Making Contracts Work for You – Part 4 – Contracts: Insurance Provisions

  • July 11, 2018

Insurance

I can already hear it — you know what insurance is.  However, did you know that a promise to procure insurance for another party can sometimes equal an obligation to cover the loss the insurance would have provided if you don’t procure it?  In other words, if you promise to insure another party in conjunction with a commercial agreement, you become the insurer if the agreed-to coverage is not purchased.  For this reason, insurance provisions in commercial agreements can have enormous financial consequences, particularly when a loss occurs which would have been covered by insurance required by the agreement.  As is often the case with indemnity provisions, insurance clauses are sometimes drawn from old, unrelated agreements, and your contract might wind up with unfair or insufficient insurance provisions.  Make sure the insurance clause fits the deal.

Conclusion

Next time you negotiate a commercial agreement, make sure that you are best protecting yourself and avoiding unintended financial risks by including appropriate warranty, indemnity and insurance provisions that reflect your intentions and are enforceable under the state law selected in the agreement.  Happy contracting.

Read more in the 4-part Making Contracts Work for You, where we discuss various ways that you can strengthen your commercial contracts, so that in the case of a dispute, your contract works on your behalf. Part 1- Boilerplates, Part 2-Warranties , Part 3-Idemnity Provisions

Making Contracts Work for You – Part 3 – Contracts: Indemnity Provisions

  • July 11, 2018

Indemnity Provisions

Indemnity or “hold harmless” clauses are another way of allocating financial risk to a particular party in a transaction.  Indemnity clauses require one party to bear the cost of certain risks defined in the contract, which can range from particular losses, lawsuits, or even non-conformance with prescribed warranties.  Most commercial agreements should have some form of indemnity clause, in which one party agrees to defend (i.e., hire a lawyer) and indemnify (reimburse) the other party for the risks described.

We find that indemnity clauses are often one-sided, and sometimes taken from unrelated contracts, so that the risks which ought to be negotiated and indemnified are overlooked, while the indemnity clause as written produces results which the parties never contemplated. For example, Party A would not expect to find a clause that lays the costs of Party B’s fault back upon Party A. Yet that kind of result can happen when indemnity clauses are not carefully negotiated and drafted.

Indemnity clauses can be quite complex, including provisions regarding the selection and control of the attorneys who will defend the claim.  A well-drafted indemnity clause will include a provision that the benefited party will be entitled to their reasonable expenses incurred to pay the indemnified loss, and any settlement, judgment and defense costs.

Losses are not always caused by one person or one discrete act or omission.  Events like construction site accidents and other industrial accidents are often the result of a combination of factors.  Environmental contamination can have multiple causes spread over decades. In such cases, the wording of an indemnity clause can make a big difference.

The legal effect of an indemnity clause is usually a question of state law.  Different states have varying rules for interpreting and enforcing indemnity clauses.  Therefore, the state law selected in the agreement can have a major effect on the results produced by the indemnity clause.  Some states require particular wording in an indemnity clause before a court will shift the risk of a loss from one party to another.  If  the contracting parties intend to shift the risk of one party’s “active” negligence to the other, such an intent will often need to be specifically spelled out or the indemnity clause will not be given that effect.

Most or all states have limitations on the kinds of liabilities that may be indemnified, and some even have special statutes that change the rules in particular settings, such as construction contracts, for example.  Indeed, California courts have at times distinguished between “Type I,”  “Type II” and Type III” indemnity clauses. (I will spare you those details.)

Ultimately, the effect of an indemnity clause will turn on the state law chosen in the contract, the subject matter of the contract, the words used in the indemnification provision, the circumstances of the loss to be indemnified, and the different parties’ roles in producing the loss.

Read more in the 4-part Making Contracts Work for You, where we discuss various ways that you can strengthen your commercial contracts, so that in the case of a dispute, your contract works on your behalf. Part 1- Boilerplate, Part 2 – Warranties, Part 4 -Insurance Provisions

Making Contracts Work for You – Part 2- Contracts: Warranties

  • July 11, 2018

Warranties

A warranty is an agreement that the item sold, or some other subject matter related to your contract, conforms to a certain description.  The effect of a warranty is a contractual allocation of financial risk if the item sold (or other subject matter of your agreement) does not conform to the specified warranty.  A warranty is violated when the thing sold doesn’t satisfy the warranted condition. When this happens, the party who made the warranty is liable to the other party for the cost to repair or correct the issue — without regard to fault.  Thus, warranties produce liability without fault, sometimes called “strict liability.”  When a warranty is breached, it may also provide a basis for rescission and restitution — this means unwinding the contract.

