Commercial Core Law

COMMERCIAL CORE LAW ISSUES IN REAL

ESTATEPaul T. Saba, Esq.

William J. Patterson, Esq.STAGNARO, SABA & PATTERSON, CO., L.P.A.

2623 Erie Avenue, Cincinnati, Ohio 45208513.533.2700

[email protected] || [email protected]

This presentation is offered for informational use only. Nothing in this presentation constitutes legal advice, and an attorney-client relationship with either the presenter or Stagnaro, Saba & Patterson, Co. L.P.A. is not created with any member of the audience based solely upon this presentation.

Disclaimer

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Topics Recent Changes – HUD & Receiver Agency Law Contract Formation License Law and Additional State Law –

Commercial Real Estate Considerations Foreclosures and Lender-Owned Properties Land Banks

THE NEW HUD FORMS

Know Before You Owe

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New GFE Forms

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New Forms:08/11/2015

Loan Estimate

3 days after application

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New Forms:08/11/2015

Closing Disclosure

3 days before closing

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NEW RECEIVER SALES STATUTES EFFECTIVE

3/23/15

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Receiver Sales Most significant changes in decades House Bill No. 9 Resolves Uncertainty on Authorities Amends ORC 2333.22, 2735.01, 2735.02 Modifies and expands ORC 2735.04

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Every Person or entity with a lien as reflected on the PJR must receive at least 10 days advanced notice

Notice and opportunity to all interested parties to object to the sale

Court may require the Receiver to solicit and consider additional offers

Creates the Possibility of being a Stalking Horse bidder

Receiver can sell the assets by auction or sealed bids if approved by the Court

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Eliminates the need for the Court to confirm the sale if you follow the procedures

The Receiver must file a report of sale and serve it upon everyone identified in the PJR.

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AGENCY LAW – ORC 4735.51

30 minutes

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Definitions Principal Broker v. Salesman Buyer Brokerage Seller Brokerage

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Agency Duties – ORC 4725.62 Confidentiality Full Disclosure Following Instructions of Principal Advancing Interests of Principal Due Diligence Fiduciary Responsibilities

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Agency Duties - continued Representing Purchaser – ORC 4735.65 Duties to Seller – ORC 4735.63 Prohibitions

Representing Seller – ORC 4735.64Representing Purchaser – ORC 4735.65

Disclosures to Purchaser – ORC 4735.67

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Agency Law Waiver of Fiduciary Duties

ORC 4735.621 – Ohio House Bill 150○ Minimum Services Bill – October 9, 2006○ Licensees Owe Client Full Fiduciary Duties

Outlined in Ohio Revised Code

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Duties That Can Be Waived Accept Delivery of Offers/Counteroffers Present Offers/Counteroffers Answer Questions re: Offers/ Counteroffers Assist Client in Developing and Presenting

Offers/Counteroffers Answer Questions re: Steps Client Must Take

to Fulfill Terms of Any Contract

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Duties That Cannot Be Waived Exercise Reasonable Skill and Care

Perform Terms of Written Agency Agreement Follow Client’s Lawful Instructions Loyalty to Client’s Interests Comply with Laws, Statutes, Rules, Regulations Disclose Material Facts Advise Client to Obtain Expert Advice Account in a Timely Manner for Money/Property Maintain Confidentiality

Exceptions to Confidentiality – ORC 4375.74(b)

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Dual Agency – ORC 4735.70 How Dual Agencies Arise Hazards of Dual Agencies Duties of Broker and Management Level

Licensee – ORC 4735.72

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Forms: Company or Office Policies Contents of Policy and Furnish to Client

ORC 4735.54 and 4735.55 Agency Disclosure Statement – ORC 4735.57

Timing at Auction Sales – ORC 4735.58Timing of Disclosure to Purchaser – ORC 4735.60

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Litigation, Arbitration & Mediation Breach of Lease and Related Claims/Damages Breach of Contract and Related

Claims/Damages Commission Claims Procuring Cause v. Agency Representation

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Commercial Broker Lien Law ORC 1311.86

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CONTRACT FORMATION

30 minutes

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General Contract Law Principles Offer

Mirror Image Required; Master of the OfferOpen-ended Offer Periods; Rule of PerpetuitiesCan Be Rescinded Before AcceptanceSetting Time Periods For AcceptanceStatute of FraudsStatute of Conveyances

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General Contract Law Principles Acceptance

Methods of AcceptanceFax SignaturesExecution and Delivery

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General Contract Law Principles Consideration

Promise in exchange for promiseEarnest money not consideration

Meeting of the MindsMistakeMutual / UnilateralVoid / Voidable

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General Contract Law Principles Types of Contracts

PurchaseLand InstallmentLeaseOption to PurchaseManagementMortgageSecurity AgreementsLease Purchase Agreement

