MES Investments, LLC v. Dadson Washer Service, Inc. CA2/3

Filed 9/25/20 MES Investments, LLC v. Dadson Washer Service, Inc. CA2/3
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION THREE
MES INVESTMENTS, LLC, B297634
Plaintiff and Appellant, Los Angeles County
Super. Ct. No. SC127829
v.
DADSON WASHER SERVICE,
INC.,
Defendant and Respondent.
APPEAL from a judgment and order of the Superior Court
of Los Angeles County, Mitchell L. Beckloff, Judge. Affirmed.
Jay R. Stein for Plaintiff and Appellant.
Stark, Friedman & Chapman and Jeannette C.C. Darrow
for Defendant and Respondent.
_________________________
In February 2017, plaintiff and appellant MES
Investments, LLC (MES) purchased a 22-unit residential
apartment complex in the West Hollywood area of Los Angeles.
Some years earlier, in March 2002, the property’s prior owner
entered into a written lease agreement with defendant Dadson
Washer Service, Inc. (Dadson) for the lease of a laundry space
in the complex. The lease had an initial term of 10 years and
would automatically renew for two additional 10-year terms,
unless Dadson elected not to renew it. The lease was already
on its second 10-year term when MES purchased the property.
MES notified Dadson that it had determined the lease was
“no longer operative” because the renewal provision did not
comply with Civil Code section 1945.5.1 Dadson disagreed and
refused to vacate the premises. MES filed suit for declaratory
relief and cancellation of the lease.
Dadson defeated MES’s claims at a bench trial. Because
Dadson had leased a non-residential area in the apartment
complex for a commercial purpose, the trial court concluded
section 1945.5 did not apply to the lease’s renewal provision.
And, although the lease was not duly recorded, the court ruled
MES was nevertheless bound by it, because MES had actual
knowledge of the lease when it purchased the property. MES
1 Civil Code section 1945.5 makes an “automatic renewal”
provision of a lease “for the hiring of residential real property”
voidable “by the party who did not prepare the lease” unless the
renewal provision is printed in “at least eight-point boldface type”
and notice of the provision appears “immediately prior to the
place where the lessee executes the agreement.” Statutory
references are to the Civil Code unless otherwise indicated.
2
appeals these rulings, as well as the court’s order awarding
Dadson contractual attorney fees and costs. We affirm.
FACTS AND PROCEDURAL BACKGROUND
Dadson is a coin-operated washing machine service
company. It provides and services washing machines and dryers
in apartment buildings. The company has about 50 employees
and about 3,500 active locations with property leases. Dadson
enters into leases with the owners of apartment buildings
and provides coin-operated laundry equipment for use by the
buildings’ tenants. The leases typically provide for the building
owner to share in the machines’ profits above a specified
minimum.
On March 11, 2002, Dadson entered into a written lease
agreement with 1235 N. Detroit Ave. Associates LLC (Detroit
Ave. Associates). The lease provides: “LESSOR grants,
conveys and transfers to LESSEE [Dadson] the exclusive
use and possession of the laundry room(s) located at the real
property commonly known as: [¶] 1235 N. DETROIT AVE.,
LOS ANGELES [¶] consisting of 22 units (“LEASED
PREMISES”), for the purpose of installing, maintaining,
and operating coin-operated laundry equipment, to have and
to hold the same for and during a term of ten years.” The lease
states that it “shall be binding upon all future owners of the
real property described above” and that it “is the intention of
the parties that this lease run with the land described above.”
Additional terms and conditions are set forth on the backside of
the one-page lease agreement, including an automatic renewal
3
provision for two additional 10-year terms, unless Dadson gives
the lessor written notice of its intention not to renew.2
The actual street address of the 22-unit apartment complex
is 1235 N. Detroit St.—not 1235 N. Detroit Ave. as stated in the
Dadson lease. Thus, when the parties recorded the lease with the
Los Angeles County Recorder’s Office, it was not duly recorded
as part of the property’s chain of title.
