Florida Real Estate Lawyer Blog

Surveys are an essential element of any real estate acquisition. Whether it is a residential transaction or a commercial transaction, the purchaser should always obtain a new survey. The only exception is with the purchase of a condominium unit. Since a condominium is a subdivision of air rights, the declaration of condominium already includes a survey of the property and of the unit, and since once constructed the unit does not change in size, a survey is generally not necessary. Review of the recorded declaration of condominium is generally sufficient.

All surveys are certified to a number of parties: the owner, the title insurance company, the lender, and the attorneys involved in the transaction. The parties to whom it is certified are the parties that rely upon it. An issue that often comes up is whether the purchaser should obtain a new survey or have an existing survey re-certified to them. This is when an old survey is not updated nor is the property re-measured by the surveyor, but instead they simply change the names appearing on the certification. There is generally little cost in this as opposed to ordering a new survey. Generally we do not recommend this, as there is no assurance that something has not changed on the property since the last time the surveyor went and physically surveyed the property.

The most common issue of concern in a residential survey is encroachments associated with fences and easements. Most real estate acquisition contracts treat survey issues as title defects. Therefore, it is critical to know whether your fence encroaches upon a neighbor's property, or vice versa. Also, a purchaser needs to know whether any of the improvements constructed on the property encroach on utility or drainage easements. If they do, the homeowner may have to remove those improvements at their cost when water backs up on the neighbor's property or when the utility comes calling because they need to maintain or replace an underground utility line. Easements must be kept clear by the owner for use by the easement interest holder, and if they are not clear, a potential purchaser needs to know of the encroachment and make a business determination of whether to proceed with the acquisition and assume the risk or declare it a title defect and have the seller correct it prior to closing.

In a commercial context, surveys can come in two forms: regular or ALTA (American Land Title Association) surveys. While both surveys will meet the minimum standards established by Florida statutes and show all items existing upon the property and the correct boundary lines, the ALTA survey is more detailed and therefore more costly. ALTA surveys require the purchaser to provide the surveyor with a copy of the title commitment for the acquisition, and the surveyor will then plot all easements, restrictions and other matters affecting title on the survey and delineate them by title exception number and recording information reference. They will also investigate zoning requirements (such as minimum number of parking spaces required, etc.) and building setback requirements and the like, and plot those items as well. From an attorney's (and a buyer's) perspective, an ALTA survey is always preferred. The higher cost differential may result in the client opting for the regular survey.

Purchasers should be aware that title insurance policies contain a standard exception excluding from coverage any item that could be discovered through a survey. That is why it is so important to obtain a survey for each acquisition. Our other real estate attorneys and I write regularly in this blog about important legal and business issues impacting commercial and residential real estate in Florida, and we encourage real estate industry followers to submit their email address in the subscription box at the top right of the blog in order to automatically receive all of our future articles.

A request for an estoppel certificate can illustrate the tension that exists between a landlord and tenant. An estoppel certificate contains a certification as to specific facts. So, for example, when a landlord refinances an office building or shopping center, the landlord's lender may require that the landlord obtain estoppel certificates from all tenants. A tenant's estoppel certificate typically will confirm that the lease is in full force and whether the landlord is in default, and it will include various other facts, such as duration of the term, rent, rights of renewal and similar points that are important to a lender.

If a tenant is diligent in its communications regarding the property and the lease, then the landlord should not be surprised if the estoppel certificate indicates a landlord default. If, however, the tenant has not notified the landlord previously of some failure to perform and the tenant lists various defaults in the estoppel certificate, the news will be both alarming to the landlord and a threat to closing.

Some tenants innocently deliver this information for the first time in an estoppel certificate. They are busy running their businesses and may not have taken the time previously to confirm that the landlord has been meeting its obligations. For these tenants, the request for an estoppel certificate triggers a more detailed review, as they cannot risk delivering a clean estoppel certificate - one which does not mention a landlord default - if there is a default outstanding because they may not be able to make a claim in the future for such a default. The tenant may still have protection if the receiving party knows that the information included is untrue due to the omission of certain facts, as such party may not rely on false information to prevent a later claim, but it is a risk for the tenant to rely on such knowledge.

