is the Waiver of Jury Trial provision often seen in leases, enforceable."

As a California attorney, I can answer that question as to California leases; NO!  A commercial tenant can waive its right to a jury trial, but not until the filing of a suit by one of the parties to the lease.  It is my understanding that the California courts will not enforce the Waiver of a Jury Trial provision in a commercial lease, based upon constitutional grounds.

So if a jury trial is so potentially dangerous to a landlord, what, if anything can a landlord put in a lease to avoid a jury trial?  That is a subject of another blog post and an article I wrote nearly 15 years and which was published in the National Law Journal and as part of the ICSC Annual Legal Review.  Now if I can only find that article.

By the way, although not an expert in residential leasing, I assume that a jury trial cannot be waived in a residential lease either.

Procrastination by a real estate attoreny

Last week  I created a post and copied a link to a video from KW commercial entitled "Can Being a Perfectionist harm your real estate business".  Admittedly, I did relate to the video and thought that as a perfectionist, I was sometimes frozen in time.

The reality is that for some other inexplicable reasons, and like other people, I sometimes procrastinate and wait until the last second to get something done.  What I don't understand is why do I do this?  I know better and I don't think that I always procrastinate because I am a perfectionist.

A perfect example was this past two weeks.  I had to draft a cross-complaint in a lawsuit that I was handling.  Now I knew about this for about 4 weeks.  About two weeks ago, I reviewed my paperwork, discussed the facts with my client and was prepared to write the document and move on with my life.  But, nooooooooooo.  That was too simple.  I got distracted and put off the writing of the cross-complaint for another week.  Then last week, every day, I kept telling my staff to leave me alone so I could draft the cross-complaint and get it filed last week.  

Did I do it last week? Noooooooooooooo.  And every day that went by, I could feel more and more stress because I wasn't getting this project done.  Now, I know better.  I know that pracrastinating and delay is just going to stress me out and all I have to do is to just get it done.  But noooooooo.  Come the weekend I still haven't drafted the document and now I have set an absolute deadline of filing the cross-complaint for Monday.  I even had my staff call the court on Friday to let them know that I would be filing the cross-complaint on Monday.  So what did I do on Saturday.  Noooooooooo, I didn't draft the cross-complaint and I did everything else I could do but that.

So what happened.  I filed the cross-complaint today and yesssssssss, I worked on it Sunday morning.  Was it difficult?  Nooooooooooo.  Actually it was pretty easy.  I just sat down and did it and relieved all that stress that was building up in me over the last two weeks.  Actually, it felt really good getting it done and I did it so quickly, that I actually had time to take the family bowling Sunday afternoon.  I just don't get it.

Now opposing counsel will have to procrastinate

 

California Appeals Court Rules Oral Promises Are Binding

A recent California appeals court ruling found that an oral promise by a lender to modify a loan is enforceable, by the borrower.
California Appeals Court Rules Oral Promises Are Binding.

To an experienced lawyer, a recent court ruling in California finding that an oral promise to modify a loan can be enforceable even when the loan documents require a writing to modify the loan, is not new or surprising law and is nothing more than what we learned in law school.  What us lawyers would refer to as "Hornbook Law." We know this defense as "Promissory Estoppe and can be raised as a defense in almost any contract dispute, not just loans. The defense arises when one party reasonably relies upon, to their own prejudice or harm, the person making the promise may be bound by their oral promise. 

There are some difficulties in the defense, not the least of which is proving that the promise was actually made, that the promisee reasonably relied upon the promise and that the promise relied upon the promise to their prejudice.

Court Filing Fees Go Up in California

Effective Immediately, filing fees in California courts have increased as follows:

• First appearance in an Unlimited Civil action (over $25,000), Family Law Petitions and Probate Petitions by plaintiff(s) and each defendant will increase to $395. This fee increase applies to all types of filings in which the previous fee was $355 (civil, probate, family, etc.);
• First appearance in a Limited action ($10,000 up to $25,000) by plaintiff(s) and each defendant will increase to $370;
• First appearance in a Limited action (under $10,000) by plaintiff(s) and each defendant will increase to $220.

