Real Estate Case Update

• Publication year: 2021
• Author: Star Lightner

Real Estate Case Update

Star Lightner

Star Lightner is senior counsel with Miller Starr Regalia. She is senior editor of Miller & Starr, California Real Estate 4th, and a contributing author of Chapter 11, "Holding Title," Chapter 19, "Landowners' Liability," Chapter 31, "Construction Law and Contracting," Chapter 32, "Mechanics Liens," Chapter 33, "Defective Construction," and Chapter 38, "Discrimination." She also is the senior editor and principal author of the bi-monthly Miller & Starr Real Estate Newsalert, published by Thomson-West. star.lightner@msrlegal.com

I. TOP TEN CASES

As always, it can be challenging to select the top ten real estate cases for our annual overview. The past year, even with the impact of COVID-19 on courts, was no exception, though there were fewer real estate cases overall than in past years. As is our tradition, several "related cases" as well as "honorable mentions" are included here.

The cases this year tended to represent a broad offering of real estate issues, as opposed to highlighting a concentration in any given area. As such, we have included cases representing ten diverse topics, including the California Environmental Quality Act (CEQA), recording and priorities, inverse condemnation, landlord and tenant, and land use. There were only two California Supreme Court cases on our list this year. One addressed whether the issuance of permits is discretionary or ministerial in the context of categorical exemptions from CEQA. The second addressed whether a statutory eminent domain pre-trial procedure can be "imported" into inverse condemnation proceedings. The single U.S. Supreme Court case addressed whether a Clean Water Act permit is required when a discharge from a point source into navigable waters is something less than "direct."

Nevertheless, there were still several important decisions in both California and the Ninth Circuit appellate courts, including:

1. The statute of limitation applicable to escape assessments where an accurate and timely change of ownership statement was not filed with State Board; and
2. The necessary requirements for demonstrating a valid electronic signature for purposes of an arbitration agreement.

In addition, California courts addressed such "bread and butter" topics such as:

1. Whether a holdover clause in a lease constituted a penalty;
2. Whether a county impliedly accepts dedication of a privately-owned drainpipe through mere use; and
3. Is the statute of limitations applicable to a county's interpretation of vesting tentative map conditions.

Also included is an "honorable mention" case addressing water diversions, possibly signaling a long-expected uptick in water-related litigation.

With the focus of current events on COVID-19 shutdown orders and payment or eviction moratoria and their effects on landlords, tenants, lenders, and borrowers, or the future of the commercial real estate market, it may seem odd that no coronavirus pandemic-related decisions are included in this year's Top 10 selection. Thus far, though, no such cases have reached the courts of appeal and resulted in substantive reported decisions. Consistent with past practices, we have focused on decisions of precedential value only for the cases discussed in this article.

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While selecting cases for inclusion is inevitably a subjective affair, the cases addressed below, including the "honorable mentions," met our standard for inclusion: widespread impact on the practice of real property law in California. Accordingly, we offer the following as the most significant real estate cases of 2020.¹

II. TOP TEN CASES OF 2020

1. Protecting Our Water and Environmental Resources v. County of Stanislaus²

Whether challenged permits are considered discretionary or ministerial for purposes of applying the categorical exemption depends on whether the agency exercises its judgment in issuance.

This California Supreme Court case addresses how the County of Stanislaus treated the issuance of well permits under CEQA,³ and specifically, whether such permits should be entirely exempt from CEQA analysis as "ministerial" decisions. With plaintiff and defendant advocating opposite extremes, the court took a middle path.

The County of Stanislaus's well permitting ordinance,⁴ which incorporated by reference state well construction standards,⁵ treated all well permits as exempt from CEQA. The permissible reasons for granting such an exemption include where the issuance of the permit is purely ministerial rather than discretionary on the part of the public agency.⁶ In contrast to a discretionary project, where "an agency is required to exercise judgment or deliberation in deciding whether to approve an activity,"⁷ ministerial projects "are those for which 'the law requires [an] agency to act ... in a set way without allowing the agency to use its own judgment.'"⁸ Plaintiffs alleged that the county "misclassified" well construction permits as ministerial when, in fact, the county could deny or condition a permit on project changes to address environmental impacts per the state standards, which govern features such as well distance from contamination sources. While the trial court ruled all the county's non-variance well permits were ministerial, the court of appeal reversed, holding that the county's issuances of all well construction permits were discretionary decisions based on Standard 8.A's horizontal separation requirement alone.

