Is Residency as a Property Manager Dependent on the Contract of Employment?

The recent California decision of De Paolo v. Rosales by the appellate division of the Los Angeles Superior Court addressed the issue of whether a residency as a property manager is dependent on the contract of employment of the manager?

Defendants and appellants Jenny Rosales and Richard A. Charlemagne appealed the judgment entered in favor of plaintiff and respondent John R. De Paolo, Trustee of the De Paolo Trust Dated August 14, 1995, following a bench trial.

Defendants contended that evidence was insufficient to prove a valid termination notice was served; the 30-day notice was void because it violated the Tenant Protection Act which applies to “term[in]ation of a tenancy based on an employment agreement”; Rosales was a tenant and “not merely an employee provided housing as compensation for her job”; and the termination notice was also defective because it was for 30 days instead of 60 days.

On August 22, 2024, plaintiff (owner and trustee) filed an unlawful detainer complaint against Rosales and all unnamed occupants based on a 30-day notice to quit.

The complaint, which indicated that the tenancy was subject to the Tenant Protection Act of 2019 (TPA) (Civ. Code § 1946.2), alleged that on or about December 1, 2020, Rosales and “all unnamed occupants of the premises” agreed to pay monthly rent of $710 pursuant to a written agreement.

A copy of the written “resident manager’s agreement” was attached to the complaint. It was signed and executed on December 1, 2020, by John De Paolo, as trustee of the John De Paolo trust and owner, and Jenny Rosales as resident manager.

The agreement provided in pertinent part, as follows: “1) Owner has an ownership interest in the real property located at 14000 Dickens Street, Sherman Oaks, California (the ‘Premises’) . . . . [¶] . . . [¶] . . . Owner and Resident Managers[2]agree as follows: 1. Hiring. Owner hereby employs Resident Managers and Resident Managers hereby accept said employment as provided for in this Agreement. The relationship between Owner and Resident Managers are solely one of employer and employee. [¶] . . . [¶] 26. Residence and Rent. Throughout the term of this Agreement, Resident Managers shall reside in Unit No.106, or in such other unit at the Premises . . . Owner’s sole discretion[ may] designate. Resident Managers’ residency at the Premises is required for the convenience of Owner. Owner and Resident Managers agree that at the present time, the reasonable, fair and ordinary rental value for Resident Managers’ said existing unit is $780.00 per month, but Resident Managers shall only be required to pay rent of $710.00 per month, payable in advance on the first day of each month so long as this Agreement is in effect and unmodified . . . . [¶] . . . [¶]

7.1 Resident Managers’ sole and exclusive collective compensation under this Agreement for all hours worked pursuant to paragraph 4 hereof shall be the gross sum of $710.00 per month less any amounts required to be deducted by any governmental authority. Owner shall pay one-half of said compensation to Resident Managers on a semi-monthly basis. [¶] . . . [¶]

11. Termination. Owner’s employment of Resident Managers is “AT WILL.” Owner may terminate this Agreement and Resident Managers’ employment at any time with or without cause and with or without advance notice. Resident Managers may terminate this Agreement with or without cause only be [sic] giving Owner thirty (30) days prior written notice . . . . Within 30 days following any termination of Resident Managers’ employment or at the end of 30 days following Resident Managers’ Notice, whichever first occurs, Resident Managers shall vacate the unit at the Premises in which the Resident Managers are then residing, restore possession of the unit to Owner free of all other occupants, and leave the unit in a clean condition and in a good state of repair. If Resident Managers fail to so vacate the unit and restore possession thereof to Owner, Resident Managers shall be liable to owner for the reasonable rental value of the unit

following the termination . . . . Any termination effected pursuant to this paragraph shall be by written notice given by one party to the other by personal service or certified mail, return receipt requested. Service shall be deemed complete at the time of personal service or deposit into the mail. In the event that Resident Managers’ employment is terminated, all compensation and payments to be made pursuant to this Agreement shall be prorated through the termination date. 

The complaint further alleged that Rosales’s “resident manager’s services terminated as of August, 2023” and defendant and all unnamed occupants failed to comply with the requirements of the 30-day notice by the end of the compliance period. A copy of the notice, which was dated July 10, 2024, was attached to the complaint, and it stated, in pertinent part, that defendant and all others in possession were required to quit and deliver possession of the premises within 30 days after service of the notice or by Monday, August 13, 2024 at noon, whichever was later in time.

The notice read that “[t]his notice to quit is served upon you for the purpose of enforcing your written August 9, 2023 termination as employee (on site manager).” The notice was served by posting on July 10, 2024 and by mailing on July 11, 2024. The proof of service was attached to the complaint.

