Miscione v. Barton Development Co.
52 Cal. App. 4th 1320, 61 Cal.Rptr.2d 280, 97 Cal. Daily Op. Serv. 1315 (1997)
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Rule of Law:
A foreclosure of a senior deed of trust does not extinguish a subordinate lease when the lease contains an attornment clause, which constitutes a contractual agreement by the tenant to remain bound to the lease and accept the foreclosure purchaser as the new landlord.
Facts:
- Rancho Cucamonga Business Park Equities I (Equities I), with James E. Barton as a general partner, developed an office building.
- In 1986, Equities I obtained a $7.6 million loan from Coast Federal Savings (Coast), secured by a trust deed on the property which was recorded on January 31, 1986.
- On September 19, 1988, Equities I, as landlord, entered into a five-year lease for office space with Barton Development Company, of which James E. Barton was president.
- Paragraph 23 of the lease contained an attornment clause requiring the tenant to 'attorn to the purchaser' at a foreclosure sale and recognize that party as the landlord, 'provided that party acquires and accepts the Premises subject to this Lease.'
- On January 30, 1992, Coast foreclosed on its senior trust deed and acquired ownership of the property.
- Following the foreclosure, Coast sent letters to Barton Development identifying itself as the new landlord and requesting an estoppel certificate to confirm the lease terms.
- On June 16, 1992, Coast sold the building to John J. Miscione.
- On July 31, 1992, Barton Development vacated the premises and ceased paying rent.
Procedural Posture:
- Plaintiff John J. Miscione sued defendants Barton Development Company and James E. Barton in a trial court for breach of a written lease and fraud.
- Defendants filed a motion for summary judgment, arguing the lease was extinguished by a prior foreclosure.
- The trial court granted summary judgment in favor of the defendants.
- Plaintiff Miscione, as the appellant, appealed the trial court's judgment to this intermediate court of appeal.
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Issue:
Does a foreclosure of a senior deed of trust extinguish a junior lease when the lease contains an attornment clause obligating the tenant to recognize the purchaser as the new landlord?
Opinions:
Majority - Ward, J.
No. A foreclosure does not extinguish a junior lease if the parties have contractually agreed otherwise through an attornment clause. The general rule that a senior foreclosure terminates a junior lease can be altered by contract. The attornment clause in this lease constituted a promise by the tenant, Barton Development, to accept the purchaser at a foreclosure sale as its new landlord. This promise is independent of the subordination and nondisturbance clauses and does not require the lender to formally elect to make the lease senior to its trust deed. The condition that the new owner 'acquires and accepts the Premises subject to this Lease' was satisfied when Coast acquired the property at foreclosure and then accepted the lease by notifying the tenant of its new status as landlord and demanding rent. Therefore, the tenant's obligation under the lease survived the foreclosure and is enforceable by the new owner.
Dissenting - Hollenhorst, Acting P. J.
Yes. A foreclosure of a senior deed of trust automatically extinguishes a junior lease by operation of law. The lease, in its entirety, including the attornment clause, was terminated by the foreclosure sale. The attornment clause should not be read as a standalone agreement to alter priorities; it was merely one part of the extinguished lease. For the lease to survive, the lender (Coast) needed to use the subordination clause to formally elect to make its interest junior to the lease, which it did not do. The majority's interpretation improperly bypasses the formal subordination process, reads the non-disturbance clause out of the lease, and introduces uncertainty into a settled area of real estate law by treating post-foreclosure letters as a substitute for a formal subordination agreement.
Analysis:
This decision establishes that a properly drafted attornment clause can independently preserve a lease that would otherwise be terminated by the foreclosure of a senior lien. It carves out a significant exception to the general automatic termination rule, distinguishing itself from the precedent set in Dover Mobile Estates. The case clarifies that the tenant's promise to attorn is a surviving obligation that a foreclosure purchaser can enforce, provided the purchaser demonstrates acceptance of the lease. This holding shifts leverage to foreclosure purchasers, allowing them to decide whether to retain existing tenants, and emphasizes the critical importance of SNDA (Subordination, Non-disturbance, and Attornment) clause language in commercial leases.
