Blog - Sinai Law Firm

Is it Possible to Enforce a Non-Binding Letter of Intent?

Jun 29, 2023 | By Avi Sinai | Read Time: 5 minutes

Letters of Intent (LOIs) can be enforced in both real estate and business transactions. This is a surprising fact for most professionals since many of these types of documents have non-binding provisions. Despite that, signed LOIs can in fact be binding in certain situations and sellers especially should take caution before signing those contracts. What is a Letter of Intent? A letter of intent (LOI) declares one party’s intention to do business with the other. The purpose of an LOI is to: LOIs are used to gauge the seller‘s interest and save time. It would not make sense to draft a full purchase and sale agreement for each lead if you are a buyer hunting for deals. So instead, buyers draft a short LOI with the main deal points and present it to the Seller as an outline for a possible deal. A typical LOI will include the main deal points such as: Can a Party Enforce a Non-Binding LOI? Yes. Despite what your agent (or the buyer’s agent) will tell you, LOIs can be enforceable (Source – Mann v. Mueller). This is true even if the letter of intent states that it is ‘non-binding’ on the parties. You likely won’t be able to force a sale just with a letter of intent, but other elements can be enforced: Signed LOI together with the intent of the parties can be enforced in some limited capacities as indicated above. In practical terms, this mostly affects the seller’s ability to negotiate with other parties. To be enforceable, the LOI must meet the requirements of a valid contract. What are the Typical Terms in a LOI? Letters of intent will usually include standard terms: What are the Pros and Cons of Signing a LOI as a Seller? Pros: Cons: Should Sellers Ever Sign a Letter of Intent? As a general rule, we advise sellers to never sign a letter of intent because the negatives are much more consequential than any advantages. None of the advantages listed above require a signature by the seller. A commitment secured by seller’s signature only benefits the buyer. If the buyer will not consider a deal without an LOI, this step might be required to complete the sale. Aggressive buyers can force a seller into exclusive negotiation with the threat of litigation and performance with a signed LOI. Even if such litigation will be fruitless, sellers under duress could face a prospect of choosing between litigation or giving into the buyer’s demands and selling at undesirable terms. It is unlikely that a seller could force a buyer to close with just an executed LOI, but a buyer could force a seller to exclusively negotiate. An exclusive negotiation period with a buyer is essentially an option to purchase. In that case, sellers should be compensated with adequate consideration. Letters of Intent in Real Estate Transactions LOIs are commonly used by buyers to gauge seller’s interest in off-market deals. Once a seller is open to selling, a buyer will present a letter of intent with the major deal points such as the price, term, contingencies, earnest money requirement, and agent’s commission. A well crafted letter of intent in complex commercial transaction or lease can be very beneficial to all parties. Commercial leases are 40 pages or longer, and LOIs can be a quick test to see if there is a basis of agreement between the parties. Letters of Intent in Business Sales LOIs in business sales operate in very similar fashion to real estate LOIs. Some business sales can be more complicated than property sale due to the nature of the business and due diligence required. Buyers might also have to absorb employees, assume loans, and assume existing liabilities of the business. The LOI might or might not address those concerns. Some points to note: Using a Lawyer to Negotiate, Draft, and Enforce LOIs Sellers, buyers, and agents can strategically use a lawyer to push forward a deal to a signed contract, or create leverage by attempting to enforcement of a letter of intent. If a buyer presented you with a letter of intent, an attorney can help you avoid the potential dangers in signing a LOI that you might regret. With proper negotiation, a lawyer can take the bite of any enforceability provision in a letter of intent. Enforcing a letter of intent on a seller is not common practice, and it does not happen often. However, the mere threat of such action against a non-cooperating party (or a seller not negotiating in good faith) can be an effective point of leverage.

Real Estate Law

New Protections for LA Tenants – January 20th 2023

Jan 20, 2023 | By Avi Sinai | Read Time: 3 minutes

Los Angeles City Council passed on January 20th, 2023 new protections for LA tenants. The vote was passed on Friday, just 10 days before the end of a three year eviction mortarium. The tenant protections apply to all Los Angeles residents, including tenants in single family homes. Important Disclaimer – the information contained in this page was curated from the council meeting, news articles, and information available online. The actual language of the new tenant protections in LA are not written in law yet. Once they are made available we will edit the text in the page. Is the Eviction Moratorium in Los Angeles Extended? No. Tenants in city of Los Angeles who cannot pay rent after February 1st, 2023, cannot claim a covid-19 hardship in order to avoid eviction. Tenant will have a few months to pay back the landlord rent that was owed during covid-19. To read about the City of Los Angeles Eviction Mortarium, read our updated blog post. Ban on “No-Fault” Evictions in City of Los Angeles The only allowed reasons for evictions in Los Angeles per the new rule: City of Los Angeles is now a “Just-Cause” eviction jurisdiction. This protections applies even after the lease expires. This protections applies to everyone – including single family homes and condos. If you are a tenant under rent control, nothing changes. But this is a major change for all other tenants. The new rules turn every single residential tenancy to a potential life tenant, with no expiration date. It is unclear how single family homes can be ‘taken out’ of the rental market. Landlords who enforce an owner move-in will have to pay relocation assistance to the tenants. New “Threshold” Minimum in Evictions for Non-Payment of Rent Eviction for non-payment of rent will only be allowed when the owed amount is larger than the “fair-market” rent for that unit. Fair market prices are determined by the US Department of Housing and Urban Development: So a tenant renting a 1-bedroom apartment can only be evicted if they owe more than $1,747 in unpaid rent. The goal of the new protection is to avoid evictions for small dollar amounts. New Relocation Award for Tenants who can’t Afford Rent Increases This is another protection for non rent control tenants. If your rent is increased by more than 10% and you cannot afford it, the new LA law will require landlords to pay tenants: If you are in a rent control unit, no increase is allowed until February 2024. Any housing rental built more than 15 years ago is only allowed a rental increase of 10% by state law. This new rental assistance applies to single family homes and condos. Protections for Unauthorize Occupants and Pets The city council extended two specific protections against evictions from the moratorium. These protections from eviction will remain in place until January 30, 2024: Who is Protected Under the New Rules? Residents in the city of Los Angeles are protected by the new rules. These rules do no apply to residents of other cities, like Santa Monica, Beverly Hills, and West Hollywood. Schedule a Free Consultation with an Expert Real Estate Lawyer Sinai Law can assist you to navigate through the eviction moratorium, and the new protections for LA tenants, regardless if you are a landlord or a tenant. We can assist you in turning a problem into an opportunity. You can contact our office at any time on our contact page. We provide free initial case evaluations for new clients.

