Contracts and Agreements in Real Estate
Real estate transactions involve various contracts and agreements that dictate how the buying and selling will be conducted. One of the most critical is the purchase agreement, which serves as the buyer’s offer on the property. The purchase agreement sets the price, payment method and timeframe for the transaction , as well as requirements for things like inspections.
A lease contract is the agreement used when property is rented out. This creates a landlord-tenant relationship that is guided by legal regulations established by the state. This means the oral agreements and handshake agreements of the past are no longer sufficient to establish a binding agreement between a landlord and tenant.
A listing agreement is an agreement between a real estate agent and a seller in which the seller gives the agent the right to represent him or her in the sale of the property and typically gives the agent the exclusive right to act in the sale of the property for a defined period of time. There are also buyer agency agreements, which do the same for a buyer. There are times when it may be advantageous to waive the services of a real estate agent and sell a home without representation.
Property Titles and Ownership Documentation
Titles to property are very important legal concepts under the law. To begin with, titles to real estate are not the same as titles to vehicles. Unlike titles that serve as evidence of ownership to a vehicle, a title serves to verify and establish the owner of a deed to a parcel of land. A title conveys ownership rights but does not constitute a description of the land in question. For example, if you own a piece of land that was acquired by your father and grandfather before you, the original title may have been kept in a safe deposit box, so that the document was not lost, deteriorated, or damaged by a natural disaster. If the property was passed down through the generations until your father gifted it to you when you were a minor, and you are now in your 40s, and your father recently died, there may not be any copies of the title to your property.
Making matters worse, there may have been a natural disaster, such as a fire, flood or hurricane in the region where the original title to the property was stored. While it may seem that losing the original title or deed to a property would have absolutely no impact on ownership, in American law, the possession of a deed is everything.
Since the deed serves no to identify the land, but only the owner, there is no reason to prove possession other than for the purpose of establishing ownership. Thus, if someone claims that he or she owns your property but does not have title to it, if that person has exclusive possession to the property, your true title to the property is meaningless. As opposed to the famous saying possession is 9/10ths of the law, possession of a title is 1/10th of the law.
To remedy the problems of missing or unconfirmed title, many people opt to get insurance policies, called title insurance because it covers losses arising out of or related to defects, liens, or encumbrances against real property, existing or created as of the date of the policy. Title insurance guarantees the owner and/or the lender (mortgagor) that a property is owned as required by the transaction. It also gives the purchaser of a property some peace of mind that the property is free of any encumbrances. And for the most part, title insurance companies do excellent due diligence work so that you can rest assured knowing that you are the sole owner of the property.
Laws of Zoning and Land Use
Understanding zoning laws is essential for any real estate owner, developer, or investor. These laws, often enacted at the municipal level, dictate how a property can be used and what types of structures can be built on it. Zoning laws affect everything from the size of your home structure or office building to the number of cars that can park on your property—and even the types of businesses that can operate there.
While the specifics of zoning regulations vary widely from one municipality to another, some common issues that are often regulated by zoning laws include:
Property boundaries
Building heights
Setback requirements
Height to bulk ratio
Land-use classification, i.e, for residential, commercial, retail, or green space
Oceanfront preservation or waterway setbacks
Number of garages or parking spaces
Pool set-backs from fence lines.
In addition to local zoning laws, broader land use regulations may apply. For example, the Federal Flood Control Act and its amendments control land use in Federal flood zones, while State Sewage Treatment Control Acts prohibit land-development in filth zones. There may also be other local, state, and federal land use laws such as those related to energy conservation, smoking, and billboard regulation that need to be considered.
Zoning regulations can significantly impact property values, especially if the zoning laws become more stringent. For example, if your property was previously zoned commercial and is now zoned agricultural, it will likely be worth less to a developer because they will have less flexibility in how the property can be used. This could significantly impact what you paid for the property. As such, it is critical to perform due diligence to understand any potential zoning changes or land use regulations that might impact the property.
Failure to comply with zoning regulations can result in the issuance of a ‘variance’, which can be a burden to acquire, as well as steep fines. A variance is an official permit that allows you to deviate from the standard zoning regulations. For example, if you have a small lot that cannot accommodate the number of parking spaces/garages required by zoning law, you may need to obtain a variance. However, Variances are often case specific, therefore, it is recommended to speak to an experienced zoning attorney before applying for a variance to ensure that you follow the correct process.
