Can Payment of Rent Create a Month-Month Lease in California under Civil Code § 1945?

In the California Court of Appeal decision in Baca v. Kuang, Defendant Yonghe Kuang appealed from the trial court’s judgment and award of attorney fees against him in an unlawful detainer action.

Plaintiff and respondent Laura Read Baca doing business as Baca Properties was Kuang’s commercial landlord and issued a 30-day notice to terminate his tenancy.

Several days after the notice expired, Kuang tendered a rent check to Baca, which she deposited that same day and never refunded.

The next day, Baca filed an unlawful detainer action against Kuang, arguing that he was unlawfully holding over.

While the action was pending, Kuang tendered payment of rent and common area maintenance (CAM) charges to Baca pursuant to invoices sent by her management company for three additional months, which she deposited and never refunded.

The trial court held that despite Baca’s acceptance of these payments, she did not consent to Kuang’s continued possession based on the terms of their lease.

In reaching this holding, the court concluded that Civil Code section 1945—which establishes a presumption of renewal whenever a landlord accepts rent from a tenant after the expiration of a lease—did not apply.

The appellate court found that section 1945 did apply because Baca accepted rent from Kuang multiple times after his lease had expired.

It further found that, in light of this presumption, Baca consented to a month-to-month tenancy based on the undisputed facts and the terms of the lease, and the trial court’s judgment was reversed.

In January 2014, Baca’s predecessor and Kuang entered into a one-year commercial lease agreement (lease or agreement) for premises located in Fremont, California (premises). Baca’s company prepared the agreement— which required that Kuang pay a monthly rent and a monthly CAM charge.

The agreement also contained several provisions addressing what could happen if Kuang remained in possession of the premises after the lease terminated.

The parties subsequently signed several amendments to the lease that extended its term and increased Kuang’s monthly rent. In January 2019, the parties agreed to convert the lease term to a month-to-month tenancy.

On December 28, 2022, Baca issued a 30-day notice to terminate Kuang’s tenancy. The notice stated that January 31, 2023 was the termination date.

As of January 31, 2023, Kuang did not owe Baca any back rent. Nor was there any evidence that Kuang had breached any lease provisions as of that date.

On February 6, 2023, Baca received and deposited a check from Kuang for the February 2023 rent and CAM charges. The next day, she filed an unlawful detainer action against Kuang.

While that action was pending, Baca continued to invoice Kuang for rent and CAM charges for the months of March, April, and May 2023.

Kuang paid the invoiced amount for each of these months. Baca deposited all of Kuang’s payments after January 31, 2023 and never returned them.

At the court trial, Baca testified that she did not personally issue the invoices but admitted that “Baca Properties” did, either through “her software system and/or someone else managing the software system.” She further testified that “it was her understanding of the law that she could accept rent payments after the expiration of [Kuang’s] 30[-]day notice and still evict [him].”

Kuang’s attorney argued that, by accepting Kuang’s multiple payments of rent and CAM charges after the 30-day notice had expired on February 1, 2023, Baca renewed the lease pursuant to section 1945 or paragraph 26 of the agreement (holdover).

Baca countered that section 1945 did not apply because it was superseded by the terms of the agreement.

Specifically, Baca relied on paragraphs 24 (no waiver) and 42.3 (obligations surviving after lease expiration) of the agreement and argued that she “expressly reserved her rights to enforce a 30-day notice regardless of her actions” like accepting rent.

As a threshold matter, Kuang contended that because Baca accepted rent after the lease terminated, there is a presumption that she consented to its renewal under section 1945.

Baca countered that substantial evidence supports the court’s implicit conclusion that section 1945 did not come into play here because she did not intend to renew the lease.

The appellate court agreed with Kuang.

Under section 1945, “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.” This presumption is rebuttable.

Baca initially contended that section 1945 does not apply because she issued a 30-day notice to terminate Kuang’s tenancy.

Baca, however, cited no legal authority to support this contention and, as Kuang pointed out, her contention was rejected by Superior Strut & Hanger Co. v. Port of Oakland.

