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There is a difference between an “Agreement to Agree” and an Agreement to Negotiate the Terms of an Agreement. An agreement to agree is not an enforceable contract, and thus there is no duty to negotiate. In the case of the agreement to negotiate, failure to reach the ultimate agreement alone is not a breach of the agreement to negotiate. Only if the failure is due to one party’s failure to negotiate in good faith is there a breach. That is because California law imposes an implied covenant of good faith and fair dealing in contracts. Parties entering preliminary agreements in expectation of further negotiations and a formal contract should be very careful how they describe that initial agreement. For example, a Letter of Intent regarding purchase of real property may be interpreted as containing a duty to negotiate in good faith, unless the Letter expressly disclaims such as agreement. The Agreement should also include waivers of the implied covenant of good faith and fair dealing and damages, and state that it does not create an obligation to negotiate. A party considering a Letter of Intent in a large real estate transaction may want to consult with an experienced real estate attorney to be sure the Letter describes what their actual intent is.

sacramento-letter-of-intent-attorneyIn one case a letter to the plaintiff from the defendant began: “ It is a pleasure to draft the outline of our future agreement ….” After outlining the terms of the agreement, the letter concluded: “If this is a general understanding of the agreement, I ask that you sign a copy of this letter, so that I might forward it to Corporate Counsel for the drafting of a contract. When we have a draft, we will discuss it and hopefully shall have a completed contract and operating unit in the very near future.” (Beck v. Am Health) The court concluded that it was an agreement to agree, because the language of the letter showed an intention that no binding contract would exist until there was a formal contract.

When parties begin the negotiation process with no obligation to do so, they do not have a duty to negotiate in good faith. It is only if the parties are contractually compelled to negotiate doe the covenant to negotiate in good faith become implied.

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In my prior post I discussed the doctrine of Practical Location and how it was historically the same as that of Agreed Boundary. Years ago in more rural times, properties were not so strictly delineated and there were few fixed and permanent monuments to guide owners. Sacramento real estate attorneys could know that where parties in good faith resolve their doubt regarding a boundary by the practical location of the common boundary it will be considered the boundary called for by the deed. Over time as land became more regulated these concepts appear to diverge, but did they really?

Sacramento-property-line-attorney It wasn’t until the French decision in 1963 that the court came up with a specific formulation for the doctrine of boundary by practical location, which appears to be from whole cloth as the elements described were not provided in the cases or the law review article cited by the court. The French court stated that the doctrine of practical location “… provides that where the owner of a larger tract conveys a parcel thereof that he has delineated on the ground by fixed monuments, and the parties rely on such monuments as establishing the intended boundaries, the latter will prevail over any differing description in the deed.” (French v. Brinkman (1963) 60 Cal.2d 547, 551.)

New in this decision was the requirement that there be fixed monuments, even thought there were none in the case before the court. In French the plaintiff figured the property line was at the fence, and he sold the property to the fence. The line was actually beyond the fence, and the dispute arose. The court found plaintiff’s testimony prevailing, and that title would be quieted by practical location, at the fence line. Worth noting is that there were no stakes, pins, posts or markers discussed. Prior to building improvements (including the wall that acted as a fence), the plaintiffs could not find the original surveyor’s stakes. “Accordingly, they ‘just guessed’ at the property line.” Yet, the practical location prevailed.

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In California real estate law, there are situations where the boundary lines as observed on the ground do not match the deed description. Disputes arise when someone has a survey completed, and does not like where the fence or other marker is located, and contact a real estate attorney. There are several legal theories which may resolve the matter, such as adverse possession, prescriptive easement, practical location and agreed boundary. Little known is the relationship between the last two and how they had evolved.

sacramento-real-estate-boundary-agreement-attorney A practical location of a boundary line is simply an actual designation on the ground, by the parties, of the bounds called for in the conveyances. It has also been said that when an uncertain boundary line is fixed by practical location it is binding. (91 A.L.R. 6th, 1, ‘2.) It shares traits with the doctrine of agreed boundary, and the early Supreme Court decision in of Martin v. Lopes in ruling for the defendant, stated “[m]anifestly, the elements of agreed boundary, or practical location, as it is sometimes designated, were not present.” (Martin v. Lopes (1946)) In 1959 the court again used similar language in Ernie v. Trinity: “It may be inferred that there was an uncertainty as to the true line at the time the structures were erected, which uncertainty was settled by practical location on the ground at that time and was agreed to by the then coterminous owners.”

