When Construction Becomes Destruction: What Are Your Rights?

Choosing and hiring a construction contractor can be a daunting process for both homeowners and commercial property owners. Finding the right blend of knowledge, expertise, and a fair price is only half the battle. Beyond that, there are worries over costly mistakes, lost time, and wasted money when the job doesn’t go as planned.

Many problems can be prevented by researching a contractor before hiring him or her. It’s important to hire only contractors who are licensed and insured, but even then, mistakes can and do happen. The contract is also a critical factor – how specific is it regarding the obligations of the contractor, the materials to be used on the job, the time line for completion and the ability of the contractor to use “change orders” to increase the cost of the project? Also, after the project is completed, some property owners find themselves dismayed by the quality of work performed. In extreme cases, their property is actually damaged or devalued by shoddy workmanship. At that point, it pays to consult an experienced real estate attorney to discover what legal recourse may be available.

Contractor negligence, which warrants legal action, may lead to defects resulting from:

 

  • deviating from the original contract specifications,
  • using poor quality materials, or improper materials,
  • using substandard construction procedures and/or
  • improper supervision or lack of care during construction.

 

The results of poor workmanship can be relatively minor, or lead to severe and expensive problems in the structure, such as:

 

  • structural damage,
  • electrical problems,
  • mechanical problems,
  • inadequate thermal protection (insulation),
  • water intrusion or inadequate protection from moisture, which can lead to toxic mold or structural damage and/or
  • landscaping problems such as improper drainage or expansive soil.

 

Fortunately for property owners, California law protects against various forms of contractor negligence and damage. Consultation with a qualified real estate attorney prior to entering into a written contract with the contractor and later, if there are post-construction issues, will help home and business owners to determine a proper course of action. In many cases, expensive and time-consuming litigation can be avoided. The property owner may choose to pursue mediation and reach an agreement with the contractor out of court. Often this is the best course of action, since the expense of court proceedings and the time it takes to reach a judgment can be even more costly than the original construction defect. At other times, however, the extent of damages is so severe that litigation becomes necessary. As in most large undertakings, however, an ounce of prevention when initially contracting is worth the pound of cure that is sometimes necessary after the work is completed.

 

 

Common Myths Regarding Eminent Domain

Property owners often fear the power of eminent domain, in which the government can seize private property in order to complete a public project. Understandably, the very idea strikes fear into the hearts of homeowners and landlords alike, but there are many myths wrongfully attached to eminent domain, such as:

The government can pay whatever they want for the property. Naturally, the government will indeed try to negotiate the lowest price possible for a property. But luckily, U.S. law requires both state and federal government agencies to pay current market value for that property. A knowledgeable real estate attorney can help property owners protect their rights and negotiate the absolute best price possible.

Holding out for a higher price is better than settling. While hiring an experienced real estate attorney can certainly help homeowners get a better price on their property, there is a limit to all negotiations. When the process drags and the homeowner holds out for just a bit more money, that profit may be lost due to the continuing cost of litigation. Sometimes it is better to settle for a fair price rather than attempting to squeeze every dollar out of the situation.

The government is required to pay for interference with a private property. When a public structure or road is constructed near private properties, some disturbance may result for nearby property owners. Whether or not the property owners are due compensation from the government depends upon the nature of the disturbance. For example, altered traffic patterns, although annoying to residents, probably don’t qualify for compensation. On the other hand, if construction contributes to a landslide or flooding, private property owners probably have a good case for compensation. Consultation with a real estate attorney can help property owners sort through their legal options.

Government agencies and local governments can use the power of eminent domain in any manner they choose. Fortunately, state agencies and local government officials cannot exercise eminent domain on a whim, but only in circumstances specifically allowed and described by law.

 

What If Mediation Fails?

 

In many conflicts, it is helpful to hire an attorney to represent your interests in a mediation rather than jumping straight into an expensive, time-consuming court battle. Mediation often helps both parties to resolve their differences outside of court, saving everyone concerned a lot of time, money, and emotional duress, and in most real estate contracts it is mandatory – fail to mediate and you lose the right to recover attorney fees even if you prevail in court.