Real Estate Law

California Law on Breaking Leases Early

Sep 4, 2022 | By Avi Sinai | Read Time: 5 minutes

Sometimes tenants have to exit a lease early. Breaking a lease early is a simple matter of contract law. Yet most landlords and tenants misunderstand their rights and obligations. Not all lease breaking should be expensive or complicated. Knowing the possible exposure and costs can help you make smart decisions before breaking the lease. What Happens When You Decide to Leave Your Lease Early? When you are breaking a lease early, you are technically breaking a contract. Damages in a breach of contract are calculated based on the expected benefit to each side. A landlord, for example, can expect 12 months of rent from the tenant during the life of the lease. If a tenant decides to leave five months into a year, the rent for the remaining seven months is the amount of damages the landlord is entitled to. Landlord mitigation is a second important legal concept in breaking a lease early. Under California law, landlords have a duty to mitigate their damages when a tenant leaves early. Property owners cannot wait a year to re-lease the space and then sue the tenant for the full amount owed under the lease. They must hire a realtor and make commercial reasonable efforts to re-lease the unit. Key Concepts in Breach of Contract – Breach of Contract – Lease What are the Potential Damages for Breaking a Lease Early? California Civil Code 1951.2 provides all the potential damages that tenants can face for breaches of the lease agreement. Dispute Resolution and ‘Early Termination Penalties’ Many leases (residential and commercial) already have mechanisms that control what happens when a party breaches it. Think of it as a way to predetermine how parties settle potential disputes. For example, a lease might award the prevailing party to a lawsuit reasonable attorney’s fees. Other leases ask the parties to mediate disputes with a neutral party before filing a lawsuit (arbitration and mediation). An early termination penalty/option is another word for a liquidated damages provision. It is way for the parties to agree to an amount of damages ahead of time, when the lease is signed. In general, California law does not allow for ‘penalties’ on parties for breaking a contract. Important to remember – it is not a crime to break a contract. We previously covered liquidated damages in our blog. If the amount requested is unreasonable at the time of signing the lease – liquidated damages might not be enforceable. Key concepts in Dispute Resolution/Early Termination Penalties How to Avoid Penalties when Breaking a Lease? The best way to reduce your chances of a lawsuit is to reduce the potential losses to your landlord. Finding a replacement tenant or a sublet ensures the landlords still gets the rent every month. It is important to look at your lease agreement and see under what conditions you can sublet or assign your lease. The best way to reduce your liability is to come into a mutual agreement to terminate your lease with the landlord. A mutual release and terminating the lease can save the parties a lot of headache. Always consult with a lawyer before executing a release to make sure both parties release all past and present claims arising from the lease. When Can Tenants Break a Lease without Penalties? You can terminate the lease contract early in the following cases: Always consult an attorney before taking action under any of the laws mentioned above. Breaking a Commercial Lease Early Unlike residential, commercial leases are much longer and much less regulated under California Law. Parties to non-residential leases have more leeway to agree on terms. The liability for early lease termination can be MUCH more severe in commercial leases. Many of the rights and obligations above do not apply to commercial leases and can be waived under certain conditions. It is highly recommended that you always consult a lawyer if you believe you cannot complete your commercial lease term. Sinai Law Helps Tenants with Early Lease Terminations Our firm helped hundreds of tenants in California exit their leases early with minimum liability. You can schedule a free consultation to see how we can help you. Our firm takes an aggressive approach in representing tenants and landlords for maximum client benefit. We’ve helped many tenants exit their leases early with no penalties and minimal headaches – you can check out our results here.

