Tufeld Corp. v. Beverly Hills Gateway, L.P. ( 2022 )

Filed 12/7/22
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION FIVE
TUFELD CORPORATION, B314862
Plaintiff, Cross-defendant and (Los Angeles County
Appellant, Super. Ct. No. BC691352)
v.
BEVERLY HILLS GATEWAY, L.P.,
Defendant, Cross-complainant
and Appellant.
APPEAL from a judgment of the Superior Court of
Los Angeles County, Dennis Landin, Judge. Affirmed in part and
reversed in part with directions.
Loeb & Loeb, Daniel G. Murphy and Daniel J. Friedman;
Shoreline, and Andrew S. Pauly; Greines, Martin, Stein &
Richland, Robin Meadow, David E. Hackett and Stefan Caris
Love for Defendant, Cross-complainant and Appellant.
Miller Barondess, James Goldman and Mara Hashmall;
Law Office of Bruce Adelstein and Bruce Adelstein for Plaintiff,
Cross-defendant and Appellant.
____________________________
This is a commercial landlord-tenant dispute. Plaintiff,
cross-defendant, and appellant Tufeld Corporation (Tufeld) is the
landlord. Defendant, cross-complainant, and cross-appellant
Beverly Hills Gateway L.P. (BHG) is the tenant.
The subject lease, as amended, has a term greater than 99
1
years. This contravenes Civil Code section 718, which provides
in relevant part: “No lease or grant of any town or city lot, which
reserves any rent or service of any kind, and which provides for a
leasing or granting period in excess of 99 years, shall be valid.”
The main issue on appeal is whether a lease that violates
section 718 is void or voidable. No published case has directly
answered this question. It makes a difference here because if the
lease is voidable, BHG can assert equitable defenses against
Tufeld’s claims for declaratory relief. We hold the part of the
lease exceeding 99 years is void.
BACKGROUND
Tufeld is a family-owned company founded in 1945. It
owns prime commercial real property in Beverly Hills (the
property). In 1960, pursuant to a ground lease, Tufeld rented the
property to two original tenants. The annual rent was 6 percent
of the appraised value of the property subject to periodic
reappraisals. The lease term was for 98 years ending in 2058.
In 1964, the original tenants constructed an office building
on the property. By 2003, Douglas Emmett Realty Fund 1997
(Douglas Emmett) had become the tenant.
1
Unless otherwise stated, all further statutory
references are to the Civil Code.
2
On October 28, 2003, via two virtually simultaneous
transactions, BHG purchased Douglas Emmett’s interest in the
ground lease. Douglas Emmett granted and assigned its interest
to BHG and two other companies, and then those two companies
immediately granted and assigned their interests to BHG. BHG
borrowed money from a lender to finance these transactions.
In 2007, BHG wished to renovate the building on the
property. To make its investment more attractive, BHG sought
to extend the term of its tenancy.
On May 24, 2007, BHG and Tufeld executed an amendment
to lease. Under this amendment, the lease term was extended to
December 31, 2123, and future rent was increased to 6.5 percent
of the appraised value of the property. BHG also agreed to pay
Tufeld $1.5 million. Additionally, pursuant to a memorandum of
agreement, Tufeld granted BHG a right of first refusal to match
any bona fide written offer to buy any interest in the property.
In October 2007, BHG refinanced its loan, borrowing $47
million from a new lender. As part of that transaction, Tufeld
signed an estoppel certificate confirming, among other things,
that the lease “terminates on December 31, 2123.” BHG
subsequently invested about $8.8 million in renovations to the
building on the property over several years.
In late 2016 or early 2017, Tufeld increased the monthly
rent from $30,500 to $200,000 based on a scheduled reappraisal
of the property’s value. The parties litigated the reappraisal and
rent increase in arbitration and court but settled the matter
before a judgment was rendered.
In September 2017, BHG again refinanced its secured loan,
this time borrowing $49 million. Tufeld signed a second estoppel
certificate, confirming that BHG’s lease “terminates on
3
December 31, 2123.” BHG used some of the loan proceeds to
make improvements to the building on the property.
In about December 2017 or January 2018, Tufeld’s
president Howard Tufeld learned that leases longer than 99
years are invalid under section 718. Mr. Tufeld had not
consulted with a lawyer when he signed the documents for the
2007 lease amendment.
In January 2018, Tufeld commenced this action by filing a
complaint for declaratory relief and quiet title against BHG in
superior court. Tufeld sought an order cancelling the ground
lease or, alternatively, an order cancelling the 2007 lease
amendment on the ground the lease term exceeds 99 years.
BHG filed a cross-complaint for declaratory relief, unjust
enrichment, and reformation. It sought a declaration that section
718 does not affect the ground lease. Alternatively, BHG prayed
for a declaration that the ground lease is valid for a period of 99
years commencing in 2003 (or other proposed dates) and for
restitution of sums by which Tufeld was unjustly enriched.
