Civil Code 1009 and Preventing Public Rights to Use Private Land for recreation - Whose Land is Protected



California landowners need to be concerned about public use of their property. A high level of public use may imply an offer of dedication for public use. Unlike a prescriptive easement, public recreational use rights may be created without regard to how much any one individual uses the property, but rather by the extent of use by the more general 'public.' However, since 1972, Civil Code section 1009 established that No recreational public use, after March 4, 1972, can establish a permanent public right of use of property by prescription or implied dedication unless the owner makes a specific written, irrevocable offer of dedication, or unless a governmental entity has made visible improvements on the land, or has cleaned and maintained it in such a manner that the owner should know of the public use. California real estate attorneys advise their clients as to how they can prevent rights from being establish by posting the property, resulting in a permissive use. In a recent case a landowner tried to invoke section 1009 to prevent rights being established to cross his property to use other property for recreation. He was disappointed when the court said no, the recreation has to be on your property for the statute to apply.

sacramento public recreation easement attorney.jpgIn Antonio Pulido et al., v. Alfred Robert Pereira, Jr., the Pulidos owned some bare land in Calaveras County. To reach it they took Hogan Dam Road and turned off onto Quartz Hill Drive to access their property. They intended to build a house on their property, but in the meantime were using the property to shoot at targets. In 2007 Pereira put a lock on the gate at the turn off to Quartz Hill Drive. The Pulidos claimed that they had established a prescriptive easement. The court first noted the requirements for a prescriptive easement:
"The party claiming such an easement must show use of the property which has been open, notorious, continuous and adverse for an uninterrupted period of five years."

Pereira argued that, under Civil Code section 1009, the public's use of another's property for "recreation purposes" can never result into a right to use that property prohibited the establishment of a prescriptive easement.

sacramento easement public recreation attorney.jpgThe court found that it was a matter of statutory interpretation, and determining the intent of the legislature. That intent was expressed in the introduction to the code section (set out below), which was to encourage landowners to allow recreational use of THEIR property without the threat of just such an easement being established. Here, there was no public use, This was a matter of an easement between adjoining landowners. The recreation taking place was not on Pereira's property, nor was "the public" using Quartz Hill Drive to reach a public recreation area.

1009. (a) The Legislature finds that:
(1) It is in the best interests of the state to encourage owners
of private real property to continue to make their lands available
for public recreational use to supplement opportunities available on
tax-supported publicly owned facilities.
(2) Owners of private real property are confronted with the threat
of loss of rights in their property if they allow or continue to
allow members of the public to use, enjoy or pass over their property
for recreational purposes.
(3) The stability and marketability of record titles is clouded by
such public use, thereby compelling the owner to exclude the public
from his property.


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The Security First Rule - The Steps to Obtaining a Deficiency Judgment


There are numerous anti-deficiency laws concerning California real estate. An Important one, especially with commercial real estate, is CCP section 726(a). It is broadly described as the "one form of action" rule. This broad rule has two components - a) the "one action rule", a prohibition of multiple lawsuits to collect a debt secured by real estate; and b) the "security first rule," which requires the creditor to proceed first against all the real property security (exhausting the security) first through judicial foreclosure before enforcing the underlying debt. 726 provides for a lender to file a judicial foreclosure lawsuit which will allow them to recover a deficiency judgment against the borrower. This statute is subject to many Judge-made requirements and sub-rules, and a careful lender or borrower will want to consult a Sacramento real estate attorney. In a decision from Southern California, the lender got a big surprise when they discovered that because of its mistake, it could not obtain a deficiency judgment.

NOTE: A petition for review was granted by the Supreme Court; this case may not be cited.

Sacramento security first attorney.jpgIn First California Bank v. McDonald, the bank made a $1.5 million dollar loan to a husband and wife. The loan was secured by a deed of trust on property in Wasco. As additional security, the wife signed a deed of trust on her separate property located in Shafter. Eventually, Sally wanted to sell the Shafter property. The Bank agreed to the sale with the understanding that the bank would get the proceeds, and the couple would not be released of liability. The husband did not sign the release agreement.

The husband died in September 2009, a probate followed, and the husband's children were appointed personal representatives. The Note went into default, and the Bank filed a complaint for judicial foreclosure. If sale of the Wasco property did not raise enough money to pay off the over one million dollars still owing, the judicial foreclosure would allow the Bank to collect the balance from the wife and the husband's estate. The husband's children argued that, because the Bank had released the Shafter property without their father's consent, the Bank violated the security first rule of Code of Civil Procedure section 726(a), and thus the Husband's estate was released from personal liability. A creditor may waive that right by not following the requirements of section 726, and not obtaining the consent of the debtor to do so.


The court focused on Section 726(a) of the Code. It provides for judicial foreclosure, which allows for personal liability unless "judgment for any deficiency...is waived by the judgment creditor..."

Here, the Husband's children's' argument was based on the "security first" rule. Where the debt is secured by multiple properties, the rule requires that all property securing the debt is included in a single judicial foreclosure before seeking a personal judgment on the debt. Failure to do so gives the debtor an affirmative defense in the foreclosure action. When the debtor signs a note secured by a deed of trust on real property, they do not make an absolute promise to pay the debt, but rather makes a conditional promise to pay any deficiency any deficiency that remains after a judicial sale of the property does not satisfy the debt.

Sacramento One form of action attorney.jpgThe courts have found that the purpose of the security first rule is to-
(1) prevent a multiplicity of actions, (2) compel creditors to exhaust all of the security before any entry of a deficiency judgment, (3) require the debtor be credited with the fair market value of the secured property before being subjected to personal liability, and (4) to encourage responsible lending practices that do not overvalue the collateral.

Based on the security first rule, the court concluded that the Bank was required to include both the Wasco and Shafter properties in its judicial foreclosure lawsuit, unless it can prove that all the debtors (meaning the Husband) consented to the release of the Shafter property as security for the loan.

One of the Justices wrote a concurring opinion which seems to disagree with the majority. It cites the Hibernia rule - when the debtor's title to the property has been extinguished after granting the deed of trust, the lender does not need to include that property in the judicial foreclosure, unless that lender is responsible for the extinguishing the security. Here, the court found that the Bank was responsible in that extinguishment because it released the Shafter property. The concurring justice found the remedy too harsh. Especially where, as happened here, the proceeds from the Shafter sale were applied to the debt and reduced the total amount owed. Thus, there was no prejudice to the debtors.


