Real Estate Form Contracts vs. Custom Contracts

  • September 29, 2015

Almost every association of realtors, whether commercial or residential, has a set of form contracts for the purchase and sale, lease or lease option of real property. For many transactions, these forms will cover all the legal bases. However, there are circumstances when a custom drafted contract is warranted for a real estate transaction. This is more common with commercial real estate, but there are circumstances in which a custom contract is also advisable for a residential transaction.

contract_of_sale_of_real_estate-legalities_00011876When should you seek out an attorney’s help in drafting a custom contract for the purchase and sale of a home, investment or commercial property? Below is a short list of circumstances when a custom contract or terms may be advisable:

  • Are you changing the use or developing the property in a way that is different from its existing use? In that case you may need custom language that provides specific contingencies and due diligence review to protect your ability to cancel the contract if the property turns out not to be feasible for your intended use.
  • Are you purchasing something more than just a house or building? If you are also purchasing development rights or plans, water rights, grazing or agricultural rights or an ongoing business operation on the property, you may want customized contract terms or multiple contracts.
  • Are you purchasing or leasing multiple parcels or multiple parcels with different use? Are you purchasing multiple parcels from different sellers? Incline Law Group recently assisted with the acquisition of 6 parcels with four different types of use – multifamily, single family, commercial and mixed use (office/residential). With the complexity of the various leases, rent rolls, ongoing business operations and more, a form commercial purchase and sale contract just could not address all of the issues and we used a custom contract.
  • Is the property currently leased? The more tenants you have, the more complex the transaction can become. That does not necessarily mean you need a custom contract, but you do want to be sure you are properly assigning leases, accounting for security deposits and addressing open tenant issues.
  • Are there a lot of moving parts? In general, the more complex a real estate transaction is, whether that is because of the nature of the property, the type of use, the complexity of due diligence issues or the sophistication level of the parties, the more advisable it is for you to seek the assistance of an attorney and consider the use of a custom contract.

There may be plenty of other circumstances in which a custom contract, or at least custom drafted contract provisions, are advisable.  Not every real estate transaction needs a custom contract or terms, but when in doubt, you should seek the advice of legal counsel.

Practical Difficulties Enforcing HOA Rules – A Quiz

  • September 29, 2015

Test your knowledge and skill applying NRS 116 to a typical homeowner complaint about unreasonable fines.

This is a participatory quiz:

There has long been a debate whether HOAs have too much power because they have the ability to use funds from all owners to enforce “alleged violations” of governing documents against a single owner who has far less economic power because the owner must pay all his own costs needed to defend against an enforcement action. And the owner also pays part of the funds (HOA dues) used to prosecute his claimed violations.

In the factual situation described below, consider yourself first a member of the governing board tasked with uniformly enforcing the governing documents, but owing a duty to be fair to all owners in the HOA and to be governed by Nevada statutes. Next consider yourself the owner in question. Next, consider and apply the Nevada statutes, and governing document provisions, and evaluate and give your answerHOA Rule Book by ruling in favor of the HOA or the Owner.

Facts: Owner has owned a free-standing cabin for many years in an HOA of similar cabins. Owner has had a “rustic” deck for years. The deck is not “falling down” or a risk to others, its wood is just old and not freshly stained. Owner also has a metal chimney that has flaked paint because it has not been repainted in a number of years. The HOA has issued violation orders: “Chimney and braces need painting above roof” and “please stain and maintain the deck…”

Owner acknowledges that while an owner has an obligation to maintain and repair his unit, the HOA does not have the authority to direct or require it to do specific things such as “stain and maintain the deck” or to “paint the chimney” unless there is specific authority granted to it in the rules and unless there are standards established that clearly describe what an HOA can enforce and what an owner must or must not do. Here, owner argues there is no specific authority given the Board and no standards establishing why maintenance is needed for the deck.

The HOA claims it has “discretion” under HOA Rule 3, below, to direct these repairs and it has levied thousands of dollars in fines against the owner for non-compliance with its “alleged violations.”

An HOA is obligated first to comply with and abide by the provisions of NRS 116, which has the highest authority, which then governs the CC&Rs, and the CC&Rs control what is permitted in HOA rules. For a rule to be enforceable, it must comply with the CCRs and NRS 116.

Here are excerpts from relevant Nevada statutes, the CC&Rs and the HOA rules:

116.31031  1. Provides that the HOA can levy a fine only if there is a violation of the governing documents, such as a claimed violation of HOA Rule 3, below.

116.31065:  “The rules adopted by the association:  … 2. Must be sufficiently explicit in their prohibition, direction or limitation to inform a person of any action or omission required for compliance…” [This provision is repeated, almost verbatim, in CC&R Section 4.8, below.]

