Granberry v. Islay Investments

In Granberry v. Islay Investments (1984) 161 Cal.App.3d 382, the landlord rented apartments for an initial term of 31 days at a higher amount, but if the tenant elected to continue renting the apartment after the first month, the rent was reduced. (Granberry, supra, 161 Cal.App.3d at p. 385.) Tenants brought a class action suit alleging the initial month's higher payment was a disguised nonrefundable security deposit. (Id. at pp. 385-386.) The trial court thereafter granted summary judgment for the landlord, finding that the first month's rental was "'rent in fact as well as in name.'" (Id. at p. 386.) In doing so, the trial court defined "security" as a payment for "'something in the future not yet earned by the lessor or damage not yet sustained by him.'" (Id. at p. 389.) The Court of Appeal reversed, holding that the court defined "security" too narrowly, and remanded the matter for a consideration of factors relevant to a determination of whether the first month's rent was in reality a disguised security deposit. Relevant to this case, the Court of Appeal rejected a literal reading of subdivision (b) of section 1950.5 that would make advance payments of rent always deemed security deposits: "A literal reading of subdivision (b), however, reveals a conundrum. Included in the definition of a security is 'an advance payment of rent, used or to be used for any purpose, . . .' Therefore, a legitimate advance payment of rent would be a security. Such an absurd result would effectively put most landlords out of business and render tenants homeless." (Granberry, 161 Cal.App.3d at p. 388.) Thereafter the Court of Appeal, attempting to interpret section 1950.5's confusing language stated, "Obviously, 'security' cannot mean the same thing as rent. That a landlord chooses to call a payment 'rent' however, does not mean that such a payment is in fact rent. Subdivision (c) of the statute specifically states that 'a landlord may not demand or receive security, however denominated . . . .' Also, under subdivision (c) a landlord may receive in addition to the first month's rent, a security in an amount equal to two or three months' rent, depending upon whether the unit is furnished or not. Therefore legitimate rent is not a security within the meaning of the statute, but a security which masquerades as rent solely because the landlord chooses to call it rent, is still a security." (Granberry, supra, at p. 388) The Court of Appeal went on to state: "A security is what the statute says it is, but we exclude from that definition legitimate rent. The term 'legitimate rent' may appear a tautology, but it is important to distinguish 'legitimate' rent from what a landlord calls rent when he wishes to disguise a payment which is really a security. Rent is the consideration paid by the tenant for the use, possession and enjoyment of the demised premises." (Granberry, supra, 161 Cal.App.3d at p. 389.) The Court of Appeal then cited several factors relevant to determining if an advance payment was "legitimate rent" or a security: "The trier of fact must look to various factors including the facts and circumstances of each particular case in determining whether a payment is a security or legitimate rent. . . . The trial court must look at a payment the landlord designates as rent to determine whether it is usual or customary within the context of the particular case. . . . If the disputed payment seems to more nearly fit the examples set forth in subdivision (b) of the statute, then that would be a factor indicating the payment is a security rather than rent, although the examples set forth in subdivision (b) are not exclusive. Historical practices of the landlord may provide clues as to what the payment is." (Granberry, supra, 161 Cal.App.3d at p. 390.) The court also noted that in particular cases "credibility of witnesses is a factor the trier of fact must consider" in looking to "the justification for the payment to determine whether it is legitimate rent." (Ibid.)