Other tenants may see the request for an estoppel certificate as an opportunity. They know that the landlord is under a tight time frame to close its loan, and rather than argue over a sudden complaint or repair request the landlord may merely complete the task to obtain the clean estoppel certificate. This leads these tenants to make requests that are not obligations of their landlords under their leases.

In our experience, such actions by a tenant are a mistake. If the tenant issuing the demand is a major tenant, then it has sufficient leverage to request repairs at any time without threatening to hold up a closing. However, if the tenant is using its leverage either to gain something unreasonable or merely because it failed to perform its diligence on a regular basis, the landlord will understand what is happening and may react accordingly. It is also notable that in certain jurisdictions, the tenant may be liable for damages for the interest savings lost by the landlord if it is unable to close its loan.

Even if the landlord agrees to an unreasonable demand, the delivery of the clean estoppel certificate by the tenant may not resolve the issue from the landlord's perspective. When the tenant has its own request in the future, whether for an estoppel certificate or anything else needed from the landlord, it may find that the landlord has become less amicable. For that reason any landlord or tenant that sees the delivery of an estoppel certificate as a tool rather than an obligation should be prepared for all possible responses.

We are sometimes engaged to close loans on behalf of entities providing financing for individuals or projects. Often, there are a number of parties participating in the loans. In other words, different parties are pooling different sums to come up with the total amount of the loan. In these scenarios, it is essential that the relationships among all of the participants be properly and clearly documented.

Most established lenders use form participation agreements. When several friends come together to pool resources and lend money , that is often where we see a lack of documentation which can have unintended and often ugly consequences. We are often amazed when we are asked to foreclose on loans that we have not closed, and we find that the participation and the rights of the different parties providing the loan are not properly documented.

A participation agreement among all participants should be drafted by loan counsel and executed by all participants well before the closing of the loan. Key elements of the participation agreement are the naming of an "agent" to act on behalf of the participants, and the establishment of the rights and responsibilities of the agent and the participants. Generally, the agent is responsible for the management of the loan and the disbursement and collection of all funds on behalf of the participants. A lengthy list of the agent's obligations and limitations is generally the linchpin of the agreement.

The agent is generally responsible for collection of the proceeds from all of the participants prior to the loan closing; coordinating the closing of the loan; managing and servicing the loan after closing; collecting all funds and making all disbursements to the participants during the loan process; managing compliance with the loan documents; enforcing the loan covenants and satisfying the loan upon payment.

The agent is generally compensated by retaining a percentage of the interest collected or earning a pre-established fee equal to a percentage of the outstanding principal of the loan, on a per annum basis. Sometimes the agent is compensated with a flat one-time fee for acting as agent and servicing the loan for the participants. The agent's fee is a critical element of the transaction, and it should be properly documented so as to avoid any misunderstanding among the participants.

Our other real estate attorneys and I have a great deal of experience with these and other types of financing structures, and we write regularly in this blog about important business and legal issues for the commercial/industrial real estate industry in Florida. We encourage industry followers to submit their email address in the subscription box at the top right of the blog in order to automatically receive all of our future articles.

A Florida court recently reminded developers that even if they reserve rights to amend a declaration, they must exercise these rights in a reasonable manner or reserve rights with specificity in the original document. In Flescher v. Oak Run Associates, Ltd., Case Nos. 5D12-2575 & 5D12-3254, the Fifth District Court of Appeal noted the limitations on these rights of the developer. In that case, the developer had recorded declarations of covenants in multiple single-family home neighborhoods, each declaration following a similar form. The original declarations provided that the developer, as the declarant, would use assessments collected from homeowners for various expenses, including landscaping, utilities, garbage collection and various other items.

The developer, which had the right to amend each declaration in its sole and absolute discretion, later amended all of the declarations to remove the text that required assessments to be used for these specific expenses. The amendment did not preclude the developer from using assessments for those costs, but under the terms of the amendment such use would no longer be a requirement. As a result of this and other changes made to the declarations, some of the homeowners sued. They obtained mixed results in the lower court.

