Sunday, February 21, 2016

Waiver Defense Becomes Available To Landlords

Interpreting a lease agreement under the latest court decisions will be much different from the rules accepted among practitioners even a year ago. It seems the changes are now coming down almost every week, and the latest one is a rare specimen: Chen v. Kraft (2016) 243 Cal.App.4th Supp. 13. It holds, among other findings, that a landlord may not waive a prohibition against illegal use of the property, even if a landlord were to enter into a written agreement expressly permitting such use.

I haven't seen such an unbiased approach to lease interpretation since Kaufman v. Goldman (2011) 195 Cal.App.4th 734. What would be an obvious outcome in any other contract context, always seems to be a rare surprise, when the court applies the same rules to a lease, as it did in Kaufman back in 2011, and in Chen v. Kraft now.

In Chen v Kraft, a tenant was being evicted for violating local regulations for short-term rentals, subletting the place on Airbnb. Tenant's main defense was that the landlord's predecessor allowed that conduct in a written addendum. The court cited CC § 1598, and based on this statute held that the entire lease is void, because it would otherwise further an illegal purpose, and whatever previous landlord purportedly allowed is not dispositive on the issue. (Chen, Id. at 22.)

What we witness in Chen is a waiver defense (sometimes alternatively presented as a defense of "promissory estoppel"), often used by tenants, yet here allowed to a landlord.

The basic rule of landlord's waiver (waiving tenant's breach of a condition in the lease by accepting rent) is known since times of Sir Edward Coke (mid. 17th century). [Institutes of the Laws of England, Part I, Vol.2, [211.b.] Sect. 341. (L.3, C.5. Sect. 341 [211.b.]]  This is so common a defense that its option is included in the judicial form for answer in unlawful detainer (to allege that the landlord had accepted rent after the notice, see ¶3(h)).

Alternatively, tenants also argue a defense of "equitable estoppel."[Salton Community Services Dist. v. Southard (1967) 256 Cal.App.2d 526.] “The elements of the doctrine of estoppel … are … as follows: "Whenever a party has, by his . . . conduct, intentionally and deliberately led another to believe a particular thing true and to act upon such belief, he is not, in any litigation arising out of such . . . conduct, permitted to contradict it."” Salton Community Srvcs., 256 Cal.App.2d, Id. at 533, citing Cal. Evid. Code § 623.

Those above are instances of when a tenant can argue that a landlord can waive a certain condition or become "estopped" from evicting a tenant for that waived or permitted conduct. On the other hand, there are some no-waiver instances, where the law holds that a tenant can not waive a condition, such as an implied warrant of habitability [Cazares v. Ortiz (1980) 109 Cal.App.3d Supp. 23, 27], or the list of tenant's rights enumerated in CC § 1953.

To be sure, there were previously addressed instances of non-waiver for a landlord as well. One is of affirmative kind--if the lease agreement contains a "no waiver" clause, stating that landlord's omission of enforcing some lease term's violation should not be deemed as a waiver of that term. Karbelnig v. Brothwell (1966) 244 Cal.App.2d 333, 342.  Another one is embedded as a matter of law, but is applicable only within its narrow scope--acceptance of rent is not a waiver of landlord's right to set initial rent or enforce a violation of subletting. CC § 1954.53(d)(4), and S.F. Admin. Code, Sec. 37.3(d)(2)(C).

And now, the court in Chen v Kraft affirms that there is something a landlord also may not waive as a matter of law--the rule, where the lease agreement, of which at least some part has an unlawful object, is void in its entirety. While the facts of the Chen decision were concerned with illegal short-term subletting, I foresee a wider application of this decision, particularly in the context where legality of the lease relationship was tested for decades--the so-called "in pari delicto" situation with in-law apartments.

If you are concerned about your rights and obligations in connection with the lease enforcement or a termination through eviction, make your first step toward taking control over the circumstances, and call my office at (415) 987-7000. I will be glad to assist in guiding you through the jungle. The only thing you can't afford is to stay put and uninformed. My office provides a confidential assessment of your particular scenario, free of charge, and I will share with you the results of the analysis along with my thoughts on available solutions.

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