Saved Money by Having Your Accountant or CPA Draft Corporate Legal Documents?

You wouldn’t go to your dentist for your taxes or your doctor to paint your house, right?  So why allow your accountant or CPA to draft critically important legal documents for your business?

Recently a number of clients seeking my help to fix problems and solve disputes have uttered the statement, “well, my accountant drafted that document for me”.  When non-lawyers try to prepare important legal documents for business, the business owner cannot go back to the accountant or CPA to fix the disaster because they lack the competence to do so.  It is actually a third-degree felony in Florida to practice law without a license, not to mention the fact that it upsets real lawyers because those people can cause a great deal of harm.  So, for those accountants and CPAs thinking you are doing someone a favor preparing contracts, bylaws, shareholder agreements, operating agreements, and the like . . . beware.

Accountants and CPAs have special training and experience in financial matters and taxes, not in business law.  Business lawyers do that and Florida Bar Board Certified business litigators are the only recognized experts in the field.  Florida’s business laws change and update in response to an ever changing commerical landscape.  It is a full time job for lawyers to keep on top of these laws.  Accountants and CPAs plainly are not qualified to prepare important legal documents under these laws.  For example, as of January 1, 2015, we have new limited liability company laws in Florida that apply to all LLCs regardless of how old they are.  Would an accountant or CPA know what changed and why?

Setting up or forming a business in Florida is relatively easy on sunbiz.org.  But, determining which corporate entity offered under Florida law is most appropriate is something to discuss with a business lawyer.  You also discuss the tax implications with your accountant or CPA, but the analysis is different.  By the way, there is no such thing as an “S Corp” as a corporate entity.  That is a tax election as compared to a “C Corp” or other choices, like sole proprietor and partnership, as to how you are treated for tax purposes.

The recognized corporate entities under Florida law are: (i) a corporation, regulated by Chapter 607 and identified by “Inc.”, (ii) a limited liability company, formerly governed by Chapter 608 and now by Chapter 605 and identified appropriately by “LLC” after the name, and (iii) a partnership, which is regulated by Chapter 617 and can have several identifiers depending on what kind of partnership it is.  For reasons your accountant or CPA can’t explain to you, the LLC is now the most common form of corporate entity used in Florida.

Depending on the circumstances of each business, it might need or be best served by having certain documents that govern its operations and internal structures.  These are commonly called “corporate governance documents”.  A corporation has bylaws and shareholder agreements.  LLCs have operating agreements, and partnerships, of course, have partnership agreements.  There are certain laws that apply to each and some of these can be bent and some can be changed.  However, an accountant or CPA that doesn’t have a license to practice law in Florida is not the right person to prepare those, just as the young person in the fast food drive-thru window probably isn’t the right person to prepare your taxes or give you tax advice, right?!

So what about contracts, non-competes, non-disclosures, and other important and useful business documents?  Yes, when not serving time for the felony, your accountant or CPA is the perfect person to prepare those for you and they can also run 60 mph and lift heavy objects as if they were a pen! Folks, don’t ask your accountant or CPA to break the law and prepare these legal business documents.  Get a good and experienced business lawyer and ask that person.  Florida has laws that impact all of these documents and lawyers, not accountants, CPAs, or anyone else, are responsible for knowing those laws and preparing documents that properly use those laws and don’t violate them.

What Are Your Document and Data Preservation Obligations?

Our world is becoming increasingly digital.  Businesses are keeping more and more information in electronic format, which highlights the question of what must a business operating in Florida keep and what can it delete in the context of a civil lawsuit.

The simple answer of keep everything may not be practical or efficient.  Sure, storage media is cheap, but storing everything also means someone at a law firm has to look through it, which can translate in enormous electronic discovery costs in litigation; we’ll get to that in a minute.

Not long ago, Florida adopted procedural rules in civil cases (contract suits, car accidents, divorces, etc.) that were modeled largely on existing Federal Rules.  Our Florida Rules require that parties perserve relevant data when served with a lawsuit or receive reasonable notice to keep data, whichever is earlier.  So, for example, if your business isn’t suing or being sued, you can freely clean out your hard drive, but you might want to consult with counsel first or archive data just to be sure.  You can still delete data if you are involved in a suit, just not data relevant to that dispute.  If you do, bad things can happen called sanctions for spoliation of evidence.

So then, what’s the easy solution? Have a data management plan and preservation policy and follow it.  If you do, you are in the safe harbor of the Florida Rules.  What do you put in that Plan?  That’s something a Board Certified expert in business litigation with experience with electronic discovery should craft for you.

