Bos. LLC v. Juarez

• Decision Date: 25 February 2016
• Docket Number: B267267
• Citation: 245 Cal.App.4th 75,199 Cal.Rptr.3d 452
• Court: California Court of Appeals Court of Appeals
• Parties: BOSTON LLC, Plaintiff and Respondent, v. Juan JUAREZ, Defendant and Appellant.

245 Cal.App.4th 75

199 Cal.Rptr.3d 452

BOSTON LLC, Plaintiff and Respondent,

v.Juan JUAREZ, Defendant and Appellant.

B267267

Court of Appeal, Second District, Division 1, California.

Filed February 25, 2016

Public Counsel, Lisa R. Jaskol and Robert J. Reed for Defendant and Appellant.

Neighborhood Legal Services of Los Angeles County, Los Angeles, Alexander Prieto, Eliza Schafler, Lena Silver; Western Center on Law and Poverty, Los Angeles, and Maria Palomares as Amici Curiae on behalf of Defendant and Appellant.

Legal Aid Foundation of Los Angeles, Anna Levine–Gronningsater; Inner City Law Center and Lorraine Lopez as Amici Curiae on behalf of Defendant and Appellant.

Allen R. King, Los Angeles, for Plaintiff and Respondent.

LUI, J.

Plaintiff and respondent Boston LLC (Boston) rented defendant and appellant Juan Juarez an apartment under the Los Angeles Rent Stabilization Ordinance (LARSO) (L.A. Mun. Code, § 151.00 et seq.). Their rental agreement contained a forfeiture clause stating that "any failure of compliance or performance by Renter shall allow Owner to forfeit this agreement and terminate Renter's right to possession." (Italics added.) The agreement also contained an insurance clause stating that Juarez "shall obtain and pay for any insurance coverage necessary to protect Renter" "for any personal injury or property damage." (Italics added.) After 15 years of Juarez failing to obtain this insurance, Boston gave Juarez a three-day notice to perform or quit. Juarez obtained insurance shortly after the three-day period expired.

Boston then sued Juarez for unlawful detainer. (Super. Ct. L.A. County, No. 14U02675.) The trial court ruled for Boston. Juarez appealed to the appellate division of the superior court. (Super. Ct. L.A. County, App. Div., No. BV030948.) The appellate division affirmed, holding that because of the forfeiture clause, Juarez was properly precluded at trial from defending himself on a materiality ground or raising certain affirmative defenses. (Boston LLC v. Juarez (2015) 240 Cal.App.4th Supp. 28, 193 Cal.Rptr.3d 521 (Boston I ).)

We asserted jurisdiction over the matter pursuant to California Rules of Court, rule 8.1002,¹ to settle an important question of law: Whether a tenant's breach of an LARSO rental contract, regardless of the breach's materiality or impact on the landlord, justifies the landlord forfeiting the agreement and terminating tenancy. We hold a tenant's breach must be material to justify forfeiture. Here, the tenant's obligation to obtain and pay for insurance protected the tenant's interest, not the landlord's; accordingly, the tenant's failure to obtain a policy could not have harmed the landlord and therefore was not a material breach of the agreement constituting grounds for forfeiture.

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 trial upon the parties stipulating to undisputed facts. The court ruled Juarez had breached the rental agreement by failing to obtain renter's insurance within the three-day notice period and Boston could thereby forfeit the lease. The trial court did not make a determination about the breach's materiality. Juarez appealed to the appellate division, but it affirmed, two to one. We review this matter under rule 8.1002.

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 Code of Civil Procedure section 1161, subdivision 3.³ Section 1161, subdivision 3 establishes that a "tenant of real property ... is guilty of unlawful detainer: [¶] ... [¶] 3. When he or she continues in possession ... after a neglect or failure to perform other conditions or covenants of the lease or agreement under which the property is held ... than the one for the payment of rent, and three days' notice, in writing, requiring the performance of such conditions or covenants, or the possession of the property." On appeal, Boston argues that section 1161, subdivision 3 provides for statutory forfeiture, as opposed to contractual forfeiture, and, therefore, Boston was permitted to forfeit the contract as a matter of law after Juarez failed to obtain insurance within the notice period.

Boston is incorrect. Section 1161, subdivision 3 does not create a substantive forfeiture right. Rather, " ‘[t]he purpose of the unlawful detainer statues is procedural. The statutes implement the landlord's property rights by permitting him to recover possession once the consensual basis for the tenant's occupancy is at an end.’ " (Foster v. Britton (2015) 242 Cal.App.4th 920, 930, 195 Cal.Rptr.3d 800, quoting Birkenfeld v. City of Berkeley (1976) 17 Cal.3d 129, 149, 130 Cal.Rptr. 465, 550 P.2d 1001.) This procedural statue does not speak to what kinds of substantive "neglect or failure to perform [ ] conditions or covenants of the lease" allow the statute to take effect. In the absence of such a statutory directive, we look to case law for the substance of what kinds of breaches allow the procedural statute to take effect.

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 ); id. at pp. 597–598, 42 P. 976.) 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, 42 P. 976.) 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, 108 P.2d 479, 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, 108 P.2d 479.)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 cases, however, demonstrate that despite such a clause, the materiality requirement still applies. (Accord, Medico–Dental etc. Co. v. Horton & Converse (1942) 21 Cal.2d 411, 433, 132 P.2d 457 ["a breach of contractual right in a trivial or inappreciable respect will not justify rescission of the agreement by the party entitled to the benefit in question"].) This is especially so when, as in Randol, Boston had the ability to detect and cure the breach far in advance of bringing suit, but chose to not do so.

3. The substantive law requiring a materiality limitation underlies, and therefore applies to, section 1161, subdivision 3

"Although not expressly set forth in Code of Civil Procedure section 1161,...