The Covenant of Quiet Enjoyment - A Bang or a Whimper
Almost all commercial leases in the United States include a covenant of quiet enjoyment. At its simplest level, the protection afforded by the covenant to a tenant is straightforward: a landlord must not interfere with a tenant's use and enjoyment of the leased premises. Tenants, however, have attempted to utilize the covenant in a more expansive way to make claims and obtain damages against landlords for various types of landlord behavior. The scope and nature of the landlord's detrimental behavior are important factors in determining whether the tenant will have a potentially successful claim for the breach of the covenant of quiet enjoyment. But recent cases suggest that leases can be drafted to limit the scope of the covenant and/or the landlord’s liability for breach of the covenant. Continue Reading Questions & comments
Brokers - Thou Shalt Not Accept Payments From More Than One Source In Connection With a Mortgage Loan
By Sherwin Root
Mortgage lenders and brokers are aware that the new regulations on loan originator compensation (part of Regulation Z) will go into effect on April 1. One aspect of those regulations that has received little attention until just recently is that if the consumer pays the loan originator directly (which may be the case with mortgage brokers, but will not be the case with loan originators who are employed by the creditor), the regulations prohibit any other person from providing any compensation to a loan originator, directly or indirectly, in connection with that particular transaction. This means that, if a mortgage broker is paid by the consumer, (i) the mortgage broker cannot receive additional compensation from the lender, and (ii) the lender cannot also pay compensation to any of its internal loan originators in connection with that loan (with the possible exception of an hourly wage). It is also worth noting that payments to a loan originator made out of loan proceeds are considered compensation received directly from the consumer. There is some question as to whether this is exactly the result that the Federal Reserve Board intended. We understand that the Mortgage Bankers Association of America is seeking clarification from the Fed on this provision, so it is possible that some modification will be forthcoming. Barring that, though, mortgage lenders should be prepared to comply with the above limitations commencing April 1.
Homeowner Associations and Members Not Necessarily Bound By Arbitration Provisions in CC&Rs or in Related Purchase Agreement Where Developer is Initial Declarant
Pinnacle Museum Tower Association v. Pinnacle Market Development (US) LLC, No. D055422 (4th Dist. July 30, 2010)
By Michael Wilmar and Aaron Kleven
Homeowners and homeowner associations are not necessarily bound by arbitration provisions in a declaration of covenants, conditions and restrictions, or in a related purchase agreement, where the developer is the initial and only declarant. That is the implication of a July 30th ruling of the Fourth District of the California Court of Appeal. In Pinnacle Museum Tower Association v. Pinnacle Market Development (US) LLC, a homeowner association brought a construction defect suit on behalf of itself and its members for damage to common areas. The developer of the condominium project attempted to block the suit, claiming the plaintiff was bound to an arbitration provision recorded in the project CC&R's. It argued the provision committed the Association to resolve all construction disputes through arbitration and waived the Association’s right to a jury trial. The purchase and sale agreements signed by the individual condominium owners also contained a jury waiver and a provision compelling owners to comply with the arbitration provision in the CC&R's. But the court concluded that the provision in the CC&R’s did not constitute an agreement sufficient to wave the Association's constitutional right to a jury trial. And it found the corresponding provision in the purchase and sale agreement unconscionable and unenforceable against the individual owners.
Recovery Zone Facility Bonds May Not Provide the Economic Stimulus Local Agencies Hoped For
By Claudia Gutierrez
On February 17, 2009, President Obama signed into law the $787 billion stimulus bill, The American Recovery and Reinvestment Act of 2009 (ARRA). As part of ARRA, Recovery Zone Facility Bonds (RZFB) were introduced as a groundbreaking type of tax-exempt private activity bond that would tremendously increase financing opportunities for private development projects that have historically not qualified for tax-exempt financing. The list of qualified businesses under the RZFB program is extensive - any trade or business within a designated recovery zone, excluding only a few types of businesses such as residential property, golf courses, country clubs, massage parlors, facilities dedicated to sale of alcohol or gambling, etc.
As of March 8, 2010, Major Title Insurers Will No Longer Underwrite Policies to Protect Creditors' Rights
By Aaron Sobaski & Robyn Christo
On February 3, 2010, the American Land Title Association ("ALTA") Board of Governors unanimously voted to withdraw and decertify its Form 21-06 Creditors' Rights Endorsement ("Endorsement"). The California Land Title Association ("CLTA") Board of Governors quickly followed suit, withdrawing its own Endorsement (Forms 131 and 131-6) on February 16, 2010. While the ALTA Board made clear that its action had no effect on an individual title insurers' ability to provide protection to owners and/or lenders with respect to creditors rights, many of the major industry leaders—for example First American Title and Fidelity National Title (including related companies such as Chicago Title)—promptly announced they would no longer be providing insureds with coverage for creditors' rights.
