Tuesday, March 1, 2016
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Appellate Panel Construes Lease/Purchase Agreement As Allowing for Buyer’s Eviction From House
By a MetNews Staff WriterBy a MetNews Staff Writer
An agreement for the sale of a residence, whose unusual structure led the trial judge to treat it as a lease, gave the seller the right to evict the buyer for nonpayment, the Third District Court of Appeal ruled yesterday.
Affirming a judgment for possession in favor of Jon and Kimberly Taylor, the court said the “Contract of Sale Residential Property” between the Taylors and Nu Digital Marketing, Inc. had the features both of a sales contract and a lease. “[B]ut because possession was achieved through the lease terms of the agreement, unlawful detainer was properly used to regain possession,” Justice Andrea Hoch wrote for the court.
The agreement allowed Nu Digital to buy the property for $1.25 million, payable within 60 months. Nu Digital was required to grant the Taylors and equity interest in the company, and pay property taxes and insurance costs, as well as homeowner’s dues, along with a “down payment,” and “probationary installments” of $2,300 per month—rising thereafter by the amount of any increase in the seller’s adjustable rate mortgage—for 60 months.
The down payment was to be paid at the rate of $500 per month, provided that after seven months, if the corporation did not obtain personal guarantees from specified individuals, the amount would increase to $1,000 per month. The probationary payments were not to be credited towards the purchase price, the agreement provided.
The seller was permitted to serve a five-day notice to quit if a required payment was not made.
The Taylors brought an unlawful detainer action in June 2013, alleging nonpayment of the installments, which the complaint described as rent.
Placer Superior Court Judge Suzanne I. Gazzaniga ruled for the plaintiffs, rejecting the defense contention that there was no residential tenancy, but rather a purchase agreement, so the summary remedy of unlawful detainer was unavailable.
Hoch explained that under California law, the court must look beyond the labels attached by the parties and determine their rights and obligations based on the contract.
Citing the Black’s Law Dictionary definition of “rent,” the justice wrote:
“We conclude the probationary installment payment provisions set forth a 60-month lease. While defendant also agreed to purchase the property within the lease term, possession of the property was conditioned upon payment of the probationary installments, which entitled defendant only to continued possession, and were therefore rent….This conclusion is bolstered by the fact that the agreement provided plaintiffs, in the event of non-payment of a probationary installment, with a landlord-tenant remedy of serving defendant with a five-day notice to pay rent or quit the premises.”
The case is Taylor v. Nu Digital Marketing, Inc., 16 S.O.S. 1185.
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