Considerations for Buying and Selling Real Estate When Tenants are Involved

Considerations for Buying and Selling Real Estate When Tenants are Involved

Considerations for Buying and Selling Real Estate When Tenants are Involved – The Importance of the Tenant Estoppel Certificate.

Real estate transactions are strange and often lead to unforeseen complications. Real estate transactions become further complicated when they involve tenant-occupied properties, be it commercial spaces, apartment complexes, or single-family homes. The purchase of a rental property comes with questions you don’t get when buying an unoccupied building. As a seller, for example, you will need to consider what kind of notice must be provided to residents before the sale? As a buyer, you must take into account the cost of security deposits you will have to pay to tenants down the road when determining the final price to be paid at closing. And both parties will need to agree who is responsible for damages caused by tenants before the sale closes. The purchase and sale of tenant-occupied real estate can also further complicate the due diligence process. For example, it is extremely important to obtain and review all lease agreements potentially affecting the property. Another essential part of completing due diligence comes in the form of tenant estoppel certificates.

Tenant estoppel certificates are signed statements that certify facts concerning the tenant’s lease and the status of its occupancy. According to Black’s Law Dictionary, an estoppel statement is “a signed statement by a party certifying for another’s benefit that certain facts are correct, as that a lease exists, that there are no defaults (by the landlord or the tenant), and that rent is paid to a certain date. A party’s delivery of this statement estops that party from later claiming a different state of facts.” Black’s Law Dictionary, 572 (7th Ed., 1999). In short, these certificates are used to inform potential purchasers of the rights and obligations of existing tenants.

An estoppel certificate will usually memorialize the date the lease began, the duration of the lease, monthly rental amount, security deposit, renewal options, whether any modifications to the lease have been made, etc. It will also certify whether rent is in arrears or up to date, whether any subleases are in place, whether there are any oral agreements with the landlord or promises made by the landlord, etc. Additionally, estoppel certificates give tenants the option to explain any claims they might have against the landlord. In some circumstances, a tenant estoppel certificate can also require that the tenant certify whether it has used any hazardous substances on the premises or whether it has violated any environmental laws. By signing this statement, the tenant is prohibited from taking a contrary position in the future. This allows prospective purchasers to fully assess the economic benefits they will gain by purchasing a tenant-occupied property as well as potential liabilities they may face after assuming ownership.

Tenants are not required to sign an estoppel certificate unless mandated to do so by the terms of their lease. Luckily, most commercial and residential form leases contain clauses requiring tenants to sign estoppel certificates when requested by the landlord. If a tenant fails to sign an estoppel certificate as requested, it may be considered an affirmation of the facts contained therein or it may be used as a basis for evicting the tenant for breach of the lease. It is therefore important to thoroughly review all leases affecting tenant-occupied property as part of your due diligence before closing.

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Author: Elizabeth (Libby) A. Klesmith is a civil litigation and business attorney at Tuesley Hall Konopa, LLP. Her practice areas include real estate, insurance defense, and trademark law. She is licensed to practice in Indiana and Michigan

Disclaimer: The THK Legal Blog is for informational purposes only and should not be relied upon as legal advice. In no case does the published material constitute an exhaustive legal study, and applicability to a particular situation depends upon an investigation of specific facts. You should consult an attorney for advice regarding your individual situation.
Real ID Act

Real ID Act

Go to your wallet and pull out our Indiana driver’s license. Does it have a star in the upper right-hand corner? If not, then it may be time to take a trip to the BMV (Bureau of Motor Vehicles) to get a “Real ID.”

The Real ID Act passed in Indiana in 2010 but has been on the books at the federal level since 2005. Eric Feldman, Hoosiers will soon need Real ID to fly, August 18, 2017, https://www.wishtv.com/top-video/hoosiers-will-soon-need-real-id-to-fly/1063744787 (last accessed October 2, 2018). A Real ID is now required “for everyone applying for a new Indiana credential (driver’s license, learner’s permit, or identification card.).” Real ID Overview, Bureau of Motor Vehicles, https://www.in.gov/bmv/2577.htm (last accessed October 2, 2018). Indiana residents who are simply renewing, amending, or replacing their driver’s license may apply for a “non-compliant credential, but are encouraged to obtain a Real ID-compliant credential.” Real IDs will become important in the next few years, as beginning October 1, 2020, “a Real ID-compliant driver’s license, permit, or identification card will be required to board commercial airplanes,” take the Amtrak train, “or enter certain federal facilities” without a Homeland Security-approved document. Real ID Overview, Bureau of Motor Vehicles, https://www.in.gov/bmv/2577.htm (last accessed October 2, 2018); Eric Feldman, Hoosiers will soon need Real ID to fly, August 18, 2017, https://www.wishtv.com/top-video/hoosiers-will-soon-need-real-id-to-fly/1063744787 (last accessed October 2, 2018).