Before MES completed its purchase of the property, it
received a preliminary title report from North American Title
Company. The report disclosed an exception from title insurance
coverage for “[a]n unrecorded lease dated March 6, 2002,
executed by Jeff Lloyd [the Managing Member of Detroit Ave.
Associates] as lessor and Dadson Washer Service, Inc. as lessee,
as disclosed by a Lease of Laundry Space recorded May 24, 2002
as Instrument No. 2-1208924 of Official Records.”
MES’s manager, Mark Samuel, reviewed the preliminary
title report during escrow. Samuel also reviewed an electronic
copy of the Dadson lease through a hyperlink included in the
report. He testified that he “felt” the lease did not apply to his
property because it stated the leased premises were located at
1235 N. Detroit “Ave.”—not “St.” Samuel did, however, search
for the property address online, and found that when he searched
2 Above the signature lines for the lessor and lessee on the
front of the document, the lease states: “All of the terms and
conditions set forth in the TERMS AND CONDITIONS on the
reverse side of this page and in any addendums are incorporated
and made a part hereof. LESSOR REPRESENTS THAT HE
OR SHE HAS READ AND UNDERSTANDS AND AGREES TO
SUCH TERMS AND CONDITIONS.”
4
for 1235 N. Detroit Ave., the search engine returned pictures
of his property at 1235 N. Detroit St.
Samuel also physically inspected the property before
closing escrow. He saw washing machines in the complex’s
laundry room, which also housed tenant mailboxes, a telephone
utility box, and a water heater. He claimed not to have noticed
a large bright blue and white sign on a wall adjacent to two
washing machines with “Dadson” written in very large letters.
On February 28, 2017, MES purchased the property. The
day after closing escrow, Samuel sent a letter notifying Dadson
that MES was the “new owner of the property located at 1235
N. Detroit St.” Samuel wrote that he was “reviewing all of the
contracts related to the apartment” and that he would “get back
to Dadson Washer in the near future.”
On April 18, 2017, Samuel sent a second letter to Dadson
notifying the company of MES’s determination that “the lease
in issue is no longer operative.” Samuel wrote: “My review of
the lease establishes that it is in violation of Civil Code Section
1945.5 as the renewal terms do not comply. I do not accept the
lease as the new owner. At best you have a month to month
tenancy.” The letter demanded Dadson “remove all of [its]
equipment” by June 30, 2017. Dadson did not remove its
equipment.
On July 19, 2017, MES filed its complaint against Dadson
for declaratory relief, cancellation of the lease, and reasonable
rental value. MES alleged Dadson could not enforce the lease
as a “covenant running with the land” because the lease was not
“ ‘duly recorded.’ ” And it asserted the lease’s automatic renewal
provision was “void or voidable” because it did not comply with
section 1945.5.
5
After a bench trial, the court issued a proposed statement
of decision ruling in favor of Dadson on all claims. The court
rejected MES’s assertion that the failure to duly record the
lease rendered it unenforceable against successors in interest.
Notwithstanding the deficient recording and the Ave./St.
discrepancy, the court found there was “overwhelming” evidence
that MES had actual knowledge of the lease before it closed
escrow. Thus, the court concluded MES was not a bona fide
purchaser and MES did not acquire the property free of Dadson’s
leasehold interest.
With respect to the automatic renewal provision, the court
ruled section 1945.5 did not apply to Dadson’s lease. While the
statute mandates how automatic renewal provisions must appear
in a lease for “the hiring of residential real property” (§ 1945.5),
the court found Dadson did not hire “the leased premises for
residential purposes.” Instead, it had hired the premises for the
purpose of “ ‘installing, maintaining, and operating coin-operated
laundry equipment.’ ”
MES objected to the proposed statement of decision.
It argued the bona fide purchaser analysis was insufficient to
establish the lease’s enforceability against a successor purchaser.
MES maintained the lease could not be deemed a covenant
running with the land due to the recording deficiency and,
therefore, the court was required to determine whether the lease
was a personal covenant binding in equity against MES. As for
section 1945.5, MES argued the court improperly “differentiate[d]
between the residential aspects of the apartment house tenants
and the commercial aspects of the laundry lease.” It argued this
differentiation was contrary to the “real world practicalities”
of the property’s composition.
