When Puppy Training and Real Estate Law Intersect

Those of us in the real estate world understand that our business doesn’t follow the traditional 9-5 Monday through Friday schedule.

That’s why I’ve been able to volunteer as a puppy raiser with Canine Companions for Independence (CCI) for almost 20 years. I’m currently training my 17th CCI pup. Not only do I think it’s important to give back to the community, but I’ve also found training these young, eager dogs to be relaxing and rejuvenating.

CCI is a non-profit organization that enhances the lives of people with disabilities by providing highly trained assistance dogs and ongoing support to ensure quality partnerships. Through the support of volunteer puppy trainers, CCI is continually preparing hundreds of potential service dogs for future field service.

My journey starts with an eight-week old puppy that lives with me for approximately 18-22 months. I socialize the puppy to various environments and teach it approximately 30 commands. Working full time, my young dog goes almost everywhere with me. At local meetings, if I show up without the dog, people notice. If the dog is with me, the “meet and greet” after the meeting can take more time than the actual meeting. During mediation, hostilities are often diffused just by the dog’s appearance.

After my time with the puppy is over, it is returned to CCI for six-nine months of professional training and ultimately, graduation. Upon successful graduation, the puppy will be provided free of charge to a person with a disability individual. Only a small percentage of these dogs make the cut to work as a service dog. There is a fine line between motivation and excitability in canine behavior, and CCI dogs must be almost behaviorally “perfect,” among other qualities. No chasing after squirrels or panicking in elevators, for example. But even if the dog doesn’t become a service dog, he or she may be well suited for work in law enforcement, such as working as a drug detection dog. Others become therapy dogs, visiting hospitals or reading with children at the library. And some are simply ideal pets for a lucky family.

Think you might want to become a CCI puppy raiser? I will share these tips. The first CCI dog you get is always the best one; you don’t have any idea what you are doing and your aspirations for the dog are high. Each dog after that challenges you in different ways. And trust me, when it is their time to return for professional training, they take a little piece of you with them. The true challenge once you start raising these dogs is to stop doing it. I’m on #17 and I no longer tell people this is my last dog I’m going to raise.

Victoria Boynton is a seasoned real estate attorney with expertise in residential and commercial real estate, transactional and litigation matters. Prior to joining Larson & Solecki, she served as corporate counsel for Berkshire Hathaway HomeServices California Properties. In that capacity she represented the company and its affiliates, including escrow, title, lending and insurance, plus its more than 3,000 real estate agents.

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, 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, including 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 paragraphs. A buyer wants to protect the earnest money deposit in the event the buyer does not obtain financing to purchase the property. Likewise the seller wants to make sure that the buyer is financially qualified to complete the purchase. If the buyer is unable to obtain financing and the loan contingency is still in place, the parties have agreed that the buyer can cancel the transaction and the buyer’s earnest money will be returned. If the loan contingency has been removed, and the buyer cannot obtain financing, then the seller may be entitled to retain the earnest money deposit to compensate the seller for the buyer’s inability to close escrow. Since the deposit can be at risk in the event of a default IF the liquidated damages provision if initialed by the buyer and seller (they typically are), then the amount of the deposit is important. It is not only the amount at risk, but it also signals to the seller just how serious the buyer might be about the offer.

Inspection. During the process of a home sale, the buyer usually will conduct various inspections including a professional home inspection to assure that it is in a condition acceptable to the buyer. However, the home inspection contingencies included in sale contracts can vary, so it’s important for both buyers and sellers to read them carefully so that the inspections are conducted within the contingency time frame. The home inspection may also detail some defects in the property which the buyer can request that the seller repair. While the seller is not obligated to make any repairs, if all of the issues regarding repairs are negotiated and the buyer cancels in good faith based upon the property condition while the inspection contingency is still open, the buyer should still be able to get their deposit returned.

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 not want to accept an offer with this contingency or will ask for a time frame in which the buyer must remove this contingency during escrow.

Closing Costs. Buyers often ask sellers to pay closing costs, in order to reduce the cash on hand needed at closing time. But they should always consult with their lender to determine what the actual closing costs will be before entering into the final purchase contract. In some situations a seller may agree to pay some or all of the buyer’s closing costs but the seller should always review the financial impact that this may have on the overall proceeds that the seller receives in the sale before accepting the buyer’s offer.

