<b><i>In the Spotlight:</i></b> Nuisance Liability in the Mixed-Use Context

The prevailing system of municipal zoning, in which residential areas are generally kept a safe distance from industrial, retail and agricultural uses, arose in part as a means to protect residents from dust, smoke, noise, odor, traffic and other “nuisances” generated by the commercial uses. The recent trend toward denser, more sustainable, and transit-oriented “mixed-use development” ' in which residential space is situated alongside and/or on top of retail, office and commercial space ' has the potential to improve urban quality of life greatly, but it also renews the potential for “nuisances,” and consequently, for disputes over liability, compensation, and mitigation of the offending operations.

The unique circumstances of mixed-use development, including the often-complicated ownership structure and the physically integrated nature of the competing uses, can create interesting wrinkles for the lawyers who defend these claims. As mixed-use developments rise in popularity, it becomes increasingly important for developers and their lawyers to understand the liability issues associated with these projects.

Statutory Definitions and Analysis

The California Legislature defines a nuisance as “[a]nything that is injurious to health ' or is indecent or offensive to the senses, or an obstruction to the free use of property, so as to interfere with the comfortable enjoyment of life or property. ' ” Cal. Civil Code ' 3479. In order to be actionable, the “ interference” must be both “substantial” and “unreasonable.” Hellman v. La Cumbre Golf & Country Club (1992) 6 Cal.App.4th 1224, 1230-1231.

A business that operates without incident in a commercial or industrial setting may create a nuisance in a mixed-use context. For example, a restaurant might operate in a retail center for years with no complaints, but if residents move in above the restaurant, they might legitimately object to the noise, odor, smoke, trash or loitering patrons. Each of the following lawful commercial uses has been ruled a nuisance when located too close to residential properties: a retail store (Smith v. Collison (1931), 119 Cal.App. 180, 184); a laundromat (Williams v. Blue Bird Laundry Co. (1927), 85 Cal.App. 388, 392); a restaurant and bar (People v. Mason (1981), 124 Cal.App.3d 348, 353); and a mortuary and funeral parlor (Brown v. Arbuckle (1948), 88 Cal.App.2d 258, 261).

The relevant question is whether the “interference” with the resident's use and enjoyment is unreasonable, not whether the business operations themselves are being conducted in a negligent or unreasonable manner. Van Zyl v. Spiegelberg (1969), 2 Cal. App. 3d 367, 372-373. Indeed, a court may deem a given business activity a “nuisance,” even though the business' operations are “skillfully directed” toward accomplishing a desired objective, so long as the plaintiff establishes that those operations are conducted without “due regard for the rights of [the resident].” Sturges v. Charles L. Harney, Inc . (1958), 165 Cal.App.2d 306, 318.

The Lawsuit

The parties to a “mixed-use” nuisance action may depend on the particular ownership structure of the development. Potential plaintiffs may include residential owners ( Smith v. Collision, supra, 119 Cal.App. at 183-184) or residential tenants (Institoris v. City of Los Angeles (1989), 210 Cal. App. 3d 10, 20; Smith v. David (1981), 120 Cal. App. 3d 101, 105, 113). Where, as is often the case, the development is structured as a condominium, the condominium association managing the property may also have standing to sue. See Cal. Civil Code ” 4000 et seq., particularly at ' 5980.

Potential defendants may include the commercial tenant alleged to be causing the nuisance (Team Enterprises, LLC v. Western Investment Real Estate Trust, 647 F. 3d 901, 911-912 (9th Cir. 2011)), the commercial tenant's landlord (Vedder v. County of Imperial (1974), 36 Cal.App.3d 654, 661 (commercial landlord may be liable if it had actual knowledge of the nuisance and the means to prevent it)), the owner of the entire development (Dennis v. City of Orange (1930), 110 Cal. App. 16, 22-25) and even the residential component's landlord (Birke v. Oakwood Worldwide (2009), 169 Cal. App. 4th 1540, 1552-53 (residential landlord owes tenants the duty to maintain common areas free of nuisances)).

Countersuits are also possible. The commercial landlord may sue its tenant for indemnity, and the commercial tenant may countersue against its landlord for a declaration that its operations conform to the terms and conditions of its lease.