Applying for a Real ID is a relatively straightforward process, provided you have the appropriate documents and have never changed your name. I obtained a Real ID in under ten minutes without realizing what it even was. But for those who may be known by a name different than that on their birth certificate or passport, the process can be tricky.

The Indiana BMV website details the information you must bring with you to obtain a Real ID. If your legal name matches your identity document, then you must bring an unexpired U.S. Passport, U.S. Passport Card, or Birth Certificate to establish your identity and your lawful status. You must also present one original document with your current legal name and Social Security number to establish your Social Security number. Additionally, you must present two original documents with your name and Indiana residential address to establish Indiana residency. https://www.in.gov/bmv/2777.htm.

If your legal name does not match your driver’s license or identity card, then you must bring all of the documents identified above as well as proof of your name change. This could be your marriage license, divorce decree, certified amended birth certificate showing the change of gender, or court order granting a name change. If your legal name has changed multiple times since your last driver’s license or ID card was issued, then you must bring proof of every single name change.

Elizabeth (Libby) A. Klesmith, Litigator, Business Counsel, Tuesley Hall Konopa, LLP

Author: Elizabeth (Libby) A. Klesmith is a civil litigation and business attorney at Tuesley Hall Konopa, LLP. Her practice areas include real estate, insurance defense, and trademark law. She is licensed to practice in Indiana and Michigan

You can contact Libby by calling 574.232.3538 or email eklesmith@thklaw.com

Disclaimer: The THK Legal Blog is for informational purposes only and should not be relied upon as legal advice. In no case does the published material constitute an exhaustive legal study, and applicability to a particular situation depends upon an investigation of specific facts. You should consult an attorney for advice regarding your individual situation.
Does Your Business have a Litigation Hold Policy?

Does Your Business have a Litigation Hold Policy?

Most businesses and individuals who have been involved in civil litigation are familiar with the discovery process – when the parties of a lawsuit exchange information and documents that are relevant to the issues of the case. Anyone who has been involved in a lawsuit in Indiana knows that they have a duty under the Indiana Trial Rules to turn over all relevant, non-privileged documents responsive to the discovery requests. But what you might not know is that the duty to preserve this potentially relevant information arises long before discovery requests are ever exchanged. In fact, this duty often arises before a lawsuit is even started.

The duty to preserve evidence arises when a party reasonably anticipates litigation. This might be when a defendant receives “notice of a credible threat of litigation,” such as a demand or cease and desist letter. See Kristin Lohmeyer’s article, Litigation hold: When is Litigation Reasonably Anticipated? http://www.btlg.us/News_and_Press/articles/Litigation%20Hold (last accessed 10.2.18). It may also occur when a potential defendant receives a “litigation hold notice.” For a plaintiff, the duty may arise as soon as the plaintiff discovers it has an actionable injury. The timing of when a duty to preserve evidence arises is not a precise calculation but depends on the facts of each particular case. Regardless of when the duty arises, however, it is a duty that must be addressed. Failure to preserve evidence relevant to reasonably anticipated litigation can lead to sanctions and even the giving of an adverse inference instruction at trials, which would allow the jury to infer that the missing evidence was detrimental to your case.

It is therefore very important that businesses maintain document retention policies and litigation hold policies. Such policies should include, among other things, instructions as to whom litigation hold notices should be sent within the company, who will be the contact person(s) for any questions regarding the litigation hold, how the evidence is to be stored, etc. It should also include an instruction to immediately turn off or disable any automatic deletion or destruction of electronically stored information.

When crafting a litigation hold policy, it is imperative that you think about the culture and practice of your business. How are your files stored – electronic vs. digital? Do your employees conduct business and store documents on their personal devices, such as iPads, laptops, and cell phones? Do they conduct business via text message? All of these issues should be covered by your litigation hold policy.

