“Green” for Commercial Brokers
The trend towards “green” building is not longer a fad, it is here to stay. Building green or converting existing commercial buildings to green is quickly becoming a mandate, especially in California. While the costs involved in green building measures or smart building technology can be daunting, government regulation is pushing the industry inexorably in that direction, and public pressure is increasing to “go green.”
So what is “green?” The U.S. Green Building Council has developed one of the primary rating and third-party certification systems for green building. Its Leadership in Energy and Environmental Design (LEED) standards rate both existing and new construction in categories including: sustainable sites, water efficiency, energy efficiency, materials selection, indoor environmental quality, and innovation and design. The LEED system is becoming widely accepted because of its comprehensiveness. Other systems include the Green Globe on-line assessment tool and Energy Star, familiar to consumers for rating efficiency in appliance energy consumption.
California is in the lead nationally in the push for going green. It has passed legislation with aggressive greenhouse gas emission standards and is adopting a new green building standards code with the goal of reducing energy use, toxic substances and greenhouse gas emissions. Individual jurisdictions within California are also beginning to adopt strict local requirements, such as San Francisco’s formal adoption in 2008 of the LEED standards.
With state government clearly pushing in the direction of “green,” there are multiple reasons for a developer or building owner to be a leader in this area, including: tax benefits may exist for building green; both public and private financial incentives are often available for green building innovation; net metering of energy production may be possible if energy-reducing or generating efficiencies are incorporated into green building; depending on the project, there may be tradable credits resulting from green construction or operation; reduced building energy costs will translate into reduced reimbursable expenses for tenants, thus making leases in green buildings more attractive to prospective tenants; and there is also a cachet to being what is often called the first adaptor, which could translate into a commercial competitive advantage, especially given both the public’s and business’ ever-increasing desire to “go green.” There are, however, also multiple potential problems, including the potential legal liability from new technology, tenant claims for unrealized advertised energy savings, potential health concerns raised by the use of new, untested materials and techniques, increased building and maintenance costs, the need for new, different insurance coverages and design and construction claims. All of these have already been experienced in the marketplace.
So what about the commercial broker’s involvement? This isn’t something that can be done by the broker alone, and certainly not by a commercial broker who has not studied the industry. Education is the first key to success – if one does not speak the language and understand the issues, one cannot effectively represent a green owner or landlord. Fortunately there are an ever increasing resources available in this area. Next, “green” will also require a completely new approach to marketing to potential clients, in order to distinguish oneself in this area. Third, given the newness of the technology and potential large costs involved for owners, a commercial broker who is interested in working in this area should assemble an experienced, go-to team of architects, engineers and contractors early in the process to ensure maximum effect with minimal costs and the least potential liability. Finally, have a strategy: put an integrated team in place, define the owner’s expectations and document, document, document.
Advantages of Legal Representation During Mediation in Real Estate Conflicts
When a problem arises with a real estate contract, mediation is almost always the proper first step. The residential purchase agreement form that is almost exclusively used in California makes mediation essentially mandatory – if a party refuses to mediate they lose the right to recover attorney fees, and it is those fees that often drive these cases. While it is not mandatory to have an attorney at mediation, facing mediation without proper representation can be a daunting position. Consider these advantages legal representation offers:
Preparation. Preparation is key to a successful mediation. Choosing representation with a qualified real estate attorney ensures more productive meetings, and before that the selection of the appropriate mediator for the problem to be solved. It also lessens the chance that mediation sessions will be canceled and the process postponed due to lack of preparation. Solid preparation also serves to reduce overall costs of the mediation.
Perspective. Sometimes during an intense conflict, one or more parties will lose perspective. It helps to have a representative who can keep a logical discussion of the problem on track and who can present realistic solutions to the problem.
Two heads are better than one. In most big decisions in life, it helps to get another person’s opinion or point of view. A real estate attorney who is experienced in mediation can bring new ideas or viewpoints to the table.
Someone to speak for you. When people get emotional, it can be difficult for them to express their side of the argument. Having a representative during mediation helps to clarify events as they really happened.
