In the recent case of Hagman v. Meher Mount Corporation (2013) 215 Cal.App.4th 82, the Second District Court of Appeal held that where the property owner is a non-profit organization and therefore exempt from the payment of property tax, the party claiming title by adverse possession does not have to pay the property tax in order to establish a claim of adverse possession.

In California, it is not legally possible to obtain title to property by adverse possession against the state or a public entity. California Civil Code § 1007. Thus, Meher Mount Corporation argued that because it was formed as a public benefit corporation, that it was an exempt public entity. The Court, however, rejected that argument, holding that what distinguished public entities from non-public entities was the fact that a public entity “is vested with some degree of sovereignty.” “Public benefit corporations lack any element of sovereignty” and so public benefit corporation are no per se exempt from adverse possessions claims.

The Court then went on to decide that since Meher Mount Corporation has applied for and been granted a welfare exemption to the payment of property taxes, that Hagman was “not required to pay property taxes on that land” in order to establish a claim under adverse possession.

Meher Mount Corporation then argued that since it had been paying the Mosquito Control and Vector Borne Disease Prevention Assessment (“mosquito assessment”), its payment of the mosquito assessment was a defense to the adverse possession claim. The Court rejected that argument as well, holding that the mosquito assessment was not a tax and therefore payment was not required. Ultimately, the Court upheld the judgment in favor of Hagman and awarded Hagman title under a claim of adverse possession.

While this case does present fairly unique factual issues, it should be seen as a warning to non-profits in California, including many religious organizations that own land, that they should be more diligent about protecting their rights to their property and especially their boundaries. Boundary issues can present complicated legal issues and it is always best to consult an attorney to know what your particular rights are and to choose that attorney based on their experience in that area.

In addition § 7031 (b) allows “a person who utilizes the services of an unlicensed contractor [to] bring an action in any court of competent jurisdiction in this state to recover all compensation paid to the unlicensed contractor for performance of any act or contract.”

A number of years ago California Courts severely restricted the matters decided by arbitration that could be appealed. Some unlicensed contractors took advantage of this and would have arbitration clauses in their contracts hoping that the arbitrator would ignore the law that unlicensed contractors cannot sue for unpaid work and in fact have to disgorge any funds actually received. Just last week, the Second District Court of Appeal stopped that practice dead in its tracks.

In the case of Ahdout v. Hekmatjah (Jan. 25, 2013) 2013 WL 286265, the Court of Appeal held that the public policy underlying Business & Professions Code § 7031 was so strong that an arbitrator’s award that allowed for recovery by an unlicensed contractor or refused to order disgorgement by an unlicensed contractor was subject to appellate review and could be overturned by the superior court.

The facts in Ahdout were a little more complicated that the normal owner – contractor issue but basically the parties arbitrated for 27 days after which an award was issued by the arbitrators allowing one of the parties to keep compensation it received from contracting work despite the fact that it was not a licensed contractor. The Court of Appeal, after discussing the contractor’s licensing law requirement and the general finality of arbitration awards then went on to review the case under the “proposition that an arbitrator exceeds its powers within the meaning of Code of Civil Procedure section 1286.2 by issuing an award that violates a party’s statutory rights or an explicit legislative expression of public policy.” In doing so it noted that “courts may, indeed must, vacate an arbitrator’s award when it violates a party’s statutory rights or otherwise violates a well-defined public policy.”

In then applying this analysis to Business & Professions Code § 7031, the Court of Appeals “conclude[d] that section 7031 constitutes an ‘explicit legislative expression of public policy,’ that if not enforced by an arbitrator, constitutes grounds for judicial review” and therefore any arbitration award that refuses to apply that law is reviewable by the Superior Court. In fact, the Court of Appeal held that the Superior Court has very broad powers in undertaking such a review and that it should act to uphold public policy and specifically to uphold Business & Professions Code § 7031.

The moral of the story here is that if you are doing contracting business in California, make sure you have a license for the entire time you are doing the work. If you do not, regardless of whether you face a judge or an arbitrator, you are not going to get paid and you will have to give back any money you did get paid. Arbitration is no longer a possible safe haven for unlicensed contractors.