Including warranties in contracts is an effective way to make sure your assumptions about what you are buying are included in the paperwork.  Requesting warranties during negotiation and drafting of documents is a good way to find out whether each party has the same understanding of what is being bought and sold. Signing an agreement that contains warranties that you did not agree to make can produce bad results; likewise, failing to include warranties in an agreement to reflect what has been promised to you is also a bad idea.

Often, a seller will attempt to disclaim liability for any breach of warranties by requesting an “AS-IS” provision. The words “AS IS” and similar terms generally trigger a legally enforceable disclaimer of all express and implied warranties, except for warranties set forth elsewhere in the agreement.

Parties relying on warranties will often want a “survival clause” in the agreement to be sure that any important warranties continue in effect after close of escrow, for example.

Read more in the 4-part Making Contracts Work for You, where we discuss various ways that you can strengthen your commercial contracts, so that in the case of a dispute, your contract works on your behalf: Part 1-Boilerplate, Part 3-Idemnity Provisions, Part 4 Insurance Provisions

Making Contracts Work For You – Part 1: 5 Boilerplate Items You Don’t Read

  • July 11, 2018

In this four-part series, Making Contracts Work for You, I will discuss various ways that you can strengthen your commercial contracts, so that in the case of a dispute, your contract works on your behalf.

Many people and businesses use self-written business forms as contracts and rely on handshakes to seal a deal. When a dispute arises from said deal, many of these people or business later turn to attorneys for a review of said contract.  Having an attorney review the contract will often reveal shortcomings, and then the second-guessing of the agreement then begins.

A few simple, but well-defined boilerplate terms can make your standardized commercial agreement an advantage for you in the case of a dispute, or at least keep the playing field level.  In many cases, a court cannot rescue you unless you give it the ammunition to do so. It makes great sense to improve your leverage and chances of collection, and perhaps even ward off disputes, by improving your standard contract forms with the simple tools mentioned below.

Here are some of the provisions that can make or break your success in a lawsuit that arises from your contract:

  1. Attorney’s Fees Clause — language that says the winner also gets his attorney’s fees recovered.

Why?  Under the “American Rule” you generally cannot recover attorney’s fees in most states, unless you have a right to attorney’s fees in your contract or under a special statutory remedy.  You want an attorney’s fee clause that is properly drafted.

  1. Clear Payment Deadlines and Interest Provisions — terms that state when payment or performance is due and the consequences for delay.

Why?  Disputes can take a long time to resolve.  The accrual of interest can become a powerful bargaining chip, and a significant item of recovery.  Interest compensates you for the loss of use of your money, and, to some degree, the loss of your own time devoted to the case.  Allowable interest rates vary according to the applicable state law.  If you want to charge “compound interest” — in other words, interest on interest — this must be explicitly stated in the agreement.  Otherwise, only simple interest will accrue on the principal sum due. Typically, we see contracts with no interest rate stated; the interest rate only appears in invoices.  The interest rate(s) should be agreed upon, up-front, in the contract.

  1. Choice of Law, Consent to Jurisdiction, and Venue — where a lawsuit must be filed and what law will apply.

Why?  Cases can be won or lost based purely on the financial burden caused by the location of the lawsuit or arbitration hearing.  You want to be in your own home “court,” spending nights at home with your family, trying the case with your favorite lawyer.

  1. Correct Naming of the Parties and Authorized Signatures — are you actually signing a contract with the party you think you are dealing with?

Why?Some level of due diligence is always appropriate.  If you are doing business with a corporation or other entity, you want your contract signed by a properly authorized representative with the corporate name properly stated.  You would be surprised how often this is overlooked.  Are you dealing with the true property owner, or his uncle who just got out of jail?  There is a wealth of publicly available data available on the Internet to verify the correct names of corporations and the true owners of property, businesses, etc., so you can ensure you have the correct, authorized signatures.

  1. Personal Guaranties – an additional source of payment if the contracting party defaults; usually a person with money, property or both.

Why?  It doesn’t take much for an unscrupulous person to form a corporation or an LLC.  If you do not have a solid track record of doing business with a business entity or trust, it may be appropriate to ask for a personal guaranty. Guaranties must be in writing to be enforceable; they can vary from a single sentence to multi-page guaranty agreements.

We are always happy to review our clients’ standard contracts and provide advice that will make your agreements stronger.

