All Forum Posts by: Edward Schenkel

Seven Important Things to Know About Lease Termination By Agreement

Lease Termination agreements are advantageous to both landlords and tenants, especially when the Tenant is behind on the rent. If an agreement can be reached, the landlord does not need to spend time and money on an eviction, and the tenant has an understanding of how long he can stay, or his business can stay, and the agreed upon terms, before vacating.

While I highly recommend working out a landlord / tenant dispute by mutual agreement, there are critical things to keep in mind so that the dispute is ended with finality and both parties can move on without any future problems. Here are a few things to consider when a landlord and tenant decide to end their lease early by agreement.

1. 1. Should I Get A Lease Termination Agreement in Writing and Signed?

Yes, if possible. Many termination agreements are not in writing, often due to practical considerations, but if you can get a short agreement in writing, it is highly recommended as it will mitigate future potential problems and protect both parties. An agreement will outline any agreed upon terms, such as who keeps the deposit, and at the very least, will provide written evidence that the parties did in fact end the lease. Therefore, I highly recommend getting any lease termination agreement in writing.

1. 2. What About the Deposit?

Another consideration that many landlords and tenants do not think about when entering into a lease termination agreement is who gets the deposit. The tenant can insist on the deposit back for an immediate move out date. Or, in the alternative, the landlord may be entitled to the deposit for damage done by the tenant to the Premises or back rent. Either way, it is important to discuss what happens to the deposit when the lease ends so there is no problem later.

1. 3. The Keys – More Important Than You Think

On the effective date of the lease termination agreement, whether that is the date of signing or in six months, it is essential for the landlord to receive the keys when tenant vacates. This is important because it is the legal standard for when a tenant surrenders the premises (with certain exceptions). On occasion, the landlord and tenant are quick to enter into the agreement and the tenant disappears with the keys. Including a provision that the tenant is required to give the landlord the keys on the effective date (and receives the keys on such date) will prevent problems down the road, particularly questions about whether the tenant has in fact vacated.

1. 4. Should Any Terms Survive the Lease Termination? Perhaps Yes.

Another important consideration when ending a lease by agreement is whether any provisions should survive the lease. I always insist that indemnification language, usually that which protects the landlord (when representing the landlord), should survive termination. For example, if an injury occurred at the tenant’s business prior to termination, and the injured person sues the tenant and landlord, the landlord should be able to still seek attorney’s fees from the tenant if it is clear that the indemnification provision survived. Accordingly, it is important to state what provisions, if any, will survive lease termination.

1. 5. Talk About the Equipment / Fixtures

What happens to the equipment and fixtures after the termination agreement is signed? Will the tenant surrender it to the landlord or will tenant remove it? A good lease should address this already but if it does not, it is important to address this in the termination agreement.

1. 6. Release Language

It is also a very good idea to include mutual release language in any termination agreement. This language provides that the lease is terminated and the parties agree that they will not sue each other for anything after the lease ends. This ensures that the dispute is ended with finality. Also, particularly with a commercial tenant, this precludes a tenant from suing a landlord trying to argue it was somehow the landlord’s fault that the business was not doing well enough to pay the rent. Similarly, from the tenant’s perspective, it protects the tenant from a lawsuit by the landlord for back rent Therefore, it is highly recommended to include carefully drafted release language in any release termination agreement.

1. 7. Practical Considerations

Ideally, the landlord and tenant will reach a written agreement to end the lease with all of these items above included. However, keep in mind you may have a very difficult situation on your hands and that may not be practical. Do what you can, and also consult with an attorney before signing anything.

What Should Real Estate Investors and Landlords Know About PreJudgment Remedy Attachment?

A prejudgment remedy attachment is a tool that is used in litigation to place a lien on assets of the defendant while the case is pending. The purpose of the prejudgment remedy is so that at the end of the day, when the Plaintiff finally settles the case or wins a judgment, there are still assets available to satisfy the judgment. By including certain language in a contract or lease, a plaintiff or landlord will not even have to go to court to use this litigation tool. Why does this matter to real estate investors and landlords?