The complaining resident may sue for an injunction or for monetary damages, or in appropriate circumstances, both. Katenkamp v. Union Realty Co. (1936), 6 Cal.2d 765, 776; Cal. Civil Code ' 3501; Cal. Code Civ. Proc. ' 731. In People v. Mason, supra, 124 Cal.App.3d at 353-354, the residents of a nearby subdivision obtained an injunction requiring defendants to mitigate the “nuisance” created by the music, hand-clapping, and foot-stomping emanating from their restaurant and bar.

A residential unit owner may recover damages in the amount of any reduction in value of the property. Pahl v. Ribero (1961), 193 Cal. App. 2d 154, 164. A tenant can recover monetary relief, too ' for impairment to the value of their leasehold interest. Institoris, supra, 210 Cal. App. 3d at 20; Smith v. David (1981), 120 Cal. App. 3d 101, 105, 113. Before allowing any monetary recovery by a residential owner or tenant, however, the court ought to take into account the extent to which the plaintiff's own purchase price or monthly rent was already reduced by virtue of the unit's proximity to the offending business use.

If it is alleged that the business acted with knowledge of the injury it was causing the resident to suffer, and with the intent to continue to cause that injury, punitive damages may be sought. Miller & Starr, California Real Estate, ' 22:25 (3rd ed.); Cal. Civ. Code ' 3294.

Possible Defenses

A business operator is not without defenses. Among other things, a court will consider whether the business predated the mixed-use development and whether the residents, in effect, “came to the nuisance” (Hellman, supra, 6 Cal. App. 4th at 1231; see also 42 A.L.R. 3d 344, ' 4; Miller & Starr, California Real Estate, supra, ' 22:33). However, the fact that the business might have been “first in the field” is not necessarily a complete defense. In Vowinckel v. N. Clark & Sons (1932), 216 Cal. 156, 164, the defendant's sewer pipe manufacturing site had been lawfully in operation for many years before the plaintiff purchased a home next door. The court acknowledged that the resident had effectively “come to the nuisance,” but reasoned that even still, the resident had a right to enjoy his home without “serious interference.” The court granted an injunction against the manufacturing operations, prohibiting activity on the side of the property directly adjacent to the residence and requiring the factory to erect a 15-foot high “fireproof wall.”

Even if residents and businesses occupy their respective properties at the same point in time, advance notice of proposed business operations on the site would be a factor in the business's defense against the resident's nuisance claim. See Hellman, supra, 6 Cal. App. 4th at 1231 (residents who purchased homes with notice of adjacent golf course operations were denied relief on nuisance claim).

Similarly, a resident may be found to have granted his “consent” to adjoining business operations, either via a provision in the resident's lease or through a mixed-use development's CC&Rs. Such consent may constitute a complete defense. See Miller & Starr, California Real Estate, supra , ' 22:36. In addition, a lease or CC&Rs may require residents to expressly waive their right to claim nuisance. Such waiver provisions would likely be given effect under a “consent” theory.

If the business use in question is expressly permitted under local zoning laws, the use will not be enjoined unless the user is found to be employing “unnecessary and injurious methods of operation.” California Civil Procedure Code ' 731a. A finding that the business has failed to employ mitigations and safeguards employed by similar businesses in the vicinity may be enough to establish “unnecessary and injurious methods.” (Gelfand v. O'Haver (1948) 33 Cal. 2d 218, 220-221.) In Gelfand, despite appropriate zoning, a music studio was deemed a nuisance because it was located in close proximity to residences and businesses and because the studio's operator had failed to soundproof it. Id . at 222-223.

Mitigation

The practical question for developers and their lawyers, of course, is how to avoid or mitigate nuisance liability in the mixed-use context.

• First, the developer must ensure that the site is zoned for any contemplated uses.
• Second, the project ought to be designed and constructed with the goal of minimizing interference with residential quality of life.
• Third, all governing documents, sale documents and leases should clearly document the residents' notice of and consent to all proposed business uses.
• Fourth, commercial leases must obligate business operators to refrain from unreasonable interference with resident life, and require that commercial tenants indemnify and hold the lessor harmless from any breach of this obligation.

Finally, the owner must maintain insurance that adequately protects him from liability for any nuisance claims that nevertheless may arise.

Kevin Hughes is a partner with Tisdale & Nicholson, LLP, Los Angeles. Reach him at [email protected]. Linda Kim is a senior counsel in the firm's business litigation group. She can be reached at [email protected].

