Opinion
NOT TO BE PUBLISHED
APPEAL from a judgment of the Superior Court of Los Angeles County, Ct. No. BC319425 Rex H. Minter, Judge. (Retired Judge of the L.A. S.Ct. assigned by the Chief Justice pursuant to art. VI, § 6 of the Cal. Const.)
Law Offices of Mann & Zarpas and Lloyd S. Mann for Defendant and Appellant.
Law Offices of Barak Lurie, Barak Lurie and Amy C. Underwood for Plaintiff and Respondent.
EPSTEIN, P. J.
This is an appeal from an unlawful detainer judgment for Assi Super, Inc. (Assi), sub lessor of commercial retail property subleased to appellant Eight Oxfords Property Management, Inc. (Eight Oxfords). Eight Oxfords challenges the judgment on each of the three grounds upon which the trial court relied. Eight Oxfords argues that two bases for the unlawful detainer judgment—unpaid rent and failure to build a parking structure—were improper because those obligations were modified by an amendment to the sublease. Assi responds that the amendment was unauthorized. Eight Oxfords takes the position that the validity of the amendment should have been litigated in an action for declaratory relief instead of as a defense to unlawful detainer. It also contends the trial court erred in finding a breach of the obligation to build the parking structure because no time limit for that project was specified in the sublease. In addition, Eight Oxfords challenges the sufficiency of the evidence to support the third ground for the judgment, failure to pay a share of the operating expenses for common areas. Finally, Eight Oxfords argues that the sublease should not have been forfeited because that relief was not sought in the complaint.
The trial court’s decision that Eight Oxfords breached the sublease by failing to meet the conditions with respect to the parking structure is supported by substantial evidence. Substantial evidence supports the judgment for failure to pay rent. The evidence is insufficient to support the judgment on the ground that Eight Oxfords owed the amount of operating expenses awarded by the trial court. We also reject Eight Oxfords’ argument that Assi failed to seek forfeiture of the sublease, but conclude that the issue is moot in light of post judgment developments which we discuss.
FACTUAL AND PROCEDURAL SUMMARY
Oxford Management Company, Inc., as lessee, and Kwang K. Pak, Kyong R. Pak, Kenneth K. Lee, and Catherine C. Lee, collectively as lessors, entered into a master lease in 1997 for property located at 3525 West 8th Street, Los Angeles (the property). The property included a two-story commercial retail building and a vacant parking area. Pursuant to a settlement agreement in 2001, Assi became the successor lessee under the master lease.
In March 2003, Eight Oxfords entered into a sublease with Assi by which it leased portions of the property. The sublease term ran from December 1, 2002 to November 30, 2007. Eight Oxfords was given options to extend the lease for a total of 15 years. The sublease provided for escalating rent: during the first year the rent was $25,000 per month; for the next two years, (December 1, 2003 through November 30, 2005) the rent was $35,000 per month; and in the final two years (December 1, 2005 through November 30, 2007) the rent was $40,000 per month.
Eight Oxfords leased the second floor of the property, plus non-exclusive use of the vacant lot for parking. Assi retained exclusive possession of the basement and first floor of the property.
The sublease was subject and subordinate to the terms and conditions of the master lease. Eight Oxfords agreed to pay 35 percent of the operating expenses for the common areas of the property, plus one-half the cost to replace, improve, and maintain the existing elevator. Operating expenses were to be calculated on the anniversary date of the sublease, for the preceding 12-month period, but Eight Oxfords was to pay “a reasonable estimate” of operating expenses (established by Assi) in equal monthly installments.
The sublease required Eight Oxfords to construct a parking facility on the property at its sole expense. It did not specify a date for completion of the parking structure. It provided that any amendment be in writing, signed by “both parties.” Paragraph 29.0 addressed the authority of the signatories to the sublease: “If any party to this Sublease is a corporation, trust, limited liability company, partnership, or similar entity, each individual signing this Sublease on behalf of such entity represents and warrants that the person signing is duly authorized to execute and deliver this Sublease on behalf of such entity. . . . Any named Tenant shall be empowered to execute any amendment to this Sublease on behalf of all named Tenants and bind all named Tenants.” The sublease included an integration clause.