After a bench trial, the trial court issued a statement of
decision and judgment, both of which were amended. The court
concluded that BHG’s acquisition of the lease in 2003 constituted
a novation and that the lease term ended in 2102. The court
further found the lease is void under section 718 to the extent its
term exceeds 99 years. In light of this determination, the court
concluded that BHG could not maintain its estoppel, laches, and
waiver defenses.
Nonetheless, “to avoid an unnecessary retrial in the event
of an appellate reversal,” the trial court addressed the merits of
BHG’s equitable defenses. The court found that if estoppel,
laches, and waiver are available, then the facts of this case
4
compel their application, requiring full enforcement of the ground
lease term through 2123.
Both parties timely appealed.
DISCUSSION
I. The Part of the Lease Exceeding 99 Years is Void
We interpret statutes de novo. (Burden v. Snowden (1992)
2 Cal.4th 556, 562.) “ ‘As in any case involving statutory
interpretation, our fundamental task here is to determine the
Legislature’s intent so as to effectuate the law’s purpose.’ ” (In re
C.H. (2011) 53 Cal.4th 94, 100.)
We start with the language of the statute. “If the statute’s
text evinces an unmistakable plain meaning, we need go no
further. [Citation.] If it is ambiguous, we may consider a variety
of extrinsic sources in order to identify the interpretation that
best effectuates the legislative intent.” (Beal Bank, SSB v. Arter
& Hadden, LLP (2007) 42 Cal.4th 503, 508.)
These extrinsic sources include the legislative history, the
public policy underlying the statute, and the relevant statutory
framework as a whole. (S.B. Beach Properties v. Berti (2006) 39
Cal.4th 374, 379; People v. Cole (2006) 38 Cal.4th 964, 974.)
“When examining a statute’s legislative history, it is appropriate
for courts to consider the timing and historical context of the
Legislature’s actions.” (MCI Communications Services, Inc. v.
California Dept. of Tax & Fee Administration (2018) 28
Cal.App.5th 635, 652.)
A. The text of the statute
The text of section 718 does not answer the question of
whether a lease term that violates the statute is void or voidable.
Section 718 does not use either term. Rather, it provides that no
5
lease with a term in excess of 99 years “shall be valid.” “ ‘Not
valid’ does not necessarily mean ‘void.’ ” (Safarian v. Govgassian
(2020) 47 Cal.App.5th 1053, 1067 (Safarian); accord Knapp v.
Ginsberg (2021) 67 Cal.App.5th 504, 532.)
B. Historical context, legislative history, and public
policy underlying the statute
When California became part of the United States in 1848
and a state in 1850, it was not the global economic and cultural
hub that it is today. It was a remote region, far from the centers
of political power and commerce, with a population of less than
100,000. (U.S. Census Office, Ninth Census (1872) vol. I, table II,
p. 14.)2
The California Legislature and courts immediately faced a
chaotic state of the law. (See Kleps, The Revision and
Codification of California Statutes 1849–1953 (1954) 42 Cal.
L.Rev. 766 (Kleps); Parma, The History of the Adoption of the
Codes of California (1929) 22 Law Libr. J. 8, 9.) With a skeletal
political and judicial infrastructure, “[t]he state’s political
authorities, such as they were, struggled to provide a legal order
for a small and transitory population.” (Griffin, California
Constitutionalism: Trust in Government and Direct Democracy
(2009) 11 U. Pa. J. Const. L. 551, 558.)
The Legislature considered whether to adopt an English
common law system or a codified form of civil law. (See Kleps,
2
We take judicial notice of California’s approximate
population in 1850 and 1870. (Evid. Code, § 452, subds. (c) & (h);
Moehring v. Thomas (2005) 126 Cal.App.4th 1515, 1523, fn. 4.)
This information can be found on the United States Census
Bureau’s website (https://www.census.gov).
6
supra, 42 Cal. L.Rev. at p. 766.) It chose the former. (Ibid.)
Since the beginning of California’s statehood, the common law of
England has been the law of the state except where it conflicts
with the United States Constitution or other California law.
(Stats. 1850, ch. 95, now § 22.2.)
In the first two decades of statehood, California’s law
remained relatively undeveloped compared to the law of the far
older and more populous states on the East Coast. Between 1850
and 1870, the Legislature made several unsuccessful attempts to
enact more comprehensive statutes. (Kleps, supra, 42 Cal. L.Rev.
at pp. 767–772.) The need to complete this task grew more
urgent as the state rapidly developed. By 1870, the state’s
population had more than quintupled to over 560,000. (U.S.
Census Office, Ninth Census, supra, vol. I, table II, p. 14.)
In 1872, the Legislature took a major step toward filling
the gaps in California law by enacting four codes, including the
Civil Code, which was primarily adopted from the Civil Code of
the State of New York (1865) (Field Code). (Fluor Corp. v.
