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Five Critical Issues for Commercial
Landlords
Matt Marino and Mike Holmes
April 2, 2014
SAN FRANCISCO | CENTURY CITY | LOS ANGELES | ORANGE COUNTY | SAN DIEGO
www.allenmatkins.com
Issue 1: New Developments In Disabled
Access Law
• Many are primarily designed to extort and contain
frivolous allegations
– Plaintiff claimed to have visited 17 different
businesses on the same day, including seven
different restaurants, each of which allegedly
discriminated against him
–Plaintiff filed over 100 lawsuits in one year,
claiming that he was injured in each case
–The estate of a deceased plaintiff claimed that the
deceased plaintiff would like to return to certain
facilities but for their discrimination against him
• More than 35,000 accessibility lawsuits
recently filed in California
2
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Construction-Related Accessibility
Standards Compliance Act (CRAS)
•Civil Code §§ 55.51 et seq.
•First enacted in 2009 as part of a bipartisan effort
to protect businesses from abusive lawsuits
concerning construction-related accessibility
claims.
•Amended as part of Senate Bill 1186, which also
provides for new disclosure requirements under
Civil Code § 1938.
3
www.allenmatkins.com
New Disclosure Requirement
•As of July 1, 2013, all new
commercial leases must state
whether property has been inspected
by a Certified Access Specialist
(CASp)
•If property has been CASp
inspected, the lease must also state
whether the property meets all
applicable standards
4
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5
Frequently Asked Questions
•Certification of Building vs. Premises
• New Leases v. Amendments
• Pre-emptive inspections or
certifications
• CASp Certification v. Building Permit
www.allenmatkins.com
6Issue 2: Free Speech and Protesters
• First Amendment protests in commercial and retail are
common
• Landlord generally must allow access to areas held open as
public areas
•Free speech rights generally trump private property rights if
characterized as a “public space”
www.allenmatkins.com
7
“Private Property” May Be Not So
Private
• Legal arguments
– Owner invites public onto property and surrenders a level of
control
–Shopping centers serve a role tantamount to public space
• Policy Arguments
– Suburban growth has changed how we organize cities and create
public spaces
–Commercial areas, especially retail, and private shopping centers
have replaced downtowns as the public gathering places
• California law offers broad protection to free speech
www.allenmatkins.com
8What Restrictions Can I Impose?
• Landlord may impose content-
neutral “time, place, and manner”
restrictions
• Must be content neutral
• Should be site-specific
• May include numerous landlord protections
•Peak day protections, location limitations,
application requirements
• Safety generally trumps speech!
•No harassment, blocking of exits, damage,
disorderly conduct, obscenity
•Develop standard policy and application for
speech activities
www.allenmatkins.com
9Practical Tips
•Use judgment
• No “one size fits all” remedy
•Identify and discuss with group leader
•Look for resolution that satisfies immediate
needs
•Contact police
• Especially for disruptive or dangerous situations
•Consider legal options
•Legal options are slower, even “emergency”
relief may take several days to obtain
•Police will enforce injunction if necessary
• Closely document improper activity
• Photos, videos may be necessary evidence
•Post signs
www.allenmatkins.com
10
Issue 3: Contract Terms As Shield
Against Fraud Claims
•Barred claims of fraud based on extrinsic evidence of a
purported promise at odds with the terms of a written
contract.
•E.g., if lease provides tenant inspected premises and found it
to be in good repair, tenant cannot then sue landlord post-
possession when tenant discovers premises are in poor
condition, even with evidence that landlord verbally
promised to make repairs.
•Pendergrass rule around for over 75 years.
•Bank of America v. Pendergrass (1935)
www.allenmatkins.com
11Riverisland v. Fresno-Madera Prod. (2013)
•California Supreme Court
overrules Pendergrass.
• Evidence of verbal promises or
agreements at odds with the terms of a
written contract may be considered to
determine whether the contract should
be invalidated as having been procured
by fraud.
•Court found no statutory support for
Pendergrass rule, and believed rule
may provide a shield for fraudulent
conduct.
www.allenmatkins.com
12What does this mean?
•In the prior example – the evidence of landlord’s
verbal promise to repair the premises will now be
admitted into evidence despite contradicting lease
terms.
•Even with integration and “AS IS” clauses, jury can
find evidence of fraud.
