Real Estate Rundown (Iowa Court of Appeals)

Is It In the Contract?

Malone v Flattery:  Rights of first refusal are presumed to be personal and are not ordinarily construed as assignable unless there is language showing that the parties intended the right be assignable.  The real estate contract in question did not explicitly provide that the right of first refusal was assignable and therefore it is not. 

Neighborly Boundary Battle

Georgia Pacific Gypsum, L.L.C. v New NGC, Inc.:  The court ruled that despite proof of the legal descriptions, payment of taxes, and payment of insurance, a fence line may still dictate who actually owns the disputed land where there is a boundary dispute. “Acquiescence” under Iowa Code section 650.14, refers to the mutual recognition by two adjoining landowners for ten years or more that a line, definitely marked by fence or in some manner, is the dividing line between them. Acquiescence exists when both parties acknowledge and treat the line as the boundary.  Take a note from your dog and make sure you mark your territory properly.  However, I'd suggest not using the same marking procedure that your dog uses.

For Sale By Owner (Sell Your House and Save..... Safely)

Over the past few years the local and national housing markets have experienced a struggle not otherwise seen in recent history.  The real estate market has subsequently transitioned into an ideal buyer’s market due to greatly decreased median home prices, overly saturated markets, and historically low mortgage rates.  Accordingly, many sellers in today’s competitive market are invoking the cost effective approach of placing their home For Sale By Owner (“FSBO”).  FSBO can be an effective tool to convert the cost of real estate commissions into a competitive advantage in pricing, renovations/updates to improve marketability, and negotiating leverage with regards to closing costs. Selling a home FSBO can also be a costly mistake for an inexperienced seller without the assistance of knowledgeable professional. 

In any real estate transaction (especially FSBO), both buyer and seller should take necessary steps to properly ensure all aspects of the sale are handled appropriately and further ensure that they are protected against potentially expensive surprises, delays and liabilities. If you are handling the transaction on your own, it is important to consider the advantages a lawyer can offer.  It would be advisable to consult with an attorney with regards to the following services:

• Review of the abstract and issuance of a title opinion ensuring the property and transaction is free of any and all title issues. 
• Draft, review, and/or evaluate offers and purchase agreements to ensure you are properly protected and aware of the terms and conditions contained therein.
• Host and handle the Closing of the transaction, or represent you with regards to the same if it is to be handled by the lending institution's closing agent.
• Draft, review and/or evaluate (along with the filing of) a Real Estate Contract or Lease.
• Draft or review the transfer documents (Deed, Declaration of Value, and Groundwater Hazard Statement).
• Draft or review statutorily required Seller disclosure documents.

These services can be provided at a very reasonable (often times fixed) rate and are an incredible investment to ensure the transaction is free of costly error and liability.

Landlords: What is “Unreasonable” When It Comes to Withholding Consent to an Assignment or Sublease

Most standard commercial leases contain provisions that allow for the tenant to assign or sublease their leasehold interest provided the landlord consents to the same.  Commonly, these leases provide that such landlord consent shall not be unreasonably withheld.  (Somewhat) recently, the Iowa Supreme Court in Superior Staffing v Agans Brothers set forth the following balancing factors that will be considered in determining the “reasonableness” of the withheld consent:

• The financial responsibility of the proposed assignees;
• The original tenant’s failure to comply with the lease conditions; 
• The original tenant’s failure to indicate a willingness to remain obligated on the lease;
• The legality of the proposed use and need for alteration of the premises; and
• The nature of the existing use and the proposed use by the new tenant.

I am sure you are probably of the opinion that you are a reasonable person, but make sure  a court would concur with that opinion in the landlord / tenant relationship.  Accordingly, when presented with this situation (as either a landlord or tenant) be aware of the above-referenced balancing factors when attempting to determine whether consent is “reasonably” or “unreasonably” withheld.  

QUICK NOTE: Real Estate Conveyances from an LLC

A recent change to the Title Standards of the Iowa State Bar Association removes the presumption of authority on LLC conveyance documents, such as a deed. Now, record must show 1) information indicating whether the LLC is member-managed or manager-managed; 2) that the conveyance was in the ordinary course of business; and 3) that the signatory(ies) had proper authority.  An affidavit attesting to these facts, recorded with the deed, is an acceptable and pain-free solution.