Photos:
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Equitable Easements - When the Trespasser's Burden Is Not So Bad to Warrant an Easement


An equitable easement is judged-created on equitable grounds even though the user is not entitled to an easement on one of the more traditional grounds. The judge balances the rights of the various parties and decides whether there should be an injunction to prohibit the trespass, or alternatively to convert the trespass into a right, and order compensation for the victim. They were first developed to prevent a property owner inconvenienced to a "minor degree" by a trespass from nevertheless engaging in "legal extortion" against an innocent trespasser by demanding an exorbitant sum in exchange for not filing suit to enjoin the trespass. When wondering whether they have such an easement, a property should consult with the Sacramento real estate attorney, as there are usually several other grounds in play, such as a prescriptive easement, or easement by necessity. In a recent decision, the court of appeals found that the burden of removing some patio furniture was not sufficient to establish an equitable easement.


Sacramento equitable easement attorney.jpgIn Lilli SHOEN, v. Juliet ZACARIAS the parties were two neighbors who lived on the side of a hill. Between their adjacent lots there was a small patch of flat land, about 500 square feet that was mostly on Shoen's lot. However, due to steepness, it was difficult to access and use from Schoen's parcel. However, it was accessible from Zacarias's lot by way of a staircase. Zacarias had placed patio furniture on the flat patch, and used it. An owner prior to Shoen had given Zacarias permission to use the flat patch as long as that owner continued in possession. The property was eventually sold, and Shoen took possession in 2012. Shoen demanded that they remove the furniture, to no avail. Shoen sued for injunctive relief and damages; Zacarias countered with easement claims.

The trial court found that Zacarias was entitled to an equitable 15 year easement, on payment to Schoen of $15,000. The court found that for Schoen to build a staircase would cost $100,000. It cost Zacarias $275 to have the patio furniture removed. The appellate court overturned the decision, because it was ridiculous.

The court of appeal first looked at origins of the equitable easement remedy; first, the 'legal extortion' angle, and then, how equitable easements give the trespasser "what is, in effect, the right of eminent domain by permitting him to occupy property owned by another. This right is in tension with the Constitutional prescription against the taking of land. As a result, courts use an "abundance of caution,", and require showing that the hardship on the trespasser be greatly disproportionate to the hardship on the owner. "To allow a court to reassign property rights on a lesser showing is to dilute the sanctity of property rights enshrined in our Constitutions."

Sacramento equitable easement lawyer.jpgIt found that the court must focus on whether the burden on the trespasser in ceasing the trespass is so greatly disproportionate to the burden on the property owner from the loss of use of the trespassed-upon property that the courts should make an exception to the general rules of property ownership and require the owner to accept damages instead of reclamation of her own land.

In this case, removing the patio furniture was not such a great burden after all. Interestingly, the trial court did not address the prescriptive easement claim. The initial permission to use the property would not allow prescriptive rights, but once the property was sold, the five-year clock to create a prescriptive right would have started.


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The Irrevocable License to Use Another's Land - The Two Steps Required

A license gives authority to a licensee to perform an act or acts on the property of another pursuant to the express or implied permission of the owner. The licensor generally can revoke a license at any time without excuse or without consideration to the licensee. Also, the license is lost if the licensee conveys their property - the license is personal to the individual and does not attach to the land. However, the license can become irrevocable when a landowner knowingly permits another to repeatedly perform acts on his or her land, and the licensee, in reasonable reliance on the continuation of the license, has expended time and a substantial amount of money on improvements with the licensor's knowledge. Under such circumstances, it would be inequitable to terminate the license. (Miller & Starr, as cited by Richardson v. Franc) Often in these cases, Sacramento real estate attorneys focus on whether the owner granted permission or the activity was obvious so that the owner was aware, and whether or not the actual expenditures were substantial. In a recent Northern California decision, none of these factors were even close, and an irrevocable license was found.


Sacramento irrevocable license lawyer.jpg In James Scott Richardson v. Greg Franc, the Richardsons had a deeded easement across the defendants' property in Novato for "access and public utility purposes." For twenty years, the Richardsons (and the prior owners) maintained landscaping, irrigation, and lighting on both sides of the road within the easement area. They had installed drip irrigation with pumps and separate drip lines for the individual trees and plants. They installed water fixtures for fire control. And they installed electric lights. They regularly maintained the landscaped area, trimming, weeding and replacing plants. They also had a landscaper performing these functions. They and their predecessors had never asked for permission, nor did the owners of the land which the easement crossed (the servient property) expressly grant permission. Six silent years after the defendants bought the servient property, they suddenly demanded that the plaintiffs remove the landscaping and improvements within the easement. They cut the irrigation and electrical lines. Plaintiffs filed this lawsuit, alleging equitable easement and irrevocable licenses. The trial court found an irrevocable license, and the defendants appealed.

The court first found that there was no equitable easement established. This would have required the plaintiff - easement holder to be without knowledge, or the means of knowledge, of the facts. Here their Grant Deed on its face described the easement for access and public utility purposes. The landscaping and improvements are not required for these purposes. The owner is charged with knowing what their deed says, so they were with knowledge.

Sacramento irrevocable license attorney.jpgOn the other hand, a license is authority to do an act on another's land, with full knowledge of the facts. Thus, the lack of knowledge was not an obstacle. Here, each owner of the servient property allowed, without complaint, the plaintiffs to improve and maintain the easement area, expending substantial amounts for landscaping, maintenance, care, and physical labor. In fact, this occurred over 20 years without objection.

These defendants were way out of line to complain, and cut the irrigation and power lines. Unfortunately for the plaintiffs, success in this lawsuit does not provide for an award of attorney fees.


Photos:
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Property Owners in California Are Now Liable to Recreational Users for The Owners Negligence in the Owners' Activities on Their Property

California real property owners with larger parcels can occasionally have recreational users on the land. Invited or otherwise, hikers, bikers, hunters and fisherman may wander on personally property whether the owner is aware of it or not. Generally, they are not required to keep the property safe nor warn of hazards. If the recreational user is injured, the property owner has some protection from liability. But what if the user is injured by the landowner's activities? A recent California Supreme Court decision has found that the active conduct of the landowner, if conducted negligently, may result in liability to a recreational user who is injured.