Because zoning regulations are most frequently enacted at the local level, municipalities tend to have more control over the process. That being said, the federal government has quite a large say in the process as well. For example, The Federal Fair Housing Act prohibits discrimination in housing-related transactions, so housing or any other kind of discrimination based on race, color, national origin, religion, sex, family status, or disability, is prohibited.
Resolving Disputes in the Real Property Sector
Real estate is a tangible, valuable asset that brings together families, creates memories, serves as a business investment, and can even provide multi-generational wealth. It is truly an asset that often needs to be valued, preserved, transferred, and sometimes sold or acquired. And when there are disagreements that need to be resolved, real estate law steps up to the plate by providing a range of options for dispute resolution.
Boundary Disputes:
Probably one of the most well-known real estate disputes results from a boundary dispute – what part of land belongs to whom and what parts are common property. A property line dispute can arise from unintentional actions of one property owner. For instance, a homeowner might plant a tree that grows into a neighboring property because the roots spread into the next lot. Sometimes, a permanent object is constructed, but parts of the object extend into a neighboring lot, such as a fence. Boundary disputes also arise because property owners do not know the line that divides their property from their neighbor’s. Neighbors might also have different interpretations of the language in their deed. Sometimes people might intentionally encroach on their neighbor’s property without consent.
Contract Breaches:
Real estate contracts can be very complicated and may include subjects such as financing and contingencies. Alleged failures to satisfy the requirements of a real estate contract are often the subject of a legal proceeding. If a party breaches a contract, there are several legal options available to recover from the breach. The injured party might be entitled to money damages or to an equitable remedy. For example, if the contract has not closed and the buyer has breached it, the seller can sue for money damages or for specific performance if the seller wants to convey the property pursuant to the contract. If the deal has closed, the seller can sue for money damages. If there is a breach by a seller, the buyer can sue for money damages or for rescission of the contract. Rescission is a remedy that would un-do the contract and return all the parties to the status quo position before the contract was entered into.
Mediation and Arbitration:
Mediation and arbitration are often used to resolve contract disputes. Mediation is an informal process by which a neutral third person (a mediator) assists the parties with a voluntary settlement of their dispute, together with the transfer of property, if applicable. Most mediation agreements will not result in an adjudicatory result; instead, the parties work together with the mediator to find a solution that works for everyone and preserves their relationships. Arbitration is a formal, adversarial process established by agreement. Sometimes contracts will require disputes to be resolved through binding and mandatory arbitration. Arbitration has all the characteristics of a trial – witnesses can be called in to declare testimony, experts can be brought in to testify, and the decision-makers apply the law to the evidence presented.
Litigation:
If the parties are unable to mediate or arbitrate their dispute, the case can be filed in court through a complaint. A lawsuit filed in a state or federal court, depending on the jurisdiction, is how disputes about real estate are resolved when mediation and arbitration fail. Once the lawsuit is filed and served, the case will move forward to discovery, and ultimately to a final outcome through a jury (if there is jury demand) or a judge (in a bench trial), through a motion filed by one of the parties, or through a settlement reached by the parties.
Disputes about real estate can be distressed and confusing. Top-notch attorneys specialize in real estate, and they are attuned to the best way to reach a resolution when displacing the parties is not an option. At The Nations Law Firm, the attorneys always look towards a resolution that accomplishes the goals of our clients and puts the parties on their way to moving forward, rather than being stuck in protracted litigation.
Real Estate Tax Regulations
The tax ramifications of real estate ownership reach every facet of real estate, so it is necessary for consumers and lawyers to consider taxation issues during every stage of the transaction. Although tax law is constantly changing, certain codes have been stable over the years. Like all businesses, the nature of real estate investing is such that certain tax advantages may be afforded to investors. Purchasing real estate for personal use or as a primary residence minimizes how much of these benefits can be utilized. Capital gains tax laws and property tax laws are two examples of how tax law affects real estate transactions and will be discussed in further detail below.
A capital gains tax is a federal tax imposed on individuals, corporations, and estates for the growth in value of capital assets when those assets are sold. In other words, when an asset such as real estate is sold at a higher price than it was purchased, the seller will be subject to a capital gains tax. The long-term capital gains tax rate is the same as the income tax rate that a person pays annually on his or her income . When a person sells a house after owning it for less than a year, a short-term capital gains tax will be imposed on the profit from the sale. The short-term capital gains tax rate is twice the person’s ordinary income tax rate, which is usually much higher than the long-term capital gains tax rate. However, there is no capital gains tax charged to the seller when the real estate is the seller’s primary residence. To qualify for the capital gains tax exemption, the owner/occupant of the home must meet the two year "ownership" and "use" rule and must also have received the capital gains exemption when selling another home within the past two years (once every two years). For capital gains tax purposes, "ownership" means the owner must hold title to the property and where the property is a rental house, the rental agreement must be in the owner’s name. "Use" of the property means the owner must live in the home as a primary residence more than half of the time over the two year period preceding the sale.