Now, what is electronic discovery you asked? It is the process of obtaining and processing relevant data by and between parties in a civil lawsuit.  More simply, it’s getting your e-mails and stuff in a lawsuit.  It takes the old process lawyers used of gathering all the documents and exchanging them in a case and brings it into the 21st Century.  It recognizes that businesses and people have a lot of data and it makes efficient use of technology to process that data.  But, someone still has to look through a certain amount of that data and that’s what increases your costs.

In e-discovery as it is called, there are two large costs; the software and the lawyers who use it.  The software cost depends on the vendor and there are about a thousand of them.  Some charge for upload of data and for use.  So, the more data you have to upload and store, the more expensive it is and that’s why storing everything isn’t always the best answer.  The attorneys’ fees naturally depend on the billing arrangement with the law firm, but at the end of the day, someone has to look through some part of that data.  So, the less data there is, the less time it takes, and the less it costs.  Getting the picture?

So, in sum, storing all data for a business isn’t necessarily the best solution as doing so may inadvertently cause future e-discovery expenses to balloon in any lawsuit.  In Florida’s State Courts, businesses now have a legal obligation to preserve electronic data when demanded (with limits) or when sued, whichever comes first.  The intelligent reaction for any business or business owner is to have a proper data management plan and preservation policy for the business in place now to reduce e-discovery costs and exposure to liability later.  For that, look to one of the 240 Board Certified business litigation experts in Florida who can guide you through this developing area of e-discovery.

I left my job and have a non-compete: What can I do and what can’t I do?

Under Florida law, non-compete agreements are considered restraints of trade and are strictly construed according to our Statutes.  Non-compete agreements must have consideration to support them and must be reasonable in their geographic scope and time limits.  Consideration for a non-compete can be the job, if entered into at the start of the job, otherwise they generally have to have some other consideration, like an increase in pay or a bonus.  Whether a non-compete is reasonable in its geographic and time scopes depends on the specific situation and what interests are to be protected.  When the Law Office of David Steinfeld drafts a non-compete for a business, for example, it will include factual explanations of the reasoning for these limitations to guide the Court and enhance the enforceability of the document.

So, if you have a non-compete and have left that job, it depends on the language in the agreement and the particular circumstances of the situation as to what you can and can not do.  For example, if there was a written employment agreement and the employer breached that, the non-compete tied to it may not be enforceable.  However, if there was no such agreement and the employee quit, then the non-compete may be enforceable as long as it has the requisite consideration and is reasonable in its limitiations.

Whether the limitations in a non-compete are reasonable is generally a factual determination for a Judge.  For that reason, the non-compete agreements that the Law Office of David Steinfeld prepares have the agreed facts embedded in the document.  Without that, the employer usually must provide separate evidence to prove the reasonableness unless it is specifically deemed reasonable by Statute.  Agreements that limit future employment for one year or less and generally automatically reasonable.  Those that are between one and two years after employment are usually enforced.  Agreements that go beyone two years after employment are subject to review by our Courts.  That is not to say an employer can’t have a five year non-compete, it is just that there has to be a legally valid reason to impose such a restriction on a former employee.

Non-compete agreements can also be temporarily suspended if they are violated.  A series of cases in Florida has determined that if a party subject to a valid non-compete breaches the agreement, the employer isn’t getting the full benefit of the limitations so while the breach is ongoing, the limitations can be suspended until the breach stops, which then restarts the limitation from that point.

What you can and can not do then depends on the agreement you signed and the particular circumstances.  Non-compete agreements may also be married with non-disclosure agreements that will also restrict use of specific knowledge gained during employment.  Non-disclosures are not subject to the same limitations as non-competes and are often much broader as they are designed to protect proprietary information of the business.

The best thing to do is consult with a Board Certified expert in business litigation or in labor and employment law before you, as the employee, undertake actions that may subject you to liability or before you, as the employer, hand a non-compete or non-disclosure to an employee to sign.  You can easily find such professionals through the Florida Bar’s website – flabar.org or through a local Bar Association, such as the Palm Beach County Bar- palmbeachbar.org.

As an employer, if you suspect that a former employee subject to either a non-compete or non-disclosure or both, is violating the agreement, the best initial action is to consult with a Board Certified expert in business litigation or in labor and employment law before you undertake any action.  You, as the employer, must understand your rights and comprehend how the legal process allows for enforcement of these agreements.  Also, as an employer, you are best served to have a Board Certified expert in business litigation draft these non-competes or non-disclosures for your business to know that they will be enforceable in your local courts when and if the time comes.