Sacramento recreational property liability attorney.jpgIn Klein v. United States, Klein was riding his bicycle on a road in a National Forest. It was a two-lane paved road open to the public. He was hit head-on by a car driven by a U.S Fish and Wildlife volunteer, on his way to watch some birds. Klein was seriously injured, lost the use of his left arm, and was forced to take a medical retirement. His wife also had to take an early retirement to care for him. They sued the United States in Federal Court.

Under the Federal Tort Claims act, the U.S. may be liable when, under state law, an individual would have liability. On appeal, the Ninth Circuit was concerned that there were no California decisions which directly addressed this issue, so they could not determine whether there was liability under state law. The Federal Appellate Court issued an order requesting the California Supreme Court determine how state law would be applied on these facts.

The lower court had initially decided that California Civil Code section 846 immunized the United States, as landowner, from liability for its' employee's negligent driving which occurred in the scope of the employee's employment.

Section 846 provides that:
"An owner of any estate or any other interest in real property, whether possessory or nonpossessory, owes no duty of care to keep the premises safe for entry or use by others for any recreational purpose or to give any warning of hazardous conditions, uses of structures, or activities on those premises to persons entering for a recreational purpose, except as provided in this section."

Actually, in this case it is Government Code section 831.7 that immunizes public entities from liability for injuries occurring during a" hazardous recreational activity." But the Supreme Court had determined that this Government Code section was intended to be identical to Civil 846; so the analysis begins and ends with 846.
Here, the California Court concluded that, yes, a landowner, like a recreational user, owes a duty to exercise due care while performing activities that could result in injuries to others.

Sacramento recreational property risk attorney.jpgThe Supreme Court posed an example showing why this was the correct decision. A landowner and his brother, whom lives in another state, drive to a bar and drink too much. On the way back to the landowner's property, the driver loses control while turning off the highway onto the landowner's property, and runs over a pedestrian. Under the Court's construction, liability does not depend on whether the pedestrian was standing on the public road or the private property, nor whether the landowner or his out-of-state brother was the driver. The driver would risk liability if he was negligent.

The court did not restrict the decision to negligent driving alone, but to all activities. This decision likely will encourage landowners to discourage recreational users from entering the land, post the property to prohibit trespassing, and even fence their property.


Photos:
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When is a Property Owner Liable For Injuries That Happen Off the Property?


All owners of real estate in California risk liability for injuries to others on the premises. The owner has possession (or control) of the property, and if it can be established they had knowledge of a dangerous condition, they are at risk. Real estate attorneys advise their clients that to establish liability the injured party must show that the owner had a duty of care to the injured party, there was a breach of the duty of care that was the proximate cause of the injuries, and the injured party suffered damages. But what about injuries that occur off the property? A landowner in LA County was disappointed to learn that they may have liability for an injury that occurred off the premises, to someone who had not been on the defendant's property.

Sacramento property liability attorney.jpgIn Annocki v. Peterson Enterprises, LLC, a vehicle which exited the defendant's restaurant parking lot collided with and killed a motorcyclist. The biker's parents brought this suit for damages. The restaurant parking lot faced the Pacific Coast Highway, and there was a divided median. The patron left the parking lot and tried to make a left turn into oncoming traffic. The plaintiffs claim that the owner was negligent in that the design of the driveway created a decreased visibility of the adjacent highway. There were no signs indicating 'right-turn only."

The court first reviewed the law on determining whether the owner had a duty to someone off the premises. The California Supreme Court has determined that this requires balancing of a number of considerations; the major ones are

1) the foreseeability of harm to the plaintiff,
2) the degree of certainty that the plaintiff suffered injury,
3) the closeness of the connection between the defendant's conduct and the injury suffered,
4) the moral blame attached to the defendant's conduct,
5) the policy of preventing future harm,
6) the extent of the burden to the defendant and consequences to the community of imposing a duty to exercise care with resulting liability for breach, and
7) the availability, cost, and prevalence of insurance for the risk involved. (Rowland v. Christian)

Sacramento property liability lawyer.jpgWhen the defendant has no control over the property, there is no duty to exercise reasonable care; thus no duty to prevent injury on a neighboring property. However, there are exceptions. If the landowner's property is maintained in a way that exposes persons to an unreasonable risk of injury offsite, they may be liable for injuries.

When this court reviewed the Rowland factors it found that the facts here support finding defendant had a duty to warn patrons of the danger in exiting its parking lot as it was on notice of the dangerous conditions of the highway and the risk it posed to patrons leaving the restaurant as well as the danger to persons traveling the highway from a patron exiting the lot in an unsafe manner.

" First, given the center divider in the roadway, it was foreseeable that patrons exiting at night might not be aware of its presence and make an unsafe turn. At night the dividers in the road would be more difficult to see and patrons leaving the restaurant may have consumed alcohol.
Second, an unsafe turn would likely cause harm either to the patron leaving the parking lot or persons on the roadway.
Third, there is close connection between Geoffrey's failure to warn and the injury plaintiffs' decedent suffered.
The remaining factors are closely connected: there is moral blame that can be attached to defendant's failure to take minimal, inexpensive steps to avert harm to its patrons and persons in the roadway. Prominent reflective signage and driveway paint would have done much to avoid the accident here."

Sacramento real estate liability attorney.jpgThis court allowed the plaintiffs to amend their complaint (to survive a demurrer) and therefore, this is not the end of the case. However, given the court's direction, the restaurateur is exposed to serious damages, and is presumably insured.

Photos:
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California real estate contract covenants can be merged in the Deed - What it takes

April 23, 2015


Real estate contracts contain covenants and warranties that the parties sometimes want to enforce after the sale has been concluded. Whether or not they are still enforceable is determined by whether the covenants were "merged in the deed." The idea is that, once the Seller grants and Buyer accepts the deed, the deed is conclusive and all bets are off. The general rule is that any covenants in a contract between the parties are merged into the deed. If a covenant is not performed, then the rights of the parties depend on the terms of the deed. If the deed does not discuss the covenants, then whether these covenants survive and remain enforceable after closing depends on the intent of the parties. The starting point for figuring out the party's intent is the language of the deed. When a provision in a deed is certain and unambiguous it prevails over an inconsistent provision in a contract of purchase pursuant to which the deed was given. Sacramento real estate attorneys commonly see situations where the intent is clear - the contract states whether the conditions survive, or do not. More troubling is the case where the contract is not so clear.

