Organized, Accurate Financial Records

Among the most important factors to success in selling a business is being able to present accurate, streamlined financial records that are in strict compliance with generally accepted accounting principles. The best way to achieve this objective is to build your company’s financial history on a regular, continuous basis over time, rather than trying to create it just as you go to sell. A company with consistent, easily reviewable documents is more attractive to buyers because it minimizes risk – potentially leading to a higher price.

Current, Verifiable Company Records

A buyer will require you to execute warranties stating that all company records are:

• Accurate with respect to the business owners and organizational documents;
• Current on incorporation requirements, bylaws or operating agreement, and in good standing with the California Secretary of State’s Office;
• In compliance with all government and administrative regulations – at the state, federal, and local level as applicable.

In addition, you should ensure that you have copies of all internal documents regarding company policies and guidelines. Having your company records in good order before selling allows you to reduce or eliminate future liability for non-compliance.

Proper Management of Company Intellectual Property

Many business owners do not realize that intellectual property is an asset much like real estate or other property. It must be properly organized and registered, and strictly monitored, to protect its value to the company. Another oversight for some stakeholders is not realizing the wide range of assets that fall under the umbrella of intellectual property, such as:

• New, innovative technology;
• Your online presence;
• An extensive, loyal social media community;
• Trademarks, trade dress, and copyrights;
• Customer lists; and,
• Many others.

It is important to review, itemize, and identify all intellectual property assets well in advance of a sale of your business – even better, throughout the lifecycle of your company. Doing so will enable you to address infringement issues, make changes to registrations, or take other action to protect your ownership interests.

Solid Policies Regarding Employees

Do not overlook the importance of maintaining and organized, current set of records regarding your employees. It is wise – and also required by law – to keep such documents as:

• Compensation and benefits;
• Employee equity ownership;
• Policies regarding hiring and termination;
• Current employment contracts; and,
• Many other records that impact a potential buyer’s rights and responsibilities regarding workers.

Get Legal Help From a Sacramento, CA Business Law Attorney

Along with these tips on selling your business, solid legal representation is critical. For more information, please contact the Sacramento Law Office of Kristina M. Reed at 916-492-6033 or via our website. We can offer additional advice after reviewing your objectives and the details of your business.

Under the ABC test, it is presumed that all workers should be classified as employees. The hiring business can show that a worker qualifies as an independent contractor only if the business can show that the worker:

1. is free from the control and direction of the hiring business in connection with the performance of the work, both under the contract for the performance of the work and in fact; and
2. performs work that is outside the usual course of the hiring entity’s business; and
3. Is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

A. Is your worker free from control and direction by the company? Does the hiring company set requirements for performance of the worker’s job? Or, is the worker free to set their own schedule, work without supervision, purchase for themselves all materials used? To meet part A of the test, the worker must be free to be in control of their own performance.

B. Is your worker performing work that is outside the usual course of your business? For example, a worker is not an employee “when a retail store hires an outside plumber to repair a leak in a bathroom on its premises or hires an outside electrician to install a new electrical line” because the “services of the plumber or electrician are not part of the store’s usual course of business.” However, “when a clothing manufacturing company hires work-at-home seamstresses to make dresses from cloth and patterns supplied by the company that will thereafter be sold by the company,” or “when a bakery hires cake decorators to work on a regular basis on its custom-designed cakes,” the workers are clearly performing work that is within the hiring company’s usual course of business.

C. Is your worker customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed? The classification of an “independent contractor” has generally been understood to refer to an individual who “has independently chosen the burdens and benefits of self-employment.” The worker must have taken “the usual steps to establish and promote his or her independent business,” through, for example, “incorporation [of business], licensure, advertisements, routine offerings to provide the services of the independent business to the public or to a number of potential customers, and the like.”

The business bears the burden of proof to prove that a worker is correctly classified as an independent contractor. Mis-classifying a worker as a independent contractor can have substantial monetary impacts to your business. For instance, your business is responsible for paying federal social security and payroll taxes, unemployment insurance taxes and state employment taxes as well as providing workers compensation insurance for the misclassified employee. Further, your business could face large civil penalties under Labor Code section 226.8, which imposes penalties from $5,000.00 to $25,000.00 for each violation.

If your business uses the services of independent contractors, contact Kristina Reed to discuss whether your independent contractor is correctly classified.

A: An escrow agent is a neutral third party in the transaction and cannot act upon a unilateral request by either a seller or a buyer to release the EMD. Since the escrow agent is a neutral third party, the escrow agent cannot decide who is entitled to receive the EMD. Neither the Residential Purchase Agreement and Joint Escrow Instructions (“RPA”) nor California law give an escrow agent the authority to become a judge and listen to each party’s side of the story and determine who is entitled to receive the EMD. If an escrow agent did make such a factual and legal determination, that escrow agent would have breached their fiduciary duties and could be subject to a “breach of fiduciary duty” lawsuit by the party who lost the EMD.

Q: Now the Buyer has delivered a CC to the Seller. The CC states that Buyer should receive back his EMD. The Seller refuses to sign this version and everyone is arguing with one another. What should a Buyer or Seller do?

A: Contact an attorney to discuss your legal rights and obligations. A Realtor has no duty to get involved in a disagreement over the EMD. A Realtor’s only duty is to point out the contract terms, to assist with the preparation of the CC, and to circulate it to the correct parties (and possibly to give testimony in court or an arbitration about the transaction). It is the obligation of the Buyer and Seller to ensure that all funds deposited into an escrow account are returned to the person who deposited the funds or who is otherwise entitled to the funds under the RPA. (Civil Code section 1057.3) Sellers and Buyers should read Paragraph 14G and Paragraph 18B(x) of the RPA. If Paragraph 21B is checked, Sellers and Buyers should also read Paragraph 21B.

