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Real Estate Law

Tuesday, February 27, 2018

Top 3 Real Estate Tips for Small Businesses


Top 3 Real Estate Tips for Small Businesses

The only real estate transaction most small businesses engage in is to enter into a lease for commercial space. Whether you are considering office, manufacturing or retail space, the following three tips will help you navigate the negotiation process so you can avoid costly mistakes.

 

“Base Rent” is Not the Only Rent You Will Pay

Most prospective tenants focus their negotiation efforts on the “base rent,” the fixed monthly amount you will pay under the lease agreement. You may have negotiated a terrific deal on the base rent, but the transaction may not be the best value once other charges are factored in. For example, many commercial lease agreements are “triple net,” meaning that the tenant must also pay for insurance, taxes and other operating expenses.
Read more . . .


Thursday, January 18, 2018

How Title Insurace Protects Homebuyers

How Title Insurance Protect Homebuyers

Buying a home is the single largest investment that many individuals will make which makes it essential for potential homeowners to protect their interests. In particular, it is crucial to ensure that the seller can transfer free and clear ownership of the property by obtaining title insurance.

In short, title insurance protects both lenders and owners against claims for unknown defects in title to the property such as another individual claiming ownership of the property, unpaid taxes, judgments and liens, improperly recorded documents, encroachments and easements, as well as fraud and forgery.

In a residential real estate transaction, there are two types of policies, a lender's policy and a buyer's policy, and the homebuyer is required to pay for both. The lender's policy, or mortgagee's policy, specifically protects the lender's interest, including the loan amount and legal costs. The buyer's policy protects the owner up to the original sales price of the property, or its full market value, depending on the type of policy the buyer purchases.

In order to obtain title insurance, it is necessary to engage the services of an escrow agent, or an attorney, who will order a title search. This is a comprehensive examination of public records associated with the property such as deeds, taxes, court records - judgments, bankruptcies, wills, trusts, divorce decrees and other documents.

The title company will rely on the results of this search to issue a preliminary report, or a title commitment, which details the potential defects and outlines the conditions that must be met before a policy can be issued. This report gives the seller the opportunity to remedy any liens or other encumbrances before the loan closing, or in the alternative, from the proceeds of the sale.

In sum, title insurance protects lenders and buyers from a wide range of problems such as a fraudulent sale, unpaid taxes or other liens and defects. While the cost of a title insurance premium is typically based on the purchase price of the home, it also depends on the services the title company is offering. Lastly, the rules governing title insurance vary from state to state, so it is important to consult with an experienced real estate attorney.


Monday, November 20, 2017

Overview of Life Estates

Overview of Life Estates

Establishing a Life Estate is a relatively simple process in which you transfer your property to your children, while retaining your right to use and live in the property. Life Estates are used to avoid probate, maximize tax benefits and protect the real property from potential long-term care expenses you may incur in your later years. Transferring property into a Life Estate avoids some of the disadvantages of making an outright gift of property to your heirs. However, it is not right for everyone and comes with its own set of advantages and disadvantages.

Life Estates establish two different categories of property owners: the Life Tenant Owner and the Remainder Owner. The Life Tenant Owner maintains the absolute and exclusive right to use the property during his or her lifetime. This can be a sole owner or joint Life Tenants. Life Tenant(s) maintain responsibility for property taxes, insurance and maintenance. Life Tenant(s) are also entitled to rent out the property and to receive all income generated by the property.

Remainder Owner(s) automatically take legal ownership of the property immediately upon the death of the last Life Tenant. Remainder Owners have no right to use the property or collect income generated by the property, and are not responsible for taxes, insurance or maintenance, as long as the Life Tenant is still alive.

Advantages

  • Life Estates are simple and inexpensive to establish; merely requiring that a new Deed be recorded.
  • Life Estates avoid probate; the property automatically transfers to your heirs upon the death of the last surviving Life Tenant.
  • Transferring title following your death is a simple, quick process.
  • Life Tenant’s right to use and occupy property is protected; a Remainder Owner’s problems (financial or otherwise) do not affect the Life Tenant’s absolute right to the property during your lifetime.
  • Favorable tax treatment upon the death of a Life Tenant; when property is titled this way, your heirs enjoy a stepped-up tax basis, as of the date of death, for capital gains purposes.
  • Property owned via a Life Estate is typically protected from Medicaid claims once 60 months have elapsed after the date of transfer into the Life Estate. After that five-year period, the property is protected against Medicaid liens to pay for end-of-life care.

