Opinion
NOT TO BE PUBLISHED
Appeal from the Superior Court County of Ventura Nos. CIV228206, CIV229790. Vincent J. O'Neill, Jr., Judge.
Goldenring & Prosser, Peter A. Goldenring, James E. Prosser, Edwin S. Clark for Plaintiff and Appellant Robert Sarkisian.
Eric C. Kitchen, Janet A. Lawson for Defendants, Cross-complainants and Appellants Lin Sayre and Iris Sayre.
Manning & Marder, Kass, Ellrod, Ramirez, Frederic W. Trester, David J. Wilson, Steve K. Johnson for Cross-defendants and Appellants DRM Pacific Properties, Inc. and Keller Williams Realty.
Law Offices of Herb Fox, Herb Fox; Lawrence H. Golkin & Associates, Lawrence H. Golkin for Plaintiffs and Respondents Roger Wheatley and Joy Wheatley.
COFFEE, J.
A commercial tenant has a right of first refusal in his lease. Without the tenant's knowledge, the landlord accepted an offer from a third party and the property was placed into escrow. Both the tenant and prospective buyer filed actions in specific performance against the landlord, asserting their right to purchase the property. The landlord cross-complained against the realtors, alleging they told him that the tenants had no right of first refusal. The trial court ruled in favor of the tenant. The landlord, prospective buyer and realtors appeal. We affirm.
FACTS
Appellants Lin and Iris Sayre own commercial property at 530 North Ventura Avenue in Oak View. The real property consists of a commercial building, operated as the Hilltop Bar, and a small single family residence. Respondents Joy and Roger Wheatley purchased the Hilltop Bar business from a third party and entered into an agreement with the Sayres to lease the real property. The lease was for a three-year term, commencing on March 1, 2000, and continuing through February 28, 2003. The Wheatleys agreed to pay monthly rent of $1,900. The lease indicated that, after expiration of the initial three-year term, there was a "possible renewal term" of two years at an increased monthly rent of $2,100.
The contract gave the Wheatleys a right of first refusal should the Sayres choose to sell the property. It read, "Lessee shall have first right of refusal if in any event during the occupancy of the property Lessor decides to sell said property whether during the initial term or any subsequent renewals." After lease expiration in February 2003, no written renewal was executed, but the Wheatleys began paying an increased monthly rent of $2,100, which the Sayres accepted without comment.
In December 2003, the Sayres listed their property with real estate broker Lindsay Wellman of Keller Williams Realty. Keller Williams Realty is associated with DRM Pacific Properties, Inc. (collectively DRM). On April 28, 2004, the Sayres accepted an offer from appellant Robert Sarkisian to purchase the property for $650,000. The Wheatleys discovered the property was in escrow when a fumigator from a pest control company visited the property. Roger Wheatley contacted Lin Sayre, who confirmed that the property was in escrow and told Wheatley that the buyer (Sarkisian) was willing to give Wheatley a long-term lease.
Sarkisian v. Sayre
The relationship between Sarkisian and the Sayres deteriorated. On July 13, 2004, Sarkisian filed an action against the Sayres, seeking specific performance of the sales agreement. (Sarkisian v. Sayre (Super. Ct. Ventura County, 2004, No. CIV228206).) Sarkisian alleged that the Sayres failed to provide necessary documentation and attempted to cancel escrow. The Sayres cross-complained against DRM and real estate broker Lindsay Wellman for breach of fiduciary duty. The Sayres alleged Wellman had erroneously advised them that the tenants had no right of first refusal. On October 14, 2004, a notice of settlement was filed, indicating that Sarkisian and the Sayres had entered into a conditional settlement. The settlement was never executed.
Wheatley v. Sayre
On October 6, 2004, the Wheatleys filed a complaint against the Sayres for specific performance of their right of first refusal to purchase the property. (Wheatley v. Sayre (Super. Ct. Ventura County, 2004, No. CIV229790).) They requested that the Sayres be ordered to offer them the opportunity to purchase the premises under the same terms first offered to Sarkisian. It is undisputed that the Sayres did not give the Wheatleys actual or constructive notice of the price and terms of the Sarkisian offer prior to litigation.
Bench Trial
The parties stipulated to consolidate the actions. The trial court bifurcated the claims and chose to hear first the issue of whether the Wheatleys had a viable right of first refusal.
At the time of the bench trial in January 2006, the Wheatleys continued to occupy the premises and operate the bar. Lin Sayre testified that he is an insurance broker who insures restaurants. He stated he was unaware there was a right of first refusal in the lease until the litigation began. He could not recall his intention at the time he signed the lease. When he decided to accept Sarkisian's offer, he did not tell the Wheatleys that he was selling the property.
Roger Wheatley testified that he understood the right of first refusal to mean that "[w]hen the owner decided to sell, he would come to me with the first shot to purchase it." Wheatley had twice listed his bar business for sale. A broker told Wheatley the business would be difficult to sell without a long-term lease. Wheatley testified that when he filed the lawsuit, "[M]y first intent was to save my business. [¶] . . . [¶] [I]t was in escrow and they weren't going to give me a long-term lease or anything so I had to do something." He indicated that prior to the filing of his action in October 2004, he had no intention of purchasing the property.
