Updated on June 16, 2023
In this blog we will discuss how a lease over 99 years is void, not voidable. We’ll also look closely at a recent case regarding a commercial property with a long lease and how the court of appeals determined that the lease was void.
In the recent case of Tufeld Corporation v. Beverly Hills Gateway, L.P., a commercial landlord sued tenant’s assignee for declaratory relief and quiet title regarding whether an amendment to the lease that provided for a term that exceeded 99 years was void.
As a matter of first impression, the Court of Appeal held that the lease was void (as opposed to voidable) to the extent its extended term was longer than the 99 year time limit under Civil Code section 718.
In 1960, the Tufeld Corporation (“Tufeld”), the landlord, rented prime commercial real estate in Beverly Hills to two tenants for a lease term of 98 years to expire in 2058. The original tenants constructed an office building on the property.
By 2003, a subsidiary of Douglas Emmett became a tenant. In that same year, a company called Beverly Hills Gateway L.P. (“BHG”) acquired Douglas Emmett’s interest in the ground leases through a series of assignments.
BHG financed this acquisition with a loan.
Thereafter, as part of BHG’s plans to renovate the building, BHG and Tufeld executed an amendment to the lease in 2007 to:
In consideration of this amendment, BHG paid Tufeld $1.5 million. Tufeld then refinanced its loan, borrowing $47 million from a new lender.
In connection with refinance, Tufeld signed an estoppel certificate to confirm the lease terminated on December 31, 2123. BHG then invested about $8.8 million in renovations to the building over several years.
In September 2017, BHG again refinanced its secured loan, this time borrowing $49 million. Tufeld signed a second estoppel certificate to confirm the lease terminated on December 31, 2123. BHG then used some of those funds to make additional improvements to the building.
Two or three months later, Tufeld’s president learned that leases longer than 99 years are invalid under Civil Code section 718, which expressly provides that “no lease… which provides for a leasing… in excess of 99 years, shall be valid.” Shortly thereafter, Tufeld sued tenant’s assignee for declaratory relief and quiet title regarding whether an amendment to the lease that provided for a term that exceeded 99 years was void.
The trial court ruled in favor of the landlord, declaring that the lease was void to the extent its term exceeded 99 years. The trial court also awarded restitution to the tenant’s assignee. Both parties appealed.
The Court of Appeal held that a lease over 99 years is void, not voidable, based on the legislative history of Civil Code section 718 and the nature of the contract at issue as not being immoral or illegal. The Court of Appeal also held that the amendment acted as a novation which created a new lease and thus, re-set the 99 year clock.
Accordingly, the amendment to the lease was only void only to the extent it extended the term more than 99 years from 2007, i.e. beyond 2102. The Court of Appeal also held that BHG was entitled to restitution because it had paid consideration for an extension of more than 99 years.
Schorr Law has experience with litigating all types of commercial leasing disputes. To schedule a call with one of our commercial lease attorneys, please give us a call at (310) 954-1877, text us at (310) 706-2265 or send us a message here.