Real Estate Law

New Santa Monica Tenant Laws 2024

There are new Santa Monica tenant laws coming early 2024. City council voted and approved the new changes January 23, 2024, and they are expected to take effect early March. The changes are set to impact tenant relocation awards, cash for keys, anti-harassment laws, and evictions. Here are some of the changes coming in 2024: Changes to Santa Monica Cash-for-Keys Agreements The scope of cash for keys regulation will expand in 2024. The current law only applies to cash for keys agreement for rent controlled units. Starting 2024, tenants under the just cause ordinance will also be protected by these laws. The city also set minimum buyout amounts for everyone. How are cash for keys agreements currently regulated in Santa Monica The municipal code regulates buyout agreements in several ways. Here are some of the things landlords have to do in order for the agreement to enforceable: You can read more about the requirements in Santa Monica in our previous post about cash for keys agreements. 2024 changes to cash for keys contracts New cash for keys rules expand their scope and set new minimums: Restrictions on evictions for unauthorized alterations This change will not take effect March 2024, but will be on the November 2024 ballot. We expect it to pass by voters. Currently landlords can evict tenants when they perform unauthorized or unpermitted work on the unit. For example, if a tenant removes a wall or self install a skylight, the landlord has the right to evict the tenant for breach of the lease. The city council wants to restrict this power, if not completely eliminate it. Under the new rules, tenant will have new affirmative defenses in an unlawful detainer action: Landlords will still be able to collect damages in a civil lawsuit against the tenant for non-permitted alterations. Rent thresholds for evictions Also voted on in November 2024 ballot are ‘economical thresholds’ for evictions, just like City of Los Angeles passed in 2023 in the Just Cause changes. This means that evictions in Santa Monica for non-payment of rent can’t be for a small amount of rent due and unpaid. The amount will be equal to 150% of median rent in LA County for the number of bedrooms. The proposed amounts: Studio 1BR 2BR 3BR 4BR $2,666 $3,006 $3,816 $4,895 $5,400 Proposed minimum rent due before eviction for non-payment of rent This means that if a tenant is paying $1,500 per month for a rent controlled 3 bedroom apartment, the landlord will have to wait 4 months until they can file an eviction if the tenant stops paying rent. If this change will appear on the ballot we see a high likelihood this will pass. Stronger anti-harassment laws Santa Monica already has a very strong anti-harassment laws in the city charter. It allows tenants to collect up to $10,000 per violation against the landlord. It also has a statutory attorney’s fees and punitive damages, in addition to criminal penalties. All of the following will be considered harassment under the new rules: The new anti-harassment laws will increase the maximum monetary penalty for each violation to $20,000. Expansion of relocation assistance laws Currently Santa Monica tenants in rent controlled (or under the just cause ordinance) units received relocation assistance to landlords when they are evicted for no-fault. This occurs when the landlord decides to take the unit off the rental market, or in an owner move-in to the unit. New rules will add five new ‘events’ that will trigger relocation assistance to tenants: The current statutory relocation assistance amounts: Rent increase restrictions The new rules regarding rent increases are aimed to assist tenants who face substantial rent increases since they are not covered by rent control. The new rules will provide an affirmative defense to a tenant who is facing an eviction for non-payment of rent after a substantial rent increase. If the tenant can show a ‘bad faith’ and ‘substantial’ rent increase above market rate, with the intent to influence the tenant to vacate – the tenant will not be evicted. Evidence of bad faith rent increase can be any of the following: This will impact all residential units, including single family homes and condos. Updated housing discrimination laws Landlords will no longer be able to reject a tenant due to their ‘housing status’. That includes being homeless, living in temporary hosing, a voucher program, transitional housing, temporary housing, or shelters. That also includes ‘gaps in housing history’. There is nothing to suggest that housing providers would not be able to ask for housing history or current address. Rather, the reason for rejecting an applicant cannot be for that reason.

