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LEX

SEE 131 CAL APP 4TH 703

250 L.L.C., Plaintiff and Appellant, v. PHOTO POINT CORP. (USA), Defendant; SHERWOOD PARTNERS, INC., Intervener and Appellant. SHERWOOD PART-

NERs' INC., Plaintiff and Appellant, v. 250 L.L.C., Defendant and Appellant.
AI05231

COURT OF APPEAL OF CALIFORNIA, FIRST APPELLATE DISTRICT, DIVISION FOUR

131 CaI. App. 4th 703; 32 Cal. Rptr. 3d 296; 2005 Cal. App. LEXIS 1186; 2005 CaI. Daily Op. Service 6688; 2005 Daily Journal DAR 9136

July 28, 2005, Filed

SUBSEQUENT HISTORY: Modified and rehearing
denied by 250 v. PhotoPoint Corp., 2005 CaL. App.

of the deposit. The words "defaults in the payment of
rent" in § 1950.7 did not refer to futue rent damages that the landlord could thereafter recover under Civ. Code, §
1951.2. While the partes to a commercial lease could

LEXIS 1366 (CaL. App. 1st Dist., Aug. 29, 2005) Review denied by 250 L L C v. Photopoint Corp., 2005
CaL. LEXIS 11901 (CaL., Oct. 26, 2005)

waive Civ. Code, § 1950.7, to provide that a security

PRIOR HISTORY: (***1) Superior Cour of City
and County of San Francisco, No. 324137, No. 401396, Perker L. Meeks, Jr., Judge.

deposit might be held and applied against futue rent
damages, no such waiver was made in the lease at issue.

The amount of the security deposit that the lessor
wrongly retained could not be offset against its futue rent damages because that result would enable the lessor
to profit from its violation of § 1950.7. (Opinion by Kay,

DISPOSITION: The judgment is reversed.
SUMMARY:
CALIFORNIA OFFICIAL REPORTS SUMMARY
In consolidated actions that arose from a dispute

P. J., with Reardon and Rivera, Jl, concuring.) (*704)
HEADNOTES
CALIFORNIA OFFICIAL REPORTS HEADNOTES Classified to Californa Digest of Offcial Reports

concerning a substantial security deposit under a com-

merciallease between a lessor and a lessee, the trial cour
ruled that the lessor failed to retu the lessee's security

(1) Landlord and Tenant § 99--Rent and Security-Security Deposits--Retention, Application or Return-Commercial Leases.--Security deposits in commercial

deposit as required by Civ. Code, § 1950.7. The trial

cour also ruled that the lessor was entitled to offset the amount of the security deposit that it withheld against the even greater amount of damages that it sustained on account of the lessee's breach of the lease and that, therefore, the lessee sustained no actual damages and was not
entitled to retu of the deposit. (Superior Cour of the

leases are governed by Civ. Code, § 1950.7. If a deposit was used to cover only defaults in the payment of rent, then the balance is to be retued to the tenant within two weeks after the landlord receives possession of the premises.
(2) Landlord and Tenant § 138--Termination--

City and County of San Francisco, Nos. 324137 and

401396, Perker L. Meeks, Jr., Judge.)

The Cour of Appeal reversed, holding that the lessor violated Civ. Code, § 1950.7, by retaining the secu-

rity deposit to cover its damages for futue rent owed
under the lease because § 1950.7 allowed a security de-

Abandonment--Rights and Remedies of Landlord.--A California lessor with abandoned premises has two mutually exclusive remedies: deem the lease termnated and seek damages pursuant to Civ. Code, § 1951.2, or, under
Civ. Code, § 1951.4, continue to perform under the lease

posit to be applied only against unpaid rent that had accrued as of the date called for in the statute for the retu

and seek rent as it becomes due. Through the termnation
of the lease upon abandonment, Civ. Code, § 1951.2,
converts a landlord's continuing right to rent under the

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lease into a damage claim for rent lost through the tenant's abandonment.

formtion concerning the length of the term of the new
lease and the rent provided in the new lease.

(3) Landlord and Tenant § 99--Rent and Security-Security Deposits--Retention, Application or Return--

Landlord's Liabilty for Bad Faith Wrongful Retention.--Under Civ. Code, § 1950.7, subd. (f), a landlord

(6) Landlord and Tenant § 99--Rent and Security-Security Deposits--Retention, Application or Return-Future Rent Damages.-- The existence of a landlord's right to recover its damages under Civ. Code, § 1951.2,

who retains a security deposit in violation of the statute and does so in bad faith is liable for up to $ 200 in damages in addition to any actual damages the tenant sustains. Whereas § 1950.7 affords a summary deduct-andretain procedure that is to be completed shortly after the landlord's recovery of possession, Civ. Code, § 1951.2,

does not depend on a rule that would allow retention of a

security deposit for application against possible futue
rent damages. It is appropriate to retain the deposit so as

to utilize the remedy provided under Civ. Code, §
1951.4, and Civ. Code, § 1950.7, does not prevent that recourse. Under Civ. Code, § 1951.4, when the tenant
breaches the lease and abandons the premises, the land-

contemplates a cour action in which damages are adjudicated. Any estimate of § 1951.2 damages within the
limited timeframe of Civ. Code, § 1950.7, would neces-

sarily be speculative. If the rent to be offset against the security deposit must be calculated and the excess retued within two weeks after the premises are surendered to the landlord, the offset clearly is limited to rent
due through the time of surender.

lord may, if certain conditions are met, elect not to terminate the tenant's right to possession and instead continue to enforce its rights under the lease, including the right to collect the rent as it becomes due. Because the tenant in that event retains the right to sublet the premises or assign its interest in the lease, § 1951.4, subd. (b),

the landlord does not receive possession of the premises
within the meaning of Civ. Code, § 1950.7, the duty to
retu the security deposit does not arise, and the land-

(4) Landlord and Tenant § 99--Rent and Security-Security Deposits--Retention, Application or Return-Time Limitations.-- The language of Civ. Code, § 1950.7, subd. (c), unambiguously provides that a lessor must credit a security deposit against any rent owing within two weeks following the termnation of the lease, at which time the lessee becomes entitled to the balance, if any. Section 1950.7, subd. (c), makes no reference to the application of the deposit towards the amount of any judgment against the lessee. (*705)
(5) Landlord and Tenant § 124--Termination--Notice
1951.7, provides that, after a lease is termnated pursuant to Civ. Code, § 1951.2, and if certain conditions are met,

lord can continue to apply the deposit against the rent as it accrues.

(7) Landlord and Tenant § 99--Rent and Security-Security Deposits--Retention, Application or Return.-Cases decided before advent of the right to recover futue rent damages under Civ. Code, § 1951.2, can pro-

vide no definitive rule governg security for the use of
that remedy and, in any event, those decisions have been

abrogated insofar as they (*706) conflict with Civ.

to Tenant of Reletting of Premises.--Civ. Code, §
including an advance payment by the tenant of over one lease, the tenant is to receive written notice from the landlord of the reletting of the premises and the term and rent under the new lease.
month's rent under the original

Code, § 1950.7. Section 1950.7 specifies the obligations against which a security deposit can be applied and di-

rects that the balance of the deposit remaining after those deductions be refunded promptly to the tenant. Civ.
Code, § 1950.5, restricts the use of a security deposit to

specifically defined puroses and requires that the de-

posit be retued to the extent it is not necessary for
those limited puroses. Those observations apply equally to Civ. Code, § 1950.7.