Disadvantages

  • Medicaid; that 60-month waiting period referenced above also means that the Life Tenants are subject to a 60-month disqualification period for Medicaid purposes. This period begins on the date the property is transferred into the Life Estate.
  • Potential income tax consequences if the property is sold while the Life Tenant is still alive; Life Tenants do not receive the full income tax exemption normally available when a personal residence is sold. Remainder Owners receive no such exemption, so any capital gains tax would likely be due from the Remainder Owner’s proportionate share of proceeds from the sale.
  • In order to sell the property, all owners must agree and sign the Deed, including Life Tenants and Remainder Owners; Life Tenant’s lose the right of sole control over the property.
  • Transfer into a Life Estate is irrevocable; however if all Life Tenants and Remainder Owners agree, a change can be made but may be subject to negative tax or Medicaid consequences.

Friday, October 20, 2017

The Risks of Tenant-In-Common Investments

The Risks of Tenant-in-Common Investments

Historically, tenant in common (TIC) projects were owned by a relatively small group of investors who knew each other, such as long-time friends, business partners or family members. Strategies to maximize tax savings and preserve equity typically guided investors to this type of structure, rather than creating a limited liability company or partnership to own the property.

In the late 1990s, real estate sales in the form of tax-deferred 1031 exchanges created a new industry. Promoters began soliciting and pooling funds from investors to purchase real estate. Participation in the pool helped investors find replacement property to guarantee their capital gains tax deferment continued.

In 2002, the IRS clarified when this type of pooling is considered a partnership interest as opposed to a TIC interest, a critical distinction for investors using funds from a 1031 exchange transaction. Following that, investments in TIC interests grew considerably due to the numerous advantages. For those who needed a place to invest their 1031 exchange funds quickly, TIC interests provide a relatively simple way to ensure the funds are spent within 180 days of the sale of the previous property, without the hassle of researching, investigating, negotiating and financing a property in less than six months. TIC investors do not have to burden themselves with the day-to-day management of their investment property. Finally, TIC investors can pool their resources to purchase fractional shares of investment-grade property which would otherwise be out of reach.

With all of its advantages, the TIC interest also carries its share of risks. For example, many TIC promoters charged fees that were excessive, or sold the property to the investors for more than it was worth. If property values decline or purchase loans mature, it may be difficult to refinance, forcing the property into foreclosure and taking the entire investment with it.

Other promoters failed to maintain reserve funds separate for each property. If a promoter filed for bankruptcy and did not properly use the reserve funds, TIC investors were left with no recourse and were forced to cover the reserves out of their own pockets or risk losing their investment.

Further risks are caused by the investors themselves and the nature of their relationship to one another – or lack thereof. Owners of TIC typically do not know each other. Decisions regarding TIC governance often require unanimous agreement by all owners, and just one objection can grind the action to a halt. When owners don’t know each other, or are spread across many states, it can be difficult to communicate and obtain a unanimous agreement.

Despite the risks, TIC interests can still be a good place to park your money – but you must be a cautious, diligent purchaser. Visit the property, seek information from sources other than the promoter, and carefully review the past and projected financial data.
 


Wednesday, August 23, 2017

How to Negotiate a Commercial Real Estate Lease

How to Negotiate a Commercial Real Estate Lease

There are number of considerations for business owners involved in negotiating a commercial lease, not the least of which is the fact that the main objective of landlords is to maximize profits. By understanding the following fundamental concepts, it is possible to make a good deal.

Market Conditions

First, understanding the market conditions for commercial properties is crucial. Generally, pricing is based on square footage, but there is a difference between "usable" square feet and "rentable" square feet.

Rentable square feet is the actual measurement of the space that is being leased. However, rates are typically quoted based on usable square feet which combines the space with a percentage of common areas such as lobbies, hallways, stairways and elevators.

In addition, commercial leases are considered "triple net." This means that tenants are also required to pay for taxes, insurance, and maintenance for a unit as well as a percentage of these costs for the common areas. By understanding these market conditions and the rate other businesses are paying for similar units, it is possible to negotiate the appropriate rate.

The Term

There are a number of factors involved with the term of a lease. For some businesses, such as retail stores or medical professionals, having a stable location is essential for attracting customers and patients, respectively. With this in mind, the term should be long enough to minimize rental increases, but sufficiently flexible to avoid getting locked in. This goal can be accomplished by negotiating terms of one or two years with renewal options.

