Ott Hardware Co. v. Yost

In Ott Hardware Co. v. Yost, 69 Cal. App. 2d 593, 159 P.2d 663 (Cal. Dist. Ct. App. 1945), the parties entered into a lease to renovate an old building on defendant's property. The terms of the lease provided that, inter alia,: (1) the lessee was obligated to make the improvements; (2) the plans and specifications be approved by the lessors; (3) any improvements made on the property not be removed by the lessee at the expiration or termination of the lease; (4) lessee provide lessor a statement of the materials used and labor supplied as the work progresses; (5) the lease remain in escrow until the improvements are completed and paid in full. Id. at 664. Lessees failed to pay plaintiffs for the materials and labor provided and as a result liens against the property were recorded. Id. The appellate court, in affirming the trial court's judgment in favor of the liens, indicated its approval of the rule that irrespective of a notice of nonresponsibility, a mechanic's lien attaches to the lessor's real property for improvements made by the lessee when the terms of the lease revert to the lessor, are mandatory, permanent, and benefit the lessor. Id. at 666. The court explained that the rule applied: "where the instrument creating the relationship is such that the transaction establishes, in effect, that the lessee is but an agent of the owner in causing the improvements to be made to the owner's property, where the making of the improvements is not optional with the lessee, and the lessee is obligated, as a condition or covenant of the lease, to make the improvements, and where a breach of the condition or covenant returns the property to the owner greatly enhanced in value and the owner promises to repay to the lessee the estimated cost of the major portion of the improvements out of future rents." Id. The court stated that "a participating owner, even though acting through his agent, is not entitled to relieve his property from such liens by filing a nonresponsibility notice." Id. at 667. After reviewing the written lease, addenda, and other undisputed writings, the court concluded that the lien attached to the real property expressing that it was "convinced that by their terms, the lessee was obligated to make the alterations and improvements as a condition to the effectiveness of the lease" and that the "right to cause the improvements to be made was not optional with the lessee." Id. at 667-668. In short, the lease contemplated renovation of an obsolete movie theater. The lease acknowledged that alterations were to be made, and the lease required the lessor's approval of the plans and specifications. The lease also provided for the lessor's monthly contributions to the costs of the alterations. The appellate court held that the lessor's notice of nonresponsibility was ineffective to exempt the property from the mechanic's lien. The court concluded as a matter of law, from its review of the written lease and other undisputed writings, that "the lessee was obligated to make the alterations and improvements as a condition to the effectiveness of the lease. The lessee's right to cause the improvements to be made was not optional with the lessee. The contemplated project for the improvement and repair of the theater was more in the form of a joint venture between the owner and the lessee." (Ott, supra, 69 Cal. App. 2d at pp. 601-602.)