Opinion
G057067
05-26-2020
DONG SHIN CHURCH OF SOUTHERN CALIFORNIA, INC., Plaintiff and Appellant, v. FOUR SEASON CARE, INC., Defendant and Respondent.
Law Office of Christopher E. Delaplane and Christopher E. Delaplane, for Plaintiff and Appellant. Law Offices of S. Calvin Myung and S. Calvin Myung for Defendant and Respondent.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. 30-2018-00965966) OPINION Appeal from a judgment of the Superior Court of Orange County, Carmen R. Luege, Temporary Judge. Pursuant to Cal. Const., art. VI, § 21.) Reversed and remanded. Law Office of Christopher E. Delaplane and Christopher E. Delaplane, for Plaintiff and Appellant. Law Offices of S. Calvin Myung and S. Calvin Myung for Defendant and Respondent.
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In this unlawful detainer case, Plaintiff-landowner Dong Shin Church of Southern California, Inc. (Dong Shin) entered a 2012 five-year lease with defendant Four Season Care, Inc. (Four Season), for real property located in the City of Fullerton (City). The lease included Four Season's option to extend it an additional five years.
After the lease started, the City raised a land use issue with Four Season's business at the property. In response, Dong Shin and Four Season coordinated and secured a conditional use permit. In 2013, Dong Shin began negotiating to sell the property to Four Season's majority shareholder. A document with generally agreed upon sale terms was discussed and, in 2014, Four Season tendered a $300,000 lump sum deposit Dong Shin accepted. Despite further negotiations, the parties failed to reach a formal sales agreement. Notwithstanding, Dong Shin and Four Season coordinated to subdivide the property as the parties continued their negotiations.
For the next three years, Four Season applied for permits and hired construction workers to subdivide the property, with Dong Shin's knowledge. Four Season did not make any payments to Dong Shin after March 2015. Then in November 2017, Dong Shin notified Four Season the 2012 lease had expired and filed an unlawful detainer action the following month. At an unlawful detainer trial, the court found Dong Shin failed to show a landlord-tenant relationship presently existed. We conclude the court erred in finding the lease no longer provided a basis for unlawful detainer relief. We reverse the judgment and remand for further proceedings.
I
FACTS AND PROCEDURAL HISTORY
A. Lease and Land Use Issue
In September 2012, Four Season entered a lease agreement with Dong Shin to operate a homestay business in four adjacent structures located in the City of Fullerton (collectively the property). The lease included a $225,800 itemization of improvements Four Season would add to the property. The lease established monthly rent starting at $12,000 and gave Four Season an option to extend it for an additional five years. The lease did not specify how Four Season could exercise its option.
A "homestay" typically provides a common residence for international students. (See McPherson v. EF Intercultural Foundation, Inc. (2020) 47 Cal.App.5th 243, 250; see also Shin v. Sunriver Preparatory School, Inc. (2005) 199 Ore. App. 352, 354-355.)
In December 2012, the City advised Four Season it could not use the property as a homestay. Four Season applied for a conditional use permit to operate as a dormitory, which the City approved. B. Dealings to Sell the Property
In July 2013, Four Season sent an e-mail to Dong Shin expressing interest in purchasing the property. Four Season's chief executive officer and majority shareholder, Young Jim Ko, drafted a two-page document Dong Shin treated as "the generally agreed upon terms for the sale of the [property]," for $2.35 million (letter of intent). By January 2014, Dong Shin requested and accepted from Four Season a lump sum payment of $300,000 as a partial deposit to purchase the property.
This document identifies the proposed buyer as Young Jin Ko. At the same time, the document identifies Ko and not Four Season as the party to the September 2012 lease with Dong Shin.
