1031 Exchanges

What is a 1031 Exchange?
Section 1031 provides for "Nonrecognition of gain or loss from exchanges solely in kind: (1) In general. No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held either for productive use in a trade or business or for investment." In short, this means that if you want to sell an investment property now worth $3,000,000, that you originally purchased for $1,000,000, Section 1031 will allow you to rollover the entire $3,000,000 (including the roughly $2,000,000 in gain calculated as $3,000,000 minus $1,000,000, leaving depreciation out for the sake of simplicity) tax free!

Some Rules
In order to qualify for tax free treatment under Section 1031, the Seller must (1) use a Qualified Intermediary; (2) Identify the replacement property within 45 days; (3) The replacement property must be "like-kind" and (4) The replacement property transaction must close within 180 days of the closing of the relinquised property. As may be obvious, this area of real estate law is "jargon-heavy."

Adishian Law Group, P.C. has a full service real estate practice, advising owners on purchases, sales, leasing, landlord-tenant issues, financing and 1031 transactions.

Note: The information contained is not legal advice and does not establish an attorney-client relationship. Our contact information is included and we always offer a free consultation. For more information about the 1031 EXCHANGES, TAX FREE EXCHANGES, COMMERCIAL PROPERTY and/or other areas of REAL ESTATE law, please visit http://www.AdishianLaw.com/, contact us via email to askalg@adishianlaw.com or call us at 415.955.0888 or 310.726.0888. Copyright ALG 2009.

Commercial Leasing: Surrender and Termination

In the current recession, commercial landlord's are just beginning to feel the pressure from tenants seeking rent concession or the outright elimination of their rent obligation. See Wall Street Journal, "Struggling Retailers Press Struggling Landlords on Rent", January 2009. There is also a rapidly shrinking pool of high-quality "anchor" as major retail chains file bankruptcy seemingly one after the other. As a commercial property owner, what should you do to protect your interst.

Surrender or Termination or Both. A lessee cannot effect a surrender and termination of a lease unilaterally. The landlord must accept the offer of termination for it to be effect. Under California law, an abandonment of the premises by the tenant is merely an offer to surrender their lease. See Miller & Starr, 3rd. Ed., Vol 7, Sec. 19.

Upon receiving an offer of termination from a tenant, a commercial landlord must make an election of his remedy: (1) Ignore the offer to terminate, treat the lease as continuing and sue to recover rent as it becomes due provided that the lease permits the lessee to sublease or assign its interest; or (2) Accept the offer to terminate, and pursue remedies under CCC 1951.2.

How well companies and individuals managing real estate assets through an economic downturn is critical to long term success in real estate. Adishian Law Group, P.C. regularly advises landlords and tenants on the most economically sound resolution of landlord-tenant disputes, including renegotiating rents, surrender and termination agreements and sometimes unlawful detainer. We can also recommend a few property management firms throughout California that can assist with the management of your real estate assets.

Note: The information contained is not legal advice and does not establish an attorney-client relationship. Our contact information is included and we always offer a free consultation. For more information about the LANDLORD-TENANT, SURRENDER, TERMINATION, and/or other areas of REAL ESTATE law, please visit http://www.AdishianLaw.com/, contact us via email to askalg@adishianlaw.com or call us at 415.955.0888 or 310.726.0888. Copyright ALG 2009.

Foreclosing Lienholders: First in Time

As part of the ongoing "fall out" from the real estate bubble, lenders (i.e. lienholders) are finding that they need to foreclose on a non-paying borrower in order to recover amounts owed. To its surprise, the lender sometimes discovers that there were additional loans on the borrower's property that the lender did not know existed.

Setting aside a potential recovery against the provider of title insurance, which one of the loans will be repaid first as part of the foreclosure process?

California follows the “First in Time, First in Right Rule”. Miller & Starr, Cal. Real Estate § 11:1, 11:106. Under California law, competing liens upon the same property generally have priority according to the time of their creation, although that rule is subordinate to the rules of recordation. In re Pavich, Bkrtcy.E.D.Cal.1996, 191 B.R. 838.

Note: The information contained in this article is not legal advice and does not establish an attorney-client relationship. Our contact information is included and we always offer a free consultation. For more information about the FORECLOSURES, NOTICE OF DEFAULT, QUIET TITLE and/or other areas of REAL ESTATE law, please visit http://www.AdishianLaw.com/, contact us via email to askalg@adishianlaw.com or call us at 415.955.0888 or 310.726.0888. Copyright ALG 2009.

The Law of Fixtures

The typical fact pattern arises when a tenant during the course of his tenancy adds various items to the leased premises. Do these items belong to the tenant or to the landlord? Can the tenant remove these items when the lease is terminated?

The first question is whether the item is a fixture. Second, assuming an item is a fixture, at issue is whether it qualifies as a trade fixture. The law for determining if an item is a fixture is codified in Cal. Civ. Code § 660. “A thing is deemed to be affixed to land when it is attached to it by roots . . . or imbedded in it . . . ; or permanently resting upon it as in the case of buildings . . .; or permanently attached to what is thus permanent, as by means of cement, plaster, nails, bolts, or screws . . . . “ However, in analyzing whether or not a given item is a fixture, California courts do not rely exclusively on the characterization set forth in § 660. Rather, the courts look a number of factors, most importantly intent.

Once property is characterized as a fixture it ceases to be personal property and becomes part of the landlord’s property: “When a person affixes his property to the land of another, without an agreement permitting him to remove it, the thing affixed, except as otherwise provided in this chapter, belongs to the owner of the land, unless . . . the [tenant] elects to exercise the right of removal provided for in Section 1013.5 of this chapter.”