The appellate court found that although the developer had the right to amend the declarations, the amendments had to be reasonable and could not change the general plan under which the community operated. The exception to this rule would be if the original declarations had warned homeowners that the burdens on the community could be changed by unilateral amendment by the developer.

The court found that the removal of the obligation to use assessments for the items mentioned above effectively moved the burden from the developer to the homeowners. Although the amendments did not specifically provide as such, the amendments allowed the developer to continue to collect assessments in the same manner, eliminated its obligation to pay for these expenses, and allowed it to keep any funds remaining after payment of expenses which remained developer obligations. The court found the shift in responsibility to be an unreasonable use of the developer's right to amend the declarations.

This decision is not yet final, so it will be interesting to see if there are any further developments in this case. In any event, it is an important reminder to developers that even with a right to amend their documents, they must act in a reasonable manner. If a developer desires to retain a specific right to change a term in a declaration, that right should be specifically addressed in the original document so that purchasers are on notice that the term is subject to change. Without such specificity, changes will not be permitted if they change the character of the development or the burdens on the homeowners.

Our other real estate attorneys and I will continue to monitor and write about this case and other important legal and business issues for the Florida real estate industry in this blog. We encourage industry followers to submit their email address in the subscription box at the top right of the blog in order to automatically receive all of our future articles.

The Federal Deposit Insurance Corporation (FDIC) recently announced a change in the manner in which it sells real property. As of April 1, 2013, most properties owned by the FDIC will be sold with a reservation of mineral rights retained by FDIC unless the buyer specifically negotiates a higher price for the mineral rights to be included. The exceptions to this change in the method of sale of properties by the FDIC are condominium units and properties valued at $50,000 or less. All other properties will be subject to the exception for mineral rights. If the buyer elects to purchase the mineral rights, mineral contractors will provide a valuation of those rights and the buyer will be responsible for all associated expenses in obtaining the valuation.

For properties located in rural areas, the FDIC will also retain rights to use the surface of the property and have surface access to mine upon the property. The FDIC will waive those rights for properties located in incorporated cities, but it may retain the rights for subsurface access to mine from adjacent parcels. All of these reservations must be noted in the deeds of conveyance.

Anyone considering purchasing FDIC-owned property which is not exempt from this new requirement should be aware of the impact on the future value and development potential. First, ordinary property analysis of comparable area properties likely will not be appropriate as mineral rights are not normally excluded from sales. Hence, existing comparables may be higher. In addition, buying the property subject to the mineral rights reservation may impair the ability to sell or develop the property. Any buyer who considers such a purchase from the FDIC must analyze both the risk of the FDIC exercising its rights and the chilling effect on future sales and development.

Another important point is the impact on financing. Lenders do not look favorably on a property which is subject to the rights of a third party to enter and conduct mineral exploration and any number of other detrimental activities. It is not likely that a third party lender would be willing to finance a purchase or provide any type of development or construction funds if these rights are floating out there.

In addition, there is no title insurance coverage available in Florida to protect an owner in this scenario. Title insurance policies would include the standard exception for mineral rights and access rights, if those rights have not been waived by the FDIC.

Since this program is just going into effect, it is possible that the FDIC will change course if there is push back from the purchasing and lending communities. In the meantime, all buyers negotiating purchases from the FDIC should be aware of the risks in purchasing properties subject to the new requirements.

Our other real estate attorneys and I write about important legal and business issues affecting the Florida real estate industry in this blog on a regular basis, and we encourage industry followers to submit their email address in the subscription box at the top right of the blog in order to automatically receive all of our future articles.

A key element of any lease is often attached as an exhibit, and often given little recognition by the parties and their counsel. That could be a major mistake. The "work letter" is the construction exhibit which spells out each party's construction obligations and often addresses construction allowance money given by the landlord to the tenant.