Q: Is there any way one party can force the other party to sign a CC?

A: Maybe. If both parties refuse to sign the CC, one party can sign and deliver to the escrow officer the CC along with either the Buyer Demand for Release of Deposit (BDRD) or the Seller Demand for Release of Deposit (SDRD). If the other party does not object within ten (10) days of the escrow officer serving the BDRD or the SDRD on the other party, then, at the escrow officer’s discretion, the escrow officer may release the EMD to the requesting party. Each party should be aware that the RPA states that if a Buyer or Seller refuses to sign the CC without a good faith dispute over who should receive the EMD, then that party will be subject to a civil penalty. The Buyer and Seller should know that the party who fails to sign the CC to release funds, or any other document presented by the escrow agent to release funds, within 30 days, shall be liable for the amount of the EMD withheld in bad faith and a fine up to $1,000.00. (Civil Code section 1057.3) Perhaps pointing out that language in the RPA might motivate the other party to sign the CC or to negotiate a split of the EMD.

Q: What happens next to determine who gets the earnest money?

A: Read Paragraph 22 of the RPA. The California Association of Realtors offers a mediation program to resolve disputes (http://www.car.org/mediation/consumers/). Buyers and Sellers can always agree to participate in mediation regardless of the amount of money involved. Nonetheless, if the EMD in dispute is more than $10,000.00 (the Small Claims limits), the parties are required to first attempt to resolve their dispute in mediation. If the amount of the EMD in dispute is less than $10,000.00, the client can start a small claims action against the other party. The judge or commissioner appointed to the case will decide who is entitled to the EMD and will issue a judgment.

Q: Will the title company then release the earnest money to the party who wins in court?

A: The judge will issue an Order directing the escrow officer to release the EMD as decided by the judge. The escrow officer will comply with that Order and release the EMD as directed.

Q: I don’t want to go through the time and expense of suing the other party. Is there any alternative?

A: The only other obvious alternative, if neither party wants to go through the expense of going to court, is to agree on some kind of compromise to split the money. Neither side will probably be completely satisfied with the compromise, but it beats nobody receiving any of the EMD.

Q: If the parties never go to court and a BDRD or SDRD was not used, what will happen to the earnest money?

A: The escrow agent will interplead the money. An interpleader is a court action where the escrow agent gives the money to the court and has the court decide who gets the money. (Code of Civil Procedure Section 386). If the escrow agent needs to start an interpleader action, the escrow agent is entitled to its court costs and attorneys’ fees for the interpleader action. These costs and fees will be taken out of the earnest money being held.

Q: If I still have questions, what should I do?

A: Contact the Law Office of Kristina M. Reed.

Recently, the president signed an extender bill called Protecting Americans from Tax Hikes Act of 2015. The bill itself is in response to some incentives and tax breaks associated with a pre-existing bill that expired at the end of 2014. The new extension creates some permanent incentives while extending other incentives through this year.

Energy-Related Tax Credits

A few particular tax credits that are especially important to energy-efficient business are the following:

• Section 179D allows for tax credits to extend through 2016 that include energy efficiency improvements.
• Solar Tax Credits are extended through 2022 with a phase out process starting in 2020.
• Credits for energy created by renewable resources has been extended through 2016.

What Does This Mean for Business?

Tax incentives that promote energy-efficiency in business are a terrific way for businesses on any income level to participate in the movement toward a smaller carbon footprint. New businesses can compete with established businesses because the tax incentives help level the playing field. Energy-efficiency is in and being a part of that movement promotes the business as being cutting edge and aware. This tells consumers that the business is resourceful and capable of participating in a movement that impacts the world as a whole. The whole concept can go a long way in establishing trusting relationships by simply incorporating improvements that the public as a whole see as advantageous.

Many businesses want the opportunity to “go green” or at least be more energy efficient, but those improvements can come at a high cost. This bill allows businesses to gain the financial confidence to make the improvements within their business that will be better for the environment and ultimately improve their energy spending over time.

The impact is two-fold in that it promotes financial responsibility over a period of time by making improvements that will ultimately save money and simultaneously starting a dialogue with consumers that says that the business is conscious of energy efficiency. This is a total winning concept for business models.

Need Assistance With Your Business?

The extension of incentives that this bill offers is a great boost to business. Whether you are a new business looking for tips or a seasoned business looking for improvements, you can benefit from learning more. If you need assistance with understanding the advantages of your business going green and how your business plan can include that, reach out to a knowledgeable business attorney today. Attorney Kristina Reed is located in Sacramento, California. Her specialized experience with small and large businesses can assist you in planning for your business and future. Reach out to her today for more information.

Subleasing

Many tenants want the opportunity to sublease their building in case there are big changes in their business. Sometimes financial changes may require that the business take a step back from the space in order to save money, or if the business is doing well, the company may need to move to a different location. However, many landlords see subleasing as a potential risk because the person who subleases the space may not be financially responsible and this could mean a monetary loss for the landlord. This is certainly a situation in which give and take must be considered so that both parties are accepting of the terms of the lease.

Operating Expenses

This may be one of the most negotiated points of a commercial lease. For tenants who operate in an entire building, this is an easy answer-they simply take on all of the expenses. However, more commonly tenants are sharing an area and because of that it is critical that the amount the tenant is responsible for concerning operating expenses is clearly defined. These costs can add up quickly and can greatly impact the bottom line of any new business.

Maintenance Responsibility

Another critical aspect of a commercial lease is the maintenance of the building. Sometimes tenants want more or less control of this depending on how they view their business. For example, some business owners want the freedom to make changes or repairs that will enhance their customer experience while other tenants do not want the financial obligation that comes with regular maintenance. This should be clearly defined so that when there is a need for repair it gets accomplished quickly and without any disagreements.