TOP 3: Legal Documents Every Business Owner Should Review or Complete Annually or Biennially

Buy / Sell Agreement: Depending on the economy or state of your industry, the current value of your business may have changed and this can have major repercussions when it comes to a buy/sell agreement. In a multiple-owner LLC or Corporation, not having a buy/sell agreement can create unforeseen problems upon the death, divorce or disability of an owner.

Corporate and LLC Biennial Reports: Generally most entities are required to file Biennial Reports with the Secretary of State and pay a fee. This is not difficult or expensive and failure to do will result in an administrative dissolution of the entity.

Annual Shareholders/Members and or Directors/Managers Meeting Minutes: Pursuant to and in compliance with the organization’s Operating Agreement or Bylaws, annual meetings are normally required and proper documentation thereof should be produced and kept.

Update on the Estate Tax Status

WHERE WE WERE, WHERE WE ARE, WHERE WE ARE GOING

In 2010, a deadlocked Congress unpredictably allowed the repeal of the federal estate tax by way of refusing to extend the federal estate and generation skipping transfer (GST) taxes. The federal “death tax” as its otherwise referred to, vanished on January 1, 2010 through the end of 2010 eliminating the federal estate tax against any and all estates regardless of their size (the previous estate tax exemption amount for 2009 was $3.5 million with a tax rate of 45% thereover). Despite a modified “carryover” basis rule that took the place of the previous “stepped up” basis rule, 2010 may very well have been a great year to die. (Tongue in cheek….. kind of).

If Congress hadn’t acted in December 2010, the estate and GST taxes would have been reinstated at their 2001 levels going forward in 2011 and beyond. This would have only allowed for the first $1 million of a person’s estate to pass on tax-free, with the remaining to be taxed up to a rate of 55% . Fortunately though, the 2010 Tax Relief Act was passed which changes the way federal estate, GST and gift taxes will be handled for 2011 and 2012.

Under the 2010 Tax Relief Act the first $5 million of an individual’s estate passes on tax-free, after that, the estate tax rate is 35%. There is also a “portability” (explained later) provision included that can allow for a surviving spouse to utilize any unused exemption amount of a decedent spouse. Further, in 2011 and 2012, the “stepped up” basis returns which is very beneficial to beneficiaries who sell inherited property that has increased in value during the decedent’s ownership of the property (reduces capital gain realized). The exclusion amount for gifts is unified with the $5 million estate tax exemption, which means that an individual can gift up to $5 million over the next two years without paying taxes on it. However if that individual were also to die in the next two years after giving away $5 million in lifetime gifts, then his entire estate would be taxed. The tax rate for any lifetime gifts given over $5 million is 35%.

One of the more interesting items in the 2010 Tax Relief Act includes a "portability" provision, as briefly mentioned earlier. Historically, in order for both spouses to maximize their total available exemption amount, assets had to be titled in a certain manner and different drafting provisions were necessary. ("Use it or lose it" was the warning). The new portability provision provides that if a spouse doesn't use their exemption, their spouse can use it. Thus, it could be possible for a surviving spouse to actually have a $10 million exemption available at death and pass $10 million tax free to their beneficiaries.

Any celebrations over the new 2010 Tax Relief Act should be tempered though. Remember, the new law expires at the end of 2012, and then the 2001 tax levels are automatically reinstated. While 2010 may have been a great year to die, and 2011 and 2012 aren’t bad either, watch out for 2013. Remember, these new rules only apply if you or your spouse die in 2011 and 2012. In sticking with the football playoffs and championships theme currently taking place, it might be appropriate to describe this move by Congress as a “punt”.

If you have not reviewed your estate planning documents for some time, now would be a good time to dig them out of your files and have one of our estate planning attorneys review your plan. Even if you recently had your will or trust prepared, some fine tuning may be necessary for your plan to work as intended. Call us to discuss your options for plan adjustments.