Juan Juarez (“Tenant”) lived in a rent-controlled apartment complex owned by Boston LLC (“Landlord”) for more than 15 years. Although his lease required him to obtain renter’s insurance, Tenant did not obtain the insurance. After 15 years of not having insurance, on a Friday before a holiday weekend, Landlord served a three-day notice to perform or quit to obtain insurance. Tenant then obtained insurance, but after the three-day period expired. As Tenant did not obtain insurance until after the expiration of the three-day notice, Landlord filed an unlawful detainer suit to evict Tenant.
At the trial court level, the Court ruled in favor of Landlord. Tenant then appealed the decision to the appellate division of the superior court. There, the appellate division affirmed the trial court’s ruling finding that Tenant had breached the lease and therefore could be evicted on that ground. In addition, the Court held that since the lease contained a forfeiture clause in the lease stating that any breach was sufficient grounds for termination of the lease, it did not matter if the breach was of a material term. Tenant appealed again to the appellate court.
The California Court of Appeals for the Second District reversed the lower courts’ rulings and held that a lease can only be terminated for a material breach of the lease. The Court noted that previous cases have held that there must be a breach of a material term before a lease can be terminated. It cited previous cases where a minor default was determined to be insufficient to terminate a lease. The Court noted that while this case was different because of the forfeiture clause, the Court refused to enforce the forfeiture clause in this instance because it was against public policy and needed to be strictly construed. The Court noted that free market principles have limited applicability in residential lease agreements because landlords have disproportionately more power than tenants in those agreements. As such, courts generally favor tenants as they have less bargaining powers and hold landlords to a higher standard.
WHY THIS DECISION IS IMPORTANT:
In order to overcome previous decisions that required a breach of a lease, many landlords included a forfeiture provision in the lease. However, this decision confirms that such a provision does not change the underlying law and is insufficient to allow a termination of a lease for a minor breach. While this case dealt with a lease of a rent controlled apartment, there is no reason to believe that it would not apply to all residential units.
This was perhaps the best case possible for a tenant to bring to challenge the forfeiture provision. Here, the tenant had not complied with the insurance term of the lease for 15 years. Further, the insurance provision only benefited the tenant and the landlord was unable to articulate a reason why not having insurance harmed the landlord. Finally, while giving a 3-day notice on a Friday before a national holiday was technically legal, the court noted that the landlord was gaming the system and was possibly retaliating as there was no reasonable way for the tenant to obtain insurance in time.
Boston LLC v. Juarez, 245 Cal.App4th 75 (2016)