Since the work letter is a construction document, it is essential that the attorneys and the tenant and landlord's representatives involve the construction departments in its creation. Our firm is unique in that as a boutique firm specializing in real estate and construction, we have significant in-house capabilities in both of these areas. Unfortunately, many real estate lawyers are not terribly well versed in construction law issues, and this could result in serious and unintended consequences for the parties.

Design professionals and the tenant's contractors should also be consulted in order to obtain their input on what is achievable. Timelines for permitting, construction and other key elements are involved, and only parties who are experienced in these areas know what is realistic and achievable. Negotiating fictitious timeframes can have serious financial repercussions to all parties.

One of the key elements is the drafting and approval of plans. The tenant wants to make sure that its brand and look is consistent throughout its stores. Meanwhile, the landlord wants to preserve the quality of its center and ensure that the construction will be first quality and in accordance with all of the applicable building codes. This often results in a process in which the tenant drafts the plans, which the landlord reviews and approves. Another key issue in the work letter entails who is in control of the construction process and who controls the disbursement of construction funds and their timing. The tenant will want to fund its construction for the allowance funds, while the landlord will want to have the tenant advance the monies and reimburse them at a later time. Where the negotiations end is generally based on the negotiating and financial strength of the parties. While generally the landlord will not agree to any up-front payments, it may agree to disburse along the lines of a construction lender as the project goes along, with the majority of the monies being paid at the end to assure itself that the improvements will be built and that the contractor is being paid, thereby avoiding liens on the project.

There are a number of other key issues that are essential to a good work letter. The other real estate and construction attorneys at our firm and I have a great deal of experience with these construction-related issues in commercial leasing, and we write about this and other important legal and business issues impacting Florida commercial real estate in this blog on a regular basis. In order to automatically receive all of our future articles, we encourage industry followers to submit their email address in the subscription box at the top right of the blog.

In today's turbulent economic times, many landlords require a guaranty of the lease. The key question is: What kind of guaranty do you have and is it enforceable? A guaranty is a contract, and the law requires that there be consideration for a contract to be valid. Generally, in most jurisdictions, the execution of the lease simultaneously with the guaranty is sufficient consideration. Nevertheless, a subsequent requirement of a lease guaranty may give the guarantor the right to challenge the guaranty as unenforceable for lack of consideration. Some jurisdictions also allow continuing guaranties to be revoked. Therefore, the guaranty should provide that it is irrevocable and that the guarantor waives any right to revoke the guaranty.

Guaranties may also be guaranties for payment or guaranties of collection. The two are dramatically different, and the language of the document is key in the establishment of which type it is. A payment guaranty is a primary obligation of the guarantor, and the landlord may directly seek enforcement of the guaranty without ever having pursued the tenant. A landlord wants to make sure that any lease guaranty is drafted so as to make it a payment guaranty.

A collection guaranty is a secondary obligation which limits the landlord dramatically. Under this scenario, the landlord must first pursue the tenant; obtain a judgment against the tenant; seek collection and satisfaction of the judgment from the tenant; and, if after all these have occurred and the landlord has not been made whole, then it can pursue the guarantor.

If the guaranty is to be limited as to scope, amount or duration, the terms of the limitations should be clearly spelled out and drafted in such a way so as to avoid any confusion. Errors in drafting limitations often result in litigation challenging the enforceability of the guaranty.

The other real estate attorneys at our firm and I are very experienced in negotiating and drafting guaranty agreements. We write regularly in this blog about important business and legal issues such as this for the commercial real estate industry in Florida, and we encourage industry followers to submit their email address in the subscription box at the top right of the blog in order to automatically receive all of our future articles.

Stuart Sobel's work since 2008 on behalf of the estate of the late interior designer James Wallace Tutt III was chronicled in an article in yesterday's Miami Herald and another report in today's Daily Business Review. Stuart prevailed before the Third District Court of Appeal in securing a judgment in favor of the estate in a case involving the famed designer's $2.9 million sale of the one-acre Bahamian island Caribe Cay. Tutt was the interior designer for Gianni Versace's South Beach mansion as well as a mansion owned by Cher, and he also became famous as the owner of the boutique Rock House hotel on Harbour Island near Eleuthera in the Bahamas where past guests have included Elle Macpherson, Naomi Campbell, Diane von Furstenberg, Barry Diller and Uma Thurman.