Items included/excluded from the sale. There are many items in the property which are considered personal property of the seller and may not convey with the property. As a buyer if there are certain items (i.e. washer and dryer) that you would like the seller to include in the sale, then your offer should make specific references to those items. As the seller if there are items that you want to take with you, make sure that the accepted offer, excludes those items. If there is ANY doubt about whether an item might stay or go, spell it out in the contract to avoid confusion.

Real estate contracts can be confusing, but you should fully understand the entire contract before making or accepting any offer. Contact our Temecula or San Diego real estate law team for more information. We can help you understand the contract and its many provisions.

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 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 overwhelming majority of home resales. 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 boilerplate, but can be removed through negotiation or if the buyer wants to strengthen an offer – there should be no repercussions if the buyer needs to back out of the contract for those reasons. There are many other contingencies that may be included in a real estate contract; the important thing is for buyers to be aware of possible pitfalls of these clauses. All of the contingencies come with the caveat that under the RPA, they must be exercised in “good faith.” Consulting with our team of real estate attorneys can keep buyers 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 and usually not successful. Typically the contract provides for liquidated damages, which usually is defined to be the amount of the deposit, IF the liquidated damages provision is initialed in the RPA. 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 buyer of his rights before a conflict occurs and offer solutions that will best protect the buyer under the law.

New Legislation Results in New Disclosures for Real Estate Transactions

Effective January 1, 2019, Assembly Bill 1289 triggered new laws impacting real estate disclosure requirements. Real estate agencies should update their disclosure forms to reflect the new laws, if they haven’t already done so.

Language has shifted. Terms like “selling agent” and “listing agent” are now obsolete, and should be replaced with “buyer’s agent” and “seller’s agent” for greater clarity. The term, “buyer’s agent,” has also been simplified, to simply mean any agent who represents a buyer in a real estate transaction. The new language is also included in the Agency Law Disclosure. The California Association of Realtors (CAR) Forms are being updated to reflect this change.

A new section was added to Seller and Buyer Statutory Responsibilities under the Civil Code. The new section reads:

“Either the purchase agreement or a separate document will contain a confirmation of which agent is representing you and whether that agent is representing you exclusively in the transaction or acting as a dual agent. Please pay attention to that confirmation to make sure it accurately reflects your understanding of your agent’s role. The above duties of the agent in a real estate transaction do not relieve a Seller or Buyer from the responsibility to protect his or her own interests. You should carefully read all agreements to assure that they adequately express your understanding of the transaction. A real estate agent is a person qualified to advise about real estate. If legal or tax advice is desired, consult a competent professional. If you are a Buyer, you have the duty to exercise reasonable care to protect yourself, including as to those facts about the property which are known to you or within your diligent attention and observation. Both Sellers and Buyers should strongly consider obtaining tax advice from a competent professional because the federal and state tax consequences of a transaction can be complex and subject to change. Throughout your real property transaction you may receive more than one disclosure form, depending upon the number of agents assisting in the transaction. The law requires each agent with whom you have more than a casual relationship to present you with this disclosure form. You should read its contents each time it is presented to you, considering the relationship between you and the real estate agent in your specific transaction. [Civil Code §2079.16]”

Who gives what, to whom? The seller’s agent must provide a copy of the Disclosure Regarding Agency Relationship to the seller before entering into a listing agreement. The buyer’s agent is required to give the disclosure to the buyer when entering into a buyer representation agreement or when submitting an offer on behalf of the buyer. Both buyer’s agents and seller’s agents must obtain signed acknowledgement that buyer and seller have received the disclosure.

Simplified dual agency prohibitions. Previously complicated dual agency provisions are now simplified, with dual agents prohibited from disclosing any confidential information about buyer or seller without their written consent. Agents, be sure to read the agency language carefully.

Changes to the Natural Hazard Disclosure Statement. Language has been updated, changing “transferor” to “seller” and “transferor’s agent” to “seller’s agent”. “Transferees” has been updated to “buyers”.

Requirements for late disclosures. When a disclosure, or a significant change to a disclosure, is made after completion of the purchase agreement, the homebuyer is granted a period of time to terminate the contract. The time periods are granted as following:

  • Within three days, if the dilatory disclosure was provided in person
  • Within five days, if the dilatory disclosure was provided by mail, or if buyer and seller agreed to conduct the transaction electronically

Notification of sex offender registry. The notice of sex offender registry now must be delivered for the lease of a multi-family property of more than four units (previously excluded from the requirement).