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“Key” Provisions Price/Rent

FixedVariableAcreageCPIMarketCAM Charges

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“Key” Provisions Property Description

Defining property○ Legal Description○ Survey○ Auditor’s Plat○ Auditor’s Parcel Numbers○ Address○ Caution When Using Acreage

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“Key” Provisions Property Description

Acreage “To Be Determined”○ Definition of “Net Acreage” Critical○ Exclusions○ Right to “Opt Out” If Calculation Not As Anticipated

Easements and other agreementsTerms of Reciprocal Easement AgreementUtility FacilitiesCommon Use Agreements

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“Key” Provisions Signage Use of Premises Subordination (Non-Disturbance) Insurance/Subrogation/Indemnification Assignment/Subletting Security Deposit

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“Key” Provisions Construction and tenant build-out

WhatChangesWho PaysWhen to Be CompletedWhat Happens If Completion Late

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“Key” Provisions Options

To PurchaseTo ExpandTo Renew

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“Key” Provisions Right of First Refusal v. Right Of First Offer

Contingencies○ Closed-ended Date○ As “Tight” As Possible○ Who Benefits○ Clear Terms of Exercise○ Performance of Contingency in Good Faith○ Reflect the Transaction and Protect Client○ Types

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“Key” Provisions Deadlines / Timeframes Warranties and Representations (“As Is”) Closing Possession Authorized Parties and Signatures

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“Key” Provisions Parties

Buyer/Tenant – Correct Name, Entity, State○ Ohio Secretary of State

Principals and Structure of Principal○ Evidence of Structure○ Evidence of Authority○ Signature Lines and Acknowledgments

Guarantors○ All Principals and Spouses○ Corporate

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Parties Credit Worthiness

Profit and Loss StatementBalance SheetAudited v. Unaudited

AuthorityCorporateMortgagee ConsentBankruptcy / Receivership IssuesEstoppel CertificatesTitle Impairments

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Guaranty of Lease Review of Financials Shell LLC Parent Corporation

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Due Diligence Survey, Environmental and Third-party Reports Financing Regulatory and Governmental Approvals Tax Incentives Title Issues, Easements/Private Land Use Restrictions Inspections/Site Issues Utilities and Necessary Capacity Road Access & Frontage/Perpetual Vehicle Access Economic/Business Review and Feasibility

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Closing / Title / Escrow Examination, Title Commitment, Title Insurance Documents Affecting / Creating Interest in Title

ORC 5301 and 5302○ Deeds, Mortgages, Liens, Releases, Leases, Easements,

Land Installment Contracts, Powers of Attorney○ UCC filings, Security Agreements, Bills of Sale, ○ Corporate Resolutions and Organizational Documents

Trusts / Wills Escrow v. Round Table Closing Tenants-in-Common and Co-Tenancy Agreements

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LICENSE LAW AND ADDITIONAL STATE LAW – COMMERCIAL REAL

ESTATE CONSIDERATIONS

30 minutes

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License Law and Additional State Law Commercial Real Estate Considerations Out-of-State Broker Law – ORC 4735.022 Procedure Proper Documentation

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FORECLOSURES ANDLENDER-OWNED

PROPERTIES

30 minutes

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Foreclosures Sheriff’s Sale Payment Confirmation and Distribution Entries Sheriff’s Deed

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Auctions Bids/Contracts Terms and Conditions Conditional v. Unconditional AS/WHERE IS Deposit Payment Structure Assumption of Leases, Contracts,

Obligations, etc.

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Lender-Owned Properties Contract Assignment/Assumption of Leases and Estoppel

Certificates Execution and Delivery Deposit Deadlines, Timeframes, “Time is of the Essence” Contingencies Representations and Warranties Authorized Parties and Signatures

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Representation Agreement“You agree not to execute a lease or other acquisition agreement until the landlord, sublessor, assignor, owner, seller, or similar party has agreed in writing to pay us a commission on terms reasonably acceptable to us.”

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Request for Proposal/Offer Must clearly detail broker’s compensation

Percentage or amountWhen payment due

Stipulate that broker is not responsible for, and broker’s compensation is not dependent on, tenant’s creditworthiness, ability to perform, etc.

Broker makes no representations as to tenant’s creditworthiness

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Commission Agreement Signed before lease No representations as to tenant’s

creditworthiness Broker not responsible for tenant’s performance Commission not subject to tenant default Payable on execution

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Commission Agreement Lease must state that landlord is responsible for payment of commissions

to broker in accordance with terms of the lease

Tenant’s right to offset in event landlord doesn’t pay commission

“If Landlord fails to pay Broker any commission amounts due to Broker in connection with this Lease or any expansion, extension, or renewal thereof, or any purchase of the property or a portion or interest therein, and such failure shall continue for a period of five days after written notice is tendered by Broker, then such payment shall bear interest at the Interest Rate defined in the Lease, and Tenant may elect to pay broker its commission and deduct and setoff such amount together with accrued interest thereon, against all base rent and additional rent due under this lease.”