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Real Estate Law

Using an Eviction Notice Template is a Bad Idea

Los Angeles evictions are hard, expensive, and take longer than they should. To save cost and time some landlords use online templates for eviction notices. Here we are going to explain why this may be a very bad (and expensive) idea. Landlords should never use online eviction templates since they might cost your case. Why are eviction notices important? Proper service of the eviction notice is the first step of any unlawful detainer lawsuit. There are strict rules when it comes to these notices. They have contain specific language to be enforceable. If the notice is defective the defendant can force the court to dismiss your eviction. Eviction notices in California are strictly interpreted by courts. This means that even a small mistake can cost you the case. The purpose of the eviction notice is to give the tenant an opportunity to avoid an eviction by either paying rent or moving out. If the notice is confusing, does not provide clear instructions, or has errors – it will not be enforceable. Is the eviction notice template you found online legally compliant? If you want to evict a tenant, you must first prepare and serve a valid eviction notice. So if you are using an eviction notice template you found online, it must be legally compliant. Here are some questions to ask yourself before using a random template you found online: What happens when the eviction notice is defective? You will likely lose your unlawful detainer case with a defective notice. Even if the tenant is not represented by a lawyer you might still lose. The Court can make its own motion to dismiss your case based on a defect. Plaintiffs cannot amend the eviction notice after filing the unlawful detainer. That means that if you used an online eviction notice template and it’s defective: What is the Difference Between an Eviction Notice and a Notice to Pay or Quit? A notice to pay or quit is one type of eviction notice. There are many types of eviction notices and they can be used for different situations. To terminate a end after a lease expires, a landlord might use a 60-day notice to terminate. A 3-day notice to pay or quit is the property eviction notice in cases when the tenant did not pay rent. Here are some examples of eviction notices: In this article we use “eviction notice” and notices to quit interchangeably. General Requirements of an eviction notice in California California Civil Code 1161 lists the following requirement for a valid eviction notice. If your notice to quit does not have the following it is defective: Requirements for a valid 3-day notice to pay or quit Requirements for a valid 3-day notice to perform or quit Requirements for a valid 3-day notice to quit – Nuisance or illegal sublet It’s important to note that the above is a partial list of requirements. For example, a 3-day notice to pay or quit can only include rent owed from the past 12 months. Always consult with a lawyer before serving a 3-day notice. There are other types of eviction notices with different notice requirements. Understanding the Unique Nature of Evictions in Los Angeles Los Angeles has rent control and specific eviction regulations. These local ordinances can impact the eviction process. An online eviction notice template is not always tailored for local rules. For example, eviction notices in Los Angeles must include number of bedrooms. Failure to include the correct number of bedroom will render your notice defective. Rent Control adds adds layer of complexity to notices to quit If you are a landlord in LA County, there is a good chance that your property is under rent control. Cities with rent control have special requirements to serve and prepare notices to quit. Failure to include those special requirements and follow the rules can make your notice defective. A defective notice will lose your eviction case. Examples of eviction notice errors that will kill your eviction case We see a lot of errors when landlords use eviction notice templates found online. Here are a few examples: The Role of Legal Advice in Eviction Processes Eviction lawyers bring invaluable knowledge and experience to the unlawful detainer process. This not only reduces the risk of legal issues but also provides peace of mind to the landlord. Time is the most valuable commodity in an eviction. Eliminating errors in the eviction notice is the key to ensure a fast eviction. Reducing the chances of a mistake by using a lawyer is the cheapest and fastest way to evict a tenant in Los Angeles. Hiring an eviction lawyer can help you save money and time The biggest currency in evictions is time required to regain possession of the unit. The faster the landlord gets possession, the faster the unit can be re-rented. Engaging legal counsel can save landlords time and money in the long run. Professionals handle the eviction process efficiently, reducing the likelihood of costly legal battles and lost rental income. Book your consultation today – Sinai Law Sinai Law Firm is a full service eviction law firm serving all of Los Angeles County. If you need to prepare and serve a 3-day notice to quit, notice to perform, or any type of eviction notice – you can book a consultation today. FAQs About Eviction Notices in Los Angeles