116.3107:  “1. … each unit’s owner has the duty to provide maintenance, repair and replacement of his or her unit…”

CC&R 4.8:  Rules and Regulations “… must meet the following criteria:… (b) The rules must be sufficiently explicit in their prohibition, direction or limitation to inform a Townhouse’s Owner … of any action or omission required for compliance…”

HOA Rule 3: “Appearance of Unit/Lot. … The exterior of the unit must be kept in good repair, subject to the discretion of the Board, including but not limited to paint, roof, decks, windows, and screens.”

The Question: Does Rule 3 provide sufficiently explicit prohibitions, directions or limitations so an owner will know what he can or cannot do? Does Rule 3 satisfy NRS 116.31065 (2) and CC&R 4.8 so as to allow imposition of fines against owner?

Stated another way, does the “discretion” mentioned in Rule 3 satisfy the specificity required or is it in fact contrary to the specificity required by NRS 116.31065 and CC&R 4.8?

DECISION:  Ruling in favor of HOA: [____]                             Ruling in favor of Owner:  [____]

 

We invite you to share your decision and rationale in the comments section below. 

Reno Revises Its Master Plan and Needs Your Input!

  • September 25, 2015

Every 20 years the City of Reno updates its master plan.  The master plan sets out the policies and goals for decision making and investment in Reno’s future development.  The City, through ReImagine Reno is seeking public input during this process. It is holding a number of workshops and has a quick survey you can fill out online. The survey is geared towards understanding the wants and needs of Reno residents with regard to housing, amenities and more. I just filled it out and found it to cover some pretty important issues. There is also an area where you can type in your own suggestions.

ReImagine-RenoBased on a report that I heard on the radio, ReImagine Reno is hoping to receive the input of 3000 residents.  3000 people? That is all? That is just barely 1.3% of the population of the City of Reno and less than 1% of the population of the County of Washoe. The future of our biggest little city will be shaped by our politicians and 1% of our residents?

Our biggest little city is a hidden gem, and is poised for some pretty big changes over the next decade. This is your chance to help shape what we become! Speak now or forever hold your peace….or at least for 20 more years.

Recent Lawsuits Challenge Nevada Private School Voucher Program

  • September 15, 2015

Nevada’s 2015 legislature passed SB302, a statewide private school voucher program. Under the law, any child who spends at least 100 consecutive days enrolled in a Nevada public school may apply for a direct transfer of public school fundschool_voucherss ($5,100 – $5,700 on average) to cover private school tuition and a wide variety of other expenses. Under the law, the money must be distributed by the state into individual education savings accounts (ESA’s), from which the funds may only be used to pay for private school tuition and other expenses. Read SB302 here.

The Nevada State Treasurer, Dan Schwartz, is busy setting up its program to administer applications and the distribution of the funds and has already established several application deadlines.

On August 27, 2015, the American Civil Liberties Union (ACLU), the American Civil Liberties Union of Nevada (ACLUNV), and Americans United for Separation of Church and State (AU) filed a lawsuit in Nevada’s Eighth Judicial District (State Court) in Las Vegas challenging the law. The lawsuit is entitled Duncan v. State of Nevada and you can read it here.  The ACLU Lawsuit is filed on behalf of several citizens who assert that the vast majority of Nevada private schools are religious schools that include religious instruction in their programs, and then directly quotes the marketing materials of dozens of such religious private schools in support of that assertion. The Complaint concludes that the law violates Article XI Section 10 of the Nevada Constitution, which prohibits the use of public funds for any sectarian purpose. The lawsuit also claims that the program runs afoul of Article XI, Section 2, which requires the legislature to provide for a uniform system of common schools.  The ACLU Lawsuit has some very capable lawyers behind it.

On September 9, 2015, a second lawsuit, Lopez v. Schwartz, was filed in the First Judicial District Court in Carson City (also a Nevada State Court) challenging the same law by parents and students who are seeking to prevent loss of funding from their children’s public schools to pay for private schools. The second lawsuit is supported by an advocacy group called Educate Nevada Now (ENN). The ENN lawsuit likewise has several capable law firms behind it.

ENN’s challenge is based on several different legal grounds than the ACLU Lawsuit.  The parents and students in the ENN Lawsuit contend that the voucher law violates the Education Article of the Nevada Constitution in three ways:

  • The voucher law by its terms diverts funds earmarked by the Legislature exclusively for the operation of the public schools to pay for private schools and other private expenditures.
  • The voucher law reduces State-guaranteed funding for Nevada’s public schools below the level determined by the Legislature to be sufficient in each biennium budget.
  • The voucher law allows public school funding to pay for private schools that do not have to comply with the “uniform” non-discrimination, education performance and accountability standards that all Nevada public schools must follow.
(Source: Educate Nevada Now)

The stakes involved in the two lawsuits are truly enormous. The financial impact of the voucher program is massive, unpredictable and potentially unlimited.  The two lawsuits and the legal challenges they present to the new Nevada Private School voucher law will also put families and students in a state of limbo while the cases play out. The cases will ultimately find their way to the Nevada Supreme Court, which should have the final say in the matter because both cases are solely based on Nevada state statutory law and state constitutional law, not federal law.