Plaintiff requested forfeiture of the agreement and any further relief the court deemed just and proper. In an addendum to the complaint, plaintiff indicated “no claim to holdover damages [was] part of this UD action” and that the action only concerned plaintiff obtaining possession of the premises from defendants.

On September 17, 2024, defendants filed an answer raising general denials and affirmative defenses. Among the documents attached to the answer was a purported tenant ledger reflecting that monthly rent of $710 had been “paid and cleared” from January 1, 2021 through April 1, 2024. Beginning May 1, 2024 through September 1, 2024, the ledger reflects that the rent was paid, but not cashed.

Trial took place on November 7, November 21, and December 23 of 2024.

Plaintiff testified as follows. He was the trustee of the De Paolo trust and was charged with the care of the premises. In November 2020, he hired Rosales as the on-site manager and she was given Unit 106 as a manager’s unit. The manager’s contract, which was admitted into evidence as exhibit 1, was executed and signed in person by both De Paolo and Rosales on December 1, 2020, and took effect the same day. Rosales signed the document in plaintiff’s presence.

The termination letter, dated August 9, 2023, which was entered into evidence as page one of exhibit 2 stated, in pertinent part, “beginning Friday, August 11, 2023, you will no longer be the manager of the [premises]. Your duties terminate at 11:59PM, August 10, 2023. [¶] As per the agreement signed by you, this is your 30 [sic] notice to move from your current residence at Unit #106.” The second page of exhibit 2 was an email from Rosales dated August 10, 2023, that read, “John and Hilda, [¶] I am in receipt of your wrongful termination letter as of August 10, 2023, dated August 9, 2023. . . . I consider this retaliation due to reports I have made against your illegal business practices.”

Since September 2023, plaintiff had returned each and every check sent by defendants and had not accepted any of their funds. However, at some point plaintiff realized that Rosales had “forced payment” into his account. Exhibit 6 was a letter dated September 7, 2023, written by plaintiff and addressed to defendant Rosales. It read, in pertinent part, “you ‘force fed’ a deposit into my checking account in the amount of $710.00. [¶] This was done without my permission. [¶] You have no lease agreement and you are not a tenant at [the premises]. Also you are no longer a manager. [¶] . . . [¶] I am returning the amount to you via postal money order.”

Plaintiff sent the payments back every month and did not cash the checks after Rosales’s employment was terminated. Plaintiff did not enter into oral contract with defendants and conducted all of his business in writing.

As of the date of the trial, defendants were still in possession of the premises. Plaintiff’sexhibits 1 through 8 were admitted into evidence.

Rosales testified that she worked part time for plaintiff and his wife “at all of their properties.” In October 2020, plaintiff offered her a position as on-site manager at the premises and said she would not need to pay rent as part of her compensation. She had “never paid any rent to [plaintiff and] our verbal agreement said that it was free rent.”  

The court found that Defendant Rosales did not have an independent right of possession of the unit that was separate and apart from the “Resident Manager’s Agreement” and her right to occupancy of the premises was dependent upon her continuation of her employment as the resident manager.

The parties’ agreement clearly stated that Defendant Rosales’ occupancy was dependent upon the continuation of the employer-employee relationship and that when the employer-employee relationship was terminated, the occupancy would end.

An essential element of an unlawful detainer predicated on termination of the defendant tenant’s employment is that the employment expired or was otherwise lawfully terminated. (Code Civ. Proc., § 1161(l).) If the tenant can show that termination of her employment was in retaliation for legal activities, then she would have a valid defense to the unlawful detainer action.

The court found that Rosales had not met her burden of producing evidence sufficient to show that the termination of her employment was unlawful or retaliatory. Accordingly, Rosales was not entitled to reside at the premises post termination.

The court ordered judgment entered in favor of plaintiff and against defendants, awarded plaintiff possession and restitution of the premises, canceled the rental agreement and forfeited the lease agreement.

Defendants’ contentions on appeal are entirely premised on their position that they were tenants. However, the facts adduced at trial, including defendants’ own testimony, make it abundantly clear that they were not.

An unlawful detainer occurs when a person remains in possession of property after the expiration of the term for which it is let to him. This can occur not only in a standard landlord- tenant situation but also in a case where the person became the occupant of the premises as a servant, employee, agent, or licensee and the relation of master and servant, or employer and employee, or principal and agent, or licensor and licensee, has been lawfully terminated. (Code Civ. Proc., § 1161, subd. (1).)

