What is the Presumed Term for an Oral Lease Agreement in California?

In the recent decision in 65283 Two Bunch Palms Building LLC v. Coastal Harvest II, LLC, Plaintiff Two Bunch orally leased an industrial building in Desert Hot Springs to Coastal Harvest for the indoor cultivation of cannabis.

When, after two years of negotiations, the parties were unable to agree to a written lease and a master service agreement, Two Bunch served Coastal Harvest with a 30-day notice to quit.

Coastal Harvest refused to vacate the property, so Two Bunch instituted an unlawful detainer action.

After a one-day trial, the trial court entered a judgment of possession for Two Bunch and awarded it $180,000.13 in holdover damages.

In the trial court, Coastal Harvest unsuccessfully argued it operated a licensed cannabis operation on the property and, therefore, it could not be evicted because it was entitled to the presumption under Civil Code section 1943 of a one-year tenancy for “agricultural" purposes, and the presumption of a one-year holdover tenancy for use of “agricultural lands” under Code of Civil Procedure section 1161, subdivision 2.

Assuming without deciding that Coastal Harvest’s cannabis operation constituted agriculture, Two Bunch rebutted the presumption under Civil Code section 1943 with evidence that the parties agreed that, unless they signed a written lease, the term of the oral lease was month-to-month.

And because the unlawful detainer action was not filed for failure to pay rent, Code of Civil Procedure section 1161, subdivision 2, and its holdover presumption for “agricultural” tenants simply did not apply.

In its unlawful detainer complaint, Two Bunch alleged it leased the property to Coastal Harvest under an oral lease agreement, and that at all times the lease was month- to-month and capable of being terminated at any time by either party.

Two Bunch alleged that on October 1, 2020, it served Coastal Harvest with a 30-day notice to quit the property by November 2, but Coastal Harvest refused to vacate the property and remained in its possession.

In its answer, Coastal Harvest alleged it could not be evicted because it was in lawful possession of the property under the presumption of a one-year tenancy for “agricultural" purposes under Civil Code section 1943 and/or under a presumption of a one-year holdover tenancy for use of “agricultural lands” pursuant to Code of Civil Procedure section 1161, subdivision 2.

At trial, Two Bunch introduced evidence that for more than two years the parties negotiated a written lease of the property and a master service agreement (MSA) “to enable [Coastal Harvest] to operate a California licensed cannabis cultivation facility at [Two Bunch’s] premises for the purposes of growing cannabis to be sold to other California licensed cannabis businesses.”

Pursuant to an oral lease, Coastal Harvest took possession of the property in October 2018, began operating its cannabis cultivation, and timely paid monthly rent.

The property was a large industrial building with wooden floors surrounded by an asphalt parking lot, and Coastal Harvest grew cannabis inside “potting cubes” that could be moved around the building, not in the ground.

While the negotiations for the written lease and MSA were ongoing, the tenancy was to be month-to-month. The written lease and MSA were never signed.

An attorney for Two Bunch testified that, during the negotiations, he informed Coastal Harvest that the oral lease was month-to-month and that, unless the parties could agree and sign a written lease and MSA, the oral lease would be terminated.

Coastal Harvest introduced evidence that the written lease being negotiated by the parties contemplated a minimum three-year term, that Two Bunch orally represented that Harvest could use the property for at least three years, but that the written lease was never signed.

Coastal Harvest moved for a defense judgment, arguing it was entitled to continue possessing the property pursuant to the rebuttable presumptions of one-year tenancies under Civil Code section 1943 and Code Civil Procedure section 1161, subdivision 2.

The trial court denied the motion.

The trial court found Coastal Harvest had failed to rebut the general presumption under Civil Code section 1943 that an oral lease is month- to-month.

In addition, the trial court found that Coastal Harvest’s cannabis operation was not an “agricultural use of land” because it did not grow the cannabis in the ground, and, therefore, the presumptions for agricultural tenants under Civil Code section 1943 and Code of Civil Procedure section 1161, subdivision 2, did not apply.

The trial court entered a judgment of possession for Two Bunch, and awarded it $182,000.13 in damages. Coastal Harvest timely appealed.

The Unlawful Detainer Act governs the procedure for landlords and tenants to resolve disputes about who has the right to possess real property.

An action for unlawful detainer is a summary proceeding.

The statutory scheme is intended and designed to provide an expeditious remedy for the recovery of possession of real property.

Unlawful detainer actions are, accordingly, of limited scope, generally dealing only with the issue of right to possession and not other claims between the parties, even if related to the property.

A plaintiff may file an unlawful detainer complaint under certain circumstances detailed in section 1161, and it specifies a tenant of real property is guilty of unlawful detainer only in specific circumstances, where the tenant:

fails to vacate after their termination as an employee, agent, or licensee;

is in default for nonpayment of rent;

breaches a material term of the lease;

commits waste, allows a nuisance on the premises, or uses the premises for an unlawful purpose; or fails to deliver possession to the landlord after having given written notice of their intention to terminate.

For a complaint to sound in unlawful detainer, it must allege the tenant is guilty of unlawful detainer under section 1161.

Coastal Harvest argued its licensed cannabis operation constituted agriculture and, therefore, the trial court erred by not applying the presumption of a one-year term under Civil Code section 1943 and/or the presumption of a one-year holdover term under Code of Civil Procedure section 1161, subdivision 2.

The appellate court was not persuaded by that argument.

Civil Code section 1943 provides: “A hiring of real property, other than lodgings and dwelling-houses, in places where there is no custom or usage on the subject, is presumed to be a month to month tenancy unless otherwise designated in writing; except that, in the case of real property used for agricultural or grazing purposes a hiring is presumed to be for one year from its commencement unless otherwise expressed in the hiring.

The trial court ruled that Coastal Harvest failed to rebut the general presumption under Civil Code section 1943 that the oral lease was month-to-month.

The trial court ruled that growing cannabis in moveable pots within a wooden floor warehouse was not “agricultural use” because Coastal Harvest was not “cultivating the ground.”

Therefore, the court found the presumptions for “agriculture” use and lands in Civil Code section 1943 and Code of Civil Procedure section 1161, subdivision 2, did not apply. 

For purposes of Civil Code section 1943, the intention of the parties is the controlling factor, and evidence the parties agreed to a longer term will rebut the general presumption of a month-to-month term for an oral lease.

Likewise, evidence the parties agreed orally to a term of less than one year may rebut the presumption of a one-year lease for agricultural land.

The record contains substantial evidence that, while the negotiations for a written lease were ongoing, the parties mutually understood the oral lease was for a month-to-month term and that it would be terminated unless the written lease was eventually signed.

Therefore, the trial court correctly ruled that Coastal Harvest did not rebut the general presumption of a month-to-month lease under Civil Code section 1943.

And, assuming, without deciding, that Coastal Harvest’s cannabis operation was an “agricultural” use of the property, which triggered the presumption of a one-year tenancy under section 1943, the same evidence demonstrated Two Bunch rebutted the presumption.

LESSONS:

1.         The general presumption under Civil Code section 1943 is an oral lease is month-to-month.

2.         For purposes of section 1943, the intention of the parties is the controlling factor, and evidence the parties agreed to a longer term will rebut the general presumption of a month-to-month term for an oral lease.

3.         The Unlawful Detainer Act governs the procedure for landlords and tenants to resolve disputes about who has the right to possess real property, it is a summary proceeding, and it is intended and designed to provide an expeditious remedy for the recovery of possession of real property.

4.         Unlawful detainer actions are of limited scope, generally dealing only with the issue of right to possession, and not other claims between the parties, even if related to the property.