The sublease was signed by Steven Y. Rhee on behalf of Assi and by Jerry J. Yang on behalf of Eight Oxfords. The signature page had spaces for consent to the sublease by the master lessors: Kwang K. Pak, Kyong R. Pak, Kenneth K. Lee, and Catherine C. Lee. Attached to the sublease, and made part of the complaint, is a two-page “Consent to Sub-Lease.” It provided that Kwang K. Pak, Kyong R. Pak, Kenneth K. Lee, and Catherine C. Lee, as trustees of the Lee family trust and as master lessor, consented to the sublease between Assi and Eight Oxfords. This document was signed by the four master lessors, and was acknowledged by someone on behalf of Assi, by Steven Y. Rhee on behalf of Korean Farms, Inc., by the president of Eight Oxfords, Jerry J. Yang, and Hyo Kil Yang.
In July 2004, Assi served Eight Oxfords with three separate three-day notices to pay rent or quit. These were incorporated by reference into the unlawful detainer complaint. The first notice to quit, pursuant to Code of Civil Procedure section 1161, was based on a claimed $80,000 in unpaid rent. The notice warned: “If you fail to pay . . . you are further notified that the undersigned does hereby elect to declare the forfeiture of your lease.”
The second notice to quit was based on a claim that Eight Oxfords owed $233,700.98 for its share of operating expenses. This notice also warned that the sublease would be forfeited if the default was not cured. The third notice to quit was based on the failure of Eight Oxfords to construct a parking structure on the property. Again, it warned that if Eight Oxfords failed to perform, Assi would commence legal proceedings to recover possession of the property and to declare the sublease forfeited.
Assi filed a complaint for unlawful detainer, alleging causes of action for each ground raised in the notices to quit. It prayed for $80,000 in back rent plus interest; $233,700.98 in unpaid operating expenses plus interest; for possession of the premises; for costs of suit and fees; and for “such other and further relief as the Court deems just and proper.”
Following a bench trial, the court issued a statement of decision. In it, the court found that Eight Oxfords materially breached the provisions of the sublease “(1) by failing to pay rent due . . . in the amount of $80,000; (2) by failing to pay Defendant’s share of [common area maintenance charges] in the amount of $215,327.55; and (3) by failing to engage in any step whatsoever to commence construction of the parking structure. Any one of these breaches constitutes a separate and sufficient basis for forfeiture of the Lease. Accordingly, [Eight Oxfords] has forfeited the Lease, and [Assi] should be entitled to possession of the property.”
We ordered the statement of decision to be part of the record on appeal since it was not made part of the clerk’s transcript. (Cal. Rules of Court, rule 8.155(a)(1)(A).)
The trial court rejected Eight Oxfords’ defense based on a purported amendment to the sublease. Initially, the court found that the amendment applied to only two of the three issues, so that forfeiture of the sublease would be appropriate even if the amendment were binding. It continued: “Moreover, since [Eight Oxfords] did not engage in any effort to begin work on the parking structure, [Eight Oxfords] violated even its obligations under the purported Amendment with regard to the parking structure, even if the Amendment were binding.”
The court also found that Eight Oxfords failed to meet its burden of establishing that the signatory to the purported amendment had ostensible authority to bind the sub lessor. It concluded that Assi properly sought forfeiture of the lease, both in the three-day notices, and in the complaint for unlawful detainer.
The sublease was deemed forfeited and possession awarded to Assi, but the order to vacate the premises was stayed for 30 days. Assi was awarded back rent of $80,000, $215,327.55 in operating expenses, and interest of $54,047.88 for a total award as of May 31, 2006 of $349,375.43. It also was awarded costs and attorney fees. Following trial, the court granted Eight Oxfords’ request for relief from the forfeiture of the sublease, conditioned on payment of all monies due as well as completion of the parking structure.