For more information on AB 1289 and changes to real estate disclosures, brokers and agents please consult the new laws section on the CAR website, or contact our real estate attorneys. We can answer questions about the new laws and assist your agency in updating forms when necessary.

Mandatory Mediation in Home Purchase Contracts in California

Real estate purchases are among the largest and most complicated transactions many of us will ever make. While we all hope it won’t happen to us, it’s not surprising when disputes occur. If you purchase or sell a property in California, and a conflict arises, it is likely that you will be required to participate in mediation.

When is mandatory mediation required? When the transaction contract uses the California Association of Realtors Residential Purchase Agreement (“RPA”), the parties are obligated to participate in mandatory mediation before instituting litigation or arbitration. Since most real estate purchases in California use the RPA, your transaction will most likely be subject to mandatory mediation.

What is mediation? Mediation is a non-adversarial process in which an unbiased third party, usually an attorney or a retired judge, helps both sides reach a mutually agreeable settlement of the dispute. The mediator guides the process, but does not impose their own judgment. Nor can the mediator force the parties to settle the dispute. Settlement terms become binding when a written agreement is signed after the parties mutually agree on terms.

Mediation can be a useful way of helping parties resolve their disagreements expeditiously, while avoiding the time, hassle, and expense of going to court or arbitration. In fact, the majority of disputes over real estate transaction do settle at mediation due to the high cost of subsequent litigation or arbitration if there is no settlement.

Each party may bring their own counsel who can assist them in the mediation process,

Are you required to resolve the disagreement via mediation? No. While mediation is highly effective and can resolve many disputes, that is not always the case. In the case that an agreement is not reached, buyers can still proceed to arbitration or court, depending on whether they have pre-determined as part of the contract that arbitration will be mandatory. Even when arbitration or court proceedings become necessary, we find that mediation was still helpful in helping each party narrow their focus and determine their priorities.

What happens if you don’t proceed with mandatory mediation? If the parties entered into the RPA, included in that document is an agreement to participate in mediation. Failure to comply with the terms of the contract can result in a waiver of that party’s right to collect attorney fees and costs if that party ultimately is successful in any future litigation or arbitration. In other words, failure to mediate carries a potentially extremely costly financial burden. If you find yourself in this situation, do NOT refuse to mediate!

For more information on mediation, your rights and responsibilities, and seeking counsel in the event of a dispute, contact our real estate attorneys. We can help you understand the terms of your contract and proceed with resolving your situation according to requirements.

Six Different Types of Commercial Leases

As business owners navigate the pros and cons of various office lease arrangements, it helps to become familiar with the lexicon of commercial real estate agreements. One of the first and most pivotal decisions will involve the type of commercial lease best suited for the owner’s needs.

Two primary factors should be considered when evaluating commercial leases. In most cases, different leases are better suited to certain business types. Leases are also categorized according to how rent and other costs are collected from the tenant. Below are a number of examples.

Net Lease. Used in any type of commercial setting, a net lease requires that the tenant pay a base rent plus some (or all) of the costs of insurance, maintenance, and taxes.

Double Net Lease. Under this type of net lease, the tenant pays rent plus taxes and insurance.

Triple Net Lease. With a triple net lease, the tenant pays rent plus taxes, insurance, and maintenance.

Percentage Lease. Typically used for retail businesses, a percentage lease requires the tenant to pay rent plus an established percentage of their sales.

Fully Serviced Lease (Gross Lease). This type of lease is most often used for office spaces, but can also apply to retail or industrial situations. The landlord pays most or all of the usual costs, while the tenant pays a set amount of rent each month. Of course, while the landlord does pay for most additional costs, those are typically passed on to the tenant via the “load factor.” In other words, the base rent is usually higher than it otherwise would be if the tenant were expected to share in other costs.

Modified Gross Lease. A variation on the Gross Lease, a Modified Gross Lease establishes a base rent which is paid by the tenant for an initial term. After that term has expired, the tenant picks up a proportional cost of insurance, taxes, or maintenance, as agreed upon in the initial lease.