The worst feeling is preparing these documents on your own to save some money and finding out later that they are utterly unenforceable and that your former employee is now free to compete with your business armed with all the knowledge and experience your business has imparted to that individual.  Be smart, plan ahead, and consult with a Florida Bar Board Certified expert in business litigation.

What you need to know before starting a business in Florida

This article addresses some facts you should know before starting a business in Florida.  The author is a Florida-licensed attorney who is recognized by the Florida Bar as an expert in business litigation law, but this article is not meant to provide legal advice or to form an attorney-client relationship.  It is meant only to provide general information about this topic.  Each situation is different so it is best to consult with an attorney as to your particular circumstances.

Any person or existing business can incorporate and own a business in Florida.  Florida does not have residency restrictions on the owners, but there must be a registered agent in the State for service of process.  An agent for service of process accepts lawsuits and other legal documents.  There are various companies that will provide this service for a fee, but any such company hired should have clear methods by which they will quickly notify you as to when and whether any such documents are served.  Using the power of the internet, it should be relatively easy for such an enterprise to simply scan and e-mail such documents, therefore, it is prudent to inquire as to their notification methods.

From one perspective, starting or incorporating a business in Florida can be as much procedural as substantive.  The actual incorporation process, registration of any necessary occupation licenses, and leasing of physical offices or storefronts is a matter of filling out forms.  However, substantive actions like understanding and negotiating the terms of a commercial lease and drafting agreements between the owners, such as operating, partnership, or shareholder agreements, is where the enterprise will most benefit from the services of a qualified and experienced business attorney.

Although some documents used for the formation of businesses are available on-line through various services, those can be likened to the difference between clothing purchased off the rack versus those that are custom tailored for an individual.  While do-it-yourself or one-size-fits-all type documents may cover a broad range of situations, chances are they will not address all of the particular circumstances of an individual transaction and lack the advice, counsel, and explanations that experienced attorneys can provide.

On that point and to stress the importance of seeking qualified legal counsel before starting a business in Florida, the reader should know that in the summer of 2010, the Florida Supreme Court decided a case called Olmstead versus Federal Trade Commission, which confirmed that any member’s ownership interest in a limited liability company was property that could be seized by judgment execution.  In response, however, in July 2011, the Florida Legislature amended Florida’s LLC laws to clarify that only membership interests in single-member LLCs are subject to judgment execution.  The new Statute states that multi-member LLC interests are only subject to a charging order and can not be taken from the owner.  Whether and how this impacts your plan for your new business is not something that DIY documents can address; only an attorney can discuss and explain the impact and suggest modifications to your plan.

The significance of this recent change to Florida’s a Limited Liability Company Laws highlights the importance of obtaining advice from an experienced business attorney before incorporating a new business.  Whether it is better to set up your business as a company, partnership, or LLC and whether it should be a single-member or multi-member LLC is a matter specific to your circumstances and something to discuss with a business attorney.  Seeking and obtaining proper counsel and advice from a Florida-licensed attorney with experience and expertise in this area of the law early and throughout this process can increase your chances of avoiding problems later.

 

The Florida Bar recognizes those attorneys who are experts in business litigation with Board Certification in Business Litigation Law.  To attain such recognition, attorneys must try a certain number of jury and non-jury trials, pass a comprehensive examination, and receive satisfactory reviews from their peers and Judges before whom they have practiced.  A complete listing of Board Certified attorneys in Business Litigation Law and other areas is available on the Florida Bar’s website at www.flabar.org.

What you need to know about buying a business in Florida

This article addresses some of the more important issues you should know before investing in or buying a business in Florida.  While the author is a Florida-licensed attorney who is recognized by the Florida Bar as an expert in business litigation law, this article is not meant to provide legal advice or to form an attorney-client relationship.  It is meant only to provide general information about this topic.  Each situation is different so it is best to consult with an attorney as to your particular circumstances.

Any party contemplating investing in an existing Florida business or buying one should know that Florida law deems those who participate in business ventures to be sophisticated business people to a certain degree.  Therefore, is in incumbent upon that party to perform due diligence before closing on the transaction.  The level and amount of due diligence is highly specific to the transaction and to the degree that the investor or buyer believes appropriate and proper for the particular situation.

Such due diligence may include reviews of the internal financial operations and health of the business.  Such due diligence may also include, but is not limited to, investigations of the community in which the business operates and the demographics of its customer base.  Financial professionals, such as CPAs, along with business valuation experts and business brokers can provide assistance and guidance in determining the health of a business and the veracity of the seller’s representations in your due diligence.

Investing in a going concern may be seen as an alternative to traditional investments, such as the stock or real estate markets.  The investor should begin by requesting the opportunity to perform an examination of the corporate formation documents, as well as its books and records.  Florida law requires businesses to maintain certain books and records and these can illuminate the manner in which the business has been operated for the investor.