Changes to Penalty for Failure to Timely File CA Entity Change in Ownership Statement
California recently enacted SB 816 to change the penalty provisions for failure to timely file a transfer of property ownership statement with the State Board of Equalization (the "BOE") upon a change in control or change in ownership of a corporation, partnership, limited liability company, or other legal entity. Note that these new rules apply only to late filings of ownership statements upon the change in control or ownership of a legal entity, and not to late filings of ownership statements required to be filed with the county assessor's office upon the recording of a deed transferring real property.
Continue Reading Questions & commentsModifications of home loans under government program will not adversely affect REMICs
By Matthew Richardson
The IRS recently issued "safe harbor" guidance that home loans modified under the Home Affordable Modification Program (HAMP) will not adversely affect real estate mortgage investment conduits (REMICs). Without this guidance, payments from the US government to lenders and servicers of home loans under HAMP may have resulted in a 100% penalty tax and may have jeopardized the securitization vehicle's tax-advantaged classification as a REMIC.
Landlords Keep Your House In Order - Claims For Past Due Rents Dismissed Where Certificate Of Occupancy Not Obtained
By Douglas E. Wance
Espinoza v. Calva, ____ Cal. App.4th ____
(December 16, 2008, Case No. G040006, Fourth Appellate District, Division Three)
In an unlawful detainer action, the Court of Appeal reversed the trial court's award of past due rent under a lease where the landlord had failed to secure a required certificate of occupancy for the leased premises and the tenants were unaware of the requirement at the time they leased the premises.
The landlord brought the action against the tenants seeking eviction and an award of past due rent. The tenants claimed the premises were uninhabitable. They introduced records that no occupancy permit had been issued for the premises and a copy of applicable city ordinances, all which were admitted by the trial court. The trial court awarded possession of premises to the landlord, and also awarded the landlord $2,350 for rent.
Homestead exemption does not apply to Home owned by single shareholder corporation
California Coastal Commission, etc., et al. v. Michael A. Allen, ___ Cal. App. 4th ___ (Oct. 1, 2008, Case No. B197974)
In this case, California Court of Appeal affirmed an order for sale of dwelling pursuant to California Code of Civil Procedure section 704.740 (part of the state’s Enforcement of Judgments Law) finding the Coastal Commission's assignee of a $1,469,000 judgment lien had properly secured a valid assignment of the judgment and that the homestead exemption did not apply because the subject dwelling was not owned by a natural person.
Continue Reading Questions & commentsCourt May Not Imply Essential Terms Regarding Time and Payment to Make Option Agreement Enforceable if Parties Continued to Negotiate Those Terms After Execution of Agreement.
Patel v. Liebermensch (Aug. 21, 2007, D048582 [4th Dist, Div. 2]) __ Cal.App.4th __; http://www.courtinfo.ca.gov/cgi-bin/opinions
In this case, the Fourth District Court of Appeal of California addressed the issue of the enforceability of an option contract that did not include essential terms regarding the time and manner of payment. The court held that the evidence showed that the parties continued to negotiate these terms (and terms related to the amount of the deposit, the escrow period, and the payment of escrow expenses) following the tenant’s notice that he was exercising the option. The court found that these key terms could not be added by the trial court by implication, thus rendering the option contract unenforceable.
Continue Reading Questions & commentsPhysical Recordation Of A LIS Pendens With The Recorder's Office Does Not Provide Constructive Notice Of The Claim Until The LIS Pendens Is Properly Indexed By The Recorder.
Kristina Dyer v. Exon Martinez et al. (February 23, 2007, G037423) __ Cal.App.4th__; http://www.courtinfo.ca.gov/opinions
In this action for specific performance of a contract for the purchase of real property, the Court of Appeals found that the physical recordation of a lis pendens in the county recorder's office was insufficient to provide a prospective purchaser with constructive notice of the claim until the recorder properly indexed the lis pendens in the county real property records because a diligent title search would not reveal the existence of the claim unless it was properly indexed.
