Articles Posted in real estate law

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A typical California commercial mortgage loan requires the borrower and/or its principals to execute a “bad boy guaranty” (a/k/a recourse carve out guaranty). This which provides for personal liability against the borrower and principals of borrower if certain listed ‘bad acts’ are committed by the borrower and its principals. It can change a non-recourse loan into a recourse loan. Potential guarantors will want to be sure to understand the carve outs, and may want to consult an experienced Sacramento and El Dorado real estate attorney.

If triggered by one of bad acts, bad boy guarantees require the guarantor to be personally liable for damages to the lender, or alternatively, converts an otherwise non-recourse loan into a full-recourse loan as against the borrower or guarantor. Lenders then have the right to seek personal liability against the borrower and guarantors. Some of the bad can acts include Fraud, Misapplication of funds, Unauthorized transfers of the mortgaged property or other collateral; or filing bankruptcy.

mortgage 2.jpgIn a recent case the lender tried to claim that, because a tenant abandoned the premises, the bad boy was triggered and the guarantor was liable. Plummer Street Office LP v. NRFC Holdings involved a loan of $44 million to buy two office buildings in Chatsworth. The loans included a bad boy guaranty. The buyer leased the buildings to Washington Mutual.

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California Homeowners and Commercial Property Owners often hire contractors to do repairs, remodeling, or new additions to their structures. Most know to make sure that the person or company they hire is a licensed contractor (though you should not rely solely on the contractor’s state license board website). But experienced Sacramento and El Dorado real estate and construction lawyers are often asked about, defend lawsuits, concerning injuries related to the construction project.

The recent California decision in Gravelin v. Satterfield reviewed the rules in contractor construction injuries. The homeowner was having Dish Network install a satellite dish for their service. The network hired an independent contractor (though he might have been Disk’s employee with the same result) to install the dish. The contractor went to the house, but only brought his short ladder, and left the long one at the shop. He could not access the roof proper, but could reach a small roof extension between the house and carport. The extension was added to the house after it was completed as a rain cover for walking to the car. The roof extension collapsed, and the installer was injured. He sued the homeowner.

chimney_on_roof.jpgThe Rule

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A California Real Estate Broker has a right to payment of a commission only when there is a signed written agreement that provides for a commission. The commission is not earned until the broker completes the performance, and satisfies the conditions, spelled out in the agreement. But, as a recent decisions show, contract language regarding commissions is subject to interpretation, and concerned sellers , brokers, and agents may want to cunsult with an experienced Sacramento and Yolo County real estate lawyer.

In RealPro Inc. v. Smith the sellers entered a listing agreement with MGR, a broker. The agreement proved that a commission was earned when “a buyer is procured who is ready, willing, and able to buy the Property at the price and on the terms stated herein, or on any other price and terms agreeable to sellers.” It also authorized payment of commissions at close of escrow.

storefront.jpgThe listing price was $17 million. RealPro, another broker, presented a written offer to MGR for the full listing price. The listing broker then told MGR that the seller was increasing the listing price to $19,500,000. Except for the price, all other terms of the offer were acceptable. RealPro then demanded its share of the commission from MGR as a third party beneficiary of the listing agreement. MGR refused to pay, and RealPro sued.

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Commercial real estate lenders often require a guaranty signed by a financially responsible California guarantor. Included in the guaranty is a waiver of specific rights, often including a waiver of the antideficiency rights of California Codes of Civil Procedure sections 580 and 726. These are significant rights being given up; for this reason potential guarantors presented with waivers should consult with an experienced Sacramento and Yolo commercial real estate lawyer to fully understand what the consequences of the waivers may be.

Such waivers were included in the guaranty in Gramercy Investment Trust v. Lakemont Homes Nevada, Inc. which involved foreclosure of a $35 million dollar loan on a commercial development. The twist in this case was that the guaranty stated that New York law governed the document. California sections 580a and 726 (waived by the guarantor) limited deficiency judgments to the difference between fair market value and the entire amount of the loan balance due at time of foreclosure. New York law also has similar antideficiency protection, though with a different calculation. The court calculated the deficiency without applying California law, and the borrower appealed, arguing that New York law, and its antideficiency protections, should have been applied.

apartment_houses.jpgThe court of appeal found first that, here New York law did not apply. First looking at the choice of law provision, it found that New York antideficiency rules do not apply when the real property is not located in New York. The courts of New York agree with this proposition. Additionally, as California has similar protection for debtors against certain deficiency judgments, it is of little consequence whether New York or California law applies.

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California commercial leases and rental agreements often have an option which allows the tenant -lessee the right to extend the term of the lease. Generally, the option language provides a specific method to exercise the option, and if the lessee does not follow the procedure, courts find the option was not exercised. In a recent decision, a tenant did not follow the required procedure, but the landlord waived the procedure, extending the term. However, three other tenants did not request the extension, and were not liable for rent. To avoid these kinds of problems parties to a commercial lease with an option should consult with an experienced Sacramento and El Dorado real estate attorney.

