Clicky

Article: When the Breach of a Lease Becomes Grounds for Eviction

When The Breach of a Lease
Becomes Grounds for Eviction

New ruling, Boston LLC v. Juarez, clarifies when a tenant's technical breach of a residential lease becomes grounds for eviction. In this case, the tenant violated a clause in the lease requiring the tenant to obtain renter's insurance.


Random%20SF%20Architecture%205.jpg

At Bogaards Davis, we assist San Francisco tenants and property owners in a variety of legal cases. As attorneys, our goal is to make sure that our clients, both tenants and landlords, are fairly treated.

On February 25, 2016, the Court of Appeal of California, Second District (Los Angeles) made a ruling that may have repercussions for eviction cases in San Francisco. In the opinion, Boston LLC v. Juarez, the Court examined an apartment rental lease that required the tenant to buy renter’s insurance or face eviction.

Juarez, the tenant, and Boston LLC, the landlord, entered into an apartment lease in Los Angeles. The apartment was subject to the special rules of the Los Angeles Rent Stabilization Ordinance (LARSO), a set of rules similar to San Francisco’s Rent Ordinance. LARSO’s stated goal is to preserve affordable housing, and it limits landlords’ rights to evict tenants. Under LARSO, a landlord may only evict tenants for violation of certain “good causes.”

Facts of the Case

In this case, the apartment lease contained two special clauses:

1) A “forfeiture clause” that gave the landlord the right to end the lease if the Renter broke any rules of the lease. It read, “any failure of compliance or performance by Renter shall allow Owner to forfeit this agreement and terminate Renter’s right to possession.”

2) A renter’s insurance clause that required Juarez to buy renter’s insurance. It stated that the tenant “shall obtain and pay for any coverage necessary to protect Renter . . . for any personal injury or property damage.”

When these two clauses combine, it seems to state that the landlord can end the lease if the tenant violates any lease provision, such as failing to buy renter’s insurance. And that’s precisely what happened, albeit fifteen years later. Juarez, the tenant, lived in the apartment owned by Boston LLC for fifteen years. And in those first fifteen years, Juarez never purchased or obtained renter’s insurance.

In February 2014, Boston LLC moved to evict Juarez, citing Juarez’s failure to follow the lease’s strict requirement that the tenant must have renter’s insurance. Boston LLC began the eviction process with the posting of a 3-day “Notice to Quit” on Juarez’s door. Juarez managed to obtain renter’s insurance within a week, but missed the 3-day deadline. Therefore, Boston LLC took the eviction case (“Unlawful Detainer”) to the courts, where Boston LLC won the case (first in Superior Court, and then in the Appellate Division).

Ultimately, the case was heard by the Court of Appeal, Second Appellate District. The central question decided by the court was whether a landlord may evict a tenant who violates a LARSO lease by making a technical violation of the lease. In simpler terms, the issue was: Given the city’s rent ordinance, can a landlord evict a tenant based on the fact that the tenant failed to follow any requirement or provision in the lease? The Court said “no,” and decided the case in favor of the tenant.

san-francisco-real-estate.jpg

Materiality: Does The Clause Matter to the Landlord?

The Court’s first reason for ruling in favor of the tenant, Juarez, was a bedrock rule of contract law called “materiality.” As a general rule in California (and many other states), when you’re in a contract with another party, you cannot completely cancel or “forfeit” the contract just because the other party made a small or “trivial” violation of the contract’s terms. You can only forfeit the contract if the other party’s rule violation (aka “breach”) is major or “material.”

To determine whether Juarez’s failure to purchase renter’s insurance was “material” versus “trivial,” the Court weighed what actual harm it had on the owner, Boston LLC. The Court wrote that the “primary purpose of renter’s insurance is to protect the tenant, not the landlord.” The Court concluded that Boston LLC had no basis to argue that its tenant’s lack of renter’s insurance had harmed Boston LLC.

“Unequal Bargaining Power” Versus “Freedom to Contract”

As noted above, the forfeiture clause in this case spelled out the fact that both parties agreed to end the lease if the tenant made “any” lease violation. So, opponents of the court’s ruling may argue that the landlord and tenant should have the “freedom to contract.” Under this free market rationale, parties should be allowed to enter into any agreement, including a “forfeiture clause” like the one in this case. This is also the rationale followed by the earlier court rulings, which favored the landlord, Boston LLC.

Here, the Court of Appeals struck down the forfeiture clause based on the “materiality” rules of contract law, as well as the city’s rent ordinance, LARSO. The Court explained that “materiality” is a basic rule of fairness, and is particularly important in the context of special rent ordinances. LARSO aims to combat the shortage of affordable housing, which creates “unequal bargaining power” between landlord and tenant.

As an example of this “unequal bargaining power” between landlord and tenant, the Court pointed to the fact that the risk of forfeiture only applied to the tenant, Juarez. In contrast, Boston LLC, which was the party that had written the lease, did not face any type of forfeiture clause. The Court noted that in comparison to the tenant, Boston LLC had “no obligations at all.”

Finally, the Court criticized the way in which the Landlord tried to manipulate the eviction process. As a point in fact, Boston LLC had waited fifteen years before enforcing the renter’s insurance provision against Juarez. At that point, Boston LLC effectively demanded that Juarez obtain renter’s insurance in 3 days. Worse yet, Boston LLC posted the 3-day notice at the beginning of a 3-day weekend (President’s Day weekend, a legal holiday), making it virtually impossible for Juarez to obtain the insurance within time. The Court did not look at this favorably and—although not the basis for its ruling—stated that Boston LLC had likely engaged in gamesmanship and a pretext eviction.

What Will This Mean For Landlords And Tenants In San Francisco?

Although this case examined an eviction that was subject to a different city’s rent ordinance, it is likely that San Francisco courts will look to this case for guidance, given the two cities’ similar rent ordinances. This ruling offers a few guidelines for apartment renters and landlords in San Francisco:

    1. Tenants should have renter’s insurance (even without this ruling). 
       
    2. Landlords should only proceed with evictions based on material (i.e., important and not trial) breaches of leases by tenants.
       
    3.  A “forfeiture clause” will be legally difficult to enforce against a tenant, given that the Rent Ordinance limits grounds for eviction. Eviction will be especially difficult if the tenant has made a small violation of the lease.
       
    4. If a tenant breaches a lease provision requiring the tenant to have rental insurance, that is likely not going to be sufficient grounds for eviction.

    5. Landlords should give the tenant a fair chance to remedy a minor lease violation.
       
    6. Don’t serve a 3-Day Notice to Quit at the start of a 3-day weekend.
       

Random%20SF%20Architecture%203.jpg

Any Questions? If you are a tenant or landlord, and have questions about eviction, the SF Rent Ordinance, The California Civil Code, or other laws affecting your rights, please don't hesitate to Contact Us.

 

No Legal Advice Intended:This website includes information about legal issues and legal developments.Such materials are for informational purposes only and may not reflect the most current legal developments.The content on this site is offered only as a public service to the web community and does not constitute solicitation or provision of legal advice.This site should not be used as a substitute for obtaining legal advice from an attorney licensed or authorized to practice in your jurisdiction. You should always consult a suitably qualified attorney regarding any specific legal problem or matter. The comments and opinions expressed on this site are of the individual author and may not reflect the opinions of the firm or any individual attorney.