Property II, Pages 463–470

Hadian v. Schwartz

Supreme Court of California, November 23, 1994

Facts:

Defendant leased a commercial building from plaintiff to use as a bar and cabaret for a three year term at $650 per month. At the end of this, it had an option to renews for another five years at $800 per month. The lease was a fill-in-the-blank, prefabricated lease. It required for defendant to accept and comply with all legal requirements regulating his use of the property and for him to keep it in good condition everywhere. It finally provided that plaintiff had no obligation to repair the building whatsoever, but did have to pay for casualty insurance.

Defendant renewed the lease for the extra five years. Three months afterwards, the City of Los Angeles contacted plaintiff, advising her that the masonry in the building was susceptible to earthquakes and that she had to have a survey done and pay for safety measures to be installed since she was the owner. After defendant refused to pay for this, plaintiff had it done as required, which required rebuilding the building's frame and replacing its roof for a cost of $34,450.26. Plaintiff then initiated this suit to recover the costs from defendant.

Procedural History:

  • The superior court ruled in favor of plaintiff, which defendant appealed.

  • The Court of Appeal affirmed the judgment of the trial court because defendant had assumed all the duty to comply with all applicable laws about the building's repair.

Issue:

Is the lessee required to pay for government-ordered rebuilding when he agreed to be liable for repairs and governmental regulations relating to his usage?

Reasoning:

  • The case that the Court of Appeal based its reasoning off of was only because the lessee used the building different from how the lessor had, and this modification is what caused the government-mandated change then. The lessee being required to comply with laws regulating their use of the property does not obligate the lessee to comply with laws that do not purport to regulate the use.

  • While the lease described itself as a net lease, transferring virtually all rights and obligations to the lessee, the lease's term was unusually short for a net lease, plaintiff paid for property taxes and casualty insurance premiums, and plaintiff retained ownership of all fixtures at the property. This leads to the conclusion that it was not actually a net lease, despite its characterization.

Rule/Reasoning:

The six factors from Supra give the opposite result in this case:

  1. "The relationship of the cost of the curative action to the rent reserved."
    • The curative action required was more than the total amount agreed to pay in the initial 3-year term and almost half of the total 8.
  2. "The term for which the lease was made."
    • Three years is short, and a renewal option does not change this fact.
  3. "The relationship of the benefit to the lessee to that of the reversioner."
    • The primary beneficiary of the reconstruction is plaintiff, the owner. This benefit will presumably outlast defendant's lease.
  4. "Whether the curative action is structural or nonstructural in nature."
    • Installing a new steel frame, plywood shear walls, foundation anchors, and a new roof are literally "structural."
  5. "The degree to which the lessee's enjoyment of the premises will be interfered with while the curative action is being undertaken."
    • Rebuilding large parts of the the building's structural frame were likely intrusive for defendant's business.
  6. "The likelihood that the parties contemplated the application of the particular law or order involved."
    • It is not clear whether either party gave too much consideration to the threat of earthquakes, although both seemed to consider it somewhat and had taken some measures to comply with earlier earthquake hazard reduction programs. This factor is not persuasive in favor of either party.

Holding:

The lessee is not liable such government-ordered rebuilding. Reversed and remanded to enter judgment for the defendant.

Dropbox – Your stuff, anywhere – Try it free