Business owners who are navigating the differences between leasing situations will benefit from the guidance of an experienced real estate attorney. Give us a call, and we can help you weigh the benefits and drawbacks of each leasing type, and negotiate an agreement best suited to your business.

Tenant Improvements in Commercial Leases

In order to find the right commercial space for a business, tenants will consider a number of factors such as location, lease terms, and of course, price. But if a space doesn’t adequately provide for the business’s needs, daily operations could be difficult, or clientele response could be impacted.

That’s why, in many cases, tenant improvements to commercial spaces are allowed by most landlords. In fact, many will offer a “tenant improvement allowance”, or a sum of money that the landlord agrees to spend in order to complete improvements and modifications, so that the space will work well for the tenant.

Negotiating those improvements, however, is not often a simple matter. Business owners need to understand these basic concepts before moving forward with tenant improvement negotiations. Seeking advice from a real estate attorney can also aid in these discussions.

Obtaining correct measurements. Carpenters and construction workers use a common phrase: Measure twice, cut once. The idea is that measurements must be precise before any work is done, or else time and expense will increase (along with frustration).

Tenant improvement allowances are often figured according to a set dollar amount per square foot. Ensuring that the rentable square footage is correctly measured will result in a more accurate tenant improvement allowance.

Who does the work? Should the business owner ask for a specific dollar amount, and then hire their own contractor? Or, should they take the landlord’s offer to build out the space for them? Either can work, but landlords often offer the turnkey option because they expect it will save them money. When opting to allow the landlord to complete the modifications, all specifications should be discussed and agreed upon in precise detail before the work begins.

A realistic perspective. Landlords have a bottom line, just like anyone else. So when a tenant improvement allowance is offered, tenants should keep that in mind. Every dollar of tenant improvement allowance must be balanced elsewhere, whether through higher rent or rent increase schedules. This is all part of the deal; improvements may be necessary in order for the business to succeed, but nothing is free. The tenant should examine the deal as a whole, before getting carried away with a generous tenant improvement allowance.

Consult our real estate attorneys for more information on tenant improvements, and understanding the terms of a commercial lease. With skill and experience on their side, tenants can negotiate a deal that works best for their business.

Tenant Improvements in Commercial Leases

In order to find the right commercial space for a business, tenants will consider a number of factors such as location, lease terms, and of course, price. But if a space doesn’t adequately provide for the business’s needs, daily operations could be difficult, or clientele response could be impacted.

That’s why, in many cases, tenant improvements to commercial spaces are allowed by most landlords. In fact, many will offer a “tenant improvement allowance”, or a sum of money that the landlord agrees to spend in order to complete improvements and modifications, so that the space will work well for the tenant.

Negotiating those improvements, however, is not often a simple matter. Business owners need to understand these basic concepts before moving forward with tenant improvement negotiations. Seeking advice from a real estate attorney can also aid in these discussions.

Obtaining correct measurements. Carpenters and construction workers use a common phrase: Measure twice, cut once. The idea is that measurements must be precise before any work is done, or else time and expense will increase (along with frustration).

Tenant improvement allowances are often figured according to a set dollar amount per square foot. Ensuring that the rentable square footage is correctly measured will result in a more accurate tenant improvement allowance.

Who does the work? Should the business owner ask for a specific dollar amount, and then hire their own contractor? Or, should they take the landlord’s offer to build out the space for them? Either can work, but landlords often offer the turnkey option because they expect it will save them money. When opting to allow the landlord to complete the modifications, all specifications should be discussed and agreed upon in precise detail before the work begins.

A realistic perspective. Landlords have a bottom line, just like anyone else. So when a tenant improvement allowance is offered, tenants should keep that in mind. Every dollar of tenant improvement allowance must be balanced elsewhere, whether through higher rent or rent increase schedules. This is all part of the deal; improvements may be necessary in order for the business to succeed, but nothing is free. The tenant should examine the deal as a whole, before getting carried away with a generous tenant improvement allowance.

Consult our real estate attorneys for more information on tenant improvements, and understanding the terms of a commercial lease. With skill and experience on their side, tenants can negotiate a deal that works best for their business.

Personal Guaranty on Commercial Leases

Some commercial landlords insist that a business owner provide a personal guaranty as a condition of its lease. But what exactly is a personal guaranty of a commercial lease, and should the business owner agree to this term?

