Court Opinion

ID: 4679869
Source: CourtListenerOpinion
Date Created: 2021-04-22 00:02:36.966334+00
Date Added: 2024-06-11T08:03:51.571263
License: Public Domain

Filed 4/21/21 5401 Associates, L.P. v. State of Cal. CA2/3

 NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

 California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on
 opinions not certified for publication or ordered published, except as specified by rule 8.1115(a). This
 opinion has not been certified for publication or ordered published for purposes of rule 8.1115(a).

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                        SECOND APPELLATE DISTRICT

                                     DIVISION THREE

 5401 ASSOCIATES, L.P.,                                         B292649

      Plaintiff, Cross-defendant and                            Los Angeles County
      Appellant,                                                Super. Ct. No. BS159841

      v.

 STATE OF CALIFORNIA, et al.,

      Defendants, Cross-
      complainants and Appellants.

      APPEALS from a judgment of the Superior Court of Los
Angeles County, J. Stephen Czuleger, Judge. Affirmed in part,
reversed in part, and remanded.
      Law Offices of Henry N. Jannol, Henry N. Jannol and
Paul H. Levine for Plaintiff, Cross-defendant and Appellant.
      Xavier Becerra, Attorney General, Tamar Pachter,
Assistant Attorney General, Brian D. Wesley and Hutchison B.
Meltzer, Deputy Attorneys General, for Defendants, Cross-
complainants and Appellants.
            _______________________________________
                          INTRODUCTION

      The State of California1 (State) entered into a 20-year lease
agreement (lease) regarding real property (property) owned by
5401 Associates, L.P. (Landlord) that contained a provision
allowing the State to convert the lease to a lease with purchase
option (lease-option) agreement and purchase the property for $1
at the end of the lease term. The State occupied the property for
the full lease term and attempted to make the conversion and
exercise the purchase option. But Landlord refused to sell the
property, claiming the State did not fully comply with certain
lease provisions relating to the conversion of the lease. Those
provisions require compliance with Government Code section
146692 which, in turn, requires the State to obtain specific
authorization from the Legislature and engage in a competitive
bidding process before entering into a lease-option agreement.
      Landlord filed a complaint alleging the State breached the
lease and sought declaratory relief to the effect that the sale of
the property under the terms of the lease was not required. The
State filed a cross-complaint seeking specific performance of the
lease and monetary damages resulting from the delay in the sale.
The court ordered specific performance of the lease but denied the
State’s request for the return of approximately $1.3 million of
rental payments made during its 18-month holdover tenancy.

1We generally refer to the defendants and cross-complainants (the
State, the Department of General Services, and the Director of the
Department of Government Services) collectively as “the State” and
will refer to the Director of the Department of General Services as “the
Director” as appropriate.
2   All undesignated statutory references are to the Government Code.

                                    2
The court also awarded Landlord $363,784.94 for unpaid rent.
Both sides appeal.
      We conclude that the court did not abuse its discretion in
granting the State’s request for specific performance of the lease.
The court erred, however, in denying the State’s request for
damages relating to the delay of the sale of the property and in
awarding Landlord damages for unpaid rent. We therefore affirm
the judgment in part, reverse in part, and remand for further
proceedings.

          FACTS AND PROCEDURAL BACKGROUND 3

1.       The Lease
       In 1995, the Director signed an agreement on behalf of the
State to lease the property—an office building and adjacent
parking area—from Landlord. The property is located at 5401
Crenshaw Boulevard in Los Angeles. The lease’s 20-year term
ran from February 1, 1996 to January 31, 2016. The State
operated an office of the Employment Development Department
at the property and occupied the property for the full term of the
lease.
       The lease allowed the State to purchase the property under
certain conditions. As pertinent here, Paragraph 35 of the lease
states:
       “[Landlord] acknowledges that the parties contemplate
converting this lease to a lease purchase agreement at such time
as State has obtained legislative authority to do so. Accordingly,
[Landlord] agrees that upon signature by the Governor of the
State of California of legislation authorizing the Director of