A resident manager whose tenancy is premised upon employment with the landlord (i.e., the right of occupancy is part of the employment compensation package) may be evicted upon termination of her employment. The discharge from employment terminates both the employer-employee relationship and the tenancy. (Code Civ. Proc., § 1161, subd. (1).)

If a person occupies premises belonging to his employer as a part of his compensation, he has no right to continue his occupation of the premises on the termination of his employment.

The discharged person is a tenant at sufferance and is entitled to no notice before an unlawful detainer action is commenced.

Terminated employee occupant is a mere licensee, not a tenant and is not protected by local eviction controls.

If the employee occupant holds over, the landlord is automatically entitled to bring an unlawful detainer action premised upon allegations that the employment expired or was otherwise lawfully terminated.

Evidence was presented at trial that Rosales signed a resident manager’s agreement that  stated that her occupancy of the premises was at plaintiff’s sole discretion; that her residency was required for the convenience of plaintiff; that her employment as resident manager was at will and that plaintiff could terminate the agreement and her employment as resident manager at any time with or without cause and with or without advance notice; and defendant was required to vacate the premises and restore possession of the unit to plaintiff free of all other occupants within 30 days following termination of defendant’s employment as resident manager or at the end of 30 days following notice, whichever came first.

In contrast to this mountain of evidence substantiating that Rosales was indeed a resident manager whose occupancy of the premises was contingent upon and only existed as a result of her employment, there was a complete dearth of evidence that would support any argument that she was entitled to occupancy after her termination.  

As it is settled that a person who occupies premises belonging to her employer as part of her compensation has no right to continue in possession upon termination of her employment, and given that Rosales signed an agreement stating she would vacate the premises upon termination of her employment, and then failed to do so, plaintiff’s right to initiate unlawful detainer proceedings against defendants was triggered.

Here, as the terms of the resident manager’s agreement were unambiguous, definite and certain as to Rosales’s obligation to vacate the premises in the event of her termination, the appellate court need not look to or consider defendants’ post- termination conduct to determine the intent of the parties when entering into the agreement.

If the contract is definite and certain it is neither necessary nor proper to rely upon the conduct of the parties for its construction or to discover the all-important element of intent of the parties to the contract.

Defendants contend that because there was no evidence, substantial or otherwise, that the California law notice was provided as an addendum to the lease or rental agreement or as a written notice signed by the tenant, the TPA was violated thereby rendering the 30-day notice void.

The appellate court found no published opinion addressing whether individuals occupying a property that is subject to the TPA pursuant to a resident manager’s agreement are considered tenants for the purposes of the applicability of TPA protections post the resident manager’s employment termination

The TPA of 2019 (Civ. Code, § 1946.2 et seq.) is a comprehensive anti-rent gouging and eviction control law.

It provides, in relevant part that, after a tenant has continuously and lawfully occupied a residential real property for 12 months, the owner of the residential real property shall not terminate a tenancy without just cause, which shall be stated in the written notice to terminate tenancy.  At-fault just cause means any of the following: The employee, agent, or licensee’s failure to vacate after their termination as an employee, agent, or a licensee as described in paragraph (1) of Section 1161 of the Code of Civil Procedure.

Tenancy means the lawful occupation of residential real property and includes a lease or sublease.

On the complaint, plaintiff indicated that the tenancy was subject to the TPA and that the tenancy was terminated for at-fault just cause pursuant to section 1946.2, subdivision (b)(1).

Defendants contend that plaintiff’s concession to the applicability of the TPA as reflected on the complaint, coupled with plaintiff’s failure to include the language required by the relevant portion of the TPA (Civ. Code § 1946.2, subd. (f)), which defendants refer to as the California law notice, as an addendum to the lease or rental agreement, or as a written notice signed by t he tenant render plaintiff’s written termination notice void.

The ultimate question before us is whether a terminated resident manager’s continued occupancy of a premises belonging to her employer, that she was only permitted to occupy as part of her employment compensation, qualifies as a tenancy for the purposes of the TPA. It  does not.

In order to qualify as a tenancy within the meaning of the TPA, the occupant’s occupation of the premises must be lawful.

After Rosales was terminated from her position as resident manager, and the 30-day period established in the resident manager’s agreement elapsed, her occupancy of the premises became unlawful.

The case law is clear, a terminated resident manager who refuses to vacate becomes either a tenant at sufferance or a licensee.

A tenant at sufferance is a person who lawfully entered into possession of a property but continues to occupy it without any legal title or the landlord’s consent after the termination of the tenancy.

