Formation of Business Entities

calculator-178127_640There is no question that in situations other than personal homestead, it is extremely prudent to hold title to business or investment real estate in the name of a separate entity, and not the owner’s individual name.  Why? If properly set up, a separate entity can protect an individual from personal liability if an accident occurs on the property, certain operating expenses/debts, and other potential perils. Without such protection, an individual’s personal assets could be at risk if a lawsuit ensues and a judgment is issued against the landowner.

With today’s technology, it is easier than ever for an individual to attempt to set up their own business entity.  Forms are readily available on the internet, and the Secretary of State’s office hosts a website allowing for online registration and formation of a business entity.  Unfortunately, more times than not, individuals operating without competent legal assistance tend to choose incorrect or incomplete forms when attempting to document the matter themselves.

In a growing number of situations, individuals are merely filling out the required formation registration on the Secretary of State website. While this procedure may be enough to register the entity and obtain a Certificate of Formation from the State, a fully viable entity has not been formed.   Unless an actual Company Agreement (in the case of an LLC) or Bylaws (in the case of a corporation) are prepared, in addition to other necessary ancillary documents and corporate formalities, the validity of an entity could be easily attacked in the event of a lawsuit.  Opposing counsel would argue that without a full set of entity documents, the entity was in fact operating as a sham. Without the entity protection, the plaintiff would typically execute their judgment against the individual, and the individual’s non-exempt assets.

In order to realize the benefits of owning real estate under a separate business organization, it is critical to document the entity formation fully.  A qualified attorney should be able to assist in an efficient and cost-effective manner.

Contact Rattikin & Rattikin, LLP

Jack Rattikin, Jr., and Jeffrey A. Rattikin—the partners comprising Rattikin & Rattikin, LLP—have a combined 85-plus years of experience in all aspects of commercial and residential real estate law across the State of Texas. The firm continues a tradition of providing the most professional, ethical and up-to-date legal services available in the industry. In response to the growing needs of its clients, the firm has expanded its areas of practice to include a broad range of real estate and transactional services.

We would welcome the opportunity to assist you with your legal needs, and appreciate your interest in the Firm.

Copyright 2016 Jeffrey A. Rattikin, all rights reserved

Home Sales and Existing Leases: How to Deal With Current Tenants

hand-101003_640Although more common in commercial transactions, many residential transactions involve the sale of homes subject to existing leases and tenants. A potential buyer of a property in which a tenant currently resides should be aware of the legal status of such leases after closing, and be comfortable with rights and obligations imposed on them by the lease after closing.

For whatever reason, many folks believe that once a property sells, any existing lease automatically terminates, and the new buyer would have the right to immediate possession. This misunderstanding is obviously incorrect; an existing lease, whether written or oral, conveys a leasehold interest in the land that would be superior to any contractual rights that may arise thereafter. Therefore, anyone who goes under contract to buy the property, and ultimately closes on the purchase, would take title subject to the pre-existing lease. The new buyer would in effect step into the shoes of the seller as landlord until the term of the lease has expired. Yes, the new buyer would be entitled to future rent payments made under the lease, but would also be responsible for any obligations and promises the previous owner may have agreed to under the lease.

Because the new buyer will be saddled with the rights and obligations due under the lease, it is imperative that the buyer conduct sufficient due diligence to understand what they are taking on. What does the buyer need to know? For starters, what are the basic terms? Length, amount of rent, rights to renew or purchase, responsibility for repairs, maintenance, taxes, insurance, and the like, are all important. Are the tenants current on rent? Has the tenant pre-paid any rent? The last thing a new buyer wants to find out when he or she becomes the new landlord is that the tenant has prepaid rent for a year, will not be paying any future rent during that time, and oh, by the way, the landlord promised in writing to replace the roof the next month (true fact scenario!).

Most commercial sales contracts contain clauses that provide satisfactory treatment of these issues, but the TREC contract is fairly bare. Fortunately, TREC amended the base form last year to help a bit. Now, under Par. 10B., the seller must provide copies of existing leases within 7 days of the contract effective date. The Buyer will want a chance to review the lease and get comfortable with the terms, so it is important that an option period extend a minimum of 10 days. If the Buyer doesn’t like the lease terms, they would be able to terminate the contract during the option period. Par. 9B (5) provides that any security deposit will be transferred from seller to buyer at closing, and Par. 13 provides that rent will be prorated at closing.

But what important agreement does the TREC form lack? Most well-drafted commercial properties require the seller to obtain an “estoppel certificate” from the tenant, and provide it to the buyer during the option period. An estoppel certificate is a statement from the tenant themselves as to the tenant’s understanding of the lease terms, the amount of rent already paid, and any accrued obligations owed by the landlord. It is always best to confirm with the tenant that they are in agreement with the landlord’s characterization of the lease status. A buyer is well advised to add a provision in Par. 11 calling for an estoppel certificate.

Because lease and tenant-related issues expand the complexity of the transaction, the assistance of a competent attorney will be of great help in wording the contract and evaluating future rights and obligations. Armed with these protections, buyers of tenant-occupied property are in better position to protect themselves from post-closing lease surprises.

