As we approach the height of hurricane season, it’s a good time for property owners to brush up on their understanding of flood zones and how they impact flood insurance. Below are some resources and answers to frequently asked questions on flood zones: Continue Reading Understanding Flood Zones in Florida
I find myself frequently having conversations with potential clients asking why they shouldn’t use a title company to handle the closing of their new home. Why spend more money to hire an attorney when a title company can close the deal for less? Excellent question.
Sure, a title company can create the documents necessary to close the deal. They can also generally guide the parties on some issues that might come up, such as what additional requirements must be met when the seller is considered a “foreign person” under FIRPTA.
On August 24, 2016, the Fourth District Court of Appeal issued an opinion in Ober v. Town of Lauderdale-by-the-Sea, No. 4D14-4597, 2016 WL 4468134 (Fla. 4th DCA August 24, 2016) that is likely to have broad implications on Florida’s foreclosure process and negatively impact investor interests in distressed real estate. Moving forward, from a land use perspective, the case should also serve as a cautionary tale and reminder about the importance of a prospective buyer’s due diligence.
The genesis of the case began on November 26, 2007, when a lis pendens was recorded on a property as part of a foreclosure proceeding against a homeowner. Thereafter, a bank obtained a final judgment of foreclosure on the property in September of 2008. Several years following the final judgment, a real estate investor, Ober, purchased the property on September 27, 2012 at a judicial sale.
The crux of the case revolved around seven (7) separate code enforcement liens that had been recorded on the property by the Town between the dates of July 13, 2009 and October 27, 2011, all stemming from violations that occurred after the final judgment was entered. Finally, in 2013 the Town began to impose three more liens on the property in relation to the earlier violations.
In an attempt to strike the liens against his property, Ober filed an action to quiet title in civil court. In response, the Town filed counterclaims to foreclose the ten (10) liens, which were later approved by the trial court in its final judgment that was entered against Ober.
According to the Ober Court, Florida’s Lis Pendens Statute Does Not Apply to Liens Recorded Between Final Judgment and the Judicial Sale
The term “due diligence” gets thrown around a lot in the development world, but often with little regard for what the term entails. As with all things relating to property, this post is in no way intended to encompass all considerations in due diligence as properties are unique and present specific needs of review. However, the following list provides a brief glimpse into items to review when you are considering the purchase of real property for development in Southwest Florida: Continue Reading 8 Practical Tips for Land Use Due Diligence in Southwest Florida
In Florida, condominium and homeowners’ associations may require potential buyers to submit an application to the association before allowing the buyer to close on the property. A buyer’s failure to timely submit an application to a governing association could delay closing.
Here are a few tips for anyone looking to buy or sell a home governed by an association:
- Before listing your home, review the governing documents to see if they include provisions subjecting potential buyers to the association’s approval;
- If they do, check with the Association manager early on to see if there is a timeframe attached to the approval process, e.g., buyer must submit an application no later than 30 days prior to the transfer of property; and
- Apply early to give the association adequate time to process the application.
Following these steps will help minimize the risk of delays in your closing.
Photo credit: MarkMoz12 under Flickr Creative Commons License
In April of last year, David Fowler shared a post about a seller’s obligation in a residential sale to disclose facts or conditions about the property that have a substantial impact on its value or desirability, and that are not easily observable to a buyer. As the post outlined, most of the disclosures are property specific, like the presence of mold or wood destroying organisms, or whether essential components of the home, such as the roof, plumbing or HVAC, are in disrepair. Sellers typically inform buyers of these conditions in a disclosure form usually provided by the seller’s real estate agent. There are, however, other disclosures required by Florida law that are equally as important to a buyer in making an informed decision whether to purchase a home.