Sacramento deed attorney.jpg
In Rams Gate Winery, LLC v. Joseph G. Roche
, Rams Gate bought a Sonoma County winery property from Roche. As part of the agreement, the Roches agreed to provide
"[w]ithin ten days of the Effective Date" "written disclosure" of any "information known to Seller" regarding violations of "building, zoning, fire, health, environmental statutes, ordinances or regulations; [and] any known geological hazards; ... soil reports, ... geotechnical reports, ... and all other facts, events, conditions or agreements which have a material effect on the value of the ownership or use of the Property...."
Escrow closed, and eventually the Buyer learned that there was a fault running through the property that limited its development. The Buyer claimed that, prior to entering the agreement, the Sellers had both a site plan and a geological report prepared, which both identified a fault or fault trace on the land, and which required the Sellers to relocate their winery's building pad from its original planned location in order to provide a 50-foot setback. These were not disclosed to the Buyer.


The Buyer sued, and the trial court ruled for the Seller, finding that the disclosure requirement was "merged in the deed" when the parties closed escrow. Buyer appealed. The trial court ruling was on summary judgment, meaning the court said that there was no issue of fact which a judge or jury could go either way.


In this case the deed apparently had the typical language like "For a valuable consideration, receipt of which is hereby acknowledged, Seller Grants to Buyer the following described real property in the County..." The court found it a "rather pedestrian instrument addressing only "the mechanics of transferring title" and containing a legal description of the property conveyed." It concluded that, from the face of the deed itself, it appears that not all of the terms of the contract were "merged" into the deed.

merged in the deed.jpgThe Sellers argued that the sole purpose for the disclosure covenant was to aid the buyer in doing its due diligence investigation to determine whether or not to go through with the deal. Once the buyer decided to close the transaction, it gave up any claim for breach of the disclosure obligation.

But the Buyers countered with a declaration stating that their understanding was that the covenants would survive closing. There was no agreement that the covenants and warranties would merge in the deed and be extinguished at the close of escrow. Rather, it was the buyers' intention that these provisions in the purchase and sale agreement would continue to be enforceable after close of escrow.

The court of appeal agreed with the Buyers. The declaration provided by the Buyers should be considered in figuring out the parties' mutual intent on the survival issues. Thought the purchase and sale agreement had several paragraphs that specifically provided for their own survival after close of escrow that alone does not compel the conclusion that no other provisions could survive without similar language.

I agree that there may be triable issues of fact. The fact that some of the covenants had language stating that they survive closing is a strong argument for the Sellers. But, stepping back and viewing from the distance, it appears that the Seller deliberately withheld these reports from the Buyer. The Seller had to relocate the site it planned to build on. This bad conduct may influence the factfinder enough to overcome the Sellers arguments at trial.


Photos:
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What A Co-Beneficiary of a California Deed of Trust Must Do if they want to foreclose without agreement of other cobeneficiaries.

April 10, 2015

In California, most lenders on real estate take back a deed of trust in which they are named the "beneficiary." If the borrower defaults, the beneficiary may then instruct the trustee to proceed to foreclose. Occasionally there is more than one beneficiary, resulting in multiple cobeneficiaries. They may all have contributed a percentage of the funding, or may have been assigned a fractional interest in the note and deed of trust after-the-fact. If the borrower defaults on their loan, California real estate attorneys will advise their lender clients to instruct the trustee to initiate foreclosure proceedings by execution a declaration of default. But, what happens if the cobeneficiaries do not agree to proceed to foreclose? The law is clear that each cobeneficiary has a right to proceed with the foreclosure; however, trustees are not forced to agree, and are reluctant to do so. Beneficiaries must rely on a statutory agreement ahead of time if they want this protection.

Sacramento cobeneficiary dispute.jpgIn apparently the only California decision to address the issue head on, Perkins v. Chad Development Corp., there were two cobeneficiaries. The borrower had defaulted on loan payments, and had let the property taxes go in to arrears. One cobeneficiary wanted to proceed to a nonjudicial foreclosure, the other did not. The property was foreclosed, and the buyer brought a quiet title action to clear title in his name. A third party intervened, claiming an equitable interest in the property. His argument was that the foreclosure sale was not valid because the Notice of Default and Election to Sell had not been executed by both cobeneficiaries. The court did not agree.

The court first noted that joint beneficiaries have a community of interest in the secured obligation akin to a joint venture or partnership, and any of them should have sufficient agency powers to record the notice of default to protect their mutual interests. As a cobeneficiary, beneficiary Perkins was a tenant in common in the beneficial interest under the note and trust deed. A cotenant has a right to protect the estate from injury or loss without the aid or assistance of other cotenants. As the borrower had defaulted on trust deed and had permitted the taxes to go delinquent, Perkins as a cotenant was entitled to protect the common beneficial interest by foreclosing the security.

Sacramento trustee sale.jpgThis makes legal sense, but as a practical matter, it may be impossible to find a trustee will to accept instructions from one cobeneficiary without participation and agreement of al cobeneficiaries. The only solution that may assure the ability to complete a foreclosure without all the cobeneficiaries' agreement, is that the cobeneficiaries enter a written agreement which provides for such an event. Even better, there is a statutory procedure that provides for recording an agreement to allow foreclosure by cobeneficiaries holding greater than 50% interest. Civil Code section 2141.9 provides that
"All holders of notes secured by the same real property or a series of undivided interests in notes secured by real property equivalent to a series transaction may agree in writing to be governed by the desires of the holders of more than 50 percent of the record beneficial interest of those notes or interests..." "A description of the agreement shall be included in a recorded document such as the deed of trust or the assignment of interests."
It may not be possible to get cobeneficiaries to agree to enter this agreement, but that would be a red flag to future problems



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The Two Steps to Take For An Executed Deed To Be Effective; & What Happens When the Grantee Does Not Yet Exist.

March 27, 2015

In order for a deed to be effective in California, it must be "delivered" and "accepted." These terms do not have their normal meanings in this context. Delivery does not mean the physical act of transmitting the deed to the grantee. Delivery refers to the intention of the grantor that the deed be presently operative, with the grantee immediately becoming the legal owner. Delivery can be inferred if the deed is recorded or is in the grantee's possession. The deed also must be accepted, which again refers to the grantee's intent. The grantee must have the intention to become the legal owner of the property. Usually, these issues do not come up, except in unusual circumstances in which a party to a deed should consult an experienced real estate attorney. Such an unusual case came up when deeds were prepared for a trust that had not been created. After the grantee's death, the grantors' heirs wanted the property back. The grantors' heirs were disappointed to learn that, nonetheless, the deeds had been delivered and accepted, and the property was not theirs.