Real Estate Law

How Home Buyers Lose their Earnest Money Deposit

Jun 26, 2022 | By Avi Sinai | Read Time: 5 minutes

After an accepted offer to buy a home – the first thing you will have to do is to wire an earnest money deposit to escrow. This amount will stay in escrow until the transaction concludes. The earnest money deposit is not an extra amount you pay to enter escrow, it applies to the purchase price at closing. But what happens when you have a sudden change of heart during escrow? How do you get the deposit back? Under what conditions the seller can keep your deposit? The California Residential Purchase Agreement and Joint Escrow Instructions is the standard form most agents use for regulating the terms of the deal. This contract is often misunderstood by almost all buyers, sellers, agents, and even attorneys. What is the Earnest Money Deposit and Why Sellers Demand it Right Away Earnest money deposit is a good faith amount given to the Seller by the Buyer. It is usually wired to escrow right after both parties enter into contract for a sale of a home. It is also used in commercial real estate deals. The earnest money deposit shows the buyer is serious about the transaction, and increases the likelihood the transaction will close. The purpose of the deposit is twofold: What is the difference between the earnest money deposit and the initial money deposit? Nothing. They both mean the same thing, just a difference name. Here are some of the possible names for the earnest money deposit used by agents: Who gets to determine the amount of the earnest money deposit? It’s up to the two parties (buyer and seller) to decide the amount of the earnest money. In most cases, the amount will equal 3% of the purchase price. So if you are buying a $2,000,000 home, the seller will ask the buyer to deposit $60,000 as earnest money deposit in escrow. Since all realtors use CAR forms for residential transactions, they are very standardized. The earnest money deposit can be any amount agreed to by the parties. However, this does not mean the seller gets to keep the entire deposit in cases of a buyer’s breach. This subtle, yet important point is a very misunderstood part of real estate law. The amount has to be reasonable at the time of signing the contract. 3% is considered reasonable by default for single family transactions. For commercial transactions there’s more flexibility. Can buyers legally refuse to provide an earnest money deposit? Yes. There is no legal requirement for an EMD to buy a property. However, if your agent uses standard CAR forms – a deposit is required. If the property is listed on the MLS by an agent – prepare to provide a deposit. Is the EMD refundable? Yes, as long as the buyer does not defaults during escrow. The most common case buyers lose their deposit during escrow is getting cold feet at the last minute. Getting cold feet after removing all contingencies is the most common example. If the seller performs their contractual obligations and the buyer backs out, be ready to lose the deposit. What is Liquidated Damages Clause and how is it related to the Deposit? Liquidated damages clauses are a pre-determined cap on damages in case of a legal dispute. It is standard in almost all real estate contracts. They are used to limit the potential exposure of damages in case of a lawsuit between buyer and seller. Liquidated damages are also common in business contracts. The earnest money deposit serves as the liquidated damages amount in real estate contracts. If the buyer defaults, seller can keep the deposit regardless of the actual amount of damages. That also means that if the damages are higher than the liquidated damages – you’re out of luck! There are limitations on liquidated damages in California contracts. The amount has to be reasonable at the time of signing the contract. For home sales, liquidated damages set at 3% of the purchase price are considered reasonable. What is the process of getting a getting the earnest money refunded from escrow? The purchase and sale agreement details the process to get the EMD back from escrow. The buyer’s agent needs to submit a cancellation of escrow form signed by the buyer. After both parties mutually cancel the agreement, escrow is instructed to refund the earnest money deposit to the buyers. If the seller refuses to release the money from escrow, the parties should lawyer up as soon as possible. In most cases, the parties will attend the required mediation by CAR and try to settle the dispute. What happens when the seller refuses to refund the initial money deposit? If you are heading into a legal dispute with the seller, first thing to do is to contact a real estate lawyer. The purchase and sale contract specifies how the parties should mediate disputes related to the contract. In a standard CAR contract, the parties have to start with mediation. Here are the steps you can take to make sure your deposit is refunded as fast as possible: Hiring a real estate attorney to get your earnest money deposit back Escrow won’t refund the buyer if the seller does not sign off on the release. This is where your agent will tell you to seek legal counsel and escalate matters with the seller. If you signed a standard CAR form, you will be required to attend mediation before filing a lawsuit. Agents and brokers cannot initiate arbitration or mediation. Agents have an incentive to close the deal, their commission depends on it after all. With a lawyer on your side, you can enforce all the terms of the contract that are beneficial to you quickly and efficiently. It is important to act quickly and not let escrow remain in limbo. If your agent cannot work out a compromise with the seller’s agent, legal action is the only way to force the seller to refund your deposit. The purchase and sale agreement usually determines how the […]

Real Estate Law

Are Non-Refundable Deposits Legal?