Use of Premises

Typically, a focal point of any commercial lease is the use of the property. Some commercial real estate owners simply do not want certain businesses in their building. Sometimes this has to do with how well a certain business will mesh with existing businesses owners. It is critical that everybody understands which businesses are acceptable and which ones are not.

An Experienced Real Estate Attorney

It can be difficult to negotiate a commercial real estate lease. For that, you should call Kristina Reed, an experienced attorney located in Sacramento. She is well-versed in commercial real estate and will help you through the lease negotiating phase of your business. Attorney Reed will make sure that you are making the best decisions for the future of your business.

Partnership

A partnership business is exactly what it sounds like. It is a business where there are at least two owners. Each owner has equal decision-making power and is involved in all aspects of the business functions. It is absolutely critical to discussion various aspects of the business including:

• Dispute resolution
• Division of money
• Decision making
• Changes in ownership

While it is not legally required to create a business agreement, it is certainly strongly suggested to do so. An experienced business attorney can help you create an agreement that will be binding in the event any unexpected issues arise in the future. The agreement will offer peace of mind and allow each partner the ability to work through issues more easily and efficiently.

Corporation

Corporations are certainly more complex business entities that are generally used for larger businesses. Essentially, the way a corporation functions is that shareholders own the business, but are not legally responsible for the decisions or debts the business may endure. There are a number of factors included in a corporation that make it necessary to seek out the assistance from an attorney. Things to consider about a corporation are:

• Larger administrative fees
• A more complex process
• Complex tax and legal requirements

Limited Liability Company

In many ways, a Limited Liability Company (LLC) is a mixture of a partnership and a corporation. The main difference is that an LLC is not taxed as a separate business entity in the way that a corporation is. Instead, individuals report income from the business on their own tax returns much in the same way as a partnership. However, one thing remains the same and that is that it is necessary to create an agreement of operation. Just as with the partnership, this protects the business from disputes or other issues that may arise due to lack of planning.

Need Help?

Are you interested in creating a business entity in California, but are not quite sure where to start? Located in downtown Sacramento, Kristina Reed has years of experience as a business attorney. Her “big picture” approach includes helping you bridge the gap between idea and reality. Kristina understands what it takes to make a business thrive and she is ready to hear from you. She looks at your business goals and helps you create a plan that is best for you. Contact her today to set up a consultation to get your California business operating!

What Falls Under Intellectual Property?

As mentioned, intellectual property is generally a person’s innovative thoughts and ideas. Some things that can fall under intellectual property may include:

• Copyrights include artistic and literary works.
• Trademarks include signs or symbols that can distinguish services.
• Patents include inventions of brand new products or services.
• Industrial designs include the aesthetic appearance of an article.
• Geographical indications include information about the origins of the product.

Each of the points indicated here can be achieved through a process that a business or individual must apply for either on your own or with the help of an experienced business attorney.

Why Protect Intellectual Property?

Some brand new businesses that have limited funding may wonder whether or not it is worth it to protect intellectual property, after all, the process can be expensive and tedious. However, the reality is that there are a number of aspects of a business that can be impacted by unprotected intellectual property such as:

• Information could be stolen. Businesses may be surprised at how often unprotected ideas can easily be swooped up by someone else who is ready to take all the credit.
• The idea may already exist. Without going through the process for obtaining a copyright, trademark, or patent, a business may be unknowingly infringing on an idea that already exists.
• Investors may be hesitant. Without proper protection, potential investors may deem a start-up as too risky or unorganized and may look to invest in businesses who have all of their bases securely covered.
• It becomes difficult to grow. Without the protection of intellectual property, it makes it difficult to franchise or develop an LLC.

However, the information above applies to developed businesses as well. It is never too late to protect the ideas and concepts that are the backbone of the business. In fact, the longer that intellectual property is attainable to the public without protection, the more you risk financially.

What Can You Do?

Being a startup is certainly an exciting, yet challenging time. Intellectual property protection is definitely something that no new business should skimp on. While the process may seem overwhelming, there are professionals that can assist you through each stage of the process. Kristina Reed is an experienced business attorney in the Sacramento area. Her specialized and thorough approach allows new and seasoned business owners the peace of mind that they deserve. She offers insight in all things business including intellectual property. Contact her for the information you need to keep your business protected and operating at its fullest potential.

In an effort to closely monitor the problem and resolve the issue, mainly in commercial buildings, Assembly Bill 1103 was enacted in 2009. This bill requires those who own commercial properties to allow public utility companies to regularly collect energy consumption data. Additionally, the public utility companies disclose the data collected to potential purchasers, financial institutions providing loans, and even individuals looking to rent space in particular building. Although the bill was adopted in 2009, it did not go into effect until 2014 due to pushback. Response to the implementation of the new law was not positive, especially because there were no clear and concise guidelines or protocols regarding violations of the law.

Those who had been ordered to comply by disclosing information decided that the fine was worth disclosure. Disclosure of energy use could result in several adverse issues for the owner of the building. Due to the noncompliance of a majority of owners, Governor Brown introduced Assembly 802, a new piece of legislation that replaced AB 1103 and modified the process in which data was collected. Effective January 1, 2016, AB 802 provides that public utility companies will be tasked with maintaining energy consumption data for the last year for all buildings serviced by their company. The goal and purpose behind introduction of this new piece of legislation all lies with disclosure. Those who own buildings that produce energy at a high rate or fail to meet energy efficiency standards are given incentive to make the necessary repairs. By not doing so, they stand to lose potential buyers and tenants. With this new law their insufficiencies are public record and out there for anyone to assess.