Superior Court (2015) 61 Cal.4th 1175, 1200 (Fluor); Estate of
Duke (2015) 61 Cal.4th 871, 880; Standard Life Stock Co. v. Pentz
(1928) 204 Cal. 618, 640 (Standard Life).) The Field Code was a
statutory scheme based on New York common law that was never
enacted in New York. (Fluor, at p. 1200, fn. 33; Estate of Duke, at
p. 880; Standard Life, at p. 640.) It was prepared by a
commission headed by David Dudley Field. (Fluor, at p. 1200, fn.
33.)
When the Legislature enacted the Civil Code in 1872, it
had before it a report prepared in 1871 by the California Code
Commission. (Fluor, supra, 61 Cal.4th at p. 1200.) In the preface
to its proposed Civil Code, the commission noted that the
7
common law was “found scattered throughout thousands of
volumes of English and American reports and digests.” (Code
Comm., Revised Laws of the State of California (1871) at p. iv
(Proposed Code); see Kleps, supra, 41 Cal. L.Rev. at p. 774
[commission presented proposed code].) The commissioners
lauded the Field Code’s scholarly summary of the common law
and candidly stated, “We . . . avail ourselves of the exhaustive
labors of the New York Commission.” (Proposed Code, at p. iv.)
Section 718 was first enacted as part of the 1872 Civil
Code. This version of the statute stated: “No lease or grant of
any town or city lot, for a longer period than twenty years, in
which shall be reserved any rent or service of any kind, shall be
valid.” (Former § 718, enacted by Stats. 1872.) The California
Code Commission referred to an 1851 California statute3 and
section 203 of the Field Code (section 203)4 as sources for former
3
The 1851 statute stated: “No lands within this State
shall hereafter be conveyed by lease or otherwise except in fee
and perpetual succession, for a longer period than ten years; nor
shall any town or city lots, or other real property, be so conveyed
for a longer time than twenty years.” (Stats. 1851, ch. 11, § 1.)
4
Section 203 stated: “Restrictions upon the power to
affix qualifications to the right of enjoyment are contained in
sections 14 and 15 of article I of the Constitution of the state.”
Section 14 of article I of the New York Constitution stated: “No
lease or grant of agricultural land, for a longer period than twelve
years, hereafter made, in which shall be reserved any rent or
service of any kind, shall be valid.” (N.Y. Const. 1846, art. I,
§ 14.) Section 15 of article I of the New York Constitution stated:
“All fines, quarter sales, or other like restraints upon alienations,
reserved in any grant of land hereafter to be made, shall be void.”
(N.Y. Const. 1846, art. I, § 15.)
8
section 718. (See Proposed Code, supra, at p. 164.) While section
718 has been amended numerous times, the critical language for
our analysis has remained the same: “No lease” with a term
longer than a certain number of years “shall be valid.” Since
1911, the time limit has been 99 years. (Stats. 1911, ch. 708, § 1.)
The Legislature’s enactment of section 718 in 1872 must be
placed in context. At the time, article XI, section 16 of the
California Constitution provided: “No perpetuities shall be
allowed, except for eleemosynary purposes.” (Cal. Const. of 1849,
art. XI, § 16.) The courts sometimes referred to indefinite leases
as perpetuities. For example, in Morrison v. Rossignol (1855) 5
Cal. 64, 65 (Morrison), the California Supreme Court held: “A
covenant for a lease to be renewed indefinitely at the option of
the lessee, is, in effect, the creation of a perpetuity; it puts it in
the power of one party to renew forever, and is therefore against
the policy of the law.”
“The common law judges were much concerned with
preventing the tying up of estates for long periods of time.”
(Estate of Sahlender (1948) 89 Cal.App.2d 329, 335.) “[W]hen
property was tied up in such fashion, it was known as a
‘perpetuity.’ ” (Ibid.) Section 718 prohibits a “perpetuity” in real
property. (Epstein v. Zahloute (1950) 99 Cal.App.2d 738, 739; see
also Ginsberg v. Gamson (2012) 205 Cal.App.4th 873, 884–887.)
The courts developed rules to address perpetuities,
including the rule against restraints on alienation and the rule
against perpetuities. (Estate of Sahlender, supra, 89 Cal.App.3d
at pp. 335–336; see also Estate of Harrison (1937) 22 Cal.App.2d
28, 35 [discussing public policy against “tying up of property for
an undue length of time”].) To avoid confusion between the two
rules, the rule against perpetuities is sometimes more accurately
9
referred to as the rule against remoteness in vesting. (Estate of
Sahlender, at p. 335; Victory Oil Co. v. Hancock Oil Co. (1954)
125 Cal.App.2d 222, 230 (Victory Oil).)
The rule against perpetuities developed to curb excessive
“dead-hand control” of property. (Atlantic Richfield Company v.