Mar 1, 2022 | By Avi Sinai | Read Time: 5 minutes

Updated: 12/27/2022 Non-refundable deposits are everywhere. We see them in business, consumer products, and various reservation systems. But is it legal? From the standpoint of business owners or service providers, it is easy to see why a non-refundable deposit is a great idea. If you have the leverage to ask for it, and the consumer is willing to give it to you, then why not? The basic principle behind a security deposit is to take payment in advance so to avoid a future loss if the other party changes their minds. There are several types of security deposits that we all know: Are Non-Refundable Deposits Legal in California? Sometimes. A deposit is ‘non-refundable’ if it’s reasonable at the time of the contract was signed. In California law this concept is called ‘liquidated damages’. Parties to a written contract can agree in writing what is going to be the ‘penalty’ for a party to break the agreement. This penalty is called ‘liquidated damages’, a pre-determined amount of damages in case a party breaches the contract. Liquidated damages are enforceable as long as the amount is reasonable at the time of execution. That means that if the terms of the liquidated damages are fair at the time the contract is signed, it can be enforced. If the amount charged is not reasonable, then it is not enforceable, even if both sides agreed in writing. Non-refundable security deposits in residential leases are generally not allowed, even on early lease termination. Non-Refundable Deposits in Real Estate Purchases A popular example is the earnest money deposit in real estate transactions. In California residential purchases, buyers are usually required to deposit money in escrow to secure the purchase and sale agreement. Usually it’s 3% of the purchase price unless the parties agree otherwise. If the buyer removes contingencies and then does not close the deal, the seller can keep the 3% as a non-refundable deposit. 3% is considered ‘reasonable’ in the context of earnest money deposit as ‘non-refundable’ by law. But anything more than that will have to come at some justification, and sellers/agents should consult an attorney before charging more. There are also special laws in California that require parties to a residential contract to sign liquidated damages provision specifically in the contract for it to be valid. California Civil Code § 1102.3, for example, requires the seller to give the buyer specific disclosures before close of escrow. If those disclosures are not provided, buyer has a right to cancel the agreement and get the EMD. Most important – those disclosures are mandatory and cannot be waived by the buyer. When are Non-Refundable Deposits are Actually Refundable? To turn the table against non-refundable deposits, the liquidated damages amount has to be unreasonable at the time of the contract. They are also void, and unenforceable in the case of purchase/service of personal property – for family and household purposes. What is considered unreasonable? The liquidated damages must be somewhat related to the actual damages suffered as a result of non-performance. That means that if the deposit exceeds or much higher than the actual damage it’s probably unreasonable, and therefore reasonable. This is called the ‘reasonable endeavor test‘. To determine if a liquidated damages clause is valid the court will look at: Can my Landlord ask for a Non-Refundable Deposit in a Residential Lease? No. The right to a security deposit accounting under § 1950.5 cannot be waived at the inception of tenancy. This does not mean your security deposit is fully refundable when you move out. The landlord can recover damages to the unit beyond normal wear and tear. In some limited cases a tenant can waive the right to the security deposit during the tenancy. It has to be in writing, and subject to an eviction notice or early termination. Can a Security Deposit in a Commercial Lease be Non-Refundable? Depends. Commercial leases can contain a waiver of California Civil Code § 1950.7 – where a tenant waives the right to ask for the deposit back in case of a breach of the lease. Under 1950.7 excess security deposit (after landlord deducts unpaid rent) is refundable to the tenant. A commercial tenant can agree in writing to waive this protection under 1950.7. Commercial security deposit can be any amount agreed to by the landlord and tenant. In residential leases, the amount is limited to 2 months of rent or 3 for furnished units. How Can a Lawyer Help you Recover Non-Refundable Deposits? Sinai Law can help you recover non-refundable deposits, even if you agreed to pay it in writing. Businesses use deposits as an unfair way to exploit consumers and our firm has been successful in recovering deposits that our clients thought were gone forever. Our process is simple – after we compile the evidence and determine viability and liability, we issue a demand to the defendant in less than 24 hours. If the defendant does not comply, we file a lawsuit right away and seek maximum damages, including costs and attorney’s fees (when applicable). Are Wedding Deposits Refundable? Yes. The same rules apply to amounts given to vendors before a wedding. DJs and caterers love telling their customers the deposits are not refundable, even 5 months before a wedding. Unless the wedding is cancelled right before the day of the event – there is no reason for a vendor to keep the entire security deposit. The security deposit, or liquidated damages, have to be reasonable at the time of signing the contract. Consider the following example: A couple hires a band to play at their wedding 6 months in advance for a total payment of $10,000, and $5,000 up front deposit. The wedding is canceled a month before the wedding date and the band refuses to refund the deposit since it’s non-refundable. Unless the band can show $5,000 in reasonable expenses, or that they cannot be booked by another wedding on the same wedding date – it’s unlikely the deposit will be considered non-refundable. […]