Beginning January 1, 2016, utilities in California will be required to maintain records of energy use data for the most recent 12 months for all buildings to which they provide service. Generally, disclosure of this type of data is strictly prohibited due to the nature of the information. A provision of the law protects owners, as well as, the public utility company from liability resulting from disclosure of this confidential data. The data collection process is based upon normalized metered energy consumption, also referred to as, metered savings. Metered savings can defined as monitoring of the rate in which energy is used and further fluctuation of energy use when there have been implementation of “energy saving products and functions” Lawmakers hope that modification of this energy monitoring mandate will provide accurate data for energy savings programs, assist in the effort to become more environmentally conscious, and decrease the emissions of greenhouse gases in the State of California.

What are Environmental Claims?

There is a broad scope of potential environmental claims that can range in severity. It is important for people to realize that although a building may appear to be in good condition, environmental impacts may not be readily visible and could have occurred many years ago. In fact, sellers may not even be aware that their building is in violation of environmental laws. Some of the most common environmental claims buyers encounter are:

• Contamination from hazardous material leaks
• Improper storage of chemicals, pesticides, petroleum or other high-risk substances
• Asbestos and/or lead paint in older buildings
• Air contamination
• Water pollution
• Above or below ground soil contamination

This is not a comprehensive list of environmental risks and such risks can be extensive or minor depending on the issue and how long it has gone untreated. There are a number of causes for air, water, or soil contamination and they may only be discovered by conducting specific tests.

Costs Associated with Environmental Claims

There are a number of costs associated with environmental claims on a property, especially commercial property that has regular public traffic. The expenses can add up including:

• Legal defense costs
• Clean-up fees
• Profit loss associated with business shut-down during clean-up
• Dramatic reduction in property appraisal
• Permanent shutdown of business

These costs can greatly impact the budget of any business and especially the funds of a brand new start-up. Many businesses are not prepared for such costs and they potentially end a business before it even starts.

How to Avoid Purchasing Property with Environmental Claims

Real estate that is associated with environmental issues definitely suffers a loss in appeal and value. This is a cost that most startups simply can not afford. In order to avoid getting caught in the tangled web of environmental claims, it is best to avoid the situation at all costs by following these tips:

• Have a thorough inspection completed of the property
• Ask the seller direct questions about the history of environmental issues
• Inquire about environmental risk strategies that the seller may have in place

Seek Advice from a Knowledgeable Attorney

Understanding environmental claims for commercial property can be confusing. If you are looking for more information please call real estate attorney Kristina Reed located in Sacramento, California. Her insight is multi-faceted as she has a strong grasp of the laws associated with environmental claims from the perspective of both buyers and sellers. Whether you need advice after unknowingly purchase a building with environmental claims or would like to know how to combat environmental claims in your existing business, she can help you through the process.

You must be careful when drafting the language of the clause because in California a liquidated damages provision is presumed to be enforceable, but could be voided if it is viewed as a penalty by a court.

In the 1970s, California adopted a policy of presumptive validity for liquidated damages clauses in commercial contracts, including real estate contracts. This means that a clause in a contract liquidating damages for a breach is valid unless the party challenging the provision can show that the provision was unreasonable under the circumstances when the contract was formed, or is so draconian that it is essentially a penalty.

Example of a Voided Liquidated Damages Clause

Properly drafting a liquidated damages provision requires precision (why you should retain a Sacramento real estate attorney to help you in drafting your contract). An unreasonable provision can completely negate the liquidated damages clause. For example, the 1997 case Ridgley v. Topa Thrift & Loan Association, involved a contract dispute between a lender and borrower over a provision allowing the lender to charge a fee equal to six months’ interest if the borrower made a late payment on the loan. The court in the case considered whether the provision was a valid charge for a prepayment of the loan principal or an unenforceable penalty for delinquency in a monthly interest payment. The court ultimately decided that the six month interest charge imposed for any late payment was not a reasonable attempt to anticipate damages from default and voided the provision.

The take-away: a court analyzes liquidated damages provisions based upon their impact on the parties.

The amount set as a liquidated damage needs to represent the result of a reasonable endeavor by the parties to estimate a fair average compensation for any loss that may be sustained by a breach of contract, according to an article published on Mondaq.com.

Liquidated Damages Clauses in Real Property Purchases

Along with a liquidated damages clause being reasonable, the provision in a property contract and sale agreements concerning the buyer’s default must be signed or initialed by each party to the contract.

If you have a printed, hard copy contract, the liquidated damages clause must be at least 10-point bold type or in contrasting red print in at least eight-point bold type. Yes, the courts are that specific. The reason is that they do not want a liquidated damages clause to be hidden in the fine print and surprise one of the parties.

Contact an Experienced Real Estate Attorney Today

As you can see, properly drafting a liquidated damages clause is extremely important. These provisions are presumed valid, but can be voided by a court if they are determined to be unreasonable and/or unduly harsh. This is why you need an experienced real estate attorney to help in the drafting process. Kristina Reed is here to help. Contact her today to discuss your contractual needs.

While the amendments appear to greatly benefit lenders, likewise LLCs will benefit as well. For brand new businesses, this could certainly change the game for loan approval and for existing businesses it can impact how certain business is conducted. It is important that new and veteran LLCs alike take a look at the new amendments in order to better understand how certain aspects of their business will be influenced.

What are the Changes?

There are a number of small tweaks to the existing law that ranges from certificates of cancellation to LLC conversion. While people should certainly read the amendments in their entirety, some of the most prominent changes are:

• Association is made easier–individuals may form an LLC by simply by signing appropriate paperwork and submitting it to the Secretary of State.
• Disassociation is made easier-individuals may express disassociation at any time or disassociation can be assumed under certain circumstances such as death.
• Authorizes legal representation of a legal member–any individual working on behalf of a legal member can now act on behalf of the member and exercise the same influence as the member.
• Eliminates due diligence of lenders–lenders no longer have to have consent for a merger from all members of the LLC.