Where someone invests in a business, the investor will ultimately want to have his or her investment clearly documented in the corporate books and records.  Before making the decision to invest, however, it is prudent to seek the advice of attorneys that practice in the area of corporate and commercial law as to how best to structure and document the investment.  Consulting with such professionals will help the investor to understand the liabilities that the investor may potentially assume and how to craft the transaction in such a manner as to minimize or avoid such exposure if that is the investor’s goal.

With regard to buying an existing business, generally purchasers only buy some or all of the assets of a business to avoid any potential liabilities that may have attached to the business itself.  However, in some instances it may be beneficial to purchase the business entity, as well.  For example, it may be beneficial to include the business entity in the transaction where its years in existence have great weight in the community and the buyer will be able to build upon that aspect.  Also, the business entity may hold non-transferable licenses, rights, or other assets that will be of great importance and value in the future.  In either case, the importance of engaging experienced counsel and performing due diligence is similar to investing in a business and should not be overlooked.

While purchasers and investors both are entitled to rely on certain representations of the seller, Florida law has grown increasingly complex as to whether the reliance is justified and proper and to what degree it impacted or even obviated the investor’s obligation to verify the information.  Relying entirely on representations of the business without performing any independent verification may place the investor or buyer in a precarious position later and cause that party to incur substantial litigation expenses that it might otherwise have avoided.  Those who fail to conduct any pre-purchase investigation fall within the saying “those who fail to plan, plan to fail”.  Thus, the best initial approach after identifying either an investment or purchase opportunity is to engage the services of qualified experts to assist in the due diligence process and identify those representations on which the investor or buyer might want to focus.

As with most matters, one important action to undertake from the beginning of the transaction is to maintain clear records, particularly of any representations made by the seller to induce the investment or purchase.  What any investor or buyer should know is that Florida law distinguishes between certain representations that can be deemed opinions from those that are material and false or fraudulent.  In certain situations the buyer may not be able to uncover such deception through its due diligence as the true facts may be well disguised by the seller.  If it later becomes necessary to engage the seller in litigation over the representations, proper and thorough documentation from early in the process will greatly aid the buyer or investor in presenting a full and complete picture to the Judge or jury.  Experienced business attorneys can provide assistance and guidance on this documentation.

It is also equally important to clearly document the closing of the transaction.  By so doing, the parties can have a clear understanding of the scope of the transfer and make it easier to enforce their rights if need be, post-closing.  For example, closing on the purchase of business assets without properly defining them can cause confusion later and spark a dispute that was avoidable through clear documentation.  Seeking and obtaining proper counsel and advice from a Florida-licensed attorney with experience and expertise in business law early and throughout the process can increase the chances of having a trouble-free transaction.

The Florida Bar recognizes those attorneys who are experts in the business litigation field with Board Certification in Business Litigation Law.  To attain such recognition, attorneys must try a certain number of jury and non-jury trials, pass a comprehensive examination, and receive satisfactory reviews from their peers and Judges before whom they have practiced.  A complete listing of Board Certified attorneys in Business Litigation Law and other areas is available on the Florida Bar’s website at www.flabar.org

How do you create a real estate team?

If you are one of the 50,000 or so licensed real estate agents in Florida, then this article is for you.  A new and developing trend in the real estate business is the “Real Estate Team”.  But, because the Florida Real Estate Commission (FREC) Rules presently only provide for brokers to supervise agents below them, how do you ethically, legally, and properly create a “team” of real estate agents under the supervision of a primary agent?  Simple, you document the structure and relationship with proper legal agreements and contracts prepared by an experienced attorney.

If you are a real estate agent, the one thing you do not ever want to do is run afoul of FREC’s Rules and jeopardize your license.  However, market conditions and forces sometimes outpace those Rules as we are presently seeing.  A Real Estate Team or Real Estate Sales Team can be a powerful tool for both brokers and experienced agents and provide invaluable guidance and mentorship to less experienced real estate agents.  So, a Real Estate Team is certainly not a bad idea, but FREC’s Rules technically do not allow for an agent to supervise another agent as that privilege is reserved to licensed brokers.

The manner then in which one can legally and properly create a Real Estate Team is by two levels of agreements; the first with the agent who is or will be a member of the Team and the second with the broker who actually supervises the Team Leader as well as the Team Members.  Ordinarily, Team Members share their commissions with the agent who is the Team Leader and nothing inhibits splitting or sharing commissions.  In fact, commission splits are well established in the real estate field and are most commonly seen where both the buyer and the seller have separate agents, each taking half of the 6% commission that is the norm.

