Legal Blog

Should I Be Worried About a Lis Pendens on My California Property?

Like many a latin legal phrase, people hearing about a lis pendens on their property are often confused as to whether to be terrified by the unknown phrase or to ignore it as a legalese phrase that has little meaning for their interests. The answer is often somewhere in the middle. The fact that a lis pendens has been placed on your property may actually mean nothing in the long-term for your interests, but it can mean serious short-term annoyance and threats to your interests – regardless of whether the person who placed the lis pendens has some cognizable legal claim against you or not – especially if you are attempting to sell or mortgage your property in the near future.

A Lis Pendens Means Someone is Making a Claim Against Your Property

It can be easy to confuse a lis pendens with a lien, given that they are similar sounding phrases and are both placed “on your property,” but they are quite different. While a lien is a security interest on your property such as a mortgage or attachment of a court judgment, a lis pendens is instead a notice to you and to any other potentially interested parties that there is a legal claim against and/or concerning your property. These legal actions can include:

    • Eminent domain actions (a government body attempting to take your property)
    • Partition actions (a co-owner attempting to divide the property)
    • Quiet title actions (another party claiming ownership of the property)
    • Foreclosure actions

What You Should Do About a Lis Pendens

The fact that a lis pendens has been placed on your property says nothing about whether the party who has filed the action will be successful in the action, but only that an action has been filed. Which brings up two questions: 1) Will the action be successful?, and 2) Even if there is no chance it will be successful, can a lis pendens hurt my interests?

In answering the first question, you should speak to a real estate litigation attorney who can learn about your situation and advise you accordingly on the merits of the action and what you should do in response.

But, as to the second question, even where there is little to no chance of the other party’s success in its action, the presence of a lis pendens can go a long way in scaring off potential buyers and/or lenders who are interested in purchasing the property and/or taking a security interests in it. After all, if there is a question about whether you actually will own a full or partial interest in the property either now or in the future, a buyer or lender will be justifiably cautious about moving further in any transaction.

Fighting to Remove a Lis Pendens

An experienced real estate litigation attorney, however, can work with you to act quickly in removing the lis pendens from your property based on a number of arguments, such as:

  • The suit does not actually affect your interest in the property
  • There is no merit to the suit
  • You were not properly served with notice of the lis pendens
  • Other errors were made by the opposing party

Taking decisive, quick action is often key to success in protecting yourself from a lis pendens on your property, so it is in your interest to contact an attorney as soon as possible after notice of a lis pendens.

Work With an Experienced Los Angeles Lis Pendens Attorney

At Wagenseller Law Firm in downtown Los Angeles, we provide full legal services to individuals and businesses in business and real estate litigation matters. Contact Wagenseller Law Firm today to schedule a consultation to discuss your lis pendens matter.

Who In a Partnership Is Liable in a California Lawsuit?

Many business disputes as well as personal injury lawsuits involve business partnerships. When a plaintiff – whether it be a spurned business partner claiming breach of contract, a customer who broke her leg while on partnership property, or anything in between – successfully brings suit against the partnership, the question will arise as to what parties are going to be financially liable to pay the plaintiff’s damages in a settlement or judgment following a verdict. This question largely will be answered based on what type of partnership was formed.

General Partnerships

A general partnership can be any ongoing business venture carried on by two or more people where profits are shared. There is no registration requirement for a general partnership, and so two people engaged in an ongoing business venture may be considered a general partnership in the eyes of the law even if they never considered or called themselves partners.

This can become hugely significant for the partners – and anyone with whom they deal – when a tort or contract liability comes up. In such situations, all partners can become personally liable for acts carried out by the other in furtherance of the partnership, even if one partner was not aware of the other partner’s acts (and, again, even if they did not think of themselves as a partnership at all). Because the partners in a general partnership are personally liable on partnership debts, this means that their personal assets (such as homes, vehicles, and savings) can be reached, not just assets in the partnership itself.