It is common for one or both parties to become frustrated during the mediation process, throw up their hands, and quit. It can seem as if mediation is going nowhere because the other side is not listening or compromising at all. One or both parties may feel as though a judge will surely side with them once their stories are heard in court. So why waste time on this mediation process, when certainly “my argument is the ‘right’ one”?

The problem with that type of thinking is that what a judge hears in the courtroom is often filtered by the rules of evidence. One or both parties might imagine that the judge will hear their entire back stories, often supplemented by very personal emotional arguments to support their claims. What actually happens can be a much more bare-bones, basic presentation of the facts. In most cases, the time and place for telling your story and being heard is actually not the courtroom. It is during the mediation process that the parties have an opportunity to fully relate their sides of the story. Additionally, the mediator is trained to help the process along, to weed out the over-emotional responses or the under-valued argument.

For that reason, even if formal mediation fails, it can often be helpful to simply take a break and have the lawyers continue private negotiations, or negotiations with the assistance of the mediator. Everyone has a chance to cool off, regroup, and gain some perspective. Often after tempers subside, one or both parties may find themselves more willing to listen and compromise. If mediation seems to fail, it’s important to remember that moving on to court is not always the best alternative. A second attempt to compromise might be successful after everyone has taken some time off to reflect on the situation.

But mediation doesn’t solve every dispute. The mediation process can, and does, sometimes fail after repeated attempts. When this happens, it’s important to remember that the process is rarely a total failure. Most conflicts are complex and multi-faceted, and even if a final agreement was never reached, many smaller associated issues may have been hashed out and decided along the way. When the case does go to court, it may still be decided much more quickly due the fact that mediation has successfully stripped the conflict down to fewer issues which now need to be decided.

 

The Importance of Indoor Air Quality

We all know that water, air, and food are essential to life. But of course, these things can also be hazardous to our health if they contain dangerous elements. In the case of air quality, the state of California takes it pretty seriously – so seriously, in fact, that the California Department of Public Health created the Indoor Air Quality Program (Cal-IAQ). The purpose of the program is to monitor indoor air quality in California offices, residences, and public buildings, so that Californians will be provided with cleaner air.

If you’re a residential or commercial landlord, it would be wise to be aware of the state’s strict standards for indoor air quality. In some cases you could be held liable for poor air quality and require the services of a real estate attorney.

Generally speaking, it’s best to become familiar with your responsibilities before a problem occurs. There are many different causes of poor air quality, but some of the leading culprits are:

 

  • Dampness and mold – this could occur due to either past or present water damage within the property. Even if you can’t see mold, it could be growing inside walls or underneath flooring – really anywhere that water damage may have occurred. Mold can cause serious health problems in individuals who are repeatedly exposed to spores.
  • Asbestos – this mineral was once used in construction and manufacturing, but we now know it is associated with mesothelioma, a type of lung cancer. Asbestos may still be present in older buildings.
  • Radon – this natural gas is commonly found in California. It can cause serious damage and even cancer in the lungs. Unfortunately, it is odorless and tasteless, so it can go undetected for some time unless you hire an expert to specifically check for its presence.

 

The above toxins are just a few of the many potential dangers lurking in our air. The bottom line is to be vigilant about building maintenance and air quality testing. If you do end up with an air quality claim filed against you, seek the advice of an experienced real estate attorney immediately.

 

Landlords Take Note: New Energy Regulations Take Effect July 1

As of July 1, 2014, new energy regulations will impact landlords and tenants in the state of California.

The state has enacted 2013 CALGreen, Part 11, Title 24 of the California Code of Regulations in order to address concerns over energy efficiency within nonresidential buildings. The code affects plumbing, heating, cooling, electrical, lighting, and ventilation systems in buildings which undergo construction for renovations or additions from July 1 onward. The estimated cost of compliance has been estimated at three to six dollars per square foot.

The new regulations will impact owners, buyers, sellers, and tenants of commercial real estate buildings. The increased costs of compliance will impact all transactions regarding these properties, from leasing to sales. Leasing forms may need to be updated to reflect changes in the industry.

At this point, owners of commercial real estate buildings should do two things:

Review the new regulations. Become aware of how the new regulations affect specific properties, and remember to consider the impact of additional costs on budget. This should be factored into new lease agreements as July 1 approaches. Landlords who are in the process of negotiating a letter of intent or new lease, which includes tenant improvements requiring a permit to be obtained on or after July 1, should take into account the additional costs of Title 24. Consulting with a real estate attorney is essential to clarifying the rights and responsibilities of all involved parties.

