FOR SALE: LEASE TO SILVER LAKE PRESBYTERIAN CHURCH SLATED FOR REDEVELOPMENT AS BOUTIQUE HOTEL
Restauranteur/Hotelier Dana Hollister is Selling the Lease to the Property After Losing Battle to Convert Another Church into a Boutique Hotel
It all started when restaurateur Dana Hollister wanted to buy a magnificent Los Feliz church and develop it into a boutique hotel. Unfortunately for her, Katy Perry also wanted this church so that she could live peacefully with her mother and grandmother, and sip green tea.
After two nuns who used to live in the church allegedly sold the property to Hollister, the archdiocese challenged the sale, claiming that it alone had the right to sell the property, and it wanted to sell to Katy Perry.
Perry and the archdiocese sued Hollister seeking a court determination that only the archdiocese had the right to sell the property; that the sale to Hollister was invalid; and, that Perry could buy the property from the archdiocese without any claims from others affecting her title. Perry and the archdioceses also wanted damages against Hollister, based on their claim that she interfered with the sale.
In July 2015, Los Angeles County Superior Court Judge James C. Chalfant ruled that the sale to Hollister was invalid, but he also barred the archdiocese from selling to Perry while the action was ongoing. Then, in April 2016, Los Angeles County Superior Court Judge Stephanie Bowick extinguished the deed transferring the property from the nuns to Hollister, and an appeal followed. In March 2017, Judge Bowick found that the sale to Perry could take place. Finally, in late 2017, a jury found that Hollister should have known that the nuns didn’t have the right to sell the property, resulting in an award of $6.5 million against Hollister, and Hollister filing for bankruptcy.
Hollister began unloading assets, presumably to satisfy the debt, and has said that she sold her Echo Park diner, Brite Spot, to the owners of nearby restaurant Ostrich Farm. Now she is selling the lease to Pilgrim Church in Silver Lake, another property that she had been working on converting to a boutique hotel. Hollister fought the City’s zoning regulators for years in order to gain permits to sell alcohol and allow dancing on the property. She states that she remains excited to see the project completed, but she will no longer be at the helm. The lease is for sale, and is expected to go for $4.5 to $5 million.
Pass-throughs may be assessed at different times (per the lease), and often commercial leases will allow a landlord to retroactively apply assessed charges. Sometimes a landlord will not assess any charges for years, but then choose to. Negotiating the exact provisions is critical to predicting expenses and running a successful operation. The extent of rights to audit is also a negotiable and important issue.
An Estoppel Certificate is a document typically used in performing due diligence prior to the purchase of tenant-occupied property. The purpose is for a lender and purchaser to have written confirmation from tenants of certain terms. Important amongst these are: the rental amount; security deposit; duration of lease; and, as discussed further below, a “subordination” clause.
The subordination clause is used to confirm that the tenants have agreed, in their lease, that their interest is subordinate to future mortgages. Without such confirmation, the tenants’ leases have priority over mortgages that are subsequently obtained. Furthermore, only a tenant whose interest is subordinate to the mortgage can be evicted. A purchaser (and their lender) may be stuck with tenants for an indefinite period without the ability to earn market rental values. A tenant may be locked in for years, and potentially even forever—courts have upheld provisions giving the tenant the right to perpetual renewal of leases.
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First, the liquidated damages cannot be a penalty—the amount specified must be reasonable under the circumstances, and cannot be “designed to substantially exceed the damages suffered, and…to serve as a threat to compel compliance through the imposition of charges bearing little or no relationship to the amount of actual loss.” Utility Consumers’ Action Network, Inc. v. AT&T Broadband, 135 Cal. App. 4th 1023, 1029 (2006); Cal. Civ. Code § 1671(b). A guiding principle is that any number picked cannot be arbitrary, and instead must be based on a reasonable attempt at determining a fair amount of compensation for the breach.
There are further rules if the clause is contained in a contract for the purchase or rental of personal property; a service used primarily for personal, family, or household purposes; or a residential lease. In those cases, a liquidated damages clause is allowed only when “it would be impracticable or extremely difficult to fix the actual damage.” Cal. Civ. Code § 1671(c) and (d).
Every situation is different, and should be evaluated by a qualified attorney. After all, if the clause unenforceable, it won’t save time, and may even ultimately cost more. It is always better to prevent problems before they occur, rather than waiting, and a well-crafted liquidated damages clause can be very effective in doing so.
The information on this site is provided for informational purposes only and does not constitute legal advice. The information contained is not intended to be a complete recitation of the law, and is provided only as general information in an area—it may not contain all nuances of the law, and is not guaranteed to be correct or complete. ANAND LAW PC (“ALPC”) expressly disclaims all liability in respect to actions taken or not taken based on the information contained in the FAQ.