Assembly Bill 506 includes a number alterations that should be examined thoroughly in order to get a better understanding of the changes and how they can impact business overall.

What Do the Changes Mean?

LLCs and lenders have always been expected to go through lengthy, complicated loan processes. The amendments to the existing California real estate law actually benefit lenders by simplifying the process and protecting the interest of the lenders. However, all is not lost for the LLC in the process. LLCs will be able to gain funds more easily because the amendments cut down on some of the red tape that usually gets in the way. For brand new businesses, this could actually fast track the process while lenders feel more protection. It could work as a win-win for all involved.

Call a Knowledgeable Real Estate Attorney

Laws change and with those changes can come uncertainty. The good news is that you do not have to go through the process alone! Are you an LLC looking for advice for the lending process? Do not hesitate to reach out to a knowledgeable attorney who is familiarity with California real estate law. Kristina Reed is well-versed in California real estate law and understands the implications that amendments can have on new and seasoned businesses. Located in Sacramento, CA, Kristina is ready to help you with all of your real estate needs.

What is a Commercial Lease?

A commercial lease differs from a residential lease in many ways. A commercial lease is used for people who will be serving the public and not used as a residential dwelling. Because a commercial lease is used for something completely different, many of the familiar terms associated with residential leases do not apply. Such as:

• Commercial leases are not protected in the same way. For example, commercial leases typically do not have terms that protect privacy (because you are using it for the public) or terms that limit security deposits.
• Because both sides will have a lot of money at stake, the terms set forth in the commercial lease are not as easy to get out of as breaking a lease in a residential situation may be.
• Commercial leases have the ability to be less structured and routine. Most commercial leases are unique and created per the specific needs of the landlord. This can vary greatly based on the location of a particular city, the type of building, and even just the financial needs of the owner.
• Because the lease agreements can vary as mentioned above, there are is usually much more room for negotiation. Remember, the as-is lease agreement is typically designed to be much more in favor of the owner and not the renter.

Negotiating Commercial Leases

It is absolutely critical that potential renters understand that they can negotiate any or all of the commercial lease. There are a number of factors you must consider:

• Will the dwelling be a great spot for business not only for now, but also the future?
• Think about the growth of the business. Will the rent and the length of the lease compliment business goals or potentially hinder them?
• Make sure the lease does not limit your ability for success. Little things such as being able to create appropriate signs or place bowls of water outside for customer’s dogs could become big issues later.
• Consider the type of modifications you may need to make. Sometimes, as businesses grow there is a need for structural enhancements to the building. Make sure that the lease allows for that.
• Make sure that the area is accessible to people with disabilities. If it is not, make sure it is clearly defined who is financially responsible for making those necessary changes.

Contact a Real Estate Attorney

Leasing commercial real estate is not easy. It is important that people understand what their lease terms are and how they can negotiate those terms to enhance their business long-term. If you are interested in leasing commercial real estate and would like help with the process, please contact California real estate attorney, California Real Estate Attorney, Kristina Reed. Conveniently located in Sacramento, CA, she has years of experience with commercial real estate in the state of California, and she is ready to answer your questions. Only a phone call away!

This promising news originated in a study conducted by Allen Matkins, a California law firm, and UCLA’s Anderson School of Management. The study examined seven of California’s major markets for indicators of future commercial construction. More easily accessible financing and low cap rates, along with increased demand from technology, advertising, media and information companies has helped spur the commercial construction growth.

With Commercial Construction Growth Comes Increased Risk of Litigation

Getting a construction project approved, permitted, and properly zoned breeds an environment in which litigation could be just around the corner.

If a construction project hits a financial snag or there is a serious accident at the construction site, legal troubles are likely to arise. Disputes over performance or payment can result in additional legal claims for the defense or indemnification against third parties or insurance companies. Construction litigation can be quite complex and include claims for defects or breach of warranty along with multi-party actions involving developers, contractors, subcontractors, guarantors, and insurers.

What to Do if You are Sued in a Construction-Related Dispute

There are three things you should do immediately if you are served with a lawsuit.

• Contact your California real estate lawyer.
• Contact your insurance company agent.
• Find your job file.

If you or your business does not have a lawyer on staff, speak to a real estate lawyer right away. You only have a short period of time in which to respond to a lawsuit once you are served with the complaint. If you fail to provide a timely answer, the suing party can get a default judgment against you or your company, even if you did nothing wrong.

You need to speak to your insurance company immediately since contacting them may actually solve the issue of legal counsel. In many instances, your insurance company will hire a lawyer for you or pay for a lawyer you decide to retain to defend against the suit. Of course, they need to be notified before any action can be taken.

Once you have contacted your insurance company and taken steps to retain an attorney, find your job file. This file is the best source of information about what happened at the construction site, the blueprints, the relevant parties, etc. It is important to have this file on hand since your lawyer, insurance carrier, and the lawyer for the suing party will ask for a copy.

Multiple Insurance Carriers – Notify Them All

If you or your company is sued and you have multiple sources of insurance coverage, it is important to notify all of them because an insurance company has no responsibility to pay for a claim it does not know about. If you choose to notify only one insurance carrier, and for some reason that carrier fails to cover the claim, the other carriers have no responsibility until they are notified.

Multiple Insurance Companies with Multiple Deductibles

You may have three insurance policies each with a $20,000 deductible. You may be asking yourself, “Do I need to spend $60,000 in deductibles before the policy coverage kicks in?” If you are in California, have no worries. Insurance companies are prohibited from “stacking” deductibles. You also have the right to make an “Armstrong Election.” This allows you to choose which policy you want to defend the claim if there are multiple insurance policies that could cover it. This means only one deductible will need to be paid.