Allocate costs and responsibility. Since the cost of compliance can be significant, all lease and purchase agreements should be carefully drafted to clearly specify the responsibilities of all involved parties. All possible construction scenarios should be addressed, in order to prevent later disputes over financial responsibility for renovations.

Commercial building owners should keep in mind that an “as-is” provision in leases may not suffice to protect them from compliance costs. Consultation with a skilled real estate attorney is the best way for landlords to understand and comply with Title 24 to avoid unnecessary and unexpected expenses down the road.

Mending Fences: Your Rights and Responsibilities

 

Mending Fences: Your Rights and Responsibilities

Having or building a fence on your property may seem like a simple matter. After all, it’s your property, right? Oddly enough, something as simple as a boundary fence can cause all manner of legal headaches for you and your neighbors.

As with any potential problem in life, taking steps to prevent the situation is often much easier than fixing it later. If you’re purchasing a house that has an existing fence, verify the property’s boundaries. One situation we often see is a boundary fence which was accidentally built on the neighbor’s property. The current neighbors may not know or care, but if new neighbors move in later and discover your fence encroaches on their property, you could end up in a heated property dispute over, for example, two feet of land. It’s much easier to investigate these matters before ever purchasing the home.

The same idea applies if you’re planning to build a fence. The safest approach is to engage a licensed surveyor to survey your property lines. Aside from fence placement, there are several other issues to consider before investing in your new project. Most cities have ordinances which dictate the height of your fence, for example. It’s best to check local laws before hiring a contractor to do work which might cause a dispute with your neighbors. Also keep in mind that in many subdivisions have CC&Rs which contain provisions which govern fences.

Occasionally, cities do grant one-time exemption to fence laws. Called a variance, this exception allows you to build a higher fence in special situations. It may be best to notify your neighbors that you’ll be requesting a variance, so that they don’t object to the fence later and cause you more trouble.

If you’re the neighbor who has a complaint about a fence, the best course of action is to first talk to your neighbor. He or she may have no idea their fence violates regulations. If the neighbor won’t work with you on a solution, you can notify your city’s zoning department. An obvious violation will probably result in a fine or an order to modify the fence so that it meets standards.

Additionally a new California law went into effect on January 1, 2014, specifically dealing with adjoining homeowners and boundary fences. They now must share equally the responsibility for maintaining boundaries and monuments between them, since they are presumed to get equal benefit from a fence dividing their properties, unless they agree otherwise in writing. Thus adjacent homeowners are presumed to share 50-50 in the reasonable costs of construction, maintenance, or replacement of the fence when necessary. A homeowner must give any affected adjacent homeowner a 30-day written notice of any intent to incur costs for a boundary fence before any work is begun. The notice must include: (1) notification of the presumption of equal responsibility for the reasonable costs of construction, maintenance, or necessary replacement of the fence; (2) a description of the what is wrong with the existing shared fence; (3) the proposed “fix”; (4) the estimated cost to build or maintain whatever is proposed to accomplish the “fix”; (5) the proposal for sharing the costs; and (6) the proposed timeline going forward. An adjoining landowner can defeat the request for shared costs by showing, by a preponderance of the evidence, that an equal sharing of costs would be unjust. If the dispute goes to court over whether equal sharing of costs would be unjust (which itself will cost a considerable amount of money!) a court will consider the following factors: (1) whether the financial burden on one landowner is substantially disproportionate to the benefit conferred upon that landowner by the fence; (2) whether the cost of the fence would exceed the difference in the value of the property before and after its installation; (3) whether the financial burden to one landowner would impose an undue financial hardship given that party’s financial circumstances as demonstrated by reasonable proof; (4) the reasonableness of a particular construction or maintenance project, including the extent to which the costs appear to be unnecessary, excessive, or the result of one landowner’s personal aesthetic, architectural, or other preferences; and (5) any other equitable factors appropriate under the circumstances. There are some exemptions to this new law where there already local laws in existence regarding the obligation to refund a division fence.

In complicated situations, such as property disputes, it’s best to consult with a real estate lawyer if you have questions of how to proceed.