As a result of the ruling, creditors seeking title to the private island that Tutt had sold to a Coral Gables developer facing bank fraud charges will be required to await the ruling of a Bahamian court that is presiding over the matter.

"It's been hundreds of thousands of dollars of legal fees to get to this point, and it never should have happened," Stuart was quoted in the Daily Business Review article.

Tutt negotiated the sale of Caribe Cay to developer Guy Mitchell in 2006 but never signed a contract. Mitchell then relocated to the island, began making payments to Tutt and eventually paid all but $7,000 of the purchase price but did not want to take formal title. Tutt later learned Mitchell wanted Punto Larga Ltd. to be named as purchaser.

One creditor had obtained a $52.4 million judgment in New York against Mitchell and others over a failed hotel deal, and a second company won a $4.2 million stipulated judgment against Mitchell and others in Miami-Dade County.

These creditors served Tutt with a writ of garnishment to seize Mitchell's assets, and Punto Larga sued Tutt in the Bahamas to demand that he transfer title to Caribe Cay to the company.

"Sobel said he kept telling the others to take their complaints to the Bahamas, but they insisted on pursuing garnishment in the United States," reads the Daily Business Review article. "That's what I told these guys five years ago: Come down to the Bahamas. We don't care who gets the property," Stuart is quoted.

Initially, the Miami-Dade Circuit Court issued summary judgment in favor of Tutt, and the Third DCA reviewed the decision and sent the case back because Tutt had not asked for summary judgment and the hotel creditor had not been notified.

Tutt died of heart problems in June 2010, and in November 2010, his estate was sued by one of the Mitchell creditors for specific performance, unjust enrichment and breach of contract. The Miami-Dade Circuit Court last March granted summary judgment against the creditor and dismissed its complaint, and the decision was now affirmed by the appellate panel.

In the article from the business pages of Thursday's Miami Herald, Stuart concludes: "We're looking forward to delivering the deed to whichever entity the Bahamian court decides is entitled. As the court wrote, while the facts were complex and convoluted, the issues were really simple and always have been."

Click here to read the article from The Herald.

The firm's Oscar R. Rivera has had the honor of serving as a featured speaker at many conferences and professional development events held by the International Council of Shopping Centers over the years. In early 2013, Oscar will be speaking at the Open-Air Centers Summit taking place in New Orleans Feb. 27 - March 1 and the University of Shopping Centers taking place in Philadelphia March 4-6.

For the OAC Summit, Oscar will be leading a roundtable discussion on Thursday, February 28, titled "Eight Lease Clauses that Are Always Ignored." This ICSC members-only event will take place at the historic Roosevelt hotel located at 123 Baronne Street in New Orleans, and it has reached its capacity of 400 registered participants. To be added to the waitlist, email TFoxworth@icsc.org and you will be notified by the registration department if/when a cancellation is received. Additional information on the event is available at www.icsc.org/2013oa.

The ICSC University of Shopping Centers is an advanced level educational program serving the retail real estate and shopping center industry worldwide. Its mission is to elevate each attendee's level of knowledge of the industry by learning directly from experienced professionals. For the next ICSC University of Shopping Centers, which will take place March 4-6, 2013, on the campus of the Wharton School of the University of Pennsylvania in Philadelphia, Oscar will co-lead a course titled "Anatomy of a Lease." His course will cover the reading and crafting of lease clauses, interpreting provisions for enforcing lease requirements for both tenants and landlords, identifying tenant and landlord costs impacted by lease clauses, and the key provisions and business points affecting the lease. For additional information and online registration, visit www.icsc.org/2013UV.

Founded in 1957, the International Council of Shopping Centers is the global trade association of the shopping center industry. Its 60,000 members in the U.S., Canada and more than 80 other countries include shopping center owners, developers, managers, marketing specialists, investors, lenders, retailers and other professionals as well as academics and public officials. Additional information on the organization is available at www.icsc.org.