3   The parties stipulated to the facts essential to our decision.

                                       3
General Services to convert this lease to a lease purchase in
accordance with Government Code Section 14669, [Landlord]
shall be obligated to sell the premises upon the election by the
State to exercise the option to purchase the premises in
accordance with the terms of the Option to Purchase set forth
below, attached to this lease and incorporated herein by this
reference. The parties acknowledge and agree that until the
passage of authorizing legislation which is a condition precedent
to converting this lease to a lease purchase, this lease shall be
and is an operating long term lease and [Landlord] shall have no
obligation to sell, nor shall State have any obligation to convert
this lease to a lease purchase[,] nor have any other obligation to
purchase or acquire fee title to the property.
       “Upon receipt of legislative authority to do so, State may at
its sole discretion elect to convert this lease to a lease with a
purchase option, by giving the [Landlord] written notification. In
the event the State sends this notice the following terms shall
apply: The state shall have the option to purchase the lease
premises, including all improvements upon said premises. It is
agreed that the State’s option to purchase the leased premises
may be assigned to another State agency or any other nominee
designated by the State. The option to purchase property may be
exercised to provide for a date of purchase on or after January 31,
2016 upon the following terms and conditions:
       “A. [Landlord] must notify State in writing of the option
right on, or after, August 1, 2015. Failure to do so will prohibit
the [Landlord] from raising the rent, during holdover, until 120
days after the option right notice is sent to State.
       “B. State will give [Landlord] written notice of the exercise
of its option not less that ninety (90) days after receipt of notice.

                                 4
       “C. The purchase price on or after January 31, 2016 is:
$1.00[.]
       “D. The conveyance shall be by grant deed in fee simple,
free and clear of all liens, encumbrances, easements, or any other
title exception save and except public utility easements and
matters which may be acceptable to State.
       “E. The purchase shall be handled through escrow opened
by the [Landlord] with a title company approved by the State.
The State will be furnished with a standard CLTA policy of title
insurance in the amount of the market value showing title vested
in the State as aforesaid. All expenses of such escrow, including
the title insurance premium, shall be paid by the State.
       “F. In the event this lease is terminated by the State
exercising its purchase option, the provision in Paragraph 10
shall not apply. The right of option to purchase the property is
contingent upon the State taking the property ‘as is’.
       “G. The State is hereby authorized to record a Request for
Notice of Default; and in order to cure any mortgage payment
default, deduct any amounts so paid from the rental payments
due.
       “H. [Landlord] agrees to provide a fully executed and
properly acknowledged Grant Deed into escrow thirty (30) days
prior to the effective date of purchase as set forth in State’s
written notice to exercise purchase. [Landlord]’s submittal of the
signed and acknowledged Grant Deed into escrow shall not be
contingent upon submittal of buyers escrow instructions.”
2.    Lease Conversion to Lease-Option Agreement
     In late 2013 and early 2014, the parties attempted
unsuccessfully to negotiate a new long-term lease of the property.
Eventually, the State decided to purchase the property.

                                5
       In June 2015, the Legislature passed and the Governor
signed the Budget Act of 2015 which appropriated $1,000 for the
purchase of the property. (Stats. 2015, ch. 10, § 2 (A.B. No. 93).)
       The appropriation was included in the section of the budget
called “Labor and Workforce Development Agency” and stated as
follows:
       “7100-301-0001–For capital outlay, Employment
       Development Department ………………………………. 1,000
             Schedule:
             (1)   0000714-Crenshaw Blvd. Building,
                   Los Angeles: Exercise Lease Purchase
                   Option–Acquisition……………… 1,000”
       After enactment of the Budget Act of 2015, the State
processed a request with the State Public Works Board for
authorization to purchase the property. The Public Works Board
approved the purchase on December 11, 2015.
       The State and Landlord communicated about the potential
purchase in late 2015. On September 24, 2015, the State notified
Landlord that it was exercising its conversion right under the
lease and planned to purchase the property. Further, the State
advised Landlord that the lease conversion and the acquisition of
the property had been authorized by the Legislature through the
Budget Act of 2015.
       Landlord, now represented by counsel, rejected the State’s
request on September 30, 2015. Landlord asserted the State
could not convert the lease to a lease-option agreement and
exercise an option to purchase the property because the
appropriation in the 2015 Budget Act did not constitute “specific
legislative authorization,” which was required under Government
Code section 14669 and Paragraph 35. The State responded on

