Take care to learn about common interest community costs

Homeowners associations and condominium communities are popular choices for many residents of California. People who are considering buying into one of these common interest community options should become fully informed about the special features of this type of housing, which may involve periodic substantial increases in costs.

Satisfied residents

Residents in common interest communities were recently surveyed by the Foundation for Community Association Research (FCAR) to determine their satisfaction levels. Overall, the responses were positive, with 70 percent of those surveyed saying they were satisfied with their experience and 22 percent stating that they were neutral about it. Only eight percent said they were dissatisfied.

These communities are governed by association boards comprised largely or entirely of owners and residents of the homes in the community. Only about one eighth of the residents surveyed declined to respond positively when asked if their board tried to serve the community’s best interests.

Similarly, about three-fourths of the survey respondents believed that professional managers were valuable to the community, and about the same proportion said that the community association rules enhanced and protected property values.

Assessments

One area in the FCAR survey where some dissent might have been expected was the matter of assessments, the fees and dues that are charged to members of common interest communities. Dues, or regular assessments, pay for upkeep of common areas, including recreational spaces and possibly utility lines. They also cover management costs. These assessments are paid on a regular schedule, perhaps monthly or annually. Community boards are allowed under California law to increase regular assessments by up to 20 percent each year.

Owners of units in common interest communities can also be charged for special assessments. All members of the community could be assessed for a share of the cost of an extraordinary project, like repairs to a condominium building roof damaged by extreme weather. While boards should keep a reserve on hand to cover such unexpected expenses, they do not always have enough set aside.

In California, it is estimated that these communities are taking in annual assessments totaling about $200 million. The accumulated money sitting in common interest community coffers totals some $8 billion.

As it turned out, the FCAR survey found that about eight in 10 residents believed they got a good return for money paid for association assessments. This is a nationwide survey result, and there is no clear answer as to how many California common-interest community residents feel satisfied with assessments.

Association conflicts

Homeowners in a common interest community could get involved in disputes with the governing board. They might fail to pay assessments for a variety of reasons, including inability to pay. California law gives association boards some methods to compel members to pay assessments. A board can take a community association homeowner to small claims court, foreclose the property or place a lien on the property.

New owners who have recently paid a large down payment to buy a home are especially vulnerable when regular assessments go up or large special assessments are imposed. Owners of condominiums and other common interest properties may need the help of an attorney to protect their rights when disputes arise over assessments, community rules or other issues that come up in these housing communities.

IRS working group to review process for qualifying for REIT status

The IRS designates certain companies as qualifying for real estate investment trust status (REIT). REITs are essentially mutual funds that invest in commercial real estate, wherein individual investors earn a share of the income produced by this real estate without having to buy actual pieces of commercial property. Created in the 1960s, REITs were intended to allow middle-income Americans the chance to invest in income-producing commercial property. REIT status is beneficial because it allows entities with such status to avoid paying corporate taxes.

Recently, concerns have arisen regarding the number of companies that have been granted REIT status. Some argue that many REITs obtain favorable tax status while operating primarily as conventional businesses. One concern leading to the creation of the IRS working group is the fact that REITs are also increasingly engaging in cost-sharing agreements with corporate affiliates both in the United States and abroad that do pay corporate taxes. Certain agreements between REITs and their tax-paying affiliates have been employed as tax avoidance measures.

In order to determine if a company is entitled to REIT status, the IRS has created a working group to more accurately define what a REIT company should look like. Currently, there are several requirements a business entity must meet in order to qualify:

  • The company must have 75 percent of its assets in real estate.
  • The company must obtain 75 percent of its income from rents, sales of real estate or interests on mortgages.
  • The company must also be subject to taxation.
  • The company must pay at least 90 percent of its taxes from shares of dividends each year.

REITS must also operate as other businesses do with regard to regulatory and financial reporting and comply with any rules and regulations of public exchanges such as the NYSE or NASDAQ. Currently, more than 160 REIT companies are on the major stock exchanges.