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Eminent Domain Amendment V and Introduction

No person shall be held to answer for a capital, or otherwise infamous crime, unless on a presentment or indictment of a Grand Jury, except in cases arising in the land or naval forces, or in the Militia, when in actual service in time of War or public danger; nor shall any person be subject for the same offence to be twice put in jeopardy of life or limb; nor shall be compelled in any criminal case to be a witness against himself, nor be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation.

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Eminent Domain Power of the State over Private Property Police Powers of Government

Health, Safety, Welfare Public Use and Purpose

Basic rule – taking only for public useNarrow view – use by publicBroad view – public advantageKelo Case

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Eminent Domain Just Compensation and Fair Market Value

ORC § 163.09 Property Interests That May Be Compensated

Easement/Ownership InterestPartial Taking – Springboro Case

Other Damages (Consequential) Inverse Condemnation

Governmental Activity Invading Land/Airspace○ Physical or Indirect

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Regulation of Land Development(Regulatory Takings)

Property Rights and Police PowerState v. Federal – San Remo Hotel Case

Compensation/Damages for Unconstitutional Land Use RegulationLucas v. South CarolinaPost-Lucas Cases and DecisionsOther Remedies Not Presumptively Invalid

○ 42 U.S.C. § 1983

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Off-Site ImprovementsReasonable RequirementsTyping Off-Site Improvements to Governmental

Approvals for Development of Rational Nexus TestDedication of Land by Developers

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Conditions for Approval by Governmental Authority May Be Considered a TakingNollan v. California Coastal CommissionDolan v. City of Tigard

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LAND BANKS30 minutes

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Background House Bill 294 (September 2006)

Administrative tax foreclosures on distressed properties before BOR Senate Bill 353 – “Land Bank Bill” (January 2009)

Can foreclose tax liens on abandoned land before BOR, upon its initiative or by complaint of treasurer, tax certificate holder or county land bank

Upon decree of foreclosure, BOR may order property transferred – without payment – directly to land bank with free and clear title

House Bill 313 (May 2010) Expanded Land Banking to Counties over 60,000 Authorized formation of County Land Reutilization Corporations/Land

Banks

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Why? Vacant/Abandoned Buildings Magnet For

Criminal Activity Remain off tax rolls and lower value of

surrounding properties, further eroding real property tax base

Signal that neighborhood is in decline Undermine a neighborhood’s sense of community and

discourage further investment Disinvestment often spreads across neighborhoods and

worsens the overall health of a city

Source: http://www.clevelandfed.org/research/policydis/pdp25.pdf

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Why? Protection from state law liability (ORC

5722.22)Underground storage tank laws Air pollution control laws Solid & hazardous waste & substances lawsOhio EPA laws & regulations Voluntary action plans, emergency planning,

cessation of regulated operations Water pollution & water conservancy laws Common-law causes of action:

○ McLaurin v. City of Cleveland, 1994 WL 50657 (Negligence)

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Land Banking Models Cuyahoga/Franklin

Land Bank funds foreclosure Land Bank takes title

○ Holds Property, or Rehabs Buyer can take title with commitment to rehab

Montgomery Pre-sold Buyer covers costs of foreclosure

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Currently, 15 Counties in Ohio have Land Banks Butler County Cuyahoga

County Erie County Franklin County Hamilton County Lake County Lorain County Lucas County

Mahoning County Montgomery

County Muskingum

County Portage County Stark County Summit County Trumbull County

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Which Properties Qualify? Delinquent: taxes delinquent for more than 12 months Abandoned: unoccupied and appearing on auditor’s

delinquent tax list Vacant: unimproved and appearing on auditor’s

delinquent tax list

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Expedited Foreclosure Process End-user identifies desired property Treasurer’s office confirms eligibility Title commitment Prosecutor files foreclosure on behalf of Treasurer,

Land Bank, or Certificate Holder Hearing set 50-60 days from filing Property transferred to Land Bank with free & clear title

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Law Protects Owners & Lienholders ORC 323.69(B)(2) and 323.70(B) require board to dismiss

complaint upon request by owner within 20 days of service At that point, tax lien foreclosure must proceed judicially

Owner's statutory right of redemption remains intact and may be exercised even after property is sold, but before confirmation of sale or transfer, by paying overdue taxes

Lienholder may prevent direct transfer without auction by timely filing a motion and proving that the impositions do not exceed the fair market value of the land