Eight Oxfords informs us that after the trial court granted its motion for relief from the forfeiture, it vacated the property because Assi brought a second unlawful detainer action, alleging failure to complete the parking structure in compliance with the order setting aside the forfeiture. That action led to judgment in favor of Assi, entered in January 2007, which is the subject of a separate appeal (No. B197128).
Judgment in favor of Assi was entered and this timely appeal followed.
DISCUSSION
I
Code of Civil Procedure section 1161, subdivision (3) provides that a tenant commits an unlawful detainer when it continues in possession after failure to perform conditions or covenants of the lease, if three days’ notice to perform has been properly served. 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. [Citation.] To the extent the trial court drew conclusions of law based upon its findings of fact, we review those conclusions of law de novo. [Citation.]’” (ASP Properties Group, L.P. v. Fard, Inc. (2005) 133 Cal.App.4th 1257, 1266, quoting West four Corp. v. California First Bank (1992) 3 Cal.App.4th 1554, 1558.)
As we have seen, under the sublease, Eight Oxfords was obligated to build a parking structure meeting specified requirements. It argues the trial court erred in entering judgment for Assi based on its failure to construct the parking structure. First, Eight Oxfords contends that the obligation to build the structure was modified by the purported amendment to the sublease, but does not explain how the amendment relieved it of that obligation.
We have examined the purported amendment and quote the provision regarding parking: “2. Parking Facility on the Serrano Property: [Eight Oxfords] shall construct a parking facility sufficient to provide at least 100 parking spaces in addition to the existing 126 parking spaces on the Serrano Property. In order to fund the construction costs of such parking facility, [Eight Oxfords] shall also construct and lease approximately 6,000 square feet for retail outlets on the Serrano Property. [Eight Oxfords] shall be solely responsible for all the costs and expenses of the construction of such parking and retail outlet facility. . . .”
We find nothing in the purported amendment that relieved Eight Oxfords of the duty to construct the parking facility. The trial court found: “Even under the terms of the purported amendment, [Eight Oxfords] was still required to construct a parking facility—and also to ‘construct and lease approximately 6,000 square feet for retail outlets. . . .’ Defendant admitted to not having done either of these requirements. Therefore even under the terms of the purported amendment upon which [Eight Oxfords] relies, [Eight Oxfords] would have been in breach with regard to its obligation to construct the parking structure.” We agree with the trial court that the purported amendment does not provide a defense to the claim that Eight Oxfords breached the sublease parking provision. Under both the original sublease and the purported amendment Eight Oxfords was required to construct a parking structure.
The evidence also supports the trial court’s conclusion that Eight Oxfords breached the parking structure condition of the sublease. Hyo Kil Yang created Eight Oxfords. He testified that he helps Jerry Yang run the day-to-day operations. Mr. Yang admitted in testimony that Eight Oxfords did not build the parking structure and had made no effort to do so.
Eight Oxfords argues the trial court erred in finding a breach of the sublease based on its failure to construct the parking structure because the sublease did not set a deadline for completion of that condition. But, as the trial court pointed out, the time need not be specified to create an enforceable agreement. Civil Code section 1657 provides that: “If no time is specified for the performance of an act required to be performed, a reasonable time is allowed. . . .” The court concluded: “Under the circumstances, waiting more than three years to build a parking structure—or even to make plans to begin the parking structure—is not a reasonable time.” In a footnote, the trial court cited exhibit 42, a memorandum dated May 21, 2002 from Hyo Kil Yang to Sung Kil Rhee, saying that the construction of the additional parking would be completed by the end of May 2003, and that: “If, however, I fail to do the work, I shall not oppose to any action to be taken by you.” The trial court concluded that this exhibit “evidences a promise by Mr. Yang of Eight Oxfords to complete the parking structure by no later than May, 2003.”