6
After receiving Dadson’s response to MES’s objections, the
court entered its final statement of decision without substantive
changes. And, after briefing and oral argument, the court
awarded Dadson prevailing party costs and contractual attorney
fees as provided in the lease.
DISCUSSION
1. The Dadson Lease Is Enforceable Against MES
under Civil Code section 1217
Because the Dadson lease was not duly recorded, MES
contends it cannot be enforced against a successor in interest
(like MES) as a covenant running with the land. Thus, MES
maintains the lease can only be “equitably” enforced as a
“personal covenant,” upon a finding that “Dadson came into
Court with ‘clean hands’, did not take advantage of its own
wrong, and did not sleep on its own rights.” The trial court
rejected this argument, concluding the lease could be enforced
against MES under the Civil Code, without resorting to equity,
because MES had actual knowledge of the lease when it acquired
the property. The trial court correctly applied the controlling
law.
Section 1214 provides that “[e]very conveyance of real
property or an estate for years therein, other than a lease for
a term not exceeding one year, is void as against any subsequent
purchaser or mortgagee of the same property, or any part thereof,
in good faith and for a valuable consideration, . . . unless the
conveyance shall have been duly recorded prior to the record of
notice of action.” (Italics added.) However, section 1217 provides
that “[a]n unrecorded instrument is valid as between the parties
thereto and those who have notice thereof.” (Italics added.)
“[S]ince recordation is not essential to legal recognition of
7
a property interest, but only affects its priority as against
subsequent bona fide purchasers, an unrecorded option may be
a valid property right.” (Claremont Terrace Homeowners’ Assn.
v. United States (1983) 146 Cal. App. 3d 398, 408, italics added;
12 Witkin, Summary of Cal. Law (11th ed. 2020) Real Property,
§ 345 [“Even when a prior instrument is unrecorded, and there
is therefore no constructive notice from the record, a subsequent
purchaser may nevertheless have actual knowledge or
constructive notice of it and, if so will not be a bona fide
purchaser.”]; Gates Rubber Co. v. Ulman (1989) 214 Cal. App. 3d
356, 365.) Here, although the Dadson lease was not duly
recorded as part of the Detroit St. property’s chain of title,
it still constituted a valid property right enforceable against
a subsequent purchaser who acquired the property with “notice
thereof.” (§ 1217.)
MES does not dispute that it had actual notice of the
Dadson lease before it purchased the Detroit St. property. It
argues, however, that notice is only half of what is required to
enforce an unrecorded leasehold interest against a subsequent
purchaser, and it maintains the trial court erred when the
court declined to determine whether the “equities required”
enforcement. (Boldface omitted.) MES bases the argument
on the following passage from Marra v. Aetna Const. Co. (1940)
15 Cal. 2d 375 at page 378 (Marra): “Even though a covenant
does not run with the land, it may be enforceable in equity
against a transferee of the covenantor who takes with
knowledge of its terms under circumstances which would
make it inequitable to permit him to avoid the restriction.”
Marra is inapposite.
8
The passage from Marra concerns the “doctrine of equitable
servitudes,” which can be invoked to enforce a covenant in equity
that cannot be enforced under the law. (Marra, supra, 15 Cal.2d
at p. 378.) The issue was whether a covenant in a grant deed
prohibiting “ ‘the grantees, their successors and assigns’ ” from
building any structure on the land “other than a one-family
residence” for 40 years could be enforced against subsequent
transferees. (Id. at p. 376.) The Supreme Court explained that
covenants, like the one at issue in Marra, “contained in a grant
in fee of real property, are governed solely by section 1462 of the
Civil Code, which provides: ‘Every covenant contained in a grant
of an estate in real property, which is made for the direct benefit
of the property, or some part of it then in existence, runs with the
land.’ ” (Id. at pp. 377–378.) The decisions had consistently
“interpreted this provision to mean that a burdensome covenant
contained in a deed which in no way benefits the property
conveyed is not binding at law upon the transferees of the
grantee.” (Id. at p. 378, italics added.) Because the covenant was
of “no conceivable benefit” to the property, the high court held
it was “not binding upon the respondents under the provisions
of the code.” (Ibid.) However, although the covenant could
not be enforced at law, the Marra court observed that it might
be enforceable under the doctrine of equitable servitudes if
the respondents took the property “with knowledge of [the
covenant’s] terms under circumstances which would make it
inequitable to permit [respondents] to avoid the restriction.”