Whiting Oil and Gas Corporation (Colo. 2014) 320 P.3d 1179,
1184.) In the nineteenth century, the rule was extended to
commercial transactions. (See Wong v. Di Grazia (1963) 60
Cal.2d 525, 533 (Wong).)
“The traditional rule against restraints on alienation is
based on the public policy notion that the free alienability of
property fosters economic and commercial development.” (City of
Oceanside v. McKenna (1989) 215 Cal.App.3d 1420, 1426, fn. 4.)
This remains the policy of California. The Legislature has
declared: “Real property is a basic resource of the people of the
state and should be made freely alienable and marketable to the
extent practicable in order to enable and encourage full use and
development of the real property. . . .” (§ 880.020, subd. (a)(1),
italics added.)
When the Legislature enacted section 718, the rule against
perpetuities and the rule against restraints on alienation were
part of the common law of England and California. (See Victory
Oil, supra, 125 Cal.App.2d at pp. 227–230; Estate of Sahlender,
supra, 89 Cal.App.2d at p. 340.) Likewise, Morrison held
indefinite leases were invalid perpetuities under California law.
(Morrison, supra, 5 Cal. at p. 65.) We presume the Legislature
knew of this common law when it enacted section 718.
(Presbyterian Camp & Conference Centers, Inc. v. Superior Court
(2019) 42 Cal.App.5th 148, 156; Mercy Hospital & Medical Center
v. Farmers Ins. Group of Companies (1997) 15 Cal.4th 213, 221.)
10
The Legislature’s subsequent revision of the law relating to
perpetuities sheds more light on the matter. In 1991, the
Legislature abolished the application of the rule against
perpetuities (the rule against remoteness in vesting) in
commercial transactions with the enactment of the Uniform
Statutory Rule Against Perpetuities (Prob. Code, § 21200 et seq.;
Uniform Act).5 (Shaver v. Clanton (1994) 26 Cal.App.4th 568,
574 (Shaver).) The Legislature determined that the rationale for
the rule against perpetuities did not support its application to
commercial transactions. (Ibid.)
By adopting the Uniform Act while preserving section 718,
“the Legislature intended the two statutes to be read together.”
(Shaver, supra, 26 Cal.App.4th at p. 576.) When that is done, the
rule is that commercial leases are exempt from the Uniform Act,
but for the period they are longer than 99 years, they are not
valid under section 718. (Ibid.)
BHG argues that section 718’s purpose is to protect
tenants, not landlords. According to BHG, New York’s
constitutional prohibition against indefinite leases was enacted to
protect tenants. Although BHG concedes New York’s prohibition
“arose from circumstances unique to rural New York in the late
1700s and early 1800s,” it argues that section 718, too, was
enacted to protect tenants because it was “based on” New York
law.
5
Prior to its repeal, former section 715.2 codified the
rule against perpetuities. Like section 718, former section 715.2
was in division 2, part 1, title 2, chapter 2, article 3 of the Civil
Code.
11
When the Field Code was drafted, the New York
Constitution prohibited leases of agricultural land greater than
12 years. (See ante, fn. 4.) The purpose of this prohibition was to
ameliorate “the feudal tenure of agricultural lands” that existed
in New York. (Parthey v. Beyer (N.Y. App. Div. 1930) 228 A.D.
308, 312.) The public policy in New York “was originally
designed to protect the State and the inhabitants thereof from
the consequences of long leases of agricultural lands and the
consequences of the depreciation resulting therefrom because of
the exhausting of the farm lands during the course of occupancies
under long leases. This public policy [was] primarily for the
benefit of the public and only incidentally for the benefit of
private individuals.”6 (Ibid.)
We are unpersuaded by BHG’s argument. BHG’s claim
that section 718 was “based on” New York law is not entirely
accurate. As we have explained, the source of the statute was
both an 1851 California statute that predated the Field Code and
section 203 of the Field Code, which referred to the New York
Constitution. The language of both sources is significantly
different than section 718. (See ante, fns. 3 & 4.)
Moreover, prior to the enactment of section 718, our
Supreme Court held that a lease giving the lessee unlimited
power to renew was an invalid perpetuity contrary to public
policy. (Morrison, supra, 5 Cal. at p. 65.) The Morrison court
thus recognized that indefinite leases are against public policy
6
“New York has discarded the provision in its current
constitution. See N.Y. Const., art. I, § 10 (repealed 1962)
(repealing the provision on agricultural leases, which had been
renumbered as article I, section 10 in 1938.)” (Gansen v. Gansen
(Iowa 2016) 874 N.W.2d 617, 624 (Gansen).)
12
even if they benefit tenants. We have no reason to believe the
Legislature intended to abrogate this principle when it enacted
section 718.