Real Estate Law

7 Tips for Investors for NNN Single Tenant Properties

Feb 12, 2022 | By Avi Sinai | Read Time: 5 minutes

Real estate investors love NNN single tenant properties for several reasons: A popular strategy is to sell management-intensive properties and exchange into NNN properties. Brokers market NNN deals as ‘passive, zero-landlord responsibility’ assets on long term leases. Here are some red flags to avoid. Why it’s Essential to Review a NNN Single Tenant Lease Before you Buy The lease is the most important determination of future value in a NNN property. A good lease will provide you with not only security, but added value as well. A review of the lease agreement by an attorney can verify that you are in fact, buying what is being advertised. For example, our firm reviewed sale of a single tenant, NNN property for sale in California. The tenant was a nationwide cell phone provider. The broker advertised it as a “brand-new construction, NNN, corporate guaranteed lease“. Upon initial review, the name of the guarantor was different than the listed name on the NYSE. Our firm requested clarification from the listing agent. Our own investigation showed the LLC on the lease was a subsidiary of the company. The seller could not produce any evidence to support the credit-worthiness of the tenant. The tenant wanted to shield their liability with a separate LLC in case of a default, which meant the ‘corporate guarantee’ didn’t mean a whole lot. Our client pulled his offer, despite offers from the seller to reduce the price. Here are the seven most common mistakes investors make when reviewing NNN single tenant leases: 1. Focusing Only on the First Page of the Lease NNN leases are long for a reason – all the details matter. Rent and expense reimbursement are important, but it’s also important how they are collected, and what is included in ‘common area expenses.’ Some leases allow landlords to transfer management costs to tenants, and some specifically forbid it. Here are the seven most common mistakes investors make when reviewing NNN single tenant leases: 2. Who is Guaranteeing the Lease? The corporate guarantee the lease is the most important part of a NNN single tenant lease. Technically speaking, a shell company, or a small LLC is still a corporation that guarantees the lease. But if that entity has no assets and is not credit worthy, who will pay the rent once they close down? The first thing we do for our clients is to verify the corporate entity. In examining the credit-worthiness, we match the name of the lease with the publicly available information. When evaluating the strength of a corporate guarantee it is important to take into consideration: A credit tenant will pay the rent even if the store shuts down. It is part of the reason these properties command a premium. Making sure this is the case is the important role of an attorney in a transaction. 3. Beware of Leasebacks! Leasebacks in NNN single tenant sales are common practice, but have potential issues buyers have to be aware of. In a leaseback situation, the tenant is also the seller in the transaction. Sellers will draft a lease to themselves at a high rental rate, sign it, and then ask an inflated sale price to investors. The high rent might seem enticing, but a low cap rate, you investors are running the risk of being penny smart and dollar stupid. In a leaseback situation, we always recommend our clients to either draft a custom lease, or re-negotiate the existing lease. 4. Options and Escalations Rent Increases – the lease should have automatic rent increase schedule. In some leases the property owner must notify the tenant of a rent increase to activate it. Escalations in rent are important for NNN investors as a protection from inflation. Yearly rent increases are a major factor in protecting property values. Options – any option to purchase the property by the tenant, also known as right of first refusal, is a red flag. These options provide the tenant with very strong leverage in a sale situation. Investors should also note the how the lease dictates options to extend the term. Does the lease term renew automatically? Does the tenant have an exclusive option to extend? 5. Falling for the “Zero landlord responsibility” Trap The phrase “zero landlord responsibility” is common in NNN single tenant listings online. It is also an oxymoron. Investors who want a passive investment are better off buying government bonds or index funds. Any real estate investment requires monitoring and supervision. The structure of the lease determines the time investment required for the property. This is why it is very important to understand the obligations under the contract before buying. 6. Not Reviewing the Triple Net Provision The NNN reconciliation can looks very different from one lease to another. In some cases, the tenant pays the property taxes directly upon proof of invoice. In other cases, the property owner pays the bill and then asks the tenant for payment. Here is a short sample of the type of things we look for before buying a NNN single tenant investment: Property Taxes Insurance CAM – Common Area Maintenance 7. Assuming the Tenant Will Lease the Space Forever Here is what we ask every client during escrow: “What happens when your tenant leaves, breaks the lease, or sells the business? No tenant stays forever. Investors have to prepare for this contingency before buying the property. It does not matter how many years remain on the lease, or how solid the current financials of the tenant. Over a span of 10-15 years, things can change. Landlords who leased spaces to RadioShack in the 80s suffered losses in the 90s. Blockbuster Video closed down thousands of stores in a matter of a few years. Technology and shifting consumer demand are an inevitability. A strong lease can’t stop the wheels of time, but it can help mitigate those losses.

Real Estate Law

LA County Eviction Moratorium Explained (Updated 01/26/2023)

Jan 30, 2022 | By Avi Sinai | Read Time: 9 minutes

LA County’s eviction moratorium, started March 2020, and is set to expire on March 31, 2023. It was previously set to expire January 1st, 2023, and the County Board of Supervisors extended it yet again to the end of March. The County sets out a set of complicated rules that affects almost all residential and commercial tenants in LA County, under the COVID-19 emergency powers. COVID-19 related disputes and eviction moratorium protections is a major part of our practice. We help both landlords and tenants understand and enforce these protections. Updated: 01/26/2023 at 1:37 PM Quick Questions and Answers – Eviction Moratorium Explaining the LA County COVID-19 Tenant Protection Resolution The eviction moratorium in LA County went into effect March 4, 2020, to protect tenants (residential and commercial) who could not pay the rent due to financial difficulties due to the COVID-19 pandemic. The resolution was extended multiple times, most recently in January 2023, and will last until March 31, 2023. During the first few months of 2020, no evictions were allowed to be filed in LA Courthouses. More recently, tenants have the ability to block evictions via an affirmative defense if they are facing a financial hardship due to COVID-19. While the initial rules were fairly simple and easy to understand, more recent resolutions are much more complex. It is important for both landlords and tenants to understand the implications of multiple emergency power (state, federal, city and county) and how to navigate the quickly changing legal landscape to maximize value and avoid costly mistakes. 01/26/2023 Update Per a vote by the LA County Board of Supervisors – the current protections will expire on 03/31/23. That means that tenants who cannot pay April 2023 rent can be evicted even if they have a COVID-19 hardship. Anti-harassment protections for tenant will continue to remain after 12/31/22. Some no-fault eviction protection also remains past the expiration date. Rent collection for unpaid amount during the moratorium is still not grounds for eviction, even after the moratorium expires. The repayment period is 12 months after the last unpaid rent amount during the protection period. Who is Covered by the Eviction Moratorium? For residential tenants, tenants who earn less than 80% of median income are covered until March 31, 2023. That includes tenants in single family homes, renters in mobile homes, and condos. The resolution covers all unincorporated areas in Los Angeles County, and all cities in the county with eviction rules with less strict or similar rules to the county’s framework. What is the Current Expiration Date of the LA County Moratorium? The current expiration date for LA County’s eviction mortarium for non payment of rent is set to expire March 31, 2023. How Many More Times will the Moratorium will be Extended? We have no way of knowing that. Before the current extension (3/31/2023), the board of supervisors was committed to ending the moratorium on January 31, 2023. It then reversed course and chose to extend it further despite heavy resistant from local landlords. What is Allowed and what is Not Allowed under the Resolution’s Phase I? For commercial tenants: For Residential Tenants: What happens in Phase II? (June 1st – March 31st, 2023) For commercial tenants, nothing changes. For residential tenants: When Should Tenants Pay Rent? As soon as possible. There is no language, in any city, county, state, or emergency power that provides rent forgiveness to tenants. There are some city programs that pay missing rent for tenants by filling up hardship applications. But if you owe rent – you have to pay it back. Landlords and tenants are encouraged to come up with a payment plan to facilitate a payback. If you are not sure how to engage your landlord, you can hire an attorney to help you. For example – some tenants successfully paid less than what they owed to the landlord by offering to pay the owed amount right away at a discount. How Can Landlords Collect Rent from Non-Paying Tenants? This is a question asked by many clients who come to our firm. The answer is always complicated, since the county recently extended the moratorium through March 31, 2023 and provide 12 months for residential tenants to pay back the rent. Collecting rent from non-paying rent is always going to be a challenge. Starting November 2021, landlords are allowed to bring a lawsuit for damages for unpaid rent during the pandemic. In some cases, the lawsuit can be heard in small claims with no caps on damages. This means that landlords can get a judgement against a tenant in a couple of months due to the fast proceedings in small claims. With a judgement against the tenant, landlords can garnish wages, levy bank accounts, and seize assets. It is recommended that you hire an experienced attorney to assist you in understanding the County’s rules in collecting rent and evicting tenants. Failure to follow the rules can result in harassment lawsuits and severe fines against property owners. Can Tenants Still Get Evicted for Other Reasons? Yes. Residential tenants can still get evicted breaking the lease – such as using the premises for an illegal activity. Eviction moratorium is not a blanket ban on all evictions. Tenants who do not declare a COVID-19 hardship and don’t pay rent run the risk of eviction. Starting June 1, 2022 – illegally denying entry to the landlord in Los Angeles County is valid grounds for eviction. Is the Pandemic Moratorium Apply to Tenant who Came in During COVID-19? Yes. It may seem unfair, but there is nothing in the rules that exempts tenants who came in knowing the pandemic risks. It is important to hedge your risk during the application period with new tenants in order to mitigate that risk. If you are considering a real estate purchase with renters during the pandemic, it is important to underwrite the current laws into your pro-forma. Can Landlords Charge Tenants Late Fees for Unpaid Rent During the Pandemic? No. Tenants who invoke COVID-19 […]