Sacramento deed delivery attorney.jpgIn Gloria Luna v. Erica Brownell, the dispute arose regarding a house in Monterey Park. An attorney was involved and had the parties sign too many deeds, confusing everything. Al owned the property and wanted to plan for his passing. He signed a deed granting the property to himself, brother, and two sisters as co-owners. Later (here's where the attorney got involved) the two sisters each signed two deeds, one granting their interest back to Al as an individual, the other to Al as trustee of a trust (that had not been created). Several weeks later, Al executed the Declaration of Trust. The sister's deeds to the Trust were recorded, and Al died 11 days later.

The sisters' heirs filed this lawsuit claiming that the deed to the Trust was void because the trust did not exist when the deeds were signed and delivered to the Lawyer. The defendant argued that the sisters, when they signed the deeds, had the intent to return title to Al, either as an individual or as trustee of the trust.

Sacramento deed acceptance attorney.jpgThe court first reviewed the law of deeds and delivery and acceptance, discussed above. The fact that deeds were not recorded immediately is of no consequence to effectively transfer title. This was a case of first impression, meaning nothing identical had been ruled on in California before, so the court had to review decisions from other states. These discussed deeds to corporations that were executed before the corporation was created. They found that the deeds were valid as between the parties, and title passed to the corporation immediately on creation of the corporation. However, it is void when asserted against third parties prior to the incorporation.


The Court concluded that, in California, a deed transferring property to the trustee of a trust is not void as between the grantor and grantee merely because the trust had not been created at the time the deed was executed, if (1) the deed was executed in anticipation of the creation of the trust and (2) the trust is in fact created thereafter. Such a deed is valid between the grantor and grantee on the date the trust was formed.

This is a good result in the face of some greedy heirs. It was apparent that the sisters intended that their brother get his house back, and presumably never felt that they had a share in it while Al was alive.


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Shared Tahoe Vacation Home Gone Bad -When A Right of First Refusal Between Co-Owners Does Not Waive the Right to Partition

March 23, 2015

Co-owners of property often enter agreements that include a right of first refusal. If one of the parties wants to sell their interest, and receives a bona fide offer, they must offer to sell to the co-owner on the same terms. Partition is a legal action which forces the sale of a property when co-owners cannot agree to another way to end the relationship. The right to partition can be waived by contract, either expressly or by implication. Parties entering a co-ownership agreement should consult with a Sacramento real estate attorney in drafting the agreement to ensure it will accomplish their goals, including waiver of the right to partition if that is what they want. In a decision regarding a Lake Tahoe vacation home valued at over $2.8 million, a truculent co-owner tried to argue that the right of first refusal waived the right to partition, but the court said no. If you want to waive all possibility of partition, you should clearly state that in your agreement.

sacramento right of first refusal attorney.jpgIn LEG Investments v. Boxler, the parties were 50% co-owners of a house on the water in Carnelian Bay. LEG was a general partnership, and Eppie Johnson (founder of Eppies restaurants and Eppies Great Race, the world's oldest triathlon) was the general partner. The co-owners had a Tenant-in-Common Agreement, which included a right of first refusal.

The Right of First Refusal Language

"If and when either Owner decides to sell their [i]nterest in the Property and that Owner receives a bona fide offer for its purchase from any other person or entity, the other Owner shall have the first right of refusal to purchase the selling Owner's Interest in the Property for the price and on the terms provided for in such bona fide offer."
If the right was refused, "the selling Owner may enter into an agreement to sell the Interest to the offeror at the price and under terms no less favorable than those set forth in the notice of offer given to the other Owner."

There were disputes between the parties immediately. Johnson complained that the Boxlers failed to clean the property and refused to pay for reasonable and necessary maintenance, landscaping, cleaning, and repairs. LEG offered to sell its interest to the Boxlers, but was declined. In 2005 LEG received an offer from a third party to buy its interest for $1.4 million. LEG, following the terms of the Tenant-in-Common Agreement, offered to sell its interest to Boxler under the same terms. Boxler refused. The sale to the third party did not close, presumably because his investigation of the Boxlers dissuaded him. LEG filed this action for Partition to sell the property, and have the court split the proceeds. Boxlers opposed, claiming the right of first refusal waived the right to partition. The trial judge agreed, but the Court of Appeals overturned the decision.


sacramento partition attorneys.jpgThe court of appeal first reviewed the law in this area. The original purpose of allowing partition was to permit cotenants to avoid the inconvenience and dissension arising from sharing joint possession of land. An additional reason to favor partition is the policy of facilitating transmission of title, thereby avoiding unreasonable restraints on the use and enjoyment of property. A co-owner of property has an absolute right to partition unless barred by a valid waiver. An agreement giving rights of first refusal to the other tenants may imply an agreement not to bring a partition action in lieu of a sale to the cotenants.

The court then noted that prior decisions have found that the right to partition had been modified by a right of first refusal "to the extent that before partition can be had the selling owner must first offer his interest to the co-owner. Upon the non-selling owner's refusal or failure to exercise the right to purchase within a reasonable time, the seller has discharged his obligation to his co-owner and he may proceed with partition..."

The apparent purpose of a similar right of first refusal was "to retain for [the original parties] control of the admission of new co-owners." Here, the Boxlers argued for a second purpose - it gave the non-seller cotenant the right to purchase the selling cotenant's interest at the price of a fractional interest. However, the court found that interpreting this tenant-in-common agreement to allow partition after the non-selling cotenant has declined to exercise the right of first refusal, and the sale falls through, would not be contrary to either of these purposes. Since the third-party offer was for a fractional interest, it would have included a discount. If the no-selling owner declined to buy it at that price, they could not complaint if the frustrated owner brought an action for partition.


Photos:
https://www.flickr.com/photos/robwills/8670715550/sizes/m/
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What California Easement Holders Must Do To Get Notice of Foreclosure of the Property

Under California foreclosure law, a trustee's sale eliminates all interests in the property that are recorded after the deed of trust was recorded. For that reason, holders of interests want to get notice that the property is being foreclosed. Generally, the foreclosing trustee is only required to provide notice of the recording of the notice of default to the parties identified in statutes or specified in the deed of trust. Other persons with lesser interests that are junior to the deed of trust are not automatically entitled to notice. Civil Code section 2924b(a) provides a process for anyone to record a request for notice, which then obligates the trustee to send them a copy of the Notice Of Default. Civil Code 2924b (b), set out in full below, describes who otherwise must be provided notice. The trick is whether you are included in the specified categories. In a recent decision, an easement holder was disappointed to learn that he was not, and the easement was lost. They should have recorded a request for a copy of the notice of default.