Well, fortunately for California litigants, that problem will be over starting in January. Last week, Governor Jerry Brown signed into law, a modification of the California Code of Civil Procedure that will limit deposition to no more than seven hours.

“Except as provided in subdivision (b), or by any court order, including a case management order, a deposition examination of the witness by all counsel, other than the witness’ counsel of record, shall be limited to seven hours of total testimony. The court shall allow additional time, beyond any limits imposed by this section, if needed to fairly examine the deponent or if the deponent, another person, or any other circumstance impedes or delays the examination.”

In my career, I have actually sat through a deposition of one individual that lasted twenty (20) days! It went so long that the lawyers on the other side of the case actually had T-shirts printed admiring themselves for having “survived” the deposition! While that particular case was very complicated and involved a very large number of parties, I have also just recently sat with a client for four days of deposition in a case where there are only two parties and the amount at stake is quite modest.

The problem with the law as it currently exists is that it puts the burden on the party being deposed to seek a protective order from the Court and such orders, under California law, require that the party losing the motion be sanctioned. The revised law will, properly in my opinion, place the burden on the party taking the deposition to show the Court that more than one day is really needed.

I believe this is an excellent development, putting California more in line with the Federal system that pushes more informal disclosure and less punishing days of deposition. I think it’s a good strong start.

The Court reasoned that CC&R were contractual in nature and that under the Federal Arbitration Act they were enforceable.  This resolves a split of decisions in California where we can now expect that all developers of multi-family condos and town-homes will be putting construction arbitration clauses into their CC&Rs and it is a warning to home buyers and HOA boards that they may be arbitrating any construction claims that arise.

The message from this is to know what you are getting into.  CC&Rs may be long and mostly boring to read, but you can only make good decisions if you have sufficient information.  If you need representation on a construction matter, we have many years of experience so please contact us to see if we can help.

This issue has been answered differently in Villa Milano Homeowners Assn. v. Il Davorge (2000) 84 Cal.App.4th 819, which reasoned, “Individual condominium unit owners ‘are deemed to intend and agree to be bound by’ the written and recorded CC&R’s, inasmuch as they have constructive notice of the CC&R’s when they purchase their homes. CC&R’s have thus been construed as contracts in various circumstances.” 

The California Supreme Court granted review in Pinnacle and recently heard oral argument on the subject.  Hopefully, they will resolve the split and developers and HOAs and their members will have some consistent application of the law. 

In an assignment, the assignee “steps into the shoes” of the tenant and pays rent directly to the landlord. However, unless the landlord specifically releases the tenant, which is rare, the tenant remains liable to the landlord.  Thus, the effect of this is that although the tenant remains liable under the lease, it no longer has the right to occupy the space and thus may not exercise any landlord/tenant remedies, like evicting the assignee, nor can it surrender the premises to the landlord if the assignee fails to do so. Further, the tenant’s liability under the lease continues into all extensions of the lease term even if the assignee extended the lease term without the tenant’s involvement. Thus, in the assignment scenario the tenant assumes much of the risk of the assignee’s behavior.

In a sublease, absent a provision of the lease that changes this outcome, the subtenant pays rent to the tenant, and the tenant retains its privity of contract and its real property rights vis-a-vis the landlord and the subtenant.  The tenant becomes a sublandlord, and may then exercise landlord remedies, such as eviction, should the subtenant fail to vacate timely. However, a subtenant’s holdover for even a short period can result in the automatic extension of the lease term for another year, with the tenant remaining fully liable.

If the assignee files for bankruptcy and the lease is rejected, the tenant remains liable to the landlord but will not be able to regain possession of the leased premises because it gave up those rights. In a sublease, the sublandlord retains the ability to seek to compel the payment of rent during the bankruptcy or to try to get the sublease rejected.  The sublandlord will be also be able to decide whether to accept a modification of the lease.

