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Market Lofts Community Association v. 9Th Street Market Lofts, LLC

California Court of Appeals, Second District, Second Division

January 7, 2014

9TH STREET MARKET LOFTS, LLC et al., Defendants and Respondents.

APPEAL from a judgment of the Superior Court of Los Angeles County, No. BC472621 Richard Edward Rico, Judge.

Freeman, Freeman & Smiley, Todd M. Lander and Tracy R. Daub for Plaintiff and Appellant.

Law Offices of Stephen D. Marks, Stephen D. Marks; Katten Muchin Rosenman, Gregory S. Korman, Andrew J. Demko and Johanna R. Bloomfield for Defendants and Respondents.


A homeowner’s association appeals from the judgment of dismissal following the sustaining of a demurrer without leave to amend its second amended complaint (SAC). The trial court sustained the demurrer on the ground that the association lacked standing both on its own behalf and as a representative of the homeowners to assert claims against the developers relating to contractual parking rights. We reverse the judgment of dismissal.


The Parties

Appellant is Market Lofts Community Association (HOA), which is the homeowner’s association for the condominium owners at a mixed-use upscale development called Market Lofts, located at the corner of 9th and Flower Streets in downtown Los Angeles, adjacent to the Staples Center. Retail spaces are located on the street level and 267 residential condominium units are located above. Respondents are essentially two sets of developers—the developer of Market Lofts (referred to as 9th Street) and the developer of an adjacent parking structure that contains 319 parking spaces for the Market Lofts condominium owners (referred to as CIM).[1]

Allegations of the SAC

The SAC alleges the following:

On May 11, 2006, the Developers entered into a “PARKING LICENSE AGREEMENT” (License Agreement). At this time, construction of Market Lofts had not been completed and the HOA had not been formed. Pursuant to section D of the License Agreement, which is attached to the SAC, CIM agreed to grant to 9th Street “for the benefit of the residential homeowner’s association (the ‘HOA’) to be formed in connection with the sale of residential condominium units in the Market Lofts Project and the owners and occupants of the residential units... a license to use the Market Lofts Parking Spaces, which shall be appurtenant to the Market Lofts Property.” (Emphasis added.)

Section 2.1 of the License Agreement specifies that the license granted is “perpetual” for the exclusive use of the 319 parking spaces, and that the license “shall be at no cost” to 9th Street, except for the obligation to pay its proportionate share of “CAM Charges” (common area maintenance) to CIM. Section 2.5 provides that the license is “irrevocable.” Section 13 states that “Upon the First Closing [defined as the close of escrow for the first residential unit sold], [9th Street] shall assign or sub-license its rights and obligations under this Agreement to the HOA.... [T]he terms and conditions of this Agreement shall be covenants that run with the land....”

The HOA was formally incorporated on January 10, 2007, and the first sale of a Market Lofts condominium occurred later that year.

On January 24, 2007, the HOA and 9th Street entered into a “Parking Sub-License Agreement” (Sub-License), which is also attached to the SAC. At that time, respondents Lee, Adler and Magdych comprised a “controlling majority” of the HOA’s board of directors and “each was simultaneously serving as an agent, employee, partner and/or member of the 9th Street and/or CIM defendants.” According to the SAC, rather than sublicensing its rights under the License Agreement to the HOA, 9th Street and the other respondents engaged in self-dealing by using the Sub-License “to strip the Association of many of the rights afforded it under the License Agreement and concurrently impose on it financial and other obligations in direct contravention of the terms of [the License Agreement].”

For example, while 9th Street granted to the HOA a sublicense for the exclusive use of the 319 parking spaces pursuant to section 2.1 of the Sub-License, Section 3.1 provides that the HOA will pay 9th Street a monthly fee of $75 for each parking space, to be increased annually by 5 percent, and to be adjusted every 10 years to the prevailing market rate for similar parking. Section 4 provides that the term of the Sub-License is the earlier of the date of termination of the Covenants, Conditions, Restrictions and Reservation of Easements for the Market Lofts Project (CC&R’s) or 49 years from the date of the Sub-License with the HOA being permitted to renew the Sub-License no more than five successive 10-year periods. Section 17.6 provides a late fee of 18 percent for any late payment. The SAC details numerous other ...

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