Real Estate Law

Cash for Keys Buyouts in Santa Monica

Jan 22, 2022 | By Avi Sinai | Read Time: 6 minutes

Updated: 12/27/22 A Cash for Keys agreement is a contract where landlords offer tenants money in exchange of leaving the unit. The dollar amount is left up to the parties – landlord and tenant. Cash 4 keys provides a legal way for landlords to vacate tenants from the property. These agreements are popular especially for rent controlled tenants, who can often cash in for large amounts. As property value soared in recent years, cash for keys agreements became popular as well. In 2021, a total of 23 buyout agreements were reached in the Santa Monica. Cash for keys could be beneficial for both parties. Landlords are able to increase the rent price to reflect the current market rate. As the market rises, landlords can make a greater profit on new potential tenants. On the other hand, renters can receive cash for vacating the property if they find it difficult to pay rent, or if they were already thinking about moving anyway. Quick Q&As Why Would Property Owners Offer Cash for Vacating a Unit? Property owners are able to adjust the rent to the current market rate for new tenants. With market rent in place, property value increases as well. In situation where tenants are protected by a Rent Stabilization ordinance, like in Santa Monica or Los Angeles, occupants can only be evicted for cause. This means that renters can stay in the apartment indefinitely, paying very little rent. There’s little alternative to property owners to vacate units. Ellis Act evictions are expensive and long, and once invoked the unit can no longer be rented again to tenants. In addition, once the tenant is paid and vacates the premises, a higher rent can mean higher property value. Why Should Tenants Consider Cash for Keys buyouts? When properly negotiated, cash for keys buyouts can be substantial. It is not unusual for some tenants to get over $20,000 in buyouts, sometimes even more. Tenants who already want to leave or are having difficulty paying the current rent can take the cash and more somewhere more affordable, pay bills, or satisfy credit card debt. What is the Legal Process in Santa Monica? Who can Qualify for a Cash 4 Keys Agreement? Tenants and landlords qualify for cash for keys agreements. Also, banks and homeowners can execute buyouts. What Rights Tenants and Landlords have under the Cash 4 Keys Laws? City rules provide the tenant with strong protections in cash buyouts. Do You Need a Lawyer to Draft and Sign a Cash for Keys Agreement? A lawyer is not required but highly recommended for cash 4 keys agreements. Tenants should not only know the full extent of their rights but have someone on their side to negotiate a payment that is fair. Landlords should always hire an attorney to coordinate the cash for keys process to make sure they are legally protected from any liability. Cash for keys buyouts are especially common right after, or before a commercial property transaction. Why is it important to hire a lawyer to negotiate a cash for keys agreement? Moving out of your home is already strenuous enough. Hiring a lawyer will ensure you get the most value for your property. Tenants may not realize the leverage they have with their unit. Having a lawyer on your side will decrease your troubles in obtaining the best deal possible. For landlords, most of the compliance falls on the landlords when it comes to cash for keys agreements. The legal framework in Los Angeles and Santa Monica place strict requirements on the property owner alone to follow. Failure to follow the rules can subject you to fines and cancellation of the buyout agreement. Hiring an experienced attorney can mitigate this risk. Steps you should take before getting into an agreement Whether you are a tenant or landlord, negotiation can be difficult between the two parties. Before getting into an agreement, it is crucial to contact a lawyer to walk you through the process. If you want to go through the process yourself, make sure to follow the local rules in your city for cash for keys agreements. In Santa Monica, you will have to comply with: Contacting the team at Sinai Law will ensure an easy process. What Provisions Must be Included in a Cash for Keys Agreement in Santa Monica? What is the Average buyout for a Tenant in Santa Monica? Buyout for Cash for Keys will vary in respect to the area and makeup of the home. A large factor is the difference between market rent and the current rent for the unit. Buyout agreements can range from as low as $1,500 to as high as $75,000 (or more in extreme cases). The Rent Control Board in the City of Santa Monica provides data on Cash 4 Keys buyouts. In 2021, the average buyout in Santa Monica was a $38,037. While in 2020, 22 buyout agreements averaged to $35,693. If your Landlord Offered you a Buyout what should you do? If a landlord approaches you, you should first contact an attorney. Our team at Sinai Law offers counsel for Cash 4 Keys buyouts from start to finish. Contact us as soon as you receive a buyout notice from your landlord. It is important that you consult with an experienced attorney since you only have one shot to get the maximum value for your buyout. If you are a Landlord that Wants to Offer a Cash for Keys Agreement what should you do? The important thing to understand in cash for keys agreements – it is a legal process that in effect is only enforced against the property owner. Therefore, it is imperative that the process is followed to ensure minimum legal liability. There are civil fines for violating the city ordinance, and tenants have a right of redemption as well. Always consult an attorney when you are about to make an offer to a tenant for a buyout. If you are a Landlord, How Much Should you Offer to a Tenant to Leave? The […]