An "advance payment" for puroses of Civ. Code, §
1951.7, is defined, like a security deposit under Civ.

Code, § 1950.7, to include money paid to the landlord to

secure performnce under the lease, pursuant to Civ. Code, §§ 1950.7, subd. (a), 1951.7, subd. (a). A former tenant exposed to futue rent damages wil have an interest in the landlord's efforts to mitigate them by re1ettg the premises, whether or not the landlord retains the security deposit. Section 1951.7 does not in any way affect the right of the lessor to recover damages nor the right of a lessee to recover prepaid rent, a security deposit, or
other payment. Section 1951.7 is included merely to pro-

(8) Landlord and Tenant § 99--Rent and Security-Security Deposits--Retention, Application or Return-Landlord's Wrongful Retention.--The words "defaults
in the payment of rent" in Civ. Code, § 1950.7, refer only to unpaid rent that has accrued as of the time a security

deposit is required to be retued, and do not refer to

futue rent damages a landlord may thereafter recover
under Civ. Code, § 1951.2. Accordingly, in a dispute concernng a substantial security deposit under a com-

vide a means whereby the lessee whose lease has been
terminated under Civ. Code, § 1951.2, may obtain in-

mercial lease between a lessor and a lessee, the lessor
violated Civ. Code, § 1950.7, by retaining the lessee's

security deposit to cover its damages for futue rent owed

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under the lease because § 1950.7 allowed a security de-

have agreed to it as an integration--a complete and ffn~l
embodiment of the term of an agreement--paro1 evi-

posit to be applied only against unpaid rent that had accrued as of the date called for in the statute for the retu
of the deposit. If the lessor had followed Civ. Code, § 1951.4, it could have applied the security deposit against

dence cannot be used to add to or vary its term.

the monthly rent as it became due until the deposit was
exhausted, but, instead, it elected under Civ. Code, §

-Evidence to Aid--Admissibilty of Extrinsic Evidence.-- The test of admissibility of extrinsic evidence to

(13) Contracts § 27--Construction and Interpretation-

1951.2, to termnate the lease and the lessee's right of
possession thereunder, and thereby .trigg~red .the duty to
retu the security deposit as provided II CiV. Code, §

explain the meaning of a written instrment is w?ether the offered evidence is relevant to prove a meanmg to which the language of the instrment is reasonably susceptible.
(14) Contracts § 25--Construction and Interpretation-Function of Courts--Questions of Law.--Whether the

1950.7..)

(1 Witkin, Summary of CaL. Law (9th ed. 1987)
Contracts, §§ 523, 525; Westley & Saltz, Matthew

Bender Practice Guide: CaL. Landlord-Tenant Litigation (2005) § 4.57(1)

language of an agreement is reasonably susceptible to a proposed interpretation is a question oflaw.
(15) Cross-complaints and Setoffs § 11--Defense--

(9) Letters of Credit § 2--Definitions and Distinctions-Doctrine of Independence.-- The doctrine of independence protects only the distribution of the proceeds of a letter of credit. It prohibits an attack on the issuing bank's

distribution to the beneficiary and does not address
claims respecting the underlying contract. It is one thing to attempt to prevent the distribution of the proceeds of a letter of credit, an attempt the doctrine of independence is designed to prevent; but it is another to bring an action on the underlying contract that created the letter of credit. There is no principled reason for allowing a challenge to the underlying contract when the fee is paid in

Claim for Monetary Relief.--Code Civ. Proc., § 431.70, does not create a substantive right to raise setoff as a defense to a claim for monetary relief, but merely describes the procedures to be followed in raising this defense.

Remedies of Landlord--Damages for Unpaid Rent,
faith failed to retu a security deposit as required by

(16) Landlord and Tenant § 103-Rent and Security--

Repairs, and Cleaning.--A landlord who has in good
Civ. Code, § 1950.5, can nonetheless recover damages

cash and not allowing such a challenge after the fee is
paid via a standby letter of credit. Challenging the distri-

bution of the proceeds of a letter of credit is different than challenging the underlying contract. The ultimate result may be the same (*707) (refud of the fee), but in one case the method of recovery is permssible and in the other it is barred.
(10) Landlord and Tenant § 11--Leases--Agreements
under a commercial

for unpaid rent, repairs, and cleaning in a subsequent judicial proceeding. The mere fact that the landlord has lost the right to take advantage of the (*708) sumary
deduct-and-retain procedure of § 1950.5, subd. (f), does

not lead to the conclusion that it has lost all right to claim
damages for unpaid rent, repair, and cleaning, whether

for Leases--Waiver of Statutory Protections.--A tenant lease may effectively agree to waive

through setoff or otherwise. A landlord that seeks setoff after good faith noncompliance with the procedures described in § 1950.5, subd. (f), does not profit from its

own wrong because it cannot set off any damages it
could not have recovered if it had complied with §

the protections ofCiv. Code, § 1950.7.

1950.5, subd. (f). A landlord that in good faith violates
the security deposit statute may offset against its dam-

(11) Landlord and Tenant § 103--Rent and Security-Remedies of Landlord--Lessee's Obligations Under Lease.--A lessor's election to forfeit the lessee's rights
under a lease because of the lessee's default, or even a

ages only those amounts which it properly could have
claimed of the security deposit in the ffrst place.
(17) Landlord and Tenant § 49--Possession and Use of

judgment in unlawful detainer declaring a forfeitue ~f
the lessee's rights, does not relieve the lessee of the obhgations imposed by the lease. That is the precise effect of
Civ. Code, § 1951.2, which abrogates the common law

Premises--Tenant's Right--Unlawful Detainer.--A
tenant can remain in possession until an unlawful de-

tainer judgment is rendered.

rule that the lessee's obligation to pay rent depends on
the continued existence of the term.

COUNSEL: Law Offces of Janet Brayer and Janet
Brayer for Plaintiff and Appellant and for Defendant and Appellant.

-Evidence to Aid--Integration and Unavailabilty of
Parol Evidence.-- Where the parties to a written contract

(12) Contracts § 27--Construction and Interpretation-

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Sulmeyer Kupetz, Dean G. Rallis, Jr., and Diane C. Stanffeld for Intervener and Appellant and for Plaintiff
and Appellant.

890,175.00, a sum equal to 18 months' base rent. PhotoPoint was obligated to cause the issuing bank to immedi-

ately restore any amount drawn on the letter of credit.

JUGES: Kay, P. J., with Reardon, and Rivera, n.,
concurrmg.

