Monday, January 14, 2019
Page 3
Court of Appeal:
First Refusal Purchase Right Didn’t Continue to Holdover Tenancy
By a MetNews Staff Writer
The Court of Appeal for this district has held, in a case of first impression, that a tenant’s right, under a lease, of first refusal to purchase the property, did not survive the expiration of that lease and subsequent conversion of the tenancy to month-to-month.
The opinion, filed Thursday, was written by Justice Brian M. Hoffstadt of Div. Two.
It comes in a case brought by the tenants, James Smyth and his company Awesome Audio, against their landlord Darryl A. Berman and the man to whom she sold the recording studio they had ooccupied, Carmen Santa Maria. The 2011 lease, which provided for the month-to-month holdover tenancy, was silent as to whether the purchase option survived the expiration of the leaae term.
Los Angeles Superior Court Judge Richard Rico sustained the defendants’ demurrers to the operative complaint without leave to amend, noting that it had been Smyth’s “fourth attempt to plead a valid complaint.” Smyth appealed from the subsequent judgment of dismissal.
Right Didn’t Survive
Hoffstadt wrote:
“This case tees up the question: If the expired lease contained a right of first refusal, is that right one of the ‘terms’ that presumptively carries forward into the holdover tenancy?
“We conclude that the answer is ‘no,’ and do so for two reasons.”
The first reason, he said, is that a right of first refusal is not an essential term of a lease; only essential terms, such as the amount and timing of rent payments, are presumed to carry over to a month to month tenancy after a lease’s expiration, the jurist noted.
He added:
“Of course, the parties to a lease certainly have the power to rebut the general presumption that a right of first refusal does not carry forward into a holdover tenancy by expressing a contrary intent…But Berman and plaintiffs did not do so in the 2011 Lease, which merely provided that any ‘continuing [holdover] tenancy will be from month to month.’ This holdover provision does not incorporate, or even mention, the right of first refusal or, for that matter, any other term of the 2011 Lease.”
Public Policy
The second reason, Hoffstadt said, is that “a rule presuming that rights of first refusal do not carry forward into holdover tenancies furthers the public policy favoring the stability of commercial tenancies,” explaining:
“Holdover tenancies exist to ensure stability because they are a mechanism by which tenants may remain in possession without disruption, albeit typically only on a month to month basis….If a right of first refusal presumptively carried forward into a holdover tenancy, a landlord wishing to nullify that right could easily do so by evicting the holdover tenant and selling the property one day later, both of which would be within its rights as the landlord of a holdover tenant.”
He continued:
“This ‘creates an incentive for landlords to evict holdover tenants as soon as possible’…, a result at odds with the stability of commercial tenancies. The contrary rule that carries such purchase options forward only if the parties so specify avoids this result, thereby making holdover tenancies more stable.”
The case is Smyth v. Berman, B286609.
David S. MacCuish and Coral del Mar López of Alston & Bird’s Los Angeles offices represented Smyth and his company. Los Angeles attorneys Barak Lurie, Michele A. Reikes and Brent A. Kramer of Lurie & Seltzer were counsel for Santa Maria and a related defendant; Berman was assisted by Bradley J. Yourist and Daniel J. Yourist of the Yourist Law Corporation in Los Angeles.
Copyright 2019, Metropolitan News Company