A prejudgment remedy attachment is of particular importance to landlords of commercial properties. A commercial lease is considered a commercial transaction, and therefore you can include certain language in the leases that allows the landlord to attach the tenant’s assets in the event of default - without even going to court. While a landlord should be cautious about paralyzing a tenant’s ability to do business in the event the tenant has fallen under hard times, the prejudgment remedy is a good option to have without the need to have to file a lawsuit. Of course, even without the clauses in the lease allowing landlords to circumvent the court, a landlord can still go to court to get the prejudgment attachment on the tenant’s assets, but it becomes a much more involved and expensive process.

I have represented landlords in disputes with tenants and have used the prejudgment remedy attachment as a negotiation tool to evict the tenant faster and get a favorable settlement. That is why it is important for landlords to include the specific clauses in commercial leases that allow landlords to use prejudgment remedy attachments without filing anything with the court. Although the landlord may not want to use the tool immediately, is a good point of leverage and also good to have available if needed.

- so sorry to hear this! What a nightmare. 

Unfortunately, if they claim they are subtenants, you will likely need to evict them. Do they have anything to prove this? Sometimes it is a fine line between a trespasser and subtenant that you did not consent to... the latter you have to evict. I see it all the time. For example, you rent to a man, his girlfriend moves in. You have to evict unfortunately. 

If I were in your shoes I would try to negotiate cash for keys and see if you can reach a settlement. Sounds like a difficult eviction especially if they have young children. You can explain the situation to the police and see whether they will consider them trespassers but it is unlikely. 

If you cannot negotiate an acceptable resolution, then you must evict. 

Top 4 Things Investors Should Know When Purchasing Real Estate Where Seller Agrees to Make Repairs

Many real estate deals, both residential and commercial, require the Seller to make repairs prior to closing. This is often negotiated by the Buyer so that Buyer does not have to address these issues after closing. While this is a good business strategy, there are certain things that every investor should know when buying property when the Seller agrees to make repairs.

1.Make Sure the Seller Does the Work Correctly and in Compliance with the Contract.

it is import to make sure Buyer and Seller clearly articulate the details of the work that the Seller is required to complete prior to closing and make sure the Seller complies with the work description. I have seen problems arise when the work is not described accurately. This is why it is important to be as descriptive as possible in describing the repair work in the contract and to also monitor the work as it is performed.

2.Make Sure the Proper Permits Are Pulled.

If the work requires permits to be pulled, make sure the proper permits are in fact pulled from the building and/or planning and zoning department. You can call the town building and planning and zoning departments and request copies of the permits to confirm that the work is completed in accordance with the town or city’s regulations and guidelines.

3.Lien Waivers Need to Be Signed At Closing

Any contractor that performed work on the property within the past ninety days will need to sign a lien waiver at or before the closing. This way, the Buyer will not assume a risk that a contractor will lien the property for nonpayment. It is also a good idea to request evidence of payment of all of the contractors and subcontractors.

4.Consider a Time is of the Essence Clause

Any deal that involves Seller repairs adds a different element to the deal. You may want to consider adding a time is of essence clause to the contract, meaning if the seller does not make the repairs by the date specified, then buyer has the ability to walk away from the deal the day after the date specified. This will put some additional pressure on the Seller to make the repairs as required and on schedule. Consult with an attorney before including such a provision in the contract because this could also have other implications on the other dates in the contract.

Top 4 Things Landlords Get Sued For and How to Mitigate Risk

Landlords can reduce the chances of being sued by their tenants if they take certain precautions. Below is a list of four common lawsuits against the landlord and advice for preventing or mitigating such lawsuits.

1.Failing to Timely Return Security Deposit

Many CT landlords do not realize that there is statutory timeframe that the landlord must either (i) return the security deposit; or (ii) provide an itemization of the repairs deducted from the deposit with the remainder of the deposit (if any). The landlord has 30 days after lease termination (or 15 days from written notice of tenant’s forwarding address, whichever later) to send the security deposit and/or itemization. If the landlord does not comply with this time frame, a tenant can sue for double the damages of the original deposit. Therefore, it is important to timely return the deposit or an itemization of the deductions.

