Castaic Studios entered a contract with Wonderland Studios in 2021. In the agreement, Wonderland was granted a right to use commercial real property. The contract entitled Wonderland to exercise 35 one-month extension options. To exercise the options, Wonderland was required to timely make all payments and send Castaic an extension letter at least 20 days before the end of the current month.
The agreement specified that it was a revocable license, as opposed to a lease, with the owner – Castaic – retaining legal possession and control of the premises. The agreement also stated that it was to be governed by contract laws, not by landlord-tenant laws. When the agreement ended, Wonderland was required to remove its personal property and move out.
Wonderland defaulted in July 2022. Castaic filed an eviction lawsuit in August 2022, seeking both possession of the property and unpaid “rent.” Wonderland defended by claiming that the contract states that it is not governed by typical landlord-tenant laws.
The trial court agreed with Wonderland. So instead of the rocket-docket eviction proceedings offered by the legislature, Castaic would need to file a traditional lawsuit and prove that Wonderland breached the contract. What could have been resolved in weeks may now take years.
With little choice, Castaic appealed, arguing that despite the designation of contract laws and disavowal of landlord-tenant laws, Castaic could still utilize the fast eviction proceedings applicable to lease defaults.
The Appellate Court’s lead statement confirmed that anyone may waive the advantage of a law intended solely for [his] benefit. However, laws established for “public reasons” cannot be contravened by private agreement.
The Court next determined that whether a contract constitutes a lease or license is a ‘subtle pursuit.’ Regardless, that is not the Court’s focus.
Instead, the Court determined that whether or not the contract is a lease or license is irrelevant. The true focus should be on the parties’ desire to waive rights afforded by landlord-tenant laws.
From there, the runway is short to hold that parties are allowed the latitude to design their own contractual engagements. And that as a consequence, parties may freely waive laws that would otherwise substantially benefit at least one of them.
Castaic waived its right to assert an eviction claim, and instead must utilize the general court system for redress. The waiver is lawful.
Wonderland wins again. Castaic loses again. See Castaic Studios v. Wonderland Studios; California Court of Appeals, 2d District, Division 5; Case No. B325853; November 15, 2023: https://cases.justia.com/california/court-of-appeal/2023-b325853.pdf?ts=1700074896.
Questions / Issues:
1. I have seen many Leases. I have seen fewer License Agreements (sometimes called Occupancy Agreements). Sure as the world the property owner never intended to be precluded from using its quickest, easiest, most cost-effective method to remove a defaulting occupant.
2. So what happened here? Was this property owner out-maneuvered by the occupant? Perhaps. Or maybe insufficient thought was given to each “what if” scenario and instead there was too much focus on this subtle pursuit. Because, at least from the owner’s perspective, the benefit of the owner’s waiver of the landlord-tenant eviction procedures in most jurisdictions would never outweigh the risk, time, and expense of a full-out lawsuit.
3. Conversely, perhaps all of this was carefully vetted by both sides and all knew exactly, precisely, what this waiver meant. In exchange for the waiver, maybe Castaic received above market rate rents, an enhanced security deposit or similar collateral or Guaranty, and avoided burdening the premises with a long-term obligation.
Stuart A. Lautin, Esq.*
* Board Certified, Commercial (1989) and Residential (1988) Real Estate Law, Texas Board of Legal Specialization
Licensed in the States of Texas and New York
Reprinted with the permission of North Texas Commercial Association of REALTORS®, Inc.