Speak to an Experienced Sacramento Real Estate Lawyer Today

When a lawsuit is filed regarding a contract dispute with a construction project, or there is an on-the-job accident, you need to be proactive and get legal consultation. Kristina Reed is here to help. She is an experienced real estate attorney based in Sacramento, California. Put her knowledge and skill to work for you.

This unfortunate scenario occurs quite often and is one of the risks associated with renting property as a landlord. What do you do when your tenant violates the express terms of the lease? If the tenant fails to pay you the rent, you are looking not only at a loss of income, but the additional expense of taking legal action.

Your decision of whether to sue your tenant to recover the lost rent (or the cost of repair if the tenant damaged your rental property) may depend on whether you can recover costs and attorney’s fees. So, you are probably asking, “What is the applicable law for recovery of attorney’s fees in California?”

Here is the answer: in California, each party is responsible for their own attorney’s fees, generally. However, there is an important exception to this general rule – when the lease agreement contains an attorney’s fee clause. If the lease provides that the prevailing party to a legal action has the right to recover attorney’s fees and costs, that provision is usually enforceable.

Add the Attorney’s Fee Clause to Your Lease Agreements

It is better to be safe than sorry. If you want to recover attorney’s fees from a defaulting tenant, you need an attorney’s fee clause expressly stated in the lease. If you currently have a lease with a tenant that lacks such a clause, you will likely be left to bear the cost of paying a lawyer out of your own pocket.

Keep in mind, California Civil Code §1717(a) makes attorney fee provisions reciprocal. This means that both parties (you and the tenant) will have the right to pursue recovery of attorney’s fees and costs if the lease contains an attorney’s fee clause, even if the lease only references an award of attorney’s fees to the landlord.

How Do I Recover Those Costs?

This is an important question to consider. Even if you have an attorney’s fee clause and prevail in court against a tenant, it does not mean the tenant will quickly whip out a checkbook and pay for your attorney’s fees. In fact, many tenants are “judgment proof,” meaning they lack sufficient assets to make a judgment against them desirable. You have to consider the collectability of a judgment to determine whether the pursuit of fees and costs is desirable.

Some landlords go so far as to include an “attorney fee cap” in their lease agreement to shield themselves from a large adverse judgment by a tenant’s attorney. Whether an attorney’s fees cap makes sense in your lease depends on a variety of facts including the type of litigation you are involved in, the likely amount of attorney’s fees awarded, and the financial health of both you and the tenant(s).

Contact an Experienced Sacramento Real Estate Lawyer Today

As you can see, litigation surrounding landlords and tenants can become quite complex and requires proper legal guidance. Kristina Reed is here to help. She is an experienced Sacramento real estate litigator and advisor. She can assist with drafting a lease agreement and with litigating any disputes that may arise with your tenant. Contact her office today to discuss your legal needs.

Background on the Decision

The case, Defend Our Waterfront v. California State Lands Commission (Sept. 17, 2015) Cal.App.4th, Case Nos. A141696 & A141697, involves the 8 Washington Street project, which is a proposed mixed use development along the San Francisco waterfront near the San Francisco Ferry Building, according to JD Supra. The proposed development site includes a parcel known as Seawall Lot 351 consisting of filled tidelands managed by the City of San Francisco through the Port of San Francisco.

Some of the proposed uses in the 8 Washington Street project were inconsistent with public trust restrictions on Seawall Lot 351. Project developers and the City proposed a land exchange agreement with the State Lands Commission. The Commission approved the exchange agreement and independently determined that this exchange was exempt from CEQA review. The aforementioned lawsuit was filed by Defend Our Waterfront. This organization filed a petition for writ of mandate challenging the approval of the exchange agreement without CEQA review, according to the JD Supra article.

The Court determined that the exemption did not apply to this land exchange agreement. The Court stated that the exemption is limited to situations where the State Land Commission is asked to resolve a dispute about the title or boundaries of land. The 8 Washington Street project was not actually a dispute. In fact, the stated purpose of the land exchange agreement was to merely remove an impediment to developing the project rather than a legitimate title or boundary dispute.

Why This Decision Matters

Land exchange agreements have been used by the State Lands Commission in California to reconfigure tidelands and to resolve title and boundary disputes. Many of the modern projects along the San Francisco waterfront have required a land exchange agreement. The Court’s decision in this case is an indicator that the Commission does not have carte blanche to enter into these agreements and there has to be a genuine title or boundary dispute being resolved for the agreement to hold up, even if the reconfiguration provides a public benefit. Without a genuine boundary dispute, the statutory exemption from CEQA will not be available, according to the JD Supra article.

Contact an Experienced Real Estate Lawyer Today

As you can see, the regulatory maze associated with complex real estate transactions can be quite difficult to navigate and may need to be resolved in a court of law. This is why you need an experienced real estate lawyer to assist your business. Kristina Reed is here to help. She is highly skilled at consummating real estate transactions. She is results-oriented and works effectively and efficiently to help you meet your goals.

The Ninth Circuit Court of Appeals decided that a title insurer’s “equity investments” in title agencies in exchange for agreements that the agencies would refer customers to the insurer violated the anti-kickback provisions of the RESPA, according to an article published on Lexology.

The case, Edwards v. First Am. Corp., 2015 WL 4999329 (9th Cir. Aug. 24, 2015) featured borrowers who filed a putative class-action lawsuit against the title insurer alleging that the company violated Section eight of RESPA. This section prohibits payments for the referral of settlement service business.

Section eight(a) of RESPA aims to eliminate unlawful kickbacks. The statute, specifically 12 U.S.C. Section 2607(a) prohibits any exchange of a thing of value pursuant to real estate referrals. The statute states:

No person shall give and no person shall accept any fee, kickback, or thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or a part of a real estate settlement service involving a federally related mortgage loan shall be referred to any person.