Limited Partnerships

In a limited partnership, there is at least one general partner and one limited partner.  A limited partner is one that does not take an active role in managing the partnership, but whose contributions are more investment-related. The benefit of being a limited partner is that a limited partner’s liability only extends to the assets invested in the partnership and will not include the limited partner’s personal assets.

Thus, if a limited partner invested $10,000 in the partnership, he or she might lose all that money if the partnership goes bankrupt due to a legal obligation, but that limited partners’ personal assets will be safe. General partners in a limited partnership remain personally liable for the partnership’s obligations, however. Certain registration formalities must be met in California to create a limited partnership.

Limited Liability Partnerships

Limited liability partnerships (LLPs) are often confused with limited partnerships, but they are quite distinct under California law. In a limited liability partnership, the partners are not personally liable for the obligations for the partnership, whether those liabilities might arise out of a contractual relationship (e.g. an employee or supplier) or are based on tort liability. Instead, only the LLP itself will be liable for the obligation in a lawsuit.

To obtain the liability benefits of an LLP in California, the partnership must meet the registration requirements for an LLP and it must also meet ongoing state requirements which are there to ensure that plaintiffs will have recourse against the partnership if injured. These requirements include: 1) obtaining insurance; 2) maintaining an escrow account or similar type of account as security for liabilities; 3) obtaining guarantees from partners; or 4) maintaining a specified net worth.

Talk to a business litigation attorney for further information about liability among partners in the context of an LLP or other partnership in California.

Contact the Partnership Dispute Attorneys at Wagenseller Law Firm

At Wagenseller Law Firm in downtown Los Angeles, we provide full legal services to individuals and businesses in business and real estate litigation matters. Contact the Wagenseller Law Firm today to schedule a consultation to discuss your partnership dispute matter.

What Should Be Listed in a Purchase and Sale Agreement?

When purchasing or selling real estate, parties will almost always execute a purchase and sale agreement prior to the actual transaction (referred to as “the closing”) taking place. This is in contrast to most other types of transactions in which the exchange of funds for property is concurrent with the execution of the contract for the sale, and where the contract is often oral or implied (e.g. a purchase of an appliance). The reasons for this in the context of a real estate transaction are not hard to comprehend: real estate often involves enormous amounts of money, complex financing and closing procedures not present in most transactions, and numerous contingencies and covenants relating to the nature of the property. All of these can and often should be addressed in the purchase and sale agreement. Buyers and sellers of both residential and commercial real estate are highly encouraged to work with counsel in drafting, negotiating, and executing a purchase and sale agreement as well as in considering what litigation strategies are available when a purchase and sale agreement is potentially breached by either party. Below are some of the basics regarding what should be listed in a purchase and sale agreement.

Physical Description of the Property to Be Sold

A key aspect of the purchase and sale agreement is, of course, a description of the property itself to be sold. While this will certainly include identifying descriptions such as the address, more complicated issues can arise with regard to giving specific property boundaries as well as descriptions of whether fixtures and/or equipment (e.g. a swimming pool or air conditioning unit) are included in the sale.

Covenants Relating to Land Use

The agreement should also include descriptions of other non-physical aspects, such as covenants relating to use of the property, for example whether there are covenants against commercial or residential use of the property. Easements should also be included and potential zoning issues of which a buyer may need to be made aware. The agreement may also include warranties regarding any other potential interests in the property.

Financial Terms of the Real Estate Transaction

The price of the property should be listed here, as well as the often numerous other financial terms of the transaction, such as amount of the down payment, use of financing, insurance, how funds will be transferred, and so on.

Representations Regarding Financing

Related to the financial terms of the transaction, purchasers are often required to make representations regarding their financing. Transactions often fall through between the purchase and sale agreement and the closing as a result of a purchaser’s financing not coming through, which can cause significant damage to a seller who may have turned down other offers. Thus, by including representations in the purchase and sale agreement, a seller may have legal recourse in such an event.

Contingency Matters

This is a catch-all area to describe the various procedures and recourse either party may have if the other party fails to follow through on the requirements of the agreement, e.g. a failure to obtain financing. This can dictate dispute resolution rights and obligations such as applicable law and procedures for going to court.