The agreement with the broker should be a three-party agreement involving both the Team Leader and the Team Member.  It should document the commission split arrangement between those parties and, depending on the situation, may also incorporate the agreement between the Team Leader and the Team Member or provisions of that contract.

The agreement between the Team Leader and the Team Member should not only document the commission arrangement, but should also define the relationship and the role of each party.  It may also include provisions like non-compete and non-disclosure arrangements between the two agents to better protect the integrity of the Team.

Real estate agents understand that all real estate transactions in Florida must be in writing to be enforceable.  Therefore, they also recognize the value of properly prepared legal contracts to document their Team relationship, protect their business, and benefit all the parties involved.  Drafting these documents requires the skill and expertise of an experienced attorney.  Improperly drafted documents may be deemed unenforceable, thereby unwinding the entire operation and creating far more problems than they solve.  For example, under Florida law, non-compete agreements are strictly interpreted according to our Restraint of Trade Statute; knowing the components and limits of those is the charge and expertise of an attorney.

Thus, in sum, creating a Real Estate Team or Real Estate Sales Team can be very beneficial for agents and brokers, but it takes a skilled attorney to properly craft those documents necessary to create and structure the relationship between the parties.  The Law Office of David Steinfeld has experience creating Real Estate Teams for agents and can assist and guide you in that regard.  For any licensed real estate agent, your license, your reputation, and your skill in developing and securing new listings and business is the lifeblood of your professional business.  Don’t leave that to chance or expose it to risk; contact the Law Office of David Steinfeld before you create your Team or hire agents to properly structure the arrangement from the start.

 

About the Author

Florida Bar Board Certified business litigation expert, David Steinfeld, Esq. is the founder of the Law Office of David Steinfeld in Palm Beach Gardens – ThePalmBeachBusinessLawyer.com.  He holds the highest ratings of AV-Preeminent by Martindale-Hubbell and 10.0-Superb by AVVO.  He was named one of Florida’s Legal Elite for 2012, 2013 and 2015, highlighted as “One to Watch” for 2014 by Attorney-at-Law Magazine, and recognized as one of the top business lawyers in Florida for 2013, 2014, 2015, and 2016 by The Legal Network.  He has also been selected for inclusion in the list of Florida Super Lawyers for 2014, 2015, and 2016.

Mr. Steinfeld is the incoming Chair of the Florida Bar Board Certification Committee for business litigation and is the past Chair of the Palm Beach County Bar’s Business Litigation CLE Committee.  He was also appointed by the Florida Supreme Court to its Committee on Business and Contract Jury Instructions and is a member of the Association of Certified E-Discovery Specialists.  He is an invited Fellow in the Litigation Counsel of America and a full Professor of Law at Dankook University Law School in South, Korea.  Informative videos and articles are available for free at ThePalmBeachBusinessLawyer.com.

The Law Office of David Steinfeld –

E-mail: info@davidsteinfeld.com

Tel: (561) 316-7905.

What you need to know before buying a foreclosed home in Florida.

This article highlights some facts you should know before buying a foreclosed property in Florida.  The author is a Florida-licensed attorney who is recognized by the Florida Bar as an expert in business litigation law, which includes real estate litigation.  However, this article is not meant to provide legal advice or to form an attorney-client relationship.  It is meant only to provide general information about this topic.  Each situation is different so it is best to consult with an attorney as to your particular circumstances.

The caution of caveat emptor or buyer beware does not apply to residential real estate purchases in the Sunshine State.  Florida law places an affirmative duty upon sellers to disclose to a buyer known, material defects that are otherwise unobservable.  This is significant in that as a consequence buyers may rely on a seller’s material representations about a home.  However, whether a particular representation is material to a transaction as Florida’s Courts define and interpret that term depends upon the particular circumstances of each transaction.

With regard to foreclosures, however, the disclosure obligations imposed on residential property sellers by Florida law are not the same as owner-occupied properties.  Unlike those situations, Florida’s Courts will likely not hold parties to the same standards where they sell foreclosed property that they never occupied.  That is not to say that foreclosed properties are somehow riskier or less advantageous.  Conversely, there are some tremendous deals that can be made in this area, but buyers of these properties must recognize that they should perform due diligence on the foreclosed home to understand exactly the condition of the property they are buying.

As recently as the end of November 2011, a Florida Appellate Court in a case entitled Jensen versus Bailey clarified that a seller can only be held liable for failing to disclose material defects of which the seller is actually and not constructively aware.  This means that buyers of foreclosed property should recognize that sellers of property who obtained it by way of foreclosure and who never occupied the property are likely to assert their lack of actual knowledge as a defense.  Thus, a buyer of a foreclosed home is smart to perform an independent due diligence survey of the physical property and structure if they wish to uncover defects that may exist in the property prior to closing on the purchase.

