The Top Ten Real Property Cases of 2016
| Jurisdiction | California,United States |
| Author | Basil "Bill" Shiber and Star Lightner |
| Publication year | 2017 |
| Citation | Vol. 35 No. 1 |
Basil "Bill" Shiber and Star Lightner
Basil ("Bill") Shiber
Basil ("Bill") Shiber is a shareholder with Miller Starr Regalia. His practice focuses on disputes involving secured transactions, commercial leasing, condemnation, and land use. He is also a contributing author of Chapter 23, "Inverse Condemnation," Chapter 24, "Eminent Domain," and Chapter 30, "Community Redevelopment," of Miller & Starr, California Real Estate 4th.
Star Lightner
Star Lightner is senior counsel with Miller Starr Regalia. She is senior editor of Miller & Starr, California Real Estate 4th Edition, and a contributing author of Chapter 11, "Holding Title," Chapter 19, "Landowners' Liability," and Chapter 38, "Discrimination." She also produces the bi-monthly Miller & Starr Real Estate Newsalert.
With contributions by Karl E. Geier, a senior shareholder with Miller Starr Regalia, Editor-in-Chief of Miller & Starr, California Real Estate 4th, and a contributingauthor of fifteen chapters in that publication.
The process for selecting the "Top Ten" real estate cases of 2016 was made somewhat easier by an unusual level of activity by the California Supreme Court in the area of real estate law. Six of the Top Ten cases selected were decided by the California Supreme Court and address issues ranging from the fiduciary obligations of a real estate agent working for a brokerage handling both sides of a residential real estate transaction, to the constitutionality of precondemnation entry and testing statutes. Since California Supreme Court cases, by definition, address issues that are unsettled at the Court of Appeal level or otherwise present issues of great public significance, the Supreme Court's pronouncements on these topics made them prime candidates for inclusion, given our standard: widespread impact on the practice of real property law.
There were also appellate court decisions worthy of inclusion addressing "bread-and-butter" issues such as the proper time to record a mechanics lien after completion of the work of improvement, and whether a breach of a residential lease agreement must be "material" in order to justify termination of the lease and eviction of the tenant. There were also more esoteric, but nonetheless significant, decisions, including whether and under what circumstances an old fire trail can be impliedly dedicated to public use, the liability of a church for off-premises parking creating dangers for users, and the propriety of efforts by a city to stymie the construction of a crematorium by changing the rules after the building permit had been issued.
All of these cases are addressed below, along with several "Honorable Mentions" that follow up on last year's list of cases or otherwise complement cases on this year's list. As always, selecting cases for inclusion is a subjective affair, but we offer the following as the most significant real estate cases of 2016.
When the agent representing the seller in a residential transaction works for the same broker as the agent representing the buyer, the agent acts as a "dual agent" and owes fiduciary duties to both buyer and seller.
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In a dual agency case closely watched by the real estate brokerage industry, the California Supreme Court affirmed a 2014 Court of Appeal decision2 that involved a real estate agent's knowledge of, and failure to disclose to the buyer, varying square footage estimates, and held that such failure was a breach of fiduciary duty where the agent's broker represented both seller and buyer. Chris Cortazzo of Coldwell Banker, representing the seller of the property, advertised the property on the MLS as offering "approximately 15,000 square feet of living areas" despite the fact that public records showed the house as 9,434 square feet. The buyer, Horiike, was represented by a different Coldwell Banker agent. Later, having acquired the property and preparing to do work on it, Horiike reviewed the building permit and noticed that the property was significantly smaller in size than Cortazzo's representation.