Contact the Real Estate Attorneys at Wagenseller Law Firm

At Wagenseller Law Firm in downtown Los Angeles, we provide full legal services to individuals and businesses in business and real estate litigation matters. Contact the Wagenseller Law Firm today to schedule a consultation to discuss your purchase and sale agreement matter.

Supreme Court Rules Cities Can Sue Banks for Predatory Lending

In a decision that could have an enormous impact on massive real estate litigation claims for years to come, the Supreme Court of the United States recently ruled that the city of Miami could move forward with bringing claims against Bank of America and Wells Fargo for allegedly violating the federal Fair Housing Act (FHA) through predatory lending practices aimed at minority communities. Although the court also ruled that the evidentiary standard that the city must show in linking its alleged damages to the banks’ conduct is higher than that stated by the 11th circuit, the fact that the court rejected the banks’ arguments that municipalities were not proper plaintiffs under the FHA clears the way for more cities to bring suit against large banks for lending practices. According to the Washington Post, Oakland and Los Angeles have already brought similar suits to recover damages from large Wall Street banks.

Miami’s Claims Against the Banks

In its lawsuit, the city of Miami argued that the banks violated the Fair Housing Act, which prohibits discrimination in real estate transactions, by using predatory lending practices to intentionally issue riskier mortgages to homeowners in Latino and African-american neighborhoods than their counterparts in majority-white neighborhoods. The city argued that, as a result of these predatory lending practices, more foreclosures occurred in these neighborhoods and that Miami was injured in the following ways:

  • An adverse impact on the racial composition of the city
  • An impairment of the city’s ability to assure racial integration and desegregation
  • A frustration of the city’s “longstanding and active interest in promoting fair housing and securing the benefits of an integrated community”
  • A drop in property taxes paid to the city
  • An increase in demand for services (fire, police, building and code, etc.) to remedy blight and related issues that foreclosures cause

Traditionally, individuals who have been discriminated in real estate transactions have brought claims under the FHA, thus having a city present a claim under the FHA presented a novel question to the Supreme Court regarding standing. Contrary to the banks’ arguments, the Supreme Court ruled that the city could indeed bring a claim because Miami’s “claimed injuries fall within the zone of interests that the FHA arguably protects.”

Direct Causation Under the FHA Must Be Shown

Although Miami and cities like it can proceed with claims under the FHA, the challenge left by the Supreme Court’s decision is in being able to show sufficient evidence at the outset that there is a direct causal link between the banks’ actions and the damages being argued, i.e. that the predatory lending caused a demonstrable drop in property taxes.

The 11th Circuit Court of Appeals had ruled that Miami need only show that the types of damages it is alleging be “foreseeable” results of the banks’ actions. The Supreme Court unanimously rejected that standard, holding that the proper legal causation standard under the FHA requires “some direct relation between the injury asserted and the injurious conduct alleged.”

While the court declined to further specify the parameters of this standard, it is clear that it does require some level of direct evidence of causation, not just foreseeability. We will learn more about how this evidentiary standard plays out at the trial level as the Miami case returns to the trial and similar cases around the country proceed.

Work With an Experienced Los Angeles Real Estate Attorney

At Wagenseller Law Firm in downtown Los Angeles, our attorneys have extensive experience in resolving all types of real estate litigation matters. Contact the Wagenseller Law Firm today to schedule a consultation to discuss your matter.

 

Airbnb Settles with San Francisco Over Short-Term Rental Lawsuit

Airbnb is one of the biggest startup success stories to come out of San Francisco in years, and yet it and other similar short-term rental services have been engaged with the city in a legal battle in federal court since last summer over stringent new legal requirements set in place last year. The lawsuit brought by Airbnb and HomeAway to invalidate the municipal laws will be dropped, however, contingent on the successful implementation of a settlement agreement reached between the two companies and the city, pending approval by city agencies. The settlement may well be a sign of things to come in how urban localities regulate real estate in an industry disrupted by the rapid change brought on by internet-based services such as Airbnb and HomeAway.