Saccramento notice of default attorney.jpgIn George Perez as Trustee v. 222 Sutter St. Partners, there was a foreclosure and the subsequent quiet title action was about whether the foreclosure of 425 Bush Street in San Francisco extinguished easement rights. The easement holder had not received notice from the trustee of the foreclosure.

The easement holders argued that an easement holder is included in section 2924b, subdivision (c)(2)(A), as "[a] successor in interest, as of the recording date of the notice of default, of the estate or interest or any portion thereof of the trustor or mortgagor of the deed of trust or mortgage being foreclosed. It continued that it was a successor to the mortgagor of the deed of trust, who was the owner. But this is impossibility. An easement is an interest, but the mortgagor/owner cannot own an easement across one's own property. Thus, the easement holder cannot be a successor to that interest.

The court delved into the legislative history behind Civil Code section 2924b, and could find no support for noticing an easement holder. It concluded the contrary; that the legislature sought to balance between the obligations of trustees and the holders of interests in real property. What easement holders need to do is record a request for notice of any default of a loan superior to their interest.


Saccramento 2924b attorney.jpgCivil Codes section 2924b:

(2) The persons to whom notice shall be mailed under this subdivision are:
(A) The successor in interest, as of the recording date of the notice of default, of the estate or interest or any portion thereof of the trustor or mortgagor of the deed of trust or mortgage being foreclosed.
(B) The beneficiary or mortgagee of any deed of trust or mortgage recorded subsequent to the deed of trust or mortgage being foreclosed, or recorded prior to or concurrently with the deed of trust or mortgage being foreclosed but subject to a recorded agreement or a recorded statement of subordination to the deed of
trust or mortgage being foreclosed.
(C) The assignee of any interest of the beneficiary or mortgagee described in subparagraph (B), as of the recording date of the notice of default.
(D) The vendee of any contract of sale, or the lessee of any lease, of the estate or interest being foreclosed that is recorded subsequent to the deed of trust or mortgage being foreclosed, or recorded prior to or concurrently with the deed of trust or mortgage being foreclosed but subject to a recorded agreement or statement of subordination to the deed of trust or mortgage being foreclosed.
(E) The successor in interest to the vendee or lessee described in subparagraph (D), as of the recording date of the notice of default.
(F) The office of the Controller, Sacramento, California, where, as of the recording date of the notice of default, a "Notice of Lien for Postponed Property Taxes" has been recorded against the real property to which the notice of default applies.


Photos:
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Partition of land In-Kind (by splitting the property) is Preferred to Sale in California

February 19, 2015

When co-owners of property cannot agree on what to do with it, a solution is a legal action for partition. In a partition the judge will order the property 'partitioned'; that is, either divided in-kind between them or sold and the money divided between the owners. Under California law Partition in-kind is favored "since this does not disturb the existing form of inheritance or compel a person to sell his property against his will. Forced sales are strongly disfavored." However, in modern times, Sacramento real estate attorneys see the bulk of these disputes concerning developed properties with an individual home or commercial building. You can't split a house down the middle, so the property is ordered sold and the judge splits the cash accordingly. But larger properties are different, and the preference is division in kind. One co-owner who really only wanted a sale so that he could buy out the other owner was disappointed when the court caught on and cut-up the property for division in kind.


Sacramento partition attorney.jpgIn Butte Creek Island Ranch v. William Crim, The parties each owned one half of a waterfowl hunting ranch in Butte County. The property consisted of two separate parcels Parcel A was primarily used for a sleep house, dining building, garage and barn. Parcel B, which is much larger, is where the hunting occurs. Butte Creek (a partnership) wanted to buy Crim. When Crim said no, this Partition action was filed.

The parties stipulated to the appointment of a receiver (CCP section 873.040). The referee concluded that the proper course was division in kind- to divide Parcel A & B into 2 parcels each and then each party would get part of A and part of B. He thought that division by sale would leave the parties less than whole in two respects:


"First, capital gains taxes would have to be paid, leaving insufficient funds to purchase a similar property. Secondly, and more important, the extreme scarcity of properties similar to the subject with respect to location, use, and general amenities, would effectively preclude acquisition of a replacement."

The plaintiff did not like this result, and opposed confirmation of the referee's report. The court first noted the two types of evidence that may justify partition by sale.

Two Types of Evidence

The first is evidence that the property is so situated that a division into subparcels of equal value cannot be made. This requires proving that the land cannot be divided equally. An example is a property where the major value was a water well, without which the land would not have much value. The well could not be split; one party would get it, the other would not. That's not equal. It would not matter if the well property was a third acre and the other was 10 acres; they would not have equal value.

The second type of evidence which supports a partition sale rather than physical division is economic evidence to the effect that, due to the particular situation of the land, the division of the land would substantially diminish the value of each party's interest. This would mean that a cotenant would receive a share of land that was worth significantly less than the share of the cash the cotenant would receive if the entire parcel was sold.

Sacramento partition lawsuit attorney.jpgThe plaintiff did not present either type of evidence. They introduced no evidence whatsoever to establish that the aggregate economic value of the land would be diminished through physical division. no evidence towards proving that the land cannot be equally divided or that the aggregate economic value of the land would be diminished through division.

The court was not amused by the plaintiff. "Plaintiff had and has no intention of yielding up physical possession of the land. It sought a forced sale of the land in order to acquire defendant's interest which he did not desire to sell. This is nothing short of the private condemnation of private land for private purposes, a result which is abhorrent to the rights of defendant as a freeholder."


Photos:
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Disputed Property Lines and the Importance of the Surveyor's Decisions in Retracing Ancient Deeds

February 12, 2015

Real estate title in more rural or agricultural areas of California are often reliant on ancient surveys, sometimes handwritten, relying on monuments that are gone or have changed, and less accurate survey instruments. When disputes arise, the parties must rely on their surveyors to convince a judge that they are correct. Real estate attorneys can find themselves in a battle of surveyors, disputing whether the other side's approach is reliable or not. This problem arose in a recent decision near Healdsburg regarding a property line between a vineyard property and the new owners of an adjacent winery. The surveyor's approach, as well as testimony of some old-timers who lived on the properties, made life difficult for the new winery owners.