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Real Estate Law

Never Accept Rent During an Eviction

It is tempting to accept rent during an eviction. An eviction usually means the end of the landlord-tenant relationship. It might be the last chance to get any payment from the tenant. In this post we discuss why this might be a very bad idea. Frequently Asked Questions on Accepting Rent During an Eviction: Accepting Rent During an Eviction can be a Waiver Landlords that accept rent during an eviction will most likely lose the case. The tenant can argue that payment and acceptance of rent is a waiver of the eviction. A waiver is when a landlord knows of a breach and accepts rent anyway. With knowledge of the breach, the landlords waives the right to enforce the agreement. Why does the law treat acceptance of rent as a waiver of rights? To evict the tenant the landlord has to declare forfeiture in the eviction notice. Collecting rent after declaring termination of the lease are two competing ideas. A landlord a judgment for damages at the conclusion of the eviction. Rent acceptance before a judgment will bring a waiver defense (most of the time). Accepting Rent – Eviction for Non-Payment of Rent Accepting rent during an eviction for non-payment of rent will most likely result in a waiver. An eviction notice has to precede an unlawful detainer action to be successful in court. In evictions for non-payment of rent, the eviction notice is usually called ‘3-day notice to pay or quit’. The eviction notice has strict compliance laws that landlords must follow. CA Civil Code 1161(2) governs eviction notices for non payment. Local rent control rules might also apply special rules for the termination notice. To be valid, a notice to pay or quit must state the exact rent owed by the tenant. Accepting rent from the tenant changes the amount owed to the landlord. Which them means the notice is now defective. Accepting Rent – Eviction Not Based on Non-Payment of Rent Accepting rent during an eviction for reasons other than non-payment of rent the risk is still waiver but for different reasons. Difference lies in a subtle distinction in the definition of damages in trial to the landlord in California Civil Code 1174. In evictions based on breach of the lease the landlord can get a judgment for ‘damages’ but not for ‘rent’. (see Saberi v. Bakhtiari, 169 Cal.App.3d 509 (1985)). Damages in an unlawful detainer are the reasonable daily rental value for the unit. In trial, defense can present evidence the market rate is lower than the actual rent in the lease. What is a Waiver in a Civil Action? Waiver is an affirmative defense in a civil action. It is an intentional relinquishment of a right, by express agreement, or implied by action. To prove waiver the tenant has to prove 2 things in trial: Accepting Rent Before the Eviction Notice Could Also be a Waiver If you find out a tenant violated the agreement, you must take steps to enforce the lease immediately. For example – tenant agrees to pay utilities per a signed lease agreement. Despite what’s in the lease, tenant never pays utilities and the landlord is aware of it. The landlord continues to accept rent from the tenant. The landlord does not send a notice to the tenant to pay utilities. This is an example of a waiver by the landlord. The waiver in the above example will apply to the part of the contract to pay utilities. The landlord won’t be able to evict the tenant for failure to pay utilities due to waiver of that right. The landlord was aware of the breach by the tenant but continued to accept the rent,. To avoid waiver, a landlord should take the following steps immediately after a breach: Anti-Waiver Clauses An anti-waiver provision in a lease agreement is a simple way to avoid a waiver defense in trial. A lease with this wrinkle in it means the parties agree that acceptance of rent is not a waiver of any rights. In other words, acceptance of rent by the landlord is not a waiver by way of contract. Anti-waiver clauses are not a bulletproof defense. It’s possible for landlords to waive the anti-waiver provision. Even if your lease has an anti-waiver clause, don’t accept rent from the tenant during an eviction. What Will Happen to Your Eviction Case if you Accept Rent? (or after notice but before filing) Accepting rent can result in any (or all) of the following: Using Electronic Payments to Accept Rent It is common today for landlords to use electronic payments to collect rent. It’s easier to track and easier for tenants to pay compared to checks. When it comes to evictions landlords should take extra care with electronic payments. To avoid a waiver it is important to block electronic payments from the tenant. It is important to track electronic payments from a defendant tenant. If you receive any payments during an eviction, it is important to refund the money quickly. Accepting partial rent during an eviction Residential landlords should always reject partial rent payments after a notice to evict. Accepting partial rent after a notice to pay or quit will nullify it. Accepting rent after a notice to cure risks a waiver defense. Accepting partial rents in commercial evictions is not a waiver. Per California Civil Code 1161.1(c), landlords can accept partial rent and still evict the tenant. Before accepting any rent from a tenant, commercial landlords should consult a lawyer. Accepting Rent after 3-day Notice but Before an Eviction It is important to understand the impact of rent acceptance in different time of the eviction process. Generally speaking the eviction process is as follows: Acceptance of rent has different consequences in each part of the process Should Landlords Ever Accept Rent From a Defaulting Tenant? Before considering an unlawful detainer every landlord should ask herself: "What is my goal?" The decision to accept rent should based on the goal stated above. If the goal is possession […]

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Real Estate Law

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

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.

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Real Estate Law

New Protections for LA Tenants – January 20th 2023

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.

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Real Estate Law

California Law on Breaking Leases Early

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.

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Real Estate Law

How Home Buyers Lose their Earnest Money Deposit

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 […]

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Real Estate Law

Are Non-Refundable Deposits Legal?

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. […]

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Real Estate Law

7 Tips for Investors for NNN Single Tenant Properties

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.

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Real Estate Law

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

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 […]

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