A licensee is a person or entity authorized to do a particular act or acts on the property of another without possessing any estate or interest in the land.

The authorization to perform certain acts without conferring any interest in the land is considered a personal privilege.

A license is normally revocable at will.

Whether the terminated resident manager is classified as a tenant at sufferance or a licensee, the law is clear that under either classification, the terminated employee is not considered a tenant.

A terminated employee who entered the land as a licensee could not convert his status into that of a tenant by refusing to vacate upon expiration of his employment.

Thus, while the TPA includes in its list of scenarios that constitute at fault-just cause eviction situations where a lawful tenant may have at one time been an employee, agent, or a licensee who failed to vacate after they were terminated as an employee, agent, or licensee, the mere contemplation or existence of these scenarios does not serve to unilaterally transmute the status of a terminated resident manager into that of a lawful tenant where the resident manager’s initial occupation of the property was premised solely upon employment.

A terminated employee could not convert his status into that of a tenant by refusing to vacate upon expiration of his employment.

Caselaw dictates that such an individual is either a tenant at sufferance or licensee who enjoys no tenant protections, including notice.

And unless, and until, some action is taken by the parties that reflects their mutual assent to change the nature of the agreement between the two of them, such an individual remains so classified.

Defendants contended that they continuously and lawfully occupied the premises from December 2020 until the 30-day notice was served and expired on August 13, 2024. Defendants seemed to take the position that because they refused to vacate the premises after service of the employment termination letter and 30-day notice of termination of tenancy on August 10, 2023 and purported to make rent payments thereafter, Rosales’s status as an employee-occupant was somehow transformed into a tenancy entitling her to all of the rights and protections afforded under the TPA.

Absent subsequent events that might have created a new tenancy, an occupant’s continued occupancy of the premises after the termination of the original agreement is unlawful.

For example, death of original property owner constituted a triggering event terminating original tenancy of employee by operation of law, making employee’s continued occupancy unlawful absent subsequent events to create a new tenancy.

In sum, defendants’ continued occupancy of the premises after Rosales’s termination was unlawful, rendering the TPA inapplicable to the instant unlawful detainer proceedings.

The defense of retaliatory eviction is an affirmative defense permitted by statute and common law in an unlawful detainer proceeding.

Where the tenant is asserting that the eviction is in retaliation for having exercised legal rights, a tenant is entitled to raise these issues as affirmative defenses in an unlawful detainer proceeding as they go to the issue of the landlord’s right to possession—the core of the proceeding.

Where tenant-employees occupy the premises because of their status as employees, they would be in unlawful detainer only if the employer-employee relationship was lawfully terminated.

If a tenant-employee can prove unlawful termination of the employment relationship, then they cannot be found guilty of “unlawfully detaining” the premises. If the defense is proven, the landlord is not entitled to a judgment of possession as a matter of law.

Defendant bears the burden of proving that the plaintiff had a retaliatory motive by a preponderance of the evidence and that the termination of her employment was unlawful.

The trial court found that Rosales had not met her burden of production of evidence sufficient to show that termination of her employment was unlawful or that her eviction was retaliatory.

Defendants alleged that the judgment must be reversed because the evidence was insufficient to prove that a valid termination notice was served as required by the TPA. As discussed in detail ante, Rosales had no right to occupy the premises independent of her employment as the resident manager. Thus, once Rosales’s employment terminated, so did both defendants’ right to occupy the premises. As they were not lawful tenants, the TPA protections, including notice, did not apply.

After terminating Rosales, plaintiff did in fact serve her with a 30-day notice to quit. However, that plaintiff chose to give defendants notice does not change the fact that they were entitled to none.

LESSONS:

1.         An essential element of an unlawful detainer predicated on termination of the defendant tenant’s employment is that the employment expired or was otherwise lawfully terminated. (Code Civ. Proc., § 1161(l).) If the tenant can show that termination of her employment was in retaliation for legal activities, then she would have a valid defense to the unlawful detainer action.

2.         A resident manager whose tenancy is premised upon employment with the landlord (i.e., the right of occupancy is part of the employment compensation package) may be evicted upon termination of her employment. The discharge from employment terminates both the employer-employee relationship and the tenancy.

3.         The discharged person is a tenant at sufferance and is entitled to no notice before an unlawful detainer action is commenced. Terminated employee occupant is a mere licensee, not a tenant and is not protected by local eviction controls.

4.         A licensee is a person or entity authorized to do a particular act or acts on the property of another without possessing any estate or interest in the land.  The authorization to perform certain acts without conferring any interest in the land is considered a personal privilege. A license is normally revocable at will.