California Recent Case Summaries
 
May 17, 2004
 

Landlord And Tenant – A Landlord’s Demand For $1 Million In “Key Money” To Renew A Commercial Lease Is Deemed Appropriate Under California Civil Code Section 1950.8

Edamerica, Inc. v. Superior Court, 114 Cal. App. 4th 819, 7 Cal. Rptr. 3d 921 (2nd District 2003).

This case involved the interpretation of recently enacted California Civil Code Section 1950.8 pertaining to “key money” demanded by commercial landlords. The California Court of Appeal for the Second Appellate District examined the language of the statute and its legislative history, and ultimately ruled in favor of the landlord.

The case involved a restaurant owner (Tenant) under a 1995 written lease with the owners of the real property (Landlord). In March 2002, the Tenant received an offer to purchase the restaurant business, but the offer was contingent upon the new buyer receiving a new lease or an extension of the existing lease. The Landlord refused to extend the lease unless the Tenant paid $980,000. Tenant refused to pay the “key money” and lost the offer to purchase the business. Subsequently, the Tenant sued Landlord for $3.3 million for violating civil code Section 1950.8, which applies only to commercial leases and nonresidential tenancies.

The trial court ruled and the appellate court affirmed that it is not unlawful for a landlord to merely make a demand for “key money.” Key money is generally defined as an upfront bonus payment made by the Tenant in order to secure the tenancy. For liability to attach under the statute, the Tenant must also allege that the landlord failed to state the amount of the demanded payment in the resulting written lease agreement between the parties. In short, since the key money demand was made with respect to a proposed lease extension, rather than the existing lease, there was no violation of the statute.

Landowner’s Liability – A Store Owner’s “Mode Of Operation” Does Not Remove A Slip-And-Fall Plaintiff’s Burden Of Proving The Owner Had Knowledge Of The Condition That Caused The Accident

Moore v. Wal-Mart Stores, Inc., 111 Cal. App. 4th 472, 3 Cal. Rptr. 3d 813 (5 District 2003)

Wal-Mart Stores, Inc. in Ceres, California (Wal-Mart) leased space within its store to a McDonald’s restaurant franchise. While shopping at the Wal-Mart, Juanita Moore slipped on a French fry in one of the store’s main aisles, injuring her leg. Moore filed a negligence action against Wal-Mart based on premises liability that resulted in a jury award of $725,000 in damages. Wal-Mart appealed on the grounds that the trial court erred when it refused to instruct the jury that before liability can be imposed in a slip and fall case, the store owner must have actual or constructive knowledge of the dangerous condition.

The California Court of Appeals for the Fifth District reversed the judgment in favor of Moore, concluding that the jury was incorrectly instructed on liability. The Court rejected Moore’s argument that because the dangerous condition was caused by Wal-Mart’s business practice of permitting customers to take food and drinks from McDonald’s into the store, this relieved Moore of proving that Wal-Mart had actual constructive notice of the dangerous condition. The court emphasized that the “mode of operations” rule is not the law in California. Consequently, the court held that the trial court erred in eliminating the actual constructive knowledge requirement from the jury instruction on the grounds that it is well-settled law that a store owner is not the insurer of safety of its patrons.

For more information, e-mail Brett Hayes at brett.hayes@hklaw.com or Yuri Orlov at yuri.orlov@hklaw.com, or call toll free, 1-888-688-8500.