Retailers are ever expanding into stand alone outparcel locations, and they should be aware that outparcel leasing creates unique circumstances that must be considered. The outparcel user will typically ask the landlord for a number of restrictions that many landlords usually do not grant to in-line tenants but, nonetheless, are essential for an outparcel user. The unwary landlord needs to consider the ramifications to the center and their remaining space.

One common request is for a restrictive covenant protecting the tenant from competing uses. The outparcel tenant will typically construct its own building, and as a result of such significant investment, it wants to be protected from competing uses in the center. Therefore, the landlord may be prohibited from leasing in-line space to a similar use.

Visibility is also a major issue. The outparcel user will generally want some protection from the landlord that it will not construct on the remaining portions of the center so as to impede the visibility or the access of the outparcel. No build zone areas are a typical request. Landlords will generally agree to such restrictions to facilitate the ability of the tenant to achieve maximum exposure. Conversely, large tenants in the center will also have provisions in their leases protecting their visibility. This will typically result in restrictions on the size and height of the building allowable on outparcels. Therefore, tenants must inquire as to what limits exist on their construction ability.

Another major issue to be negotiated is parking and access. Often, the outparcel user will not have direct access to the adjoining roads. Therefore, a cross access and parking agreement will need to be negotiated with the tenant, unless such an agreement already exists. Access is a key element to every tenant, and the agreement will be heavily negotiated together with the cross parking provisions. Generally, the tenant will insist that its customers shall have the right to park on the landlord's parcel, and the landlord will ask for reciprocal rights. A reciprocal easement agreement is also not uncommon.

These elements associated with the negotiation of outparcel leases are unique and require additional legal analysis and work. The other real estate lawyers at our firm and I write regularly in this blog about important business and legal matters for the commercial real estate industry in Florida, and we encourage industry followers to submit their email address in the subscription box at the top right of the blog in order to receive all of our future articles.

Sometimes a party leasing a parcel of property wants to have the right to purchase the parcel in the future, thereby protecting its leasehold investment in the property. The tenant typically asks for a right of first refusal to purchase the property if and when the landlord receives an offer. That is the key difference between a right of first refusal versus a right of first offer. The right of first refusal is triggered when a third party initiates an offer to the owner/landlord.

A right of first refusal is often seen by an owner as an impediment to selling the property because the owner is concerned that a third party will not want to incur the expense of drafting a contract and negotiating its terms only to have the property purchased by the tenant exercising its right of first refusal. This is a very legitimate concern for an owner.

A compromise might be to grant the tenant a right of first offer. The right of first offer is initiated by the landlord/owner when it decides to put the property up for sale. It must first offer it to the tenant before listing the property for sale to the general public. It may not be a total protection for the tenant, but it is a reasonable compromise.

The tenant will want to negotiate some price and timing protections so that the landlord is not able to offer the property to the tenant for unfavorable terms and then list it for more favorable terms to the public. The landlord should also limit the offer to a one-time situation such that if it does not achieve a sale to the public when it first offers the property it is not required to offer it again to the tenant. The landlord should also condition the right upon the tenant not being in default. It may also insist that it is personal to the tenant and is not available to any assignees. The landlord must also make sure that a transfer to the lender by way of foreclosure or deed in lieu of foreclosure is exempted from the right of first offer.

The tenant may also want to protect its interest by recording a memorandum evidencing its rights so as to make sure that the landlord does not go behind its back and sell the property without the tenant's knowledge. If a memorandum is recorded, appropriate releases of this right should also be held by the landlord in escrow so as to release the title encumbrance when and if the tenant does not exercise its right to purchase.

These rights are difficult to negotiate and document, and the other South Florida real estate attorneys at our firm and I have a great deal of experience in negotiating and codifying them on behalf of landlords as well as tenants. We write regularly in this blog about important legal and business matters affecting commercial real estate in Florida, and we encourage industry followers to submit their email address in the subscription box at the top right of the blog in order to receive all of our future articles.