2.Slip and Falls of Tenants / Guests

Now matter how careful a landlord is, a tenant or a guest may slip and fall and get injured. This may result from slipping on a rotted stair, or tripping over the water sprinkler, which may or may not be the fault of the landlord to begin with, depending on the terms of the lease. While leases come in different types, a landlord may or may not be a proper defendant in such an action. However, plaintiffs’ lawyers can be aggressive and will often name the landlord in the lawsuit, even if improper.

A clear way that a landlord may mitigate damages if sued for a slip and fall is to hold the real estate in a limited liability company. This way, if the landlord is sued, the maximum recovery is the value of the real estate, and the plaintiff may not go after the landlord’s other assets (there are narrow exceptions to this rule).

Also, limiting the Landlord’s repair and maintenance responsibilities may not only be a good business decision, but also benefit the Landlord if a lawsuit is filed for an injury resulting from lack of repairs at the property. However, landlords that delegate this responsibility should make sure the tenant is responsible and should consider a self-help provision that allows the landlord to make repairs if Tenant fails to properly do so.

3.Failing to Perform Maintenance and Repairs

Obviously, if a Landlord fails to perform its maintenance and repair obligations, the landlord may get sued for failing to perform such work and any injuries that may result. Therefore, it is essential to timely and properly perform such repairs. It is also a good idea to include a provision in the lease that allows the landlord to make any repairs that tenant is responsible for if he or she does not make them. Hiring a competent management company may be a good option for landlords that do not have time to manage a property. Also, holding the title of the property in a limited liability company is a good idea just in case there is a lawsuit so that you are able to mitigate damages.

4.Improper Entry

Whether and when a landlord has the right to enter the Tenant’s leased space can become a point of contention. By statute, the Landlord is able to enter in the event of an emergency, which is typically fire, flood, or other dangerous weather condition. However, if the Landlord wants to clearly reserve the right to enter to make repairs, inspect, or show the property to perspective tenants and buyers, it is a good idea to clearly spell this out in the lease. This will mitigate the potential for problems in the future.

Originally posted by @Account Closed:

I currently own 2 waterfront properties in Greenwich. I live in one home, and lease out the house next door as an extra income. Next summer (2020), I’m going to sell the property next door. The house is a tear-down. I’m fully aware that anyone who buys it will immediately knock it down and build a new home closer to the waterfront. I’d hate to lose out on a maximized profit like that! So I have a few questions about my options. Ideally, I’d like to extend the property line to the house I live in over 2 feet (where the other house is currently standing). Is it possible to re-zone the property sizes before anything else transpires? In a perfect world, I’d love to find a developer to work with. Someone who can help me knock down the current house, design and build a new house, and then share in the profits once it’s sold. Is that even a viable option? I’d like to get as much as I possibly can for it, and am willing to explore all avenues. Any advice is much appreciated! 

 @Rory Nolan, I believe that what you would like to do may be feasible but we need to take a close look at the zoning regulations. If you want to move boundary line we may be able to use something called a "lot line adjustment" that can be done administratively by the P & Z, but you will need hire a surveyor to make a survey before we can submit the application.  However, we need to make sure the proposed lot line adjustment satisfies all zoning regulations. This is an important legal issue that we need to carefully examine.

The other question about making a deal with a developer to take down the house and build a new one and enter into a profit sharing arrangement - sure, it is possible. We just need to make sure the contract is carefully drafted so it is clear who is paying for what, allocation of risks, profit sharing, etc. You may also want to explore what your financing options are and doing it yourself, if you feel like taking on a project. You may be able to cross collateralize a loan on your other property temporarily and get good financing to build a nice home and then sell it. 

The Seller has Breached the Contract and Does Not Close. What are the Buyer’s Options?

Every now and then, a real estate deal does not go as expected for the Buyer. The Buyer has spent time and money on a building inspection, and if a commercial deal, quite possibly substantially more on environmental testing and other due diligence items. All of a sudden, the Seller decides not to close for one reason or another and breaches the contract. What are the Buyers’ Options?