In House of Prayer v. Evangelical Assn. for India (2003) 113 Cal.App.4th 48, the Court of Appeal applied Civil Code section 1657 to imply a reasonable time for the transfer of property, thus rendering the agreement of the parties enforceable: “Pursuant to Civil Code section 1657, courts of this state have consistently held a contract for the sale of real estate is not unenforceable for failure to specify a time of performance, because the law implies a reasonable time. (Copple v. Aigeltinger (1914) 167 Cal. 706, 709; San Francisco Hotel Co. v. Baior (1961) 189 Cal.App.2d 206, 213 [disapproved on other grounds in Ellis v. Mihelis (1963) 60 Cal.2d 206, 216]; Hastings v. Matlock (1985) 171 Cal.App.3d 826, 838.)” (House of Prayer v. Evangelical Assn. for India, supra, 113 Cal.App.4th at p. 54.)
The sublease was executed in March 2003 and the notice to quit based on the failure to construct the parking structure was served in July 2004. What constitutes a reasonable time under Civil Code section 1657 ordinarily presents a question of fact, dependent upon the circumstances of the case. (Kotler v. Pacific are of California (2005) 126 Cal.App.4th 950, 956.) Although the trial court analyzed the reasonable time as of the date of trial in May 2006, we conclude that the proper time frame is the date the three-day notice was served, in July 2004. But we reach the same result as the trial court. As of July 2004, more than one year had passed and Eight Oxfords had done nothing toward construction of the parking structure. This was not reasonable, and placed Eight Oxfords in breach of the parking condition of the sublease. Substantial evidence supports the unlawful detainer judgment on this basis.
II
Eight Oxfords argues the trial court erred in rejecting its defense that the purported amendment modified its rent obligations. A clause of the sublease requires the master lessors to consent to the terms of the sublease. They consented to the original sublease, but never consented to the purported amendment. Amendments to the sublease were to be in writing, signed by “both parties,” but did not require consent of the master lessors. The trial court relied on the failure of the master lessors to consent to the amendment in rejecting Eight Oxfords’ defense based on the purported amendment.
In addition, the trial court rejected Eight Oxfords’ position that the purported amendment was valid because Steven Rhee, who signed the purported amendment on behalf of Assi, had ostensible authority to do so. Based on the trial testimony, the trial court observed that the custom and practice of the parties was that such decisions required the approval of the elder parties. Steven Rhee was not part of this elder generation. Eight Oxfords challenges the trial court’s conclusions regarding this custom and practice.
Daniel Rhee, president of Assi and Steven Rhee’s uncle, testified that Steven Rhee was authorized in writing to sign only the sublease on behalf of Assi. Daniel Rhee dealt with Eight Oxfords’ attorney, and with Hyo Kil Yang of Eight Oxfords, in negotiating the sublease. Daniel Rhee denies any amendment or modification of the terms of the sublease.
The purported amendment is dated March 17, 2003. The next day, Wayne Yee, attorney for Assi, wrote to Eight Oxfords, repudiating the amendment on behalf of his clients. “After my review and an explanation of the legal effect of the proposed amendments on the sublease to my clients, I have been instructed to inform you that the proposed amendments are unacceptable, that my clients do not consent to the proposed amendments, and my clients will not submit the proposed amendments to the owners of the property, Mr. PAK and Mr. LEE, for their consent.” In exhibit 12, Yee warned Eight Oxfords that the original terms of the sublease remained in effect. Yee invited a written response if Eight Oxfords disagreed with the content of his letter. None was received.
A year later, Wayne Yee again wrote to Jerry Yang of Eight Oxfords, attaching a copy of Exhibit 12. He reiterated that Steven Rhee had no authority to modify the sublease because he was neither an officer nor a director of Assi. Mr. Yee stated that only Daniel Rhee had the authority to make changes to the sublease. The letter also warned Eight Oxfords that acceptance of rent payments of $25,000 per month was not an acknowledgment that this was the correct amount of rent.
“In California, ostensible agency is defined by statute. Civil Code section 2300 provides: ‘An agency is ostensible when the principal intentionally, or by want of ordinary care, causes a third person to believe another to be his agent who is not really employed by him.’ (See also Civ. Code, § 2317.) Civil Code section 2334 further provides: ‘A principal is bound by acts of his agent, under a merely ostensible authority, to those persons only who have in good faith, and without want of ordinary care, incurred a liability or parted with value, upon the faith thereof.’ Nominally, these statutes require proof of three elements: ‘“[First] [t]he person dealing with the agent must do so with belief in the agent’s authority and this belief must be a reasonable one; [second] such belief must be generated by some act or neglect of the principal sought to be charged; [third] and the third person in relying on the agent’s apparent authority must not be guilty of negligence.”’ (Stanhope v. L.A. Coll. of Chiropractic (1942) 54 Cal.App.2d 141, 146 (Stanhope).)” (Mejia v. Community Hospital of San Bernardino (2002) 99 Cal.App.4th 1448, 1456-1457.)