A letter of intent ("LOI") is a preliminary agreement that is used to outline a general understanding of the basic business terms of an anticipated real estate transaction. LOIs are generally used to establish the general framework of the business deal and are intended to serve as an outline for the lawyers to use in drafting a binding, formal purchase and sale agreement or lease agreement.

There are many reasons parties enter into an LOI. Business owners generally prefer to have one to determine whether it is worthwhile to invest the time and money of hiring a lawyer to do a formal purchase agreement. If the parties are unable to agree to the general framework, then there is no need to incur the expenses of drafting a formal agreement that may never be acceptable to the other side.

Unfortunately, business owners do not always engage an attorney to draft the LOI, and that could lead to trouble. The legal implications of LOIs are often misunderstood, and unless drafted properly, an LOI could be found to be a wholly enforceable contract by a court of law. Rarely, if ever, do the parties actually intend for that to happen, but multiple courts have found LOIs totally binding, some have found them partially binding, and still others have found them non-binding.

Most LOIs include a provision at the end making them non-binding. Generally that is the intent of the parties. Once the LOI is accepted, the parties engage counsel to draft the formal agreement. Until the final agreement is signed, generally, neither party is bound to the other. The tricky part is the interrelationship between some of the business terms outlined in the body of the LOI and the exculpation clause at the end. If one of the terms requires that the parties will not deal with anyone else for a specified time over the real property in question, then the parties have created a partially binding LOI. Such obligation has been enforced by courts, and the failure to deal exclusively with the other party has been found to be a breach and subjected the violating party to damages.

Another issue that creeps up is the common law obligation of "good faith and fair dealing." Such obligation is implied by law upon contracting parties in a number of jurisdictions, and the failure to negotiate in good faith towards a contract as contemplated in the LOI has also been found to be actionable. Therefore, unless excluded with specificity in the LOI (and depending on the language in the LOI), a party to the LOI may be forced to negotiate with the other party even if it has been approached by an independent third party who is willing to make a better offer.

To be safe, counsel that is familiar with the drafting of LOIs should review the LOI before it is sent to the other side or accepted by the receiving party. While, admittedly, the purpose of an LOI is to reduce the client's legal costs, the failure to have counsel draft or review an LOI may have unexpected consequences that could have been easily avoided.

The South Florida real estate lawyers at our firm have substantial experience in the drafting of LOIs. We write regularly in this blog about important business and legal issues for the commercial real estate industry in Florida, and we encourage industry followers to enter their email address in the subscription box at the top right of the blog in order to receive all of our future articles.

In December, firm partners Helio De La Torre and Laura M. Manning-Hudson, together with of-counsel attorney H. Hugh McConnell, prevailed in their appeal on behalf of the developer of the 28-story Courvoisier Courts condominium tower on Miami's Brickell Key before the Third District Court of Appeal. The appellate court found that the lower court erred when it entered a Final Judgment requiring the developer to relinquish to the association all of the parking spaces and storage areas that it assigned to an unsold penthouse prior to turning over control of the property to the association.

The appellate court's decision in the case of Courvoisier Courts, LLC v. Courvoisier Courts Condominium Association, Inc. hinged on the association's declaration of condominium, which states that the association would receive all parking spaces and storage areas that are left unassigned after the developer has sold all of its units. The panel found that the parking and storage spaces in question did not become the property of the association upon turnover, and the developer retained the right to assign the exclusive use of these limited common elements until such time as it had sold all of its units.

A report on the ruling from the Daily Business Review on December 27, 2012 quoted De La Torre indicating that "The lower court ruling said basically that all of the assignments made since the turnover were invalid. [The appellate decision] means we get our parking spaces back, [and] it's a very significant opinion." He, Manning-Hudson and McConnell believe that the trial court's interpretation of the condominium's declaration in this case could have set a challenging precedent for condominium developers in Florida.

Click here to read the Third District Court of Appeal's opinion for the case.