This has been a long-running case since other courts declined to certify the class action. The U.S. Supreme Court eventually granted certiorari, but declined to rule on the merits of the litigation – learn more at SCOTUSblog. The borrowers continued their legal action back in the Ninth Circuit and asked the Court to review the district court’s denial of class certification. The Consumer Financial Protection Bureau filed an amicus brief in the appeal as well, according to the Lexology article.

The Ninth Circuit agreed with the Supreme Court and affirmed the denial of the class-action certification. The Court determined that the “prerequisites of class certification are best addressed by the district court, which is in the best position to consider the most fair and efficient procedure for conducting any given litigation.” Edwards at 24 (citing Stockwell v. City & Cty. of S.F., 749 F.3d 1107, 1111-12 (9th Cir. 2014)).

Nevertheless, the Court agreed with the plaintiff-consumers that First American was engaged in a “common scheme” to have title agencies refer business to the company. The plaintiff-consumers alleged that First American used standard, written contracts to impose an obligation on title agencies to refer future title insurance business, subject to some limited exceptions. The Court stated that, “if this is true, the title agencies’ contractual obligations affected the entire class of home buyers as a result of First American’s standard terms.” Edwards at 20. The Court concluded that “common issues predominate over individual issues for a sub-class of home buyers referred by the title agencies that were subject to First American’s common scheme.” Id. at 24.

Contact an Experienced Real Estate Lawyer Today

As you can see, if you do work in the real estate business, including title insurance, you are subject to a litany of complex regulations with serious legal implications. You need an experienced attorney to help guide you through this maze. Kristina Reed is that real estate attorney. Property buyers and sellers, agents/brokers and landlords/tenants all trust in her knowledge, skill, and experience. Contact her today to discuss your legal issues or needs.

What the Heck is Chevron Deference?

This is a key principle in administrative law established by the U.S. Supreme Court in Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984). The case raised the issue of how courts should treat federal agency interpretations of statutes that mandated an agency take some action. The Supreme Court held that courts should defer to agency interpretations of such statutes unless those interpretations are unreasonable.

Okay, So What Did the CFPB Interpret in RESPA?

The statutory provision at issue was the safe harbor for the RESPA anti-kickback prohibition. Specifically, the provision states that “notwithstanding the general prohibition of exchanging any thing of value for a referral, a statutory safe harbor exempts a payment from RESPA violation if the payment–despite being made simultaneously with a referral–was ‘for goods or facilities actually furnished or for services actually performed.'” Slip Op. at 10 (quoting 12 U.S.C. § 2607(c)(2)). The question was whether an ownership interest exchanged could be categorized as a good, facility, or service, according to an article published on jdsupra.com.

The CFPB interpreted “that § 2607(c)(2) does not apply to the transactions [in question] because First American’s payment for ownership interests is not a payment for goods, facilities, or services” and the Bureau urged the Court “to give deference to its interpretation.” Slip Op. at 11.

Chevron Denied

The Ninth Circuit did not agree with the CFPB’s interpretation. The court stated that the “[CFPB’s] interpretation of the statute–when presented in an amicus brief–is not promulgated in the exercise of its formal rule-making authority, so no Chevron deference is warranted.” The Ninth Circuit also concluded that “because the statutory terms at issue are not ambiguous, no deference is merited.” Id. at 12.

The Court nevertheless agreed with the CFPB’s interpretation based on the language of the statute, finding that the “the meanings of ‘goods,’ ‘facilities,’ and ‘services’ are plain,” and that “ownership interests purchased by First American are equity shares, not goods, services, or facilities.” Id. at 13. The Ninth Circuit concluded that, because the safe harbor could not apply to those circumstances as a matter of law, “the district court erred in relying on § 2607(c)(2) to determine the propriety of class certification,” according to the aforementioned JDSupra.com article.

Contact an Experienced Business Lawyer Today

CFPB’s interpretations of statutes such as the RESPA and TILA (i.e. Truth in Lending Act) can have major effects on your real estate business. You need an experienced real estate attorney to help guide you through this regulatory mine field. Kristina Reed is here to help. Real estate buyers and sellers, agents/brokers and landlords/tenants all trust in Kristina Reed’s knowledge and skill. Contact her today to talk about your business and legal needs.

A federal judge in California rejected Castle & Cooke’s motion to dismiss a class action lawsuit regarding alleged violations by the mortgage company of the Regulation Z loan originator compensation rule.

What is the Regulation Z Loan Originator Rule?

The Regulation Z loan originator rule prohibits compensation that varies from loan terms and bans originators from being paid more if, for example, the consumer agrees to buy title insurance from the lender’s affiliate, according to the American Bankers Association (ABA). Under this rule, originators cannot be paid by both the consumer and the creditor and they must meet certain qualification and screening standards such as character and financial responsibility reviews, criminal background checks and training requirements, according to the ABA article. The CFPB, in 2013, also provisions from the Dodd-Frank Act related to mortgage and home equity loans.

Those provisions prohibited mandatory arbitration of disputes involving mortgage loans and the practice of increasing loan amounts to cover credit insurance premiums.

Castle & Cooke Mortgage sought to dismiss two counts of an amended class action complaint filed against the mortgage company by a consumer who received compensation under the consent order that Castle & Cooke entered into with the CFPB. Nevertheless, the federal judge allows the consumers’ class action to continue and rebuked the mortgage company’s dismissal motion. The consumers’ amended complaint alleges violations of TILA (i.e. the Truth in Lending Act), and multiple violations of state mortgage laws including unfair competition statutes.

