Legal Blog

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.

Sears CEO Settles Shareholder Lawsuit With $40 Million Payment Pledge

Sears has been a mainstay of the US retail economy since the 19th century, and while it is no longer the dominant force it was once was, it is still the twelfth largest retailer in the company. But in a move to maintain the company’s financial strength, the company sold 235 of its stores to a real-estate investment trust company called Seritage Growth Companies in 2015. These types of reorganizations and restructuring are of course by no means uncommon in this rapidly changing company, but Sears shareholders balked at the fact that Seritage was created by Sears CEO Eddie Lampert, meaning he was on both sides of the transaction. The shareholders brought suit against Seritage and Lampert, and the shareholder suit was settled earlier this month with an agreement that Lampert and Seritage would pay $40 million back to Sears on account of its shareholders.

The Questioned Deal Between Sears and Seritage

Seritage paid $2.6 billion to purchase the 235 Sears locations in 2015, and Sears agreed to pay rent to Seritage for continued use of the stores. The Sears shareholders who filed the lawsuit against the directors of Sears who approved the deal, among others, alleged that this deal was not in the interest of the shareholders but rather served to benefit Seritage. The complaint noted that Sears has neared bankruptcy in the intervening time since the deal was made while Seritage has profited off the deal.

The shareholders alleged that Lampert facilitated the deal and was the “driving force” behind it to benefit himself at the expense of the Sears shareholders by stripping the company of “its valuable core assets” in the form of the company’s real estate holdings in the store. The shareholders further alleged that other Sears directors ignored the interests of shareholders and were “acting at the behest” of Lampert in approving the deal.

The $40 million to be paid in the deal will come from the defendants and their insurers and the four named shareholders in the action will receive $10,000 apiece.

Experienced Representation in Your Shareholder Litigation Matter

The business litigation attorneys at Wagenseller Law Firm in downtown Los Angeles have extensive experience in representing businesses, corporations, directors, officers, and shareholders in shareholder disputes. We have worked with businesses and individuals throughout Southern California across a wide range of industries, including financial service entities, manufacturers, importers, retail stores, restaurants, entertainment entities, law firms, and more. Contact us today to discuss your breach of fiduciary duty matter.

OC Woman Pleads Guilty to Federal Real Estate Fraud Charges

A 2013 press release from “Investors Workshops, a top-rated real estate investment networking group located in Orange County, California” announced that the entity was celebrating its ten-year anniversary by making its “real estate investing workshops available to the general public” for the first time, and that, not only that, it would be offering “two years” of educational real estate materials for free. If that sounds too good to be true, it was. The free seminars offered by the founders of Investors Workshops – Angel Bronsgeest and Shawn Watkins –  were used to solicit victims enter into a real estate investment ponzi scheme orchestrated by the two individuals which resulted in millions in losses from investors across Orange County. In late January, Bronsgeest pled guilty to a federal wire fraud charge in connection with the scheme and Watkins, who surrendered to the FBI last fall, faces nine counts of wire fraud, mail fraud, and money laundering charges.

How the Real Estate Fraud Scheme Worked

To carry out their scheme, Bronsgeest and Watkins formed an entity called The Equity Growth Group (TEEG). At their Investors Workshops seminars held at various hotels across Orange County, the two individuals told guests that they could invest their funds with TEEG which they claimed owned hundreds of rent-generating properties and which would continue to acquire properties.

 

Potential investors were told they would receive payments on their investments from rent income, but in actuality TEEG was not amassing new properties and was operating at a negative cash flow. While some existing investors did receive payments on their investments, these payments were funded by money flowing into TEEG from additional investors, thus making TEEG a class ponzi scheme. All in all, investors lost $3.5 million in the scheme.

Civil Remedies for Real Estate Fraud

Bronsgeest faces 20 years in federal prison while Watkins faces up to 180 years in federal prison. In addition to criminal penalties, perpetrators of real estate fraud can be required to pay civil damages to the victims of their fraud. Although in some cases of wide-ranging criminal fraud, the perpetrators are not necessarily in a position to financially reimburse their victims, there are often third parties who may have facilitated the fraud and who could be liable to victims. Talk to a real estate fraud attorney about potential civil claims you might have in connection with real estate fraud.

Work With an Experienced Los Angeles Real Estate Fraud Litigator

Whether you are considering legal action against a seller, buyer, broker, or agent, it is important to work with an experienced real estate litigation attorney who can evaluate your circumstances and bring your best case for relief. The Los Angeles real estate fraud attorneys at the Wagenseller Law Firm have the experience to evaluate your case and work to obtain the outcome you deserve. Contact the Wagenseller Firm today to schedule a consultation.

Can a CA Commercial Tenant Stop Paying Rent Via Constructive Eviction?

If you have spent anytime in the world of landlord-tenant law and/or rental property management, you are probably no doubt familiar with the concept of “constructive eviction.” This legal principle dates back hundreds of years in the common law and essentially states that a tenant can be relieved of the obligation to pay rent on a lease if a landlord’s acts or omissions in managing the property make the property unfit for habitation, so long as the tenant gives proper notice and vacates the property. Constructive eviction can be a legal nightmare for landlords while remaining a powerful legal tool for tenants, but the use of constructive eviction in the commercial real estate context in California presents options and challenges for landlords and tenants like.

Constructive Eviction Generally in CA

Under California Civil Code Section 1927, a tenant has the following right: “An agreement to let upon hire binds the letter to secure to the hirer the quiet possession of the thing hired during the term of the hiring, against all persons lawfully claiming the same.”

While this may sound vague or even archaic, California courts have ruled that this means all landlords (or “letters”) owe their tenants an implied duty “that a tenant shall have quiet enjoyment and possession of the premises during the continuation of the term” of lease. Courts have further explained that this means that, if an issue arises that impairs the ability of the tenant to enjoy the property – such as noxious fumes, infestation, major property defects, and so on – and the landlord failures to remedy the issue, the tenant can consider himself “constructively evicted” and then stop paying rent due on the lease, but only after the tenant has moved out.

Contracting Out of a Constructive Eviction Option for Commercial Tenants

With regard to commercial leases, however, the courts have honored the right of commercial landlords to essentially contract with a commercial tenant via the lease to opt out of allowing the option of pursuing a constructive option. Although the courts have said that it is against public policy for landlords to create residential leases which include a clause requiring a residential tenant to waive his right to pursue a constructive eviction, this public policy does not apply to commercial tenants.

Thus, commercial landlords may choose to include a clause in a commercial lease which requires the tenant to waive this right (e.g. “In no event shall Tenant have the right to terminate this Lease as a result of Landlord’s default and Tenant’s remedies shall be limited to damages and/or an injunction.“) and such a clause will be upheld by the court. Although a commercial tenant may be able to pursue other legal remedies such as damages, the courts will not permit a tenant who agrees to this clause to pursue the constructive eviction defense to paying rent on the lease.

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.