Contact Rattikin & Rattikin, LLP

Jack Rattikin, Jr., and Jeffrey A. Rattikin—the partners comprising Rattikin & Rattikin, LLP—have a combined 85-plus years of experience in all aspects of commercial and residential real estate law across the State of Texas. The firm continues a tradition of providing the most professional, ethical and up-to-date legal services available in the industry. In response to the growing needs of its clients, the firm has expanded its areas of practice to include a broad range of real estate and transactional services.

We would welcome the opportunity to assist you with your legal needs, and appreciate your interest in the Firm.

Copyright 2016 Jeffrey A. Rattikin, all rights reserved

Good Fences Make Good Neighbors – Boundary Lines and Encroachment Agreements

house-908459_640Misunderstandings regarding boundary lines and fence locations often lead to strained relationships between neighbors. Addressing encroachment issues prior to closing can help ensure that a buyer enjoys a more fulfilling ownership experience.

It is not uncommon for fences to be situated off of a boundary line, especially in older subdivisions. In fact, an argument can be made that it is better for an owner to place a new fence slightly inside the boundaries of his/her lot, so that the neighbor has no right to dictate its location and maintenance. However, human nature dictates that if you give your neighbor an inch, they sometimes take a mile, laying claim to ownership of the strip of land between the fence and the boundary line. Their claim, while typically unenforceable, can still lead to future problems and loss of future contracts.

Who actually owns the fence, and who can control its appearance/location? The brief answer is that the fence is “owned” by the owner (or the predecessor in title) who constructed it, even if it encroaches onto the neighbor’s property. While the fence owner had no right to encroach over the boundary line, that encroachment still does not give the neighbor license to unilaterally move/destroy it. A prudent neighbor should approach the encroacher with evidence of the encroachment (such as a current survey), and reach a resolution of the matter, and head to court if necessary. But exercising a self-help remedy of forcible removal can only lead to future complications.

Typically, a meandering fence was constructed so long ago that it is unclear to either owner which property the fence belongs to. While not foolproof, the parties could rely on the appearance of the fence itself. Usually, a wooden fence owner would construct the fence in such a way that the “smooth” side of the fence faces the owner’s home, and the bracketed support beams face the neighbor. But not always, of course.

Can a property owner lay claim the extra strip of land outside his/her property line and the constructed fence? The theory of adverse possession stands for the proposition that a party who possesses real estate for a significant time can claim ownership of the land, even if they don’t have a deed to it. Although the doctrine is quite popular among those who are encroaching over a boundary line, courts are extremely reluctant to recognize such ownership, especially for platted residential lots and fence issues. And even if viable, adverse possession must be proved up in a court hearing, and a court order obtained. Without a deed or long-term tax payments on the claimed strip, the argument will typically be summarily dismissed.

A prudent buyer under contract to buy a home subject to an offset fence would be prudent to require an agreement from the neighbor as to the property line and rights to move and maintain the fence before closing on the transaction. These encroachment agreements can go a long way to avoid future buyer’s remorse.

Contact Rattikin & Rattikin, LLP

Jack Rattikin, Jr., and Jeffrey A. Rattikin—the partners comprising Rattikin & Rattikin, LLP—have a combined 85-plus years of experience in all aspects of commercial and residential real estate law across the State of Texas. The firm continues a tradition of providing the most professional, ethical and up-to-date legal services available in the industry. In response to the growing needs of its clients, the firm has expanded its areas of practice to include a broad range of real estate and transactional services.

We would welcome the opportunity to assist you with your legal needs, and appreciate your interest in the Firm.

Copyright 2016 Jeffrey A. Rattikin, all rights reserved

Tenant Evictions – a Time Consuming Process

hand-101003_640If you clients are faced with the need to evict a tenant, they should know that the process must be undertaken in strict adherence to the Texas statutes, and may take longer than expected. If a tenant knows how to play the game, they could stretch out the ordeal for well over a month before possession is finally obtained.

The job of a landlord is never easy, but perhaps the most difficult task most landlords face is retaking possession of a property after a tenant default or lease expiration. The Texas statutes are very precise in outlining the requirements an evicting landlord must follow.

It’s important to understand that for residential tenancies, a landlord cannot simply lock out the tenant and haul off their possessions. A landlord must first properly terminate the right to possession in accordance with the terms of the lease, and then send a three-day written notice of termination before an eviction suit can be filed. Once an eviction suit is filed in the appropriate court, a minimum of six days must pass before a hearing is held. Assuming the landlord is successful at the hearing, a judge will not issue a writ of possession until five additional days expire, during which the tenant may appeal. And after the writ is finally issued, a constable will post an eviction notice on the premises, giving typically three more days before a locksmith and moving crews can show up to physically remove the inhabitants and belongings. All in all, an eviction will take a minimum of 20 days or so after lease termination, and if an appeal is filed, the process can be extended for months. Ultimately, a landlord will often retake possession from an extremely agitated and disgruntled tenant, who may vacate the property in less than pristine condition.

