Tufeld Corp. v. Beverly Hills Gateway, L.P.

• Decision Date: 07 December 2022
• Docket Number: B314862
• Parties: TUFELD CORPORATION, Plaintiff, Cross-defendant and Appellant, v. BEVERLY HILLS GATEWAY, L.P., Defendant, Cross-complainant and Appellant.
• Court: California Court of Appeals Court of Appeals

86 Cal.App.5th 12

302 Cal.Rptr.3d 203

TUFELD CORPORATION, Plaintiff, Cross-defendant and Appellant,

v.BEVERLY HILLS GATEWAY, L.P., Defendant, Cross-complainant and Appellant.

B314862

Court of Appeal, Second District, Division 5, California.

Filed December 7, 2022

Loeb & Loeb, Daniel G. Murphy and Daniel J. Friedman, Los Angeles; Shoreline, and Andrew S. Pauly, Santa Monica; Greines, Martin, Stein & Richland, Robin Meadow, David E. Hackett and Stefan Caris Love, Los Angeles, for Defendant, Cross-complainant and Appellant.

Miller Barondess, James Goldman and Mara Hashmall; Law Office of Bruce Adelstein and Bruce Adelstein, Encino, for Plaintiff, Cross-defendant and Appellant.

TAMZARIAN, J.^*

This is a commercial landlord-tenant dispute. Plaintiff, cross-defendant, and appellant Tufeld Corporation (Tufeld) is the landlord. Defendant, cross-complainant, and cross-appellant Beverly Hills Gateway L.P. (BHG) is the tenant.

The subject lease, as amended, has a term greater than 99 years. This contravenes Civil Code section 718,¹ which provides in relevant part: "No lease or grant of any town or city lot, which reserves any rent or service of any kind, and which provides for a leasing or granting period in excess of 99 years, shall be valid."

The main issue on appeal is whether a lease that violates section 718 is void or voidable. No published case has directly answered this question. It makes a difference here because if the lease is voidable, BHG can assert equitable defenses against Tufeld's claims for declaratory relief. We hold the part of the lease exceeding 99 years is void.

BACKGROUND

Tufeld is a family-owned company founded in 1945. It owns prime commercial real property in Beverly Hills (the property). In 1960, pursuant to a ground lease, Tufeld rented the property to two original tenants. The annual rent was 6 percent of the appraised value of the property subject to periodic reappraisals. The lease term was for 98 years ending in 2058.

In 1964, the original tenants constructed an office building on the property. By 2003, Douglas Emmett Realty Fund 1997 (Douglas Emmett) had become the tenant.

On October 28, 2003, via two virtually simultaneous transactions, BHG purchased Douglas Emmett's interest in the ground lease. Douglas Emmett granted and assigned its interest to BHG and two other companies, and then those two companies immediately granted and assigned their interests to BHG. BHG borrowed money from a lender to finance these transactions.

In 2007, BHG wished to renovate the building on the property. To make its investment more attractive, BHG sought to extend the term of its tenancy.

On May 24, 2007, BHG and Tufeld executed an amendment to lease. Under this amendment, the lease term was extended to December 31, 2123, and future rent was increased to 6.5 percent of the appraised value of the property. BHG also agreed to pay Tufeld $1.5 million. Additionally, pursuant to a memorandum of agreement, Tufeld granted BHG a right of first refusal to match any bona fide written offer to buy any interest in the property.

In October 2007, BHG refinanced its loan, borrowing $47 million from a new lender. As part of that transaction, Tufeld signed an estoppel certificate confirming, among other things, that the lease "terminates on December 31, 2123." BHG subsequently invested about $8.8 million in renovations to the building on the property over several years.

In late 2016 or early 2017, Tufeld increased the monthly rent from $30,500 to $200,000 based on a scheduled reappraisal of the property's value. The parties litigated the reappraisal and rent increase in arbitration and court but settled the matter before a judgment was rendered.

In September 2017, BHG again refinanced its secured loan, this time borrowing $49 million. Tufeld signed a second estoppel certificate, confirming that BHG's lease "terminates on December 31, 2123." BHG used some of the loan proceeds to make improvements to the building on the property.

In about December 2017 or January 2018, Tufeld's president Howard Tufeld learned that leases longer than 99 years are invalid under section 718. Mr. Tufeld had not consulted with a lawyer when he signed the documents for the 2007 lease amendment.

In January 2018, Tufeld commenced this action by filing a complaint for declaratory relief and quiet title against BHG in superior court. Tufeld sought an order cancelling the ground lease or, alternatively, an order cancelling the 2007 lease amendment on the ground the lease term exceeds 99 years.

BHG filed a cross-complaint for declaratory relief, unjust enrichment, and reformation. It sought a declaration that section 718 does not affect the ground lease. Alternatively, BHG prayed for a declaration that the ground lease is valid for a period of 99 years commencing in 2003 (or other proposed dates) and for restitution of sums by which Tufeld was unjustly enriched.