Note: the above fees do not include the additional fees required for Unlawful Detainer filings (additional $15) or the surcharges imposed in Riverside County, San Bernardino County or the City and County of San Francisco.

• Motion for Summary Judgment/Adjudication will increase to $500.
• Application by counsel to appear Pro Hac Vice will increase to $500.
• Adds an additional $3 penalty to every parking violation.
• Additional increases in various criminal penalties and traffic fines.
• A fee for telephonic appearances (a fee payable to the court in addition to fees paid to vendors). This fee has not been determined yet.

When does No, mean Yes in a commercial Lease?

A local court recently rules that a landlord impliedly waived the tenant's obligation to pay rent by not insisting that rent be paid on time.  While there were many more facts, the salient facts were as follows:

• The lease had language provided, "No waiver of any default of either party hereunder shall be implied from any acceptance by Landlord or delivery by Tenant (as the case may be) of any rent or other payments due hereunder or any omission by the non-defaulting party to take any action on account of such default:
• Although the lease did not require it, the landlord agreed to do some ADA improvements in the common area and as required by the plans for the tenant improvements approved by the city;
• The lease provided for early possession of the premises by the tenant to do its own tenant improvements.  Landlord was to do no work.
• The Lease provided for a date certain for the commencement of the payment of rent, whether the tenant completed its T.I.'s or not.
• Tenant never completed its T.I., and about 14 months after lease and rent commencement (landlord applied about 6 months T.I. allowance to rents and 1st months rents, 1/2 months rent paid after T.I. allowance was applied and approximately one months rent paid after month 12), landlord commenced suit to collect rents;
• Lease provides that any amendment must be in writing;
• There was no testimony or any evidence that there was any agreement to waive rents;
• Defendant testified that he thought that he did not have to pay rents until he moved into the premises although he did admit that he didn't read the lease at the time that he signed it.
• The parties stipulated that the city would not give the tenant an occupancy permit unless the ADA improvements were completed;
  

The court found that, the landlord waived rents and the tenant's other Lease obligations, notwithstanding the language of the lease and the fact that there was no evidence of an explicit waiver or any agreement to waive rents. The court considered the landlord's failure to pursue rents sooner was a waiver.

By accepting rents late on a regular basis, commercial landlords can effectively allow the tenant to change the date that rents are due.

An issue recently arose with one of my clients when they wanted me to serve a 3-day notice on the 2nd day of the month.  In reviewing the lease and the payment history, I noticed that the lease provided that a late fee attached if rent wasn't paid on by the 10th day of the month.  I also reviewed the payment history of the tenant and noticed that the tenant paid rent, regularly on the 10th day of the month.

There is case law in California which stands for the proposition that even-though a commercial lease requires rent to be paid on the first day of the month and has a non-waiver provision, if the lease provides that a late fee does not apply until the tenant is more than 10 days late in the payment of rents and the tenant regularly paid rent on the 10th day of the month, the tenant cannot be evicted for failing to pay rents pursuant to a 3-day notice served on the 2nd day of the month.

The lesson learned here is, without fail; make sure that your tenant's are paying rents on time.  I favor an automatic system whereby the landlord or its property manager makes a friendly telephone call on the 2nd day of each month if rent is not paid on the first, that way it is not personal.  Do not consistently wait until late fees apply before you serve a 3-day notice and before you serve a 3-day notice, consider whether you want to legally terminate the lease by serving a formal 3-day notice.  Landlords could also, before serving a 3-day notice to pay or quit, as standard operating procedure, deliver a letter reminding tenant that rent is due on the first.  Whatever you do, don't act or communicate in any way that the landlord is somehow agreeing that rents do not have to be paid on the 1st day of the month.

Conducting a Poll on Linkedin re: What do You Want in an Eviction Attorney

I am conducting a poll on Linkedin What do You Want in an Eviction Attorney, seeking feedback from commercial property managers and commercial owners on what they are looking for when they retain an attorney to handle commercial evictions.  Please go to the above link to give me your feedback.