Articles Posted in Commercial Evictions

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Last month, I discussed the risks to a commercial landlord leasing to medical marijuana enterprises (“MME”) when the tenant’s business operations violate local ordinances. This post discusses the commercial landlord’s greater risk of losing ownership of their commercial property. This week, the federal prosecutors in California announced that they will begin targeting commercial landlords leasing to MMEs by filing “civil forfeiture lawsuits against properties involved in drug trafficking activity.” Their goal is to force real property owners to ensure that their property is not used to promote illegal activities.

Under Civil Forfeiture laws, any real property from which illegal drugs are sold can be seized and taken by the government. In a civil forfeiture action, the property owner is not accused of any crime. Interestingly, it is the property that is sued. The Federal Government files suit against the property and names the property owner as a third party claimant. The Federal Government need merely establish probable cause that the property was used for an illegal purpose. The burden is on the property owner to prove by a “preponderance of the evidence” that the property was not used for illegal purposes or that the illegal use was made without the property owner’s “knowledge, consent, or willful blindness.” The commercial landlord will spend large sums of money in attorneys’ fees in an attempt to keep its property. But, in the end, the commercial landlord will more than likely lose if its tenant was, in fact, selling marijuana from the premises.

Commercial property owners leasing space to tenants operating a MME should take all steps to minimize their risk. The Federal Government stated that it will be sending out warning letters to property owners and lien holders. Commercial landlords are advised to heed these warnings and take steps to remove the offending tenants from their property. The landlord should immediately serve the tenant with a Notice to Perform (i.e. stop the illegal activity) or quit the leased premises. If the tenant fails to stop the illegal activity, the landlord should follow through with an unlawful detainer to remove the tenant from the premises.

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With occupancy rates slowly rebounding and rental rates still low, many Sacramento commercial landlords are closely watching the bottom line. This is especially true when valuable resources must be spent to evict a non-paying tenant. To save the cost of a paying a registered process server, property managers and landlords will often decide to personally serve, or serve by mail, a pay or quit notice. Unfortunately, this cost saving method often causes the landlord more expense in the end.

Pay or quit notices are only valid and enforceable if the landlord strictly complies with California Code of Civil Procedure section 1162. Absent strict compliance, a landlord is not entitled to possession of the premises. With respect to service of a pay or quit notice, the burden is on the landlord to prove service of a pay or quit notice. Many a landlord’s unlawful detainer action has been defeated by a tenant claiming (truthfully or not) that they never received the pay or quit notice; despite the landlord producing at trial an affidavit of service signed by an employee of the property manager or, an often illegible, signed return receipt. (See Liebovich v. Shahrokhkhany (1997) 56 Cal.App.4th 511). If the landlord used a registered process server, however, the tenant’s mere claim that they never received the notice will fall on deaf ears.

Recently, in Palm Property Investments, LLC v. Yadegar (2011) 194 Cal. App. 4th 1419, a California appellate court specifically held that a proof of service of a pay or quit notice by a registered process server is valid, admissible proof of service of the pay or quit notice. In Palm, the tenant asserted in their verified answer to the complaint that they never received the pay or quit notice. The trial court refused to admit the proof of service signed by a registered process server as evidence of service. On the basis of lack of service, the trial court found for the tenant and dismissed the landlord’s unlawful detainer. The appellate court overruled the trial court’s finding that the process server’s proof of service was inadmissible. The appellate court noted that an affidavit of service signed by a landlord or employee of the property management company is inadmissible proof of service of the pay or quit notice. But, Evidence Code section 647 specifically states that a proof of service signed by a registered process server creates a presumption that service is valid. The court, therefore, held that the proof of service signed by the registered process server should have been admitted by the trial court as proof of valid service of the pay or quit notice.