Tenant rights to buy land or prevent eviction memo

Author: LegalEase Solutions

QUESTION PRESENTED

            What are the causes of action in contract available to the tenant to avoid being evicted and/or enforce the contract? 

SHORT ANSWER

The causes of action available to the tenant appear to be breach of contract, specific performance, and tortious interference with contractual relations. However, an action for tortious interference require knowledge on the part of the defendant of the agreement between the tenant and the landlord.

RESEARCH FINDINGS

  1. Breach of Contract

The elements of a breach of contract claim “are the existence of the contract, performance by the plaintiff or excuse for nonperformance, breach by the defendant and damages.” First Commercial Mortgage Co. v. Reece (2001) 89 Cal.App.4th 731, 745 [108 Cal.Rptr.2d 23, 33].

  • Existence of the contract

The California courts have held that the mutual intent of the parties “is to be inferred, if possible, solely from the written provisions of the contract. The clear and explicit meaning of these provisions, interpreted in their ordinary and popular sense … controls judicial interpretation.” AIU Ins. Co. v. Superior Court (1990) 51 Cal.3d 807, 822 [274 Cal.Rptr. 820, 831, 799 P.2d 1253, 1264] (citing Civ. Code, § 1636). (Internal quotations omitted). Thus, “‘[w]hen parties have an actual contract covering a subject, a court cannot—not even under the guise of equity jurisprudence—substitute the court’s own concepts of fairness regarding that subject in place of the parties’ own contract.’” California Medical Ass’n, Inc. v. Aetna U.S. Healthcare of California, Inc. (2001) 94 Cal.App.4th 151, 172 [114 Cal.Rptr.2d 109, 126] (quoting Hedging Concepts, Inc. v. First Alliance Mortgage Co. (1996) 41 Cal.App.4th 1410, 1420 [49 Cal.Rptr.2d 191, 198], as modified on denial of reh’g (Feb. 22, 1996).

Here, the tenant and the landlord had entered into a written and signed lease agreement, which included an option for tenant to buy the property to sell the property. Therefore, the first element is satisfied.

  • Performance or excuse for non-performance

“Past and present ability to perform under the Purchase Agreement is a requirement for … breach of contract …” Gaggero v. Yura (2003) 108 Cal.App.4th 884, 890 [134 Cal.Rptr.2d 313, 318] (citing C. Robert Nattress & Associates v. CIDCO (1986) 184 Cal.App.3d 55, 64 [229 Cal.Rptr. 33]. “A bedrock principle of California contract law is that ‘[h]e who seeks to enforce a contract must show that he has complied with the conditions and agreements of the contract on his part to be performed.’” Brown v. Dillard’s, Inc., 430 F.3d 1004, 1010 (9th Cir. 2005) (quoting Pry Corp. of America v. Leach (1960) 177 Cal.App.2d 632, 639 [2 Cal.Rptr. 425, 429-30].  Further, “[i]t is always the obligation of parties to contracts, to deal fairly and honestly with each other.” Smith v. Empire Sanitary District (1954) 127 Cal.App.2d 63, 72 [273 P.2d 37, 43].

In the present instance, the landlord granted tenant an option to buy the property if and when landlord decides to sell it. The tenant agreed to pay market value and 20% of the selling price as down payment. The landlord agreed to finance the balance amount. The tenant exercised his option in writing. Thus, the tenant performed his part and this satisfies the second requirement.

  • Breach of an option to purchase

“An option supported by consideration is an irrevocable offer, open for a prescribed period. . . .” Riverside Fence Co. v. Novak, 273 Cal. App. 2d 656, 660, 78 Cal. Rptr. 536, 539 (Ct. App. 1969) (citing Robbins v. Pacific Eastern Corp., 8 Cal.2d 241, 276, 65 P.2d 42; Schomaker v. Osborne, 250 Cal.App.2d 887, 890, 58 Cal.Rptr. 827; Schmidt v. Beckelman, 187 Cal.App.2d 462, 469, 9 Cal.Rptr. 736; 1 Witkin, Summary of Cal.Law, 60; 1A Corbin, Contracts, s 264.). “‘The exercise of an option is merely the communicated election of the optionee to accept the option.’ . . . Unless otherwise required by statute, acceptance may be written or oral; an oral acceptance of a written option to convey real property is valid.” Id. (citing Civ.Code, s 1582; Vezaldenos v. Keller, 254 Cal.App.2d 816, 826—827, 62 Cal.Rptr. 808; 1A Corbin, Contracts s 520) (internal citations omitted).