Here are some of those disclosures that parties involved in the sale of a residential home should also be aware of:
Homeowners Association and Condominium Association
Lawsuits regarding nondisclosure of a home’s problems are becoming more prevalent. Historically, the rule of “caveat emptor” or “buyer beware” was the prevailing standard in residential transactions. However, the law has evolved and Florida now requires sellers of residential property to make certain disclosures to buyers about the property’s condition and history. An increasing number of sellers and sometimes their real estate agents are finding themselves on the hook for nondisclosure. Therefore, it is important for both home sellers and real estate agents to be familiar with the disclosures required.
Florida law provides that, with some exceptions, a home seller must disclose any facts or conditions about the property that have a substantial impact on its value or desirability, and that are not easily observable to a buyer. This has been the standard since the Florida Supreme Court decided the case of Johnson v. Davis, 480 So.2d 625 in 1985.
Although not required by Florida law, it is well advised that property disclosures be made in writing together with proof of delivery to the buyer. Although some required disclosures are included in the prevailing residential real estate contract forms, disclosures relating to the specific property are normally made by separate disclosure form. Types of issues or property conditions required to be disclosed include:
- whether improvements have been made without building permits;
- whether the property contains any environmental hazards such as asbestos, lead, mold, Chinese drywall;
- whether any infestations or damage have occurred from wood-destroying organisms such as termites and carpenter ants;
- whether there are any problems with essential components of the home, such as the roof, plumbing, electrical wiring, major appliances, HVAC;
- whether any actual or potential claims, complaints or court proceedings affect the property;
- whether the property is subject to the rules of a condominium or condominium association; and,
- whether any disputes have arisen regarding the property’s boundaries.
The good news for sellers in Florida, home sellers are not responsible for defects they “should have known” about. Rather, Florida sellers are required to disclose only those property defects of which they have actual knowledge. This standard was determined in the case of Jensen v. Bailey, 76 So.3d 980 (Fla. 2nd DCA 2011). In this case, the Court recognized that sellers should not be expected to guarantee to buyers that their properties are free of all defects. Instead, to make a claim against a seller, the buyer must be able to demonstrate that:
- the seller knew about the property defect;
- the defect has a substantial impact on the value of the property;
- the buyer did not know about the defect at the time of purchase;
- the defect was not readily observable or easy for the buyer to detect; and,
- the seller did not disclose the defect to the buyer.
It is important to note that selling a home in “As-Is” condition, does not relieve a seller from the disclosure duties under Florida law. The “As Is” condition means only that the buyer agrees to take the property in its existing condition without the seller having to make any repairs.
Bottom line: Sellers are well advised to carefully review their property disclosures to any prospective purchaser. A little extra caution at this stage of any potential transaction can limit a seller’s liability exposure and help avoid a lawsuit post closing.
Image Credit http://blog.pallspera.com/
As a real estate lawyer, a significant part of my practice involves preparing and negotiating commercial and residential lease agreements. At times, however, potential clients may decide to find a sample lease agreement online, or have their realtor prepare the lease, to avoid attorney fees.
Proceed With Caution
Because most commercial leases are for 5, 10, or even 20 years, the length of time you will be bound by the lease terms warrants hiring legal counsel to look after your best interests. This is equally important in a residential setting, as housing costs are generally the largest monthly or yearly expenditure. From both the landlord’s and tenant’s perspectives, it is important to clearly and thoroughly set forth the terms of the agreement, whether it is a residential or commercial lease, to avoid disputes as to each party’s responsibilities and obligations. The most common issues that create disputes with lease agreements include:
- Condition of the property was not thoroughly investigated.
- Unclear language concerning the responsible party for maintenance and repairs.
- Unclear language as to the type and amount of insurance required to be obtained by each party.
- Notice and cure periods, as well as when late fees are triggered, are not clearly stated.
- The language is not clear as to how the tenant may exercise an option for the lease term to be extended, known as a renewal option, nor does the lease clearly provide the rent for the renewal option and what happens if the parties cannot agree upon the new rent amount.
- The lease was not signed as required by law or an authorized representative did not sign the lease.
- Language does not address who owns alterations or improvements made to the property.
- Unclear language as to if either party is obligated to repair or rebuild in event of partial or total destruction, or when a party has the right to terminate the lease in the event of destruction.