In Gansen, the Iowa Supreme Court rejected an argument
similar to the one BHG makes here. The issue was whether a
lease violated article I, section 24 of the Iowa Constitution
(article I, section 24), which prohibits agricultural leases longer
than twenty years.
The court acknowledged that article I, section 24 was
“copied” from the New York Constitution (Gansen, supra, 874
N.W.2d at p. 624), and “that historically, article I, section 24 was
intended in large part to protect agricultural tenants who
suffered due to oppressive long-term relationships with
established landlords.” (Id. at p. 626.) “Yet,” the court held, “the
language of article I, section 24 does not run solely in favor of the
tenant. The language instead is couched in more general terms
and does not distinguish between the interests of landlords and
tenants. While the language obviously is sufficiently broad to
protect tenants from being locked into oppressive leases, it also
appears to advance the larger purpose of promoting the
alienation of agricultural lands by not excluding landlords from
its terms.” (Ibid.)
Similarly, nothing in the language of section 718 indicates
that the statute only protects tenants. The broad language of the
statute advances the larger public policy purpose of not tying up
land for an excessive period. BHG cites no authority supporting
the proposition that when the Legislature enacted section 718, it
only intended to protect tenants.
BHG focusses too narrowly on New York law. The general
policy disfavoring perpetuities first developed as part of the
13
common law of England—not New York—before the founding of
the United States, and then was adopted by American courts.
(Estate of Sahlender, supra, 89 Cal.App.2d at pp. 335–336; Wong,
supra, 60 Cal.2d at p. 533; Shaver, supra, 26 Cal.App.4th at
pp. 572–573.)
When the Legislature enacted section 718 in 1872, it was
seeking to promulgate a statutory scheme that generally followed
the common law of England and the United States. The
Legislature utilized the Field Code as a scholarly work and a
convenient means of achieving that goal. There is no reason to
believe the Legislature was particularly interested in New York
law, much less law that addressed the unique needs of that state.
The public policy underlying section 718’s application to
commercial leases is that excessively long leases—those lasting a
century or more—unduly hinder the use, development, and
marketability of real property. Perpetuities are problematic
because it is very difficult for the current generation to predict
conditions future generations will face. (Korngold, Resolving the
Intergenerational Conflicts of Real Property Law: Preserving Free
Markets and Personal Autonomy for Future Generations (2007)
56 Am. U. L.Rev. 1525, 1555–1556.) “Future generations deserve
the opportunity to find the solutions to the problems of their day,
and they most likely will have greater success than people long
gone from the scene.” (Id. at p. 1556.)
We recognize that respected commentators have advocated
placing no limits on the terms of commercial leases. (See Rest.2d
Prop., Landlord and Tenant, § 1.4.) But we do not pass judgment
on the wisdom of the public policy the Legislature seeks to
promote. (Siry Investment, L.P. v. Farkhondehpour (2022) 13
Cal.5th 333, 365 [courts should not substitute their policy
14
judgments for the Legislature’s].) Our task is to interpret the
statute to effectuate the law’s purpose and underlying policy.
C. A lease term that violates section 718 is void
Several cases have indicated that a lease violating section
7
718 or its companion statute, section 717, is “void.” (See Harter
v. San Jose (1904) 141 Cal. 659, 667 (Harter) [lease “would not
be void, except as to the excess of the period”]; Kendall v.
Southward (1957) 149 Cal.App.2d 827, 828, 830 (Kendall) [lease
exceeding the statutory time limit is void per se]; Fisher, supra,
213 Cal.App.2d at p. 842 [quoting Kendall]; Shaver, supra, 26
Cal.App.4th at p. 576 [quoting Harter].) These cases, however, do
not squarely address the issue of whether the lease is void or
voidable.
“A void contract is without legal effect. (Rest.2d Contracts,
§ 7, com. a.) ‘It binds no one and is a mere nullity.’ ” (Yvanova v.
New Century Mortgage Corp. (2016) 62 Cal.4th 919, 929
(Yvanova).) “A voidable transaction, in contrast, ‘is one where
one or more parties have the power, by a manifestation of election
to do so, to avoid the legal relations created by the contract, or by
ratification of the contract to extinguish the power of avoidance.’
(Rest.2d Contracts, § 7.)” (Yvanova, at p. 930.) Thus, if a
contract is void and not merely voidable, the equitable defenses of
7
Section 717 provides: “No lease or grant of land for
agricultural or horticultural purposes for a longer period than 51
years, in which shall be reserved any rent or service of any kind,
shall be valid.” This statute was enacted as part of the 1872 Civil
Code and has since been amended. Cases interpreting section
717 can sometimes shed light on section 718. (See Fisher v.
Parsons (1963) 213 Cal.App.2d 829, 842 (Fisher).)
15
estoppel, laches, and waiver do not apply. (Colby v. Title Ins. &
Trust Co. (1911) 160 Cal. 632, 644 (Colby); Tatterson v. Kehrlein
(1927) 88 Cal.App. 34, 49 (Tatterson).)