Provided PhotoPoint was not in default under the lease,
the letter of credit was to be reduced by $ 178,035--one-

fffth the original amount--at the end of each year in the lease term. Pursuant to this provision, the letter of credit

OPINION BY: Kay

was reduced on March 30, 2001, to the sum of $
712,140.

OPINION
assignee for the benefit of creditors of PhotoPoint Corp. (USA), and 250 L.L.c. (250) appeal from the judgment in these consolidated actions arising from a dispute concerng a substantial security deposit under a commercial

(**298) KAY, P. J.--Sherwood Parters, Inc., as

PhotoPoint failed to pay rent due under the lease for the months of April, May, June, and July 2001. As a re-

sult, 250 caused the bank to draw down the letter of
credit by $ 98,908.34 on May 23, 2001, and $ 49,454.17 on June 12, 2001. PhotoPoint did not cause the bank to restore these amounts to the letter of credit. On June 26, 2001, PhotoPoint executed a general (***4) assignment for the benefit of creditors to Sherwood as assignee, an event of default under the lease. On July 16, 2001, 250
caused the bank to pay 250 the $ 563,777.49 remaining

lease between 250 as lessor and PhotoPoint as lessee. The central issues in the appeals are whether the cour
below correctly ruled that 250 failed to retu the secu-

rity deposit as required by Civil Code section 1950.7, i but that 250 was entitled to offset the amount of the security deposit it witheld against the even greater amount
of damages it sustained on account of PhotoPoint's
breach of the lease, and therefore PhotoPoint sustained

on the letter of credit. On or about August 14, 2001, 250 served on PhotoPoint a "Notice of Belief of Abandonment," and a "Notice to Quit" containg an election to
forfeit the lease.
On August 29, 2001, 250 fied an unlawful detainer

no actual damages and was not entitled to (***2) retu

of the deposit.

action against PhotoPoint (Super. Ct. S.F. City and
County, No. 324137). In November 2001, Sherwood as PhotoPoint's assignee sued 250 (Super. Ct. S.F. City and County, No. 401396) seeking retu of the security de-

1 Unless otherwise indicated, all fuher statutory references are to the Civil Code.
We conclude that 250 violated section 1950.7 by retainng the security deposit to cover its damages for fu-

posit, including the letter of credit fuds, retained by
250. 250 amended the complaint in case No. 324137 to replace the unlawful detainer count with a cause of action for damages for breach of the lease, and Sherwood
intervened in that case.

tue rent owed under the lease, because section 1950.7 allows a security deposit to be applied only against unpaid (*709) rent that has accrued as of the date called for in the statute for the return of the deposit. We hold
that parties to a commercial lease can waive section

The cases were consolidated for trial and tried to the

1950.7 (**299) to provide that a security deposit may be held and applied against futue rent damages, but that no such waiver was made in the lease in this case. We hold fuher that the amount of the security deposit 250 wrongly retained cannot be offset against its futue rent damages because that result would enable 250 to profit from its violation of section 1950.7. The judgment must
therefore be reversed.

cour on stipulated facts. It was stipulated that 250 had
not retued any fuds referred to in (*710) section 6 of

the lease. It was fuer stipulated that 250 was damaged
as a result of PhotoPoint's breach of the lease in the

amount of $ 1,557,898.78, which included the base rent
of $ 49,454.17 per month from July 2001 (***5)

through June 2002, and $ 49,454.17 less $ 20,854.17 per month from July 2002 through April 9, 2005.
The cour excluded parol evidence at trial, and ruled

I. BACKGROUND
The lease in question was for a five-year term be-

that 250 was "entitled to pursue its rights of setoff." The cour found that PhotoPoint was entitled to a credit for

ginnng on April 10, 2000. The lease deffned "Securty

the security deposit and letter of credit fuds 250 retained ($ 49,454.17 + $ 563,777.49) against the damages 250 sustained. The cour found that 250 was required to
retu the security deposit and letter of credit fuds to

(***3) Deposit" to mean cash in the amount of $
49,544.17, a sum equal to one month's base rent, as pro-

vided in section 6.A of the lease, and the letter of credit required under section 6.B. Section 6.B stipulated that, in addition to the cash security deposit, PhotoPoint would arrange for issuance by a bank of an irevocable letter of credit in favor of 250 as beneffciary in the amount of $

PhotoPoint "withn the time frame provided by Civil
Code section 1950.7," but that PhotoPoint sustained no actual damages as a result of the statutory violation be-

cause those fuds (**300) could be applied against

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250's damages. The cour awarded PhotoPoint a statutory

penalty of $ 100 for 250's violation of section 1950.7. The cour entered a net judgment of $ 944,567.12 in favor of 250, representing 250's damages of $
1,557,898.78, less the security deposit and letter of

reasonably necessary to repair damages to the premises caused by the tenant or to clean the
premises, then any remaining porton of the payment or deposit shall be retued to the tenant at a time as may be mutually agreed upon by landlord
and tenant, but in no event later than 30 days

credit

funds of $ 613,231.66 and the $ 100 statutory penalty.

II. DISCUSSION
A. Section 1950. 7
(1) Security deposits in commercial

from the date the landlord receives possession of the premises. (~) ... (~) (f) The bad faith retention

by a landlord or transferee of a payment or deleases are gov-

posit or any portion thereof, in violation of this section, may subject the landlord or the transferee
to damages not to exceed two hundred dollars ($

erned by section 1950.7. As of the date of the judgment
herein, section 1950.7, (***6) subdivision (c) provided

that a security deposit could be applied "to remedy tenant defaults in the payment of rent, to repair damages to the premises caused by the tenant, or to clean the premises

200), in addition to any actual damages. (~) (g) This section is declarative of existing law and therefore operative as to all tenancies, leases, or
rental agreements for other than residential prop-

upon termation of the tenancy." (Italics added.) If the
deposit was used to cover only defaults in the payment of

ert created or renewed on or after January 1,
1971." (Stats. 1981, ch. 259, p. 1336.)

rent, then the balance was to be retued to the tenant
within two weeks after the landlord receives possession of the premises. (Ibid.) 2 No issue is presented in (*711) this case regarding amounts to clean, or repair damages

(***7) (2) Sherwood argues that "defaults in the
payment of rent" means the unpaid rent that has accrued
when the security deposit is required to be retued. 250

to, the premises. The dispute is about the meaning of
"rent" in the statute.
2 Section 1950.7 formerly provided in part: "(a) Any payment or deposit of money the primary function of which is to secure the performance of a rental agreement for other than residential propert or any part of the agreement, other than a

takes the position that "rent" includes not only past-due rent, but also futue rent damages the landlord could recover under section 1951.2, i.e., the rent owed for the remainder of the lease term, less the rental loss the tenant proves could have been reasonably avoided. 3 "(A) Californa lessor (**301) with abandoned premises has two

mutually exclusive remedies: deem the lease termated
and seek damages pursuant to § 1951.2, or, under §

payment or deposit, including an advance payment of rent, made to secure the execution of a
rental agreement, shall be governed by the provisions of this section. With respect to residential
propert, the provisions of Section 1950.5 shall