Sacramento-fence-line-lawyer In Nebel v. Guyer, the Third District reviewed a decision in which the parties marked off a boundary on a town lot by notching a fence on one end, and setting a pin on the other. The court found that the boundary line fixed as the west line of plaintiffs’ land controls over the description in the conveyance, since markings were made establishing the west boundary. Likewise, In Arnold, iron stakes installed by an owner of the parcel were accepted as marking the boundary of the lots. (Arnold v. Hanson (1949))

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Assigning claims and causes of actions regarding real estate to someone does not necessarily give them the right to file a lawsuit for quiet title. A quiet title action seeks a declaration of the parties’ rights to the real estate. A description of the parties’ legal interests in real property is all that can be expected of a judgment in an action to quiet title. Without an interest in the property itself, a party has no standing to ask the court to quiet title in the property or to obtain damages for the cloud on title. An action to cancel a trustee’s deed or other instrument transferring title is no different. Parties in this situation should speak with a Sacramento real estate attorney to make sure that the assignment has them covered because the assignment needs something else – assignment of all the assignor’s interest in the property itself. This was a surprise to several people in a 2012 California decision.

Sacramento-real-estate-attorneyIn Chao Fu, Inc. v. Wen Ching Chen, Chao Fu Inc. (CFI) had a 25% interest in property at 852-860 Villa Street in Mountain View, CA (conveniently located between a brewpub and a beer garden.). CFI’s secretary, Kuo, borrowed money from Chen (Lender) and Chen received a promissory note. Chen got nervous and wanted security. They gave him a deed of trust against the Mountain View property. The CFI principals were out of the country for a long time, and the lender foreclosed, obtaining title to the property.

The lender, in a further attempt to collect on the note, sued Kuo. Kao obtained an assignment from CFI of its claims regarding the dispute with the lender. Important is the language of the assignment:

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In the ordinary real estate or business sale escrow, the escrow officer owes duties to the parties to only the parties to the escrow, and not to third parties. There are a few exceptions, such as when the parties real estate sale escrow instructions require following a third party’s instructions, such as lender’s instructions for closing a loan. But it is generally difficult to prove that an escrow holder owes a duty to a third party, the breach of which would result in a finding of negligence. Such was the case in a recent decision which resulted from a misguided and tangled effort to avoid the “no assignment” clause in a commercial lease; parties concerned with suck lease provisions should consult with a real estate attorney.

Sacramento-escrow-liability-attorneyIn Alereza v. Chicago Title, the plaintiff Bobby wanted to buy a gas station which was on leased property, which would require assignment of the lease to the buyer. Escrow #1 was opened, but the landlord required a personal guaranty to allow assignment and the plaintiff did not want to do that. The plaintiff formed an LLC and assigned the purchase contract to the LLC, but the landlord still wanted a personal guaranty. Escrow #1 was cancelled.

The parties had a new idea – plaintiff would buy the interest in the seller’s LLC, thus the tenant would not change, and there would be no assignment. They opened escrow #2. The landlord found out, and said he would consider it a breach of the lease. Escrow #2 closed, and the plaintiff was not a party to the escrow. The escrow officer obtained an insurance certificate for the purchased business, but incorrectly got it in the name of the plaintiff’s LLC (created for escrow #1), not the Seller’s LLC. The parties were not speaking at the time, and nobody knew what was happening. The insurer sent a notice of cancellation of the original policy, and the landlord demanded a personal guaranty. It was not given, and there was an eviction action. The plaintiff gave the personal guaranty, and sued the escrow company for negligence. The court found that, as the individual plaintiff Bobby was not a party to the escrow, there was no liability.