Sacramento title attorney lg.jpgIn Belle Terre Ranch, Inc. v. Wilson, new owners bought the Soda Rock Winery in 2000. The Soda Rock winery building backed up to the vineyard of Belle Terre Ranch, with a pathway in between. A line of ancient oaks ran behind the building, within 2-4 feet of the building wall. The new Soda Rock owners began reconstructing the winery, and the owners used the pathway for deliveries to the back of the building, as well as for heavy equipment access. Ron, the 70 year old President of Belle Terre, had lived on the property all his life. He testified that he did not complaint about use of the pathway during the initial reconstruction because he wanted to be neighborly.

Soda Rock applied to the county for permits to complete the renovation, and Belle Terre complained to the county about a need for the survey, and that there had been some trespassing. The owners spoke with each other, agreeing that a survey should be done. Ron apparently agreed to accommodate access to the rear of the winery for reconstruction, so as to be a good neighbor.

Two surveys were conducted. Both surveyors agreed that the property description ran back to 1870, when the public highway (now Hwy 128) was a narrow, single lane, straight dirt road used buy horses and wagons. The problem was locating the centerline of that road, since it has been replaced by a 2 lane paved highway.

Belle Terre commissioned Brunner, who concluded that the line was 2.5 to 3 feet behind the building, and corresponded with the line of oak trees. He found that the public highway was not lost, and that the only verifiable change was a layer of asphalt pavement. He determined what the centerline was as of 1870, and took his measurements from there.

Soda Rock commissioned Story, who found that the boundary line was 12 to 13 feet behind the winery building. Story did not believe the original highway centerline could be established from the monuments. He used for his starting point a pasture fence described in 1870; he believed it was in the same location because it appeared ancient. Running the line to where it crossed the Trimble property line, and along the Trimble line more than 1672 feet to locate the Northeast corner of the Soda Rock Property. The Trimble description was from a 1885 handwritten survey.

Sacramento surveyor attorney lg.jpgBrunner found the Trimble survey had an unacceptable degree of error believing it was unreliable. His testimony was that the surveying instruments and measurements from 1885 were not reliable enough. Another surveyor testified as an expert, agreeing that the Trimble survey was unreliable, and that Brunner used the more reliable evidence. Ron and David, a witness who had grown up on the Soda Rock property, both testified that as kids in the 1940's they believed the line was a cattle fence that ran along the line of oak trees. David said that the back doors of the winery opened inward and had only been used for ventilation, not for deliveries.

QUIET TITLE

The court thought the Brunner survey was more reliable than Story's. It found "the Brunner survey most closely aligns with the language contained in the original Deed creating the subject parcel and, as such, most closely follows the original intent of the parties." It noted that Brunner's location of the property line corresponded closely with the location of the cattle fence that had once existed along the line of oak trees. And it found "very little evidence, if any, ... to indicate that the actual centers of the historic route of Highway 128 and the current route of Highway 128, at least as of the time of the 1988 Survey, differ in any significant detail." It quieted title to the disputed are in favor of Belle Terre.

PRESCRIPTIVE EASEMENT

Soda Rock also claimed that it had established a prescriptive easement in the area behind the winery. The court disagreed.

Remember that an element of establishing a prescriptive right is that the use be adverse and hostile to the true owner's title. If the true owner had permitted the use, the claim is groundless. Here, Ron had testified that he did not complaint about use of the pathway during the initial reconstruction because he wanted to be neighborly. Also, when owners spoke with each other, agreeing that a survey should be done, Ron apparently agreed to accommodate access to the rear of the winery for reconstruction, so as to be a good neighbor. That testimony was enough; Soda Rock had nothing that could contradict the permissiveness of the use. The court noted that, prior to 2008, there was no evidence the Soda Rock owners had ever made a statement to Belle Terre claiming ownership of or a right to use the disputed strip of land, nor was there evidence that they had "cared for or maintained the territory (avenue) in dispute."

Photos:
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Title Insurance does not protect against a Notice of an Abatement Action, which is not a lien, encumbrance, or defect of title; and preliminary reports can't get no respect.

February 5, 2015


When California lenders and buyers seek title insurance, they want to be sure that the title to the property that they are receiving, or the security for their loan, is what they expect it to be. In the case of the lender, they want to be sure that they are in first place, so that if they need to foreclose, the property will be unburdened by any senior lien or liability, and they can get their money out of it. A preliminary title report, the precursor to the policy, is an offer to sell an insurance policy, but not like any other kind of offer to make a contract. If I offer to sell you my "used Buick, which has 20,000 miles on it, for $12,000," and you accept, when you discover that it really has 97,000 miles on it, you have a claim against me for breach of contract and fraud. But Sacramento & Yolo commercial real estate attorneys are often faced with explaining to clients that the preliminary report cannot be relied on in the same way. That was the answer some mortgage investors got from the court, when the preliminary report stated that the title company would get a full release of a notice of abatement action before issuing a policy.

Sacramento title insurance policy attorney.jpgIn Stockton Mortgage Inc. v Tope, the plaintiff Lender loan $315,000 to Tope to buy and rehab a Stockton property. The lender obtained title insurance from Alliance Title Company, underwritten by First American. The preliminary report had the standard language stating"

"[T]his Company ... is prepared to issue, or cause to be issued, as of the date hereof, a Policy or Policies of Title Insurance ... insuring against loss which may be sustained by reason of any defect, lien or encumbrance not shown or referred to as an Exception herein or not excluded from coverage pursuant to the printed Schedules, Conditions and Stipulations of said Policy forms."

One of the exceptions was a Notice of Abatement Action, along with the statement "Prior to close of Escrow Alliance Title Company will require that a FULL RELEASE be obtained." However, the Notice of Abatement was NOT included in the final title insurance policy.

The title company contacted the County and made a payoff demand. The County responded that they could not release the abatement action until all the deficiencies were cured. The problems were not fixed, the borrower defaulted, the property was foreclosed, and the loan investors (who had been assigned the lender's rights) took title. They sued the title company, claiming that the release of the abatement action was a condition of making the loan.

