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Rezoning, new tax credits, economic shifts hit real estate law

Wells FargoThe folowing was reposted from an article written by the staff of the Minneapolis / St. Paul Business Journal

We asked leaders of the biggest real-estate law practice groups to tell us about mistakes clients make, cases they’re interested in and how the practice is changing. Responses have been edited for length and clarity.

Thomas Bray, shareholder at No. 1 Briggs and Morgan

What are the most common mistakes clients make in real estate law?“The two most common mistakes I see are first, clients assuming their property is free of title concerns, and failing to identify and resolve potential title issues before undertaking to sell or mortgage the property. The second common mistake is clients failing to appreciate the costs and disputes that can arise from an unfavorable or poorly drafted lease, and devoting inadequate time and attention to lease review and negotiation.”

What real estate cases issues in Minnesota are you following right now?“The 2006 amendments to the eminent domain statute made it significantly more difficult for municipalities to work with developers on certain types of redevelopment projects. If the economy continues to strengthen, we will be curious to see if municipalities will attempt to persuade the Legislature to expand that authority of municipalities to use eminent domain for redevelopment. We are also closely following St. Paul’s development of the zoning ordinances that will govern redevelopment of the Ford plant.”

Christopher Dolan, real estate group chairman at No. 2 (tie) Fredrikson & Byron

What areas of real estate law are growing and which are contracting? “We have a significant number of health care clients who have been active for the past few years in developing, leasing and purchasing real estate projects. We also have a strong corporate department that has been very active in the merger/acquisition markets. These deals often include a substantial amount of real estate that have kept many of our real estate attorneys busy over the past few years. As for markets that have declined, foreclosures and work-out matters declined as the real estate market improved. While the level of development work is getting much stronger than in the past, we have not yet reached the levels we experienced before the Great Recession.”

Todd Urness, shareholder at No. 2 (tie) Winthrop & Weinstine

What areas of real estate law are growing and which are contracting? “ The recently enacted state historic tax credit provides additional assistance for the rehabilitation of historically significant buildings. We have noticed keen interest in clients using this subsidy to preserve historic structures, particularly in the North Loop and Minneapolis riverfront. Also, the demand for luxury rental housing construction has created a lot of demand for legal services in that area. Some areas of real estate finance and development, such as loan securitizations and condominium development, have not participated in the recovery, and demand for these types of legal services continues to be depressed.”

Mark Hamel, real estate and land use department head at No. 9 Dorsey & Whitney

What real estate cases in Minnesota are you following right now? “I rarely follow real estate cases. Real estate cases are the domain of trial lawyers. I try to steer my clients as far from litigation as possible. I read real estate decisions after they are handed down by the courts.”

Real Estate Law, Real Estate Lending, Residential Real Estate

New Minnesota Law to Shed Light on Contract for Deed

A new Minnesota law set to take effect August 1st will require additional notification be provided to buyers in contract for deed transactions. In a contract for deed, the seller, rather than a lending institution, finances the buyer’s purchase of the property. The buyer takes immediate possession of the property and agrees to pay the purchase price in monthly installments. The seller retains the legal title to the property until the last payment is made and the contract is fulfilled.

Under the law passed in May, sellers will be required to provide notice to buyers that suggests obtaining an appraisal and inspection prior to signing a contract for deed, and that outlines the potential drawbacks of such purchase arrangements. Failure to provide this notice could result in a penalty of up to $7,500 for the seller. The Minnesota legislators behind the new legislation were motivated in part by a Star Tribune report earlier this year that documented potential abuses of the contract for deed mechanism. Many of the more than 1,000 deals examined by the newspaper found features that would make default likely for many buyers, including high interest rates, large ballon payments, and negative amortization. In many instances, contract for deed purchases were completed with no home inspection, leaving buyers responsible for correcting major code violations or safety hazards that a typical inspection would have revealed.

A 2009 article from the Minneapolis Federal Reserve highlights some of the pros and cons of contract for deed. A benefit for both sellers and buyers is that they are much faster and less expensive to execute than traditional mortgages, with no origination fees or high closing costs. Because there is no lengthy mortgage approval process, contracts for deed are appealing to buyers who are on time constraints or who do not Continue Reading

Affordable Housing, Government Policy, Multifamily, Property Management, Real Estate Law, UST Real Estate in the News

Should Property Owners Be Required to Provide Air Conditioning to Tenants?

Steve Katkov, UST Real Estate Professor and business and real estate attorney at Thompson Hall, talks to Fox 9 about renter’s rights in the summer months. Should landlords be required to provide air conditioning to their tenants in the summer similar to the cold weather rule in the winter? Here is what Professor Katkov had to say:

Development, Government Policy, Industry News, Real Estate Law, Urban Planning

How Will Supreme Court Decision in Koontz Impact Land Use Policy?

In a decision that many believe will have broad implications for how land-use agencies obtain concessions from landowners who wish to develop their property, the U.S. Supreme Court last month sided with a Central Florida property owner who challenged the terms of a state-issued development permit for wetlands property he owned. The 5-4 decision in Koontz v. St. John’s River Water Management District overturned a Florida Supreme Court decision that found in favor of local regulators and against the landowner.

U.S. Supreme Court

In this case, Coy Koontz sought to develop a portion of 15 acres of property, which included some wetlands. He proposed to develop 4 acres of the property and offer the remaining 11 acres as a wetlands conservation area. The local Water Management District, however, refused to approve his project unless he made additional concessions. The St. John’s River Water Management District offered Koontz two options: either limit his development to 1 acre and devote the remaining 14 acres to wetlands preservation, or pay for off-site mitigation of 50 acres of wetlands elsewhere in the district. Koontz thought these conditions excessive, so he sued under a state law permitting him to seek damages. The Florida Supreme Court held that Koontz did not have a claim because existing court standards limiting local land use authority did not apply to the denial of permits or to monetary concessions.

Prior to the Koontz case, courts did not give heightened scrutiny to the denial of land use permits or the imposition of monetary concessions on developers by land use authorities. Heightened scrutiny had been limited only to “title exactions,” which are are a requirement that an easement or title to some of the property be dedicated to the public, such as a conservation easement to preserve a wetlands area. In Nollan v. California Coastal Commission, the Court established that title exactions must bear an “essential nexus” to the harm prevented, meaning land use authorities cannot require title exactions which are unrelated to the negative impacts created by a development. In Dolan v. City of Tigard, the Court found that exactions  imposed must be “roughly proportional” to the adverse impact of the project on the community. The Koontz decision extends those standards to include not just title exactions, but also permit denials and monetary exactions by land use authorities.

In writing the opinion for the majority, Justice Samuel Alito reasoned that Continue Reading