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California real estate purchase and sale contracts often incur in conjunction with a written lease, such as in the case of a lease- option or both a lease and a contract entered together that reference each other. The lease-option includes a purchase contract that with instructions in the option as to how to exercise the option and make the purchase contract binding. The combo lease-contract will (at least should) be clear as to what payments are exclusively applied to the rental, and what rights the owner has to evict the tenant-purchaser. Sacramento area real estate attorneys frequently prepare these types of agreements usually in cases where the buyer-tenant cannot immediately obtain financing to buy the property outright. In a recent case with perhaps a too-complicated purchase contract, the defaulting buyer was disappointed to find out that it was really a tenant. Maybe it was complicated in order to disguise the fact from the buyer, but the court provided a guide to create such a deal while ensuring the seller can evict the buyer.

Sacramento commercial lease attorneyIn Jon Taylor v. Nu Digital Marketing Inc., Taylor was the owner and seller, Bu was the buyer. They entered a document entitled “Contract of Sale Residential Property.” It required the buyer to consummate the sale within 60 months by payment of $1.25 million. It also required (full details set out at the end of this article) that the buyer make “Probationary Installment” payments of $2,300 per month for 60 months, which covered the seller’s adjustable rate mortgage, and would increase if the mortgage adjusted. None of the probationary installment was applied to the purchase price. It also required a down payment (“additional Probationary Installment” of $500 per month. Lastly, it gave buyer immediate possession of the property and provided that if the buyer defaulted on probationary payments, the seller could serve a five-day notice.

Auburn commercial lease attorneyThe buyer defaulted, and the seller brought an unlawful detainer. The buyer claimed that it could not be evicted, because this was a contract, not a lease. The court of appeal disagreed.

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In California, equitable indemnity applies when there are two wrongdoers (‘tortfeasors’) who are both jointly and severally liable for harm to someone. They are entitled to have their liability split between them based on their comparable fault. Joint and several liability can apply to acts that are concurrent or successive or are joint or several, as long as they create a detriment caused by several actors. Equitable indemnity often arises when a person who has been harmed sues one, or both, of the tortfeasors. The tortfeasors then file a cross-complaint for equitable indemnity. Or, if only one tortfeasor is named in the lawsuit, that person brings in the second. In a prior post I discussed a case in which a real estate Buyer learned of an undisclosed easement, and sued both the seller & buyer brokers. The brokers cross-complained against each other for equitable indemnity. Ordinarily their joint liability would be apportioned at trial, but if one party settled out with the plaintiff there would be no apportionment without the cross-complaint. In a more recent decision, a defendant cross-complained for equitable indemnity in a breach of contract case. They were disappointed that the court would not stretch the doctrine that far.

Sacramento equitable indemnity attorney State Ready Mix, Inc. v. Moffatt & Nickol involved construction of marine pier. Bellingham hired Major as general contractor, and Moffatt to prepare plans. Major hired State Ready Mix to plan the concrete. Major asked Moffett to review the State concrete plan, which was not part of Moffett’s job, but Moffett agreed and did so. On the day of the concrete pour, State had equipment failure and had to add a chemical into the mix manually in a non-precise way (can you picture the laborer dumping stuff into the truck, say about 2 and a half bags of this and a third of a sack of that?). The concrete was bad, and had to be torn out and the job started over. State was sued for the cost of the concrete, and State cross-complained against Moffett for equitable indemnity.

The problem for State was that it could not allege that Moffett committed a tort. No facts were alleged that Moffett owed State a duty of care. Nor can State say that Moffett negligently performed its contract with Bellingham – review of the concrete mix was not within the scope of that contract.

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Indemnity provisions usually refer to third-party claims. This means a claim by a person other than the two parties to the indemnity. If I sell you a box of widgets and indemnify you for all claims resulting from the use of the widgets, the idea is that if a third person is injured by the widget and sues you, I am on the hook. But these provisions are commonly more expansive, and include first-party claims. Thus, if you get injured using the widget, I am on the hook. Environmental indemnity agreements are typically the most expansive types of provisions you can find and seem to have included all the word someone could think of. One concerned about what an environmental indemnity provision covers should consult with a real estate attorney. In a recent decision, I suspect that the defendant knew that the provision covered first-party claims, but still make the argument and was shown to be wrong. There was a lot of money at stake. A second case discussed below does not include first party claims.