The law regarding the illegality of contracts is sometimes
confusing and difficult to understand. (McIntosh v. Mills (2004)
121 Cal.App.4th 333, 344 [“ ‘Illegality of contracts constitutes a
vast, confusing and rather mysterious area of the law’ ”].)
Generally, when a contract or a provision in a contract is
prohibited by a statute, it is void. (Asdourian v. Araj (1985) 38
Cal.3d 276, 291 (Asdourian), superseded by statute on other
grounds as noted in Construction Financial v. Perlite Plastering
Co. (1997) 53 Cal.App.4th 170, 175; Vitek, Inc. v. Alvarado Ice
Palace, Inc. (1973) 34 Cal.App.3d 586, 591 (Vitek); 1 Witkin,
Summary of Cal. Law (11th ed. 2017) Contracts, § 432.) While
there are several exceptions to this rule, none apply here. We
shall address the exceptions raised by BHG’s briefs.
1. Statutes that protect specific parties and are not for
the public benefit
“The words ‘void’ or ‘invalid,’ when appearing in statutes
which are not for the benefit of the public at large, are regarded
as equivalent to ‘voidable’ where none other than a particular
person or class of persons is the object of the statutory
protection.” (Estate of Reardon (1966) 243 Cal.App.2d 221, 229.)
This exception to the general rule is consistent with a maxim of
jurisprudence: “Any one may waive the advantage of a law
intended solely for his benefit. But a law established for a public
reason cannot be contravened by a private agreement.” (§ 3513.)
The exception applies if there is merely an “incidental
benefit to the public from a statutory right.” (Bickel v. City of
Piedmont (1997) 16 Cal.4th 1040, 1048, fn. 4.) Otherwise, the
16
exception would almost never apply because it is difficult to
conceive of a statutory right that does not have some benefit to
the public. (Id. at p. 1049, fn. 4.)
Here, contrary to BHG’s assertion, section 718 does not
only protect tenants; it protects landlords too. Moreover, as we
have explained, the legislative purpose of section 718 serves to
promote a public benefit. The private benefit exception does not
apply to section 718.
2. Statute of frauds and similar evidentiary statutes
One kind of statute that primarily benefits parties to a
contract and not the public at large is the statute of frauds and
similar evidentiary statutes. A contract made in contravention of
the statute of frauds is voidable, not void. (O’Brien v. O’Brien
(1925) 197 Cal. 577, 586.)
In Safarian, we held that a marital property agreement
that does not meet the transmutation requirements of Family
Code section 852 (section 852) is voidable by the parties and
cannot be challenged as void by third parties. (Safarian, supra,
47 Cal.App.5th at p. 1059.) This is because section 852
“establishes a rule of evidence, similar to the statute of frauds,”
and does not benefit the public at large. (Id. at p. 1068.)
Contrary to BHG’s assertion, Safarian does not support its
position. Section 718 is not a rule of evidence or its equivalent
that concerns only the parties to a lease.
3. The part of the lease that violates section 718 is void
even though it is malum prohibitum
In deciding whether a contract that violates a statute is
void or voidable, courts sometimes consider whether the contract
is malum in se (inherently immoral) or malum prohibitum (illegal
17
by statute). A malum in se contract is absolutely void. (Vitek,
supra, 34 Cal.App.3d at p. 593.) A malum prohibitum contract is
“void or voidable according to the nature and effect of the act
prohibited.” (Ibid.) A malum prohibitum contract is void “if it
falls within the area which the Legislature intended as part of
deterrence necessary to protect the public interest.” (Ibid.)
The lease here is malum prohibitum because section 718
does not bar any immoral conduct. Nonetheless, to the extent the
lease term is longer than 99 years,8 it is void because it
contravenes the public policy underlying section 718.
BHG’s reliance on Vitek and Asdourian is misplaced.
Under the particular facts of those cases, contractors who
violated the provisions of the Contractors State License Law
(Bus. & Prof. Code, § 7000 et seq.) were permitted to recover
against their clients. In both cases, enforcement of the contract
did not defeat the policy of the statutory scheme. (Vitek, supra,
34 Cal.App.3d at p. 594 [the statutory policy would not be
“frustrated” by allowing enforcement of the contract]; Asdourian,
supra, 38 Cal.3d at p. 292 [enforcement of the contract would not
“defeat the statutory policy”].) The same is not true here.
II. The 2003 Assignment Was a Novation That Reset the
99-Year Limit
The trial court ruled the 2003 assignment was a novation
that reset the 99-year time limit of section 718. Tufeld argues
the 2003 assignment did not result in a novation and, if it did,
8
In section III infra, we explain that a lease that
violates section 718 is not void in its entirety.
18
the 99-year limit did not start anew. We reject Tufeld’s
arguments.