The prevailing system of municipal zoning, in which residential areas are generally kept a safe distance from industrial, retail and agricultural uses, arose in part as a means to protect residents from dust, smoke, noise, odor, traffic and other “nuisances” generated by the commercial uses. The recent trend toward denser, more sustainable, and transit-oriented “mixed-use development” ' in which residential space is situated alongside and/or on top of retail, office and commercial space ' has the potential to improve urban quality of life greatly, but it also renews the potential for “nuisances,” and consequently, for disputes over liability, compensation, and mitigation of the offending operations.

The unique circumstances of mixed-use development, including the often-complicated ownership structure and the physically integrated nature of the competing uses, can create interesting wrinkles for the lawyers who defend these claims. As mixed-use developments rise in popularity, it becomes increasingly important for developers and their lawyers to understand the liability issues associated with these projects.

Statutory Definitions and Analysis

The California Legislature defines a nuisance as “[a]nything that is injurious to health ' or is indecent or offensive to the senses, or an obstruction to the free use of property, so as to interfere with the comfortable enjoyment of life or property. ' ” Cal. Civil Code ' 3479. In order to be actionable, the “ interference” must be both “substantial” and “unreasonable.” Hellman v. La Cumbre Golf & Country Club (1992) 6 Cal.App.4th 1224, 1230-1231.

A business that operates without incident in a commercial or industrial setting may create a nuisance in a mixed-use context. For example, a restaurant might operate in a retail center for years with no complaints, but if residents move in above the restaurant, they might legitimately object to the noise, odor, smoke, trash or loitering patrons. Each of the following lawful commercial uses has been ruled a nuisance when located too close to residential properties: a retail store (Smith v. Collison (1931), 119 Cal.App. 180, 184); a laundromat (Williams v. Blue Bird Laundry Co. (1927), 85 Cal.App. 388, 392); a restaurant and bar (People v. Mason (1981), 124 Cal.App.3d 348, 353); and a mortuary and funeral parlor (Brown v. Arbuckle (1948), 88 Cal.App.2d 258, 261).

The relevant question is whether the “interference” with the resident's use and enjoyment is unreasonable, not whether the business operations themselves are being conducted in a negligent or unreasonable manner. Van Zyl v. Spiegelberg (1969), 2 Cal. App. 3d 367, 372-373. Indeed, a court may deem a given business activity a “nuisance,” even though the business' operations are “skillfully directed” toward accomplishing a desired objective, so long as the plaintiff establishes that those operations are conducted without “due regard for the rights of [the resident].” Sturges v. Charles L. Harney, Inc . (1958), 165 Cal.App.2d 306, 318.

The Lawsuit

The parties to a “mixed-use” nuisance action may depend on the particular ownership structure of the development. Potential plaintiffs may include residential owners ( Smith v. Collision, supra, 119 Cal.App. at 183-184) or residential tenants (Institoris v. City of Los Angeles (1989), 210 Cal. App. 3d 10, 20; Smith v. David (1981), 120 Cal. App. 3d 101, 105, 113). Where, as is often the case, the development is structured as a condominium, the condominium association managing the property may also have standing to sue. See Cal. Civil Code ” 4000 et seq., particularly at ' 5980.

Potential defendants may include the commercial tenant alleged to be causing the nuisance ( Team Enterprises, LLC v. Western Investment Real Estate Trust , 647 F. 3d 901, 911-912 (9th Cir. 2011)), the commercial tenant's landlord ( Vedder v. County of Imperial (1974), 36 Cal.App.3d 654, 661 (commercial landlord may be liable if it had actual knowledge of the nuisance and the means to prevent it)), the owner of the entire development (Dennis v. City of Orange (1930), 110 Cal. App. 16, 22-25) and even the residential component's landlord (Birke v. Oakwood Worldwide (2009), 169 Cal. App. 4th 1540, 1552-53 (residential landlord owes tenants the duty to maintain common areas free of nuisances)).

Countersuits are also possible. The commercial landlord may sue its tenant for indemnity, and the commercial tenant may countersue against its landlord for a declaration that its operations conform to the terms and conditions of its lease.

