tenant_rightsBoston LLC v. Juarez 245 Cal. App. 4th 75 (Cal. App. 2d Dist. 2016)

NIVO 1 LLC v. Antunez 217 Cal. App. 4th Supp. 1 (Cal. Super. Ct. 2013)

What is material, and the purpose behind the lease term is important when a forfeiture is being sought.  For example, renter’s insurance, and other lease terms that “benefit the tenant, not landlord” cannot be the basis for a material breach to support an eviction.

Several years ago,  a well known Los Angeles UD Mill marketed that he had a “secret way to evict a rent control tenant”.  The “secret” was to serve a notice to unilaterally change the terms of tenancy to remove something supposedly “not material” but could later be used to evict a tenant or upset the tenant to leave.  Landlords then tried removing various items they argued were “not a reduction in rental services” to upset rent control, but something that was material enough to support an eviction.  These two cases are the result of this “secret” along with a change to the Los Angeles Rent Stabilization Ordinance.  See L.A. Mun. Code, § 151.09.A.2(c).  It is ironic that in the NIVO case, the landlord served a notice of change of terms of tenancy “to render all breaches material”.  The Notice stated: “3. Renter agrees that Renter’s performance of and compliance with each of the terms of the rental agreement constitute a condition on Renter’s right to occupy the premises. Any failure of compliance or performance by Renter shall allow Owner to declare a forfeiture of this agreement and terminate Renter’s right to possession. Any breach of the contract is a material breach.” (Italics added.)”  Both Courts did an excellent analysis of the material vs. non material breach. 

The Court in NIVO 1 LLC v Antunez held that a landlord may not evict a tenant for the tenant’s failure to maintain renter’s insurance. In that case, the landlord attempted to modify the lease unilaterally by inserting a forfeiture clause making any violation of the lease grounds for eviction. The court found the modification invalid under the Los Angeles Rent Stabilization Ordinance and then went on to hold that renter’s insurance is for the tenant’s benefit only and thus failure to obtain such insurance is not a material breach of the lease which justifies forfeiture. In October 2015, a different panel of the Appellate Division for the Superior Court of Los Angeles County held in a 2-1 decision in the case of Boston LLC v Juarez that where a forfeiture provision is part of the lease agreement signed by a tenant that by contract breach of any term is material and failure of a tenant to obtain renter’s insurance justifies termination of the lease by the landlord following a 3-day notice to cure. (A potentially interesting and probably not coincidental fact is that the attorney who represented the landlord in the NIVO 1 case also represented the landlord in the Boston case.) The 2nd Appellate District, Division One, took jurisdiction of the Boston case and rendered a published decision on February 25, 2016.

The issue considered by the 2nd Appellate District was whether a landlord can evict a tenant, following a 3-day notice, for the tenant’s failure to obtain renter’s insurance. The Appellate Court concluded that since renter’s insurance is for the tenant’s benefit and not the landlord’s it is not a material breach of the lease if the tenant does not obtain such insurance and therefore a landlord may not evict a tenant for failure have renter’s insurance.

Facts: Juarez rented an apartment from Boston LLC that was subject to the Los Angeles Rent Stabilization Ordinance (LARSO). The lease contained two clauses relevant here. A forfeiture clause gave the landlord the right to terminate the tenancy for any failure of compliance or performance by the tenant. Another clause required the tenant to obtain and pay for insurance to protect the tenant for any personal injury or property damage. After Juarez had resided in the property for 15 years, Boston, on the Friday before a 3-day holiday, gave Juarez a 3-day notice to obtain renter’s insurance or quit. Juarez did not obtain the insurance within the 3-day period but did so shortly thereafter. Boston sued Juarez in unlawful detainer.

The trial court found in favor of the landlord, holding that the forfeiture clause made all breaches material as a matter of contract. Juarez appealed to the Appellate Division of the Superior Court, which, in a 2-1 decision, affirmed the trial court’s decision. The Second Appellate District asserted its own jurisdiction to resolve an important issue of law.

The Decision: The Court of Appeal reversed the decision of the Appellate Division of the Superior Court, holding that a tenant’s breach must be material to justify forfeiture. The Appellate Court found that prior case law, in the context of a commercial lease, held that materiality was a requirement to terminate a lease regardless of a forfeiture clause and that the principal announced in those cases should apply equally, if not more so, in the context of a residential lease where the tenant typically does not have equal bargaining power with a landlord. The Appellate Court noted that secondary authority and out-of-state authority also supported the proposition that leases can only be terminated for a material breach. The Appellate Court also found that public policy supports its decision because the purpose of the LARSO would be undermined if landlords could use “pretext” evictions for minor or trivial violations based on unilateral forfeiture clauses in residential leases. Another ground for the decision was that forfeiture clauses should be strictly construed against the party seeking enforcement. Since the renter’s insurance clause contained language absolving Boston for any liability, regardless of fault, it was overreaching. Lastly, the Court of Appeal held that Juarez’s slight delay in obtaining insurance after the 3-day notice expired did not harm Boston given the 15 years that Boston let the situation go unnoticed and in light of Boston’s “gamesmanship” in delivering the notice immediately before a 3-day holiday, and therefore the delay was immaterial and did not justify forfeiture.

The Implication: Forcing tenants to purchase renter’s insurance pursuant to a lease term cannot be used by a landlord to justify termination of the lease for the tenant’s failure to obtain such insurance. Certainly that is the case in rent control jurisdictions and likely elsewhere as well. (The author notes that landlords who use the C.A.R. Residential Lease would not likely attempt eviction for failure of the tenant to obtain renter’s insurance because the tenant is not obligated to obtain such insurance but rather just advised to do so.)

The Court of Appeal explicitly noted that its decision will prevent the use of court resources for frivolous, pretext filings by landlords seeking to evict tenants. The flip side of the coin is that tenants will certainly argue materiality as a defense to any performance based eviction proceeding. What other lease terms will be considered immaterial by courts and thus giving tenants a valid defense to a 3-day notice to perform or quit? That will have to be determined in the future. Another unanswered question raised by the Appellate decision is whether in other instances failure to comply with a performance requirement within the statutory 3-day notice provision will be considered immaterial. It is one thing to say the term required by the lease is immaterial and quite another to say that failure to comply with the statutory time to comply with a term following proper notice is immaterial. Is this language by the court mere dicta or does it expose landlords to risk if the landlord immediately files an unlawful detainer after the 3-day notice but the tenant complies with a notice to perform 4 days, 5 days or a week or more after the statutory 3 days to satisfy the lease term?