Having an “authority” present. Most people respond better to authority figures. In the case of mediation, a knowledgeable expert lends credence to an argument, and encourages the other side to listen and compromise.
Intervention in heated disputes. Often during a conflict, discussions can become heated. When the two parties get emotional, the discussion can quickly turn into a non-productive fight. A cool-headed representative can spot warning signs and prevent the negotiation from breaking down in this way. If it does happen, a skilled representative knows how to turn things around quickly.
Prevent “giving up.” Parties who represent themselves in mediation sometimes become overwhelmed, give up, and lose what otherwise would have been a winning argument. A skilled representative knows when to regroup and come up with a new strategy.
Drafting the agreement. Once an agreement is reached, it needs to be worded very carefully to prevent further conflicts. A real estate attorney is experienced and knowledgeable about which clauses need to be included in the agreement
Double Check Your Real Estate Forms
It is common for landlords, especially those who choose not to utilize the services of an attorney, to use standard mass-produced lease forms when leasing property to a tenant. These forms are usually found online and downloaded, with some landlords not updating their business practices from one year to the next. Unfortunately, this can lead to big problems for the landlord.
A 2013 case* from North Carolina highlights the trouble with using some of the leasing forms found online. In this case, the landlord was sued by the state Attorney General over violations concerning the way he handled security deposits. The landlord was simply following the security deposit provisions set forth by the lease agreement form he downloaded from a realtor’s website. Unaware that the law regarding security deposits had changed since the form’s creation, he was entering into lease agreements that violated the law and handling deposits incorrectly.
The Attorney General sought a 5,000-dollar penalty for each of the landlord’s leasing violations. It’s easy to see how one form could be reproduced and used several times, causing a significant problem for landlords making a simple error in judgment.
Since ignorance of the law is not seen as a valid excuse in court, the best course of action is to either avoid use of these online forms or double check them to be sure they are consistent with current California law. Several provisions directly affecting leasing practice have been revised dramatically by the California legislature over the past few years. Since real estate law may change after a form is posted online, landlords who utilize them can unknowingly follow out-of-date leasing procedures. It’s best to consult with a real estate attorney before using any type of leasing form, just to be certain the form is up to date or if you have questions regarding specific provisions of a lease.
If a particular form is found to be consistent with the law, it can be reproduced and used so long as California real estate laws do not change. The best course of action is to have all forms examined by a real estate attorney periodically so that business practices can be updated as needed.
When is it Legal to End a Lease?
As long as people have been signing leases to rent a homes, they have also been breaking their lease agreements. In some cases breaking a lease warrants a lawsuit by the landlord, but in other cases it is legal for a residential tenant to move out and stop paying rent. Under California law, a lessee may “break” a lease under the certain circumstances, but understand that having the ability to terminate a lease is a far cry from simply walking away without repercussions. There are always legal nuances, depending on the fact situation, and few situations are simply black or white. And in some situations a tenant will be sued whether the tenant is right or wrong, resulting in potentially enormous expense. NEVER simply walk away from a lease without checking with a lawyer to find out the potential legal and practical repercussions. In general, however, under California law a tenant may be able to terminate a lease under the following general circumstances:
Uninhabitable conditions. If the home or apartment has become unlivable, the tenant can break the lease in most cases. Common uninhabitable conditions include infestations (such as cockroaches), excessive noise from neighbors, significant criminal activity in the building or neighborhood, and noxious odors. A noxious odor could be due to a sewage leak, mold or mildew, dead vermin trapped in walls, and so on. These situations are heavily fact dependent, however, so one cannot simply walk away due to a noisy neighbor.
The living unit is illegal. If a basement, garage, or other structure is illegally converted into living space, the landlord doesn’t have a right to enforce a lease.
The government is closing the building. This could be caused by a variety of events, such as fire, flooding, or earthquake damage. A building might be rezoned for development or demolition. In some cases, structure abnormalities, zoning violations, or buildings without the proper permits can be shut down under the law.