1951.4, continue to perform under the lease and seek rent as it becomes due." (In re Lomax (Bank. 9th Cir. 1996)
194 B.R. 862, 866.) 4 "Through the termation of the

lease upon abandonment, § 1951.2 converts a landlord's

prevaiL. (~) (b) Any such payment or deposit of money shall be held by the landlord for the tenant
who is part to the agreement. The claim of a

continuing right to rent under the lease into a damage claim for rent lost though the tenant's abandonment." (
Id at p. 865.)

tenant to the payment or deposit shall be prior to the claim of any creditor of the landlord, except a
trstee in bankrptcy. (~) (c) The landlord may

3 Section 1951.2 provides in part: "(a) Except

claim of the payment or deposit only those
amounts as are reasonably necessary to remedy

as otherwise provided in Section 1951.4, if a lessee of real propert breaches the lease and abandons the propert before the end of the term or if
his right to possession is termated by the lessor

tenant defaults in the payment of rent, to repair damages to the premises caused by the tenant, or to clean the premises upon termnation of the tenancy, if the payment or deposit is made for any or
all of those specific puroses. Where the claim of the landlord upon the payment or deposit is only

because of a breach of the lease, the lease termnates. Upon such termnation, the lessor may recover from the lessee: (~) (1) The worth at the time of award of the unpaid rent which had been
earned at time of termination; (~) (2) The worth at the time of award of the amount by which the un-

for defaults in the payment of rent, then any remaining portion of the payment or deposit shall
be retued to the tenant no later than two weeks

paid rent which would have been earned after
termnation until the time of award exceeds the

amount of such rental loss that the lessee proves
could have been reasonably avoided; (~) (3) ... the
wort at the time of award of the amount by

after the date the landlord receives possession of the premises. Where the claim of the landlord

upon the payment or deposit includes amounts

which the unpaid rent for the balance of the term

after the time of award exceeds the amount of

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such rental loss that the lessee proves could be
reasonably avoided; and (~) (4) Any other amount

Safety Center, Inc. v. jax Car Sales (1985) 164 CaL. App.

3d 992, 998-999 (211 CaL. Rptr. 39)). Any estimate of

necessary to compensate the lessor for all the detriment proximately caused by the lessee's failure

to perform his obligations under the lease or
which in the ordinary course of things would be likely to result therefrom."
(***8)
4 Section 1951.4 provides in part: "(a) The

section 1951.2 damages within the limited timeframe of section 1950.7 would necessarily be speculative. "If the
rent to be offset (**302) against the security deposit

must be calculated and the excess retued within two
weeks after the premises are surendered to the landlord,

remedy described in this section is available only
if the lease provides for this remedy. ... (~) ... (~)

the offset clearly is limited to rent due though the time of surender." (St. James, Landlord Beware: Wil a Security Deposit Survive a Bankrptcy? (2001) 26 CaL.

Bank. J. 44, 47, italics added.) Moreover, if 250's constrction of section 1950.7 were adopted, landlords could

breached the lease and abandoned the propert,
sor does not termnate the lessee's right to posses-

(b) Even though a lessee of real propert has

retain security deposits well beyond the statutory deadline in every case, on the ground that the deposit "might"

the lease continues in effect for so long as the lession, and the lessor may enforce all the lessor's

not cover prospective damages, and could do so with relative impunity given the modest penalty for acting in
bad faith. Such a result would thwart the statutory purpose of compelling the prompt refund of securty depos-

rights and remedies under the lease, including the right to recover the rent as it becomes due under
the lease, if any of (the speciffed conditions con-

cerng assignment and sublettg by the tenant)
is satisfied."

its. (See Granberry v. Islay Investments, supra, at p.
746.)
Sherwood's constrction of section 1950.7 (***11)
is supported by the decision in Public Employees' Re-

rity deposit under section 1950.7 only limits the time
within which a landlord exercising its (*712) rights

(3) In 250's view, the deadline for retu of a secu-

tirement System v. Winston (1989) 209 CaL. App. 3d 205
(258 CaL. Rptr. 612). The tenant in Winston vacated the

under section 1951.2 must estimate its damages for futue lost rent. Under ths scenario, if the deposit would be

premises on May 5, 1984, and was found to have been
constrctively evicted on that date. The landlord retained

insufffcient to cover the anticipated section 1951.2 damages, the landlord could retain it; on the other hand, if it appeared that the deposit would exceed the damages, the
excess would have to be refuded. Here, for example,

250 indicates (***9) the rental market was falling when it received possession of the premises, and 250 asserts it

was clear at that point that the damages for futue lost
rent would exceed the amount of the security deposit. Under section 1950.7, subdivision (f), a landlord who

the $ 5,115 security deposit and sued the tenant for over $ 100,000 in unpaid futue rent and other damages under the lease. The trial (*713) cour found that the landlord was entitled to damages of $ 5,281.57, plus interest. The issue in the appeal was whether the security deposit could be offset against the judgment, in which case the landlord would have obtained a net recovery and been
the prevailing part, or whether the security deposit had

retains a security deposit in violation of the statute and does so in bad faith is liable for up to $ 200 in damages in addition to any actual damages the tenant sustains.
Thus, under 250's argument, if the landlord guessed

to be offset against the rent owed as of May 19, 1984, two weeks following the constrctive eviction, pursuant to section 1950.7, subdivision (c), in which case the landlord would have owed the tenant money as of that
date and the tenant would have been the prevailing part.

wrong, and retained more of the security deposit than
was required to cover futue rent damages, the excess

would eventually be refunded as actual damages to the tenant; if the landlord acted in bad faith, the tenant could be awarded additional damages of$ 200.

the deposit against any rent owing within two weeks following the termnation of (***12) the lease, at which
time the lessee becomes entitled to the balance, if any.

(4) The Winston cour held that the "statutory language unambiguously provides that the lessor must credit

No authority supports 250's reading of section
1950.7, and its interpretation is contrary to the statute's
language and purose. Whereas section 1950.7 affords a "summary deduct-and-retain procedure" ( Granberry v.
Islay Investments (1995) 9 CaL.4th 738, 745 (38 CaL.

Section 1950.7, subdivision (c), makes no reference to the application of the deposit towards the amount of any
judgment against the lessee." ( Public Employees' Retirement System v. Winston, supra, 209 CaL. App. 3d at p.