Read Making Contracts Work for You –  Part 2-Warranties , Part 3-Idemnity Provisions, Part 4- Insurance Provisions

Chris D. Nichols Joins Incline Law Group

  • May 17, 2018

Chris D. Nichols

Incline Law Group, LLP is pleased to announce an Of Counsel relationship with Chris D. Nichols

Chris is a highly regarded attorney who brings over 25 years’ experience and knowledge in the areas of Estate Planning, Bankruptcy and Debt; Real Estate, Gaming and Business Law. He also serves as general counsel for many of his clients.

Chris has been licensed to practice law in Nevada since 1987 and Utah since 1984 including all Federal and State Courts in Nevada and Utah as well as Ninth Circuit Court of appeals. He received his J.D. from the University of Utah S.J. Quinney School of Law in 1984, and his Bachelor of Science Degree, Cum Laude from Weber State University. Chris is an avid skier and looks forward to spending winters in Tahoe.

“This Of Counsel arrangement with Chris allows Incline Law Group to support the growth of our existing Estate Planning, Real Estate and Business Law services as well as add Bankruptcy and Gaming Law to our practice areas, allowing Incline Law Group to provide legal clarity and support to our clients in the Lake Tahoe region,” said, Cassell von Baeyer, Incline Law Group’s managing partner.

Mr. Nichols is accepting new clients; please contact Incline Law Group LLP at 775-831-3666 or via email to schedule a consultation.

Marijuana Tenants Update – March 2018

  • March 15, 2018

In October, 2015, Incline Law Group published a blog about how the state laws regarding medical marijuana, along with the issuance of the Cole Memo, impacted landlord tenant law.  The article compared the dynamics between the California and Nevada State Laws with that of the Federal Government along with the Federal Government’s ability to prosecute those who violate the federal marijuana laws.

Since that time, both California and Nevada have legalized recreational marijuana.  However, the federal government still considers marijuana to be a Schedule 1 drug, making it illegal for both medical and recreational users.  Former Deputy Attorney General James Cole released the “Cole Memo” in August 2013, which provided guidance to federal prosecutors with regard to marijuana prosecution.  The Cole Memo essentially directeMarijuana Leasesd federal prosecutors not to prosecute certain uses of marijuana if the use did not violate the local state law, which has allowed the industry to blossom.  The Cole Memo also provided landlords who rented to tenants that were involved in the marijuana business a sense of security so long as the landlord and tenant complied with local laws.

In January, 2018, current Attorney General Jeff Sessions, announced the withdrawal of the Cole Memo.  As previously mentioned, the federal government has the right to seize property used in the cultivation, manufacturing or selling of cannabis.  This can include real property where the owner is merely a landlord who does not participate in the cannabis business.  Under the guidance of the Cole Memo, this risk had been significantly reduced.  Now, due to the withdrawal of the Cole Memo, it is expected that prosecution of all marijuana related crimes, whether or not legal under state law, will increase.  This means that any landlord who has a tenant in the marijuana industry, or even a recreational user who is growing their own plants for private use, again risks prosecution under federal law, including, but not limited to the government seizing the landlord’s property.

While the Cole Memo was not legally binding, it provided many landlords with enough confidence that they would not be prosecuted for renting to those in the marijuana industry.  However, all leases must now be revisited based on the withdrawal of the Cole Memo or landlords could be subject to criminal penalties.

If you have questions about your lease and what your legal risks may be, please contact our office.

(Published March 2018)

Leases and Medical Marijuana Tenants

  • March 15, 2018

The State of Nevada legalized the use and cultivation of medical marijuana in 2014 and began allowing cannabis businesses to operate in 2015.  While California voters approved the use of medical marijuana some two decades ago, California law makers only put into place a regulatory scheme in 2015 thereby allowing dispensaries to operate legally.

Medical Marijuana and Leases

Cannabis law is currently a very fluid and rapidly changing area of law.  The legalization of medical marijuana at the state level presents significant conflicts with federal law in numerous areas including drug policy, banking laws, criminal law and so much more.  Under federal law, the use, cultivation and sale of marijuana – medical or not – is illegal.  As a result of the past war on drugs, federal law provides some very severe penalties for violations of federal drug law, including forfeiture.

The federal government does have the right to seize property used in the cultivation, manufacturing or selling of cannabis.  This can include real property where the owner of the real property is merely a landlord who does not participate in the cannabis business.  While the federal forfeiture laws do have an “innocent owner defense” many state cannabis laws require the lease to specifically state that the lease is for purposes of cultivation, manufacturing or selling.

