Real Estate Joint Venture Tips

recent New York Times article described the increased presence of New York developers in the South Florida condominium market. The fact is that Miami real estate market has always been a seductive one for out of state developers, and the upside in the development opportunities in the South Florida real estate market simply continues to proliferate. Best of all, more interest in South Florida means more opportunities for local developers to partner with or enter into joint ventures with those venturing into this market.

As South Florida developers look to partner with real estate firms and investors to develop projects in South Florida, South Florida developers should pay particular attention to the removal provisions of the joint venture agreements or management agreements entered into with these firms and investors.  Typically, the removal of the developer should be limited to “cause,” such as  the developer committing some kind of “bad act” or materially breaching an agreement. Developers should be cautious about agreeing to any “performance standards” or similar removal triggers, which can allow a developer to be removed from the deal through no fault of its own. In connection with a breach of the agreement, developers should negotiate materiality standards and notice and cure rights. In addition, developers should negotiate the right to cure any default caused by any employee by firing that employee and having the opportunity to cure any damage caused by the employee.

Finally, the developer should make sure to have its removal conditioned on the developer being released from any guarantees related to the project or, if the release cannot be obtained, being indemnified from a credit-worthy affiliate of the joint venture partner for such guarantees. The developer should not continue to be on the hook for the project guarantees after the developer is no longer involved with the management of the project.

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“Is this the airport, Clark?”: Home Owner's Associations and Holiday Decorations

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Your guests have arrived and you’ve just spent that last ten hours Griswolding your home and now you and your company are standing in the front yard ready to bask in the warm glow of a million tiny lights, when your neighbor strolls over and says, “I wouldn’t do that. The homeowner’s association won’t allow it. Oh, and you can’t park there.” What? But you nearly died placing those reindeer on the roof! And where are all these people supposed to park??

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Beloved by some, and loathed by others, homeowners associations or HOAs seem to be misunderstood and ubiquitous these days. If you live in a community subject to a homeowners association or are thinking of moving into one that does, it’s a good idea to get a lay of the land before you make your move…or try to clamber up on the roof with those reindeer.

Some things to think about are:

  1. Have you read a copy of the rules and restrictions?

  2. Does the homeowners association require advance notice or written approval for certain activities?

  3. Are there parking restrictions that could lead to trouble for you or your guests?

  4. Are there any limitations about the type of signage or decorations you may display in your yard? Must signs or decorations be approved by the HOA in advance?

  5. Are there any provisions prohibiting special activities in or around your home (i.e., no burning the yule log out back)?

  6. Are you subject to possible fines for non-compliance?

By understanding in advance what sort of things may and may not be allowed, homeowners or potential homeowners can reduce the possibility of misunderstandings and disputes that can arise from some of the activities we are often accustomed to doing without a thought. You can’t always control whether you live next to the Chesters, or the Griswolds for that matter, but you can at least understand your rights.

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Wisconsin – Don’t Forget to Take the Real Estate Developer’s Rights as Collateral

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The long real estate recession is over, and thank goodness for that. New developments are sprouting up everywhere in response to pent-up demand. There are even condominium developments beginning or long-stalled condominium developments resuming, and it’s time for a reminder about taking collateral in these unique projects.

A condominium is purely a creature of statute. Chapter 703 of the Wisconsin Statutes, the Wisconsin Condominium Act, defines what rights are created when a developer, called a “Declarant,” records a condominium declaration which contains the magic language, “I hereby submit this land to the condominium form of ownership.

As soon as that declaration, and its accompanying condominium plat, are recorded in the Register of Deed’s Office in the county where the land is located, they create condominium units, which are legally existing separate boxes of air, whether anything is physically built or not. Everything inside the boundaries of the land submitted to the declaration is either a unit, or a common element. Each unit can be separately owned and mortgaged, carries a separate real estate tax bill, and is capable of being assessed a lien for that unit’s share of the expenses of owning, maintaining, and insuring the common elements.

Under the Condominium Act, the Declarant can write into the Declaration, special rights reserved only to the Declarant, and to those the Declarant authorizes to specifically receive those rights, including the Declarant’s lender. These rights are very important, and taking a security interest in those rights can make a significant financial difference to a lender, should the lender need to foreclose those rights, or put them into a receivership. Those rights can include:

  • the right to expand the condominium into more land reserved as the “Expansion Land;”

  • the right to create more units in the condominium;

  • the right to avoid paying a full association assessment for each of the units, as long as it pays the associations’ costs above what other unit owners pay under the association budget;

  • the right to reconfigure the boundaries between units by combining units and separating units;

  • the right to control the condominium association until a sufficient number of the units in the condominium have been sold to unrelated third parties;

  • in some limited circumstances, the power to unilaterally amend the declaration; and

  • the right to declare easements over the common elements of the condominium.

The correct way for a lender to take a security interest in these Declarant rights is to take a collateral assignment of declarant’s rights, in a manner similar to an assignment of rents, which gives an immediate grant to the lender of these rights, with a limited license back to the Declarant to exercise these rights, as long as the Declarant is not in default.

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Good News for Grove Isle Condo Owners – Miami

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Grove Isle condo owners, who have been in the middle of a battle over a proposed 18-story condo tower which will replace the low-rise Grove Isle Hotel & Spa, received some good news when the Third DCA overturned the dismissal of Grove Isle Association’s 2009 lawsuit against the owners and former and present managers of Grove Isle’s Club.

condoIn that lawsuit, the Association brought claims for injunctive and declaratory relief, unjust enrichment, and breach of contract, claiming, among other things, that the enjoyment of the Club’s amenities (a restaurant and lounge, private banquet room, health spa, swimming pool and tennis courts) was limited to private members of Fair Isle, and seeking an order prohibiting the defendants from allowing unauthorized members of the public to use the Club’s amenities.  The Association also maintained that it was unfair and unreasonable to require the condo owners to bear all the costs of maintenance, management and operation of Fair Isle’s facilities, amenities and common areas (including the bridge that spans Biscayne Bay and connects Miami with Grove Isle’s private island resort), even though these areas are also used by other Fair Isle guests.  Therefore, the Association sought to recover the value of its maintenance, management and operation payments over the years.

In overturning the trial court’s decision, the Third DCA held that the lawsuit was improperly dismissed based on a statute of limitations defense, where the trial court could not determine from the four-corners of the complaint the date in which the alleged causes of action accrued. Specifically, the Third DCA found that it could not affirmatively be determined from the face of the complaint when allegedly unauthorized members of the public began using the Club’s amenities or whether the payment of assessments dating back to 1979 related to the use of the Club’s amenities by certain unauthorized members of the public.  However, the Third DCA stated that the statute of limitations would bar plaintiff’s claims if the claims accrued before July 2004.

The Third DCA also emphasized the general policy of allowing a plaintiff leave to amend the complaint at least once, in an attempt to state a cause of action, unless it is clear that a plaintiff cannot in good faith allege a set of circumstances sufficient to state a cause of action, and found that the trial court’s dismissal of the Association’s first complaint with prejudice was an abuse of discretion.

Now that the Association may move forward with its lawsuit, it is unclear what the Association’s course of action will be.  What is clear, however, is the interesting situation that the Grove Isle owners are now facing.  This lawsuit deals with the private versus public use of the Club’s facilities and the Association’s responsibility for the payment of total costs and expenses for maintaining, managing and operating the facilities and common areas.  Now with the proposal of replacing the hotel with a private condo tower, many of the condo owner’s concern should be ameliorated, as this proposal means that the private island would only be open to owners, renters and visitors, rather than members of the public who currently have access to the private island due to the amenities offered by the hotel and spa.

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