Rptr. 2d 650, 889 P.2d 970) (describing section 1950.5,
the security deposit statute for residential

leases )) that is

to be completed shortly after the landlord's recovery of
possession, section 1951.2 contemplates (*** 10) a cour

209.) This conclusion is directly at odds with 250's reading of the statute. Under 250's interpretation, the landlord in Winston would have been able to keep the security deposit because it was far less ($ 5,115) than the unpaid
futue rent and other damages (over $ 100,000) the land-

action in which damages are adjudicated (see California

lord thought was due under the lease, and the result

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would have been a credit of $ 5,115 (less a penalty of up
to $ 200 if

the landlord retained that amount in bad faith)

against the judgment, rather than a credit against the rent that was owed two weeks after the landlord recovered possession of the premises.
Sherwood's interpretation of section 1950.7 is also

even if an additional amount is certain to be determned to be due to the landlord thereafter, much less that it would be permssible, as 250 claims, to apply the deposit to an unliquidated amount that may subsequently become due.
5 The statute now reads: "(c) The landlord may

supported by the timig of the statute's enactment and the evolution of the statute's language. Since section 1950.7 went into effect before section 1951.2, the term "rent" as
used in section 1950.7 cannot plausibly be taken to refer
(***13) to futue rent damages under section 1951.2.

claim of the payment or deposit only those
amounts as are reasonably necessary to remedy

Section 1950.7 was enacted as section 1951, which be-

tenant defaults in the payment of rent, to repair damages to the premises caused by the tenant, or to clean the premises upon termnation of the tenancy, if the payment or deposit is made for any or all of those specific puroses. (~) (1) If the claim

came effective January 1, 1971. (See Stats. 1970, ch.
1317, § 1, p. 2453.) Section 1951.2, however, did not go
into effect until July 1, 1971. (Stats. 1970, ch. 89, § § 2,

14, pp. 104-105, 107.) Before section 1951.2 became

of the landlord upon the payment or deposit is only for defaults in the payment of rent and the
securty deposit equals no more than one month's

effective, a landlord had no right to termate a lease for

a tenant's breach, and then sue (**303) for lost rent; if
the lease were termated due to the tenant's breach, the landlord's right to the remainng rent termnated as well.
(Recommendation Relatig to Real Propert Leases

rent plus a deposit amount clearly described as
the payment of the last month's rent, then any re-

mainig porton of the payment or deposit shall
be retued to the tenant at a time as may be mu-

(Nov. 1969) 9 CaL. Law Revision Com. Rep. 153, 157159 (hereafter Recommendation).) It thus appears that the word "rent" as used in section 1950.7 means unpaid
rent that has accrued under the lease, and does not in-

tually agreed upon by landlord and tenant, but in

no event later than 30 days from the date the
landlord receives possession of the premises. (~)

clude section 1951.2 damages for the loss of rent payable after the lease is termnated. (See In re Lomax, supra, 194 B.R. at p. 865 (distinguishing between the "real
propert right" to rent and the "contract right" to damages for lost rent arising from termnation (***14) of

(2) If the claim of the landlord upon the payment or deposit is only for defaults in the payment of rent and the security deposit exceeds the amount of one month's rent plus a deposit amount clearly
described as the payment of the last month's rent,

the

then any remainig portion of the payment or deposit in excess of an amount equal to one month's
rent shall be retued to the tenant no later than

lease ).)

(*714) The purose of recent amendments to section 1950.7, subdivision (c) provides fuer support for

Sherwood's position. Section 1950.7, subdivision (c)
now allows the landlord to retain a security deposit of up to one month's rent for up to 30 days to remedy defaults in the payment of rent. 5 According to a commttee report on this change, the retention time was increased from
two weeks to 30 days because landlords needed more

two weeks after the date the landlord receives possession of the premises, with the remainder to be retued or accounted for within 30 days from
the date the landlord receives possession of the

premises. (~) (3) If the claim of the landlord upon

the payment or deposit includes amounts reasonably necessary to repair damages to the premises caused by the tenant or to clean the premises, then any remainng portion of the payment or de-

time to calculate common area maintenance (CAM)
charges assessed as additional rent in commercial

leases.

posit shall be retued to the tenant at a time as
may be mutually agreed upon by landlord and
tenant, but in no event later than 30 days from the

(Sen. Com. on Judiciary, rep. on Assem. Bil No. 1361 (2003-2004 Reg. Sess.) June 24, 2003, pp. 1-3.) The report explained that "(u)nder the curent 14-day require-

date the landlord receives possession of the premises." (§ 1950.7, subd. (c).)

landlords often cannot determne the CAM charges in that time and must therefore return all of the tenant's security deposit even though the CAM
ment ... commercial

charges are still owing. This in tu forces the landlord

(***16) (5) 250 argues that to exclude section 1951.2 damages from "rent" under section 1950.7
(**304) would effectively negate section 1951.7, which provides that, after a lease is termated pursuant to section 1951.2 and if certain conditions are met, including
an "advance payment" by the tenant of over one month's
(*715) rent under the original

to tr to collect the CAM charges from a departed tenant. If the former tenant does not voluntarily pay, the landlord's only recourse is to sue in cour to enforce the

debt." (/d. at p. 3, italics added.) The italicized language indicates that it (*** 15) is not permssible for a landlord to keep a security deposit beyond the statutory time limit,

lease, the tenant is to re-

ceive written notice from the landlord of the relettng of

the premises and the term and rent under the new lease.

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An "advance payment" for purposes of section 1951.7 is defined, like a security deposit under section 1950.7, to include money paid to the landlord to secure performance under the lease. (§§ 1950.7, subd. (a), 1951.7, subd.

damages proved and the lessee may recover the bal-

ance"); Gallagher V. McMann (*716) (1932) 119
CaL.App. 688, 690 (7 P.2d 204) (the landlord is "entitled

to retain the deposit until the complete (***19) discharge of the obligation which the same is intended to
secure"). Cases decided before the advent of

(a).) 250 argues that there would be "no point" to section 1951.7 unless the landlord is allowed to retain the former tenant's security deposit as security for futue rent dam-

the right to

recover futue rent damages under section 1951.2 can

ages under section 1951.2. However, a former tenant exposed to such damages wil have an interest in the
landlord's efforts to mitigate them by reletting the premises, whether or not the landlord retains the security de-

provide no defIntive rule governing security for the use
of that remedy and, in any event, those decisions have

(**305) been abrogated insofar as they confict with
section 1950.7. Section 1950.7 speciffes the obligations against which a security deposit can be applied, and di-

posit. "Section 1951.7 does not in any way affect the right of the lessor to recover damages nor the right of a
lessee (* * * 17) to recover prepaid rent, a security deposit, or other payment. The section is included merely

rects that the balance of the deposit remaining after those

deductions be refunded promptly to the tenant. As the
cour observed in People ex rel. Smith V. Parkmerced

to provide a means whereby the lessee whose lease has
been termnated under Section 1951.2 may obtain infor-

