Newsletter February 2011
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Legal Eagles
In this month’s Commercial Spotlight Newsletter, we feature three highly respected commercial real estate attorneys in the Madison, WI area. We ask them for key advice as it relates to real estate law. Please find their expert opinions below!
Angie Black, Michael Best and Friedrich, LLP
Rick Schmidt, Boardman, Suhr, Curry and Field, LLP
Nathan Wautier, Reinhart Boerner Van Deuren S.C.
Angie Black
Michael, Best, and Friedrich LLP
e: ablack@michaelbest.com
p: (608) 283-2264
1.) What is the most important piece of advice that you provide your clients?
Folks engaging in commercial real estate transactions should be careful to ensure their transaction documents match the intentions and expectations of the parties. All too often I get a call from client after they’ve signed an offer to purchase wanting to pursue contingencies that aren’t in the contract or thinking that they are selling a property AS IS, without making representations and warranties, when they actually have made them. Sometimes people want to cut costs by not bringing in an attorney to negotiate an offer, particularly since most people rely on the pre-printed WB forms in this market. However, the WB forms don’t always cover what buyers need them to in terms of contingencies and protections, and they also impose obligations on sellers that sellers aren’t necessarily legally obligated to undertake. It takes a lot less time (and money) to address these matters on the front end of a transaction by making sure the contract documents reflect the party’s intentions and protect their interests than trying to clean it up after a binding contract has been signed.
One perfect example I often run into relates to disclosures made in transactions where the parties believe they are entering into an AS IS transaction. Generally, any disclosure made by a seller is considered a representation to the buyer as to the truth of the matter disclosed, and can be actionable after closing if it turns out to be untrue. Thus, disclosures change the dynamic of a transaction and make it not truly AS IS. The WB form commercial offer to purchase includes a provision requiring the seller to provide a real estate condition report. Once this condition report is given, and if lines 52-56 are not stricken from the form offer, the seller has now made representations to the buyer and the transaction is no longer AS IS. It’s a common misconception that sellers of commercial real estate are required to provide a real estate condition report. Chapter 709 of the Wisconsin Statutes obligates owners of residential property to provide a real estate condition report. There is no similar statutory provision applicable to commercial sellers. This misconception may arise because the administrative rules in RL Chapter 24 require real estate brokers and salespersons to make an inspection of any property with which they are involved and to disclose any defects that they are aware of. And, a listing broker also has a duty to make an inquiry of the seller of the property regarding any defects. These obligations are imposed on brokers only, not sellers or owners– so there is no legal requirement that a seller of commercial real estate actually make any disclosures or even respond to a broker’s inquiries regarding the condition of the property. That’s not to say disclosures aren’t appropriate in many commercial transactions if bargained for as part of the overall transaction. But, if the deal is intended to be on AS IS terms and the purchase price reflects that, sellers ought not be making disclosures which can significantly change their risk exposure and, thus, change the overall business terms of the deal.
The moral of the story is, take a little time to put together the documents for a commercial transaction and make sure they actually reflect the intentions and expectations of the parties. Again, it’s much less expensive to pay a competent attorney on the front end of a deal to make sure it’s papered properly than to pay them to clean it up later on.
2.) From your perspective, what is the single most important thing business owners should focus on from a legal standpoint?
Make sure to shop around for an attorney that’s a good fit with you and your business, one that you feel provides value for the amount of money you’re paying in fees. Attorneys are just like any other service provider, look around and find one you “click” with and that comes with recommendations from folks you know that have engaged them in similar types of work.
Rick Schmidt
Boardman, Suhr, Curry & Field LLP
e: rschmidt@boardmanlawfirm.com
p: (608) 257-9521
1.) What new laws have recently been passed that you feel will have a big impact on commercial real estate?
Unfortunately, but not surprisingly, many of the more recent laws and court rulings arise out of the economic downturn that is hitting the real estate industry particularly hard. For example, lenders of larger condominium projects often now require as a condition of the loan that the borrower provide a legal opinion that the condominium documents comply with document requirements imposed by the secondary loan market (Fannie Mae, FHA and Freddie Mac). Likewise, Wisconsin courts have clarified that in a foreclosure action, a mortgage lender may enforce a personal guaranty even though the lender has opted to a shortened redemption period. (During the redemption period the mortgagor may retain the property by paying the entire amount due to the lender). Wisconsin courts have also clarified that in the purchase and sale of commercial property, a buyer who has sustained economic loss may recover against the seller only based on the purchase agreement (contract claim) and cannot assert claims based on negligence or other tort claims. This makes it more important than ever to make sure that a commercial purchase agreement contains appropriate representations and warranties that survive the closing of the sale.
In other developments, the legislature amended Wisconsin’s “Smart Growth” law so that for many governments January 1, 2012 is now the deadline by which zoning, subdivision and official mapping ordinances needed to be consistent with a local comprehensive plan. The legislature also expressly allows affidavits to now be used to make specifically listed types of corrections to previously-recorded documents. This was in response to a court decision that rejected use of such a “correction affidavit”. Locally, Madison should be ready to implement its revamped zoning code sometime during 2011.
Finally, many other recent laws have dealt with residential rather than commercial real estate. For example, carbon monoxide detectors are now required in many residences, and the existence of required shoreland mitigation, non-complying piers and enrollment in managed forest law and similar programs must all be disclosed under these new laws. To that end, remember that certain types of piers must be registered with DNR by April 1, 2011 to be grandfathered.
2.) What is the most important piece of advice that you provide your clients?
Get it in writing. Failure to do so should otherwise be thought of as the “lawyer’s right to full employment act.” Once the contract is drafted, parties should refer to it often. If an unanticipated situation arises, it’s better to formally amend the contract. Otherwise, the parties words and conduct may be deemed to amend the contract informally, often subjecting the parties to additional risk.
3.) From your perspective, what is the single most important thing business owners should focus on from a legal standpoint?
Preventing a problem is far more cost-effective than curing one. For example, in an agreement, it is often possible to shift or eliminate a particular risk. A purchase agreement may contain one or more contingencies, so that there is no obligation to purchase unless they are satisfied (eg., zoning, availability of liquor license, financing). Similarly, a warranty in connection with sale of personal property might be limited exclusively to repair or replacement for a specified period of time. Insurance is another essential risk shifting tool. These are all less costly than engaging an attorney to fight about whether you were obligated to purchase property, pay for lost profits or defend a personal injury claim by someone who fell on your premises. Oh, and don’t forget to get it in writing.
Nathan Wautier
Reinhart Boerner Van Deuren S.C.
e: nwautier@reinhartlaw.com
p: 608-229-2249
1.) What new laws have recently been passed that you feel will have a big impact on commercial real estate?
Compared with what 2011 is expected to provide, 2010 did not see significant legislative changes to laws regulating land-use and development. In 2011 the Walker Administration has begun a review of several laws impacting commercial real estate, including prevailing wage requirements, development moratoriums, farmland conversion fees, shoreland zoning and wetlands’ mitigation. 2011 will also provide significant changes on a more local level as the City of Madison progresses towards its adoption of a new zoning code and a long-range downtown development plan. I plan on following the state law changes closely and will be heavily involved with the Madison specific changes.
2.) What is the most important piece of advice that you provide your clients?
If you desire both happiness and success, surround yourself with smart people that you trust.
3.) From your perspective, what is the single most important thing business owners should focus on from a legal standpoint?
Risk management. Commercial real estate inherently involves some risk. Properly understanding this risk and being able to mitigate the risk in a manner that is both feasible and cost-effective is the key to long-term success. A trusted legal advisor should be a powerful tool in identifying and managing risk.
