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Is an Irrevocable License Binding on a Purchaser?

A landowner grants a license by allowing someone else to use the land.  A license can be created by express permission, or by acquiescence (allowing the use with full knowledge and without objecting).  Normally, a license is considered only a personal right that confers no actual interest in the land — it is simply the landowner’s “permission” making lawful what would otherwise constitute a trespass.

Likewise, a license usually can be revoked at any time for any reason by the landowner.  But in some instances, a license can become “irrevocable.”

A license becomes irrevocable when the licensee makes substantial expenditures of money or labor in reasonable reliance on either the licensor’s representations or on the terms of the license.  The expenditure must be “substantial, considerable, or great,” reflecting the judicial policy to grant irrevocable licenses “sparingly.”  If granted, an irrevocable license will continue for a period sufficient to enable the licensee to capitalize on his or her investment.

So, when a license is irrevocable, is it binding on a later buyer of the land?

According to an opinion recently published by California’s Second Appellate District — Gamerberg v. 3000 E. 11th St., LLC — the answer is no, unless the license was recorded or the buyer had other notice.

Facts: landowner grants “irrevocable” license, but nobody records it

In 1950, the owner of property in Boyle Heights agreed to provide eight parking spaces on the property to the owner of a neighboring lot so the owner of that lot could build an oversized warehouse.  A notarized “parking affidavit” documenting the license was filed with the Los Angeles Department of Building and Safety (LADBS).

The parking affidavit was never recorded.  There was no evidence that the eight parking spaces were ever identified by either property owner, and likewise no evidence that the parking spaces were ever used by the licensee (the warehouse property owner) or his successors, including the present owner Ruben Gamerberg.

The landowner who granted the license sold the property in 1994 to Steve Soroudi (through his entity 3000 E. 11th St., LLC).  Soroudi did not have actual or constructive notice of the 1950 parking affidavit.  Neither the title report nor the grant deed mentioned the parking affidavit or listed it as an encumbrance on the property.

When Gamerberg purchased the warehouse property in 2007, he too was unaware of the 1950 parking affidavit or of any previous use by his predecessors of parking spaces on Soroudi’s property.  But Gamerberg later learned of the parking affidavit when dealing with LADBS on plans for an expansion and remodeling of his warehouse.

Based on his conversations with LADBS staff, Gamerberg came to believe that the 1950 parking affidavit not only enabled his warehouse expansion plans, but also gave him enforceable rights against Soroudi.  LADBS issued permits for the planned expansion, and Gamerberg spent approximately $600,000 on construction.  After Soroudi did not respond to Gamerberg’s demands to identify the parking spaces he could use, Gamerberg sued.

Trial court’s judgment: license binds buyer

The case went to trial on a single theory of “irrevocable license.”  The trial court ruled in favor of Gamerberg, holding the license created by the 1950 parking affidavit was binding on the property owners’ successors in interest even if they took title with no knowledge of the license.

Court of Appeal’s opinion: reversed; license is not binding because it wasn’t recorded and buyer lacked notice

The Court of Appeal reversed the trial court’s judgment, holding that an irrevocable license is not binding on a subsequent purchaser who buys the property without notice.

The court criticized a 1988 opinion by the same Second District court holding differently as “flawed” and trumped by a 1905 California Supreme Court opinion.  In that earlier opinion, the Supreme Court held that to prove an irrevocable license is binding against a subsequent purchaser, there must be proof that the buyer had notice.

The court also noted that under California law, an irrevocable license is treated much like an easement.  And courts have held that easements are likewise unenforceable against a subsequent purchaser without notice.  The court summarized:

Accordingly, when an easement or other use is not visible and does not provide actual notice to the purchaser, it must be recorded to be enforceable.  The recording statutes operate to protect the expectations of the grantee and secure to him the full benefit of the exchange for which he bargained. … [I]t would make no sense to conclude that a document evidencing an irrevocable license need not comply with the recording acts, when another creating an easement that conveys an actual interest in land must do so.

Accordingly, the court held Soroudi was not bound by the 1950 license.

Lesson

As stated by the court near the end of its holding: “an unrecorded instrument is valid as between the parties thereto and those who have notice thereof …, but not against anyone else.”