The process of a foreclosure is essentially the cleansing of the title to real estate.  The legal effect of such a lawsuit is to foreclose the named and identified interests in the property that are subordinate to the foreclosing party.  The important concept on which to focus is “named and identified”.  Only those parties named in a foreclosure lawsuit are foreclosed.

If a party with a proper and valid lien, such as a roofer or drywall company, is not named in a foreclosure suit, that lien is not foreclosed and continues against the property.  While that lien can potentially be foreclosed later, the process becomes somewhat more complicated by issues such as whether the superior mortgage lien was extinguished thereby elevating the junior lien to a position of priority.  Naturally, these situations should be avoided before closing, which highlights the benefits of working with competent real estate attorneys, trustworthy and licensed brokers, and obtaining and verifying title searches and reports before closing.

Recent on-line reports show that the purchase of foreclosed homes in many Florida counties has dropped, as has the rate of foreclosures in Florida.  Both of these statistics have been attributed to perceptions that past foreclosures were not performed properly by the lenders, which may result in latent defects or a new round of foreclosures.  Therefore, purchasers interested in foreclosed properties are wise to employ the skills of a licensed real estate attorney who can thoroughly examine the title and uncover any potential defects in the past foreclosure.  Buyers are also equally well served to hire a real estate broker to guide them in the purchase and recommend other competent professionals, such as a home inspector, to assist them in performing due diligence investigations of the physical property.

What you need to know before buying a home in Florida.

This article highlights some facts you should know before buying an existing home in Florida.  The author is a Florida-licensed attorney who is recognized by the Florida Bar as an expert in business litigation law, which includes real estate litigation.  However, this article is not meant to provide legal advice or to form an attorney-client relationship.  It is meant only to provide general information about this topic.  Each situation is different so it is best to consult with an attorney as to your particular circumstances.

By way of background, Florida’s property laws are derived from English common law.  Therefore, the basic manner in which Florida law deals with property ownership, as well as the methods by which that ownership is documented and recorded should not be all that foreign to out-of-state residents or non-US residents, such as Canadians, for example, who are familiar with English common law.

It is important to know that in the 1985 landmark decision of Johnson versus Davis, the Florida Supreme Court decided that the concept of caveat emptor or buyer beware does not apply to residential real estate purchases in Florida.  Form that time, Florida law placed an affirmative duty upon sellers to disclose to a buyer known, material defects that are otherwise unobservable.  This is significant in that as a consequence buyers have the right to rely on a seller’s material representations about a home.  However, whether a particular representation is material to a transaction as Florida’s Courts define and interpret that term depends upon the particular circumstances of each transaction.

Generally, in residential real estate transactions in Florida, particularly where licensed brokers are involved, standard forms approved by the Florida Association of Realtors and the Florida Bar (appropriately called Far/Bar forms) contain provisions for these required material disclosures.  Importantly, buyers are not limited to the disclosures on these forms and can inquire of additional information they deem important to their decision to purchase the property.  However, while a buyer may have a legal right to rely on representations and disclosures to a certain degree, a prudent purchaser will review and question those representations he or she deems important and may even engage professionals, such as home inspectors, to verify the information.  One of the better methods to avoid having to pursue a seller post-sale is to proactively verify and validate significant disclosures pre-closing.

Occasionally, the question arises in these transactions as to whether sellers can avoid the disclosures imposed on them by Florida law by using “as-is” disclaimers.  The answer from Florida’s Courts is a resounding “no”.  A seller may not unilaterally obviate or limit its disclosure obligations imposed by Florida law.  However, whether a seller has an obligation to disclose a specific matter or whether it is material is particular to each transaction and must be examined in light of the circumstances of that purchase and sale.

Concerns also arise for buyers and sellers as to whether a seller must disclose material and unobservable defects that the seller either believed was remedied or that the seller hired third-parties to fix.  In those situations, Florida law is less clear as to the seller’s liability and the circumstances of each particular situation control.  Likewise, because a seller is only obligated to disclose material defects of which it is actually aware, a buyer must recognize that it will have to prove the seller’s knowledge of a material defect if the buyer pursues the seller for damages post-closing.  If the defect is truly unobservable, then that may not be an easy proposition.  Therefore, a better approach is to apply the practice of trust, but verify.