Here, there was an option to purchase the land written into the original lease agreement, which was later extended by the parties or their predecessors in interest.  Further, the landlord and tenant discussed the option several times over the years, including during negotiation for the lease extension in 2006 and again in a letter during 2012. In fact, the tenant relied on the continued option to buy in deciding not to sell his business, and made substantial improvements to the property. Further, tenant actually exercised his option to purchase in writing. Nonetheless, the property was sold to a third party. Therefore, it would appear that this element is met.

  • Damages

“Implicit in the element of damage is that the defendant’s breach caused the plaintiff’s damage.” Troyk v. Farmers Group, Inc. (2009) 171 Cal.App.4th 1305, 1352 [90 Cal.Rptr.3d 589, 628].  The general law relating to damages for breach of contract is “the measure of damages, except where otherwise expressly provided by this code, is the amount which will compensate the party aggrieved for all the detriment proximately caused thereby, or which, in the ordinary course of things, would be likely to result therefrom.” Civ. Code, § 3300.

The Supreme Court has observed that “[c]ontractual damages are of two types—general damages (sometimes called direct damages) and special damages (sometimes called consequential damages).”  Lewis Jorge Const. Management, Inc. v. Pomona Unified School Dist. (2004) 34 Cal.4th 960, 968 [22 Cal.Rptr.3d 340, 344, 102 P.3d 257, 261]. “General damages are often characterized as those that flow directly and necessarily from a breach of contract, or that are a natural result of a breach.” Id. Special damages are “secondary or derivative losses arising from circumstances that are particular to the contract or to the parties.” Id. “Special damages are among the losses that are foreseeable and proximately caused by the breach of a contract.” Id. at 969.

“The focus of an award of damages is the quantification of detriment suffered by a party.” Meister v. Mensinger (2014) 230 Cal.App.4th 381, 396 [178 Cal.Rptr.3d 604, 616], reh’g denied (Oct. 30, 2014). “The aim is to put the injured party in as good a position as he would have been had performance been rendered as promised.” Brandon & Tibbs v. George Kevorkian Accountancy Corp. (1990) 226 Cal.App.3d 442, 455 [277 Cal.Rptr. 40, 47].

The courts have further held that “the damages awarded ‘compensate [ ] the party not in default for the loss of his ‘expectational interest’—the benefit of his bargain which full performance would have brought.’” Sharabianlou v. Karp (2010) 181 Cal.App.4th 1133, 1144-45 [105 Cal.Rptr.3d 300, 310], as modified on denial of reh’g (Mar. 3, 2010) (quoting Runyan v. Pacific Air Industries, Inc. (1970) 2 Cal.3d 304, 316 [85 Cal.Rptr. 138, 147, 466 P.2d 682, 691].

The courts have also observed that “[t]he primary measure of damages for breach of contract is the amount expended on the faith of the contract.” Mendoyoma, Inc. v. County of Mendocino (1970) 8 Cal.App.3d 873, 879 [87 Cal.Rptr. 740, 744]. The Supreme Court has explained the “primary measure of damages” as “the amount of his loss, which may consist of his reasonable outlay or expenditure toward performance, and the anticipated profits which he would have derived from performance.” Buxbom v. Smith (1944) 23 Cal.2d 535, 541 [145 P.2d 305, 307-08]. The “‘outlay incurred in making preparations for the contract’ has been termed as ‘reliance damages.’” Agam v. Gavra (2015) 236 Cal.App.4th 91, 105 [186 Cal.Rptr.3d 295, 306] (quoting Cederberg v. Robison (1893) 100 Cal. 93, 99 [34 P. 625, 626]; US Ecology, Inc. v. State (2005) 129 Cal.App.4th 887, 907 [28 Cal.Rptr.3d 894, 909]; Rest.2d Contracts § 349). This “has been the law in California for over a century.” Id.

 

In the present instance, the tenant had relied on the agreement and subsequent communications with the heirs of the land lord, and made “substantial improvements to the leasehold storefront, painting of the subject building, repair of substantial dry rod around most of the building’s perimeter, repair of the rear garage roof leak, and other property maintenance.” (Offer to buy property document (7)). The heirs were well aware of these improvements and therefore the reasonable foreseeability test is satisfied. The sale of property to the third party, which constitutes the breach of agreement, is the substantial causal factor for damages. Further, the damages are shown with certainty. Thus, the tenant expended the amount on the faith of the contract. Thus, the breach of the agreement has resulted in both expectation and reliance damages to the tenant.