Ko, Dong Shin, and their respective attorneys exchanged five versions of an "option agreement to purchase real estate." Two versions proposed Dong Shin lease the property to Ko and his wife. In the first version, the lease specified a January 2014 commencement date, $7,000 monthly rent, with the lease terminating upon "the exercise or termination of the [option agreement]." The parties never signed any of the option agreement versions and negotiations ceased in October 2014. C. Efforts to Subdivide the Property and Notice to Quit
During negotiations, the parties learned the property had to be subdivided before Dong Shin could sell the property. As a result, Four Season applied to subdivide the land containing the property, which the City conditionally approved in April 2014. Among other conditions, the City required "the [property] structures [to come] into compliance with Fullerton Municipal Code and Fullerton Building Code standards for single family residential occupancy." Beginning in June 2014, Four Season applied for construction permits to meet the City's conditions. All applications identified Ko as the property's owner.
Although Four Season made no further payments to Dong Shin after a $7,000 payment in March 2015, Four Season continued its construction on the property for the next few years, with Dong Shin's knowledge. Then, in November 2017, Dong Shin wrote to Four Season advising rent payments for the past several months had not been received and the lease had expired the previous month, according to its original term.
The next month, December 2017, Dong Shin served a notice to quit, advising: "within three (3) days . . . of this notice, you [i.e., Four Season] are hereby required to quit and deliver possession of the premises to [Dong Shin's] representative. . . . [¶] . . . Your tenancy is terminated for the following reason: The lease term expired October 31, 2017." The notice did not mention any past rent payments due or provide Four Season an opportunity to cure any balance owed to Dong Shin. D. Unlawful Detainer Judgment in Favor of Four Season
In January 2018, Dong Shin filed an unlawful detainer action against Four Season based upon its notice to quit after the lease expired. (Code Civ. Proc., § 1161, subd. (1).) After a court trial and taking the matter under submission, the court ruled in favor of Four Season. In its statement of decision, the court found that, in addition to paying "$300,000 as a down payment towards the purchase of the [property]. . . . Through the years, [Four Season] . . . spent sums in excess of $400,000 to improve the property and bring about the lot division necessary [to] complete the sale [of the property to Four Season]. The fact that [Dong Shin's elder] was aware of [Four Season's] efforts, including the expenditure of money, to obtain the lot division necessary to consummate the sale put [Dong Shin] on notice that [Four Season] was no longer a tenant."
All further statutory references are to the Code of Civil Procedure unless otherwise stated.
The trial court concluded the initial landlord-tenant relationship between Four Season and Dong Shin had "evolved so that the parties no longer ha[d] a relationship that justifie[d] the summary method of eviction provided by the unlawful detainer statutes." The court noted Dong Shin and Four Season were engaged in ongoing litigation about the property in another court, concluding the other forum was the appropriate place to litigate the parties' dispute about the property.
II
DISCUSSION
Dong Shin contends the trial court erred in not finding a landlord-tenant relationship existed between Dong Shin and Four Season because the parties never agreed on a contract to sell the property. Dong Shin further contends Four Season did not exercise its five-year lease option because it never delivered the requisite written or oral notice and failed to pay rent for 18 months before the lease expired.
Four Season argues substantial evidence supports the trial court's finding the parties did not have a landlord-tenant relationship. Alternatively, Four Season argues an unsigned but enforceable sale agreement for the property existed, its lease with Dong Shin was illegal and void, and it exercised its lease option by remaining at the property.