A. There was a novation that created a new lease
“Novation is the substitution of a new obligation for an
existing one.” (§ 1530.) “The substitution is by agreement and
with the intent to extinguish the prior obligation.” (Wells Fargo
Bank v. Bank of America (1995) 32 Cal.App.4th 424, 431 (Wells
Fargo).) In the context of a lease, a novation occurs if a new
tenant is substituted for an old one and the parties intend to
release the old tenant of all obligations. (Id. at pp. 431–432;
§ 1531, subd. 2.) The landlord may agree to such novation in
advance in the underlying lease. (Wells Fargo, at p. 432.)
That is what happened here. The ground lease provides
that the tenant may assign “all of its right, title and interest” in
the lease to a third party. The lease further provides that “upon
such assignment or transfer, the liabilities and other obligations
under this lease of the assignor who shall have so assigned shall
cease and terminate to the extent not theretofore accrued or
incurred.” The 2003 transactions therefore resulted in a
novation.
A novation “amounts to a new contract which supplants the
original agreement and ‘completely extinguishes the original
obligation . . . .’ ” (Wells Fargo, supra, 32 Cal.App.4th at p. 431.)
Accordingly, in 2003, the ground lease was nullified (id. p. 432;
People ex rel. Department of Public Works v. Auman (1950) 100
Cal.App.2d 262, 263) and a new lease between Tufeld and BHG
was created. (Alexander v. Angel (1951) 37 Cal.2d 856, 862
[novation abrogates the existing agreement and “the rights and
duties of the parties must be governed by the new agreement
alone”]; Wells Fargo, at p. 435 [“a novation creates a new
19
obligation which contemplates a new agreement among all the
contracting parties”].)
B. The novation did not extend the term of the lease
beyond 2058 but did reset the 99-year limit
“Novation is made by contract, and is subject to all the
rules concerning contracts in general.” (§ 1532.) A fundamental
rule of contract formation and interpretation is that the terms of
a contract are determined by the parties’ objective manifestations
of consent. (Winograd v. American Broadcasting Co. (1998) 68
Cal.App.4th 624, 632; §§ 1550, 1565.)
Turning to the ground lease, successor tenants, including
Douglas Emmett and BHG, had no right or power to change the
terms of the lease without Tufeld’s consent. Tufeld did not give
such consent in 2003. Therefore, the new lease between Tufeld
and BHG incorporated all the substantive terms of the ground
lease, including its expiration in 2058.
While the 2003 novation did not change the date the lease
expired, it did reset the clock on the 99-year limit of section 718.
Section 718 thus limits the lease term to 2102.
This case is like Wells Fargo. There, in 1981, a transfer of
a 1929 lease resulted in a novation, “nullifying” the old lease.
(Wells Fargo, supra, 32 Cal.App.4th at p. 432.) At issue was a
1977 federal statute that applied to obligations issued after its
enactment. The court held that the statute applied to the new
tenant’s obligations under the new lease. (Id. at pp. 435–436.)
Similarly, section 718 applies to the 2003 new lease between
Tufeld and BHG, not the nullified ground lease between Tufeld
and its original tenants.
20
III. The 2007 Lease Amendment Does Not Invalidate the
Entire Lease
Under the 2007 amendment, the lease expires on
December 31, 2123. This extends its term beyond the 2102 limit
set by section 718. Tufeld argues the trial court erred in ruling
that only the period of the lease longer than 99 years is void. It
contends the entire lease, as amended, is void because it is an
unlawful contract.
“If the central purpose of the contract is tainted with
illegality, then the contract as a whole cannot be enforced. If the
illegality is collateral to the main purpose of the contract, and the
illegal provision can be extirpated from the contract by means of
severance or restriction, then such severance and restriction are
appropriate.” (Armendariz v. Foundation Health Psychcare
Services, Inc. (2000) 24 Cal.4th 83, 124; accord County of Ventura
v. City of Moorpark (2018) 24 Cal.App.5th 377, 393.)
The central purpose of the lease is to rent the property. Its
invalid extension beyond 99 years is collateral to that purpose
and does not taint the entire contract. The trial court therefore
correctly ruled the lease is void only for the period that exceeds
99 years. (See Harter, supra, 141 Cal. at p. 667 [lease is not void,
“except as to the excess of the period”]; Kendall, supra, 149
Cal.App.2d at p. 830 [lease void under section 717 only to the
extent it is longer than permitted term]; Shaver, supra, 26
Cal.App.4th at p. 576 [quoting Harter].)9
9
Because we hold the 2007 amendment is void in part,
we do not reach the parties’ arguments regarding BHG’s
estoppel, laches, and waiver defenses. (Colby, supra, 160 Cal. at
p. 644; Tatterson, supra, 88 Cal.App. at p. 49.)