Co. (1988) 198 CaL. App. 3d 683 (244 CaL. Rptr. 22),

mation concernng the length of the term of the new
lease and the rent provided in the new lease." (Recommendation, supra, 9 CaL. Law Revision Com. Rep., at p. 171.)
(6) 250 submits that section 1950.7 should not be in-

disapproved on another point in Kraus v. Trinity Management Services, Inc. (2000) 23 CaL.4th 116, 136-137 (96 CaL. Rptr. 2d 485, 999 P.2d 718), with respect to the statute governng security deposits for residential leases, section 1950.5 "restricts the use (of a security deposit) to

terpreted so as to "strip (the landlord) of its rights" under sections 1951.2 and 1951.4. 250 notes that, upon termnation of a lease under section 1951.2, the landlord is

specifically deffned puroses," ( Smith, supra, at p. 690), and requires that the deposit be retued to the extent it is
not necessary for those limited puroses. Since those

observations apply equally to section 1950.7, 250's reli-

"imediately vested" with the "right to recover" its damages under that section, including past and futue unpaid rent. However, the existence of that right does not depend on a rule that would allow retention of a security

ance on pre-section (***20) 1950.7 cases for a contrary rule is misplaced.
The more recent cases cited by 250-- Kraus v. Trinity Management Services, Inc., supra, 23 CaL.4th 116,

deposit for application against possible futue rent damages. As for section 1951.4, we agree with 250 that "it is appropriate to retain the deposit so as to utilize the remedy provided under (that statute)," and our reading of
section 1950.7 does not prevent that recourse. Under

and California Safety Center, Inc. v. lax Car Sales, supra, 164 CaL. App. 3d 992--are also inapposite. Kraus

section 1951.4, when the tenant breaches the lease and
tenant's right to possession and instead continue to enforce its rights under the lease, including the right to collect the rent as it becomes due. Because the tenant in that event retains the right to sublet the premises or assign its

abandons the premises, the landlord may, if certain (***18) conditions are met, elect not to termnate the

clarified the meaning of the term "security" as used in section 1950.5, subdivision (b) ( Kraus v. Trinity Management Services, Inc., supra, at pp. 139-141); California Safety Center clariffed the damages recoverable for unpaid rent during the time periods specified in section 1951.2, subdivisions (a)(1), (a)(2), and (a)(3) ( California
Safety Center, Inc. V. lax Car Sales, supra, at p. 999.)
Neither case concerns section 1950.7 or contains any

reasonig that supports 250's position.

interest in the lease (§ 1951.4, subd. (b)), the landlord
does not "receive(J possession of the premises" within
the meaning of section 1950.7, the duty to retu the se-

(8) Accordingly we conclude that the words "derent" in section 1950.7 refer only to unpaid rent that has accrued as of the time the security deposit is required to be retued, and do not refer to futue rent damages the landlord may thereafter recover
faults in the payment of

curity deposit does not arise, and the landlord can con-

tinue to apply the deposit against the rent as it accrues.

under section 1951.2.

(7) 250 cites cases predating the enactment of sections 1950.7 and 1951.2 for the proposition that a land-

lord may retain a security deposit until the damages from
the tenant's breach of

B. The Lease
that it violated (***21) section 1950.7 on the term of

the lease are ascertained. (See, e.g.,

Thompson V. Swiryn (1950) 95 CaL. App. 2d 619, 626

250 bases a series of arguments against the finding its

(213 P.2d 740) (tenant is not entitled, upon breach of a
lease, to the retu of a deposit made to secure perform-

lease with PhotoPoint. These contentions, like those advanced by 250 as to the meaning of the statute, are unpersuasive.

ance of the lease; "the lessor may look to the fund for

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(1) The Letter of Credit

the proceeds of the letter of credit. It prohibits an attack
on the issuing bank's distribution to the beneffciary and

250 contends that the portion of the security deposit represented by the letter of credit was not a "payment or deposit of money" within the meaning of section 1950.7, subdivision (a), and was thus excepted from the statute. 250 notes that section 1950.7, subdivision (a), has no
language like that of (*717) section 1951.7, subdivision

does not address claims respecting the underlying contract. In these cases the trstee has not challenged the

distribution of the proceeds by (the issuer), but instead, has challenged (the bank's) right to retain the commtment fee and has brought an action on the underlying
contract between the debtor and (the bank).

(a), which defines an "advance payment" under a lease as "moneys" deposited with the landlord to secure performance of the lease, or other payment that is the "substantial equivalent" of such a deposit. 250 thus submits that the letter of credit could not be deemed a security deposit on
the theory that it was substantially equivalent to money. 250 also relies on the "independence principle" applica-

(*718) "While the fee was paid through the vehicle of a standby letter of credit, and may thus be considered
'proceeds' of the letter of credit, it is signiffcant that

(***24) (the bank) has already received those funds. It is one thng to attempt to prevent the distribution of the proceeds of a letter of credit, an attempt the doctrine of

ble to letters of credit--the rule that the issuer's obligation to honor a draw on the letter of credit is entiely separate from any underlying contract between the issuer's customer and the letter of credit beneffciary ( Western Security Bank v. Superior Court (1997) 15 CaL.4th 232, 237 (62 CaL. Rptr. 2d 243, 933 P.2d 507)) (***22) -- and on cases holding that a letter of credit and its proceeds are

independence is designed to prevent; but it is quite another to brig an action on the underlying contract that

created the letter of credit.

not propert of the bankptcy estate of the issuer's customer (In Matter of Marine Distributors, Inc. (9th Cir.

1975) 522 F.2d 791, 795; In re Farm (**306) Fresh Supermarkets of Maryland, Inc. (Bank. D.Md. 2001)
257 B.R. 770, 772).
Weare not called upon to decide whether a letter of

credit constitutes a "payment or deposit of money" for
puroses of section 1950.7 because 250 had drawn the

entire amount of the letter of credit before the securty
deposit was due to be retued, and 250 was thus holding

"If the debtor had paid (the bank) the commtment fee in cash, the debtor could seek a refud by challenging the fee provision in the underlying contract as an illegal penalty. All of (the bank's) arguments aside, there is no principled reason for allowing a challenge to the underlying contract when the fee is paid in cash, and not allowing such a challenge after the fee is paid via a standby letter of credit. In other words, challenging the distribution of the proceeds of a letter of credit is different than challenging the underlying contract. The ultimate result may be the same (refund of the fee), but in one case the method of recovery is permssible and in the other it is barred." (In re Graham Square, Inc., supra, 126 F.3d at
pp. 827-828.)

only "money" at the relevant point. Nor does the "independence" of letters of credit have any bearing on PhotoPoint's right to the retu of that money under the lease and the law governing the lease. This conclusion is supported by the decision in In re Graham Square, Inc. (6th Cir. 1997) 126 F.3d 823.
The debtor in Graham Square sought ffnancing from
a bank, and arranged for a letter of credit in the bank's

This reasoning is persuasive and applies equally here. In this case, as in Graham Square, it is significant

(***25) that the proceeds of the letter of credit have
been distributed. Sherwood is seeking to enforce Photo-

Point's state law rights under the latter's contract with 250; Sherwood is not challenging 250's right to draw on

favor to cover the loan commtment fee. The bank approved the loan, but the debtor was unable to consum-

the letter of credit. Thus, the independence principle is inapplicable, and it is irelevant that the (**307) security deposit originated as a letter of credit.
(2) Waiver

mate the loan agreement. The bank drew on the letter of

credit (***23) to pay the commtment fee, and the debtor fied for bankptcy. The bankptcy trstee sued
the bank to recover the proceeds of the letter of credit on the theory that the commtment fee was an impermssible
penalty under applicable state contract law. The bank-

(10) 250 contends that the requirements of section 1950.7 were waived under various provisions of the lease. Sherwood maintained in its briefs that a tenant
could not waive the beneffts of section 1950.7, but abandoned that claim at oral argument in the appeaL. Sher-

ruptcy and district cours held that the trstee had no

right to recover the fee because the fee had been paid
through a letter of credit and recovery was barred by the independence principle. The circuit cour disagreed:

wood is right to concede that a tenant under a commerciallease may effectively agree to waive the protections of section 1950.7. That conclusion is consistent with cases holding that commercial tenants may waive their
rights under the Civil Code (e.g., Lee v. Placer Title Co.