•The fact that the parties are “sophisticated” will not
matter.
www.allenmatkins.com
13What can we do to protect ourselves?
•Restrict flow of communication
•Increase number of representations regarding inspections and
opportunities to consult with consultants
•Highlight and initial additional provisions, such as integration clause
and clauses confirming that parties have read, understood and
accepted contract provisions
•Insert representations that no statements at variance with contract
have been made, and to the extent any have been made, the parties
are not relying on them and such statements are not material
•If sued, landlord may be able to argue “unjustifiable reliance,”
especially if there are several disclaimers in the written contract
www.allenmatkins.com
14The Bottom Line
• Defendants can no longer bring an early pleading
challenge like a demurrer to dismiss fraud claims under
Pendergrass.
•It is now all about whether an extrinsic promise was
made and plaintiff’s “justifiable reliance” on that
promise, even if plaintiff is a sophisticated party.
•The trier of fact will decide.
www.allenmatkins.com
15Issue 4: My (Nearly) Bankrupt Tenant
•Pursue claims and serve notices
as normal until filing is confirmed
•Ensure tenant is the entity in
bankruptcy
•Serve Three-Day Notices
promptly to avoid stay
•Lease will not be asset of
bankruptcy estate
•Apply security deposit or apply
letter of credit
•Protects Against Claims By
Other Creditors
www.allenmatkins.com
16Landlord’s Rights In Bankruptcy
•Automatic stay on all prosecution
•Tenant retains rights and benefits
of tenancy
•Pre-petition vs. post-petition
("administrative") rent claims
•Assumption/assignment vs.
rejection
•Discharge of debts
www.allenmatkins.com
Issue 5: Stipulated Judgments 17
• Secure settlement of pending
litigation.
• Defendant agrees to pay compromise
settlement amount, and if he/she fails to
timely pay, then judgment can be
entered against Defendant without
litigation or trial.
• Amount of settlement is negotiable.
Amount of judgment must be
reasonable, and is sometimes tied to the
amount alleged in the underlying
lawsuit.
www.allenmatkins.com
Statutes and Case Law
•Civil Code §1671(b)
–“[A] provision in a contract liquidating the damages for the
breach of the contract is valid unless the party seeking to
invalidate the provision establishes that the provision was
unreasonable under the circumstances existing at the time the
contract was made.”
•Morris v. Redwood (2005): “Absent a relationship between the
liquidated damages and the damages the parties anticipate would
result from a breach, a liquidated damages clause will be construed
as an unenforceable penalty.”
18
www.allenmatkins.com
Greentree Case
•Greentree Financial v. Execute Sports (2008):
–Parties settled $45K lawsuit for $20K.
–Stipulated judgment for $61K, which included $45K
claimed as damages in underlying lawsuit, plus interest,
attorneys’ fees and costs.
–Court directed settlement to be reduced to $20K,
because it was otherwise an unenforceable penalty.
–The relevant breach “is the breach of the stipulation,
not the breach of the underlying contract.”
–Question: What if parties waive right to challenge?
19
www.allenmatkins.com
Purcell v. Schweitzer (March 2014)
•Promissory note for $85K.
•Borrower defaulted, and Plaintiff sued.
•Parties settled for $38K to be paid in installments,
secured by a stipulated judgment for $85K, less amounts
already paid.
•Parties agreed $85K was not a penalty/forfeiture, and
borrower waived right to challenge judgment.
20
www.allenmatkins.com
Plaintiff’s Argument in Purcell
•Plaintiff argued that his stipulated judgment was different
than the one in Greentree.
–Borrower provided “express waiver” to challenge the
stipulated judgment “on any basis.”
–Parties agreed that the amount of the stipulated judgment
reflected the economics of proceeding further with the
matter, and was therefore not a penalty or forfeiture.
21
www.allenmatkins.com
Result in Purcell
•Court set aside stipulated
judgment as an improper
penalty/forfeiture.
–Words used in contract
cannot circumvent public
policy.
–Whether a clause is a
penalty/forfeiture vs. bona
fide provision for liquidated
damages depends on the
actual facts at the time the
contract is executed.
22
www.allenmatkins.com
What can we do to protect ourselves?
•One possibility – restructure stipulated
judgment:
–Judgment for full amount of claim.
–Agree that certain installment payments
are waived if all previous payment are
made timely.