Sacramento indemnity attorneyIn HOT RODS, LLC v. NORTHROP GRUMMAN SYSTEMS CORPORATION, Hot Rods bought contaminated property from Northrop. The purchase contract had an indemnity provision to protect Hot Rods from environmental actions and remediation. Over time Hot Rods incurred remediation expenses, and Northrop reimbursed them. Eventually, Northrop called it quits and stopped reimbursing Hot Rods. Hot Rods sued, claiming that a tenant had delayed entering a lease because of remediation issues, Hot Rods claimed lost rent; Northrop denied being liable for this, claiming that the indemnity provision only covers third-party claims. Here, where Hot Rod was making its own claim for damages, this was a first party claim.

Covers First-Party Claims

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The City of Sacramento recently passed ordinances that allow and regulate “short-term rentals”, which are of the type advertised non-Airbnb, VRBO, and similar sites. This is welcome news, as this type of rental has been in a state of limbo under the law of most communities. Usually, it fits in with motels or bed and breakfasts and is governed by rules for those types of operations. Now, in Sacramento, as in San Francisco and other communities throughout California, they have their own classification and regulations. Owners who are interested in renting their properties on this basis should consult with a Sacramento real estate attorney to be sure they understand the ordinances and have an appropriate short-term rental agreement.

sacramento short term rental attorneyShort-Term Rental

Under the new ordinance, A short-term rental@ means a bed and breakfast inn that is limited as follows:

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The California civil code provides that, in a breach of a real estate purchase and sale contract, the breaching party may be liable for consequential damages. An appellate court determined that this may include lost profits in certain cases. Where lost profits are recoverable as consequential damages, “Not only must such damages be pled with particularity [citation], but they must also be proven to be certain both as to their occurrence and their extent, albeit not with ‘mathematical precision.’” Thus, the offended party in consultation with their real estate attorney must develop their argument to establish their lost profits to ensure that they can be awarded. In discussing how a particular plaintiff failed to provide sufficient evidence for lost profits, the court indicated what it would take.

lost profits attorneyIn Greenwich SF. LLC v. Wong, Mr. Chan bought property with Mr. Wong with the intent to remodel or develop it, and they held title as joint tenants. They had worked together on flipping properties, as Chan was a contractor. Mr. Wong died, so title automatically passed to Plaintiff. But Wong’s wife tied up the property in Probate (! Mr. Chan should have consulted with a real estate attorney, this mess should never have occurred!) and refused to convey the property to Chan. She led Mr. Chan to believe that she would once it cleared probate. Chan eventually formed the plaintiff LLC for the redevelopment. The plaintiff had plans drawn up. The defendant widow entered a contract to sell the property to plaintiff. Ultimately, Wong’s widow refused to convey the property as she could sell it for more to a third party, and plaintiff filed this suit for breach of contract. Part of the damages claim was for lost profits.

Until this time California law was unsettled as to whether lost profits could be claimed in a breach of a real estate purchase contract. Civil Code Section 3306 allows consequential damages in the breach of a real estate contract, but no decisions have decided the lost profits may be included as consequential damages. Here, this court determined that lost profits ARE available, as long as such damages are pled with particularity, and they must also be proven to be certain both as to their occurrence and their extent.

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For a California real property owner, liability to third parties for their injuries on the property requires that the injured person prove 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. Often most difficult test is the duty of care. The landowner must exercise ordinary care or skill in the management of their property. The idea is that the owner has control over the property and the ability to prevent the harm. When the owner is aware of (or should reasonably be aware of) a dangerous condition on the property, there are obligated to either fix it or warn people of the risk. I have written previously of the failure to warn of a dangerous attic stair, and how the real estate agent failed to warn a person who was injured. The California Supreme Court has established a list of factors in determining whether there is a duty of care:

(1) the foreseeability of harm;

(2) the degree of certainty that the plaintiff suffered injury;

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For a parcel to be “landlocked,” the owner must have no legal right of access to the property. They would have to cross someone else’s land, but the problem is that they do not have a legitimate easement which gives them that right. In cases where traditional easements do not apply, California Courts may exercise their equity powers to establish an “equitable easement”. Landowners with access problems should contact a real estate attorney to see if an equitable easement will apply in their situation. For the Court to create an equitable easement, it must apply the relative hardship test, and find three factors:

Three Factor Test for Equitable Easement-

• First, the defendant must be innocent. That is, his or her encroachment must not be willful or negligent. The court should consider the parties’ conduct to determine who is responsible for the dispute.

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When someone who owes a debt transfers property out of their name in order to prevent the creditor from collecting against that property, the transfer may be set aside under the Uniform Fraudulent Transfer Act. A classic move seen by business and real estate attorneys is the transfer of real estate to someone who disappears and cannot be served with a summons and complaint. This does not necessarily end the story, as the fraud is so obvious that the courts will not aid them in their fraud. In a recent decision involving an obviously fraudulent conveyance, the new owner of the property had been in prison and was subsequently deported to Mexico. That was not enough to keep the creditor from undoing the transaction.