Why the Short-Term Regulations Were Enacted

San Francisco had enacted new short-term rental regulations last year in response to concerns about thousands of property owners operating as unregulated hotels, thereby cutting into amount of properties available to local residents while acting as a drain on city resources and penalizing those property owners in the short-term rental market who do comply with city business registration requirements. Airbnb and HomeAway had raised legal concerns in part due to the fact that those companies themselves would be penalized by the city based on the failure of members using their services to register with the city, including up to $1,000 in fines per illegal listing.

What the Short-Term Rental Settlement Accomplishes

Under the settlement reached with the city, Airbnb and HomeAway will, within 120 days, require members listing rentals in San Francisco to obtain business registrations with the city before they are able to post listings on their sites. The sites will then be required to share user information with the city to promote ongoing compliance with city requirements.

These requirements include placing a cap on the number of days certain types of residences may be used for rental, limiting the rental of the space to permanent owners, and limiting owners to one listing. As of the date of the settlement, over 8,000 listings for San Francisco were available on the sites while only 2,100 entities had registered with the city.

Work With an Experienced Los Angeles Real Estate Attorney

At Wagenseller Law Firm in downtown Los Angeles, our attorneys have extensive experience in resolving all types of real estate litigation matters. Contact the Wagenseller Law Firm today to schedule a consultation to discuss your matter.

City of St. Louis Sues NFL over Los Angeles Rams Move

The move of the Rams football team from St. Louis to Los Angeles in 2016 was one of the biggest sports stories in Southern California in recent decades. Although the Rams initial 4-12 season was less than inspiring, millions of fans across the Los Angeles region welcomed the return of professional football for the first time in 22 years. But back in St. Louis the reaction has of course not been so warm. Beyond just the broken hearts of Rams fans across Missouri, however, the backlash against the move has now hit the courts with the City and County of St. Louis along with the regional sports authority entity suing the Rams, the NFL, and every NFL team and owner (the listing of defendants in the lawsuit fills 18 pages alone) for breach of contract, unjust enrichment, fraudulent misrepresentation, and tortious interference with a business contract.

St. Louis Argues the NFL Violated its Own Relocation Policy

National sports leagues like the NFL present an unusual situation in American law, as they are federations of individually-owned entities which also exist in a singular, dominant organization in a given industry. When it comes to professional football, the NFL is of course the only significant game in town, as it were, and the courts have required that organizations like the NFL take extra steps to comply with federal monopoly/anti-competitive regulations. One such step was the Ninth Circuit requiring in 1984 that the NFL to adopt a “Relocation Policy” that must be followed before a team is allowed to move to another city. The policy requires a team to “work diligently and in good faith to obtain and maintain suitable stadium facilities in their home territories, and to operate in a manner that maximizes fan support in their current home community.”

In their lawsuit against the NFL and team owners, the plaintiffs argue that the Rams not only failed to follow the NFL policy in working in good faith with the City of St. Louis to meet the needs of the Rams (primarily through construction and development of a new stadium), but that the other team owners breached their duties to the plaintiffs by voting for the move without requiring the Rams to follow the policy, enriching themselves in the process. In essence, the plaintiffs argue, “the Relocation Policy and relocation process are a sham meant to disguise the avarice and anticompetitive nature of the entire proceeding.”

St. Louis Accuses Rams Owner of Secretly Plotting Move

The complaint is rife with allegations that the Rams’ owner, Jeff Kroenke, and others repeatedly made fraudulent statements over a span of years indicating that the Rams would stay in St. Louis, despite taking contrary action to plan the move to Los Angeles. Examples of such allegedly fraudulent statements from the complaint include:

  • Kroenke stating in 2010: “I’m going to attempt to do everything that I can to keep the Rams in St. Louis…”
  • Rams GM Kevin Demoff stating in 2012: “Our goal is to build a winner in St. Louis not only in 2012, but in 2022, 2032, and beyond. This city deserves better NFL football and that is what we are focused on every day.”
  • Demoff telling fans in 2014 after Kroenke’s purchase of the land in Inglewood, CA where the Rams stadium is currently under construction: “(the land is) not a piece of land that’s any good for a football stadium. The size and the shape aren’t good for a football stadium.”