                                 6
October 15, 2015 and advised Landlord that it intended to
proceed with the purchase. Further, the State requested that
Landlord immediately open escrow to effectuate the purchase and
sale, noting “[g]iven that the Lease term ends on January 31,
2016, time is of the essence.” Landlord refused, again claiming
that the State had not satisfied the lease condition requiring
specific authorization from the Legislature. Finally, on
November 30, 2015, the State again notified Landlord that it was
exercising the option to purchase the property and that it had
opened escrow for the purchase.
       The parties were still at an impasse when the lease term
ended on January 31, 2016. The State continued to occupy the
premises until October 2017 and paid Landlord more than
$1.3 million in rent during the holdover tenancy.
3.    The Litigation
      Landlord initiated the present action on January 25, 2016,
shortly before the lease term expired. The operative second
amended verified complaint asserted a claim for breach of
contract (the lease agreement) and seeks declaratory relief. The
complaint alleged that the State failed to obtain the legislative
approval for the acquisition of the property required under
section 14669 and under the lease and therefore breached the
contract. In addition to seeking damages on its contract claim,
Landlord sought declaratory relief to the effect that the State
breached the lease and, more particularly, that it failed to
convert the lease to a lease-option agreement and therefore had
no right to purchase the property.
      The State cross-complained, seeking specific performance of
the lease agreement, i.e., the provision regarding sale of the
property to the State. The State also stated a claim for breach of

                                7
contract and sought declaratory relief concerning its right to
purchase the property.
      The court conducted a bench trial in two phases. The first
phase concerned performance under the lease agreement. The
parties stipulated to the vast majority of the relevant facts in lieu
of presenting testimony. Both sides, however, presented expert
testimony regarding market rental rates. The court ultimately
found that testimony of minimal relevance to the issues. The
second phase of the trial related to monetary damages. The
appellate record is incomplete on that issue, however.
4.    The Judgment; the Appeal and Cross-appeal
      The court found that the State failed to follow strictly the
requirements of section 14669. The court, however, rejected
Landlord’s argument that the State could not be entitled to
specific performance of the lease under Civil Code section 3392.4
Specifically, the court found that the State’s failure to perform
was partial and that the areas of nonperformance were meant to
protect the State, not Landlord. In other words, the State’s
partial noncompliance with section 14669 was immaterial with
respect to Landlord’s interests.
      As to damages, the court rejected the State’s claim that it
was entitled to the return of rent paid to Landlord during the

4 “Specific performance cannot be enforced in favor of a party who has
not fully and fairly performed all the conditions precedent on his part
to the obligation of the other party, except where his failure to perform
is only partial, and either entirely immaterial, or capable of being fully
compensated, in which case specific performance may be compelled,
upon full compensation being made for the default.” (Civ. Code,
§ 3392.)

                                    8
holdover tenancy. Further, the court awarded Landlord
$363,784.94 representing unpaid rent for the period July 2, 2017
to October 18, 2017. The court denied Landlord’s request for
operating expenses during the holdover tenancy, however.
      The court entered judgment on July 3, 2018. Landlord
appeals from the judgment on specific performance and the State
cross-appeals from the denial of its request for the return of rent
paid during the holdover tenancy and the award of monetary
damages to Landlord.