(9) "Critically, and of great importance here, the
doctrine of

independence protects only the distribution of

(1994) 28 Cal.App.4th 503, 512-513 (33 Cal. Rptr. 2d

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572) (right to quiet enjoyment); Folberg v. Clara G. R.
Kinney Co. (1980) 104 CaL. App. 3d 136, 140 (163 CaL.
Rptr. 426) (right to notice of rent default)), and with

Californa's public policy of "enabl(ing) and (***26)

facilitat( ing) freedom of contract by the parties to commercial real propert leases." (§ 1995.270, subd. (a)(1).)

250 contends that, given the sheer size of the security deposit, (***27) it must have been intended to serve as security for the payment of rent that would be owed after PhotoPoint defaulted. While we would agree with

that assertion, the problem for 250 is that a waiver of
section 1950.7 was not the only means by which the

Since the Legislatue has expressly prohibited waivers of

section 1950.5's protections for residential security deposits (§ 1953, subd. (a)(l)), its failure to do so with respect to commercial security deposits indicates that

whole of the security deposit could have been applied against futue rent under the lease. The lease gave 250
the option to proceed under section 1951.4, keep the

waivers are permssible as to those deposits. (See Hersh
v. State Bar (1972) 7 Ca1.d 241, 246 (101 CaL. Rptr.

833,496 P.2d 1201) (disparities (*719) in statutes dealing with the same subject matter are presumed to be intentional); Wiliams v. County of San Joaquin (1990)

lease in effect, and continue to collect the rent as it became due. As previously explained, the security deposit could have been retained (**308) in that situation be-

cause 250 would not have received possession of the premises. Thus, if 250 had followed section 1951.4, it

225 CaL. App. 3d 1326, 1332-1333 (275 CaL. Rptr. 302);
see also § 3268).

could have applied the security deposit against the
monthly rent as it became due until the deposit was exhausted. Instead, it elected under section 1951.2 to terminate the lease and PhotoPoint's right of possession
thereunder, and thereby triggered the duty to retu the

In view of our holding that tenants can agree to
waive section 1950.7, there is no substance to the suggestion in 250's petition for rehearing that our decision

wil "hur start up companies. "6 250 reasons that land-

security deposit as provided in section 1950.7. Since the lease provided a way to apply the security deposit against
futue rent without a waiver of section 1950.7, no such

lords wil be less likely to rent to new businesses without the protection large security deposits can provide against defaults in the payment of rent, and apparently presumes that our decision wil preclude that protection. However,
partes can "plan around" section 1950.7 should they
desire to do so. The question is whether that planning

waiver need be implied to effectuate the large security
deposit.

(*720) 250 searches (***28) the security deposit
and remedies sections of the lease for an implicit waiver of section 1950.7. As previously indicated, the lease deffnes "Security Deposit" to mean the cash deposit and the letter of credit. The security deposit section reads in full as follows:
"6. Security Deposit

occured here.
6 Other arguments in the petition for rehearing

are either improperly advanced for the first time in the petition ( Gentis v. Safeguard Business Systems, Inc. (1998) 60 CaL.App.4th 1294, 1308 (71
CaL.Rptr.2d 122)) or adequately addressed in our

discussion. The principal new argument is that section 1950.7 is preempted by the curent Bankruptcy Code. While we need not and do not reach
this belated contention, we note that the petition

"A. The Security Deposit shall be in the amount of $ 49,544.17. The Securty Deposit shall be delivered to Landlord upon the execution of ths Lease by Tenant and

shall be held by Landlord without liability for interest (uness required by Law) as security for the performance
of Tenant's obligations. The Security Deposit is not an
advance payment of Rent or a measure of Ten

does not identify precisely how much of the ffeld of tenant security deposit law Congress has allegedly intended to occupy, and that the argument

ant's liabil-

rests on the unsupported assumption that section

ity for damages. Landlord may, from time to time, without prejudice to any other remedy, use all or a portion of
the Security Deposit to satisfy past due Rent or to cure any uncured default by Tenant, subject to the expiration

1950.7 would not be applied in a bankptcy--a
proposition no reported case has considered, and at least one commentary has rejected (St. James, supra, 26 CaL. Bank. J. at pp. 50-51).
The lease in this case did not provide generally that

of any applicable notice and cure period provided in the
Lease. If Landlord uses the Security Deposit, Tenant

its term were to govern to the extent that they conflicted with applicable statutes. The lease stipulated that PhotoPoint was waiving its rights under certain speciffed statutes, but section 1950.7 was not among the statutes mentioned. 250 admts that the lease contains no "explicit"

shall on demand restore the Security Deposit to its original amount. Landlord shall return any unapplied portion of the Security Deposit to Tenant within 45 days after the
later to (***29) occur of (1) the date Tenant surren-

ders possession of the Premises to Landlord in accordance with this Lease,' or (2) the Termination Date. (7) If

waiver of section 1950.7, but argues that such a waiver can be implied from its term.

Landlord transfers its interest in the Premises, Landlord may assign the Security Deposit to the transferee and, following the assignent, Landlord shall have no fuher liability for the retu of the Security Deposit. Landlord

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shall not be required to keep the Security Deposit separate from its other accounts.

the proceeds of the letter of credit are to be applied in accordance with section 6.A only in the situation where
the letter of credit is drawn after the issuing bank advises

7 The lease deffnes the "Termnation Date" as April 9, 2005, "unless termnated early in accordance with this Lease."

that the letter of credit wil (***32) not be renewed.
However, nothing in the lease suggests that the letter of credit proceeds can be applied in any manner other than the one speciffed in section 6.A. Section 6.A states that the "Security Deposit" can be used to satisfy past due
rent, and section I.H deffnes "Security Deposit" to in-

"B. In addition to, and not in lieu of, the cash Security Deposit provided for in Section 6.A, Tenant shall deliver to Landlord a sight draft letter of credit in the
original principal amount of $ 890,175, permttng partal
draws issued by a bank permtting draws in San Fran-

cisco, California and which shall be substantially in the form of Exhbit E attached hereto. The letter of credit shall provide that it shall be renewed annually (***30) with a final expiration date 60 days beyond the scheduled Termination Date unless the issuing bank provides written notice to Landlord that it is not being renewed, in
which case Landlord shall have the right to draw down

clude the letter of credit fushed under section 6.B. The lease thus clearly and unambiguously limits the application of the letter of credit fuds to past due rent. As we read the sentence in section 6.B on which 250 relies, it simply conffrm that the letter of credit proceeds are to
be held, applied and retued as provided in section 6.A

the letter of credit and hold, apply and return such proceeds in accordance with Section 6.A. In the event any amounts are drawn on the letter of credit, Tenant shall

when the letter of credit is drawn because it will not be renewed, as well as when it is drawn because of a PhotoPoint default. The sentence thus reinforces our interpretation of the permssible use of the security deposit under
the lease.