In reaching its decision, the trial court relied on Greene v. Municipal Court (1975) 51 Cal.App.3d 446, 451, for the proposition that a "buyer of real property in possession . . . 'who has defaulted in the payment of an installment of the purchase price, is not subject to removal by the summary method of unlawful detainer.'" The court factually distinguished this case from case law relied on by Dong Shin—Taylor v. Nu Digital Marketing, Inc. (2016) 245 Cal.App.4th 283 (Taylor) and Provouskivitz v. Snow (1977) 74 Cal.App.3d 554 (Provouskivitz). Given its finding on the lack of a landlord-tenant relationship, the court found moot the alternative issue of whether Four Season had exercised its five-year option. A. Standard of Review for an Unlawful Detainer Judgment
The trial court, however, erred in finding as a matter of law that the parties' additional relationship based upon their negotiations nullified their initial landlord-tenant relationship. Under our de novo review on this point (Palm Property Investments, LLC v. Yadegar (2011) 194 Cal.App.4th 1419, 1425-1426.), we conclude the parties' September 2012 lease was not terminated or otherwise modified and therefore allowed Dong Shin to pursue relief under the unlawful detainer statute. (§ 1161.) Based on the reasoning in Taylor, supra, 245 Cal.App.4th 283 and Provouskivitz, supra, 74 Cal.App.3d 554, any purported "vendor-vendee" relationship did not terminate or "supplant" the parties' ongoing landlord-tenant relationship. B. Substantial Evidence Supports the Trial Court's Factual Findings But Its Legal Conclusion Was Erroneous
Drawing all reasonable inferences in a light most favorable to the judgment (ASP Properties Group, L.P. v. Gard, Inc. (2005) 133 Cal.App.4th 1257, 1266), we conclude substantial evidence supports the trial court's factual finding that Four Season and Dong Shin developed a relationship in addition to landlord and tenant. It was undisputed Four Season's $300,000 payment in January 2014 was a partial deposit to purchase the property. It is also clear Four Season and Dong Shin treated Ko's letter of intent as "the generally agreed upon terms for the [$2.35 million] sale of the [property]." Moreover, there was uncontradicted evidence Four Season expended time and money to subdivide the property because it believed it had purchased the property after its $300,000 payment.
The trial court, however, erred in finding as a matter of law that the parties' additional relationship based upon their negotiations nullified their initial landlord-tenant relationship. Under our de novo review on this point (Palm Property Investments, supra, 194 Cal.App.4th at pp. 1425-1426.), we conclude the parties' September 2012 lease was not terminated or otherwise modified and therefore allowed Dong Shin to pursue relief under the unlawful detainer statute. (§ 1161.) Based on the reasoning in Taylor, supra, 245 Cal.App.4th 283 and Provouskivitz, supra, 74 Cal.App.3d 554, any purported "vendor-vendee" relationship did not terminate or "supplant" the parties' ongoing landlord-tenant relationship.
Distinct from other real property actions, the limited purpose of an unlawful detainer action is to provide rightful plaintiffs an expedited means of restoring property possession. (See Knowles v. Robinson (1963) 60 Cal.2d 620, 625.) Indeed, an unlawful detainer defendant is free to pursue claims related to the same real property in a separate civil action. (See Schulman v. Vera (1980) 108 Cal.App.3d 552, 558-561.) Accordingly, where an unlawful detainer action involves competing claims to real property, it is imperative to discern the bases for the claims and their relationship to one another. As discussed below, although a buyer-seller relationship by itself, provides no basis for unlawful detainer relief, an unlawful detainer action should not be barred where such a relationship co-exists with a landlord-tenant relationship.
1. Taylor v. Nu Digital Marketing, Inc.
Taylor was an unlawful detainer action based on two co-existing relationships between a defendant and plaintiffs. There, a buyer and sellers of real property entered into a contract titled "'Contract of Sale Residential Property,'" for a conditional sale to be "'consummate[d]'" within 60 months. (Taylor, supra, 245 Cal.App.4th at p. 285.) In addition to other types of payments, the buyer was to make monthly payments divided into two categories: adjustable "'[p]robationary [p]ayments'" not credited toward the purchase price and only then would "'payments made in excess of the monthly probationary installment payment" be credited toward the purchase price. (Id. at pp. 285-286.)
The sellers filed an unlawful detainer action against the buyer, alleging the contract was a lease the buyer breached by failing to make increased monthly probationary payments. (Taylor, supra, 245 Cal.App.4th at p. 286.) At trial, the buyer argued it was not a tenant, but rather a buyer in possession under a sales contract. (Id. at p. 287.) The trial court disagreed, ruled the contract was a lease, and entered judgment for the lessors. (Id. at pp. 287, 291.)