As noted above, this is a rapidly changing area of law.  Just two days ago (October, 2015) the Federal District Court for the Northern District of California issued a ruling (a somewhat scathing decision, in fact), based on the 2015 Appropriations Act, halting the Department of Justice from expending funds to enforce federal laws that interfere with state laws that authorize the use, distribution, possession or cultivation of medical marijuana.

Until the conflict between the state and federal laws governing the use and sale of marijuana are entirely resolved, providers of services, goods and property, including landlords (both commercial and in some cases residential) are advised to seek legal counsel and to address new contract and lease provisions such as “escape clauses” and stated compliance with state cannabis law.

(this post was originally published in 2015)

Things to Consider When Buying Property in Tahoe

  • February 15, 2018

Things to consider when buying property in Tahoe.

Winter is a great time to buy in the Truckee/Tahoe area.  Whether you are looking to purchase a new primary residence or just a vacation home, there are a number of legal issues that you will want to consider.

  • TRPA/Building Restrictions. The Tahoe Basin is under the jurisdiction of a bi-state federal agency known as the Tahoe Regional Planning Agency (TRPA).  TRPA’s mission is, primarily, to preserve the environmental health and sustainability of the Lake Tahoe Region.  TRPA has the authority to establish and enforce land use planning, building and development restrictions.  The TRPA code may limit a homeowner’s ability to build, remodel, landscape and otherwise improve their property.

If you are purchasing within the jurisdiction of TRPA, it is important that you understand what you can and cannot do with your property with regard to improvements and the timelines for permitting and/or building within the Tahoe Basin.  Certain activities like grading and digging are generally prohibited October 15 through April 30.  If your property is within a scenic corridor or within a sensitive zone (like a stream zone) you may be subject to additional TRPA oversight.  TRPA does not make redevelopment, remodeling or improvement impossible, but it is important that you be aware that TRPA restrictions may impact your intended use of your new property.  There is a great deal of information available on the TRPA website.

  • Homeowners’ Associations. If you are looking at purchasing a condominium or town home that is within a homeowners’ association you should carefully review any applicable Covenants, Conditions and Restrictions (CCRs).  The CCRs will dictate any use restrictions on your property.  For many second home buyers in Tahoe, rental restrictions are very important.  Some Associations may limit the length of rentals or prohibit them entirely.  If you are intending to rent out your new house as a vacation rental or on a longer term basis, you should carefully review the CCRs for provisions relating to rentals.  It is also important that you understand if you will be required to pay monthly assessments, whether there are any planned or pending special assessments and the general financial health of the Association which should be evident in the operating and reserve budgets and financial reports.

 

  • Title Report/Title Insurance. An often overlooked document in the mountain of paperwork that you wade through when purchasing a home is the preliminary title report issued by the title company in preparation for the issuance of title insurance at the close of escrow.  The title report provides a list of recorded documents that will be excluded from title insurance coverage.  It is very important to review this list of exceptions and exclusions.  Often you will see easements affecting the property, any recorded use restrictions (like CCRs) and sometimes you may see issues relating to TRPA building covenants or restrictions.  The title insurance policy that you obtain will not insure against loss resulting from a claim that is related to a title condition that was listed on the exceptions list.  More importantly, certain title conditions can impact your intended use of the property (for example, if there is a public easement for beach access that goes right by your new master bedroom window….you may want to know about that).  It may be possible to remove some title exceptions and/or to insure around others.  You may want to seek legal counsel to understand the impact and possible removal of certain types of exceptions.  Your realtor should be able to guide you on when it is advisable to seek legal counsel to assist with title issues.

 

  • CA vs. NV? While the Tahoe Basin is one big beautiful region, there is one major tax difference that should be pointed out in case you are not already aware:  The State of California has individual and corporate state income tax, the State of Nevada does not.  When buying a second home that is intended for your personal vacation use, this may not be an important issue.  However, if you are intending your new Tahoe home to be your new primary residence, it is worthy of consideration.  Additionally, if you intend to rent out your property, thereby generating income, the rental income is likely to be subject to income tax – not such a big deal if you are already a California state taxpayer, but if you are a Nevada resident, you may be subjecting yourself to California income tax on that rental income.  Food for thought, and depending on circumstances, a reason to get in touch with your tax professional for guidance.

 

  • Real Estate Agents. As with any community, the Truckee/Tahoe area has many excellent realtors and a few that may not be quite so excellent…Chose an agent/broker by asking questions of both the realtor and people that you may know in the community.  Realtors that live and work full time in the community, and have for some time, are going to understand the many unique aspects of homeownership in Tahoe such as why you want to think twice about a long steep north facing driveway or when you should investigate your grand remodel plans with TRPA.  Many of the communities around the Lake and in the Truckee Area have a local Board of Realtors.  They can often be found online and may be a useful place to do a little research.