1.Sue For Damages

Clearly, suing the Seller for damages is an option that may be worth pursuing if your damages are significant. The Buyer should be able recover all monies spent on due diligence, including legal fees, building inspection, environmental inspections surveying, title search, and accounting fees. Also, the Buyer should be able to recover any fees already paid to the bank for the loan if the Buyer was using financing. Of course, the Seller should return any deposits paid or being held in escrow.

The Buyer may also be able to recover consequential damages if you can prove them to a reasonable certainty. For example, if you planned on opening a business or expanding your business at the property shortly after the closing, you may be able to recover lost profits or business opportunities. However, these types of damages are typically difficult to prove.

2.Sue for Specific Performance

The Buyer will likely also be able to sue the Seller for “specific performance.” This means that the Buyer can ask the Court to order the Seller to close and sell the property to the Buyer. The Buyer may only seek this remedy if at the time of the Seller’s breach, the Buyer was able to close the deal (e.g., had the clear to close).

3.You Might Be Able to Place a Lis Pendens on the Property

Filing a lawsuit may allow you to place something called a lis pendens against the title of property. If you are able to sue for specific performance, the lawsuit concerns the title of the property, and you may properly place a lis pendens on the land records against the title of the property. This means that the Seller will not be able to sell the property with marketable title to another party, and therefore must either sell to you as required by the contract, or settle with you so that you release the lis pendens before the property can be sold. This can provide you with leverage to get the Seller to close the deal as they should have in the first place.

4.You May Be Able to Recover Attorney’s Fees

Most real estate contracts contain a provision that allows for the recovery of attorney’s fees by the prevailing party in any court dispute. Therefore, if you are required to bring a lawsuit, have your attorney carefully review the contract so that you make sure you make a claim for all of your legal fees and court costs, if permitted.

5.Be Conscious of the Cost of Litigation

Litigation is expensive. Therefore, it is appropriate to weigh your potential recovery with the cost of the lawsuit. An experienced lawyer can help you determine whether bringing the lawsuit is worthwhile or whether it is better to walk away. Often times, it simply is not worth it.

What is a Merger Ordinance and Why Should Investors Be Aware of It?

Many Towns and Cities have enacted zoning ordinances called “Merger Ordinances” which can, by operation of law, combine an undersized (nonconforming) lot with an abutting lot, creating one larger lot out of two. The result is that you can actually lose a building lot without even realizing it! This may seem unfair, but it is true. The good news is that with the appropriate legal counseling and actions, you can prevent this from happening.

The reason why some Towns have added Merger Ordinances to their zoning regulations is that they are making an effort to eliminate nonconforming lots, which are often undersized lots that do not meet the current zoning regulations. Municipalities in general do not like nonconforming lots that are undeveloped. Therefore, any action that can be taken to eliminate such nonconforming lots is desirable to the Town. Merger Ordinances are a tool that Towns are now using to eliminate such nonconforming lots, sometimes without an owner even know it.

While Merger Ordinances sometimes have differences, they typically say that when an owner of an undersized lot (nonconforming lot) also owns an abutting lot, the undersized lot merges with the abutting lot, resulting in one larger lot that complies with the zoning regulations. Typically, this only applies to undersized lots that are undeveloped, and the abutting lot has to share common ownership for the Merger Ordinance to be triggered.

Therefore, if you own two abutting lots, and one or both are undeveloped, to safeguard against Merger ordinances combining your lots under your nose you should make sure that the lots are owned in different ownership. For example, you can create separate sole member LLCs to own each lot, and the law will see the lots as owned by separate owners, even though you own both companies. This will safeguard from a Merger Ordinance requiring the merger of the lots without your knowledge.

As Towns and Cities are increasingly adding Merger Ordinances to their regulations, it is important to be proactive and take necessary precautions so you do not lose your lot.