–Untested – no case law on point since
Purcell.
23

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Sd #816779-v1-networking presentation-_4-2-14

  • 1. www.allenmatkins.com Five Critical Issues for Commercial Landlords Matt Marino and Mike Holmes April 2, 2014 SAN FRANCISCO | CENTURY CITY | LOS ANGELES | ORANGE COUNTY | SAN DIEGO
  • 2. www.allenmatkins.com Issue 1: New Developments In Disabled Access Law • Many are primarily designed to extort and contain frivolous allegations – Plaintiff claimed to have visited 17 different businesses on the same day, including seven different restaurants, each of which allegedly discriminated against him –Plaintiff filed over 100 lawsuits in one year, claiming that he was injured in each case –The estate of a deceased plaintiff claimed that the deceased plaintiff would like to return to certain facilities but for their discrimination against him • More than 35,000 accessibility lawsuits recently filed in California 2
  • 3. www.allenmatkins.com Construction-Related Accessibility Standards Compliance Act (CRAS) •Civil Code §§ 55.51 et seq. •First enacted in 2009 as part of a bipartisan effort to protect businesses from abusive lawsuits concerning construction-related accessibility claims. •Amended as part of Senate Bill 1186, which also provides for new disclosure requirements under Civil Code § 1938. 3
  • 4. www.allenmatkins.com New Disclosure Requirement •As of July 1, 2013, all new commercial leases must state whether property has been inspected by a Certified Access Specialist (CASp) •If property has been CASp inspected, the lease must also state whether the property meets all applicable standards 4
  • 5. www.allenmatkins.com 5 Frequently Asked Questions •Certification of Building vs. Premises • New Leases v. Amendments • Pre-emptive inspections or certifications • CASp Certification v. Building Permit
  • 6. www.allenmatkins.com 6Issue 2: Free Speech and Protesters • First Amendment protests in commercial and retail are common • Landlord generally must allow access to areas held open as public areas •Free speech rights generally trump private property rights if characterized as a “public space”
  • 7. www.allenmatkins.com 7 “Private Property” May Be Not So Private • Legal arguments – Owner invites public onto property and surrenders a level of control –Shopping centers serve a role tantamount to public space • Policy Arguments – Suburban growth has changed how we organize cities and create public spaces –Commercial areas, especially retail, and private shopping centers have replaced downtowns as the public gathering places • California law offers broad protection to free speech
  • 8. www.allenmatkins.com 8What Restrictions Can I Impose? • Landlord may impose content- neutral “time, place, and manner” restrictions • Must be content neutral • Should be site-specific • May include numerous landlord protections •Peak day protections, location limitations, application requirements • Safety generally trumps speech! •No harassment, blocking of exits, damage, disorderly conduct, obscenity •Develop standard policy and application for speech activities
  • 9. www.allenmatkins.com 9Practical Tips •Use judgment • No “one size fits all” remedy •Identify and discuss with group leader •Look for resolution that satisfies immediate needs •Contact police • Especially for disruptive or dangerous situations •Consider legal options •Legal options are slower, even “emergency” relief may take several days to obtain •Police will enforce injunction if necessary • Closely document improper activity • Photos, videos may be necessary evidence •Post signs
  • 10. www.allenmatkins.com 10 Issue 3: Contract Terms As Shield Against Fraud Claims •Barred claims of fraud based on extrinsic evidence of a purported promise at odds with the terms of a written contract. •E.g., if lease provides tenant inspected premises and found it to be in good repair, tenant cannot then sue landlord post- possession when tenant discovers premises are in poor condition, even with evidence that landlord verbally promised to make repairs. •Pendergrass rule around for over 75 years. •Bank of America v. Pendergrass (1935)
  • 11. www.allenmatkins.com 11Riverisland v. Fresno-Madera Prod. (2013) •California Supreme Court overrules Pendergrass. • Evidence of verbal promises or agreements at odds with the terms of a written contract may be considered to determine whether the contract should be invalidated as having been procured by fraud. •Court found no statutory support for Pendergrass rule, and believed rule may provide a shield for fraudulent conduct.
  • 12. www.allenmatkins.com 12What does this mean? •In the prior example – the evidence of landlord’s verbal promise to repair the premises will now be admitted into evidence despite contradicting lease terms. •Even with integration and “AS IS” clauses, jury can find evidence of fraud. •The fact that the parties are “sophisticated” will not matter.