Real Estate Law

Negotiating a Billboard Lease in Los Angeles

Jan 18, 2022 | By Avi Sinai | Read Time: 5 minutes

Commercial property owners in Los Angeles often have alternative streams of income in the form of long term leases from billboard companies, such as Outfront Media, CBS Media, or Lamar. When it comes time to renegotiate those leases, landlords have a unique set of challenges against the billboard companies. In 2001, the City of Los Angeles put a 25 year moratorium in place on all new billboards licenses. Existing signs can stay under a ‘grandfather’ exception, but property owners and billboard operators cannot erect new commercial signs or even replace existing ones. This means that if the negotiation falls apart, property owners lose the monthly income forever (or at least until the moratorium ends and more signs can be built, which is unlikely). How Can Landlords Make Money from Billboards? Billboard income works just like any other tenant in the building. The profile is usually a large media company that owns many billboards, and then leases out the sign to advertisers on monthly contracts. The billboard operator pays monthly (or yearly, depending on the lease) rent and nets the difference between the rent and the ad revenue. Some leases have extra rent to the landlord in the form of CAM payments or excess revenue based on traffic counts. How is Rent Calculated in Billboard Leases in Los Angeles? The rent in a billboard lease is usually calculated based on location of the property, traffic counts, and prior ad revenue in that location. It can range from $100 to $5,000 a month, depending on what was originally negotiated between the original parties. Billboard leases are often 1 page, and last for 20-30 years. So when it comes time to renew and extend – it is important to get the new rental rate right. What are the Current Laws on Billboard Licenses in Los Angeles? There are almost no new billboard advertising licenses issued in the City of Los Angeles, with some very narrow exceptions (on the Sunset strip, for example). Caltrans Website – offers the current regulations and process regarding those licenses and existing ones. City Planning Summary – and proposed changes to the current license requirement. Challenges in Negotiating Billboard Leases and Extensions Property owners have less leverage in negotiating with billboard operators. Push too hard, and they might walk away and you lose guaranteed income that is very hard to replace. In almost every scenario, it is the tenant/operator that owns the physical sign and the license to it. And if they take it out after the lease expires – you cannot build a new one to replace it. It is important that the negotiation is controlled along realistic lines of pricing, term, and open communication. It is unlikely that a billboard operator will accept a short term lease (less than 5 years). Remember, if the negotiations fall apart and they tenant leaves, you cannot get a license for a new billboard to replace it. Tips in Negotiating a Billboard Lease or Extension Review the existing lease – use a lawyer to explain and break down the lease completely so you are aware of any limitations or timelines that are in place to protect the tenant or gain some advantage. Get Comparable Rents – find what other billboards are paying in your neighborhood. It is important to take into account location and traffic numbers Get updated Traffic Numbers – car traffic is the lifeblood of a billboard. It is what advertisers care about and it is the largest factor in determining the monthly rent. What to Know Before Buying a Property with Billboard Income – a Checklist If you are buying (or looking to buy) a shopping center in Los Angeles, and it was built in the 1980s – it probably has a billboard on it. There are a few steps you should take before closing in order to verify this income, especially if you are purchasing the property for its income, and the revenue from the sign is priced in: Review the existing lease and all amendments for the billboard. The details in addition to the rent is important – when the lease expires, is there an automatic renewal and who pays the expenses? Verify the existing license for the billboard with the city – this is a crucial point because there are many existing billboard without a license or an expired license. If there any issues with the license, the income on the property may be in question. Ask if any rent concession were given to the operator during the COVID-19 pandemic. Verify if there are any rent increases in the lease, and who is responsible for paying utilities or maintaining the sign. What are the Possible Fines for Violating the Billboard Ordinance in Los Angeles? Any sign or billboard that is unlicensed or not according to code could be subject to a violation and fines from the City of Los Angeles. In fact, if the sign on your property does not match the dimensions that are provided in the city license – it is considered illegal. The fines on non-conforming billboards and unlicensed signs are hefty. A 14×48 sign will carry a $10,000/day fine for the first offense, and $20,000 for the second offense. How Hiring an Attorney can Help you Negotiate a Better Extension on your Billboard Retaining a lawyer to negotiate an extension to an existing billboard lease is an excellent way to make sure you maximizing the leverage you have and protecting your investment. Due to the extremely long term nature of billboard leases, property owners often get to negotiate one or two times each lease in their lifetimes. By hiring Sinai Law, you get an experienced transactional real estate attorney to represent your interest. Our staff will review the existing lease, verify the license of the billboard with the operator of sign, get you updated historical traffic counts, and find you several rent comparable in your area. Negotiating a new lease with little leverage means you need to use any advantage presented […]