immediately cause the issuing bank to restore such
amount. The letter of credit shall provide that on each
annversary date of the Commencement Date it shall be
reduced by $ 178,035, provided if Landlord (**309)

250 contends that the lease implicitly waives section 1950.7 because section 6.A states that the deposit is to be retued within 45 days after the later of the surender of

gives the issuing bank notice that Tenant is then in default under this Lease beyond any applicable notice and cure (*721) period, then such reduction shall be delayed until such time as Landlord gives the issuing bank notice
that such default is cured." (Italics added.)

the premises or the date the lease is termated in accordance with the lease, and section 6.B states that the letter of credit is to have a final (***33) termnation date 60 days beyond the scheduled termation date of April 9,
2005. The termnation date specified in a letter of credit that is to be renewed annually during the term of the

We discern nothing in the relevant language of these sections, which we have italicized, that could reasonably be interpreted to constitute an implicit waiver of section 1950.7 so as to authorize retention of any portion of the security deposit for application against futue rent damages under section 1951.2. To the contrary, the only pro-

lease would need to be a date on or after the end of the scheduled lease term. Thus, that the letter of credit would
not by its term expire before the end of the scheduled

term of the (*722) lease says nothing about when pro-

ceeds of the letter of credit were due to be retued to
PhotoPoint. The 45-day retu period speciffed in section
6.A did not effectively waive the whole of

section 1950.7

vision (***31) that specifies how the security deposit may be applied, which states that it may be used to satisfy "past due" rent, and uncured defaults after notice and

the opportty to cure, is consistent with our interpretation of section 1950.7. Both the lease and the statute refer to liquidated amounts owed under the lease, not dam-

as 250 urges, it merely specified a longer period for retention of the securty deposit (45 days after surender or termnation in accordance with the lease), than the period specified in the statute (two weeks after 250's receipt of possession of the premises). However, ths provision of
section 6.A only waived section 1950.7 to that limited extent; it did not allow 250 to retain the security deposit beyond 45 days for application against futue rent damages under section 1951.2.

ages subject to proof for futue rent. Since there is no
evidence that PhotoPoint was given notice and an opportuity to cure any defaults, the lease by its term allowed the security deposit to be applied only against past due
rent. Thus, under the lease and section 1950.7, 250 was
required to retu the security deposit within the time

(**310) 250's attempt to fmd an implicit waiver of
section 1950.7 in the remedies section of unavailing. The full text of

the lease is also

speciffed after receipt of possession of the premises, less only the rent past due at that point.
250 contends that section 6.A's limitation on the use

this (***34) section is set out

in the margin. 8 (**311) The provisions of section
20.A.1 merely restate 250's rights under section 1951.2;

of the security deposit to cover past due rent does not
apply to the portion of the security deposit represented

they do not expand 250's rights under that statute or (*723) section 1950.7. Under lease section 20.A.l and
section 1951.2, 250 was, as it says, "imediately vested" with the right to recover all damages under the lease,

by the letter of credit, because section 6.B provides that

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including damages for futue rent determned in accordance with the statute. But as we have indicated, the security deposit statute cannot be read to permt retention

of the deposit pending the trial of those damages. We
note that in the middle of lease section 20.C., which pro-

as may be permtted from time to time under applicable law. (~) The 'Worth at the Time of Award' of the amount referred to in pars (a) and
(b) above, shall be computed by allowing interest at the lesser of a per annum rate equal to: (i) the greatest per annum rate of interest permtted from

vides for waivers of rights under section 3275 (relief
from forfeitue by full compensation), and Code of Civil

Procedure sections 1174, subdivision (c) (five days to reinstate after unlawful detainer judgment) and 1179 (relief from forfeitue because of hardship), there is language stating that PhotoPoint waives any and all rights

time to time under applicable law, or (ii) the
Prime rate plus ffve percent (5%). For puroses
hereof, the 'Prime Rate' shall be the per annum in-

conferred by "any and all other laws and rules of law
from time to time in effect." However, this language

terest rate publicly announced as its prime rate or base rate by a federally insured bank selected by Landlord in the State of California. The 'Wort at the Time of A ward' of the amount referred to in
part ( c), above, shall be computed by discounting

cannot in context be taken to refer to a waiver of all applicable law, including section 1950.7, and 250 advances
no argument based on section 20.C.
8

such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of the
award plus 1 %.

"20. Remedies.

"A. Upon the occurence of any event or
events of default under this Lease, whether enumerated in Section 14 (the reference should be to § 19, listing events of default) or not, Landlord
shall have the option to pursue anyone or more

"2. Employ the remedy described in California Civil Codes § 1952.4 (Landlord may continue
ths Lease in effect after Tenant's breach and

abandonment and recover Rent as it becomes

due, if Tenant has the right to sublet or assign,
subject only to reasonable limitations); or

of the following remedies without any notice (ex-

cept as expressly prescribed herein) or demand whatsoever (and without limitig the generality of the foregoing, Tenant hereby speciffcally
waives notice and demand for payment of Rent or other obligations and waives any and all other notices or demand requirements imposed by applicable law):

"3. Notwthstanding Landlord's exercise of
the remedy described in California Civil Code §
1951.4 in respect of an event or events of default, at such time thereafter as Landlord may elect in
writig, to termnate this Lease and Tenant's right

to possession of the Premises and recover an

award of damages as provided above in Section

"1. Termnate this Lease and Tenant's right
to possession of the Premises and recover from

20A.l.
"B. The subsequent acceptance of Rent here-

Tenant an award of damages equal to the sum of the following: (~) (a) The Worth at the Time of A ward of the unpaid Rent which had been earned
at the time of termination; (~) (b) The Worth at

under by Landlord shall not be deemed to be a
waiver of any preceding breach by Tenant of any temm covenant or condition of this Lease, other than the failure of Tenant to pay the particular Rent so accepted, regardless of Landlord's knowledge of such preceding breach at the time of acceptance of such Rent. No waiver by Landlord of any breach hereof shall be effective unless such waiver is in writig and signed by Landlord.

the Time of A ward of the amount by which the unpaid Rent which would have been earned after
termnation until the time of award exceeds the

amount of such Rent loss that Tenant affiratively proves could have been reasonably

avoided; (~) (c) The Worth at the Time of A ward

of the amount by which the unpaid Rent for the balance of the Lease Term after the time of award exceeds the amount of such Rent loss that Tenant
affirtively proves could be reasonably
avoided; (~ (d) Any other amount necessary to

"C. TENANT HEREBY WAIVES ANY AND ALL RIGHTS CONFERRD BY SECTION 3275 OF THE CIVIL CO