Environmental Laws Impacting Real Estate
Environmental regulations are a critical consideration in the buying, developing and leasing of properties. Contaminated land from hazardous materials, its use and disposal, and the potential hazards for surrounding communities have long been concerns in real estate transactions. The involvement of asbestos, medical wastes and leaking underground storage tanks have led to significant state and federal acts regulating their use and limiting the liability for their clean up. Two additional acts in the wake of Love Canal and three Mile Island have more recently opened the eyes of realtors, developers and property owners.
The Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), commonly known as Superfund, was enacted in 1980 to identify parties responsible for the contamination and removed them from the sites and then clean-up the sites. The act gives both federal and state governments the authority to oversee clean-up of contaminated sites, and establishes a trust fund for them to do so. Under CERCLA, those that were responsible for a hazardous substance spill are held liable for the damage and the clean-up.
In 1992, Congress amended CERCLA to enact the Superfund Amendments and Reauthorization Act (SARA) to permanently identify all responsible parties and provide them with defenses against liability. SARA also encourages "voluntary cooperation of potentially responsible parties" that might have caused contamination. In 1996, the Emergency Planning and Community Right-To-Know Act was included to expand identification of hazardous materials and to increase communication between the community and its local government, including developing emergency plans and response strategies. In addition to real estate, CERCLA is enforced in the areas of oil and gas, manufacturing, landfill operations, chemical manufacturing, and tribal lands.
The Resource Conservation and Recovery Act (RCRA) was established in 1976 to provide a tracking system for the treatment, storage and disposal of hazardous materials. RCRA authorizes the federal government to identify hazardous waste and regulate its handling and disposal and give state governments the legal authority to implement the Act. It has four additional programs that implement regulations for non-hazardous solid waste, underground and aboveground storage tanks, underground mining and oil and gas production waste.
The Clean Water Act (CWA) was enacted by Congress in 1972 and amended in 1978, 1987 and 1990 to "restore and maintain the integrity of the Nation’s waters by preventing point and nonpoint source pollution, providing assistance to publicly owned treatment works for the improvement of wastewater treatment, and maintaining the integrity of wetlands and estuaries." The United States Environmental Protection Agency (EPA), created in 1970, implements this act, which promotes water quality, extensive regulation of wetlands and enforcement provision to promote pollution prevention, including identification of responsible parties and corrective action.
Many local ordinances regarding land use limit the scope or quantity of environmental compliance on a property. Property owners and developers have far more responsibility today for environmental concerns than they did in the past. The amount a property owner may be required to pay for clean-up and liability of a transaction may be evaluated during the real estate transaction due diligence process, and may require assistance from counsel.
Landlord and Tenant Legalities
Landlord-tenant laws are a complex patchwork of federal, state and local statutes that govern virtually every facet of the landlord-tenant relationship. Some of the most common concerns that arise in landlord-tenant law include lease agreements, tenant rights, rent control, eviction and termination of leases, and security deposits.
Lease agreements should be in writing and executed by both the landlord and tenant. The failure to create a written agreement does not invalidate the lease, since lease agreements are enforceable as verbal agreements as well.
Typically, a lease agreement contains the amount of rent due, the time and manner in which rent is to be paid, the starting and ending date of the lease, the time and manner in which the lease can be terminated, the security deposit demanded by the landlord , nor damages or fees that may be charged to the lease. Occupancy limits (i.e. how many people can live in a unit) are typically due to local ordinances that persist regardless of lease agreements. Tenants should never be surprised by occupancy limits.
Rent control agreements are those wherein an entity such as a housing authority or rent control board will actually set the amount of rent to be charged by a landlord. This will depend on a variety of factors including local statutes, market demand, etc. Once again, this is governed by local statute, however a violation of the law will allow the tenant to terminate the lease at no penalty.
There are a variety of ways in which a lease can be terminated. Many leases include terms on year-to-year termination or termination for cause, although periodic leases are terminable with adequate notice. A lease can also be terminated for various reasons including a substantial breach of the lease by the tenant.
A landlord has a certain number of obligations to a tenant. These are largely imposed by local law, however some are imposed by the common law (case law set by courts in the state). These common law obligations dictate, for example, that the premises should be habitable.