- Failure to clearly state the conditions to be satisfied for the security deposit to be returned to tenant.
- If tenant is given an option to purchase, the language fails to clearly provide the terms and conditions of said option and whether tenant’s deposit for the option is non-refundable.
Be extra cautious when negotiating a lease with an option to purchase. An option to purchase requires the parties to not only set forth the terms and conditions to lease the premises, but also requires all terms and conditions of a contract be discussed and clearly set forth in the lease. Often the option to purchase provision is not properly drafted and is a common cause for legal disputes.
Finally, commercial landlords should avoid using a previously prepared lease agreement for a new transaction, even if the agreement was prepared by an attorney. Not only is each transaction unique, but the laws may have changed since the previous agreement was drafted.
The value of thorough due diligence cannot be underestimated by either party before entering into a lease agreement. For instance, is the tenant credit worthy and has a background check on tenant been obtained? Is the landlord responsive when repairs are required? Is the landlord financially sound or is there pending foreclosure or other lawsuits against the landlord?
Keep in mind that once a dispute arises with a lease agreement, the attorney must work within the language in the lease agreement. It is more beneficial, and less costly, to hire an attorney to protect you before a problem arises. In the event a dispute arises, be sure to contact your legal counsel as soon as possible to protect your interests.
Last month I wrote about the importance of due diligence before a contract is signed when purchasing commercial property. This month’s article discusses a buyer’s due diligence after the contract has been signed but prior to closing and taking title to the property.
As stated in last month’s article, a buyer must perform due diligence to ensure she is aware of all material facts concerning the investment property. The extent and scope of the due diligence differs with each property depending on the goal of the buyer. To this end, a buyer must first determine if she will be the end user or if she expects a return on her investment via an income stream from rentals? Will the property be held long term or short term? Is a business being purchased in conjunction with the real property?
Once you have signed a contract to purchase commercial property, you (the buyer) will need to revisit the questions set forth in my article last month and conduct a more thorough investigation of those matters. In addition, you must perform additional due diligence on the property prior to the expiration of the inspection period so the following questions can be answered:
- Are there any title concerns? A thorough review of the title commitment and all of the documents referenced therein is critical. Some title concerns may include: mortgages, liens, judgments or assessments against the property, probate issues, pending lawsuits or foreclosure suit. Although the contract will provide a buyer with a period of time for title review, the contract should be drafted so the title review period coincides with the due diligence or inspection period to provide the buyer with more flexibility.
- Are there any survey concerns? The survey should be ordered as soon as possible after the contract is signed and should be reviewed in conjunction with the title commitment. This allows you to determine if there are easements, encroachments or other matters that need to be addressed.
- Is there insurable access to the property? Many people believe that if there is a road to the property, access is not a concern. Actual access to the property is much different than insurable access to the property. If there is not insurable access, you may encounter problems in the future when you attempt to develop, finance or sell the property.
- Do current zoning and land use classifications allow you to use the property as you intend and what are the permitted uses for adjacent properties? You should request a zoning verification letter from the applicable municipality to obtain valuable information as to the pertinent zoning and code related matters.
- Are there any environmental concerns? To answer this question, a “Phase I environmental assessment” should be obtained. Depending on the results of the Phase I report, a Phase II environmental assessment may be required. Do not assume that because the property has never been used as a gas station, dry cleaning business or other type of business that has a higher likelihood of contamination that there are no environmental concerns with the property.
- Are there code enforcement liens, expired permits, unsatisfied development or easement obligations, unpaid municipal liens for such things as water, electricity, sewer or gas that may create potential legal liability for you, as the successor owner? Some code enforcement liens may attach to all property owned by that property owner and is not limited to the property that is in violation of the code. This is referred to as “cross attaching.” If the seller owns property with a cross attaching super priority code enforcement lien against one parcel and you purchase another parcel from the seller, the property may be subject to the lien.
