Filed 11/27/18 P. v. Fenton CA1/3

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FIRST APPELLATE DISTRICT

DIVISION THREE

Defendant Robert Fenton appeals from a judgment, entered after a bench trial of an unlawful detainer action, awarding the State of California past-due rent, holdover damages, and possession of property under a highway in San Rafael that Fenton had leased from the Department of Transportation (Caltrans). The lease authorized Fenton to use the property only for parking, while a use permit from the City of San Rafael (city) allowed parking on the property in connection with an adjacent business Fenton owned. After he sold the business, the city declared his continued use of the property for parking to be unlawful. The state thus required him to remove all vehicles from the property, and Fenton stopped paying rent. This action followed.

Fenton contends that the court erred in awarding monetary relief, because the state breached the implied covenant of good faith and fair dealing by failing either to induce the city to allow other uses of the property or to lower the rent, and that the holdover damages exceeded the property’s fair rental value, given the restrictions on its use. Nothing in the lease, however, required the state to intervene in Fenton’s dispute with the city, and substantial evidence supports the damage award. We shall thus affirm the judgment.

Factual and Procedural Background

Section 5.1 of the Airspace Ground Lease between Fenton and Caltrans authorized Fenton to use the property “only and exclusively for the purpose of parking” absent written consent from Caltrans. Fenton accepted the premises “subject to all applicable zoning, municipal [and other] laws, ordinances, and regulations governing . . . the use of the Premises,” and subject to a disclaimer that the state did not warrant the premises’ “suitability . . . for the conduct of [his] business.” When the 40-year term of the lease began in 2002, a use permit from the city allowed Fenton to use the premises for parking, but only in connection with an adjacent auto repair shop that Fenton then owned. The lease set forth a process for reevaluating the rent every 10 years “[a]t the request of [the state].” It also reserved the state’s “right to establish a new minimum monthly rent,” using that same process, “as a condition to [its] approval of any use of the leased premises not specifically permitted by Section 5.1 and as a condition to any . . . changes in the uses permitted by that section.”

At a time unspecified in the record, Fenton sold his adjacent business, yet continued to park vehicles on the property. The city informed the state that this use of the property violated its zoning provisions. In November 2013, the state sent Fenton a notice of intent to terminate the lease based on his violation of the clause that required him to comply with all municipal regulations, and also based on a delinquency in the payment of rent. Fenton responded in December 2013 by removing the vehicles, paying the back rent, and stating that he wanted to preserve the lease.

Fenton sought a subtenant and, in the first half of 2014, two potential subtenants expressed interest in the property for purposes beyond the scope of the existing use permit. City representatives told the state and Fenton that, absent an amendment to the city’s general plan, the only permissible use of the property was private parking related to an adjacent property, or a use for public-transportation purposes. After February 2014, Fenton stopped paying rent.

In mid-2014, the state served a three-day notice to pay rent or quit. In July 2014, Fenton’s counsel sent Caltrans a letter asserting that city planners had told potential subtenants that the city would not approve any use of the property, and noting provisions in a Caltrans Right of Way manual authorizing Caltrans to approve changes in the permitted use of properties subject to airspace leases, and to “intercede” if it is “in the Department’s best interest to oppose a local agency’s planning or rezoning activity.” Fenton’s attorney asked the state to form “a plan to involve Caltrans in the actions required to obtain a use [permit]” from the city and, in the interim, to agree that Fenton need not pay past-due or future rent “until [the city] allows a use for the property.” In a November 2014 response, the state declined Fenton’s requests, noting that it had no duty to help him secure a new use permit, and that his duty to pay rent was not conditioned on success in his doing so.

Fenton did not resume paying rent. In February 2015, the state served a three-day notice for nearly $58,000 in back rent due since March 2014, at a monthly rate of $4,823. Fenton did not respond. In April 2015, the state filed this action for possession, back rent, and holdover damages of $160.76 per day (the equivalent of $4,823/month). Fenton filed an answer asserting affirmative defenses.

In June 2016 the court conducted an untranscribed bench trial. Fenton’s trial brief recited many of his affirmative defenses, including a claim that the state and city had effected a regulatory taking by eliminating all economically viable uses of the property.

The court found in the state’s favor, as follows: “The inability to store vehicles on the property came at no fault of the [state]. The loss of that ability resulted from [Fenton] selling the adjacent property. The lease became impossible as the property was no longer attached to a building_[,_] which was [Fenton]’s doing. The city became justified in its actions. [Fenton] chose not to abandon the lease, although he could have [done so] under the terms, [so he] was not allowed to stop paying [rent]. His attempt to improve the property is admirable_[,_] but the state has no duty to apply for a General Plan modification to accommodate [his] plan_[,_] and it would be unfair to require the state to do so. . . . [¶] [For purposes] of collateral estoppel and res judicata, the court finds the affirmative defenses have not been [proven], but also finds [that] the defenses are actionable in a separate action and have not been fully litigated in this trial. [¶] The state has proven its damages, unpaid rent, and holdover damages in the total amount of $135,333.76.”

