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Period of Lease Exceeding 99 Years Is Void, C.A. Declares
By a MetNews Staff Writer
A lease of real property for a period exceeding 99 years is void, not merely voidable, the Court of Appeal for this district held yesterday in a case of first impression, specifying, however, that it is void only to the extent that the statutorily permissible 99-year period is exceeded.
At issue was the meaning of Civil Code §718, enacted in 1872. It provides:
“No lease or grant of any town or city lot, which reserves any rent or service of any kind, and which provides for a leasing or granting period in excess of 99 years, shall be valid.”
Los Angeles Superior Court Judge Armen Tamzarian, sitting on assignment, said in an opinion for Div. Five:
“The text of section 718 does not answer the question of whether a lease term that violates the statute is void or voidable. Section 718 does not use either term. Rather, it provides that no lease with a term in excess of 99 years ‘shall be valid.’ ”
His conclusion was that “the part of the lease exceeding 99 years is void.”
Prime Commercial Property
The controversy is between Tufeld Corporation, which owns prime commercial property at 9777 Wilshire Boulevard in Beverly Hills. It initially leased the building in 1960, with a termination date of 2058.
On Oct, 30, 2003, Beverly Hills Gateway, L.P. (“BHG”) became the lessee, creating a novation. In 2007, BHG paid Tufeld $1.5 million in exchange for its agreement to extend the lease to Dec. 31, 2123. However, Tufeld later became aware of §718’s limitation on the duration of leases and on Jan. 25, 2018, it sued, seeking a declaration that the lease is void and must be cancelled in its entirety.
As an alternative, it contended that the 2007 amendment was a nullity, and that the 2058 termination date applies.
BHG contended that the lease is merely voidable, asserting estoppel, laches, and waiver as affirmative defenses to cancellation.
Los Angeles Superior Court Judge Dennis J. Landin held, following a bench trial, that the lease with BHG had a starting date of 2003 and, adding 99 years, that “[t]he term of the Lease, as amended by the 2007 Amendment, runs through 11:59 p.m. on October 30, 2102.”
He ruled that because BHG is not getting all of what it paid for in 2007 and is entitled to $484,615, on its cross complaint for unjust enrichment.
Tamzarian’s Reasoning
In his opinion that largely affirms Landin’s judgment, Tamzarian wrote:
“In deciding whether a contract that violates a statute is void or voidable, courts sometimes consider whether the contract is malum in se (inherently immoral) or malum prohibitum (illegal by statute). A malum in se contract is absolutely void….A malum prohibitum contract is void “if it falls within the area which the Legislature intended as part of deterrence necessary to protect the public interest.’…
“The lease here is malum prohibitum because section 718 does not bar any immoral conduct. Nonetheless, to the extent the lease term is longer than 99 years, it is void because it contravenes the public policy underlying section 718.”
He elaborated:
“The central purpose of the lease is to rent the property. Its invalid extension beyond 99 years is collateral to that purpose and does not taint the entire contract. The trial court therefore correctly ruled the lease is void only for the period that exceeds 99 years.”
Termination Date
Rejecting Tufeld’s contention that the original termination date of 2058 applies, the pro tem justice said:
“While the 2003 novation did not change the date the lease expired, it did reset the clock on the 99-year limit of section 718. Section 718 thus limits the lease term to 2102.”
Tufeld contested the amount to the award of damages to BHG. Landin arrived at $484,615 by deducting from $1.5 million the percentage of the extended term of the lease that he invalidated, explaining:
“While the parties object to each other’s valuation methods and outcomes, no reliable alternatives have been suggested in place of the pro rata method. The Court believes this further demonstrates the significant difficulty in precisely valuing a portion of a long-term tenancy.
“Under the circumstances, the Court concludes that the pro rata formula provides the most reasonable estimate for determining the restitution award.”
‘Reasonable Approximation’
Tamzarian said:
“Where, as here, unjust enrichment is established with reasonable certainty, the amount of restitution need not be calculated with absolute certainty. A reasonable approximation will suffice.”
Landin denied BHG prejudgment interest. Tamzarian said that the trial court “did not consider its equitable discretion” to make such an award, and the case was remanded for the purpose of considering that option.
The case is Tufeld Corporation v. Beverly Hills Gateway L.P., 2022 S.O.S. 5984.
Attorneys on appeal were Daniel G. Murphy and Daniel J. Friedman of Loeb & Loeb, Andrew S. Pauly of Shoreline, and; Robin Meadow, David E. Hackett and Stefan Caris Love of Greines, Martin, Stein & Richland for BHG and James Goldman and Mara Hashmall* of Miller Barondess and Bruce Adelstein for Tufeld.
Copyright 2022, Metropolitan News Company