With regard to title issues, when purchasers finance a transaction through a commercial lender those institutions generally require a pre-closing title report and title insurance for their own protection.  This is done generally to verify and ensure that the lender’s mortgage will be in a position of priority.  Oftentimes, conditions of a loan will even require the satisfaction of all existing liens at closing to preserve the lender’s priority.

For the buyer financing the purchase, this process usually occurs behind the scenes and the average buyer is generally unconcerned with this aspect of the transaction, turning their attention more to the physical inspection of the property.  However, even in cash transactions, the buyer should be aware that it can and probably should either require the seller to provide or independently obtain a review of the title as part of the buyer’s due diligence.

The Florida Bar recognizes the experience and expertise of attorneys that practice in the areas of real estate, construction, and civil/business litigation with Board Certification in those areas.  You can obtain a list of Board Certified attorneys from the Florida Bar at www.flabar.org. You can also contact the local voluntary Bar for the County in which the property is located for a referral.

What you need to know before buying commercial real estate in Florida.

This article addresses some salient facts you should know before buying commercial property in Florida.  The author is a Florida-licensed attorney who is recognized by the Florida Bar as an expert in business litigation law, which includes commercial real estate litigation.  This article is not meant to provide legal advice or to form an attorney-client relationship; it is meant only to provide general information about this topic.  As you read on, it is important to recognize that each situation is factually distinct, thus the best recommendation is to consult with a qualified Florida-licensed attorney in the preliminary stages of any contemplated transaction.

The most striking contrast between commercial and residential real estate transactions in Florida is that the landmark 1985 Florida Supreme Court decision of Johnson versus Davis does not apply to commercial real estate transactions.  In other words, the concept of caveat emptor or buyer beware is alive and well in non-residential real estate transactions in Florida.  This is so because purchasers of commercial property are deemed and looked upon as sophisticated investors, capable of and knowledgeable about performing substantial due diligence.

The legal burdens placed on commercial property buyers to compile information they deem relevant and important and the rising cost of litigation in these transactions highlight the importance of substantial and thorough pre-closing due diligence.  Part of this due diligence should be the thorough documentation of the transaction.  Maintaining proper and complete documentation of communications and information provided by the seller and to third-parties can alleviate confusion in the transaction and potentially reduce the discovery necessary in subsequent litigation to reduce some of the costs and expenses associated therewith.

In residential transactions much of the post-closing litigation focuses on the failure of a seller to disclose material, unobservable defects that were actually known to the seller.  In commercial transactions, however, litigation can address a broader range of representations upon which the buyer relied as well as performance failures in the transaction.  These performance failures may include contractual obligations and title issues, as well as the extent, operation, and impact of contractual waiver provisions.

There are also many concerns that arise in non-residential transactions that may not arise in residential deals, such a environmental impacts, property taxes, community impact fees, and development planning.  These concerns require the assistance and skills of qualified professionals.  For example, while the buyer of a home or his inspector may be capable of spotting most defects during a simple walk-thru investigation, a different degree of expertise and experience is required to perform proper and thorough evaluations of the physical and non-physical issues concerning commercial property.

There are a great number of experienced and qualified professionals in Florida that offer these services for commercial property transactions.  Knowing what services are appropriate to a particular transaction and to whom to turn is where the skills of a real estate attorney with experience in commercial transactions is particularly helpful.  Employing these professionals to perform required pre-closing due diligence is one method of attempting to avoid post-closing litigation and can be beneficial even in the negotiations for the transaction.

The Florida Bar distinguishes those attorneys that have demonstrated their experience and expertise in the areas of real estate, construction, and commercial/business litigation with the recognition of Board Certification.  You can obtain a list of Board Certified attorneys from the Florida Bar at www.flabar.org.  You can also contact the local voluntary Bar for the County in which the property is located for a referral.

Can I get out of my commercial lease?

A question recently posed to me about a commercial leasehold was:

My business signed a lease for office space three years ago, which expires on Dec. 30 [Space 1].  Two years ago, we took over the adjacent space, but never signed a lease [Space 2].  We now need to move our office to another location.  Is there any way we can get out of this lease?

My response is:

Please Note: This article is not meant to provide legal advice or to form an attorney-client relationship; it is meant only to provide general information about this topic.  Each situation is factually distinct, therefore, it is best to consult with your attorney as to your particular circumstances.