The complaining resident may sue for an injunction or for monetary damages, or in appropriate circumstances, both. Katenkamp v. Union Realty Co. (1936), 6 Cal.2d 765, 776; Cal. Civil Code ' 3501; Cal. Code Civ. Proc. ' 731. In People v. Mason, supra, 124 Cal.App.3d at 353-354, the residents of a nearby subdivision obtained an injunction requiring defendants to mitigate the “nuisance” created by the music, hand-clapping, and foot-stomping emanating from their restaurant and bar.

A residential unit owner may recover damages in the amount of any reduction in value of the property. Pahl v. Ribero (1961), 193 Cal. App. 2d 154, 164. A tenant can recover monetary relief, too ' for impairment to the value of their leasehold interest. Institoris, supra, 210 Cal. App. 3d at 20; Smith v. David (1981), 120 Cal. App. 3d 101, 105, 113. Before allowing any monetary recovery by a residential owner or tenant, however, the court ought to take into account the extent to which the plaintiff's own purchase price or monthly rent was already reduced by virtue of the unit's proximity to the offending business use.

If it is alleged that the business acted with knowledge of the injury it was causing the resident to suffer, and with the intent to continue to cause that injury, punitive damages may be sought. Miller & Starr, California Real Estate, ' 22:25 (3rd ed.); Cal. Civ. Code ' 3294.

Possible Defenses

A business operator is not without defenses. Among other things, a court will consider whether the business predated the mixed-use development and whether the residents, in effect, “came to the nuisance” (Hellman, supra, 6 Cal. App. 4th at 1231; see also 42 A.L.R. 3d 344, ' 4; Miller & Starr, California Real Estate, supra, ' 22:33). However, the fact that the business might have been “first in the field” is not necessarily a complete defense. In Vowinckel v. N. Clark & Sons (1932), 216 Cal. 156, 164, the defendant's sewer pipe manufacturing site had been lawfully in operation for many years before the plaintiff purchased a home next door. The court acknowledged that the resident had effectively “come to the nuisance,” but reasoned that even still, the resident had a right to enjoy his home without “serious interference.” The court granted an injunction against the manufacturing operations, prohibiting activity on the side of the property directly adjacent to the residence and requiring the factory to erect a 15-foot high “fireproof wall.”

Even if residents and businesses occupy their respective properties at the same point in time, advance notice of proposed business operations on the site would be a factor in the business's defense against the resident's nuisance claim. See Hellman, supra, 6 Cal. App. 4th at 1231 (residents who purchased homes with notice of adjacent golf course operations were denied relief on nuisance claim).

Similarly, a resident may be found to have granted his “consent” to adjoining business operations, either via a provision in the resident's lease or through a mixed-use development's CC&Rs. Such consent may constitute a complete defense. See Miller & Starr, California Real Estate, supra , ' 22:36. In addition, a lease or CC&Rs may require residents to expressly waive their right to claim nuisance. Such waiver provisions would likely be given effect under a “consent” theory.

If the business use in question is expressly permitted under local zoning laws, the use will not be enjoined unless the user is found to be employing “unnecessary and injurious methods of operation.” California Civil Procedure Code ' 731a. A finding that the business has failed to employ mitigations and safeguards employed by similar businesses in the vicinity may be enough to establish “unnecessary and injurious methods.” (Gelfand v. O'Haver (1948) 33 Cal. 2d 218, 220-221.) In Gelfand, despite appropriate zoning, a music studio was deemed a nuisance because it was located in close proximity to residences and businesses and because the studio's operator had failed to soundproof it. Id . at 222-223.

Mitigation

The practical question for developers and their lawyers, of course, is how to avoid or mitigate nuisance liability in the mixed-use context.

• First, the developer must ensure that the site is zoned for any contemplated uses.
• Second, the project ought to be designed and constructed with the goal of minimizing interference with residential quality of life.
• Third, all governing documents, sale documents and leases should clearly document the residents' notice of and consent to all proposed business uses.
• Fourth, commercial leases must obligate business operators to refrain from unreasonable interference with resident life, and require that commercial tenants indemnify and hold the lessor harmless from any breach of this obligation.

Finally, the owner must maintain insurance that adequately protects him from liability for any nuisance claims that nevertheless may arise.

Kevin Hughes is a partner with Tisdale & Nicholson, LLP, Los Angeles. Reach him at [email protected]. Linda Kim is a senior counsel in the firm's business litigation group. She can be reached at [email protected].