In Kavin v. Frye property was leased to open a dress shop in southern California. Kavin was the lessor. There were four lessees who signed the lease, but only two, Andrea and Sessi, were active in the dress shop. The other tenants (Frye & Morgan) were required to sign on primarily as guarantors of the lease. The agreement contain an option to extend the term. The option had to be exercised in writing no later than six months before the end of the term of the lease; if not done, the option automatically terminated .

store_display_1.jpgThe option was not exercised within the time period (and was terminated according to the lease). Meanwhile Sessi had a baby and gave up the dress shop, leaving it all to Andrea. Two weeks after the time to exercise the option passed the land went to the sop and asked Andrea if she wanted to extend. She said yes, so he dictated to her the words she wrote and signed the paper exercising the option. Andrea never discussed exercising the option with any of the other three tenants. Eventually, Andrea could not pay the rent any more, and abandoned the place with over a year left on the extended term. Kavin sued all four lessees for the balance of the rent for the full extended term.

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Sometimes people (and courts ) use the terms ‘license’ and ‘easement’ interchangeably by the parties to the license. But they are clearly different rights, with different legal consequences. There are differences in what uses the holder can make of the property, what the owner of the property can do about, and what happens if the property is transferred or the right is assigned to someone else. People with questions about what rights and liabilities they actually have should consult an experienced Sacramento, El Dorado, or Placer real estate attorney.

Easements

An ‘easement’ is a present interest in real estate, giving the holder a right to the real property and the ability to bring a suit for trespass or ejectment. Because it is an interest in the property itself, it is subject to the statute of frauds, so must be granted in writing.

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California homeowners facing foreclosure are right to be concerned about whether their mortgage is a non-recourse loan, or if they will end up personally liable for the loan. However, some foreclosed Californians are surprised to find that they may be liable for utilities after the trustee’s sale, when they no longer own the property. Experienced Sacramento and El Dorado real estate lawyers are seeing former owners being pursued by utilities for bills charged after they lost the house.

How It Works

In this problem there are two kinds of utility companies; the local government agency, and the private or quasi-public utilities. Local governments, such as City and County, may provide and bill for services such as sewer, water, garbage, and street cleaning. The non-government utilities provide electricity, gas, and other services such as phone or cable. In the case of government agencies, there are local ordinances that govern how they bill the consumer. Usually the agency is notified by the County Assessor when a deed is recorded which changes ownership of the property, and this is the legal trigger by which they change who they bill for the utilities. The agency is bound be the Assessors determination; an example is Sacramento City Code section 13.12.010

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Options are frequently entered concerning California real estate in a number of situations. A rent-to-own or lease option contract usually contains an option; options are taken on bare land in order to develop it in the future; and someone may option a parcel while they are trying to obtain neighboring properties. However, experienced Sacramento and El Dorado real estate lawyers are consulted after the agreement is entered and a problem arises, and the question becomes whether or not you really have an option or something else like a right of first refusal.

An offer to sell property on certain terms can usually be revoked by the offeror (owner) any time before it is accepted. However, if the offeror and offeree (potential buyer) enter an agreement, with “independent consideration” that requires the offer to remain open and irrevocable for a period of time, the offeror cannot revoke it. This is an option contract. “Independent consideration” means that there was an actual payment of consideration of some kind (money, a car, a bag of emeralds, etc.) that was separate and distinct from the payment for the purchase of the property if the option was exercised. If the option is contained in a lease, the provisions of the lease, including the rent to be paid, is sufficient consideration for the option.

money changer.jpegIf there is no actual separate consideration actually received by the Optionor, it remains revokable. However, in this case, if the option is exercised before it is revoked, the optionor becomes bound under the contract even there was no consideration.

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California commercial leases and rental agreements often contain a waiver of subrogation clause. While important, it is often misunderstood or overlooked, even though at its best it benefits both the landlord and the tenant. Parties negotiating leases will want to consult with an experienced Sacramento and El Dorado leasing attorney.

Generally speaking, one who makes payment on another’s behalf payment becomes entitled to be subrogated to the other’s rights. If I have agreed to insure your house, and I paid to repair fire damage to the house, I am subrogated to your rights to recover from anyone who was liable for the fire. That means I can sue them for damages. The waiver of subrogation prevents this. In commercial leases, the clause refers mostly to insurance.


How does it work?

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In 2009 the legislature enacted a law requiring that, during lease of the entire building, lending, or sale transactions for nonresidential buildings, owners must disclose “energy ratings’ developed by the U.S. Environmental Protection Agency. A sliding schedule of compliance is required, with the largest buildings starting in July 2012. Beginning July 2013 all size buildings will be required to comply. Commercial property owners may want to consult with an experienced Sacramento or Yolo Real Estate attorney regarding these transactions.

Under the new law, beginning in 2009 utility companies have been required to keep energy consumption records in a format compatible with the EPA’s Energy Star Portfolio Manager database. The law requires owners to use the data to benchmark the building’s energy use using the U.S. EPA Portfolio Manager system in advance of certain financial transactions, and to disclose statements of the building’s energy usage to potential buyers, lessees, and lenders.

factory_chimneys.jpgThe California Energy commission published proposed regulations last August which established the following schedule:

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