The current status of the taxation of REITs is a controversial matter that can easily affect a company’s bottom line. For example, the storage company Iron Mountain recently received a “tentatively adverse” ruling from the IRS regarding whether its racking storage units qualified as a REIT. Its shares subsequently dropped by 15 percent. It is unclear what conclusions the IRS working group will reach regarding the requirements to qualify as a REIT. Many experts believe that it would be best if the IRS was not the sole arbiter in the determination of what entities are entitled to REIT status, and contend that Congress should tackle this issue by enacting further legislation to govern the granting of REIT status. It remains to be seen whether Congress will act on the matter.

In real estate disputes a former insider can help fight big firm tactics

If you are a purchaser of real estate in California, there are a wide range of issues that can give rise to a legal dispute regarding your property. You may find yourself involved in a condo dispute, a commercial real estate issue or even a resort property litigation.

While the type of real estate involved in a dispute can certainly determine some of the legal nuances of a case, from the buyer’s end, a common theme that often runs through real estate disputes of any kind in California is dealing with “big firm” legal teams on the other side.

May try to deplete you through a siege, or rotate in new talent

Buyers of residential real estate in California are often individuals, families or small businesses. Sellers, on the other hand, are more likely to be large scale developers. When disputes arise, such as when the buyer claims the seller has failed to make a legally required disclosure, there may be an obvious imbalance of resources.

A large law firm representing the seller of residential real estate in California may attempt to exploit this imbalance to gain a tactical advantage. One method is to simply draw matters out as long as possible, hoping to exhaust your patience and the funds you have available to pay for legal costs. Larger firms are often more able to afford to wait it out and see what happens. While you might not give up entirely on a claim with a high probability of success just because of delay, you might be tempted to accept a lower settlement just to end things more quickly.

Big law firms may also play up their capital in human resources. A larger firm, representing big commercial sellers of residential real estate, has many attorneys working in many areas. Therefore, some of these lawyers are able to pursue more specialized focus areas. If one of a large firm’s lawyers is stumped by a legal challenge, that lawyer can tap the experience of other attorneys.

Get help from an attorney with big firm skills, but small firm price

How do you fight a large firm’s tactics in condo litigation or some other type of California business dispute? If you can’t beat ’em, join ’em.

You might not be able to retain a big firm, but you can retain a lawyer who knows big firm tactics from the inside out. An attorney who has spent time developing big firm skills but has since struck out as a maverick can give you the same services at cost effective rates that take the air out of big firm delay tactics. As a bonus, you are unlikely to ever receive the same level of personal service from an impersonal giant of a firm that you will receive from a small firm or solo practitioner.

If you are involved in a real estate dispute, don’t be daunted by the large legal team that has been assembled to oppose you. Throwing their weight around may be intimidating, but with the right legal help at your side, you just might prove that even today, David can take down Goliath.

Brokers are responsible for disclosing information material to a home sale

California has experienced a recent surge in the value of residential real estate. Especially along the coast, home prices are up, due to a variety of factors. Prop 13 has kept property taxes low, meaning homeowners have less incentive to sell. Investors took advantage of the crash to buy property relatively cheaply and convert homes into rentals. Foreign investment has driven up prices, as has lack of available land. All of this means that homes are worth more than they have ever been, even relative to pre-crash levels, according to Forbes. And fewer homeowners are underwater on their homes.

So real estate investment is looking up. That means opportunity, but also the need for caution.

Californians looking to buy a home must be sure of what they are getting into. “Flipping” houses provides a valuable service to the real estate industry. But with old or neglected property, defects are a real possibility. Under California law, a broker must disclose certain material defects in the home. Under state law, that means any fact of “sufficient materiality to affect the value or desirability of the property.” If a broker fails to disclose such information, that broker may be subject to a lawsuit. Each state and municipality has its own disclosure requirements. But generally, a broker must disclose:

  • A death in the home, if the death did not occur from natural causes, AIDS or occurred longer than three years before the sale.
  • Nearby nuisances.
  • Environmental hazards.
  • Repairs done to the home.
  • Water damage.
  • Missing items.
  • Relevant zoning information.
  • If the home is part of a homeowner’s association.