The plaintiffs argue that the Rams increased their value by $700 million due to the move at the plaintiffs’ expense while the plaintiffs have lost $100 million in net proceeds. How the court and NFL respond to the plaintiffs’ allegations remains to be seen.

Work With an Experienced Los Angeles Business Litigation Attorney

At Wagenseller Law Firm in downtown Los Angeles, our attorneys have extensive experience in resolving all types of business litigation matters, including those related to fraud and intentional misrepresentation. Contact the Wagenseller Law Firm today to schedule a consultation to discuss your matter.

The Benefits and Challenges of Bringing a CA Intentional Misrepresentation Claim

If “intentional misrepresentation” sounds like a slightly softer way of referring to a lie, fraud, or verbal act of deceit, well that is essentially what it is. In California, an intentional misrepresentation claim is the cause of action brought by a plaintiff who has been defrauded by a defendant and suffered losses as a result. Proving such a claim before a judge or jury is often challenging, but the benefits of doing so are often worth it when the evidence supports such a claim.

Why Bring an Intentional Misrepresentation Claim?

Intentional misrepresentation claims are generally brought with regard to some type of business transaction that did not work out as planned. The underlying scenario could be a home sale, a contract for services completed, a deal to buy inventory or other goods, an employment agreement, or any other type of contract, oral or written.

 

Which leads to the question of why a plaintiff who did not receive the benefit of the bargain would not simply bring a breach of contract action. There are a number of reasons, including:

  • A plaintiff may be limited by the contract itself in the type of action or damages he may pursue based on a breach of contract action
  • A plaintiff can seek punitive damages via an intentional misrepresentation claim
  • The reputational damage that a successful fraud claim can inflict on a defendant may provide additional leverage to settle in a plaintiff’s favor

Why Bringing an Intentional Misrepresentation Presents Challenges

While the potential benefits to a plaintiff in bringing an intentional misrepresentation are clearly greater than in a typical breach of contract action, proving an intentional misrepresentation claim can be more challenging. Rather than showing that the defendant simply failed to hold up his end of the bargain (e.g. the defendant was paid to build a new garage and never followed through), there are additional factors that must be proven regarding the defendant’s state of mind as well as the plaintiff’s reliance on the defendant’s misrepresentation.

 

The steps in proving an intentional misrepresentation claim include showing:

  • The defendant made a representation to the plaintiff that a particular important fact was true
  • The representation made by the defendant was in fact false
  • The defendant knew the statement was false when it was made, or made the statement with a reckless disregard of whether the statement was true or not
  • The defendant intended for the plaintiff to rely upon the representation
  • The plaintiff did in fact reasonably rely on the representation (e.g. the plaintiff entered into a contract with the defendant as a result of the misrepresentation)
  • The plaintiff suffered harm (e.g. lost business profits)
  • The misrepresentation was a substantial factor in causing the harm

While a plaintiff may feel that all of the above factors are clearly true, actually providing evidence of the above factors to a judge and jury can be a challenge, especially where the defendant denies having known of the falsity of the statement. That said, an experienced business litigation attorney will aggressively pursue documentary and testimonial evidence to prove the above factors in order to obtain the tort recovery a plaintiff deserves.

Work With an Experienced Los Angeles Business Litigation Attorney

At Wagenseller Law Firm in downtown Los Angeles, our attorneys have extensive experience in resolving all types of business litigation matters, including those related to fraud and intentional misrepresentation. Contact the Wagenseller Law Firm today to schedule a consultation to discuss your matter.