When banks issue loans to start-up businesses, they will often require a personal guaranty of the loan because the new business has no track record and likely has insufficient assets. This personal guaranty is an agreement by the individual that he or she will be personally liable for the loan if the business doesn’t make payments or otherwise defaults on the loan.

In a similar manner, many landlords require a personal guaranty of commercial leases, especially from start-up businesses. The lease agreement is a major commitment, and the landlord wants to know that those payments are covered even if the business does not succeed.

A personal guaranty becomes particularly important in the event that the landlord has made upgrades or renovations to the property in order to suit the tenant’s business. These changes might not be suitable for the next tenant. So, the landlord needs assurance that in the event that the tenant is unable to pay the rent or the business fails, the landlord will be able to recoup some of these costs and expenses.

Before accepting the personal guaranty, the landlord will usually require a financial statement and credit check of the person agreeing to guaranty the lease to ensure that he or she indeed has access to resources to cover lease payments and expenses.

Some negotiation might be possible. While a personal guaranty on commercial leases has become more common – almost standard in many locations – since the 2008 real estate bubble burst, that doesn’t mean there isn’t room for negotiation. Tenants can often negotiate the following conditions in order to minimize the impact of the personal guaranty:

● A limit on the dollar amount of the guaranty
● A time limit on the guaranty which might be shorter than the length of the lease
● Putting a letter of credit in place, for an agreed dollar amount
● A guaranty to pay rent for a set period of time after early termination of the lease, giving the landlord time to find a new tenant

Local and state regulations. As with any other terms of a commercial lease, a personal guaranty will be subject to local and state laws governing commercial real estate. Before entering into a personal guaranty of a commercial lease, call our real estate attorneys for advice. We can help you understand the terms and implications of the guaranty, or potentially negotiate an arrangement that is satisfactory to you.

Insurance Provisions on Commercial Leases

Commercial lease negotiations can be time-consuming and complex, but you can count on one thing being true: Both the tenant and the landlord want to get the best possible deal. Therefore, each provision within the lease must be carefully examined for its potential impact on each party’s bottom line.

Insurance provisions within the lease spell out each party’s obligations and responsibilities regarding protections of the building and contents, and even various liabilities. These provisions are of critical importance. Both parties can avoid many future headaches by understanding them in advance.

With that mind, consider these six questions when reviewing insurance provisions:

Who is responsible for what? Which party is responsible for insuring the building itself? What about its contents? Are there limitations on contents? What about specialized business equipment?

What types of insurance are required? The tenant should seek to understand the types of insurance required by the lease, as failure to comply can create problems later. Not only can failure to maintain proper insurance result in significant financial burden in the event of a loss; it can also provide the landlord with cause to terminate the lease.

At the same time, it is important for the tenant to understand the landlord’s insurance requirements as well. Each party should consider naming one another as “additional insured” on policies.

Who carries the burden of liability? The potential for lawsuits on the property should be examined carefully. Whose insurance policy is responsible for which areas of the building? Who is responsible for maintenance of the parking lot or common lobby, and claims arising from incidents within those spaces? Typically, tenants are only held responsible for the area they occupy, but this should be spelled out clearly within the lease.

What about coverage for leasehold improvements? Sometimes, tenants make the mistake of purchasing coverage for their business equipment, but forget about leasehold improvements they made to the building such as interior walls, carpeting, and so on. In the event of a fire or flood, leasehold improvements might not be covered under the landlord’s insurance, nor the tenant’s personal property policy.

Does the lease waive carriers’ rights of subrogation? Subrogation allows one party’s insurance carrier to sue the other party for reimbursement in the event of a loss. If tenant and landlord agree to a mutual waiver of carriers’ rights of subrogation, this means insurance companies cannot seek repayment from the other party.

Is there an abatement policy? In the event that the building is condemned or uninhabitable, will required lease payments be ceased? Tenants should investigate this issue, as the presence or absence of an abatement policy will impact the amount of business interruption insurance needed.

The above are just some of the more common insurance questions a potential tenant should investigate before signing a commercial lease. For more information on commercial leases and insurance provisions, contact our real estate attorneys prior to signing a lease. We can help tenants understand their rights and responsibilities, along with the potential impacts of each requirement within the lease.

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