                         DISCUSSION

1.    The court did not abuse its discretion by ordering
      specific performance of the lease agreement.
      1.1.   Standard of Review
       Specific performance is an equitable remedy. (Benach v.
County of Los Angeles (2007) 149 Cal.App.4th 836, 846.) We
review a judgment granting specific performance under the abuse
of discretion standard and determine whether the trial court’s
grant of specific performance exceeded the bounds of reason.
(Petersen v. Hartell (1985) 40 Cal.3d 102, 110; Real Estate
Analytics, LLC v. Vallas (2008) 160 Cal.App.4th 463, 472 (Real
Estate Analytics).) On issues of contractual interpretation where
there is no conflicting extrinsic evidence, we are not bound by the
court’s interpretation and will decide the issue de novo. (Benach,
at p. 847.)
      1.2.   Specific Performance
      “To obtain specific performance after a breach of contract, a
plaintiff [or, in this case, a cross-complainant] must generally
show: ‘(1) the inadequacy of his legal remedy; (2) an underlying

                                 9
contract that is both reasonable and supported by adequate
consideration; (3) the existence of a mutuality of remedies;
(4) contractual terms which are sufficiently definite to enable the
court to know what it is to enforce; and (5) a substantial
similarity of the requested performance to that promised in the
contract.’ ” (Real Estate Analytics, supra, 160 Cal.App.4th at
p. 472.) Where, as here, the contract concerns the purchase of
real property, monetary damages are presumed to be inadequate.
(Civ. Code, § 3387; 12 Miller & Starr, Cal. Real Estate (4th ed.
2020) § 40:18 [“It is presumed that when a seller of real property
fails to convey title, the remedy of damages to the buyer is
inadequate and the buyer is entitled to specific performance as a
matter of course, unless there is an equitable reason for
denial.”].)
       Specific performance is not always available, however.
Under Civil Code section 3392, for example, “[s]pecific
performance cannot be enforced in favor of a party who has not
fully and fairly performed all the conditions precedent on his part
to the obligation of the other party, except where his failure to
perform is only partial, and either entirely immaterial, or capable
of being fully compensated, in which case specific performance
may be compelled, upon full compensation being made for the
default.” Citing this provision, Landlord contends the court erred
by ordering specific performance because the State failed to fully
perform under the lease. Specifically, as noted ante, Paragraph

                                10
35 required the State to comply with section 14669, which
currently5 reads:
      “(a) The director may hire, lease, lease-purchase, or lease
with the option to purchase any real or personal property for the
use of any state agency, including the Department of General
Services, if he or she deems the hiring or leasing is in the best
interests of the state.
      “(b) The director shall not enter into a lease-purchase
agreement that involves office space, unless specifically
authorized to do so by the Legislature. The director shall solicit
written bids for any lease-purchase that involves office space in a
newspaper of general circulation in the county in which the
project is located. All bids received shall be publicly opened and
the lease awarded to the lowest responsible bidder. If the director
deems the acceptance of the lowest responsible bid is not in the
best interest of the state, he or she may reject all bids.”
      Landlord argues the State did not comply with section
14669, subdivision (b), in two respects. First, Landlord claims the
State failed to obtain specific authorization from the Legislature
to convert the lease to a lease-option agreement and consummate
the purchase. Second, Landlord asserts the State failed to solicit
written bids in connection with the transaction. We address these
issues in turn.

5This section was amended twice during the lease term. (See Stats.
1998, ch. 597, § 3; Stats. 2009, ch. 284, § 3.) Those amendments are not
material to our analysis except as noted.