Government Witness Points to Seeno Executives in Federal Real Estate Fraud Proceedings

A former vice president of sales for a leading San Francisco real estate company has provided numerous details about a real estate mortgage fraud scheme allegedly perpetrated by the company to pump up sales, and which has been the focus of a seven-year investigation by the FBI. The details of the scheme were included in a sentencing memorandum for the salesperson, Ayman Shahid, who is facing years in prison for his role in the fraud, but who provided the FBI with information relating to the scheme in hopes of a reduced sentence. Shahid has alleged that Discovery Homes, a company owned by the powerful Seeno real estate family, engaged in a massive scheme to provide illicit payments to new homeowners to help them purchase homes at inflated costs and fraudulently obtain credit lines.

Shahid Said Scheme Was Directed by Top Executives

The FBI’s investigation of the Seeno real estate companies began in 2010 when it raided the Seeno headquarters in Concord, California to find evidence of real estate mortgage fraud. Shahid was arrested in 2014 on 18 counts of bank fraud, most of which were dropped after spending two years helping federal investigators build their case against the Seeno companies.

Shahid claims that the scheme to illegally provide payments to homeowners to flout credit requirements and inflate home prices was directed by members of the Seeno family as well as the company’s attorneys. Discovery Homes did plead guilty to fraud as a corporate entity, and nine other Seeno associates pled guilty to criminal charges as well, but federal investigators appear to have fallen short in collecting sufficient evidence to charge top Seeno executives.

In a written statement discussing the inability to bring charges against top executives, federal prosecutor John Hemann wrote, “Although logic and the overall circumstances suggest that others at least knew of Shahid’s conduct and the overall scheme, ultimately the proof was lacking and the investigation was not able to establish proof beyond a reasonable doubt.”

Work With an Experienced Los Angeles Real Estate Attorney

Attorney Laine T. Wagenseller of the Wagenseller Law Firm has published numerous articles on real estate law and works with individuals and businesses across Southern California in resolving real estate matters, including allegations of real estate fraud. Contact the Wagenseller Law Firm today to schedule a consultation.

Court Upholds $23 Million Award Against Contractor in CA Real Estate Fraud Case

When Delores McGinty created a special needs trust in 2006 on behalf of her daughter Kathleen,  who suffers from autism, which included ownership of a 1,477 square foot home in Santa Monica, she no doubt wanted to provide for her daughter after her own death, which came to pass in 2009. Unfortunately, a contractor who had offered to make needed repairs on the property took advantage of Kathleen and her brother Tim, who was appointed as trustee, and who lived with Kathleen in the home with only a $865 monthly disability payment for income. After the contractor took ownership of the home through fraudulent actions, a second trustee took action against the contractor resulting in a $23 million award – including $21 million in punitive damages – which was recently upheld by California’s Second Appellate District.

Bouzaglou’s Fraudulent Actions

According to the appellate court’s decision, the detached garage at the McGinty family’s home was cited by the City of Santa Monica for being noncompliant with city residency requirements. Tim, who suffered from severe depression and bipolar syndrome, reached an agreement with Noam Bouzaglou, a salesman at Triangle Construction, for $3,500 to make repairs to the garage and plumbing repairs. The contract was later increased to $16,480.

Bouzaglou later reached an agreement with Tim by which his own construction company, Ness Construction, would build a 650 square foot guest house for $397,000 on the property. Bouzaglou assisted Tim in obtaining a $400,000 loan to cover the cost of the construction and had the funds transferred to his own agent.

Bouzaglou continued to persuade Tim to enter into further agreements for work even after Tim had attempted to commit suicide and was placed in a psychiatric hospital. Bouzaglou eventually persuaded Tim to transfer ownership of the Santa Monica property to him shortly after Tim was released from the psychiatric hospital and just prior to Tim’s death from a stroke. As part of this scheme, Bouzaglou forced Kathleen to move out of the house.

The Appellate Court Upholds the $23 Million Award

At trial, a jury found Bouzaglou and his construction company liable for fraud and ordered both parties to pay $1.33 million in compensatory damages and over $21 million in punitive damages to Kathleen’s trust.