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It is not often that residential real estate cases make it to the Supreme Court, but in this instance Coldwell Banker tangled with a very wealthy buyer of a very expensive ($12.25 million) house. Presented was the common scenario in which the two agents in the deal both were licensed under the same large corporate broker. This house was marketed as 15,000 square feet, and the buyer discovered it was actually 3-5,000 sq. ft. smaller. The salesman who listed the property made the inaccurate representation. The Buyer claimed that, as the broker was a dual agent, so was this listing salesman (“associate licensee”) – owning the buyer the same duties that he had owed the seller. The Supreme Court addressed whether the associate licensee owed to the buyer a duty to learn and disclose all information materially affecting the value or desirability of the property, including the discrepancy between the square footage of the residence’s living area as advertised and as reflected in publicly recorded documents. This is an issue frequently presented to Sacramento real estate attorneys – whether the listing agent owes any duty to the buyer. It was undisputed that Coldwell Banker owed such a duty to the buyer. Now, the Supreme Court has ruled that the associate licensee, who functioned on Coldwell Banker’s behalf in the real property transaction, owed to the buyer an “equivalent” duty of disclosure under Civil Code section 2079.13, subdivision (b).

Sacramento dual agent attorneyIn the case of Horiike v. Coldwell Banker Residential Brokerage Company, the buyer had been working with a Coldwell Banker agent in looking for a house. She connected him with this listing agent, who had listed this Malibu property for sale. According to an interview with the NY Times, this agent told the buyer that the property had 15,000 square feet of living area and was the largest property available in Malibu. “He said that there was new regulation that prohibited developers from building over 11,000 square feet, and that made the property unique and also a very good investment prospect.” This same agent had previously told a different potential buyer multiple times that they did not warrant the square footage, and that they should hire a specialist to verify it. However, he did not tell this to Mr. Horiike. After the sale closed, the buyer wanted to add a sunroom and learned about the discrepancy in size. This lawsuit followed. The NY Times article linked to above indicates that this particular salesman, with a Hollywood client list, has a record of overstating the size of homes which he has listed.

Sacramento  real estate broker dual agent attorneyThe defendant argued that the disclosure statutes only imputed the duties of the salesperson to the broker, and not the other way around – thus, the dual agency concern was not imputed to the salesmen. The court disagreed. Referencing Civil Code § 2079.13, it found that by describing an associate licensee’s duty in a real property transaction as “equivalent to” the duty of the “broker for whom the associate licensee functions,” the provision specifies that when an associate licensee represents a brokerage in a real property transaction, his or her duties are the same as those of the brokerage.

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Leases often have terms allowing extension or renewal for additional time (the difference between extension and renew discussed below). Sacramento real estate attorneys may be called on to interpret the terms of the renewal option when they are not clearly drafted; sometimes it takes a court ruling to reach a result. A well-composed lease will provide a way to determine the new rent, but otherwise the same lease terms generally will apply. However, what happens when the number of optional new terms is not clear?

Sacramento commercial lease option attorneyThat was the case in Ginsberg v. Gamson, where the parties entered a lease for a commercial property for sale of textiles and clothing on South Le Brea Avenue in Los Angeles. The parties got in a dispute, and the right to renew the lease was an issue. Of course, the landlord said the lease provided for only one renewal, the tenant that there were unlimited renewals. The “Option to Extend Renewal” which was under review is set out at the end of this blog.