Sacramento fraudulent transfer attorneyIn Diana Buchanan v. Ramon Soto, Maria Soto bought a business from Buchanan for over $300 thousand but did not pay for it. The plaintiff was in the process of obtaining a judgment against Maria, when Maria transferred her real estate in Vista, CA to her husband Ramon as his separate property. Plaintiff sued Maria & Ramon to undo the fraudulent conveyance. Of course, Ramon could not be found, because he was deported due to criminal activity, and was somewhere in Mexico. The plaintiff asked Maria where, but Maria did not know where other than rural Mexicali.

The court allowed plaintiff to serve Ramon by publication. A trial was held, and the plaintiff won. Ramon tried to set aside the judgment due to lack of service, but failed. They appealed, claiming that the California court lacked personal jurisdiction because Ramon had not been properly served.

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California real estate financing typically includes a note and deed of trust. In event of default the trustee named in the deed of trust is a third party who would conduct the non-judicial foreclosure process, and hold a trustee sale. This is not a true ‘trustee’ with fiduciary duties but an agent for the parties with statutory duties. When disputes arise regarding foreclosure, Sacramento real estate attorneys often see that the trustee is often named in the lawsuit by the borrower with the other defendants. Given that the trustee relies on instructions of the beneficiary and does not act on its own, the complaint does not allege any specific wrongful act committed by the trustee. As a result, Civil Code section 2924l provides that the trustee may file a “Declaration of Nonmonetary Interest” in the case. The declaration must state that the trustee’s “reasonable belief that it is named as a defendant … solely in its capacity as trustee and not due to its acts or omissions.” Unless another party objects, the trustee then avoids participation in the lawsuit and liability for damages and attorney fees.

woodland  deed of trust attorneyIn Bae v. T.D. Service Company, Bae defaulted on a $5 million dollar property in Glen Ivy. The property was sold at a trustee sale, and the plaintiff sued everyone, including the Trustee. The trustee filed a Declaration of Nonmonetary Interest, and not an answer to the complaint. The Plaintiff’s attorney entered the trustee’s default and obtained a default judgment, all without providing notice to the trustee’s attorney. That’s right, the clerk entered the default, the judge granted the judgment, all without notifying the trustee’s attorney. Unbelievable, but it happened, and the trustee moved to set aside the default and won. More bizarre- the plaintiff appealed.

The court first looked at requirements for setting aside a default. Civil Procedure section 473.5 permits the court to set aside a default or default judgment if the defendant, through no inexcusable fault of his own, [received] no actual notice” of the action, provided that relief is requested not more two years after the entry of the default judgment. But here, the Trustee filed its motion more than two years later.

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Easements in California usually grant a restricted right to a specified use of another’s real property. The use may not go beyond that which is described, and the owner of the underlying property (the “servient tenement”) is allowed to use the property in any way which does not unreasonably interfere with the easement holder’s use. Sacramento real estate attorneys are often asked to interpret the language granting an easement to determine if their client, or the other party, can make a certain use of the property, and such disputes result in lawsuits. Surprisingly, an easement may actually be “exclusive” – that is, the servient property owner can make no use of the easement area at all, without regard to whether or not it interferes with the easement use. But the terms of the easement must be clear, because if it is not, the courts will decide that it is not exclusive. Sufficient clarity was found in a case in Orange County, where the dueling owners had spent millions on their properties.

sacramento exclusive easement attorneyIn Gray v. McCormick, Gray paid $2.9 Million for a multi-acre unimproved property in Coto de Caza, in Orange County. CC&Rs for the property provide that access is by easement (entire description of the easement provided at the end of this article). The Tract Map indicates a proposed easement 16 feet wide by 90 feet long. Without the easement, the plaintiff’s property would be landlocked. The defendants (owners of the servient tenement), had been using the easement area for their horse riding, and for hauling trash and manure. The plaintiff planned to improve the easement with a driveway, perimeter walls, and landscaping. Plaintiff wants the defendant to stop using the easement, but defendants refused, claiming that it did not interfere with plaintiff’s use. This lawsuit followed.

The plaintiff claimed that the easement was exclusive, such that it excluded all other owners of property in the subdivision. This was based on the language of the easement description in the CC&Rs that it was an exclusive easement in favor of the plaintiff’s property. The court first noted that an ‘exclusive easement’ is unusual interest in land, and no intent to convey an exclusive easement will be imputed unless there is a clear indication of this intent.