 

 

 

Common 1031 Exchange Myths Dispelled

Blog Image 2You may have heard talk about 1031 Exchanges, and how they can potentially save you big money at tax time. That is true, but the rules governing 1031 Exchanges are very complicated. Unfortunately, there are a few myths floating around and occasionally people are led to make bad decisions because they believed in them.

Before you attempt a 1031 Exchange, it’s best to consult with an experienced and knowledgeable accommodator. The attorneys of Larson & Solecki LLP can help you find one, if you need assistance. In the meantime, watch out for these common myths and avoid making major decisions until you seek expert advice.

You can use a 1031 to trade up homes. While a 1031 Exchange is often used for real estate transactions, it is reserved for investment properties only. Unfortunately, you cannot utilize the tax benefits of a 1031 just to sell your personal residence and purchase another. There is one portion of the regulation that might allow you to swap vacation homes, but it’s a very tricky exchange and requires the guidance of someone knowledgeable in handling exchanges.

A 1031 Exchange is only used for real estate transactions. While they are perhaps most commonly associated with real estate investments, a 1031 Exchange can actually be used for certain other types of investment property. For example, investments in property such as art commonly qualify. You cannot utilize this type of exchange on investments such as stock or partnership interests, however.

As long as the exchange of property occurred within the year for which you are filing taxes, it qualifies. Actually, you have exactly 180 days (six months) to close on the new property after selling the first one. You also must designate the replacement property, in writing, to the intermediary within 45 days of closing on the sold property. These time lines run at the same time, meaning if you designate a new property 40 days later, then you have 140 days left to close on the new one.

As long as you don’t receive cash from the sale, you won’t be taxed. A change in mortgage liability can be taxed, usually as a capital gain. For example, if you had a mortgage of 500,000 on the sold property, and you’ve exchanged it for a property with a 450,000 dollar mortgage, the lowering of your liability by 50,000 dollars is treated as a profit. You will be taxed for that 50,000 dollars – probably as a capital gain.

As with all tax situations, always seek advice from your tax advisor before attempting a complicated maneuver, and from an experience exchange accommodator if you are attempting a 1031 Exchange. What you may have heard about 1031 Exchanges or any other tax situation may not be true. Seek guidance before attempting the transaction, so that when you file your taxes the following year there are no surprises.

Common 1031 Exchange Myths Dispelled

Blog Image 2You may have heard talk about 1031 Exchanges, and how they can potentially save you big money at tax time. That is true, but the rules governing 1031 Exchanges are very complicated. Unfortunately, there are a few myths floating around and occasionally people are led to make bad decisions because they believed in them.

Before you attempt a 1031 Exchange, it’s best to consult with an experienced and knowledgeable accommodator. The attorneys of Larson & Solecki LLP can help you find one, if you need assistance. In the meantime, watch out for these common myths and avoid making major decisions until you seek expert advice.

You can use a 1031 to trade up homes. While a 1031 Exchange is often used for real estate transactions, it is reserved for investment properties only. Unfortunately, you cannot utilize the tax benefits of a 1031 just to sell your personal residence and purchase another. There is one portion of the regulation that might allow you to swap vacation homes, but it’s a very tricky exchange and requires the guidance of someone knowledgeable in handling exchanges.

A 1031 Exchange is only used for real estate transactions. While they are perhaps most commonly associated with real estate investments, a 1031 Exchange can actually be used for certain other types of investment property. For example, investments in property such as art commonly qualify. You cannot utilize this type of exchange on investments such as stock or partnership interests, however.

As long as the exchange of property occurred within the year for which you are filing taxes, it qualifies. Actually, you have exactly 180 days (six months) to close on the new property after selling the first one. You also must designate the replacement property, in writing, to the intermediary within 45 days of closing on the sold property. These time lines run at the same time, meaning if you designate a new property 40 days later, then you have 140 days left to close on the new one.

As long as you don’t receive cash from the sale, you won’t be taxed. A change in mortgage liability can be taxed, usually as a capital gain. For example, if you had a mortgage of 500,000 on the sold property, and you’ve exchanged it for a property with a 450,000 dollar mortgage, the lowering of your liability by 50,000 dollars is treated as a profit. You will be taxed for that 50,000 dollars – probably as a capital gain.