21
IV. Restitution
A. The trial court did not abuse its discretion by
awarding restitution
Pursuant to the 2007 lease amendment, the lease was
extended 65 years to 2123. The trial court, however, correctly
found that under section 718, the lease term ended in 2102. The
court also awarded BHG restitution on the ground “Tufeld was
unjustly enriched as a result of the reduction of the lease term by
21 years.”
The trial court has “inherent equitable power” to award
restitution when it finds one party has been unjustly enriched.
(Cortez v. Purolator Air Filtration Products Co. (2000) 23 Cal.4th
163, 177.) We review the trial court’s order awarding restitution
for abuse of discretion. (See Pulte Home Corp. v. CBR Electric,
Inc. (2020) 50 Cal.App.5th 216, 228 [appellate courts review the
trial court’s exercise of inherent equitable power for abuse of
discretion]; Holmes v. Williams (1954) 127 Cal.App.2d 377, 379–
380 [restitution award reviewed for abuse of discretion].)
“Generally, one who is unjustly enriched at the expense of
another is required to make restitution. [Citation.] The elements
of a cause of action for unjust enrichment are simply stated as
‘receipt of a benefit and unjust retention of the benefit at the
expense of another.’ ” (Professional Tax Appeal v. Kennedy-
Wilson Holdings, Inc. (2018) 29 Cal.App.5th 230, 238.)
The trial court’s award of restitution to BHG was not an
abuse of discretion. Tufeld received a benefit from BHG, namely
$1.5 million. In return, Tufeld agreed to a 65-year lease
extension. But because 21 years of the lease extension are void,
BHG did not receive what it bargained for and Tufeld did not
22
deliver what it agreed to provide. Under these circumstances, an
award of restitution is readily justified.
B. There was substantial evidence supporting the
amount of the restitution award
The trial court awarded $484,615 in restitution to BHG. It
calculated this number by multiplying the $1.5 million Tufeld
received under the 2007 lease amendment by the proportion of
the term extension that it deemed void (21 ÷ 65). We must affirm
the amount of restitution awarded by the trial court if it is
supported by substantial evidence. (In re Tobacco Cases II (2015)
240 Cal.App.4th 779, 792; Colgan v. Leatherman Tool Group, Inc.
(2006) 135 Cal.App.4th 663, 700.)
As the trial court noted, the parties did not provide any
“reliable alternatives” to the pro rata method it used. Further,
neither party has cited any authority providing specific guidance
on how to calculate restitution in a case like this.
The courts have long distinguished between the proof
needed to establish liability and the proof required to establish
the amount of damages. “Where the fact of damages is certain,
the amount of damages need not be calculated with absolute
certainty. [Citations.] The law requires only that some
reasonable basis of computation of damages be used, and the
damages may be computed even if the result reached is an
approximation.” (GHK Associates v. Mayer Group, Inc. (1990)
224 Cal.App.3d 856, 873; accord Sargon Enterprises, Inc. v.
University of Southern California (2012) 55 Cal.4th 747, 774.)
The same principle applies to restitution. Where, as here,
unjust enrichment is established with reasonable certainty, the
amount of restitution need not be calculated with absolute
certainty. A reasonable approximation will suffice. (See
23
American Master Lease LLC v. Idanta Partners, Ltd. (2014) 225
Cal.App.4th 1451, 1487–488; Uzyel v. Kadisha (2010) 188
Cal.App.4th 866, 894.)
The trial court’s restitution award was a reasonable
approximation of the amount BHG was entitled to recover. There
was substantial evidence supporting the court’s finding.
C. The trial court did not apply the correct legal
standard in deciding whether to award prejudgment
interest
We review de novo whether the trial court applied an
incorrect legal standard. (Gou v. Xiao (2014) 228 Cal.App.4th
812, 817.)
The trial court rejected BHG’s claim for prejudgment
interest on its restitution award. It did so after concluding that
section 3287, subdivision (a), only applies to “damages.” While
that is true, the court had discretion in equity to award
prejudgment interest as a component of restitution. (Espejo v.
The Copley Press, Inc. (2017) 13 Cal.App.5th 329, 375; M&F
Fishing, Inc. v. Sea-Pac Ins. Managers, Inc. (2012) 202
Cal.App.4th 1509, 1539.) The court, however, did not consider its
equitable discretion in deciding whether to award prejudgment
interest. This was error. On remand the trial court is directed to
consider whether it should award prejudgment interest as a
component of restitution.
24
DISPOSITION
The judgment is affirmed in part and reversed in part and
the matter is remanded for the trial court to consider whether to
grant BHG prejudgment interest on restitution. The parties
shall bear their own costs on appeal.
TAMZARIAN, J. *
We concur:
RUBIN, P. J.
MOOR, J.
*
Judge of the Los Angeles County Superior Court, assigned
by the Chief Justice pursuant to article VI, section 6 of the
California Constitution.
25