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December 1, 2023
Many property owners enter into license agreements to enable others to use some or all of their property, whether on an exclusive or non-exclusive basis. License agreements are permissions to use, often characterized as revocable, and typically personal for the benefit of the licensee (i.e., not assignable, as a lease would be). Licensors have always been on somewhat uncertain ground concerning whether they have the expedited remedy of unlawful detainer (Code of Civil Procedure Section 1161) to evict a licensee who is in breach of the license agreement. In mid-November 2023, the Court of Appeal for the Second District made it very clear in its decision in Castaic Studios, LLC v. Wonderland Studios LLC (“Castaic”) that including certain provisions in a license agreement can serve as a licensor’s waiver of the unlawful detainer remedy.
In the past several weeks since the decision came down, many commentators have interpreted the decision as a blanket ruling that no licensor under any license agreement has any right to use an unlawful detainer action to evict a breaching licensee—i.e., that there must be a “landlord-tenant relationship” to utilize unlawful detainer. However, as the court confirms itself, that is too broad a reading of the court’s decision. Rather, the court’s decision serves as a warning to draft licenses carefully, so as not to inadvertently waive your rights as a property owner while attempting to limit the licensee’s rights to utilize landlord-tenant laws.
Castaic Studios entered into a license agreement with Wonderland Studios, granting Wonderland the exclusive right to use certain areas of Castaic’s commercial facilities. The agreement expressly stated that Castaic retained “legal possession and control” of the property, that the agreement was “not a lease or any other interest in real property,” and—critically—was “governed by the contract[ ] laws and not by the landlord tenant laws.” The agreement also provided that if Wonderland were to default, Castaic could “immediately terminate [Wonderland’s] right to use of the Premises by any lawful means.”
Wonderland failed to pay amounts owed to Castaic under the license agreement, and Castaic brought an unlawful detainer action to evict Wonderland. Wonderland’s defense was that the agreement expressly stated that the laws of contract govern, not the landlord-tenant laws; as a result, Castaic had no right to bring an unlawful detainer action against Wonderland. Castaic argued that the unlawful detainer law is not a landlord-tenant law, so it still had the remedy of unlawful detainer to evict Wonderland, even though the agreement stated that it was not governed by the landlord-tenant laws. The trial court agreed with Wonderland and dismissed the case. Castaic appealed, and the appellate court agreed with the trial court: because the agreement disavowed the landlord-tenant laws, Castaic had expressly waived its unlawful detainer remedy. What the court did not address, however: what, then, is Castaic’s remedy to evict Wonderland? Presumably an action for ejectment, characterizing Wonderland as a trespasser. However, an ejectment action does not have the expedited path an unlawful detainer action enjoys. So it may take Castaic a while to get Wonderland out and off its property.
Based on the Castaic decision, a licensor under a (properly drafted) license agreement can still retain the expedited remedy of unlawful detainer to evict a breaching licensee. That said, any owner should analyze on a case-by-case basis whether a proposed arrangement ought to be a license agreement or a lease, or perhaps an easement. And if you are a licensor with an existing license agreement, you’ll want to have your license agreement reviewed to determine whether you might suffer the same fate as Castaic Studios—and then have the agreement amended or replaced so you don’t.
If you have any questions about the pros and cons of leasing vs. licensing, or need assistance in analyzing whether your existing license agreements sufficiently protect your ability to utilize unlawful detainer remedies, please feel free to contact Mickey Maher at mmaher@hechtsolberg.com, Sadaf Behdin at sbehdin@hechtsolberg.com, or Sabrina Johnson at sjohnson@hechtsolberg.com.