Whether purchase contracts or leases, the parties to real estate contracts have certain rights and remedies under California law. For example, a breach of a purchase contract by a seller may give a buyer up to four (4) years to sue for damages, or a breach of a lease by a landlord may give a tenant the right to terminate the lease. However, the parties to a real estate contract may contractually limit some of the rights and remedies that would otherwise be available to them. Some examples are discussed below.
Shortening the Length of a Statute of Limitations
Under California law, contracting parties may shorten the length of the applicable California statute of limitations. Although not generally favored by California courts, our courts have held that any provision shortening a statute of limitations does not violate public policy and is valid if it is reasonable—i.e., the shortened period still provides sufficient time to effectively pursue a judicial remedy. A recent case from the Ninth Circuit U.S. Court of Appeals, Western Filer Corp., v. Argan Inc., affirmed the right of parties to contractually shorten the length of an otherwise applicable statute of limitations, noting that it is a “well‑settled proposition of law in California” that contracting parties may do so.
California courts have held that contract provisions shortening the statutory limitation period to as short as three (3) months are reasonable.
California’s statute of limitations for filing suit for breach of a written contract (such as a real estate contract) is four (4) years from the date of breach. California courts have held that contract provisions shortening the statutory limitation period to as short as three (3) months are reasonable. Additionally, as a general rule, such a contractual limitation period may operate on one or both parties to a contract—meaning that you may be able to shorten the period in which the other party in your real estate contract may bring a breach of contract claim against you while retaining your own statutory rights.
Notwithstanding such rights afforded to contracting parties, the recent Western Filter Corp.
case reminds us that California law does not favor contractual stipulations limiting statutes of limitations; therefore, any provisions limiting a statute of limitations must be clearly written to be upheld. In the Western Filter Corp. case, the language in the contract contained ambiguities and was accordingly not enforced. The lesson of that case is simply to be sure that your contractual language limiting a statute of limitations is precise—or, of course, if you wish to challenge it, to examine it for lack of precision.
Limiting Available Remedies
The legal remedies otherwise available under a real estate contract may also be contractually limited by the parties. For example, in Lee v. Placer Title, a tenant under a commercial lease claimed “constructive eviction” because of the landlord’s breach of the covenant of quiet enjoyment (implied in leases under California law) due to toxic fumes coming from an adjacent dry cleaner. The lease, however, stated that the tenant’s only remedy in case of an alleged landlord default was to sue for damages or an injunction. In other words, it waived the tenant’s right to proceed with a complaint for constructive eviction, a remedy the tenant would have otherwise been entitled to in the event of the landlord’s breach of the implied covenant of quiet enjoyment. The court upheld the lease language limiting the tenant’s remedies.
As with prior economic slowdowns, we can expect that parties will face financial challenges requiring a closer look at the remedies negotiated in their contracts should a breach occur. The difference between prevailing and not prevailing will depend on the precision of the contract language and the scope of the limitations.
For more information on limiting rights and remedies by contract or assistance with such issues in your real estate contracts, please contact any of the attorneys at Garrett DeFrenza Stiepel Ryder LLP.