(Ibid.)
Unlike the covenant at issue in Marra, Dadson’s lease is
enforceable against MES under the Civil Code. As discussed,
although a lease exceeding a term of one year is normally “void”
9
against a subsequent purchaser unless “duly recorded” prior to
the purchase (§ 1214), section 1217 makes the “unrecorded” lease
“valid as between the parties thereto and those who have notice
thereof.” (§ 1217, italics added.) MES does not dispute the trial
court’s finding that it had actual notice of the Dadson lease.
Thus, the court correctly concluded there was no need to resort
to the doctrine of equitable servitudes because enforcement was
mandated under the Civil Code. (See § 1217.)
2. Section 1945.5 Does Not Apply to the Dadson Lease
Section 1945.5 makes an “automatic renewal” provision
in a lease “for the hiring of residential real property” “voidable
by the party who did not prepare the lease” unless the renewal
provision is printed in “at least eight-point boldface type”
and notice of the provision, in the same typeface, appears
“immediately prior to the place where the lessee executes
the agreement.” The statute’s apparent purpose is to give
a residential tenant (who likely did not prepare the lease)
the option to avoid a new lease term unless the tenant received
clear notice of the automatic renewal provision.3 It is undisputed
that Dadson prepared the lease and that the automatic renewal
provision did not meet section 1945.5’s typeface and notice
requirements.
3 The legislative focus on residential tenants is also apparent
in the requirement for a notification to appear “immediately prior
to the place where the lessee executes the agreement.” (§ 1945.5,
italics added.) Thus, while the statute makes a noncompliant
lease “voidable by the party who did not prepare the lease,” the
statutory text strongly indicates the Legislature believed that
party would, more often than not, be the residential tenant—
i.e., the “lessee.” (Ibid.)
10
The trial court determined section 1945.5 did not apply
to the Dadson lease because the lease was not “for the hiring of
residential real property.” (§ 1945.5, italics added.) Rather,
the court found Dadson had leased “a room used for mechanicals
—a telephone box, a water heater, and mailboxes—within a
residential apartment complex” for the purpose of “ ‘installing,
maintaining, and operating coin-operated laundry equipment.’ ”
MES argues the trial court’s ruling improperly
“differentiate[s] between the residential aspects of the apartment
house” and the “commercial aspects of the laundry lease.”
It maintains the Detroit St. property must be “considered an
apartment complex as all aspects of it are provided to facilitate
the habitation of the tenants,” including the “laundry room area.”
Because the laundry area is an “essential component” of the
apartment complex, MES argues it must be deemed “ ‘residential
real property’ ” under section 1945.5. We disagree.
The interpretation of statutory language is a judicial
function subject to our de novo review. (Ruiz v. Musclewood
Investment Properties, LLC (2018) 28 Cal. App. 5th 15, 20 (Ruiz).)
We apply established rules of statutory construction to interpret
the phrase “hiring of residential real property” in section 1945.5.
“ ‘ “Under settled canons of statutory construction, in construing
a statute we ascertain the Legislature’s intent in order to
effectuate the law’s purpose. [Citation.] We must look to the
statute’s words and give them their usual and ordinary meaning.
[Citation.]” ’ [Citation.] ‘In doing so, however, we do not consider
the statutory language “in isolation.” [Citation.] Rather, we look
to “the entire substance of the statute . . . in order to determine
the scope and purpose of the provision . . . . [Citation.]”