No one analysis can make the decision of whether to sublease or assign for any particular situation.  It is always best to have your particular lease and your particular situation reviewed before deciding.  These are important and potentially problematic issues, so be aware of them should you be in possession of some extra leased space.

The new law will do the following: (i) it stops lenders from filing notices of default, notices of sale, or conducting foreclosure sales while also actively engaging in the consideration of alternatives to foreclosure, including loan modifications, short sales, and deeds in lieu of foreclosure; (ii) it requires lenders to provide a single point of contact for borrowers and it requires that the assigned contact have knowledge of the borrower’s loan and direct access to decision makers; (iii) it imposes civil penalties of up to $7,500 for repeated filing of foreclosure documents without properly reviewing the foreclosure documents and verifying their accuracy; and (iv) it provides homeowners with the right to access state courts to protect themselves from violations of the law.

The new law will go into effect on January 1, 2013 but it will apply solely to first mortgages and only to homeowners still living in their houses.

The Portfolio Manager® software provides a benchmark rating of a commercial building compared to similar buildings.  Currently, there are over 30 different categories of buildings. A score of 50, means a building provides the average energy efficiency for a similar building. A score of 75 or higher means the building is in the top 25% of energy efficiency and earns an Energy Star rating.

Having a higher score is expected to increase the sales price of the building, as it is an indicator that the building is more cost effective to operate.  However, in most commercial buildings the cost of operations are passed along to tenants and so owners are often less directly able to manage energy efficiency and tenants may be incentivized to select less energy efficient products because they are sharing the cost rather than bearing it wholly themselves.

Thus, one of the most important areas for owners of commercial buildings to address is the terms of their leases.  New leases should address such issues as:

1. that energy efficiency is a primary concern,
2. that tenant must maintain energy saving features as a condition of the lease,
3. that the landlord has a right to monitor the tenant’s energy use, and
4. that the landlord may restrict the use of certain energy inefficient equipment

Issues will also arise during sales. Owner’s will need to be cautious about energy efficiency representations outside of the production of the documents required under the new law. Thing like LEED designations should be made with caution and disclaimers so that there is no assertion later by the buyer that a misrepresentation was made.

At the very least, AB 1103 is going to impose new obligations on the owners of commercial buildings and having counsel that is aware of these obligations and now how to meet them and protect the owner, is essential.  

The discussion above is not intended to provide legal advice to any particular individual but simply to give the readers some things to think about.  If you need more information from me, please take a look at my website www.bronitsky.com..

As explained in the opinion, a bankruptcy plan confirmed over the objection of a secured creditor had to meet one of three requirements to be deemed “fair and equitable.” Under Bankruptcy Code Section 1129(b)(2)(A)(i), a secured creditor’s lien remains on the property and it receives deferred cash payments. Under Section (ii), the property is sold free and clear of the creditor’s lien, and the creditor receives a lien on the sale proceeds. The sale, however, must be conducted pursuant to Section 363(k) of the Bankruptcy Code which provides that the creditor may credit bid at the sale, up to the amount of its claim.  Under Section (iii), the plan has to provide the creditor with the “indubitable equivalent” of its claim.

In the case before the Supreme Court, the debtors sought to confirm their plan under Section (iii) without providing the lender the right to credit bid. Instead, the debtors proposed a plan to sell the property free and clear of the lender’s liens and repay the lender using the sale proceeds.

The Court reasoned that Section (ii) is a detailed provision that sets forth the requirements for confirming a plan that seeks to sell property free and clear of liens. Section (iii), however, is a more broadly worded provision and says nothing about a sale. The Court, relying on a well established principal of statutory interpretation that “the specific governs the general.” held that the general language of clause (iii), “although broad enough to include it, will not be held to apply to a matter specifically dealt with” in clause (ii).  Thus, if the plan includes a sale of the property, then the secured lender has a right to credit bid.  That right, the Court noted, helps protect the creditor against the risk that the property is sold for a depressed price and it allows the secured lender to purchase the property for what it considers a fair market price without committing additional cash.

This is a victory for secured lenders.