As with all tax situations, always seek advice from your tax advisor before attempting a complicated maneuver, and from an experience exchange accommodator if you are attempting a 1031 Exchange. What you may have heard about 1031 Exchanges or any other tax situation may not be true. Seek guidance before attempting the transaction, so that when you file your taxes the following year there are no surprises.

What Is a 1031 Tax-Deferred Exchange?

stock-photo-3535122-signed-contractA 1031 Exchange is a method of selling one property and then buying another within a specified time frame, while accessing certain tax advantages. While the processes of selling one property and buying the next are very similar to standard sales and purchases, the overall transaction is treated as an exchange. This allows the taxpayer to qualify for a deferred gain tax status, because sales are taxable by the IRS while exchanges are not.

The rules regarding a 1031 Exchange are listed by the IRS under Like-Kind Exchange Regulations. Therefore, a property owner or investor should consider a 1031 Exchange when he or she expects to purchase a “like-kind” property following the sale of an existing property. Otherwise, capital gains taxes may be due on the sale of the first property.

A 1031 Exchange is a complicated procedure, and is subject to many rules. In order to initially qualify, however, a transaction must meet two basic qualifications:

 

  1. The total purchase price of the replacement “like kind” property must be equal to, or greater than the total net sales price of the relinquished property.
  2. All the equity received from the sale of the relinquished real estate property must be used to acquire the replacement, “like kind” property.

 

If the transaction qualifies as a 1031 Exchange, the proceeds from the sale must be handled through a qualified intermediary. All cash proceeds from the sale must be applied toward the new purchase, or else any proceeds retained by the seller will be taxable. In addition, the newly-acquired property must be subject to the same or greater level of debt as the property just sold. If the property does not qualify in this way, the owner may be taxed on the amount of decrease in debt. The time line governing 1031 Exchanges involves an Identification period and an Exchange period. Each of these periods in the overall process are quite restrictive, and precise rules must be followed at all times.

Consultation with an experienced real estate attorney will help the property owner to recognize the benefits of a 1031 Exchange, and the attorneys of Larson & Solecki can refer you to an accommodator who can handle the exchange, or to a tax attorney for more detailed planning.

 

Real Estate Buyers: Research the History of Your New Home

When you’re shopping for a new home, you might be concentrating on square footage, condition of the house, or the amenities in your new neighborhood. However, there are other very important considerations that can affect your satisfaction with your new home in the long run. These factors also impact your ability to resell the home later, so it’s worth your time to do a little research and learn all you can about the property.

California state law requires sellers to disclose all they know that affects the value and desirability of the home they are selling, and both agents (assuming buyer and seller are represented) have an obligation to conduct a diligent visual inspection of the accessible areas of the home (remember, they are not professional inspectors). Pay close attention to the multiple disclosure forms you will typically receive. They are the best way to learn about your new home during the contingency period. Read carefully the form advisories you will receive about both general and specific potential issues in your neighborhood. You will also receive other reports with additional information about the property, the neighborhood and the area, such as a preliminary title report, natural hazard reports and area advisories. Aside from these sources of information, there are other means of research.

One of the easiest ways to find out information about any property is to talk to the neighbors. They can be a great source of information about past owners, activity in the home, crime in the area, or any other criteria that might concern you. This can also give you an idea of the general atmosphere of the neighborhood, and whether it matches your needs. It’s fairly easy to check the home’s records at city hall or the courthouse. All you need is the address and you can discover information such as past owners and permitting issues.

Depending on how much information you want or need, news archives are great sources of information, particularly if you’re concerned about crime in the neighborhood. Crime can happen anywhere, but you definitely want to know if there is a pattern of burglaries or violent crime in the neighborhood. By law the seller is only required to inform you of any deaths in the home during the preceding three years. If you’re a bit superstitious, doing your own research may put your mind at ease.

Sex offenders are required to register their current address and this information is made available to the public. Check the state’s online sex offender registry to discover whether there are any registered sex offenders living near the home, but do not be surprised at the number of registered sex offenders – there are, unfortunately, plenty of them and few areas are without a sprinkling of registered sex offenders.

Remember to do your as much research as possible before making an offer on the home. Once you’ve presented an offer in writing and it is accepted by the seller, you will be spending money on inspections and other services and, once your contingencies are removed, your deposit is at risk.

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