Commercial Real Estate

10 Tips for Commercial Lease Agreements

May 4, 2021 | By Avi Sinai | Read Time: 6 minutes

10 Things Every Landlord Needs to Know About Commercial Lease Agreements Commercial lease agreements between property owners and the tenants is the most important aspect that will dictate the dynamic between the parties. The vast majority of landlords and tenants focus on the term/rent, and resort to boilerplate leases provided by commercial brokers. But it is the other parts of the lease that often result in nasty disputes, like assignment clauses. We want to focus on 10 important items you should pay attention to when signing your next commercial tenant – and why an attorney can help you create more value getting you there. Brokers provide a valuable service to landlords, but it’s always important to have an impartial lawyer review the lease terms. Sinai Law Almost all Disputes can be Avoided with a Strong Lease (almost) Almost 100% of clients who come to us after a dispute started with their tenant did not have a lawyer review the lease before they signed it. The leases are often prepared by the listing broker and negotiated by the parties. In most cases it works out – but standard leases don’t always have the personalized touch that your property needs. This dynamic creates an incentive to ‘close the deal’ and ignore potential pitfalls that could hurt you in the future. We believe a strong commercial lease agreement can do much more than collect rent: Provide protection against unnecessary lawsuits and disputes Increase the value of your property Reduce disputes between tenants Reduce your overhead and expenses Preventative clauses can reduce your legal fees 1. Controlling for Assignments and Sublets Most long term commercial leases do not reach the expiration date, and this is where the language in your contract matters. Most commercial leases prohibit assignments and sublets with out authorization from the landlord. While this is standard practice, every landlord will face requests to terminate early or request to sell a business to a new operator. A good assignment clause can help you improve your leverage in a potential dispute with the leaving tenant (and the new one as well) – not just grounds for eviction. For example, we protect our clients in tying lease incentives to assignments. If rent incentives are given to tenants (like Tenant Improvements) over the term of the lease, we terminate them once an assignment is signed. 2. Beware of corporate leases provided by national tenants Most accredited national tenants (like a large pharmacy or fast food chain) will want to use their own lease forms to standardize their operations as a condition to sign. The major issue with that – they are written to protect the tenant only. Always have an attorney review a lease form provided by the tenant. Always! To name one example, a client came to us after his national tenant stopped a pending sale during escrow after threatening to exercise an option to purchase the property. Unfortunately the owner did not even know the option exited – it was buried deep in the bottom of the lease he signed 7 years ago. The sale never happened and he lost out on a great buyer. 3. Insurance Insurance is the lifeblood of all liability lawsuits. If you own property, someone will at some point will get injured and their lawyer will name everyone in a lawsuit – the tenant and the property owner. Nothing in the lease can prevent this from happening. Instead, we help property owners make sure there is enough of the right coverage in place, by the tenant and the owner, to protect against these kinds of pitfalls. Certain insurances can also help you recover lost rent and property damage. 4. Reporting and Financials Adding another task to your yearly checklist might seem like a hassle, but the financial success of your tenants is a major key to your success as a property owner. Successful tenants renew leases, expand operations, and pay rent on time. With this data you can reward successful tenants and phase out struggling ones. More importantly, this data can make or break a negotiation when it comes time to extend the lease. A tenant with 10% increase in sales year-over-year is much less likely to leave. You can also gauge if the tenant can absorb yearly rent increases. 5. Triple Net/Modified Gross Management Most commercial leases, especially in strip malls, have some kind of reimbursement of cost in the form of NNN lease. This means tenants pay the landlord’s property taxes, insurance, and common area maintenance in proportional share. A good lease will make sure the collection/reporting of NNN expenses work for the landlord’s system. Things to consider: Is your new lease agreement consistent with NNN reporting like other tenants? If all tenants get yearly reports, new lease should be the same. Does the tenant has the right to contest the costs? What does the process look like to do so? Does the lease have property tax protection in case of a tax reassessment? These are just some of the issues that can come up. The devil is in the details when it comes to NNN reporting and collection. 6. ADA Compliance The American Disabilities Act, or ADA, has sprung a whole industry of lawyers who file sham lawsuits to enforce ADA rules, even if the violation is a few inches off. Under the ADA, attorney’s fees can be collected, which could make these lawsuits very lucrative (for the lawyer, that is). If you own a retail center or office building – it is just a matter of time before you will be used by one of these lawyers. You won’t be able to prevent ADA lawsuits in California. But you can minimize them! With a proper lease, make sure to include ADA compliance to the tenants as well, along with an indemnification provision. 7. Signage Compliance laws behind signs in almost any city is quite complicated. Cities like Los Angeles have extensive regulation and permit process on which size is allowed on windows, how much […]

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