California Second District Court of Appeal reverses lower court's decision in dispute between landlord and tenant

By Angela Underwood | Jul 19, 2017

LOS ANGELES — The California Second District Court of Appeal has reversed a lower court's ruling and has ordered arbitration between a landlord and tenant.

Appellant Universal Bank, the tenant who was denied arbitration with landlord DC Universal LLC over an illegal detainer deed, will now have the opportunity to have their matter heard, according to a July 12 appeals court decision on a contract that that dates back to 2002. 

Fifteen years ago, both the tenant's and landlord’s predecessor agreed to a five-year lease for the commercial use of a lot. A clause in the contract, however, mandated that if the tenant stayed on the property, they would pay an increase of 110 percent of the rent each month until the end of the lease term. Either party allegedly was able to pull out with timely notice.

When the landlord bought the property in 2003, he “succeeded to its predecessor’s interests under the lease,” according to the appeals court decision.

“The tenant filed a lawsuit against [the] landlord and its predecessor, alleging contractual breaches and economic torts,” according to the court filing. Settling differences two years later, the tenant and landlord executed a “third lease addendum” that extended the agreement to 2010 with another additional five-year occupancy.

By 2015, the landlord and tenant could not agree on rental rate for another term, which resulted in the landlord filing a complaint in Los Angeles Superior Court to reclaim the property. Fighting back, the tenant's “counsel sent the landlord a letter stating that the unlawful detainer proceeding was subject to the arbitration provision in the third lease addendum, and asking Landlord to dismiss its complaint,” according to the court filing. The tenant then filed a demand for arbitration. 

The court denied the tenant’s motion to compel arbitration and stay the pending action, “concluding that the tenancy had terminated following the expiration of the 30-day period specified in the notice to quit, and therefore the parties were no longer bound by the arbitration clause in the third lease addendum,” according to the appeals court decision.

Ruling that “the arbitration agreement in the third addendum continued to be effective after the term of the lease ended,” trial court pointed out that “the tenant could have enforced the arbitration agreement through Aug. 31, 2016,” but after that point, “the lease was terminated and there was no longer an agreement to arbitrate,” according to the appeals court decision.

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