Joy Wheatley testified that, at the time of trial in January 2006, the Wheatleys had refinanced their home in Casitas Springs to purchase the real property upon which the bar is located. They had obtained loan approval for $220,000, but had not yet made a written application for a loan. The Wheatleys anticipated obtaining a mortgage on the 530 North Ventura Avenue property for the remainder of the $650,000 purchase price. At trial, they presented no documentary evidence of their financial condition. Joy Wheatley testified that they did not have loan approval in 2004, when they learned of the Sarkisian sale and filed the lawsuit against the Sayres.
The right of first refusal was drafted by a mortgage broker, Shelly North, who assisted the Wheatleys in 2000 with a refinance of their home so they could purchase the Hilltop Bar. North contacted Lin Sayre on the Wheatleys' behalf to discuss lease terms. She testified that the Wheatleys wanted a five-year lease, but Sayre refused because he wanted to sell the property within the next three to five years. Sayre provided North with a lease he had used for the previous owner of the bar business. She typed up the lease and added the provision concerning the right of first refusal. North had suggested to both parties that this language be included, should the Sayres decide to sell the property.
Statement of Decision and Judgment
The trial court issued a statement of decision on April 28, 2006. It ruled that the Wheatleys' right of first refusal "survived the expiration of the written lease period pursuant to Civil Code section 1945, coupled with the Sayres' continued acceptance of the higher rent payments."
Civil Code section 1945 provides: "If a lessee of real property remains in possession thereof after the expiration of the hiring, and the lessor accepts rent from him, the parties are presumed to have renewed the hiring on the same terms and for the same time, not exceeding one month when the rent is payable monthly, nor in any case one year."
The court concluded that the right of first refusal was triggered by the Sayres' decision to accept Sarkisian's offer to purchase, requiring them to give "reasonable, formal notice to the Wheatleys of their right to purchase on the same terms offered by the third party." The court ruled that the Sayres "breached [their] obligation; consequently the Wheatleys were never obligated to demonstrate that they were ready, willing and able to complete the purchase." The court granted the Wheatleys' request for specific performance and ordered the Sayres to offer the property to the Wheatleys for $650,000.
The trial court entered judgment on the consolidated complaints in favor of the Wheatleys and against the Sayres. The judgment specified that the Wheatleys would open and fund an escrow for the property in an amount of $650,000. The court provided detailed instructions concerning how the transaction was to be conducted. It indicated that, if the Wheatleys did not fully fund the escrow within a 60-day period, their right to purchase the property would terminate.
The judgment read:
After filing a notice of appeal, Sarkisian filed an ex parte application requesting that the court amend the judgment to indicate that judgment was also rendered against him, Lindsay Wellman and DRM. The trial court granted Sarkisian's request and amended the judgment nunc pro tunc. The Sayres and DRM then appealed.
Lindsay Wellman did not file or join in the filing of a notice of appeal or opening brief. Nevertheless, he filed a reply brief. We struck his brief, pursuant to a motion filed by the Wheatleys' counsel.
DISCUSSION
Right of First Refusal in Lease
Sarkisian, the Sayres and DRM have filed separate briefs. We will consider their claims together. Where they have raised the same argument, we refer to them collectively as appellants.
Appellants do not argue that the right of first refusal expired with the lease or dispute the correctness of the trial court's ruling. Their contentions as they concern the right of first refusal provision in the lease are: (1) The provision was too vague to be enforceable because it did not specify a method or time period in which it could be exercised; and (2) the Wheatleys had actual notice of an unsuccessful sale to a different buyer in 2003, and this constituted notice of the Sarkisian sale. The enforceability of the right of first refusal and the issue of notice are questions of law, which we independently review. (Walker v. Allstate Indem. Co. (2000) 77 Cal.App.4th 750, 754.)
"A right of first refusal is the 'conditional right to acquire . . . property, depending on the [owner's] willingness to sell.' [Citations.] . . . The right does not become an option to purchase until the owner of the property voluntarily decides to sell the property and receives a bona fide offer to purchase it from a third party." (Campbell v. Alger (1999) 71 Cal.App.4th 200, 206-207.) "Normally, the right is enforceable against third persons entering into a contract to buy the property with notice of the holder's right. [Citation.] [¶] [A]ttempts to sell the property to a third party without adequate notice and opportunity to exercise the preemptive right of first refusal constitute breach of contract enforceable by specific performance." (Id. at p. 207.)
Although the lease provision failed to specify how the right was to be exercised, it nevertheless established that the Wheatleys were entitled to notice of Sarkisian's offer. Both DRM and Sarkisian had reviewed the lease and were aware of the right of first refusal, yet chose to disregard it and proceed with the purchase. It was not until the property was in escrow that the Wheatleys learned of the sale to Sarkisian. The issue is not whether the Wheatleys had notice that the property was on the market. The issue is whether the Wheatleys had notice of the terms of an offer and were provided an opportunity to match it.