[Citation.] . . . We must harmonize “the various parts of a
11
statutory enactment . . . by considering the particular clause or
section in the context of the statutory framework as a whole.” ’
[Citation.] ‘ “The statute’s plain meaning controls the court’s
interpretation unless its words are ambiguous.” ’ ” (Ruiz, at
p. 21.)
Section 1945.5 is found in Chapter 2 of Title 5 of the Civil
Code, which governs the hiring of real property. Section 1940,
the introductory section of Chapter 2, states in relevant part:
“[T]his chapter shall apply to all persons who hire dwelling units
located within this state including tenants, lessees, boarders,
lodgers, and others, however denominated.” (§ 1940, subd. (a),
italics added.) Under subdivision (c), the term “ ‘Dwelling unit’
means a structure or the part of a structure that is used as a
home, residence, or sleeping place by one person who maintains
a household or by two or more persons who maintain a common
household.” (§ 1940, subd. (c), italics added.)
MES argues we can take no guidance from section 1940,
because “the title of Chapter 2 [of the Civil Code] is ‘Hiring of
Real Property,’ not ‘Hiring of Dwelling Units.’ ” We fail to see
how that distinction makes any substantive difference. In any
event, while neither “residential real property” nor “commercial
real property” are defined in Chapter 2, the terms are defined
in Title 5 of the Civil Code at sections 1954.51 and 1954.26 in
the Chapters governing residential and commercial rent control.
The definitions set forth in those two sections evidence the
Legislature’s plain recognition that both types of property can
exist in a single structure.
Consistent with sections 1940 and 1945.5, section 1954.51
defines “Residential real property” to include “any dwelling or
unit that is intended for human habitation.” (§ 1954.51, subd.
12
(e).) In contrast, section 1954.26 defines “Commercial property”
to include “any part, portion, or unit thereof, and any related
facilities, space, or services, except the following [¶] (1) Any
dwelling or dwelling unit subject to the provisions of Section
1940.” (§ 1954.26, subd. (d), italics added.) Construing section
1945.5, which also appears in Title 5 of the Civil Code, consistent
with these definitions and the definition of “dwelling unit” in
section 1940, subdivision (c), we conclude a lease for “the hiring
of residential real property” means a contract for the temporary
possession of a dwelling unit—i.e., the part of a structure that
is used as a home, residence, or sleeping place by those who
maintain a household in it.
MES acknowledges Title 5’s rent control statutes are
relevant to our construction of section 1945.5. It also tacitly
concedes the laundry room does not serve as a home, residence,
or sleeping place for any of the apartment complex’s tenants.
Nevertheless, MES asserts the rent control statutes do “not limit
the definition of ‘residential real property’ to only the inhabited
portions of the property.” (Underlining omitted.) It maintains
the critical feature is not habitability, but whether the laundry
room is an “integral part of the residential apartment house
property.”
MES relies upon People v. Woods (1998) 65 Cal. App. 4th
345, a criminal case that considered whether a “ ‘commercial
laundry facility’ within the common area of an apartment
complex” constituted “an inhabited dwelling house” under the
burglary statute. (Id. at p. 347.)4 As the Woods court explained,
4 Under Penal Code section 460, first degree burglary
is “[e]very burglary of an inhabited dwelling house; . . . [¶]
. . . [a]ll other kinds of burglary are of the second degree.”
13
“[t]he burglary statute defines ‘inhabited’ as ‘currently being used
for dwelling purposes, whether occupied or not,’ ” and “[c]ase law
has expanded the definition of ‘inhabited dwelling house’ to
include areas not normally considered part of the ‘living space’
of a home.” (Id. at pp. 347–348, citing Pen. Code, § 459; People
v. Moreno (1984) 158 Cal. App. 3d 109; People v. Zelaya (1987)
194 Cal. App. 3d 73.) Those cases had held that “a basement
room or garage, ‘under the same roof’ with the living quarters,
‘functionally’ connected therewith, and an ‘integral part’ thereof,
is part of an ‘inhabited dwelling house’ within the meaning of
Penal Code section 460.” (Zelaya, at p. 75; Woods, at p. 348.) But
the rationale for this construction was rooted in a purpose unique
to the burglary law—to “give effect to the legislative belief that:
‘Victims inside buildings are more vulnerable to felonious conduct
than victims out of doors.’ ” (Zelaya, at p. 75; see also Woods,
at p. 350 [“safety and privacy expectations surrounding an
inhabited dwelling house are present in the common area
laundry room of the apartment complex Woods burgled here”].)