  1. Enforceability of contract in the event of death

“The enforceability of contracts in general (other than those for personal services) survives the death of a contracting party.” Walgren v. Dolan (1990) 226 Cal.App.3d 572, 579 [276 Cal.Rptr. 554, 559]. “When a vendor dies before conveyance, an action for specific performance may be maintained against his heirs and devisees.” Id. (citing O’Donnell v. Lutter (1945) 68 Cal.App.2d 376, 385, 156 P.2d 958).

In Walgren, supra, the plaintiff entered into a contract with “Dolan, Sr. for the purchase of property offered for sale by Dolan, Sr. through a real estate agent.” Walgren, supra, 226 Cal.App.3d at 574. Dolan, Sr. died before conveying the property to the plaintiff. Later it was found that “formal legal and record title [of the property] was held by a trust” and “Dolan, Sr. and his wife were the settlors and sole beneficiaries of the trust.” Id. The court found “that Dolan had the power to direct trust conveyances, and hence had the equitable power of entering into enforceable agreements for the sale of trust realty” Id. at 579 and recognized the enforcement of contract against heirs.

Therefore, the tenant can claim enforcement of the agreement to sell the property against the heirs of the landlord who died before conveyance.

  1. Specific performance

“It is presumed that the breach of an agreement to transfer real property cannot adequately be satisfied by financial payment.” Kaufman v. Goldman (2011) 195 Cal.App.4th 734, 743 [124 Cal.Rptr.3d 555, 562]. “[T]herefore courts routinely grant a plaintiff’s request for specific performance.” Real Estate Analytics, LLC v. Vallas (2008) 160 Cal.App.4th 463, 472-73 [72 Cal.Rptr.3d 835, 841].

The courts have for long held  that “[a]n option to buy land, perhaps more than any other form of contract, contemplates specific performance of its terms; and it is the right to have them specifically enforced that imparts to them their usefulness and value.” O’Connell v. Lampe (1929) 206 Cal. 282, 284 [274 P. 336, 337]. “Specific performance is the proper remedy in such cases, if the contract is certain in all its terms, fair and just in all its parts, and not a hard or unconscionable bargain.” Id.

“Specific performance of a contract may be decreed whenever: (1) its terms are sufficiently definite; (2) consideration is adequate; (3) there is substantial similarity of the requested performance to the contractual terms; (4) there is mutuality of remedies; and (5) plaintiff’s legal remedy is inadequate.” Union Oil Co. of California v. Greka Energy Corp. (2008) 165 Cal.App.4th 129, 134 [80 Cal.Rptr.3d 738, 741] (quoting Blackburn v. Charnley (2004) [117 Cal.App.4th 758, 766, 11 Cal.Rptr.3d 885].

  1. Definite terms

It is settled law that “[o]nly contracts which clearly express the intention of the parties may be specifically performed.” Wilson v. Ward (1957) 155 Cal.App.2d 390, 392 [317 P.2d 1018, 1019].

  1. Adequate consideration

“A contract cannot be enforced by specific performance if there is inadequate consideration” Jenkins v. Teegarden (2014) 230 Cal.App.4th 1128, 1142 [179 Cal.Rptr.3d 304, 314], review denied (Feb. 11, 2015) (citing Civ.Code, § 3391, subd. (1)). Further, “‘[a] consideration, to be adequate, need not amount to the full value of the property. The test is not whether the [vendor] received the highest price obtainable for his property, but whether the price he received is fair and reasonable under the circumstances.’” Id. (quoting Meyer v. Benko (1976) 55 Cal.App.3d 937, 945 [127 Cal.Rptr. 846, 850]) (internal quotations omitted).

  1. Requested performance

“The material factors to be ascertained to support a contract for the sale of real property are: (1) the seller; (2) the buyer; (3) the price; (4) time and manner of payment; and (5) description of the property sufficient to identify it.” Blackburn v. Charnley (2004) 117 Cal.App.4th 758, 766 [11 Cal.Rptr.3d 885, 891].  “In determining whether the material factors in a contract are sufficiently certain for specific performance, ‘the modern trend of the law favors carrying out the parties’ intention through the enforcement of contracts and disfavors holding them unenforceable because of uncertainty …” Id. (quoting Hennefer v. Butcher (1986) 182 Cal.App.3d 492, 500 [227 Cal.Rptr. 318, 322]).