Ability to Purchase Property
Appellants allege that a buyer seeking specific performance of a contract for the sale of real property has the burden of proving that he was ready, willing and able to perform. They argue that the Wheatleys lacked the financial resources to buy the property and the trial court erred by "excusing" the Wheatleys from meeting their evidentiary burden.
Appellants contend that the Wheatleys failed to present substantial evidence that they had the financial ability to purchase the property in the summer of 2004. DRM argues that, even if the evidence presented in 2006 was sufficient proof, it is not evidence that the Wheatleys could have obtained the same financial arrangement at the time they filed their lawsuit in 2004. Whether the Wheatleys were required to prove that they were ready, willing and able to fund the purchase of the property is a legal question, subject to our independent review. (People ex rel. Dept. of Motor Vehicles v. Cars 4 Causes (2006) 139 Cal.App.4th 1006, 1012.)
Sarkisian cites Behniwal v. Mix (2005) 133 Cal.App.4th 1027 and Henry v. Sharma (1984) 154 Cal.App.3d 665 for the rule that a buyer of real estate is only entitled to specific performance if he can prove he was ready, willing and able to perform at the time the contract was entered into, at the time the suit was filed, and during the prosecution of the action. (C. Robert Nattress & Associates v. CIDCO (1986) 184 Cal.App.3d 55, 64.) Although Behniwal and Henry address the circumstances surrounding a prospective buyer's ability to pay, they do not require that the buyer have a loan commitment before he is entitled to specific performance. "[W]e see no purpose in requiring the buyers to bind themselves to a loan for which they have no immediate need. Moreover, we question whether a lender would make a firm commitment to loan money for the purchase of property the present owner refuses to sell." (Henry, at p. 672; see Behniwal, at p. 1045.)
The Wheatleys were not required to demonstrate that they were ready, willing and able to fund the purchase of the property because they had not yet had the opportunity to exercise their right of first refusal. The trial court was aware that there was uncertainty surrounding the Wheatleys' ability to purchase the property, which is why it structured the judgment as it did. The Wheatleys' right to purchase the property is expressly contingent upon their ability to fully fund the purchase price within 60 days of the judgment becoming final. If they are unable to do so, their interest in the property will terminate. We also observe, as the court did in Henry, that it is unlikely the Wheatleys will be able to obtain a loan commitment while the property is in litigation. (Henry v. Sharma, supra, 154 Cal.App.3d 665, 672.)
Equitable Relief
In 2003, the Sayres accepted an offer from a third party and opened escrow. The property fell out of escrow when the prospective buyer could not obtain financing. The Wheatleys allegedly knew of the transaction but did not exercise their right of first refusal. DRM contends that the Wheatleys delayed asserting their rights, thus they are now barred by the doctrine of laches. DRM claims that the Wheatleys' right was "triggered" when they learned of the first transaction in 2003, and their failure to exercise it at that time bars them from exercising it now.
The Wheatleys did not assert their right in 2003 because they did not want to purchase the property at that time. We reject DRM's argument because there is no indication that the Wheatleys' knowledge of a failed transaction in 2003 could have put them on notice of an entirely separate transaction in 2004.
DRM also contends that the Wheatleys' claim is barred by the doctrine of unclean hands because they acted in bad faith by utilizing their right of first refusal to obtain a long-term lease rather than to acquire the property. DRM's assertion of the doctrine is disingenuous, in light of their decision to proceed with the sale, despite their knowledge of the right of first refusal in the lease.
The judgment is affirmed. The parties are to bear their own costs on appeal.
We concur: YEGAN, Acting P.J., PERREN, J.
"Roger and Joy Wheatley shall have the right to open and fund escrow for the purchase of the property commonly known as 530 N. Ventura Avenue, Oak View, California 93022 for the sum of $650,000.00 for a period of sixty (60) days from either of the following: the expiration of the time for filing a notice of appeal from this judgment without any party having done so, or the date on which the resolution of any such appeal becomes final. The Wheatleys shall deposit at opening of escrow an amount not less than $18,750. Within thirty (30) days of the same date all parties to this case shall take any necessary action to remove any lis pendens or any similar cloud on title then existing.
"The sale will be conducted at an escrow company agreed on by the Wheatleys and the Sayres; but, if no agreement thereon is reached, then at Chicago Title Company. The escrow shall provide for the usual division of escrow charges and expenses between Buyer (Wheatley) and Seller (Sayre) and shall provide that Seller furnish Buyer with a policy of title insurance in standard form insuring Buyer's title in accordance with this Judgment in the sum of $650,000.00. Upon deposit by the Wheatleys or their lender of the full purchase price, the Sayres shall promptly execute and deposit a good and sufficient fee title deed in favor of the Wheatleys for the property known as 530 N. Ventura Avenue, Oak View, California 93022. If the Sayres fail to promptly execute and deposit such a deed, the clerk of this court shall do so upon request of the Wheatleys.
"If, upon completion of the sixty (60) day period described above, the Wheatleys have not funded escrow with the balance of the $650,000.00 purchase price for the property, the Wheatleys' right to purchase the property will be terminated."