The federal judge rejected the mortgage company’s argument that the consumer was prohibited from pursuing equitable relief because the TILA claim provided the consumer with an adequate legal remedy. Basically, the mortgage company was trying to say that the consumer should not be able to pursue two claims providing for compensation when one claim would do. The judge was not buying this argument. In fact, the court stated that the consumer could plead unjust enrichment as an alternative theory of recovery because it was too early in the case to determine whether the consumer’s TILA claim was valid.

The mortgage company also argued that because the Unfair Competition Law only provides for equitable relief in the form of restitution or an injunction, the consumer’s claim was precluded by his TILA claim, according to JDSupra.com. In addition, the mortgage company argued that the consumer failed to show any ongoing TILA violation that an injunction would prevent on a prospective basis or that restitution was available to force the mortgage company to give up something it was not entitled to and that plaintiff should have been allowed to keep, according to the aforementioned JDSupra article.

In addition to notifying the industry of the delay in the full effect date, the CFPB made two technical changes to the TILA-RESPA Final Rule that were not in the proposed rule. Specifically, the final rule amends § 1026.38(i)(8)(ii) and (iii)(A) to include, in the amount disclosed as “Final” for Adjustments and Other Credits, the amount disclosed under § 1026.38(j)(1)(iii) for certain personal property sales in order to conform the calculation of Adjustments and Other Credits on the Closing Disclosure and Loan Estimate, according to an article published by Marc Patterson on JDSupra. The final rule also attempts to conform the disclosure of a borrower’s cash to close by amending § 1026.38(j)(1)(iv) to include, in the amount disclosed as Closing Costs Paid at Closing, lender credits disclosed under § 1026.38(h)(3).

Richard Cordray, Director of the CFPB, stated that the additional time provided by the new October 3, 2015 effective date will help consumers and providers whose families are likely busy with the transition to the new school year. Director Cordray also stated that the CFPB did not want to unduly burden creditors who had limited time to fully test all of their systems and system components to ensure that each system works with the others in an effective manner due to some technical errors discovered by the CFPB.

New CFPB Regulation Ignored Industry Requests for Grace Period or Dual Compliance

Many companies in the real estate industry and members of Congress requested either a formal grace period or a dual compliance period. The CFPB is not making such accommodations. Director Cordray did state that the CFPB’s “oversight of the implementation of the Rule will be sensitive to the progress made by those entities that have squarely focused on making good-faith efforts to come into compliance with the rule on time.” In plain terms, that statement means if the industry suffers significantly because of this new regulation, the CFPB may reconsider whether a grace period and/or dual compliance makes sense.

Closings Will Be Greatly Impacted

The TRID rules apply to loan applications received after October 1, 2015. This means there is not much time for the industry to get fully prepared and that there may be issues with real estate closings in the coming months. According to the National Association of Realtors, if 10 percent of transactions experience closing issues due to TRID, that is as many as 40,000 transactions a month, according to inman.com.

Consult with an Experienced Business Attorney Today

You need to prepare yourself and your clients for what is to come under the new TRID regime. This means reviewing your current procedures to ensure your company is in compliance. Business attorney Kristina Reed is here to help. Contact her today to discuss your business and how she can help clarify and guide you through the legal maze associated with new CFPB regulations.

According to Section 8(a) of the RESPA, it is forbidden to give or accept “any fee, kickback, or thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or a part of a real estate settlement service involving a federally related mortgage loan shall be referred to any person.” At the same time, Section 8(c)(2) provides “[n]othing in this section [8] shall be construed as prohibiting the payment of bona fide salary or compensation or other payment for goods or facilities actually furnished or for services actually performed.”

Until recently, because of past HUD actions, the settlement administrations industry by and large comprehended Section 8(c)(2) as giving an exemption from liability under Section 8(a). The following two cases in question challenge this.

In the first case, In the Matter of Lighthouse Title (File No. 2014-CFPB-0015, decided in 2014), which concentrated on the utilization of marketing services agreements (MSAs), the CFPB made an unusual order in declaring that “[e]ntering a contract is a “thing of value” within the meaning of Section 8, even if the fees paid under that contract are fair market value for the goods or services provided.” The order further read that “[e]ntering a contract with the agreement or understanding that in exchange the counterparty will refer settlement services related to federally related mortgage loans violates Section 8(a).” [Refer to passages 20 and 21 of the Lighthouse Title Consent Order, 2014-CFPB-0015]. Going against the earlier HUD orders, this new decision now implies that the 8(c)(2) exemption cannot be depended on if there are additional referrals following an agreement.

Probably even more alarming is the CFPB Director’s decision in the PHH Corporation case of June 2015. Here, CFPB Director Cordray made it clear to the industry personnel that the earlier versions of HUD Section 8 direction is now open to his revised interpretations. The highlight of the decision as that CFPB does not accept that Section 8(c)(2) of RESPA provides an exception to Section 8(a) of RESPA. This point of view was directly contradictory with the Administrative Law Judge’s explanation of a 1997 letter issued by HUD which applied Section 8(c)(2) as a special case to Section 8(a). There is probably more to come as the a stay was issued by the D.C. Circuit against the $109 million penalty awarded by CFPB against PHH a week ago.

Considering the possible criminal penalties for violation of RESPA, these decisions have put the settlement services industry in a deadlock until clearer instructions are issued by the CFPB. Or maybe that is precisely what the CFPB has in mind, seeing that there is such an unreasonable risk of harm to consumers where any referral for settlement services business is included, whether paid for or not, such that the CFPB is resolved to put a stop to it. Whatever the reason, the modern day interpretation of the RESPA should be done in a formal manner and not by handing down random enforcement decisions.

An Experienced Legal Consultant for Your Business Needs

If your business is in the real estate market, you are going to need competent, experienced legal consultation on how to properly navigate the waters in this new era of CFPB regulation and enforcement. Kristina Reed is such a legal consultation. She has the means and know-how to present your business in any type of dispute, including potential CFPB litigation.