Based on this record, Eight Oxfords was unable to establish the critical element that its reliance on Steven Rhee’s authority to sign the purported amendment to the sublease was reasonable. We find substantial evidence to support the trial court’s conclusion that there was no effective amendment to the original terms of the sublease. According to the schedule set out in the sublease, Eight Oxfords’ rent was to increase from $25,000 to $35,000 per month on December 1, 2003. Hyo Kil Yang of Eight Oxfords admitted that the higher rent was not paid, leaving a balance owing each month of $10,000. As of the date the three-day notice was served in July 2004, Eight Oxfords was in arrears on rent payments for eight months, for a total of $80,000.
Substantial evidence supports the trial court’s award of $80,000 in past due rent plus interest.
III
As we have discussed, the sublease required Eight Oxfords to pay 35 percent of the operating expenses for the common areas of the property. Eight Oxfords was to pay “a reasonable estimate of Operating Expenses established by [Assi] in equal monthly installments [sic] which shall become due on the first day of each month.” One of the three day notices was based on Eight Oxfords’ failure to pay a total of $233,700.98 in operating expenses. The trial court awarded Assi $215,327.55 in operating expenses plus interest. It appears from the record that this figure is based in part on exhibits 14 and 28A, and in part on additional calculations performed by counsel following the close of evidence. The reporter’s transcript does not reflect the evidential basis or methodology employed by counsel in making the additional calculations.
Exhibit 28A included expenses for periods beyond July 2004 when the three day notice was served. The trial court asked counsel to perform new calculations ending with July 2004.
Eight Oxfords argues no competent evidence was offered regarding the operating expenses. We agree.
Daniel Rhee, Assi’s president, was its principal witness at trial. He was shown exhibit 28A and asked whether this was a summary of operating expenses incurred by Assi in connection with the property. Rhee said that it was, and that he had “caused” the summary to be prepared. He found nothing inaccurate in the exhibit. At that point in the direct examination, counsel for Assi turned to Eight Oxfords’ claim that the total of operating expenses should be reduced by $53,158.62 to reflect its expenses incurred at the property before execution of the sublease. Mr. Rhee also testified that the sums in the three-day notice were based upon his calculations of the operating expenses as summarized in exhibit 28A.
In addition, Mr. Rhee testified about exhibit 14, a letter dated March 15, 2004, from Assi’s attorney Wayne Yee to Eight Oxfords, attention Jerry Yang. The letter details amounts owing for various operating expenses including utilities, security, property taxes and insurance. A different time period is used for each category of expenses. For example, the summary of Department of Water and Power charges runs from December 2002 through November 2003. Security charges are for the period between May 2003 and November 2003. Lump sum charges without specific dates are given for various landscaping and maintenance expenses. Mr. Rhee testified that exhibit 14 reflects his investigation of the total operating expenses of Assi.
On cross-examination, counsel for Eight Oxfords established that Mr. Rhee supplied the numbers for expenses listed in exhibit 14. When asked whether he was in charge of the accounting books and records of Assi in March 2004, Mr. Rhee testified: “Well, overall responsibility, I’m the one, I’m the one who would sign everything.” On further examination, he said that meant he signed the checks. Mr. Rhee testified that Grace Joo, an Assi employee, maintained the books and records. He was asked on redirect examination: “And you caused Ms. Joo to go ahead and provide that information which you, in turn, gave to Mr. Yee for the purposes of Exhibit 14?” Mr. Rhee answered: “Yes.”