 

The Truckee/Tahoe Area is an amazing region rich with unparalleled beauty, outdoor adventure and close knit communities.  If Incline Law Group, LLP, can ever be of service to you in the purchase of your Tahoe home, or with other legal needs, please feel free to contact us.  Until then, we will see you out there!

Ready Your Small Business for Success in 2018

  • February 15, 2018

Ready Your Small Business for Success in 2018

Whether you are ready or not, year-end is here!  Incline Law Group LLP has compiled a list of small business resolutions that we feel can help position your business for a successful year ahead in 2018.

  1. Tax Planning: Year-end is a good time to meet with your account and/or CPA to assess the year behind and plan for the year ahead. This is a good time to review profit & loss statements and cash flow in order to best budget and plan for your business in the coming year. Don’t forget to review year-end retirement account contributions.
  2. Charitable Giving: Charitable giving is both tax deductible and a way to spread the spirit of the season and support organizations that you believe in. Did you know that most non-profits receive up to 30% of their annual fundraising income during the month of December?
  3. Business Registrations: All types of business entities, whether a corporation, LLC, LLP or other type have annual or bi-annual renewal filing requirements. Likewise, state and local business licenses may also need to be renewed. Do you know when your registration and license renewals are due? If not, you should take the time to find our and calendar them. If Incline Law Group serves as your Registered Agency, we will track and handle these renewals for you.
  4. Trademark Renewals: Trademark registrations have expiration dates. Is yours coming up? Is it calendared for on time renewal?
  5. Health Insurance: The Affordable Care Act (“Obamacare”) open enrollment period has been shortened for 2018 coverage and ends on December 15, 2017. Your current employee health care plan is also likely to have year-end renewal dates regardless of when you used to renew. Make sure you know your enrollment periods and have coverage in place before your current coverage expires.
  6. Employment Policies: When was the last time your business updated your employee handbook? If you are in a state with Medical Marijuana, have you created a policy? Social media becomes more prevalent each year – do you have a policy in place? Year-end is a good time to review, revise and/or add new policies that can be effective as of January 1.
  7. Leases: New leases or commercial lease renewals can take more time than anticipated. If yours lease expires in 2018, you should begin negotiations and planning now.

Bonus tip #8 (because, you know… it’s 2018)

Review your client list, and make sure all contact information is up-to-date: This is not just to achieve a clean holiday card list but can also help grow and engage your client base if you use digital communication channels such as an enewsletter. You might consider segmenting your contacts during this review based on the type of relationship, product or service they have or purchase with you to better segment your marketing and growth opportunities.

 

Avoiding Probate in Nevada and California with a Heggstad Petition

  • February 15, 2018

Avoiding Probate in Nevada and California with a Heggstad Petition.

The use of revocable inter vivos trusts, also known as living trusts have gained in popularity. A wide range of estate, tax and wealth planning objectives can be achieved by the use of living trusts.  A primary objective of the living trust is the avoidance of probate.

Problems can arise, however, when a trust is created but assets are not transferred into the trust, whether inadvertently or because of an ineffective transfer document.  When real estate assets are inadvertently not transferred to the trustee of the trust, it may still be possible to avoid a lengthy and expensive probate.

Under California law, a trust can be created by a written declaration by the owner that the real property in question is held subject to a trust, and no separate transfer by deed is required to fund the real property into the trust. (Estate of Heggstad (1993) 16 Cal. App. 4th 945.)  This ruling provides an opportunity to have a court declare real property to be subject to a trust through the filing of a petition that has become known as a “Heggstad petition”.  A successful Heggstad petition can allow the parties to avoid a more lengthy and costly probate proceeding.

Several provisions in the Nevada Revised Statutes (NRS) dating back to 1999 authorize a Heggstad-like petition in Nevada. The most recent addition to the NRS in this regard was enacted by the 2015 Nevada Legislature in Senate Bill 484, Section 64. The new amendment of NRS 164.015 confers additional explicit authority upon the Nevada District Courts in cases involving non-testamentary trusts to hear and act upon “petitions for a ruling that property not formally titled in the name of a trust or its trustee constitutes trust property…”

For more information on California or Nevada probate, and the possibility of avoiding probate, the attorneys at Incline Law Group, LLP may be able to assist.