Taylor v. NU Digital Marketing, Inc. – Remedy of Unlawful Detainer Notwithstanding Contract for Sale

The remedy of unlawful detainer is available in three situations under California law, most commonly when a tenant holds over after termination of the lease, or when the tenant continues to occupy the property after breach of the lease.

Less commonly, unlawful detainer is available to an owner “against an employee, agent, or licensee whose relationship is terminated,” and in the third situation, to a purchaser at a foreclosure sale against the former owner and other occupants.

In Taylor v. NU Digital Marketing, Inc. (2016) 245 Cal.App.4th 283, the parties entered into a hybrid contract.  Although styled a contract for sale, the court held that the contract actually was a lease, seemingly tied to an option to purchase, such that the remedy of unlawful detainer was available to the owner.

Note to potential purchasers: An unrecorded “contract of sale” that does not include a deed from the owner to the purchaser is an invitation for trouble.  The court will want to fit the contract into one of its traditional modes of analysis.  As the following decision shows, the court might view the document as a lease, with potentially disastrous consequences to the purchaser.  Be careful when you try to be creative in making a grant of real property.

Now to the facts.  In August 2012, the parties entered into an agreement entitled “Contract of Sale Residential Property.”  The contract provided that “plaintiffs (designated ‘Seller’ in the agreement) agreed to sell a piece of property to defendant (designated ‘Buyer’ therein) for $1.25 million subject to the following terms and conditions:

“Paragraph 1 required defendant to ‘consummate’ the purchase ‘within 60 months of the execution date of the agreement’ by making ‘payment’ of the purchase price, i.e.,  $1.25 million through [escrow].”

Comment: That sounds like an option, exercisable in 60 months.  An option to purchase is not the same a contract for sale.  The option must be exercised by act of the grantee, while the contract for sale is enforceable per se.

“Paragraph 2 purported to divide the purchase price into five components: (1) a grant of equity in defendant corporation (referred to as the ‘Equity Grant’); (2) payment of all property taxes and insurance costs from the move-in date; (3) payment of all homeowners association fees and any related penalties or special assessments; (4) the ‘Down Payment’; and (5) ‘Probationary Installment’ payments of $2,300 per month for 60 months (also referred to as ‘Probationary Payments’).”

The dispute arose when “the probationary installment payments increased to $4,216.48 in accordance with the provision allowing for an upward adjustment of such payments to match plaintiff’s adjustable rate mortgage payment.”

Fresno real estate lawyer
Now the conflict comes into sharper focus.  If you “rented” a property, with a fixed purchase price, and paid 100% of the owner’s mortgage payments plus property taxes plus homeowners association fees, then you might believe you had purchased the property.  But this court did not agree – “In addition to awarding possession to plaintiffs, the court awarded damages in the amount of $31,683.68 and declared the agreement forfeited.”

The court started by explaining that “Unlawful detainer actions are authorized and governed by state statute.  The statutory scheme is intended and designed to provide an expeditious remedy for the recovery of possession of real property … Unlike the foregoing situations, a vendee in possession of land under a contract of sale who has defaulted in the payment of an installment of the purchase price, is not subject to removal by the summary method of unlawful detainer.”

Held the court, “The relationship created by the agreement must be characterized by reference to the rights and obligations of the parties and not by labels … While defendant also agreed to purchase the property within the lease term, possession of the property was conditioned upon payment of the probationary installments, which entitled defendant only to continued possession, and were therefore rent.”

“Probationary payments” in a real estate contract?  I never heard of such a thing, and neither had the court.  Taylor v. NU Digital Marketing, Inc. (2016) 245 Cal.App.4th 283

Randy Krbechek posted at 2016-6-29 Category: Case law, Developments, Real Property

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