The court entered a judgment that, as amended, canceled the lease and awarded possession, damages, and costs. Fenton timely appealed.

Discussion

In an appeal from an unlawful detainer judgment, we review the interpretation of the lease de novo (ASP Properties Group, L.P. v. Fard, Inc. (2005) 133 Cal.App.4th 1257, 1266–1267), and a finding as to the amount of damages for substantial evidence. (See, e.g., Four Seas Investment Corp. v. International Hotel Tenants Assn. (1978) 81 Cal.App.3d 604, 612 [amount of unlawful detainer damages is question of fact]; Palm Property Investments, LLC v. Yadegar (2011) 194 Cal.App.4th 1419, 1425 [“In an appeal from an unlawful detainer judgment, ‘ “[w]e review the trial court’s findings of fact to determine whether they are supported by substantial evidence.” ’ ”].)

Fenton contends that the trial court erred in failing to find that the state breached the lease’s implied covenant of good faith and fair dealing, and that this breach bars it from seeking remedies under the lease for Fenton’s failure to pay rent.[1] After Fenton sold his adjacent business, and the city made clear its view that his use of the property no longer satisfied the conditions of the use permit, Fenton contends the state breached the implied covenant in two ways: (1) by declining to induce or compel the city to amend the use permit, its General Plan, or its zoning regulations, and (2) by declining to reduce Fenton’s rent.

The implied covenant did not require the state to take either action. That covenant “exists merely to prevent one contracting party from unfairly frustrating the other party’s right to receive the benefits of the agreement actually made” and “cannot impose substantive duties . . . on the contracting parties beyond those incorporated in the specific terms of their agreement.” (Guz v. Bechtel Nat. Inc. (2000) 24 Cal.4th 317, 349–350.) While Fenton cites Section 4.6 of the lease (“Reevaluation [of Rent] on Change in Use”) and Section 15.03.05.00 of Caltrans’s Right of Way Online Manual, those provisions indicate only that Caltrans’s procedures allow it to “intercede in instances where it is believed to be in [Caltrans]’s best interest to oppose a local agency’s planning or rezoning activity.” In the lease, Caltrans “reserve[d] the right to establish a new minimum monthly rent . . . as a condition to [its] approval of any [new or amended] use of the leased premises.” (Italics added.) The implied covenant does not convert those rights into affirmative obligations.[2]

Fenton also argues that the court erred in setting the amount of holdover damages. The state claimed—and the court evidently applied—a reasonable daily rental value equivalent to the applicable monthly rent under the lease. Despite acknowledging that the stated rent in a lease constitutes evidence of a property’s reasonable rental value, Fenton argues that the award is excessive because the state knew that the city’s regulations had rendered the property “useless and unrentable” during the period in which holdover damages accrued.[3] However, Fenton offered no competing evidence of the property’s reasonable rental value that would have permitted—let alone compelled—a contrary finding. Moreover, the state asserts that while the city’s regulations may have made the value of the property negligible to Fenton, the property may have had a value equal to the stated rent to another party—e.g., to one who acquired an adjacent business and used the premises to provide parking for the business, as Fenton once did.

Fenton’s last argument is that the city’s interpretation of the use permit and enforcement of its zoning requirements, coupled with the state’s enforcement of the lease term requiring compliance with local rules, effected a regulatory taking. This alleged taking, he contends, triggered article 14 of the lease, “Condemnation by Public Entities Other Than Landlord,” which requires the state either to terminate the lease or to adjust the rent. The failure to apply article 14, Fenton argues, makes the damages excessive or requires a remand to enable him to litigate his affirmative defense based on a regulatory taking.

As the state notes, however, article 14 applies only to a direct taking—i.e., a condemnation effected by a public entity exercising its power of eminent domain—and does not apply to an alleged regulatory taking that might support an action for inverse condemnation. Section 14.1(a) defines “condemnation” as “(1) the exercise of the power of eminent domain, whether by legal proceedings or otherwise, by a public entity having that power, . . . and (2) a voluntary sale or transfer to any [such public entity]. . . .”

The state also argues in the alternative that no regulatory taking occurred: The city did not impose a new regulation, but only determined that, after Fenton sold his adjacent business, his continued use of the property no longer complied with the existing use permit. We need not definitively resolve that issue, for the judgment states that “[for purposes] of collateral estoppel and res judicata, . . . the affirmative defenses . . . are actionable in a separate action and have not been fully litigated in this trial.” Given the narrow purpose of an unlawful detainer action, the court did not abuse its discretion in declining to adjudicate Fenton’s regulatory taking claim, while ensuring that he is free to pursue it in a more appropriate procedural context.

Disposition

The judgment is affirmed. The state shall recover its costs incurred on appeal.

Pollak, J.

We concur:

Siggins, P.J.

Jenkins, J.