Repairs, Maintenance, and Build-outs

It is also important for a commercial lease agreement to establish which party is responsible for paying  repair and maintenance costs of the space, building and grounds. In some cases the tenant pays for insurance, custodial services and security costs unless the landlord agrees to pay for a portion or all of these expenses. In addition, if new space is being leased, landlords will often agree to pay for the costs of "buildouts" to customize the space, or offer the tenant a rental abate instead.

Options and Incentives

By establishing a track record of making timely rental payments, it is often possible to renegotiate the lease to obtain more favorable terms. Although a lease may contain renewal options, it may not be necessary to exercise them automatically. At times, market conditions may change, in which case a new lease should be negotiated.

The Bottom Line

In the end, business owners face a number of challenges, and negotiating a commercial lease can have a significant impact on the company's long term success. For this reason, it is essential to engage the services of an experienced real estate attorney.

 


Monday, May 8, 2017

Do I Need An Attorney If I Am Buying A Home ?

Do I need an attorney if I am buying a home?

Buying a home can be an exciting experience, but the process can be complicated. While some homebuyers may think hiring an attorney will be too expensive, not having proper legal representation can be even more costly. Although real estate agents typically bring buyers and sellers together, a highly skilled attorney can perform critical due diligence, anticipate problems, and be your advocate at the closing table.

It's often been said that real estate is all about the price and "location, location, location," but there are a number of factors to consider such as purchase and sales contracts, home inspections, title issues as well as arranging for financing. An experienced real estate attorney who knows the local housing market can help a buyer navigate these issues and protect his or her investment.

Once a buyer selects a home, it is crucial to have an attorney review or prepare a contract of sale. In short, a contract must adhere to all state and local laws, address issues about the use of the property, and specify the rights and obligations of each party. In some states, the buyer and seller have a limited time to review the contract before it becomes legally binding.

In addition to price and location, it is essential for the structure of the dwelling and its heating, cooling and electrical systems to be in good condition. An attorney can coordinate a home inspection to ensure that any defects are repaired prior to the closing or arrange to have the seller reimburse the borrower from the proceeds of the sale.

In some cases, an attorney can also perform a title search to verify that property is being sold free of any liens, judgments or other encumbrances. If outstanding items need to be paid before the deal closes, there can be costly delays, especially for buyers who are simultaneously selling an existing home. Lastly, after the closing, the deed must be filed in the county in which the property is located, which can easily be handled by an attorney.

Ultimately an attorney can protect a homebuyer's interests, anticipate and resolve problems and help to avoid conflicts. Because buying a home is the largest financial transaction that many individuals will ever undertake, the role of an attorney cannot be underestimated.


Monday, July 20, 2015

Commercial Lease Disputes

Commercial Lease Disputes

Sometimes a business grows more rapidly than expected and its leased space is no longer large enough. Other times a business finds itself losing money and unable to pay rent. In those instances, it is the commercial tenant that desires to break its lease. There are times, however, when a commercial landlord seeks to break a lease and even threatens eviction for reasons that may lack merit.

A commercial lease is basically a contract that establishes a relationship between the parties and outlines the respective rights and obligations of each. These documents can be confusing and complex. Resolving a commercial lease dispute often involves business, contract and real estate laws.

Unlike residential leases, where the law heavily favors tenants, in the commercial world, the law tends to be more even-handed. The terms of the lease (even if all you have is an oral agreement) are most often going to be what governs the outcome of the dispute. This reflects the view that both parties involved in commercial lease agreements are sophisticated business entities that can protect their interests.

Since the terms of the lease are most likely going to govern if you file a lawsuit and take your dispute to court, it is essential that anyone evaluating your case examines your lease in depth. Even if an out-of-court settlement is negotiated, familiarity with your particular lease agreement is crucial for anyone advising you. Many commercial leases contain a dispute resolution clause that might require mediation or arbitration. These options can often lead to a resolution in less time and with less expense than traditional litigation.

Assessing damages and amassing the means to prove those damages is another important component to handling a commercial lease dispute. Typically, monetary damages are sought. There might be a clause in the lease regarding attorneys' fees. Again, it is vital that a competent and informed review of your particular lease is made to properly guide your case.

Contact an experienced business law attorney today to discuss your commercial lease dispute and learn what legal options are available.

 


Monday, June 8, 2015

10 Things to Bring to Your First Meeting with Your Attorney

10 Things to Bring to Your First Meeting With Your Attorney

Hiring an attorney is not something most people do every day, so being a little bit unsure of how things are going to go is perfectly normal. To help ease some of the stress and make the process go more smoothly, take time to compile and bring the following list of items with you to your first meeting.