Mr. Rhee was asked: “Were you the one who physically went through the DWP invoices for purposes of calculating what the operating expenses would be?” Mr. Rhee replied: “The accounting person did, so I just did the total. I just checked. That’s all I did.” He testified that he did not personally review Department of Water and Power invoices to determine whether the figures on exhibit 14 were accurate. This was done by the accounting person.
The parties stipulated that no foundation as to authenticity was required for exhibits 18, 19, 20, 21, 23, 25, 27, and 29, which were composed of invoices and bills for various operating expenses. But no witness testified that these specific exhibits were totaled in some way to reach the figures set out in either exhibit 14 or exhibit 28A. In argument, counsel for Assi acknowledged that the expense exhibits were samples presented to establish the reasonableness of the estimate of expenses, but did not represent the actual amount of operating expenses.
At the conclusion of Assi’s case in chief, a colloquy was held concerning the admissibility of its exhibits. Counsel for Eight Oxfords objected to exhibit 28A, the summary of operating expenses: “28A, your honor, I do object to this on the grounds that there was only one individual here, Daniel Rhee, who attempted to authenticate this document at all, and he was very clear in response to my cross-examination that he had no direct knowledge of these operating expenses, how this worked and how this was computed. There was no testimony whatsoever what this document purported to be and how Mr. Rhee would have had knowledge of this document. Therefore, the objection is lack of authentication.”
Counsel for Assi responded that exhibit 28A is a summary that Mr. Rhee “caused this to be compiled.” Counsel continued: “He did verify it through the bookkeeper at this instruction, I believe, he had said. We previously had a stipulation to the effect that we wouldn’t have to have our bookkeeper authenticate all the invoices. This is a summary of all that, and Mr.Rhee testified to that.” The trial court overruled the objection and received the exhibit. There was no objection to exhibit 14, which was written in March 2004 and contained summaries of operating expenses for various time periods.
Evidence Code section 702 provides that the testimony of a lay witness is inadmissible unless he or she has personal knowledge of the matter. Assi failed to establish that Mr. Rhee had personal knowledge of the operating expenses reflected in exhibit 28A. No foundation for the accuracy of the figures in exhibit 28A was laid. The bookkeeper who prepared the summaries used in exhibits 14 and 28A did not testify. The eventual damage award was based on calculations performed by counsel after the close of evidence, but for which we do not have a clear explanation.
We conclude that the evidence is insufficient to support the trial court’s award of operating expenses and reverse the award on that basis.
IV
Eight Oxfords argues that the complaint did not seek forfeiture of the lease agreement, and therefore the trial court erred in granting that relief. The argument is not supported by the record. Each three-day notice to quit warned that failure to cure the default would result in forfeiture of the sublease. Eight Oxfords’ characterization of the relief sought in the complaint is disingenuous. It asserts: “When the trial court declared that the Agreement had been forfeited it was, in effect, giving Assi a remedy that it had never formally sought. Assi, sought, by way of its complaint, the following, and only the following: [¶] 1. On the first cause of action the sum of ‘$80,000, together with interest at the legal rate from the date each payment become [sic] due.’ [¶] 2. On the second cause of action, for damages in the sum of ‘$233,700.98, together with interest at the legal rate. [¶] 3. And, on all causes of action, for costs of suit and reasonable attorney’s fees incurred, and for possession of the premises.” Although Eight Oxfords claims this is the only relief sought by Assi, paragraph d of the prayer for relief is “For possession of the premises.” Paragraph e of the prayer for relief seeks other and further relief as deemed just and proper by the court. Assi sufficiently sought possession of the property and forfeiture of the sublease. Nevertheless, the issue of forfeiture in this appeal is moot because of the subsequent order relieving Eight Oxfords from forfeiture. The issue of forfeiture of the sublease remains to be resolved in the appeal from the second unlawful detainer judgment.
DISPOSITION
The judgment is affirmed as to the unlawful detainer based on rent and failure to construct the parking structure, including the award of $80,000 in rent plus interest. The judgment is reversed as to the award of operating expenses. The issue of forfeiture of the sublease is moot. Each side is to bear its costs on appeal.
We concur:WILLHITE, J. SUZUKAWA, J.