Death or incarceration of the tenant. Obviously, in these cases, the tenant can neither pay rent nor occupy the premises. In many cases long term physical or mental hospitalization may provide a legal basis for a tenant to terminate a lease.
The tenant is bankrupt. A lease can be legally abandoned via Chapter 7, 11, or 13 bankruptcy proceedings, but a tenant should take that action ONLY after consulting with a qualified bankruptcy attorney.
The building or land was repossessed. If the tenant has not yet paid rent to the bank or new owner, the lease can be canceled under certain strict conditions and procedures.
The lease was illegal. In some cases the person who rented the space was not the owner, or authorized to do so by the owner. The contracts of unlicensed property managers are also voidable. Occasionally, sub-lease situations are not valid because the original tenant was not allowed to sublet their space to another renter.
The lease was oral. An oral lease for a term of more than a year is void under the Statute of Frauds.
Again, we wish to stress that a tenant should never simply walk away from a lease without fully understanding both the rights and obligations under California law.
What is a Quitclaim Deed?
In most cases, when you purchase real estate in California you will receive a grant deed (in most states called a warranty deed). Typically, this type of deed offers the best protection against title defects and it is standard procedure to issue a grant deed in typical real estate transactions in California. However, in certain cases, a real estate transfer can involve something called a quitclaim deed.
A quitclaim deed is generally used to quickly transfer property between owners. There are a variety of reasons you might want to do this, but one example involving quitclaim deeds is a real estate transaction between family members. The major difference between a quitclaim deed and a grant (or warranty) deed is that a quitclaim deed does not protect you against title defects. Therefore, consultation with an experienced real estate attorney would be advised before utilizing a quitclaim deed to complete your transaction.
Some people mistakenly believe that the deed and mortgage on the property are somehow intertwined. In reality, neither a quitclaim deed nor a grant deed gives the recipient the right to assume the loan – they are actually entirely separate. If title to property is transferred without paying off the loan secured by a trust deed, the loan remains in the name of the borrower(s) and the “due on sale” clause contained in almost every loan gives the lender the right to accelerate the loan and call it due upon any transfer of title to the property. A trust deed does not affect ownership of the property; only a deed does that.
Due to this misconception, there’s a prevalent myth involving quitclaim deeds and private purchases of real estate. Not only can they not be used to transfer both ownership and the loan to another person, but they can actually cause quite a complication if you attempt this type of transfer in order to purchase or sell a home, primarily because of the “due on sale” clause.
In short, there are certainly cases in which a quitclaim deed is a safe and legally sound way to transfer real estate. Quitclaim deeds are not, however, a vehicle for transferring a loan along with title to property. Since a complicated legal maneuver like this could easily backfire on the transferor if it is misused, always consult with a real estate attorney for guidance on your unique situation.
You and Your HOA: Who is Responsible for Bad Tenants?
If you’re thinking about renting your house or condo, you may be concerned with how your homeowners association might react to various issues that could arise with the tenant. It’s a valid concern, because many HOAs are quite strict with their regulations. Breaking the rules can often result in fines, and you do not want to be responsible for these large fees due to a tenant’s misbehavior.
Legally, however, you are responsible for your tenant’s actions. This means if your tenant violates rules concerning parking, noise, lawn care, use of common areas, and so on, you are responsible for any resulting fines. This is because you are the one who has a legal relationship with the HOA. Your tenants never entered into any agreement with the HOA, so they cannot be fined or sanctioned by the board. The board can only take the matter to you if there is a problem, although you do have the right to consult with a real estate attorney if you feel the sanctions are unwarranted.
There are ways to avoid being fined by your HOA for your tenant’s bad behavior. First, when searching for a renter, hold very strict standards and check all references thoroughly. Only rent your home or condo to a tenant who has a great track record. Consider using a management company, to ensure compliance with all landlord-tenant and fair housing rules and limitations on selecting tenants – they can be complex. Also, provide your tenant with a copy of HOA regulations so that expectations are clear upfront. While you are responsible for any fines they may incur, you are not required to renew their lease at the end of their term – make sure they know this. Finally, if you provide lawn care for your house (include it in the cost of rent), then that’s one regulation you won’t have to worry about breaking.
