In 1980, a general partnership known as 3-D acquired a house that had been converted into offices. Since 1981, most of the building has been rented to one of the partners, William Daniels, Esq. Eight years later, Daniels’ client, Benny Enea, purchased a one-third interest in the 3-D general partnership from John P. Daniels.

In 2001, Enea questioned William about the modest rent being paid for his offices. At this point, the relationship “began to unravel.” Two years later, Enea disassociated himself from the partnership. He brought this lawsuit “to determine partner’s buyout price and for damages.”

Purchase Bob Bruss reports online.

Defendant 3-D (Claudia and William Daniels) argued they had no fiduciary duty as partners with Enea to pay fair market rent for the offices. They claimed there was no duty or obligation when a partner’s conduct furthers the partner’s own interest.

If you were the judge would you rule a real estate general partner has a fiduciary duty to a fellow partner, such as paying market rent for the partnership property?

The judge said yes!

“Partnership is a fiduciary relationship, and partners may not take advantages for themselves at the expense of the partnership,” the judge explained. “A partner owes at least two duties to other partners and the partnership: a duty of loyalty and a duty of care,” he continued.

“Nowhere does the law declare that partners owe each other only those duties they explicitly assume by contract,” the judge emphasized. “On the contrary, the fiduciary duties at issue here are imposed by law and their breach sounds in tort,” he added.

“We cannot help but note indications in the record show the falling-out between plaintiff and defendants apparently arose not only because William Daniels insisted on paying rents lower than plaintiff thought were proper, but also because he refused to sell the property until he was ready to retire from his law practice,” the judge noted.

Because partners have a fiduciary duty to each other, the case shall proceed to determine if that duty was breached and if Enea suffered any damages, the judge ruled.

Based on the 2005 California Court of Appeals decision in Enea v. Superior Court (3-D), 34 Cal.Rptr.3d 513.

(For more information on Bob Bruss publications, visit his
Real Estate Center
).

***

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