Operating expenses can be a heavily negotiated provision in a lease. Landlords want to be sure that all expenses associated with the operation of the property are included, and tenants don't want to be charged for unreasonable expenses. A landlord's lease form typically contains a non-exhaustive list of expenses, and a tenant generally tries to narrow that list and include its own list of exclusions.

Because the list of items which may be included in operating expenses can be so lengthy, tenants are typically concerned about overbilling. For this reason, many tenants will request a right to review the landlord's books and records to confirm that they have been treated fairly. They will also require a provision in the lease that if they have been overbilled by a certain percentage, the landlord will pay the tenant's costs for review of landlord's books. Landlords will often agree to a provision such as this, but they will require that any party retained by the tenant to perform the review be compensated on an hourly basis rather than based on a contingency. By removing the contingency fee, the reviewer has no financial incentive to find overcharges and should merely review the books and records over a reasonable period of time.

One option for providing tenants with some comfort is for the landlord to provide a cap on increases to certain items. When landlords agree to a cap, they will generally carve out uncontrollable expenses (e.g., taxes, security, insurance and utilities) from the limitation. Since these amounts can make up a significant portion of operating expenses, tenants are still at risk for an unexpected bill.

To provide tenants further predictability while also avoiding both the argument over what items should be included in operating expenses and the expense of the review of books and records, some landlords and tenants are agreeing to a fixed amount for operating expenses that increases annually based on an agreed-upon factor. The fixed amount tends to build in a bit of protection for the landlord, but in return the tenant is able to budget for the annual amount without fear of an unexpected increase. If the tenant is willing to pay a higher amount for that predictability and the landlord is willing to assume a certain amount of risk that costs will not increase over the fixed amount, the parties can avoid a lengthy negotiation of the operating expense provision in the lease and the unknown results of a record review.

Our other real estate attorneys and I write about important business and legal issues impacting Florida commercial real estate in this blog on a regular basis, and we encourage industry followers to enter their email address in the subscription box at the top right of the blog in order to automatically receive all of our future articles.

In many purchase transactions, a key element of the negotiation is the condition of the property and what representations, if any, a seller is willing to make as to the condition of the property being sold. Often the seller insists that the sale is in AS-IS condition and shifts all the responsibility for determining the true condition of the property to the purchaser by granting a time frame within which the purchaser has the right to have the property inspected and, if not satisfied, cancel the deal and walk away.

In commercial transactions the responsibility of the seller in disclosing known but hidden defects is often less than that in a residential transaction, but that depends on the jurisdiction, and state case law differs on this topic from state to state. So, all sellers and their counsel should be advised of the law in their particular jurisdiction. Even if the transaction is an AS-IS sale, the buyer will want to obtain some representations as to known and hidden defects, as well as other issues that may not be readily discernible during inspections. As such, even in an AS-IS deal, it is typical for the seller to make some representations. This typically results in some hybrid element with a statement in the contract which states that "other than as represented, the transaction is AS-IS."

Sophisticated sellers and their counsel will often insist on an additional paragraph in the AS-IS paragraph (which is often inserted in bold print) stating that the buyers are sophisticated real estate professionals and are knowledgeable about inspections and the conditions of property and the like. This shields the seller from a potential claim or argument that the buyers did not really understand what AS-IS truly meant, and that they did not know how to conduct proper inspections. Often times disgruntled purchasers make these claims against the seller post -closing. In addition, the seller will often insist on including language that states that the purchaser conducted inspections of the property, was aware of its condition as of the end of the inspection period and agrees to waive all rights to object to the condition of the property if they elect to proceed to closing.

At the end of the day, AS-IS clauses create many challenges for the contract drafter. They can be truly and completely AS-IS or only partially so. Each word could be critical in the interpretation of the clause, should a claim arise post-closing.

The other real estate attorneys at our firm and I are extremely experienced in the drafting of commercial real estate contracts, and we are available to help clients with these contracts from our offices in Miami-Dade, Broward and Palm Beach counties. We write about commercial real estate legal and business issues in this blog on a regular basis, and we encourage industry followers to submit their email address in the subscription box at the top right of the blog in order to receive all of our future articles.