                                  11
      1.3.   The Legislature specifically authorized the
             purchase of the property.
       Although the 2015 Budget Bill allocated $1,000 for the
purchase of the property, Landlord contends the State failed to
obtain the Legislature’s “specific authorization” to convert the
lease to a lease with purchase option agreement or to purchase
the property. Section 14669 does not define “specific
authorization.” On its face, however, it appears to require
legislative approval that relates to a particular transaction.
       The Budget Act of 2015 authorizes the acquisition of
property on Crenshaw Boulevard for use by the Employment
Development Department, the former tenant at the property,
stating:
       “7100-301-0001–For capital outlay, Employment
Development Department ………………………………. 1,000
       Schedule:
       (1)   0000714-Crenshaw Blvd. Building,
             Los Angeles: Exercise Lease Purchase
             Option–Acquisition………………1,000”
       Nevertheless, Landlord dismisses this authorization as
inadequate. Without providing any analysis of the relevant
statutory language, Landlord claims it is “clear from the
legislative history”—which it does not cite—that the specific
authorization called for under section 14669 is “individual
legislation” tailored to the contemplated transaction. In other
words, Landlord interprets the statute to mean that a specific
line-item appropriation in the Legislature’s annual budget bill,
without more, cannot satisfy section 14669.

                                12
      Assuming without deciding that the statute is ambiguous,6
we conclude that legislative history does not support Landlord’s
position. As part of the Legislature’s 1981 Budget Act, the
Legislature clarified that the Director could not only lease
property on behalf of the State but could also enter into lease-
purchase agreements and lease-option agreements. (Stats. 1981,
ch. 99, § 28.20, p. 602.) The Legislature initially required that
any lease-purchase or lease-option agreement be approved by the
Legislature through the normal budgeting process. (Ibid. [“The
Director of General Services shall not enter into a lease-purchase
agreement or a lease with the option to purchase agreement with
another entity, public or private, which involves building space,
unless the agreement has been approved through the normal
budget process.”].) The Legislature subsequently amended the
1981 Budget Act, however, to provide greater flexibility with
respect to that approval process. The amendment eliminated the
requirement that a lease-purchase and lease-option agreement
had to be approved during the annual budget process and instead
required only notice to the Joint Legislative Budget Committee
and analysis by the Legislative Analyst. (Stats. 1981, ch. 919, § 2,
p. 3466 [“The Director of General Services shall not enter into a
lease purchase agreement or a lease with the option to purchase
agreement with another entity, public or private, which involves
building space, unless the agreement has been reviewed by the
Legislative Analyst and notification has been given to the Joint

6In construing a statute, we use extrinsic sources such as legislative
history only when the statutory terms are ambiguous. (E.g., Day v.
City of Fontana (2001) 25 Cal.4th 268, 272.)

                                   13
Legislative Budget Committee.”].) Section 14669 was amended
accordingly. (Stats. 1981, ch. 919, § 1, pp. 3465–3466.)
       Of course, nothing in these enactments suggests that
legislative authorization of a lease-purchase or lease-option
agreement would be ineffective if it were included in an annual
budget bill. Rather, the Legislature adopted the more flexible
procedure to enable the State, through the Director, to use public
money in a prudent manner by taking advantage of fast-changing
market conditions—an approach the Legislature concluded was
beneficial but inherently incompatible with the annual budget
approval process. In other words, by amending section 14669 in
1981, the Legislature expanded, rather than restricted, the ways
in which it could approve lease-purchase and lease-option
agreements.
       The Legislature modified section 14669 again in 1983,
adding the “specifically authorized” language that appears in the
statute today. The 1983 amendment slightly modified the
statute’s notice and analysis requirements and continued them
with respect to lease-purchase or lease-option agreements with
an initial option of $2 million or less. As to agreements with a
purchase or option price of more than $2 million, however, the
Legislature restricted the Director’s authority somewhat by
prohibiting the Director from entering into such agreements
“unless specifically authorized to do so by the Legislature.”
(Stats. 1983, ch. 323, § 45.5, p. 972.) Although little mention is
made of this specific amendment in the legislative history, it
appears that it was simply intended to cap the Director’s
discretion.
       In 1998, the Legislature eliminated the distinction between
higher value and lower value contracts and amended the