Horiike filed suit against Cortazzo and Coldwell Banker, alleging that both Cortazzo and Coldwell Banker breached fiduciary duties to Horiike either through deliberate misrepresentations or failure to investigate. The trial court instructed the jury that Coldwell Banker could only have liability if some agent of Coldwell Banker other than Cortazzo or Horiike's agent had breached a fiduciary duty to Horiike. As a result, the jury returned a special verdict in favor of Coldwell Banker on all causes of action and Horiike appealed, arguing that under Civil Code section 2079.13(b), Cortazzo owed him a fiduciary duty equivalent to that of Coldwell Banker because Coldwell Banker was a dual agent. Under section 2079.13(b), "[t]he agent in the real property transaction bears responsibility for his or her associate licensees who perform as agents of the agent." Thus, providing false information that he reasonably believed to be true did not satisfy Cortazzo's duty as a fiduciary to Horiike because the broker, as a fiduciary, has a duty to learn the material facts that may affect the principal's decision.3
The Supreme Court granted review on the specific issue of whether an associate licensee owes the same fiduciary duties as its broker. Since a corporate brokerage, as a "fictitious legal entity," can only act through its agents, the Supreme Court considered untenable Coldwell Banker's argument that the different agents for the same corporate broker owed different obligations to the buyer and the seller. The court specifically rejected the argument that Cortazzo could not have been charged with agency duties to Horiike because Horiike had never engaged Cortazzo as his agent, noting that "Cortazzo, as a salesperson acting under Coldwell Banker's corporate license, could not represent any party in the transaction independently of Coldwell Banker, the broker under which he was licensed." In response to Coldwell Banker's argument that this conclusion would require salespersons in dual agency to breach their clients' confidences, the court observed that the legislature could amend the statute to "uncouple associate licensees' duties from those of the brokers they represent."
Comment: The implications of this holding for large brokerages that regularly engage in dual agency are significant. Listing agents working for a brokerage company acting as a dual agent will have duties to buyers beyond being "honest and fair,"4 instead having a "fiduciary duty of utmost care, integrity, honesty, and loyalty" to both parties.5 While the court found the statute to be clear that both brokers and their associate licensees owed such duties, the decision creates a distinct tension between the duties of disclosure and confidentiality. In addition, Civil Code sections 2079.13 through 2079.24 were amended effective January 1, 2015, to apply not only to residential but to commercial real estate transactions.6 Because many agent responsibilities under other inspection and disclosure statutes7 are limited to residential real estate, the application of Horiike in the commercial context remains to be determined.
2. Property Reserve, Inc. v. Superior Court of San Joaquin County8Precondemnation entry and testing statute survives constitutional challenge after California Supreme Court "reforms" statute to allow for post-entry jury determination of damages.
From statewide water projects to high-speed rail, public works projects in California depend on precondemnation entry statutes that allow agencies to gain access to properties to conduct investigations and testing without the expense and delay of formal condemnation proceedings. In Property Reserve, the California Supreme Court preserved the challenged statute in a significant victory for public agencies.
In connection with the proposed construction of tunnels or canals through the Sacramento-San Joaquin Delta, the Department of Water Resources sought to conduct precondemnation environmental and geological studies and testing9 on more than 150 privately owned parcels of land contemplated for acquisition through negotiation or eminent domain. Property owners challenged the procedures as a taking under the California Constitution, and the trial court authorized entry for conducting environmental testing (generally a single day of "non-invasive" activities conducted by walking, visual observation, minor soil and plant sampling and testing, photography, and trapping and releasing small animals), but not for geological testing (drilling holes up to 205 feet in depth that would be refilled after the rod was withdrawn, necessitating multiple vehicles and people for several days). The Court of Appeal reversed as to the environmental testing only, holding that the entry order constituted a temporary easement, and that it was "self-evident" that granting the order would result in loss of the owners' right to the quiet use and enjoyment of their properties—therefore a "full" condemnation action with all associated procedural protections was required.
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The California Supreme Court granted review. After initially concluding that the precondemnation entry and testing procedure under Code of Civil Procedure section 1245.030 "implicitly" requires a trial court hearing and an opportunity for the property owner to present evidence relative to the factors to be considered, the court went on to find that the statute is not limited to activities "that are only innocuous or superficial." Rather, activities that cause physical changes to the property are contemplated. Thus, it found both the environmental and geological testing to be the types of activities governed by the statute.
Turning to the constitutional question, the court focused on the fact that the state's taking clause not only requires just compensation ascertained...
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