© 2002 Philip Green Law Offices of Green & Green All Rights Reserved
Buying real property with others
is fraught with issues. Title to
real property must be thought through carefully. What happens when the group
dissolves and when that might occur, what triggering events for sale and how one
of the owners might sell his/her art of the property are issues that must be
dealt with in a written agreement. This
is a “must” because of California law called the “Statute of Frauds”
that requires a writing to enforce any agreement.
Civil Code Section 1624 (a) (6): “An agreement by a purchaser of
real property to pay an indebtedness secured by a mortgage or deed of trust upon
the property purchased, unless assumption of the indebtedness by the purchaser
is specifically provided for in the conveyance of the property.”
California Civil Code Section 1624 (a)
(4) states: “An agreement authorizing or employing an agent, broker, or any
other person to purchase or sell real estate, or to lease real estate for a
longer period than one year, or to procure, introduce, or find a purchaser or
seller of real estate or a lessee or lessor of real estate where the lease is
for a longer period than one year, for compensation or a commission.”
The usual form of group ownership is
either an L.L.C. or Corporation because these are separate legal entities that
can buy insurance, pool money for expenses and can be insulators for liability
such as accidents to tenants and workers. The
L.L.C. is formed by filing a form “L.L.C.-1”
with the California Secretary of State and paying a fee, with California
franchise minimum tax and the “L.L.C. fee” (for LLC s that make more than
$250,000 gross per year on a sliding up scale).
The L.L.C. also needs to have a written “Operating Agreement” that
details the partner’s shares, who is the manager, how the L.L.C. will do
business and voting and taxation rights.
The Corporation
is perhaps the better choice for a group ownership form of business because it
is more “standard” and may be easier for any lender to agree to fund.
Loans such as purchase mortgages, construction and improvement loans and
others are easier to get sometimes and with some lenders for the corporation
form.
Insurance will be required for the group
in any form to buy real property that must include hazard insurance, as well as
Workers Compensation and a separate Earthquake policy.
Workers Comp is a must since the group will hire workers to repair the
property.
It is important that the group at the
beginning of their relationship hire an attorney to analyze the various issues
that may present themselves: Form
of the business, how that parties will “live” together, how the accounts
will be separate from all personal accounts, and other business issues.
If the property is to be developed other
issues that need to be addressed up front and with the help of counsel include:
zoning, planning and building permits. Before
the property is considered for purchase a zoning analysis should be done.
The building may need to have an “earthquake retrofit” or it may not
be located in a district that permits the type of use being considered.
If the property is to be leased you should see the LEASING BASICS article. Aside from that discussion, do not forget that all landlords should thoroughly check tenants out before the lease is finally negotiated. Checks include, criminal and litigation record checks, credit checks, background checks and property title checks to see if the proposed tenant, be it a person or another company, is not only able to pay the bills but is honest, has no criminal record and has not sued landlords in the past.
There are many “Standard” lease forms out there but the publishers of a 1990s form may not be up to date with some of the new laws and cases. The form, before it is adopted should be reviewed for accuracy and completeness before it is ever used. Inconsistent leases can cause trouble if tenants compare notes. It is best to have an attorney drafted lease agreement but if a “form” lease is used be sure it is up to date.
Note that oral lease are a good as the paper they are NOT written on: California Civil Code Section 1624 says that: “An agreement for the leasing for a longer period than one year, or for the sale of real property, or of an interest therein; such an agreement, if made by an agent of the party sought to be charged, is invalid, unless the authority of the agent is in writing, subscribed by the party sought to be charged.”