  • 13. www.allenmatkins.com 13What can we do to protect ourselves? •Restrict flow of communication •Increase number of representations regarding inspections and opportunities to consult with consultants •Highlight and initial additional provisions, such as integration clause and clauses confirming that parties have read, understood and accepted contract provisions •Insert representations that no statements at variance with contract have been made, and to the extent any have been made, the parties are not relying on them and such statements are not material •If sued, landlord may be able to argue “unjustifiable reliance,” especially if there are several disclaimers in the written contract
  • 14. www.allenmatkins.com 14The Bottom Line • Defendants can no longer bring an early pleading challenge like a demurrer to dismiss fraud claims under Pendergrass. •It is now all about whether an extrinsic promise was made and plaintiff’s “justifiable reliance” on that promise, even if plaintiff is a sophisticated party. •The trier of fact will decide.
  • 15. www.allenmatkins.com 15Issue 4: My (Nearly) Bankrupt Tenant •Pursue claims and serve notices as normal until filing is confirmed •Ensure tenant is the entity in bankruptcy •Serve Three-Day Notices promptly to avoid stay •Lease will not be asset of bankruptcy estate •Apply security deposit or apply letter of credit •Protects Against Claims By Other Creditors
  • 16. www.allenmatkins.com 16Landlord’s Rights In Bankruptcy •Automatic stay on all prosecution •Tenant retains rights and benefits of tenancy •Pre-petition vs. post-petition ("administrative") rent claims •Assumption/assignment vs. rejection •Discharge of debts
  • 17. www.allenmatkins.com Issue 5: Stipulated Judgments 17 • Secure settlement of pending litigation. • Defendant agrees to pay compromise settlement amount, and if he/she fails to timely pay, then judgment can be entered against Defendant without litigation or trial. • Amount of settlement is negotiable. Amount of judgment must be reasonable, and is sometimes tied to the amount alleged in the underlying lawsuit.
  • 18. www.allenmatkins.com Statutes and Case Law •Civil Code §1671(b) –“[A] provision in a contract liquidating the damages for the breach of the contract is valid unless the party seeking to invalidate the provision establishes that the provision was unreasonable under the circumstances existing at the time the contract was made.” •Morris v. Redwood (2005): “Absent a relationship between the liquidated damages and the damages the parties anticipate would result from a breach, a liquidated damages clause will be construed as an unenforceable penalty.” 18
  • 19. www.allenmatkins.com Greentree Case •Greentree Financial v. Execute Sports (2008): –Parties settled $45K lawsuit for $20K. –Stipulated judgment for $61K, which included $45K claimed as damages in underlying lawsuit, plus interest, attorneys’ fees and costs. –Court directed settlement to be reduced to $20K, because it was otherwise an unenforceable penalty. –The relevant breach “is the breach of the stipulation, not the breach of the underlying contract.” –Question: What if parties waive right to challenge? 19
  • 20. www.allenmatkins.com Purcell v. Schweitzer (March 2014) •Promissory note for $85K. •Borrower defaulted, and Plaintiff sued. •Parties settled for $38K to be paid in installments, secured by a stipulated judgment for $85K, less amounts already paid. •Parties agreed $85K was not a penalty/forfeiture, and borrower waived right to challenge judgment. 20
  • 21. www.allenmatkins.com Plaintiff’s Argument in Purcell •Plaintiff argued that his stipulated judgment was different than the one in Greentree. –Borrower provided “express waiver” to challenge the stipulated judgment “on any basis.” –Parties agreed that the amount of the stipulated judgment reflected the economics of proceeding further with the matter, and was therefore not a penalty or forfeiture. 21
  • 22. www.allenmatkins.com Result in Purcell •Court set aside stipulated judgment as an improper penalty/forfeiture. –Words used in contract cannot circumvent public policy. –Whether a clause is a penalty/forfeiture vs. bona fide provision for liquidated damages depends on the actual facts at the time the contract is executed. 22
  • 23. www.allenmatkins.com What can we do to protect ourselves? •One possibility – restructure stipulated judgment: –Judgment for full amount of claim. –Agree that certain installment payments are waived if all previous payment are made timely. –Untested – no case law on point since Purcell. 23