A prudent property owner should understand the inherent risks involved with rental property, and conduct appropriate credit checks and due diligence on any prospective tenant before agreeing to turn over possession to such a valuable asset.

Contact Rattikin & Rattikin, LLP

Jack Rattikin, Jr., and Jeffrey A. Rattikin—the partners comprising Rattikin & Rattikin, LLP—have a combined 85-plus years of experience in all aspects of commercial and residential real estate law across the State of Texas. The firm continues a tradition of providing the most professional, ethical and up-to-date legal services available in the industry. In response to the growing needs of its clients, the firm has expanded its areas of practice to include a broad range of real estate and transactional services.

We would welcome the opportunity to assist you with your legal needs, and appreciate your interest in the Firm.

Copyright 2016 Jeffrey A. Rattikin, all rights reserved

Condominiums – Ownership of Airspace, and More

condominium-690086_640A condominium represents a completely different animal from its cousins the duplex and the townhome. Differing contract forms and due diligence considerations make a condo deal a bit more sophisticated. A clear understanding of condo regimes will help facilitate a smooth condo transaction.

Residential condominiums differ in concept from all other real property interests. Typically, an owner of a lot owns all rights below, at and above the surface of the property. Ownership extends from the center of the earth up to the heavens above, subject of course, to other rules, laws and easements (for instance, although you may own air rights to the heavens above the surface of your lot, allowing you to build multi-story buildings on your lot if zoning permits, an airplane has a right to cross your airspace pursuant to federal and international law). So if title to property is held and described according to plats and surveys of the surface, how can one owner take ownership of a unit above the unit of another?

The answer lies in the concept of a condominium regime. If an owner of a parcel of land files the necessary paperwork to create a condominium regime, then he or she can build a structure on the land and carve up ownership in that structure into separate units, which may or may not be stacked on top of each other. In essence, it allows a property owner to carve up the airspace above the surface, and sell that airspace separately. A prospective owner of a condo unit must understand that they will not purchase the land underneath the structure; they will be purchasing the interior space of a unit within the structure, typically with a percentage interest in all the common areas shared with other condo owners. The purchaser must read and understand all the rules and regulations of the condo regime which govern the shared ownership of the property and structure.

Contact Rattikin & Rattikin, LLP

Jack Rattikin, Jr., and Jeffrey A. Rattikin—the partners comprising Rattikin & Rattikin, LLP—have a combined 85-plus years of experience in all aspects of commercial and residential real estate law across the State of Texas. The firm continues a tradition of providing the most professional, ethical and up-to-date legal services available in the industry. In response to the growing needs of its clients, the firm has expanded its areas of practice to include a broad range of real estate and transactional services.

We would welcome the opportunity to assist you with your legal needs, and appreciate your interest in the Firm.

Copyright 2016 Jeffrey A. Rattikin, all rights reserved

Selling or Buying a Home in a Distressed Market: Shortcuts Can Only Lead to More Trouble

Today’s market environment has made it extremely difficult for sellers and buyers of real estate to consummate a transaction under normal procedures. Due to a severe drop in employment rate, tighter lending standards by mortgage companies, and the lingering effects of the recession on all aspects of the U.S. economy, sellers and buyers are resorting to alternative ways for a buyer to get into a house they can’t qualify for, or conversely, a seller to get out of a mortgage they can no longer afford.

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The New SAFE Act: The Death of Seller-Financing in Texas?

A recent law passed by the Texas Legislature has quietly hit the books, one that promises to have a significant and adverse effect on Texas consumers’ ability to obtain financing for the purchase of residential property. The legislation serves to place further limitations on a prospective purchaser’s financing options, at a time when the current negative banking environment already has severely restricted the viability of real estate transactions.

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Clarification/Update on Texas SAFE Act

Some good news: common sense is finally being applied to the implementation of regulatory restrictions on seller-financing.The Texas Land Title Association Department of Government Affairs has just issued this update:

Doug Foster, Commissioner of the Texas Department of Savings and Mortgage Lending, has written that the Department will continue to allow the statutory seller finance de minimis exception, which has long been allowed under Texas statute but had been placed in doubt since the recent passage of the Texas SAFE Act.

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Deeds in Texas: It’s the Type that Counts!

One of the most puzzling issues confronting Texas consumers when attempting to document a real estate transfer is deciding which type of transfer deed is appropriate to use. For generations, well-meaning advisors have unknowlingly led their questioners astray by repeating a well-circulated but extremely inaccurate mantra: In order to transfer title to real estate, the seller should give the buyer a quitclaim deed, often mispronounced a quickclaim or quick claim deed. On innumerable occasions, consumers have contacted my office asking for such a document, claiming that the county clerk’s office at the courthouse advised them to utilize this document. And the bad advice is not limited to just the non-attorney public. Many, many divorce lawyers and probate lawyers routinely subject their clients to potential title issues by including quitclaim deeds in their work product. How such misinformation and misuse has become so widespread is a mystery; however, Texas law is very clear that in most instances, a quitclaim deed is not appropriate, and could lead to future problems.

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