The broker must disclose relevant information regardless of how the information was obtained. Even if the broker had no actual knowledge of a defect, a broker is still liable if the information should have been known to the broker.

Under California law, a plaintiff who successfully sues a brokerage for fraudulent nondisclosure can recover “the difference between the actual value of that with which the defrauded person parted and the actual value of that which he received, together with any additional damage arising from the particular transaction.” Other damages may include moving costs, escrow fees, building permit fees, and the cost of repairs.

A real estate attorney can help

Purchasing a home is one of the largest investments a person can make. Homebuyers in California who are concerned about disclosure requirements should contact an experienced real estate attorney to discuss their legal options.

Resolving disputes with a commercial landlord can require finesse

Smart Business magazine observes that commercial landlords are, generally, sophisticated, attentive and in business to rent commercial space. Their reputations are at stake and they typically desire to keep their tenants satisfied. Sometimes, however, disputes arise between a commercial tenant and its landlord. If the dispute cannot be resolved quickly and informally, a California commercial tenant may have no choice except to go to court in an effort to vindicate its rights under the terms of the lease.

The breach of a lease agreement by a commercial landlord will most likely lead to a dispute between it and the tenant. For example, a tenant understandably becomes irate if a landlord fails to abide by a lease provision which makes the landlord responsible for repairing the tenant’s leaky roof. Similarly, it is a good bet that a significant dispute will occur if a landlord, in direct violation of an exclusive use clause, leases space to a competing business in the same shopping center, mall or building. The violation of an exclusive use clause would be a major violation of the lease since on-site competition could be the death knell of a tenant’s business.

Once a dispute arises, it is vital for the tenant to try to keep the channels of communication open so that there is a chance of an amicable resolution. Smart Business advises that, while attempting to resolve the dispute, tenants should begin the process of documenting the specifics of the dispute and the tenant’s attempts to resolve it short of filing a lawsuit. In the event of litigation, if the tenant can show good-faith efforts on its part to resolve a dispute “the tenant can look like the good guy in court.” Emails, faxes or old-fashioned snail-mail letters sent to the landlord would constitute documentation of a tenant’s attempts to reach out to the landlord in order to resolve the dispute.

Although litigation often becomes necessary, it should be viewed as a last resort. The CCIM Institute notes that, looking back, parties who have become embroiled in litigation can usually identify a point in the dispute where litigation could still have been avoided if the parties had not taken certain actions. Poorly chosen words in a letter, or verbal promises not reduced to writing, can lead to legal action neither party really desired. The CCIM Institute advises that, in dealing with a landlord that you suspect you may find yourself in litigation with, it is wise to conduct yourself with “an eye toward how a third party, such as a judge or jury” would view the conduct. Keep your conduct above reproach and avoid taking any course of action which could be misconstrued by a judge or jury.

Three basic tips

All Business.com offers three basic tips for handling disputes in a manner that could help you avoid unnecessarily setting litigation in motion. First, review your lease so you understand precisely what obligations you owe to the landlord and which obligations are owed to you. If you are unsure about the meaning of a lease provision, contact an attorney who can explain it to you. Second, keep your cool and stay calm. By staying calm, you cast yourself in the best possible light and project an aura of confidence in your dealings with the landlord. Third, arrange for a face-to-face meeting with the landlord and try to resolve the dispute by talking it over. Letters, e-mails and text messages can often be misconstrued where a face-to-face conversation can help clear the air.

Seek legal advice

If you are a commercial tenant and find yourself embroiled in a dispute with a commercial landlord, you should contact a California attorney experienced in handling cases involving the breach of a lease.