Judge: Mark H. Epstein, Case: 20SMCV01558, Date: 2023-05-16 Tentative Ruling
Case Number: 20SMCV01558 Hearing Date: May 16, 2023 Dept: R
This demurrer stands or falls on whether this is residential
or commercial. By way of background,
plaintiff owns property that is to be used for residential purposes. That is, people live in those units; they are
not business locations in the sense that the premises are used as office
buildings or stores. Plaintiff entered
into a lease with Affinity House (Affinity) in which Affinity rented four homes
for $34,000/month in total. Defendants
here are Affinity’s principals, who are guarantors of the lease. The lease is drawn on a “Residential” lease
form. The understanding was that
Affinity would allow its members to live in the homes. Presumably there was some form of financial
arrangement whereby Affinity would collect money from the members living in the
units (or other members) and pay the rent to plaintiff. The parties do not dispute that Affinity
itself is a commercial enterprise, although what it does is provide
housing. Plaintiff alleges that the fees
it collects for Affinity cover more than what a normal landlord would
collect. It includes sufficient funds to
provide for hotel-style amenities to those living in the homes, including daily
cleaning service, weekly curated events, and various utilities. The “members” have a month-to-month relationship. However, it is undisputed that plaintiff did
not collect the money directly from the members/residents, but rather from
Affinity.
In April 2020, during COVID, Affinity stopped paying
rent. It self-certified that it did so
due to COVID’s impact on the business.
Plaintiff demanded that the guarantors fulfill their obligations even
so. In the past, demurrers were
sustained in large part because the court was of the view that so long as a
local moratorium was in effect Affinity did not have to pay the rent—the rent
was delayed. Because Affinity had no
obligation to pay the rent, the court concluded that the guarantors were not
obligated to pay the rent (at that time) either. However, at least for commercial properties,
the moratoria have ended and the grace period to pay back rent has ended as
well. As to residential leases, the
moratoria have ended, but the time to pay the rent that accrued during the
moratoria has not yet come (or at least no one is arguing to the
contrary). Accordingly, if this lease is
governed by the rules relating to commercial properties, then the demurrer will
fail. But if the lease is governed by
the rules relating to residential properties, then the demurrer will succeed. While plaintiff alleges that the lease is
commercial, the court need not accept that allegation. The lease is part of the complaint and
interpretation thereof is for the court; it is not an assertion of fact that is
binding at the demurrer stage. (S.
Shore Land Co. v. Petersen (1964) 226 Cal.App.2d 725.) Of course, if the interpretation will depend
on potentially disputed parol evidence, then the court must draw inferences
favorable to plaintiff. But if not, then
the court can interpret the contract, even at this stage.
Before analyzing the issue, the court does note that
comments have been made comments in the past suggesting that the lease is a
residential one. Those comments,
however, are not binding, and the issue was not so precisely joined as it is
now. In fact, it was not joined at
all. Among other things, for judicial
estoppel to apply, Lighthouse would have to show that it made a difference
whether the lease was commercial or residential and that Affinity argued
successfully for the former and, as a result, obtained some favorable judicial
ruling. The court just does not see how
those elements are met. Rather, while it
does appear that the parties, including Affinity, assumed that the lease was a
commercial lease, nothing turned on the point and no order was made that would
not also have been made had Affinity been a residential lease. And for a court’s statement to be binding, it
would need to meet the tests of collateral estoppel or res judicata, and there
has been no such showing here. If the
court is correct, then there is no estoppel and the court must take up the
question de novo.
The County Moratorium generally expired on March 31,
2023. But although the ordinance
generally expired, the “protections relating to nonpayment of rent, as set
forth in section VI.A.1.c., below . . . shall survive the expiration of the
Resolution.” The section referred to
states that “Following expiration of the Resolution, if a Landlord seeks to
evict a Residential Tenant described in subsection VI.A.1.b., above, for rent
incurred from July 1, 2022 through March 31, 2023, [the landlord shall do
certain things]. This protection shall
not be construed as superseding or nullifying, in whole or in part, the
Residential Tenant’s twelve (12) month repayment period, described in section
VI.C.1., below . . . . This protection
shall survive the expiration of the Resolution.” And section VI.C.1 provides that the rent
abated during the protection period shall be repaid in the following way: “A
Residential Tenant who was unable to repay unpaid rent incurred during the
Transition Protection Period shall repay such rental debt pursuant to AB 3088
as amended. [¶] A Residential Tenant whose household income
is at 80 percent Area Median Income and was unable to pay rent incurred from
July 1, 2022, through March 31, 2023, shall have up to twelve (12) months
thereafter to repay such rental debt.”
Sadly, the definition of a “Residential Tenant” is “a residential tenant
or a mobilehome space renter.” That is a
particularly unhelpful definition.
Affinity argues that the Los Angeles City Ordinance states
that rent on residential property is not due until August 1, 2023 or February
1, 2024 (depending on when it accrued).