In affirming the judgment, the appellate court looked beyond the parties' contract labels and evaluated the terms of the agreement. (Taylor, supra, 245 Cal.App.4th at p. 291.) Most notably, the Taylor court reasoned "the agreement was both a lease and a contract of sale, but because possession was achieved through the lease terms of the agreement, unlawful detainer was properly used to regain possession." (Id. at p. 285, italics added.)
2. Provouskivitz v. Snow
The Taylor court relied on Provouskivitz, supra, 74 Cal.App.3d 554 in reaching its decision. (Taylor, supra, 245 Cal.App.4th at pp. 289-290.) The parties in Provouskivitz simultaneously entered into two agreements for the same property: a sales agreement and a lease. (Provouskivitz, supra, at pp. 556-557.) The sales agreement provided if the sale could not be completed because of then pending litigation, the buyer was entitled to "receive back all monies paid except money paid for rent." (Id. at pp. 556-557) The sales contract further specified that: "'Buyer and Seller Agree that Buyer is not entitled to any possession under the contract of sale until its . . . completion. Buyers [sic] possession is by way of the lease which is executed concurrently herewith.'" (Id. at p. 558.)
The buyer in Provouskivitz defaulted after paying a sizable down payment under the sales contract and performing under the lease for several months. (Provouskivitz, supra, 74 Cal.App.3d at pp. 557-558.) After its default notice was not cured, the seller filed an unlawful detainer action. (Id. at p. 558.) Although the buyer successfully demurred in the trial court, the appellate court reversed, holding: "In light of the allegations, we cannot say, as a matter of law that possession was not taken in accordance with a landlord-tenant relationship." (Id. at p. 559.) The Provouskivitz court reasoned that "[t]o hold that in any case where there exists a contract to sell there cannot also exist a valid lease agreement is patently erroneous. So long as possession is achieved through the landlord-tenant relationship, unlawful detainer may properly be utilized to regain possession. (Code Civ. Proc., §§ 1161, 1161a.) The fact, if it be a fact, that rent may be credited against a purchase price, in whole or in part, does not, in and of itself, transfer possession from a landlord-tenant relationship to one of purchaser and seller." (Id. at p. 533.)
3. Analysis
Based on the reasoning in both Taylor and Provouskivitz the trial court erred in concluding the parties' 2012 lease had been legally modified so that no landlord-tenant relationship existed to provide a basis for unlawful detainer relief. There simply is no substantial evidence the parties' September 2012 lease became unenforceable. As Dong Shin correctly notes, the lease contained a standard contract provision prohibiting its amendment or modification except in writing. Four Season failed to present any evidence the parties entered into a contract to sell Dong Shin's property. As noted, Dong Shin agreed Ko's letter of intent contained "the generally agreed upon terms for the [$2.35 million] sale of the [property]." However, the letter's own terms explicitly specified the 2012 lease would become void only "[u]pon completion of [its] signing," similar to provisions repeated in versions of the proposed option agreement. Because it is undisputed none of these documents were signed by either party, there was no basis to conclude the lease was nullified. (Stromer v. Browning (1966) 65 Cal.2d 421, 427, fn. 2 [claim of partial performance against a statute of frauds defense immaterial given "parties' agreement that no one would be bound until written documents were executed"])
Four Season's reliance on Greene v. Municipal Court (1975) 51 Cal.App.3d 446, is unavailing. There, the parties entered into a conditional sales contract for real property. The agreement required an initial down payment with the balance payable in monthly installments. The contract described the buyer's payments as "'rent and compensation for the use and occupancy of [the] property.'" (Id. at p. 449.) When the buyer defaulted on the monthly installment payments the seller brought an unlawful detainer action.
The appellate court in Greene held that an unlawful detainer action could not be used against a "vendee in possession of land under a contract of sale 'who has defaulted,'" regardless of language in the contract describing the seller's payments as rent. (Greene, supra, 51 Cal.App.3d at p. 451.)