Elizabeth (Libby) A. Klesmith, Litigator, Business Counsel, Tuesley Hall Konopa, LLP

Author: Elizabeth (Libby) A. Klesmith is a civil litigation and business attorney at Tuesley Hall Konopa, LLP. Her practice areas include real estate, insurance defense, and trademark law. She is licensed to practice in Indiana and Michigan

You can contact Libby by calling 574.232.3538 or email eklesmith@thklaw.com

Disclaimer: The THK Legal Blog is for informational purposes only and should not be relied upon as legal advice. In no case does the published material constitute an exhaustive legal study, and applicability to a particular situation depends upon an investigation of specific facts. You should consult an attorney for advice regarding your individual situation.
Title Insurance – What It Is and Why You Need It

Title Insurance – What It Is and Why You Need It

What is title insurance and why should I bother? This is a question I often hear when guiding a client through the initial stages of a real estate transaction. In a simple transaction – family to family, small purchase price, etc. – it may seem like title insurance isn’t necessary. No matter how small the transaction may appear, however, purchasing real estate comes with hidden risks – risks which, if not insured against, can threaten your right to the property and undermine the entire transaction.

Unlike when buying a car or an expensive TV, there are certain things that can affect your ability to obtain “good title” to real estate that are not easily discoverable upon an inspection of the property. These problems, such as mistakes in the public record, previously undisclosed heirs claiming to own the property, forged deeds, and inadequate legal descriptions, arise in about 36% of all real estate transactions and can cloud the title to the property and place your ownership status in jeopardy.[1] This is where title insurance comes in. It operates to protect buyers from defects in title that they could not know about by protecting “the property against the past, as well as the future.”[2]

A recent conversation with a friend about the mechanics of buying real estate in a foreign country drove home to me how fortunate we are to have title insurance in the States, and how important it is that we take advantage of this protection. My friend was explaining how tricky it is to purchase real estate in Indonesia if you are not an Indonesian citizen. You can go through all the motions and fill out all the paperwork, and then arrive at the property only to find out it has been sold to someone else. Even worse, the person who sold you the property may not even have had the right to sell the property in the first place.

Imagine if this were to happen in South Bend. What do you do now? You just spent your savings on a property you might not actually own. Do you lose the house? Who will pay your legal fees in a court battle over the property? If you do lose the house, can you recover the purchase price? Presumably you have a mortgage. Do you still have to make payments? In Indonesia, you might be out of luck. But in Indiana and Michigan, if you have title insurance, you have options.

Put simply, title insurance protects the owner or lender against loss or damage from title defects.[3] Under an owner’s policy, the insurer will typically reimburse the policyholder for losses they suffer up to the total purchase price of the real estate and will pay for any legal fees involved in defending the policy holder’s claims to title.[4] Ultimately, title insurance adds a much needed level of protection to the unpredictable business of buying and selling real estate and should be an essential item on the checklist of every real estate transaction.

For more information on title insurance and potential causes of title defects, see: Chicago Title Insurance Company, “21 Reasons for Title Insurance,” http://www.ctic.com/21Reasons.aspx; and the American Land Title Association’s “Title Insurance Overview,” available at http://www.alta.org/about/index.cfm#4.

[1] Meridian Title Corporation, “What is Title Insurance,” http://meridiantitle.com/pages-for-industry-resources-links/what-is-title-insurance.aspx.
[2] Chicago Title Insurance Company, “21 Reasons For Title Insurance,” http://www.ctic.com/21Reasons.aspx.
[3] Meridian Title Corporation, “What is Title Insurance,” http://meridiantitle.com/pages-for-industry-resources-links/what-is-title-insurance.aspx.
[4] Id. In 2011 alone, title insurers paid approximately $1.02 billion in claims.

Elizabeth (Libby) A. Klesmith, Litigator, Business Counsel, Tuesley Hall Konopa, LLP

Author: Elizabeth (Libby) A. Klesmith is a civil litigation and business attorney at Tuesley Hall Konopa, LLP. Her practice areas include real estate, insurance defense, and trademark law. She is licensed to practice in Indiana and Michigan

You can contact Libby by calling 574.232.3538 or email eklesmith@thklaw.com

Disclaimer: The THK Legal Blog is for informational purposes only and should not be relied upon as legal advice. In no case does the published material constitute an exhaustive legal study, and applicability to a particular situation depends upon an investigation of specific facts. You should consult an attorney for advice regarding your individual situation.