As always, if any dispute arises with your HOA, consulting with a real estate attorney can help you sort out your legal options. In most cases “problem tenant” issues are legitimate, but on occasion these situations arise due to personal issues between the tenant and a board member who wields a little power. Since you’re responsible for your tenant’s behavior and any fines they incur, it’s best to talk with an expert before the situation snowballs into a huge expense for you.
Can the Buyer Back Out of a Real Estate Contract?
A real estate contract is legally binding, and the general expectation is that both buyer and seller will each fulfill their ends of the deal. However, there are clauses that allow buyers to back out of a real estate contract under certain conditions. It’s always a good idea for both buyer and seller to consult with a real estate attorney in San Diego, Temecula or in their local area throughout Southern California when dealing with this sort of issue, to avoid the loss of deposit money, or potentially significantly more.
Typically, the buyer has many more options for backing out of the contract than the seller in the California Association of Realtors form Residential Purchase Agreement (“RPA”), the home sale contract used in the large majority of home sales. One common contingency allows the buyer to walk away from the deal if the property fails inspection. Another states that the transaction will depend upon the buyer obtaining adequate financing for the purchase. As long as these contingencies are included in the contract – they are in the RPA – there should be no repercussions if the buyer needs to back out of the contract for those reasons. There are many such contingencies that may be included in a real estate contract; the important thing is for sellers to be aware of possible pitfalls of these clauses. Consulting with our team of real estate attorneys in Temecula, San Diego and throughout Southern California can keep sellers informed of the limitations of the contract as well as their rights.
In some cases, a buyer may try to back out of the contract for reasons clearly not allowed. For example, they may think they could get a better deal elsewhere, or they might decide they prefer another property. In these cases, sellers can sue in theory to force the sale to move forward, though such actions are extremely rare. Typically the contract provides for liquidated damages, which usually is defined to be the amount of the deposit. In California, non-refundable deposits offered as earnest money are typically not valid, but the contract typically describes the seller’s retention of the deposit as “liquidated damages” to enforce this policy. This language should be included in the contract before either party signs, and is part of the RPA if elected by the parties to the sale.
Since these cases can often involve a lot of time, stress, and money, the best course of action is to consult a real estate attorney if you have questions about specific provisions of your real estate contract. The attorney can advise the seller of his rights before a conflict occurs and offer solutions that will best protect the seller under the law.
What is the Landlord Nuisance Law?
As real estate attorneys in Temecula and throughout Southern California, we will occasionally be asked about the landlord nuisance law. This law was established to protect tenant rights in situations where the landlord is either negligent in his duties to adequately maintain the property, or even outright intentionally produces some condition which makes the property uninhabitable to a certain degree.
The landlord nuisance law only applies under a specific set of circumstances. If these circumstances are found to exist, tenants may be awarded damages to compensate them for the loss of peaceful enjoyment and occupation of the property. The state of California has defined the following parameters to determine whether a landlord is liable for damages in a particular situation:
To prove the claim, a tenant must show (1) that the landlord leased the property; (2) that the landlord, in acting or failing to act, created a condition that was harmful to health, indecent or offensive to the senses, or an obstruction to the free use of property, so as to interfere with the comfortable enjoyment of life or property; (3) that this condition interfered with tenant’s free use of the leasehold; (4) that an ordinary person would be reasonably annoyed or disturbed by landlord’s conduct; and (5) that the tenant was harmed because of the nuisance.
Naturally, some of these conditions are relatively easy to prove, while others may appear at face value to be a matter of opinion. For example, it can be difficult to prove that the tenant suffered harm in a case that does not involve actual physical injury. These cases can be (and have been) won in court on many occasions, though it is important to distinguish not getting along with your landlord with conduct that renders a landlord liable. In these cases it’s important to hire an experienced real estate attorney in Temecula, San Diego or Southern California to handle the case, since the burden of sufficient proof is on the tenant.