Here, in contrast to Greene, the parties never entered into a contract for the sale of Dong Shin's property. And while the evidence shows an additional seller-buyer relationship arose between the parties, there is no factual basis to conclude the lease was no longer enforceable. In Greene, the buyer obtained possession by agreeing to a conditional sales contract, but Four Season obtained possession when it entered into a landlord-tenant relationship with Dong Shin. As Provouskivitz, supra, 74 Cal.App.3d 554, explained, applying rent toward a potential property purchase "does not, in and of itself, transfer possession from a landlord-tenant relationship to one of purchaser and seller." (Id. at p. 558.) Four Season's letter of intent underscores this point when it proposed that "upon completion of signing the sales agreement, all prior agreements that existed between the Buyer and Fourseason Care, Inc. (residence lease case) shall become void." Since the parties never signed a formal sales agreement the lease remained in effect.
We are also not persuaded by Four Season's remaining alternative arguments. As mentioned above, Four Season contends the September 2012 lease was illegal and void because it was a residential lease that breached the implied warranty of habitability. After the close of evidence at trial, the court raised the legality of the lease as a potential issue and invited posttrial briefing on the point. In its statement of decision, the court found that because Four Season had not raised the issue "before or during trial . . . the parties did not properly litigate the legality issue before the court" and "[a]ccordingly, there [were] insufficient facts on the record for the court to make a determination that the lease agreement constitute[d] an illegal contract." Given Four Season's failure to raise the issue at trial, we will not entertain the contention. (See Farrar v. Direct Commerce, Inc. (2017) 9 Cal.App.5th 1257, 1275-1276, fn. 3 ["Whether an appellate court will entertain a belatedly raised legal issue always rests within the court's discretion"].) C. Option Exercise Issue Depends on Controverted Evidence
The form lease contained the customary provision that requires the tenant, not the landlord, to ensure the property can be used for its intended purpose, presumably because the tenant is the one who knows how it wants to use the property. --------
Finally, we disagree with Four Season's request to affirm based on the theory Four Season exercised its lease option by simply remaining at the property, under this court's precedent in ADV Corp. v. Wikman (1986) 178 Cal.App.3d 61. Four Season correctly notes Wikman stands for the proposition that a tenant remaining in possession when a lease expires will be deemed to have exercised an option to extend the lease if the lease did not specify how to exercise the option. (Id. at p. 66.) But it is also true that such a tenant must not be in default at the time an option is exercised. (Behrman v. Barto (1880) 54 Cal. 131, 134.)
Here, a factual dispute arose over whether Four Season defaulted when the lease purportedly expired on October 31, 2017. At trial, Dong Shin argued Four Season owed a balance even after applying all of its $300,000 deposit to rent due under the lease. Four Season argued it no longer owed rent after its $300,000 deposit. Four Season also claimed Dong Shin agreed that beginning January 2015 it would reduce "rent or payment" to $7,000. As mentioned above, the court found the option exercise issue moot. Accordingly, our holding that the court's legal conclusion was erroneous revives the question of whether Four Season validly exercised its five-year option under the lease before its initial expiration date. Because the issue turns on conflicting evidence, we will remand for the trial court to resolve these factual and legal issues. (Pasadena Medi-Center Associates v. Superior Court (1973) 9 Cal.3d 773, 779, fn. 6; Kyne v. Kyne (1943) 60 Cal.App.2d 326, 332.)
In sum, we conclude the trial court erred in finding the parties transformed their initial landlord-tenant relationship to that of buyer and seller of real estate based on negotiations that never culminated in an agreement for Four Season to purchase Dong Shin's property. (See Winslett v. 1811 27th Avenue LLC (2018) 26 Cal.App.5th 239, 255, fn. 9 ["'discovery is far narrower in [unlawful detainer] proceedings than in general civil actions'"].)
III
DISPOSITION
The judgment is reversed and case remanded for further proceedings consistent with this opinion. The trial court is ordered to make all necessary findings on whether Dong Shin is entitled to relief under the unlawful detainer statutory scheme (§ 1161 et seq.), including whether Four Season validly exercised its option under its September 2012 lease with Dong Shin. Dong Shin is entitled to its costs on appeal.
ARONSON, J. WE CONCUR: MOORE, ACTING P. J. FYBEL, J.