California Courts apply two rules that apply to interpreting lease provisions that look like they allow perpetual renewals:

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A partition action is a lawsuit in which a co-owner of property can force the sale of a property and have the court determine how the proceeds are divided. In some cases, instead of a sale, the court will order the property be physically divided and distributed to the co-owners. It is used when co-owners disagree. A common question asked of real estate attorneys regards whether the plaintiff can recover their attorney fees for bringing the action. The answer is, maybe, a partial yes. The reason is that the statute gives the court discretion. CCP 874.010 describes “reasonable attorney’s fees incurred or paid by a party for the common benefit. “ When the services of attorneys for both parties are for the common benefit, the court may award fees to both parties. In the event the property is divided rather than sold, the costs awarded become a lien on the parties’ interest in the property. The person who is owed the money can even ask the court to sell the liened portion in order to get paid.

But the question remains- what is “for the common benefit”? Filing the action and getting it before the court is. In my experience contested litigation regarding the relative interests of the parties is likely not. After the sale of the property, the costs are reimbursed before any distribution to the parties. Generally, the court apportions the costs of partition among the co-owners in proportion to their interest in the property, or as it otherwise deems equitable. In an interesting decision, the court chose equity, and only awarded the defendants’ attorney fees – the plaintiff had been so manipulative in trying to take the property from her siblings that the court refused to award her fees.

Sacramento partition attorney fee attorneyIn Hong-Chuan Lin v. Ing-Jieh Jeng, the parties’ parents came to the United States and wanted to buy a house. As they did not have credit, plaintiff “Jane”, who was a real estate agent, obtained the loan. On the parents’ insistence, Jane’s brother Jack was on the loan with her and the two took title as joint tenants. Jack made all the payments on this house. They sold this house and bought another for their parents. The mother and several siblings contributed towards the down payment, and Jane and Jack again were on the loan. However, this time the deed listed Jane as 85% owner, and Jack holding only 15%. Jane then had her parents and her sister sign a written lease, requiring them to pay rent to Jane, though she never told her brothers that she was collecting rent. Jane took all the tax deductions for the mortgage.

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Real Estate Purchase Contracts encountered in California are often detailed and explicit as to the terms of the deal – parties, price, escrow, when closing is to occur, time for inspections, etc. While some terms are subject to varied interpretation, rarely do Sacramento real estate attorneys encounter contracts with glaring omissions. But when they do, the question arises, is the contract enforceable? In a 2008 Supreme Court decision, the court clarified that the only elements necessary for enforceability are the seller, the buyer, the price to be paid, the time and manner of payment, and the property to be transferred. Everything else can be provided by the court based on what is usual and customary.

sacramento real estate contract attorneyIn Sunil Patel v. Morris Liebermensch, Patel was a tenant in a building owned by Liebermensch. Patel held a lease option – he had the right to buy the property under specified terms. The option purchase terms were as follows:

“Through the end of the year 2003, the selling price is $290,000. The selling price increases by 3% through the end of the year 2004 and cancels with expiration of your occupancy. Should this option to buy be exercised, $1,200.00 shall be refunded to you.”

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When a lender holds multiple deeds of trust on the same California Real Estate, they may be forced to make a decision. If the borrower defaults on one of the notes, the lender has all the remedies as to that loan – he can conduct a judicial foreclosure, or hold a nonjudicial trustee’s sale and foreclosed under the power of sale. What concerns the lender and their real estate attorney is, once they foreclose, what happens to the other loan? What can they do to enforce it? If they had foreclosed the first, the second was wiped out. Are they a foreclosed junior lienholder, who can then sue for the debt? In one decision the senior and junior creditors were the same, and the court found that once they foreclosed on the first, they were out of luck on the second.

Sacramento antideficiency attorneyIn Simon v. Superior Court, the bank loaned $1.5 million in exchange for two notes, each secured by separate deeds of trust on the same property in Santa Clara County. The bank foreclosed by trustee’s sale on the senior deed of trust, then sued the borrower on the 2nd note and deed of trust.

the court concluded that, where a creditor makes two successive loans secured by separate deeds of trust on the same real property and forecloses under its senior deed of trust’s power of sale, thereby eliminating the security for its junior deed of trust, section 580d of the Code of Civil Procedure bars recovery of any “deficiency” balance due on the obligation the junior deed of trust secured.