Cases in Real Estate
is a weekly update on real estate law, with legal principles illustrated and
explained by lawsuits from around the country. The topics are wide-ranging for
appeal to a broad spectrum of readers including lawyers, homeowners, investors
and the general public. Andrea Lee Negroni, a Washington DC
attorney and legal writer with 25 years of experience in financial services and
mortgage law, contributes the case summaries.
Real Cases in Real Estate will learn and be entertained by lawsuits
involving nuisance, trespass, zoning violations, deed restrictions, title
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cited case summary highlights the essential law of the case and explains the
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treatment makes Real Cases in Real Estate accessible to lawyers and
follow real estate law professionally or as a hobby, you'll find something new
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for the Week of March 13th, 2011
A landlord that treats a business as its tenant cannot
claim that the business is not the party entitled to return of a security
deposit under the lease.
A complex set of facts and a large cast of players were
involved in the lease of a California commercial property to a computer sales
company. The rental property was owned by a married couple (Chian and Lee), who
apparently did business under the name Agape. Chian's brother owned a company
called Royal, which managed the property. The tenant was a computer sales
company called Faxy, owned by Cheung. Faxy did business under a fictitious
name, Agio Solutions. If you've got all these names straight, Cheung also owned
another computer business called Protec. Protec used the fictitious name Agio
(the same fictitious name used by Faxy).
Faxy leased space from Chian and Lee, but the landlord named
on the lease was Royal. A $40,000 security deposit was made, with the agreement
that $25,000 would be refunded when the tenant provided insurance covering
damage to a glass wall in the premises. Cheung paid rent to Chian or Lee and
gave them 1099s showing they were recipients of the rental income. Chian paid
income taxes on the rental income. At some time during the lease, Cheung
attempted to merge his two businesses (Faxy and Protec) together, telling his
landlord that Protec was going to take over Faxy's liabilities and assets.
Cheung continued to pay the monthly rent and exercised all the lease extension
periods of the original lease signed by Faxy.
Problems started when the lease expired and Cheung sought
refund of the security deposit. Even though he had obtained the insurance
policy covering the glass wall, the landlord never returned the $25,000 portion
of the deposit. Eventually, though, the landlord gave Protec notice that about
$14,000 damage to the property would be withheld from the security and $26,000
would be refunded. The landlord wrote a check for $26,894 which was cashed by
an "unknown" company called Rex Line. Protec sued the landlords for a refund of
the $40,000 security deposit, interest on the $25,000 it claimed should have
been refunded when the insurance was produced, and other amounts. The court entered judgment for Protec. The
landlord appealed, claiming that Protec was "not a real party in interest" and
had no right to relief.
The bottom line here is that the landlord (whether it was
Royal, Chian and Lee or a family trust owned by Chian and Lee) treated Protec
as its tenant for years, allowing Protec to exercise extension options,
accepting rent from Protec, negotiating with Protec about the return of the
security deposit, and even claiming to have issued the refund of deposit to
Protec. The California Appeals court held that after treating Protec as its
tenant, the landlords were estopped from claiming they were not the tenants. The
judgment for Protec was affirmed.
Lexis.com subscribers can view the enhanced version of Protec Inv. v. Hedge, 2010 Cal. App. Unpub. LEXIS 10059 (Cal. App. 2d Dist. Dec. 17, 2010)
Non-subscribers can use lexisOne's Free Case Law search to view the
free, un-enhanced version of Protec Inv. v. Hedge, 2010 Cal. App. Unpub. LEXIS 10059 (Cal. App. 2d Dist. Dec. 17, 2010)
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