The court is not clear whether or not the Los Angeles City ordinance
remains good law. There is some question
whether the City has essentially conceded that its ordinance is now preempted
by state law (because the Governor’s Executive Order suspending state
preemption has expired). The court has
looked at this before and was of the view that the City ordinance was no longer
in effect, but the court will hear argument and perhaps allow further briefing
on the subject if necessary.
Affinity argues that whether or not the City Ordinance is in
effect, the County Ordinance protects it.
Affinity argues that the County ordinance (it is actually a resolution,
but it has the force of law, so the court refers to it as an ordinance) gives
residential tenants until March 31, 2024 to repay the rental debt. The court is not aware of any reason why the
County’s ordinance would not be effective, at least to the extent that it has
not expired by its terms. Frankly, the
court is not really as sure as Affinity seems to be that even were the lease a
residential one that at least some of the rent would be due. But the matter was not briefed or even
raised, so the court will not go where counsel fears to tread (to butcher an
old adage). No one, including plaintiff,
has argued that even under the County Ordinance and even if the lease is residential,
the rent is nonetheless due.
With that, then, the question is whether Affinity is a
“Residential Tenant” as that term is unhelpfully defined by the County
ordinance. While the definition of
“Residential Tenant” is completely circular, some light is shed by the
definition of “Tenant.” Again, in some
ways that definition is unhelpful. A
“Tenant” is essentially defined as an entity that is a tenant of
something. A “Tenant” can be a tenant of
“residential real property” pursuant to section IV.P.1, or of “commercial
property, as defined in subdivision (c) of Section 1162 of the Civil Code”
pursuant to IV.P.3. “Residential real
property” is not defined. But
“commercial property” is defined, although in error. The correct reference is not to the Civil
Code, which contains no section 1162, but rather to the Code of Civil
Procedure. That statute states that a
“commercial tenant” means a person or entity “that hires any real property in
this state that is not a dwelling unit.”
And that answers the question.
The court interprets the County’s intent in defining a
“Tenant” as attempting to be inclusive, meaning that the goal, the court
believes, was to have the term apply to the universe of those renting real
property from a landlord. It would be
oddly anomalous for the County to have intended to exclude a wide swath of
people or entities renting real property from the ordinance entirely. If the court is correct that far, then the
puzzle is solved. A tenant of commercial
property is one who hires real property that is not a dwelling unit. That’s a lot of stuff, but it is not the
property in question. The property in
question consists entirely of dwelling units.
That means that Affinity is not a tenant of commercial property, but
must be instead a tenant of residential real property. (There is also a category of tenants who
“rent space or a lot in a mobilehome park” but no one contends that Affinity
falls into that category.)
What this means is that the character of the tenancy is
defined not by the character of the entity/lessee, but rather by the character
of the property being leased. If that is
the case, then Affinity is indeed a “Residential Tenant” for purposes of the
County ordinance.
And that makes sense.
It would be difficult and odd to find that unless the tenant actually
lived in the unit, it is commercial.
What that would mean is that if an individual rents an apartment and
sublets it, the lease would be deemed commercial, at least if the original
tenant is making a profit, but perhaps not if the tenant were merely breaking even. On the other hand, if the same person rents
an apartment and sublets one of the bedrooms, the lease would be deemed
residential no matter what. That seems
strange.
But more to the point, the engine driving the County’s
ordinance (and all of the COVID-19 related eviction protections) was an effort
to keep people in their homes both to stop COVID’s spread (by not making people
homeless) and also as a humanitarian effort to provide a safety net to tenants
who became unable to pay their rent due to the financial impact of COVID. To be sure, that was a policy
balance—landlords bore at least some of the brunt of the rent abatement. But that policy balance was properly for the
legislative bodies to make, and they did.
If the legislative goal was to keep people in their homes, then
Affinity’s position has merit. After
all, if the master tenant is evicted because of nonpayment of rent (which is
likely if the master tenant is receiving no rent from the subtenants), then the
subtenant is evicted as well. True, this
case is not about an eviction. But the
various definitions apply both to evictions and repayment schedules. Accordingly, the interpretation of one is the
interpretation of the other.
The court has considered plaintiff’s other arguments—that
the guarantors have to pay even if Affinity does not and the like—and disagrees
with them for the reasons discussed previously and in the moving papers.
There is a question whether leave to amend ought to be
granted. The court’s view is that leave
to amend ought to be denied, but the dismissal is without prejudice to a new
cause of action when the ordinance expires as to residential tenants (assuming,
of course, that the rent is not paid in a timely manner). The court notes that Affinity resumed paying
rent when the moratorium expired, so plaintiff is currently collecting
rent. So the only benefit of allowing
leave to amend at this point would be to stay the action until the time to pay
the rent comes due (which is the better part of a year). The dismissal would also be without prejudice
to a new complaint that alleges non-payment of any portion of the rent to which
the repayment protection period has expired.
Therefore, the demurrer is SUSTAINED WITHOUT LEAVE TO
AMEND. To be clear, the resulting order
of dismissal will not bar a new action if defendant fails to honor the
guarantee when the rent does become due.
In light of today’s ruling, the upcoming petition for a writ of
attachment is MOOT and will be taken OFF CALENDAR.