Public Employees' Retirement System v. Winston
1989 Cal. App. LEXIS 283, 209 Cal. App. 3d 205, 258 Cal. Rptr. 612 (1989)
Rule of Law:
Under California Civil Code section 1950.7, subdivision (c), a commercial lessor must return any remaining portion of a security deposit to the tenant, or offset it against rent owed, no later than two weeks after receiving possession of the premises, and this offset must occur at that specific time, not against a later money judgment.
Facts:
- In 1982, frank d. winston (winston) entered into a lease agreement for commercial premises in San Francisco with PERS’s predecessor-in-interest for a term through June 14, 1987.
- Winston paid a security deposit of $5,115 at the beginning of the lease.
- In 1983, State of California Public Employees’ Retirement System (PERS) purchased the building, acquiring the lease agreement and the security deposit.
- Thereafter, PERS terminated or reduced many services previously rendered by the former owner, which substantially affected winston’s quiet enjoyment of the premises.
- In February 1984, winston ceased paying rent.
- On April 27, 1984, winston paid $8,000 and subsequently vacated the premises on May 5, 1984.
Procedural Posture:
- State of California Public Employees’ Retirement System (PERS) sued frank d. winston (winston) in trial court for unpaid rent and attorney fees.
- Winston cross-complained against PERS for declaratory relief and retroactive rent abatement.
- Following a court trial in August 1986, the trial court found that winston’s vacation of the premises constituted a constructive eviction, terminating his rent obligation as of that date.
- The trial court found that PERS was entitled to unpaid rent accrued from February through May 5, 1984, subject to a rent abatement of $4,185 due to reduction in services, but made no finding in its statement of decision regarding the $5,115 security deposit.
- Winston moved for modification of the statement of decision to offset the deposit, which PERS opposed.
- The trial court confirmed its statement of decision and rendered judgment in favor of PERS in the amount of $5,281.57 plus interest.
- The trial court denied winston’s motion to vacate judgment.
- The trial court ruled PERS was entitled to attorney fees of $24,663 and costs, and denied winston’s claim for attorney fees.
- The trial court granted in part and denied in part winston’s motion to tax costs.
- Winston appealed from the judgment and several subsequent rulings against him.
- PERS appealed from the partial granting of the motion to tax costs.
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Issue:
Does California Civil Code section 1950.7, subdivision (c), require a commercial lessor to offset a security deposit against unpaid rent within two weeks of receiving possession of the premises, rather than against a later money judgment, thereby impacting the calculation of interest and the determination of the prevailing party?
Opinions:
Majority - Strankman, J.
Yes, California Civil Code section 1950.7, subdivision (c), requires a commercial lessor to offset a security deposit against unpaid rent within two weeks of receiving possession of the premises, rather than against a later money judgment, as the statutory language is unambiguous regarding this timing. The court reversed the trial court's judgment, holding that the security deposit of $5,115 should have been credited against the unpaid rent as of May 19, 1984 (two weeks after winston vacated the premises). The court reasoned that section 1950.7, subdivision (c), explicitly states that any remaining portion of a security deposit for rent defaults 'shall be returned to the tenant no later than two weeks after the date the landlord receives possession of the premises.' This statutory language makes no reference to applying the deposit against a subsequent money judgment. The court distinguished prior cases, such as Wickstrom v. McGrath and Garfinkle v. Montgomery, noting that they did not involve the application of statutory law governing security deposits, or that the timing of the offset did not impact the net amount owed as it did in this case due to interest accrual. Because the proper, earlier application of the offset would result in a net refund owing to winston, rather than a balance owed to PERS, the determination of the 'prevailing party' for attorney fees and costs must be reassessed. Under Civil Code section 1717, the prevailing party is the one who recovers 'greater relief,' and for costs under Code of Civil Procedure section 1032, it is the party with a 'net monetary recovery.' Since PERS recovered nothing under the correct calculation, PERS cannot be the prevailing party. The trial court must re-evaluate whether winston is the prevailing party, considering equitable factors for attorney fees, and winston is undisputably the prevailing party for costs.
Analysis:
This case clarifies the precise timing for the application of commercial lease security deposits in California, emphasizing that statutory requirements for return or offset must be strictly followed. By mandating the offset within two weeks of possession, the ruling significantly impacts interest calculations and, consequently, which party is deemed 'prevailing' for attorney fees and costs. This decision underscores the importance of prompt accounting for security deposits and reinforces that a party's status as 'prevailing' is a substantive financial outcome, not merely a formalistic judgment amount before offsets.