                               14
pertinent provision of section 14669 to read, as it does today,
“The director shall not enter into a lease-purchase agreement
that involves office space, unless specifically authorized to do so
by the Legislature.” (Stats. 1998, ch. 597, § 3 (A.B. No. 2459).)
       We see no indication in these amendments to section
14669, or in the legislative history relating to them, that the
Legislature intended to prohibit itself from authorizing the
Director to enter into a lease-purchase or lease-option agreement
through the annual budget process. If anything, the fact that the
Legislature required such authorization in the 1981 Budget Bill,
then required only notice to the Joint Legislative Budget
Committee, and now requires “specific authorization” (rather
than authorization “through the normal budgeting process” as it
initially required) suggests that the Legislature intended to
return to the expanded and more flexible procedure it adopted in
the 1981 Budget Bill amendment.
       We conclude, therefore, that the Budget Act of 2015
expressly authorized the purchase of the property by including a
budget line item and monetary allocation specific to the property
at issue and, further, that the Legislature implicitly authorized
the conversion of the lease to a lease-option agreement as
required to effectuate the purchase of the property.
      1.4.   The Director’s failure to solicit bids before
             converting the lease agreement to a lease with
             purchase option agreement is not material.
       As noted ante, section 14669 requires the Director to solicit
bids before entering into a lease-purchase or lease-option
agreement. It is undisputed that the State failed to do so in this
case and therefore, as the court concluded, the State failed to
fully perform under the lease. That fact does not end our inquiry,

                                 15
however, because under Civil Code section 3392, a party may still
obtain specific performance of a contract if the failure to perform
is only partial and it is also “entirely immaterial.” (Civ. Code,
§ 3392.) As the court noted, “there is little guidance as to the
meaning of ‘entirely immaterial’ found in [Civil Code] § 3392.”
But we have no trouble concluding on the record before us, as the
court did, that the State’s failure to solicit competitive bids before
deciding to purchase the property is immaterial here.
       As discussed ante, the Legislature expanded the Director’s
authority to enter into lease-purchase and lease-option
agreements in 1981 by removing the budget approval
requirement that had originally been adopted. (Stats. 1981,
ch. 919, §§ 1, 2.) At the same time, the Legislature added a
provision requiring the Director to solicit written bids before
entering into such an agreement and, further, to accept the
lowest bid or reject all bids. (Stats. 1981, ch. 919, § 1, pp. 3465–
3466 [adding to the text of section 14669, “The director shall
solicit written bids for any lease-purchase or lease with option to
purchase for real property in a newspaper of general circulation
in the county in which the project is located. All bids received
shall be publicly opened and the contract awarded to the lowest
responsible bidder. If the director deems the acceptance of the
lowest responsible bid is not in the best interest of the state, he
may reject all bids.”].) Section 14669 now contains a slightly
modified version of this provision. (§ 14669, subd. (b) [“The
director shall solicit written bids for any lease-purchase that
involves office space in a newspaper of general circulation in the
county in which the project is located. All bids received shall be
publicly opened and the lease awarded to the lowest responsible
bidder. If the director deems the acceptance of the lowest

                                 16
responsible bid is not in the best interest of the state, he or she
may reject all bids.”].)
      Legislative history is silent on the Legislature’s intent in
adding this provision. But as a general matter, “[p]rovisions
requiring competitive bidding of government contracts ‘ “are for
the purpose of inviting competition, to guard against favoritism,
improvidence, extravagance, fraud and corruption, and to secure
the best work or supplies at the lowest price practicable ... and
should be so construed and administered as to accomplish such
purpose fairly and reasonably with sole reference to the public
interest.” ’ (Domar Electric, Inc. v. City of Los Angeles (1994) 9
Cal.4th 161, 173.)” (Unite Here Local 30 v. Department of Parks &
Recreation (2011) 194 Cal.App.4th 1200, 1209.)
      On this record, we conclude the State’s failure to engage in
a competitive bidding process was immaterial. The conversion of
the lease to a lease-option agreement enabled the State to buy
the property—which is purportedly worth approximately $7
million—for one dollar. It is highly improbable that a competitive
bidding process would have yielded a more favorable option for
the State.7
2.    The State is entitled to recover monetary damages.
      In its cross-appeal, the State contends the court erred in
denying its request for monetary damages flowing from the delay
in performance of the lease’s purchase option, i.e., the value of

7Landlord also argues that certain Federal Regulations required the
State to obtain federal approval of the purchase. We reject this
argument because compliance with such regulations is not required by
the lease and therefore any failure to comply would not constitute a
breach of the lease.