The defendants appealed on procedural grounds as well as on the grounds that the amount of punitive damages was overly high. The court disagreed, finding that the compensatory damages were justified for a number of reasons, including that, “evidence showed that Kathleen suffered physical, mental, and emotional distress when Bouzaglou moved her from the home where she had lived her entire life to an apartment in Encino.” The court further found that the punitive damages were justified given the fact that “the defendants’ actions were highly culpable” and there was a reasonable relationship between those actions and the award.

Work With an Experienced Los Angeles Real Estate Attorney

Attorney Laine T. Wagenseller of the Wagenseller Law Firm has published numerous articles on real estate law and works with individuals and businesses across Southern California in resolving real estate matters, including allegations of real estate fraud. Contact the Wagenseller Law Firm today to schedule a consultation.

Can a CA Commercial Landlord Prevent a Tenant From Assigning a Lease?

In general, a party setting up shop for a business usually intends to stay there for longer than a few months, and commercial leases often extend much longer than a typical 1-year residential lease. But, of course, small businesses and startups go out of business all the time (as do their larger counterparts), and once there is no more business to be run, there is no need for continuing the lease. Short of business termination, a business might have any number of reasons for trying to get out of the obligations of a lease (upsizing, downsizing, location change, etc.) and one of the most common tactics a tenant will pursue is trying to get another party to assume the obligations of the lease by assigning the lease to that third party. Which will of course, mean that the commercial landlord is dealing with a whole new party; instead of a copy shop or accountant’s firm, a daycare facility or pet store might move in which radically changes the situation. Which leads to the question of whether a commercial landlord in California can prevent a tenant from assigning the lease.

Does the Lease Have a Prohibition Clause?

Many leases contain prohibitions on assignment of a lease, but not all prohibitions on assignments are written to say exactly the same thing. For example, some assignment prohibition clauses will absolutely prohibit assignments while others might put conditions on assigning such as requiring approval by the landlord.

While California courts are more favorable to tenants in the context of residential leases, landlords are given more power in the context of commercial leases. Under California CIV § 1995.210, a lease may include a restriction on the transfer of the lease. Furthermore, under CIV § 1995.230, such a prohibition may “absolutely prohibit transfer.” That said, under CIV § 1995.220, “An ambiguity in a restriction on transfer of a tenant’s interest in a lease shall be construed in favor of transferability.”

Putting this all together, if the lease makes a clear statement that assignment is prohibited, then a court will uphold that prohibition, but if a restriction on transferability is somewhat ambiguous, the court may favor the tenant in allowing the assignment.

What if the Lease Gives the Landlord Discretion to Approve the Assignment?

Again, many leases contain assignment provisions which do allow for assignment but only when the landlord approves the assignment. If no standard is provided in the clause for when the landlord will and will not consent to an assignment, then, under CIV § 1995.260, such consent may not be “unreasonably withheld” by the landlord. Whether the landlord is unreasonably withholding consent to a proposed assignment is a question of fact that the parties may have to litigate, and the burden will be on the tenant to prove that the landlord acted unreasonably in withholding consent.

In addition, the parties can include a term in the commercial lease which restricts assignment unless certain conditions are met, such as providing a certain amount of notice before an assignment is allowed.

When the Lease Contains No Prohibition on Assignments

Although most boilerplate leases will contain an assignment clause, the parties may have negotiated so as not to include such a clause or simply created a lease on their own without an assignment clause. In such cases, the tenant will generally have the right to assign its obligations under the lease.

After an assignment, however, the original tenant can remain liable to the landlord for rent if the new tenant fails to follow through on its rent obligations (although the original tenant can pursue legal action to recover the rents paid), unless the landlord releases that original tenant from its obligations under the lease through a novation.

Work With an Experienced Los Angeles Real Estate Attorney

Attorney Laine T. Wagenseller of the Wagenseller Law Firm has published numerous articles on real estate law and works with individuals and businesses across Southern California in resolving real estate matters, including lease matters that result in litigation. Contact the Wagenseller Law Firm today to schedule a consultation.