The California Supreme Court granted review. The court noted that the "key question is whether the public agency can use its subjective judgment to decide whether and how to carry out or approve [the] project."⁹ The court immediately answered that question as follows: "Whether County's issuance of the challenged permits is discretionary or ministerial depends on the circumstances. As a result, County may not categorically classify all these projects as ministerial. For the same reason, plaintiffs have not demonstrated that all issuance decisions are properly designated as discretionary."¹⁰ After finding the so-called "functional test" for distinguishing discretionary projects from ministerial projects inapplicable,¹¹ the court identified the main issue as whether Standard 8.A required the county to exercise discretion in issuing well permits. Accordingly, the court analyzed whether the county's categorical classification of all such permits as ministerial was erroneous and an abuse of discretion under CEQA. The court concluded Standard 8.A's plain language authorized the county to exercise "judgment or deliberation when [it] decides to approve or disapprove" a permit because the standard "makes clear that individualized judgment may be required."¹² For example, "an adequate horizontal distance" may depend on "[m]any variables" and "[n]o set separation distance is adequate and reasonable for all conditions."¹³ Significantly, "approval of all lesser distances requires agency approval 'on a case-by-case basis,'"¹⁴ which the court found conferred significant discretion on the county health officer.

The court rejected the county's argument that its limited discretion justified the ministerial characterization, commenting, "[j]ust because the agency is not empowered to do everything does not mean it lacks discretion to do anything."¹⁵ The court also rejected that it was required to defer¹⁶ to county's "ministerial" classification, noting that the county was not interpreting an ordinance that it had drafted, but, rather, state standards incorporated by reference. Similarly, the court found that the county's decision was not entitled to deference and did not comport with the Yamaha factors because its determination did not rely on factual determinations, but instead constituted a claim that "the [ministerial] exemption applies to an entire category of permits, as a matter of law."¹⁷

However, the court rejected plaintiff's and the court of appeal's position "that the issuance of a [well] permit under Chapter 9.36 is always a discretionary project," pointing out that "[t]he fact that an ordinance contains provisions that allow the permitting agency to exercise independent judgment in some instances does not mean that all permits issued under that ordinance are discretionary."¹⁸ Because Standard 8.A "only applies when there is a contamination source near a proposed well,"¹⁹ the court concluded that all well construction permits are not necessarily discretionary projects. It therefore reversed the holding that all permit issuances are discretionary, but held that plaintiffs were entitled to a declaration that the county's blanket ministerial categorization was unlawful.

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Comment: Categorical exemptions under CEQA are meant to preempt challenges where an agency truly has no ability to change the outcome of a project, even if environmental impacts are identified. A typical example is the issuance of building permits. However, as this case demonstrates, decisions are not always "purely ministerial" or "purely discretionary," and the court took an entirely common sense (and unsurprising) middle path between these two extremes. Critical to the court's analysis here was not whether regulations grant a local agency discretion in the abstract, but whether regulations relevant to a specific permit at issue conferred meaningful discretion.²⁰ Thus, while "blanket categorization" of well permits, and other similar types of permits, will no longer be permissible, a significant number of permit decisions likely will still be construed as ministerial based on their individual characteristics. Where permit decisions are in fact discretionary, environmental review should be limited to those environmental impacts that an agency actually has the discretion to address.²¹

2. Constellation-F, LLC v. World Trading 23, Inc.²²

Holdover clause that increased rent by 150 percent was not a penalty that was void under Civil Code section 1671 because the clause did not mention damages; no evidence of oppressive coercion existed; and...