Continue Reading Questions & commentsExculpatory Clauses In A Purchase Agreement Do Not Bar Claims By Buyers Of Real Property Alleging That The Seller's Brokers Made Intentional Misrepresentations About The Property
Anne Manderville et al. v. PCG&S Group, Inc. et al. (January 24, 2007, D047285) __ Cal.App.4th__; http://www.courtinfo.ca.gov/opinions/
In this case, the Court of Appeals determined that exculpatory clauses contained in a purchase contract are against public policy to the extent such clauses exempt any individual from liability for his own fraud and therefore do not preclude a buyer of real property from showing that he justifiably relied on a broker’s intentional misrepresentation about the character of the property. The court also found that any lack of due diligence by a buyer in investigating zoning and other laws restricting the use of property, even if negligent, does not preclude the buyer from establishing justifiable reliance if (a) there has been an intentional misrepresentation; and (b) the purchase contract only permits, but does not require, the buyer to undertake his or her own due diligence.
Continue Reading Questions & commentsAppeals Court determines that a contract for the sale of two undivided parcels was void in violation of the Subdivision Map Act.
Black Hills Investments, Inc. v. Albertson's, Inc. - January 12, 2007
On November 22, 2004, Black Hills entered into a contract to purchase two parcels of real property in a retail shopping center. At the time of the contract, the two parcels had not yet been created through subdivision of the property. Black Hills deposited earnest money of $133,000 which was described as non-refundable. The contracts contained a provision which permitted the seller, Albertson's, to terminate the contract if it failed to obtain the proper governmental approvals for creation of the two parcels. Black Hills was given no such right.
Continue Reading Questions & commentsCalifornia Supreme Court Voids Jury Trial Waivers
On August 4 the California Supreme Court ruled, in Grafton Partners v. Superior Court (Pricewaterhouse Coopers LLP), 2005 DJDAR 9387 that California contractual provisions in which the parties thereto pre-agree to waive the right to a trial by jury are unenforceable. The unanimous opinion stated that a right to a jury trial is a fundamental constitutional entitlement that cannot be waived in advance of a dispute between the contracting parties unless such a waiver is permitted by statute. Thus, the court has left the door open for the legislature to pass a statute allowing such waivers, and the forum for interests pursuing this debate will likely shift to the legislature now.
Continue Reading Questions & commentsOut of Form: Special Considerations in Biotech Leasing
In order to negotiate a successful lease agreement for a biotechnology laboratory facility ("biotech lab"), landlords and tenants should evaluate the nature of their concerns, adopt a cooperative attitude, and avoid relying on traditional "form leases" better suited to leases for general office space. Biotech lab leases differ from leases for general commercial office space in that they, among other things, (1) have a higher base rent, in part because of a general shortage in biotech lab space; (2) require more tenant improvements; (3) entail a more costly facility build-out; (4) present greater risks in terms of both degradation of the facility and liability for both parties arising out of environmental damage; and (5) require more flexibility with respect to the tenant's use of the commercial space. As a result of these differences, the tenant will generally be concerned with flexibility and safety, while the landlord will be concerned with achieving high rents, maintaining the value of the facility over the long term, and limiting its exposure to the risks inherent in a lease of a biotech lab facility. Among the major clauses in which these concerns manifest themselves are those relating to tenant improvements, those relating to hazardous materials, and those relating to services and utilities.
Continue Reading Questions & commentsLandlord's Profits Following Repossession Do Not Reduce Tenant's Liability For Breach
Lu v. Grewal
(05 C.D.O.S. 5740, June 28, 2005)
By Mary Hedley
A tenant who abandons a commercial leasehold cannot escape all liability for its breach by taking advantage of the landlord's work in restoring the space and making it profitable. In Lu v. Grewal the tenant abandoned a gas station with almost 3 years left on its lease. When the landlords re took the premises, they found that the gas pumps had been torn out of the ground, gasoline was pooling in holes in the ground, computer controls had been ripped off the walls, the premises were vandalized, and the convenience-store items were missing or broken. The landlords worked around the clock to repair the property and operate the business themselves. They sued the tenant for breach of the lease, including damages for removing fixtures and a claim for the rent that was due following abandonment.
Continue Reading Questions & commentsA Subtenant's Guide to Subleasing
The sudden and dramatic reversal in the financial condition of many high-tech companies, and the ensuing softening of the local commercial real estate market, has led to a flood of sublease space on the commercial real estate market. Although this flood represents a potential economic windfall for those seeking to occupy commercial space, there are a number of potential legal pitfalls and practical problems commonly overlooked by potential subtenants, who often merely rely on boilerplate sublease forms when entering into subleases.
Continue Reading Questions & comments