After a bench trial, the trial court issued a statement of decision and judgment, both of which were amended. The court concluded that BHG's acquisition of the lease in 2003 constituted a novation and that the lease term ended in 2102. The court further found the lease is void under section 718 to the extent its term exceeds 99 years. In light of this determination, the court concluded that BHG could not maintain its estoppel, laches, and waiver defenses.

Nonetheless, "to avoid an unnecessary retrial in the event of an appellate reversal," the trial court addressed the merits of BHG's equitable defenses. The court found that if estoppel, laches, and waiver are available, then the facts of this case compel their application, requiring full enforcement of the ground lease term through 2123.

Both parties timely appealed.

DISCUSSION

I. The Part of the Lease Exceeding 99 Years is Void

We interpret statutes de novo. ( Burden v. Snowden (1992) 2 Cal.4th 556, 562, 7 Cal.Rptr.2d 531, 828 P.2d 672.) " ‘As in any case involving statutory interpretation, our fundamental task here is to determine the Legislature's intent so as to effectuate the law's purpose.’ " ( In re C.H. (2011) 53 Cal.4th 94, 100, 133 Cal.Rptr.3d 573, 264 P.3d 357.)

We start with the language of the statute. "If the statute's text evinces an unmistakable plain meaning, we need go no further. [Citation.] If it is ambiguous, we may consider a variety of extrinsic sources in order to identify the interpretation that best effectuates the legislative intent." ( Beal Bank, SSB v. Arter & Hadden, LLP (2007) 42 Cal.4th 503, 508, 66 Cal.Rptr.3d 52, 167 P.3d 666.)

These extrinsic sources include the legislative history, the public policy underlying the statute, and the relevant statutory framework as a whole. ( S.B. Beach Properties v. Berti (2006) 39 Cal.4th 374, 379, 46 Cal.Rptr.3d 380, 138 P.3d 713 ; People v. Cole (2006) 38 Cal.4th 964, 974, 44 Cal.Rptr.3d 261, 135 P.3d 669.) "When examining a statute's legislative history, it is appropriate for courts to consider the timing and historical context of the Legislature's actions." ( MCI Communications Services, Inc. v. California Dept. of Tax & Fee Administration (2018) 28 Cal.App.5th 635, 652, 239 Cal.Rptr.3d 241.)

A. The text of the statute

The text of section 718 does not answer the question of whether a lease term that violates the statute is void or voidable. Section 718 does not use either term. Rather, it provides that no lease with a term in excess of 99 years "shall be valid." " ‘Not valid’ does not necessarily mean ‘void.’ "

( Safarian v. Govgassian (2020) 47 Cal.App.5th 1053, 1067, 261 Cal.Rptr.3d 473 ( Safarian ); accord Knapp v. Ginsberg (2021) 67 Cal.App.5th 504, 532, 282 Cal.Rptr.3d 403.)

B. Historical context, legislative history, and public policy underlying the statute

When California became part of the United States in 1848 and a state in 1850, it was not the global economic and cultural hub that it is today. It was a remote region, far from the centers of political power and commerce, with a population of less than 100,000. (U.S. Census Office, Ninth Census (1872) vol. I, table II, p. 14.)²

The California Legislature and courts immediately faced a chaotic state of the law. (See Kleps, The Revision and Codification of California Statutes 1849–1953 (1954) 42 Cal. L.Rev. 766 (Kleps); Parma, The History of the Adoption of the Codes of California (1929) 22 Law Libr. J. 8, 9.) With a skeletal political and judicial infrastructure, "[t]he state's political authorities, such as they were, struggled to provide a legal order for a small and transitory population." (Griffin, California Constitutionalism: Trust in Government and Direct Democracy (2009) 11 U. Pa. J. Const. L. 551, 558.)

The Legislature considered whether to adopt an English common law system or a codified form of civil law. (See Kleps, supra , 42 Cal. L.Rev. at p. 766.) It chose the former. (Ibid. ) Since the beginning of California's statehood, the common law of England has been the law of the state except where it conflicts with the United States Constitution or other California law. (Stats. 1850, ch. 95, now § 22.2.)

In the first two decades of statehood, California's law remained relatively undeveloped compared to the law of the far older and more populous states on the East Coast. Between 1850 and 1870, the Legislature made several unsuccessful attempts to enact more comprehensive statutes. (Kleps, supra , 42 Cal. L.Rev. at pp. 767–772.) The need to complete this task grew more urgent as the state rapidly developed. By 1870, the state's population had more than quintupled to over 560,000. (U.S. Census Office, Ninth Census, supra , vol. I, table II, p. 14.)

In 1872, the Legislature took a major step toward filling the gaps in California law by enacting four codes, including the Civil Code, which was primarily adopted from the Civil Code of the State of New York (1865) (Field Code). ( Fluor Corp. v. Superior Court (2015) 61 Cal.4th 1175, 1200, 191 Cal.Rptr.3d 498, 354 P.3d 302 ( Fluor ); Estate of Duke (2015) 61 Cal.4th 871, 880, 190...