Large commercial tenants can spend hundreds of thousands of dollars on their leased space on the expectation that they own such "improvements." Similarly, landlords can often legitimately receive the ownership and long term benefits of a tenant's capital investments without spending any money. The determination of whether an item is a fixture can have significant financial impact.

Note: The information contained is not legal advice and does not establish an attorney-client relationship. Our contact information is included and we always offer a free consultation. For more information about the ELLIS ACT, UNLAWFUL DETAINER, and/or other areas of REAL ESTATE law, please visit http://www.AdishianLaw.com/, contact us via email to askalg@adishianlaw.com or call us at 415.955.0888 or 310.726.0888. Copyright ALG 2007.

DIGG This!

When Is Notice Effective?

Real estate law, particularly Landlord-Tenant relationships are loaded with notice requirements. Some examples are notices to renew or extend in a commercial lease. A simple notice clause in commercial leases is in fact not as straightforward as it may seem.

The law distinguishes "Given or Sent" from "Delivered or Received"
“The Agreement required that all notices be ‘given’ – not ‘delivered’ or ‘received’. The same paragraph provides that notice be ‘sent’ by registered mail, thus equating ‘sent’ with ‘given’, and emphasizing the lack of requirement for actual delivery. Estate of Crossman, 231 Cal.App 2d 370, 373.” Palo Alto Town & Country Village, Inc. v. BBTC Company , 11 Cal.3d 494, ¶21

The choice of language can be determinative, for example, in the all too common case of notice (renewal, extension, etc.) that is lost in the mail. Under "given or sent" language and interpretation, a notice mailed is sufficient...even if never received, which seems to contradict the very essence of notice, and yet does give effect to the true intent of the parties if it can be proven that notice was in facts "sent." However, under "delivered or received" language, on the very same facts, the party that mailed the notice that was lost in the mail will be deemed to have not delivered notice, because notice was in fact never received by the intended party.

These are just two wrinkles that can arise in the relatively mundane notice clause of a commercial lease. However, they are important because effective or ineffective notice can drastically alter the economic relationship between the parties.

The information contained is not legal advice and does not establish an attorney-client relationship. Our contact information is included and we always offer a free consultation. For more information about the LANDLORD/TENANT LAW, NOTICE REQUIREMENTS, and/or other areas of REAL ESTATE law, please visit http://www.AdishianLaw.com/, contact us via email to askalg@adishianlaw.com or call us at 415.955.0888 or 310.726.0888. Copyright ALG, P.C. 2007.

DIGG This!

What the “Ellis” Going On Here?

Are you a landlord with an apartment in the rental market?Are you looking to do something with your property other than rent it? Are you a tenant who rents an apartment in California? Have you been evicted? In evicting you, did your landlord invoke the Ellis Act? What is the Ellis Act and when can a landlord invoke it? What are your rights as a tenant?

The “Ellis Act” (California Government Code §7060-7060.7; modified by San Francisco Rent Ordinance Section 37.9A et. seq.) allows apartment landlords to evict legally all of their tenants, when the landlord has the express purpose of removing his or her property from the rental market. It provides landlords, who no longer wish to have their property in the rental market, a reasonable exit. In practice, landlords often utilize Ellis Act eviction to put up their properties for sale “free and clear” of any tenant issues or to convert their properties into condominiums to be resold at higher values. Some landlords however, misuse the Ellis Act, as a means to eliminate problem tenants.

The Ellis Act does not allow landlords to pick and choose tenants to be evicted. Even if a landlord has an “unprofitable” tenant (i.e. the tenant has a lower rental rate versus other tenants), or an “unprofitable” unit (i.e. the unit has a lower rental rate versus other units), the landlord cannot single them out and invoke the Ellis Act only on said tenants and/or units, respectively. If the landlord decides to invoke the Ellis Act, all tenants from all units in the property must be evicted.

When it was first introduced in 1998 many landlords abused the Ellis Act, evicting hundreds and hundreds of “below market” tenants. The result was that many low-income tenants were evicted and left stuck in between a rock and a hard place. Not only could they not afford the high costs of an attorney to fight the Ellis Act eviction, they were faced with the difficult and expensive task of relocation (packing, searching for a new place, moving and then settling into their new residence).

To combat these perceived abuses, the San Francisco Rent Board passed laws to offset some of the burdens of the Ellis Act by requiring relocation payments to certain categories of tenants. For instance, under San Francisco Rent Ordinance Section 37.9A(e)(1), landlords must pay “low-income tenants”, as defined in California Health and Safety Code §50079.5, $4,500 in relocation costs. The “low income” test appears to be defined on a “unit by unit” basis but is somewhat ambiguous, arguably it could be on a “tenant by tenant” basis. Second, under San Francisco Rent Ordinance Section 37.9A(e)(3), landlords must pay $3,000 to tenants who are mentally or physically disabled, as defined in California Government Code §12955.3, or 62 years of age or older. The section 37.9A(e)(3) tests and its associated payments are clearly on a “tenant by tenant” basis.

Whether you are planning a legitimate Ellis Act eviction or you have been served notice of a pending Ellis Act eviction, we recommend that you take advantage of our free consultation right away. As a landlord, this is an area fraught with procedural landmines that can cost even the most careful landlord unanticipated delays, thousands of dollars in legal fees, lost rent and additional settlements. As a tenant, you will need representation to become aware of your rights.

Note: ALG has successfully represented cleints being evicted based on the Ellis Act. The information contained is not legal advice and does not establish an attorney-client relationship. Our contact information is included and we always offer a free consultation. For more information about the ELLIS ACT, UNLAWFUL DETAINER, and/or other areas of REAL ESTATE law, please visit http://www.AdishianLaw.com/, contact us via email to askalg@adishianlaw.com or call us at 415.955.0888 or 310.726.0888. ALG intern Jonathan Tam contributed to this article. Copyright ALG 2005.

DIGG This!