  1. Mutuality of remedies

The courts have observed that the amended Civil Code section 3386 has “discarded the rigid requirement of mutuality in favor of a flexible rule that allows courts to ensure equity is done to both parties.” Converse v. Fong (1984) 159 Cal.App.3d 86, 92 [205 Cal.Rptr. 242, 246]. Further, the courts consider mutuality “achieved because the party who brings the specific performance action submits himself to the jurisdiction of equity and thereby enables the court to assure performance by him.” Id. (internal quotations omitted). “Thus, mutuality is centered around the notion of a court’s ability to adjust the equities in the case and ensure the fair treatment of both parties.” Id.

  1. Inadequate legal remedy

Section 3387 presumes “that the breach of an agreement to transfer real property cannot be adequately relieved by pecuniary compensation.” Real Estate Analytics, LLC v. Vallas (2008) 160 Cal.App.4th 463, 473 [72 Cal.Rptr.3d 835, 841]. Therefore, “[c]ourts generally assume the uniqueness of land and grant specific performance after a breach of a land sale contract in both residential and commercial contexts, with little or no discussion of the adequacy of remedy issue.” Id. at 474.

In the present instance, the agreement to sell is in definite terms and for adequate consideration. Further, the agreement satisfies the material factors necessary for performance. The element of mutuality is also satisfied by submitting to the jurisdiction of equity. Because the breached agreement concerns the transfer of real property, the inadequacy of legal remedy is also satisfied. Therefore, the tenant may be entitled to specific performance.

In California, compensation may be awarded incident to a decree of specific performance, which is different from damages for breach of contract and legal damages. Such damages are awarded in instances where “‘[t]he complainant affirms the contract and asks that it be performed. Since the time for performance has passed, the court relates that performance back to that date, by treating the parties as if the change in ownership had taken place at that time.’” BD Inns v. Pooley (1990) 218 Cal.App.3d 289, 298 [266 Cal.Rptr. 815, 820] (quoting Hutton v. Gliksberg (1982) 128 Cal.App.3d 240, 248 [180 Cal.Rptr. 141, 145]). Thus, “‘[t]he process is more like an accounting between the parties than an assessment of damages.’” Id. at 299.

  1. Tortious interference

“It has long been held that a stranger to a contract may be liable in tort for intentionally interfering with the performance of the contract.” Pacific Gas & Electric Co. v. Bear Stearns & Co. (1990) 50 Cal.3d 1118, 1126 [270 Cal.Rptr. 1, 3, 791 P.2d 587, 589].

“The elements which a plaintiff must plead to state the cause of action for intentional interference with contractual relations are (1) a valid contract between plaintiff and a third party; (2) defendant’s knowledge of this contract; (3) defendant’s intentional acts designed to induce a breach or disruption of the contractual relationship; (4) actual breach or disruption of the contractual relationship; and (5) resulting damage.” Id.

  1. Valid contract

The agreement between the tenant and the landlord to sell the property constitutes a valid agreement.

  1. Defendant’s knowledge

The courts require plaintiff to establish “either the knowledge or intent elements of the interference claims, that is, that defendant was aware of plaintiff’s commercial relationships …”  Winchester Mystery House, LLC v. Global Asylum, Inc. (2012) 210 Cal.App.4th 579, 597 [148 Cal.Rptr.3d 412, 426].

  1. Intentional act

“[T]he evidence may support an inference of culpable intent from conduct substantially certainto interfere with the contract …” Integrated Healthcare Holdings, Inc. v. Fitzgibbons (2006) 140 Cal.App.4th 515, 533 [44 Cal.Rptr.3d 517, 530] (internal quotations omitted).

  1. Actual breach

The courts “have recognized that interference with the plaintiff’s performance may give rise to a claim for interference with contractual relations if plaintiff’s performance is made more costly or more burdensome.” Pacific Gas & Electric Co., supra, 1129.

  1. Damages

The Plaintiff must plead and prove the damages. Id. 1126.

In the present instance, the tenant may be able to pursue tortious interference of contractual relations against the third party if he can prove that the third party had knowledge of the option to buy the land in the lease between the tenant and the land lord.

CONCLUSION

Based on the foregoing, the remedies available to the tenant appear to be: action for breach of contract, specific performance, and tortious interference with contractual relations. However, for tortious interference it is essential to prove that the third party had the knowledge of the agreement between the tenant and the land lord.