What Every Investor Should Know About Deals With Seller Financing

Seller Financing Investments are great opportunities for investors to expand their real estate portfolio without using traditional lending. Seller financing deals are exactly what It sounds like: The Seller, instead of a traditional bank, provides the financing to the purchaser, usually with a secured mortgage. Seller Financing deals can be a good way for an investor to do a deal even though s/he does not yet qualify for the next mortgage. While seller financing deals can be advantageous for investors, there are a number of things to know before getting involved in such deals. Below are five points every investor should know before getting involved in a seller financed deal.

1. All Terms Are Negotiable in Seller Financing Deals.

Since you are dealing with an individual or a small company and not a traditional bank, you are free to negotiate any term of the seller financing documents. This is much different than a real estate transaction with a traditional bank where you have virtually no power to change the terms (e.g. interest rate, term, amount of financing, etc.). You can ask for one hundred percent financing, lower points in exchange for a shorter term or higher interest rate, and even negotiate the cure period in the event of default. Some sellers will be open to negotiations while others may not. However, often times a seller may insist on less favorable terms than a traditional bank understanding that some purchasers may not be able to obtain traditional financing. The takeaway is that seller financing deals are much different than a deal with a traditional bank and any term of the mortgage or promissory note is negotiable.

2. Seller Financing Deals May Move a lot Faster.

A seller financing deal may move exponentially faster than a deal involving traditional bank financing. This is because you do not have to wait for the bank to go through long check list of items before it will provide the clear to close. With seller financing, a seller will typically have a due diligence period to investigate the financial wherewithal of the purchaser. If the seller finds the purchaser’s financial wherewithal acceptable, a closing can be scheduled almost immediately and Seller’s attorney will simply draft the mortgage and promissory note. This timeline is much faster than using a traditional bank. Therefore, one of many advantages of a seller financing deal is that such deals are streamlined and typically close much faster than deals with traditional bank financing.

3. Be Aware of Other Liens and Mortgages on the Property.

If you are contemplating a seller financing deal, it is important to conduct a thorough title search of the property to understand whether there are other mortgages on title. If there are, and you are taking title subject to existing mortgages, there is heightened risk. Not only is the investor arguably violating the due on sale clause, but most mortgages provide that you cannot further mortgage out the property without the bank’s permission. Therefore, a seller financing deal is ill advised when there are other mortgages on the property, unless these banks consent to the transaction.

Moreover, from a Seller’s standpoint, even if the other banks did consent to the seller financing subject to existing mortgages, a Seller may not be secure in the event a foreclosure is necessary. In other words, the balance on the mortgages existing prior in right to the Seller financing mortgage may be high enough so that a foreclosure would not satisfy the Seller’s debt. There are therefore concerns from both the Seller’s and Buyer’s perspective on a deal with seller financing that involve other mortgages on the title. My opinion is that such deals are not with the potential headaches and risks, but other investors may have a higher risk tolerance.

4.The Note May Be Sold As With Any Traditional Deal Involving a Bank.

As with a traditional bank, the promissory note can be sold to another entity. The fact that seller financing was used in the deal, even if the seller was an individual, does not mean that the seller is prohibited from then selling the note either to another individual, bank, or company. Therefore, do not be surprised if you receive a notice one day that your note has been sold and you now make payments to a different entity.

5. Make Sure the Contract Accounts for the Terms of Seller Financing so There are No Surprises.

Every investor should know that if the seller agrees to provide seller financing, you should not wait until a few days before the closing to discuss the terms of the financing. It is a good idea to discuss the important terms of the financing even before you sign the contract. This way, you can include a provision in the contract that specifies the amount of the financing and the material terms so there is no misunderstanding when the financing documents are being drafted.

In summary, seller financing deals are great opportunities for investors. Keep the above items in mind, and you will be better prepared to negotiate and close a seller financing deal without any issues.

@Arion Dedushi - sorry you are dealing with this. I think a certified letter is appropriate and cite the laws the tenants are violating and the sections of the leases. Most leases have a provision that provides if a tenant violates a law, it is grounds for an eviction. This is something you should also consider if the problem is not resolved after the letter. I would be happy to chat further. Ed