  1. A list of all your contact information. Your lawyer is going to need to know your full legal name and any other names you go by, your address, phone number(s), and email address.

  2. The names and contact information of other people that might get involved with the case - people on the other side, people on your side, witnesses, doctors, police, insurance agents, etc.  If a case has already been filed against you, the name(s) and contact information of the lawyer(s) representing the other side will also be needed.

  3. A typed up or written down account of the circumstances surrounding the situation that is causing you to seek legal help. Try to make your summary of events as detailed as possible. If writing or typing isn’t one of your strengths, try creating an audio recording.

  4. A timeline of events. The best way to do this is to buy a calendar, write all the important events on it, and bring it to the meeting with you.

  5. Any materials (including documents, digital files and photos) you have that relate to your legal matter. If possible, put the documents in an order that makes sense when paired with the summary of events and timeline you put together above.

  6. A list of information (particularly documents) you wish you had or thought you had but can’t seem to find now.

  7. The truth. You don’t have to swear to tell the truth, the whole truth, and nothing but the truth unless you are taking the witness stand in the courtroom, but lying to your attorney will not help your case. 

  8. Bring a good idea of what you hope to get out of the case. Think about what winning looks like to you. It is difficult for your attorney to figure out how best to help you if they don’t know what you want. 

  9. An open mind paired with a good sense of what your gut is telling you. Your lawyer may suggest a solution that you would never have imagined, or let you know that you don’t have a case. Listen to what they tell you, but don’t be afraid to share your thoughts on their suggestions.

  10. A list of any questions you have. The meeting will be far more productive if you leave without nagging questions or lingering doubts.

Thursday, April 9, 2015

What is Estate Recovery ?

What is Estate Recovery?

Medicaid is a federal health program for individuals with low income and financial resources that is administered by each state. Each state may call this program by a different name. In California, for example, it is referred to as Medi-Cal. This program is intended to help individuals and couples pay for the cost of health care and nursing home care.

Most people are surprised to learn that Medicare (the health insurance available to all people over the age of 65) does not cover nursing home care. The average cost of nursing home care, also called "skilled nursing" or "convalescent care," can be $8,000 to $10,000 per month. Most people do not have the resources to cover these steep costs over an extended period of time without some form of assistance.

Qualifying for Medicaid can be complicated; each state has its own rules and guidelines for eligibility. Once qualified for a Medicaid subsidy, Medicaid will assign you a co-pay (your Share of Cost) for the nursing home care, based on your monthly income and ability to pay.

At the end of the Medicaid recipient's life (and the spouse's life, if applicable), Medicaid will begin "estate recovery" for the total cost spent during the recipient's lifetime. Medicaid will issue a bill to the estate, and will place a lien on the recipient's home in order to satisfy the debt. Many estate beneficiaries discover this debt only upon the death of a parent or loved one. In many cases, the Medicaid debt can consume most, if not all, estate assets.

There are estate planning strategies available that can help you accelerate qualification for a Medicaid subsidy, and also eliminate the possibility of a Medicaid lien at death. However, each state's laws are very specific, and this process is very complicated. It is very important to consult with an experienced elder law attorney in your jurisdiction.


Thursday, March 19, 2015

What is a Mechanic's Lien ?

What is a mechanic's lien?

 

A mechanic's lien is not just for mechanics.  It is a legal tool used to protect workers and suppliers who contribute the labor and materials used to improve a property, real or personal.  Workers and suppliers can file a mechanic's lien if they do not get paid and may be able to force the sale of the property to receive payment. 

 

How Does One Place a Mechanic's Lien on a Property?

 

To place a mechanic's lien on a property, a "contributor"—someone who supplies labor or materials—must provide the property owner with notice describing the material or service contributed.  Depending on state law, the owner usually must receive this within a certain number of days of when the work began.

 

If the contributor isn't paid after completing a job, it can file a "claim of mechanic's lien" in the county where the property is located.  The contributor then has a few months to bring a lawsuit to enforce the mechanic's lien.  If the enforcement action doesn't take place by the deadline, the lien is no longer valid.  If the lienholder wins the lawsuit, the property can be sold at auction, with the proceeds used to pay the lienholder.

 

Mechanic's liens often have priority over other security interests in a property, such as a mortgage, though it may depend on when the lien was filed.  Construction loans may sometimes take precedence over mechanic's liens in certain states.

 

Who Can File a Mechanic's Lien?

 

Laborers and professionals who can take advantage of a mechanic's lien include carpenters, electricians, HVAC providers, plumbers, architects, and civil engineers.  Suppliers may include lumberyards, plumbing and electrical supply houses, and offsite fabricators of items that become part of a project.