My initial reaction is that the two lawsuits present significant and very serious legal challenges to Nevada’s school voucher program. I hope that readers of this blog post will actually take the time to read the complaint in each lawsuit (linked above) to fully understand the Nevada state constitutional provisions that support the two lawsuits.  I am sure many folks have preexisting beliefs about whether school vouchers are good or bad. Such beliefs really have little bearing on whether the law violates the provisions of the Nevada State Constitution quoted in the lawsuits. In fact, while many people are well-versed on the text of the United States Constitution, I think most Nevadans have little or no awareness of the content of the Nevada State Constitution and its Article on Education.

To be fair, I have not seen the State’s legal position. In fact, the State has yet to file anything in response to the lawsuits. It is likely that the State will find support for the law in cases from other states upholding private school voucher programs under the other states’ laws. The Nevada cases will be unique in their legal standing, however, because both the new Nevada law and the Nevada State Constitution are unique.

Nevada families trying to make education choices which rely on the financial support of the voucher program will be extremely frustrated by these legal challenges. Although the ACLU case poses a legal challenge to religious private schools receiving state money, both lawsuits could impact enrollment in other private schools that have no religious programming while the law is under attack. As mentioned, the ENN Lawsuit challenges any private school, religious or not, receiving state money.

This will be an interesting case to follow. The stakes could not be any higher.

 

 

Mediation – A Cost Effective Alternative to Divorice Litigation

  • September 2, 2015

It is possible to resolve your entire divorce by engaging a skilled mediation attorney as an alternative to the time consuming, emotional and costly litigation divorce process.

Mediation-Square-200

Mediation is best for couples hoping to obtain closure of their divorce issues without having to navigate the pitfalls of the court system. However, mediation is not for everyone and there are definitely several requirements which can help to assure its success. If all of the factors for a successful mediation are not present, mediation may become as time consuming, frustrating and costly as divorce litigation.

The first, and most basic requirement for mediation, is that both parties want to mediate as mediation requires two active voices in the room. The goal is to get an agreement that reflects what each of you needs, in order to move forward in your life. If you are not both willing and voluntary participants, then we will not have two voices, and the result will likely be failed mediation or, at best, an unbalanced agreement which could be subject to enforceability issues in the future.

Other requirements of a successful mediation are as follows:

Both Parties Are Determined to Settle The Matter: If both parties want to resolve everything in mediation, and keep coming back to the table to talk and to try, then they will likely be successful.

Both Parties Must Be Active Participants. Both people have to contribute to the discussion. This means that you have to be able to sit in the room together, and use your best efforts to listen to your ex, even when you don’t agree with what he/she is saying. If you and your ex have a dynamic where one of you feels intimidated by the other, and you can’t say what you are really thinking with him/her in the room – then mediation is probably not the right process for you.  It follows also that neither person should be cognitively or emotionally impaired (e.g., severe depression) in any way that affects capacity to mediate. Neither person should lack capacity due to drug or alcohol abuse.

Both Parties Want To Settle the Case, and Move On. The breakdown of a marriage is similar to a death and causes both parties to engage in the grieving process. This can involve transition through various stages such as denial, pain, anger, depression, reconstruction and eventually acceptance. It is often the case that divorcing couples are at different stages of the grieving process which can certainly complicate the ability of both parties to have rational discussions about child custody, visitation, division of assets, support, etc. Mediation of these important and often very emotionally charged issues requires a focus on the long-term, and the big picture. You must think about your ex and – on some level – hope to honor your past love for each other, the years of your lives that you spent together.

No Hidden Assets and Full Financial Disclosure. It goes without saying that parties cannot make informed decisions if they do not have all of the information on which to base decisions. In mediation, you will not have the power of the court behind you to compel your spouse to produce credit card statements, bank statements, stock options, small business records, etc. Most couples who choose mediation feel confident that they know what each other has, or can trust the other party to voluntarily produce information without engaging in formal discovery. Mediation would not be right for someone who wants to ‘make a deal’ without revealing their cards.

No Patterns of Intimidation, Control or Domestic Violence. Finally, it is important to note that, if you and your spouse have a history of violence between you, you probably should use more traditional methods for negotiating your divorce. It is difficult to speak freely and express what you want if you fear repercussions or do not feel that you can contribute productively without inciting anger in the abusive spouse.

Whether you decide to mediate or litigate, it is also important that you retain an attorney to assist you during either process. Mediation is a way to conserve resources and funds, but you still need to have an attorney reviewing your agreements to be sure your interests are being protected. Mediators represent the agreement or the goal or resolution and do not have the ability to be representing the interests of the individual parties with conflicting interests. You want to make sure to have any agreements reached in mediation reviewed by your own counsel.