Breach of Contract - The title insurance policy

The lender argued that the notice of abatement was a lien or encumbrance, covered by the policy (a written contract), because it accrued penalties and other assessments. The court first considered the definition of encumbrance, which is 'any right to, or interest in, land which may subsist in another to the diminution of its value, but consistent with the passing of the fee, including taxes, assessments, and all liens upon real property.' But here, the Notice of abatement action informed the owner of a duty, and raised only the possibility of future enforcement, which could included assessing costs which could become a lien. The court found that the policy did not insure against future events; thus the possibility of a lien did not equal being an insurable lien. The recording of the notice itself is merely notice of the physical condition of the property, for which there is no coverage. (Actually, in this case Alliance did pay all outstanding enforcement costs at close of escrow).

Breach of Contract - the Preliminary Report

Sacramento lenders title insurance attorney.jpgThe lender also claimed that the title company breached the terms of the preliminary report, because the prelim stated that Alliance would require a full release of the Notice. However, it is fundamental that an application for title insurance and is an offer to issue a title insurance policy. (Ins.Code, ยง 12340.11.) It did not create any liability on behalf of the title company. Huh? In this case, it sure looks like it was a term of the offer - we will not insure title UNTIL we get a full release! Nonetheless, courts don't look at prelims that way. Title companies always win on this argument.

Negligence

The lender also claimed that the title company represented it would obtain releases for the Notice, and having so agreed, was bound to exercise ordinary care in doing so. The court said no; we already explained that you lost on the contract action, thus reliance on the prelim or title report, was misplaced.

The lender went further, arguing that the prelim represented that they would obtain a release of the Notice, and in the insurance policy that no notice existed. Having failed to do so, Alliance made a misrepresentation. The court didn't hesitate. A misrepresentation must be about past or existing facts. A false promise to perform in the future, as this could be construed to be, can support a claim for intentional misrepresentation, not negligent misrepresentation. The statement that it would obtain a release was a statement of future performance. And, in fact, Alliance did attempt to obtain a release, so there is no claim for intentional misrepresentation.

Lastly, the lender claimed that the title company's inclusion of the Notice in the prelim, and failing to include it in the insurance policy, was an "implied representation' that it had been release. No dice, said the court- negligent misrepresentation requires a positive assertion and does not apply to implied misrepresentations.

Photos:
Gus & Britney Spears - https://www.flickr.com/photos/donsturdy/5626380754/sizes/n/
https://www.flickr.com/photos/mattbeckwith/4549518483/sizes/n/

Adhesion and Unconscionability in Commercial Leases - The Cotenancy Provision, Part 2.

January 28, 2015


Last week I discussed a cotenancy provision in a California commercial lease, where the court found that the rent abatement aspect - if the specified cotenant was not operating, the tenant's rent is reduced or eliminated - was found to be an unenforceable penalty. That court also looked at whether the provision was unconscionable, and thus unenforceable. Unconscionability (codified at Civil 1670.5) has no specific legal definition, but generally means extreme unfairness. Business and real estate attorneys often see a situation where one party gets a really bad deal, but that alone does not make it unenforceable. California courts have developed an analysis requiring two elements, "Procedural," and "Substantive." In the decision being addressed here, the court found that Procedural element was not fulfilled so the cotenancy provision was not unconscionable.

Sacramento commercial lease unconscionable attorney.jpgIn Grand Prospect Partners, LP, v Ross Dress for Less Inc., Ross entered a lease in a commercial center in Porterville, CA. The lease required that Mervyn's be open when the Ross store opened, and Mervyn's was to remain in operation for the term of the Ross lease. If Mervyn's was not operating, Ross could cease paying rent, and also terminate the lease. Mervyn's filed for bankruptcy before opening in this center, so the cotenancy requirement was unfulfilled, and Ross declined paying rent. In the ensuing lawsuit, the Landlord claimed that the cotenancy provision was unconscionable, and thus should not be enforced.


Procedural Unconscionability.

The procedural element involves the circumstances of contract formation. It addresses oppression and surprise due to unequal bargaining power that results in little negotiation and no meaningful choice. This can be shown in two ways - either by showing that it is a contract of adhesion, or by the totality of the circumstances surrounding the contract.

A. Adhesion

The California Supreme Court has defined the term "contract of adhesion" to mean (1) a standardized contract (2) imposed and drafted by the party of superior bargaining strength (3) that provides the subscribing party only the opportunity to adhere to the contract or reject it.

Here, the lease in its entirety was not a preprinted form. There were extensive negotiations, including five versions of the lease. Thus the lease itself did not qualify as one of adhesion.

The landlord argued that the cotenancy requirement requiring a Mervyn's itself was a clause of adhesion. "Procedural unconscionability focuses on the manner in which the disputed clause is presented to the party in the weaker bargaining position. When the weaker party is presented the clause and told to 'take it or leave it' without the opportunity for meaningful negotiation, oppression, and therefore procedural unconscionability, are present." (Szetala (2002) 97 CalApp 4th 1094, 1100)

Sacramento commercial lease adhesion attorney.jpgThe court disagreed in this case. When, as here, when the relatively stronger party insists on including a provision in an otherwise enforceable contract, it does not turn the entire contract into an unenforceable one of adhesion. This differs from the situation where, for example, a clause is added to and existing contract by amendment, on a take it or terminate the contract basis (like a bank giving you the choice to accept the amendment or close your account.)

B. Totality of The Circumstances

The court noted several relevant circumstances for this element:
- Sophistication of the parties,
- Time Pressure,
- Economic Pressure,
- Pressure from Coercion or Threats,
- Relative Bargaining Power, and
- Meaningful Choices.

In this case, the landlord had 33 years in the real estate industry, was sophisticated real estate manager, and understood cotenancy provisions. Ross did not exert any time pressure; the negotiations went from 2005 through 2008. The landlord was not economically vulnerable, as there was no evidence it was having problems paying its debts nor had a balloon payment coming due. There were no threats. Ross was the larger company and may have greater bargaining power but there were still legitimate negotiations and the landlord had meaningful choices. Ross may have absolutely demanded a cotenancy provision, but the terms of that provision were subject to negotiation. Lastly, the landlord had other prospective tenants to fill the space, and the landlord had actually approached Ross in the first place.
Based on this analysis, the court concluded that there were real negotiations between the parties, and that the landlord was given meaningful choices. The court concluded that there was no procedural unconscionablity here. California law requires establishing both the Procedural & Substantive elements; with one missing, unconscionability was not grounds for invalidating the cotenancy requirement.