- Are there any major issues with the building, roof, electrical, plumbing, fire sprinklers, elevator, HVAC, etc? You should obtain inspections so you can evaluate any repairs that may be required.
- Are there tenants? If so, carefully review each lease agreement to determine the landlord and tenant obligations, if the tenant has a right to purchase or relocate, if tenant has exclusivity, if tenant paid a deposit or advance rents. You should also obtain a tenant estoppel letter and rent roll.
- Are you purchasing a business along with the real property? If so, the business will have its own laundry list of due diligence matters you must investigate, which are beyond the scope of this article. Some real property related concerns you should consider are: what type of business or related licenses will be required, is a liquor license required, is outdoor dining permitted, is music permitted, is a drive-through permitted?
- How will you take title to the property? This should be determined before you close on the property to avoid incurring additional costs post closing, such as additional documentary stamp tax and related costs.
The above list is not exhaustive but illustrates the depth of due diligence that is required by a buyer concerning commercial real property. Yes, you may spend tens of thousands of dollars on due diligence investigations and ultimately elect to terminate the contract. That is the purpose of due diligence — so you can fully evaluate the property and the risks and costs involved should you purchase the property.
A good portion of my practice involves representing buyers in commercial and residential transactions. Part of this representation involves advising my clients on due diligence matters pertaining to the property. Most of us know investigation of various real property matters is critical before purchasing commercial real estate. Do you also know your due diligence of the property should begin before you sign a contract to purchase? Due diligence is critical in your negotiations prior to signing a contract.
Because a lot of my clients come to me after they have signed a contract, I have decided to write about the importance of due diligence before and after a contract is signed to purchase commercial property. This month’s article discusses a buyer’s due diligence before signing a contract to purchase. Next month I will discuss a buyer’s due diligence after the contract has been signed but prior to closing and taking title to the property.
The reason a buyer must perform due diligence is to ensure he or she is aware of all material facts concerning the investment property and should begin before a contract to purchase is signed. The extent and scope of any due diligence differs with each property and the goal of the buyer. Is the buyer going to be the end user or is she going to expect a return on her investment via an income stream from rentals? Will the property be held long term or short term by the buyer? Is a business being purchased in conjunction with the real property?
Prior to signing a contract to purchase the commercial property, the buyer should obtain answers to some initial questions, including but not limited to the following:
- What is the real property being purchased? You need to know the legal description, street address and parcel identification or strap number. You should also obtain the size of the building and ascertain any fixtures that will be removed from the building prior to closing.
- Are there any development rights or obligations pertaining to the property?
- What is the physical condition of the property? You can ascertain this initially by either personally performing a visual inspection of the property (if you are qualified and knowledgeable with such matters) or requesting an inspector to perform a site visit with you to point out any obvious concerns with the property. This is useful information when you are negotiating with the seller prior to signing a contract to purchase.
- Is the current land use and zoning consistent with your plans for the property? It is important to remember that you cannot rely on the previous use of the property as being permitted in the future. Many times clients will say to me that they are certain they can use the property as they intend because their use is the same as the prior use. This is not always the case because zoning and land use regulations change with time. Therefore, it is possible the prior occupant’s use was grandfathered as a permitted use. Do not assume the previous use will be permitted in the future.
- Are improvements, changes or major renovations required to the property to be suitable for your intended use and what are the costs of these items?
- Does the property comply with Americans with Disabilities Act or is it exempt?
- Do you have sufficient parking?
- Are there any apparent encroachments or access issues with property based upon your visual inspection of the property?
- Are there any open permits?
- Are there any title concerns based upon an initial review of the official records website in the County where the property is located? I often perform an initial search of the public records for my client so I can advise them of such things as mortgages against the property, whether the mortgage amounts exceed the purchase price, if there are other recorded liens against the property and if there is pending litigation (for example, a foreclosure lawsuit).
Obtaining answers to these types of questions will assist you in negotiating a contract with the seller, as you will be able to identify some areas of concern that need to be further investigated or resolved.