Landlords will also need representation from a Southern California, San Diego, or Temecula real estate attorney in these cases, as there certainly have been situations in which tenants have filed lawsuits over frivolous claims. Often mediation is effective at remedying these cases, and the conflict does not necessarily always proceed to the courtroom.
Real Estate Contracts: What to Look For
When you finally receive an offer on your home, you’ll receive a contract with several pages of terms and conditions and multiple additional documents. Most real estate contracts are prepared in such a way that they protect both the buyer and seller, especially in California where the typical contract is provided by the California Association of Realtors®, but often the buyers and sellers don’t know what to look for. The following are some clauses you should look for in an offer, and some that should be viewed with scrutiny. As experienced real estate attorneys in Temecula and throughout Southern California, we can help you locate these clauses and explain them in detail.
Financing. One very important component of the contract is the financing contingency clause. This clause is designed to protect the buyer in the case his or her loan falls through unexpectedly, allowing the earnest money deposit to be returned and rendering the contract null and void if financing does not go as planned. Sellers should be aware that this clause means they cannot keep the earnest money if the loan falls through, and the sale of the home is not guaranteed until the loan is closed, or as otherwise provided in the contract.
Inspection. During the process of a home sale, it is normal for buyers to have a home inspection by a professional inspector. However, the home inspection contingencies included in sale contracts can vary, so it’s important for both buyers and sellers to read them carefully. In most cases a buyer can ask the seller to make certain repairs, though the seller is not obligated to agree to the request. Typically the buyern walk away from the contract if the home inspection shows excessive defects in the home.
Sale of Existing Home. The Sale of Existing Home contingency allows buyers to make an offer on a home, contingent on the sale of their current home. While this is a common situation, sellers who need to make a quick sale might want to be wary of this clause, as it can cause complications and delay the sale.
Closing Costs. Buyers often ask sellers to pay closing costs, in order to reduce the cash on hand needed at closing time. In some situations this might be acceptable, but the seller should always look for this clause and do the math before accepting the buyer’s offer. It will reduce the profit made off the sale of the home. Consult one of the qualified real estate attorneys in Temecula to discuss closing costs and decide what is reasonable for you to pay.
Real estate contracts can be confusing, but you should fully understand the entire contract before accepting any offer on your home. Contact our Temecula real estate law team for more information and make sure there are no unpleasant surprises on closing day.
The Benefits of Mediation
When it comes to real estate and business dealings, most of us hope to avoid conflicts and expect that everything will proceed smoothly. Unfortunately, though, sometimes disagreements do happen, and they can activate a sort of legal “fight or flight” response. You may feel determined to hire a Temecula real estate attorney and take the conflict to court (at great expense), or you could be tempted to give up (and regret it later).
Luckily, there’s a third option which can bring about a resolution to the problem. Mediation is a process in which a third party helps the two entities or people involved in a dispute to find a mutually agreeable compromise. Real estate attorneys in Temecula report that mediation can be preferable to litigation for several reasons:
- Mediation is almost always much cheaper than litigation
- Mediation saves time; conflicts are often resolved in days rather than weeks or months
- Participants maintain control of the outcome, whereas in litigation the outcome is left up to the courts to decide
- More creative solutions can be discussed and agreed upon
- The mediation environment is more friendly and less threatening than the courtroom
- The mediation process is confidential and does not become court record
- Relationships between the two parties may be preserved, whereas a lengthy court proceeding can feel like a battle
Whereas litigation can feel risky, leaving the final decision up to the court, mediation provides both parties with a chance to craft their own resolution to the conflict. Temecula real estate lawyers often recommend trying this type of resolution over the nerve-wracking “winners and losers” atmosphere usually felt in court. In the vast majority of mediation cases, both sides walk away feeling that they have been heard, and both sides generally feel more satisfied with the outcome.
Most cases that are mediated are solved without either party having to set foot in a courtroom, but each party does have the right to walk away from mediation if they feel it is becoming unproductive. Only rarely do negotiations break down, making litigation necessary. Even in those cases, prior mediation often proves to have been useful in narrowing the issues and helping to bring about a more focused examination in court.