In that case, a commercial landlord issued a 30- day notice to terminate tenancy. Although the tenant did not vacate at the end of the notice period, the landlord “took no further action, except to urge that [the tenant] move at the earliest possible date.”

The tenant thereafter “executed a promissory note for $14,437.15 stated to be the damages suffered by [the landlord] as a result of [the tenant’s] delay in vacating the premises.”

On appeal, another division of the appellate court concluded that section 1945 applied after the 30-day notice expired.

Of significance, the division held that “[t]he only reasonable inference that can be drawn from the evidence presented is that [the landlord] acquiesced to continued occupancy by [the tenant] and that such occupancy was with [the landlord’s] consent. Furthermore, even had [the landlord] not consented to continuation of . . . tenancy, its mere 30-day notice of cancellation could not have rendered [the tenant’s] continued possession ‘unlawful.’ ”

Turning to the applicability of section 1945 under the undisputed facts in this case, the appellate court held that Baca “accept[ed]” rent from Kuang, giving rise to a statutory presumption that she renewed the lease. 

Baca received and deposited Kuang’s payment of rent and CAM charges for the month of February on February 6, 2023—without qualification or objection.

Although Baca did file the unlawful detainer action the next day, she continued to invoice Kuang for rent and CAM charges for three additional months. And when Kuang paid those invoices, Baca again deposited his payments without objection or qualification. More notably, Baca never returned or offered to return any of Kuang’s payments.

Under these undisputed facts, there is only one reasonable inference: that Baca accepted rent from Kuang for purposes of section 1945.

Baca’s argument that she did not intend to “consent to a holdover tenancy” by cashing Kuang’s checks does not help her here.

Under the plain language of section 1945, the issue is whether Baca “accept[ed]” Kuang’s payments as “rent”—and not whether she subjectively intended to create a holdover tenancy.

Based on the undisputed admissions, the payments made by Kuang could only be construed as rent for the premises, and Baca’s deposit and retention of those payments can only be construed as her acceptance of that rent for purposes of section 1945.

Although there is a presumption that Baca consented to the renewal of the lease on a month-to-month basis, that presumption is rebuttable.

Kuang contended that there are no facts here to rebut that presumption. He therefore argues that his lease was renewed under the holdover provision found in paragraph 26, which provides that, if Kuang, with Baca’s consent, remains in possession of the premises after the lease’s expiration, “such occupancy shall be a tenancy from month to month upon all the provisions of this Lease . . . .”

Baca countered that the lease’s no-waiver provision rebuts the presumption and precludes the application of the holdover provision. She further contended that the trial court correctly concluded that she accepted Kuang’s payments pursuant to paragraph 42.3 of the lease, rather than the holdover provision found in paragraph 26.

Finally, she contended that her filing of the unlawful detainer action and her subjective lack of intent to renew the lease are sufficient to rebut the presumption.

The appellate court disagreed.

First, Baca’s reliance on the no-waiver provision of the lease was unavailing because that provision states in pertinent part that “[t]he acceptance of rent hereunder by Lessor shall not be a waiver of any preceding breach by Lessee of any provision hereof, other than the failure of Lessee to pay the particular rent so accepted . . . .”

Nowhere in her brief, however, did Baca specify what lease provision Kuang breached before she accepted his rent payments. By failing to do so, Baca arguably forfeited her argument that the no-waiver provision is applicable here.

Second, paragraph 42.3 did not help Baca.  According to Baca, she did not accept Kuang’s payments as “rent” pursuant to paragraph 26 of the lease agreement, the holdover provision, “but rather as a voluntary setoff to holdover damages under paragraph 42.3.”

Baca’s unlawful detainer complaint, however, requested holdover damages based on the fair rental value of the premises starting on February 1, 2023. And Baca did, in fact, ask for and recover holdover damages from that date. This means that she could not have intended to use any of Kuang’s payments after February 1, 2023 as a setoff for holdover damages.

LESSONS:

1.         Under Civil Code, section 1945, “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.”

2.         Civil Code, section 1945 is a rebuttable presumption.

3.         Under the plain language of section 1945, the issue is whether a landlord accepted the tenant’s payments as “rent”—and not whether she subjectively intended to create a holdover tenancy.