Kelly v. Tri-Cities Broadcasting, Inc.
147 Cal.App.3d 666, 195 Cal. Rptr. 303, 1983 Cal. App. LEXIS 2229 (1983)
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Rule of Law:
An assignee of a real property lease who has not expressly assumed the lease's obligations is bound by covenants that run with the land, such as the duty to pay rent and to arbitrate, but only for the period of actual possession. This liability, based on privity of estate, terminates upon abandonment of the premises.
Facts:
- In 1965, the Kellys' father leased a parcel of land to the Bambricks for a radio station under a 20-year lease agreement.
- The lease required the lessee to provide five minutes of daily radio program time as rent and contained a clause requiring arbitration for any disputes.
- The lease also included a clause stating that any assignee 'shall assume all of the liabilities and obligations assumed by Lessee in this Lease Agreement.'
- In 1970, the Bambricks sold the station to Far West Broadcasting Corp., which took over the lease.
- In 1975, Far West sold the radio station's assets, including the lease, to Tri-Cities Broadcasting, Inc. The purchase documents listed the lease as an asset being transferred.
- Tri-Cities and its president, Jeffrey Chandler, never read the original lease and did not orally or in writing expressly agree to be bound by all of its terms for the full duration.
- Tri-Cities occupied the property from approximately July 1975 until it moved its transmitter and abandoned the site in late June 1977.
- In 1979, after Tri-Cities had abandoned the property, the Kellys demanded the radio time rent, and Tri-Cities refused.
Procedural Posture:
- The Kellys filed a petition in the superior court (trial court) to compel Tri-Cities to arbitrate a dispute arising from the lease agreement.
- The trial court found that Tri-Cities had assumed the lease and granted the petition, ordering the parties to arbitration.
- The dispute was heard by an arbitrator from the American Arbitration Association.
- The arbitrator, feeling bound by the trial court's finding of assumption, issued an award in favor of the Kellys for prospective damages covering rent due after Tri-Cities had vacated the property.
- The Kellys petitioned the trial court to confirm the arbitrator's award.
- The trial court entered an order correcting and confirming the award, and judgment was entered for the Kellys.
- Tri-Cities (appellant) appealed the judgment to the Court of Appeal, challenging both the confirmation of the award and the initial order compelling arbitration.
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Issue:
Does a lease assignee who takes possession of the premises but does not expressly assume the lease's obligations become bound by all of the lease's covenants, including the covenant to arbitrate, for the entire remaining term of the lease?
Opinions:
Majority - Staniforth, Acting P. J.
No, an assignee who takes possession without an express assumption is not bound by the lease's contractual obligations for the entire term. The court distinguished between privity of contract, created by an express assumption of the lease, and privity of estate, created by the act of possessing the property. Without an express assumption, there is no privity of contract between the landlord and the assignee. The assignee is only bound by covenants that run with the land (like paying rent and arbitration) through privity of estate, and that liability lasts only as long as the assignee remains in possession of the property. The language in the purchase agreement transferring the lease as an asset was insufficient to constitute an express assumption of all its obligations. Therefore, Tri-Cities' liability ended when it abandoned the premises in 1977, and it could not be held liable for rent or compelled to arbitrate disputes arising after that date.
Analysis:
This decision reaffirms the critical distinction between a 'bare assignment' and an 'assignment with assumption' in property law. It clarifies that for an assignee to be liable for the full term of a lease (privity of contract), their assumption of the lease's obligations must be explicit and unambiguous. The ruling underscores the importance for landlords to obtain a direct assumption agreement from any new assignee if they wish to hold them contractually liable beyond their period of physical possession. This precedent protects assignees from inadvertently incurring long-term contractual liabilities and places the burden on landlords to secure their rights through diligent contracting.
