Center Successfully Requests Publication In Graylee v. Castro To Protect Tenants

August 4, 2020

The Center for Consumer Law & Economic Justice, along with the Eviction Defense Collaborative, Public Law Center, the National Housing Law Project, Bet Tzedek Legal Services, Neighborhood Legal Services of Los Angeles County, the East Bay Community Law Center, and Legal Aid of Sonoma County, requested publication in Graylee v. CastroThe Fourth District Court of Appeal held that even when a landlord and tenant agree to a settlement including that the tenant would pay back rent allegedly owed, that could be considered an unenforceable penalty.

In this case, a landlord brought an unlawful detainer action alleging that his tenants owed $27,100 in unpaid rent. The parties entered a stipulated agreement agreeing that a $28,970 judgment would be granted to the landlord only if the tenants failed to return the keys and vacate the property by 3:00 p.m. on October 31, 2018. The tenants missed their deadline by a few hours, and the landlord sued to enforce the stipulation. The trial court entered the stipulated judgment for the landlord and tenants appealed. The Court of Appeal reversed on the grounds that the terms of the stipulated judgment constituted an unenforceable penalty in the form of liquidated damages, because the amount bore no reasonable relationship to the range of actual damages the parties could have anticipated would flow from a breach of the stipulation. 

The opinion is significant for a few reasons. First, we found no other published cases discussing the liquidated damages in the residential landlord-tenant context. Second, it explained that in order for a liquidated damages clause to be enforceable, there must be a reasonable relationship between the anticipated breach and the damages for breaching that stipulation. Third, the case clarified that even though the parties agreed to the terms, the court could not enter a judgment that contained an unenforceable liquidated damages clause. Since these settlement agreements are commonplace between landlords and tenants, it is useful for litigants and courts to understand how to construct enforceable stipulations.