 

 

How Can Property Owners Protect Themselves?

 

Property owners who are concerned that a mechanic's lien may be filed can obtain a "Release of Lien" from everyone connected to a project, relieving the owner from the threat of a lien.  Before making final payment, owners can also insist on an affidavit from their contractors listing anyone not yet paid.  The owner can then insist that those parties sign releases.

 

An owner can also file a "Notice of Commencement" before beginning a project listing all the contractors and subcontractors working on it, and a "Notice of Termination of Notice of Commencement" when the project is concluded and everyone has been paid and/or has signed a release. 

 

If a lien has been filed, in many states there is a procedure by which an owner can challenge it on technical grounds, such as improper notice or identification of the property.  Owners may also file a "surety bond"—a promise to pay backed by an insurer—with the court to protect themselves against enforcement of the lien.



Monday, October 20, 2014

Thinking about becoming a Restaurateur ?

Opening a new restaurant? Some key legal considerations for restaurateurs

Each year, approximately 30,000 new restaurants are opened in the United States. Most restaurateurs understand the great risk that comes with these ventures; in fact, some sources estimate as many as 18,000 of the 30,000 restaurants opened this year will fail within the first three years in business. Despite the risk, many chefs and hospitality professionals dive right in. If you’re a hopeful restaurateur, legal planning is an absolute necessity to ensure you don’t fall victim to many of the common mistakes that cause these businesses to fail. Consider the following:

Business Entity
All restaurant owners must carefully consider the best corporate structure for their businesses. Generally speaking, there are four types of structures: a sole proprietorship, a partnership, a limited liability company (LLC) or a corporation. In the case of a restaurant, most owners will want to limit liability, and protect personal assets, should there be a lawsuit filed by a customer or employee. An LLC or corporation is often recommended for restaurants since these limit personal liability. A qualified business law attorney can help you identify which structure is best for your new restaurant, and help you prepare and file all required documents.

Zoning
As any successful restaurateur will tell you, a good location is key to a profitable restaurant. In considering the location of your restaurant, you will want to take into account the local zoning laws. Some areas are restricted to residential dwellings while others may be zoned for commercial use. Do you want to have outdoor seating in the summer? That too may be subject to zoning restrictions. Be sure to carefully outline how you plan to use the space and then identify possible locations accordingly.

Leasing a Space
If you don’t have the capital to buy a space for your restaurant, you’ll likely have to rent one. In many cases, costly renovations are required (especially if the space was not previously used for a restaurant). When a significant amount of money is put into the space upfront, it’s absolutely essential that you take steps to protect your tenancy and ensure your business can afford to stay there for an undetermined amount of time. This might mean negotiating a favorable a long-term lease, and including specific clauses pertaining to rent increases. A lawyer with experience in the restaurant industry should be consulted early in the process to ensure your best interests are protected.

Licenses and Permits
Unlike many other types of businesses, restaurants often require a number of licenses and permits from local governing bodies. For instance, you might be required to obtain a license to handle food. If you want to have a bar, you will need a liquor license. Even if you plan to have patron dancing, you may be required to obtain a special permit. An attorney can help you identify exactly what you will need and help you complete all applicable paperwork.

Patron & Employee Safety
To ensure the safety of all patrons, your local governing agency may require your restaurant to undergo regular inspections from the health department. To ensure the well-being of all employees, you should also review all Occupational Safety and Health Administration policies.

Insurance
If you frequent restaurants, you’ve likely witnessed an accident or two - a server spills a hot cup of coffee all over a patron or a bartender slips on some water from the ice machine. With the risk of injury high, it’s absolutely critical that all restaurant owners select an insurance policy which protects the business against lawsuits. In selecting the best policy, speak with an insurance agent and knowledgeable attorney who have restaurant experience to ensure you are protected.

Intellectual Property
You have probably thought long and hard about your restaurant’s name, signature recipes and even your tagline. Since these components are all critical to your branding and long-term success, you should take steps to protect them. An attorney can help you register the name of your restaurant or food creation as a trademark.

Franchises
If you are purchasing a franchise, you will have even more legal considerations including the time consuming review of the disclosure document and the often daunting franchise agreement.

Opening a restaurant has its fair share of challenges, especially when compared with many other types of small businesses. By addressing potential legal pitfalls, restaurateurs can focus on operational aspects of their business and enhance their chance of success. It’s absolutely essential that you consult an attorney with experience in the restaurant industry early on to reduce risk and expense down the road.


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