Commercial leaseholds, written and oral, are controlled by Part I of Florida’s Landlord-Tenant Act, Chapter 83, Florida Statutes.  With regard to Space 1 for which you have a written and executed lease, that lease expires by its own terms on December 30.  If you have already paid December’s rent and have not given notice of intent to renew the lease under the terms allowing for that, then you can continue to occupy the premises until midnight December 30.  If you’d like to vacate sooner, you can approach the landlord and ask if the landlord will agree to a pro-rated refund of the December rent, e.g. if you move out on December 15, the landlord gives you half of the rent back.  If the landlord will not refund any of the December rent, you can still vacate at any time prior to December 30, but may have to use the court system to obtain a refund and would only be entitled to such refund if the landlord assumes possession and control of the premises for its own use and benefit.  The recovery of fees incurred in such a lawsuit may recoverable if you prevail and the lease so provides.  Costs are recoverable to the prevailing party under Florida’s Landlord-Tenant Act.

As to Space 2 for which you have no written lease and that you presently occupy, Florida law deems you a month-to-month tenant in that premises.  Because you have already paid the December monthly rent, you can continue to occupy that premises until December 31.  As with Space 1, if you indicate your desire to vacate now, the landlord may be willing to voluntarily refund part of the rent you have paid for this premises, however, only if the landlord assumes possession and control of the premises for its own use and benefit before the end of the term would you be entitled to a partial refund.  You may have to use the court system to obtain that refund and unlike the situation with Space 1, you would not automatically be entitled to recover attorneys’ fees incurred in such litigation under Florida’s Landlord-Tenant Act, but can still recover the costs if you prevail.

To be fair to the landlord, you should deliver a written notice stating that you intend to vacate both premises on or before December 30.  You should properly indicate that you are providing the notice as a courtesy to afford the landlord a full and fair opportunity to prepare to re-let both premises.

You may also include in your written notice that you are a month-to-month tenant on Space 2, that your written lease for Space 1 expires on December 30, and that you have no intention of renewing that written lease or extending your month-to-month tenancy.  You can request a pro-rate refund of the December rent if you move out sooner than December 30, and ask that the landlord contact you if the landlord is willing to agree to such an arrangement.

As an aside, if you cannot vacate by December 30 and will require additional time before you can move out, you can continue to occupy both premises and will simply become a month-to-month tenant at Space 1 from January 1.  However, even if the landlord accepts your January rent, be aware that the landlord can terminate that month-to-month tenancy and demand that you return the premises by the end of January.  However, such notice must be given to you in the first half of the month, must comply with Florida’s Landlord-Tenant Act, and must give you until the end of the month to move out.

Thus, the landlord can terminate your tenancy on Space 2 on or before December 15 and require that you vacate on December 31, but can’t terminate your tenancy on Space 1 in the same fashion because of the written lease.  However, in the interest of avoiding an unnecessary conflict, you are best served to deliver a written statement expressing your desires and intentions on December 16, indicating that you will either vacate by December 30 or that you need to stay until some point in January and would like to pay a pro-rata portion of the January rent if the landlord will agree to such an arrangement.  If you serve that notice after December 15, then the landlord may not terminate your tenancy on Space 2 in response because the time within which to do so under Florida’s Landlord-Tenant Act will have passed.  Naturally, however, come January 1, you must pay the January rent in the same amount you have been paying or the landlord will have the right to initiate an eviction proceeding against you in County Court.

As an aside, Florida’s Landlord-Tenant Act and case law interpreting those provisions, provide for a shortened response time to an eviction of five days from the date of service and mandate that the tenant pay rent into the Registry of the Court.  Failure to pay the amount of rent alleged in the lawsuit into the Registry within that period or to pay some amount in connection with an appropriate motion to determine the amount due will entitle the landlord to a default judgment for eviction and a writ of possession commanding the Sheriff to place the landlord into possession of the premises.  This is separate and apart from a claim for unpaid rent, which still adheres to the regular twenty-day response time under Florida’s Rules of Civil Procedure.

In conclusion, the appropriate time to consult with counsel who regularly practices commercial litigation is before your business is served with an eviction so your attorney can gather all of the relevant facts, educate you on your options, and potentially negotiate an amicable resolution to the situation or develop a response plan to any eviction action that the landlord may file.  Board Certified Business Litigation attorneys are recognized by the Florida Bar as experts in this area of the law.

In order to become Board Certified, these attorneys have established their experience through a required volume of cases, jury, and non-jury trials, have passed a rigorous and thorough examination in commercial litigation law, and have been reviewed and approved by Judges and attorneys that opposed them in trials and in the community.  You can obtain a complete listing of Board Certified Business Litigation attorneys by city from the Florida Bar’s website at http://www.flabar.org.

David Steinfeld, Esq.

Florida Bar Board Certified Business Litigation Lawyer

Martindale-Hubbell AV-Preeminent (Highest) Peer Review Rated

Contact me at:             dave@davidsteinfeld.com

 

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