                                 17
the rental payments the State made to Landlord during its
holdover tenancy, and in awarding Landlord damages for unpaid
rent that accrued between July 2017 and October 2017. We
agree.
       “The following general rules are applicable where damages
are awarded incident to a decree of specific performance: A party
to a contract for the purchase or exchange of land who is entitled
to a decree of specific performance is also ordinarily entitled to a
judgment for the rents and profits from the time he was entitled
to a conveyance. The compensation awarded as incident to a
decree for specific performance is not for breach of contract and is
therefore not legal damages. The complainant affirms the
contract as being still in force and asks that it be performed. If
the court orders it to be performed, the decree should as nearly as
possible require performance in accordance with its terms. One of
the terms is the date fixed by it for completion, and since that
date is past, the court, in order to relate the performance back to
it, gives the complainant credit for any losses occasioned by the
delay and permits the defendant to offset such amounts as may
be appropriate. The result is more like an accounting between the
parties than like an assessment of damages.” (Ellis v. Mihelis
(1963) 60 Cal.2d 206, 219–220; 12 Miller & Starr, Cal. Real
Estate (4th ed. 2020) § 40:26.)
       Caselaw establishes that when a court orders specific
performance of a real estate purchase contract, the buyer is
entitled to the rents and profits from the time the contract should
have been performed, and the seller is entitled to an offset for the
interest on the purchase money which he would have received
had the contract been performed. (See Bravo v. Buelow (1985)
168 Cal.App.3d 208, 213–214 [collecting cases].) In addition, the

                                18
seller is entitled to an offset for the expenses of operation
incurred from the date the contract should have been performed
to the date of judgment. (Ellis v. Mihelis, supra, 60 Cal.2d at pp.
219–220; 12 Miller & Starr, Cal. Real Estate (4th ed. 2020) §
40:26.) Interest may also be awarded for the loss of use of funds
retained. (Bravo, at pp. 214–215 [collecting cases].)
       In its cross-complaint, the State sought specific
performance of the lease agreement as well as “compensation
incidental to a decree of specific performance by virtue of the
delay of [Landlord] in conveying the Premises.” During the
second phase of the bench trial, the State established that after
the lease term expired, and before the State vacated the property
in October 2017, the State paid Landlord rent in the amount of
$1,349,076.30. The State is entitled to the return of all rents paid
to Landlord following the termination of the 20-year lease term,
offset by the purchase price, interest thereon, and Landlord’s
allowable operating expenses and costs as set forth above.
Similarly, Landlord is not entitled to $363,784.94 in unpaid rent
allegedly owed by the State during its holdover tenancy.

                                 19
                           DISPOSITION

       The judgment is affirmed to the extent it grants the State’s
request for specific performance of the lease agreement. The trial
court’s damages award in favor of Landlord is reversed, and the
matter is remanded to the court with instructions to enter an
amended judgment awarding the State compensation equal to the
amount of rent paid to Landlord during the State’s holdover
tenancy, which amount shall be offset by the property’s purchase
price ($1) plus interest at the legal rate, Landlord’s allowable
operating expenses, and other recoverable costs incurred by
Landlord between the end of the lease term and entry of the
amended judgment. The State shall recover its costs on appeal.

 NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

                                                           LAVIN, J.
WE CONCUR:

      EDMON, P. J.

      SALTER, J.*

* Judge of the Orange County Superior Court, assigned by the Chief
Justice pursuant to article VI, section 6 of the California Constitution.

                                   20