That purpose bears no relationship to the concern for tenant
protection that apparently induced the Legislature’s adoption
of section 1945.5. Woods and the other burglary cases are
inapposite.
The evidence supports the trial court’s finding that the
laundry room was not residential real property, but rather a
machine room, separate and distinct from the dwelling units
that the tenants used as their homes, residences, and sleeping
places within the apartment complex. The trial court correctly
concluded section 1945.5 does not apply to the Dadson laundry
room lease.
14
4. Dadson Timely Filed Its Motion for Attorney
Fees and Memorandum of Costs
Under California Rules of Court, rule 3.1700, a prevailing
party “must serve and file a memorandum of costs within 15 days
after the date of service of the notice of entry of judgment” or
“within 180 days after entry of judgment, whichever is first.”
Under rule 3.1702(b), a prevailing party must file a motion for
attorney fees “within the time for filing a notice of appeal”—
i.e., within 60 days of being served by the superior court clerk or
a party with the notice of entry of judgment or a filed-endorsed
copy of the judgment, accompanied by proof of service, or 180 days
after entry of judgment, whichever is first. (See rule 8.104.)
MES claims Dadson’s motion for attorney fees and
memorandum of costs were untimely because Dadson filed the
papers long after it had “actual notice of the entry of judgment.”
(Italics added.) However, the prescribed deadlines are not
triggered by actual notice—they require service of the notice of
entry of judgment. (Cal. Rules of Court, rules 3.1700, 3.1702(b),
8.104(a).)
The record shows the court entered judgment on March 11,
2019. But there is no record of a notice of entry of judgment
being filed or served until May 24, 2019—the same date Dadson
filed its memorandum of costs. Sixty days later, on July 23, 2019,
Dadson filed its motion for contractual attorney fees under the
lease.
MES asserts Dadson had “actual notice” of the entry of
judgment because the superior court clerk used a self-addressed
stamped envelope, which the court had asked Dadson to provide,
to mail Dadson a copy of the judgment. The simple act of mailing
a conformed copy of the judgment does not trigger the deadlines
15
under the applicable Rules of Court, however, because there
has been no service of notice of entry of judgment. The Advisory
Committee comments to California Rules of Court, rule 8.104
emphasize the importance of service for establishing these
deadlines: “[A] notice of entry of judgment (or a copy of the
judgment) must show the date on which the clerk served the
document. The proof of service establishes the date that the
60-day period under subdivision (a)(1)(A) begins to run. [¶] . . .
Although the general rule on service (rule 8.25(a)) requires proof
of service for all documents served by parties, the requirement
is reiterated here because of the serious consequence of a failure
to file a timely notice of appeal (see subd. (e)).”
It is undisputed that a proof of service did not accompany
the judgment mailed to Dadson. Thus, until Dadson filed and
served notice of entry of judgment on May 24, 2019, there was
nothing in the record to establish the deadlines for Dadson to
file its memorandum of costs or its motion for attorney fees. (Cf.
Van Beurden Ins. Services, Inc. v. Customized Worldwide Weather
Ins. Agency, Inc. (1997) 15 Cal. 4th 51, 64 [for court clerk’s
service of notice of entry of judgment to establish posttrial motion
deadlines, “the clerk’s mailed notice must affirmatively state that
it was given ‘upon order by the court’ or ‘under section 664.5’ and
a certificate of mailing the notice must be executed and placed in
the file”].) Based on this record, Dadson’s papers were timely.
16
DISPOSITION
The judgment and the attorney fees and costs awards are
affirmed. Dadson is entitled to its costs.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
EGERTON, J.
We concur:
EDMON, P. J.
DHANIDINA, J.
17