Kick Out Clauses in Residential Massachusetts Real Estate Transactions

In a white hot real estate market, Sellers of residential real estate on the Northshore of Massachusetts have adopted a new contractual provision to counter a Buyers’ request for an existing home sale contingency. Typically, a potential Buyer of a residential property that presently owns another property, will be required, for financial reasons, to sell their existing home in order to purchase the replacement home. The reason is simple: Most homeowners do not want to carry the mortgage, property insurance and taxes for two homes, and any mortgage lender will require that Buyer sell the existing home to satisfy loan underwriting requirements.

Therefore, Massachusetts homebuyers that are looking to upgrade or downsize their home, will likely request that a Seller of real estate agree to a prior sale contingency. In other words, if the Buyers fail to sell their existing residence prior to the closing date or some other date set by the parties, the Buyers then may terminate the transaction and receive a full refund of their deposit.

Sellers are now countering a home sale contingency by inserting their own contingency clause in a purchase and sale agreement. A “kick out” clause will permit a Seller to continue to market the property for sale to other prospective purchasers while the property. If the Sellers receive an offer for an amount equal to or that exceeds the existing and agreed to purchase price (and no prior sale contingency), the Sellers will then have the right to demand that the Buyers waive the home sale contingency, otherwise, the Sellers may terminate the transaction. In this instance, the kick out clause will provide the Sellers an escape hatch if they are able to find Buyer for the property that are willing to pay a greater price and waive any home sale contingencies. This is not a desirable position for any homebuyer since the Buyer will not only lose the right to purchase the property, they will likely have to start the home buying search again and may lose their interest rate lock set by the lender.

If you are presently negotiating a purchase and sale agreement it is important that you retain experienced legal counsel that is skilled at limiting the scope and applicability of kick out clauses. Northshore Legal LLC has seen many poorly drafted kick out clauses that impose strict limitations on Buyers and provide the Sellers with expansive rights. These kick out clauses often appear in counter offers from the Sellers to the Buyers on Standard Offer to Purchase Real Estate forms, and are often drafted by real estate agents that have little experience in such clauses. If you received a counter offer that contains a kick out clause and require assistance with your real estate transaction, please contact one of our attorneys at Northshore Legal at 781-463-6063.

What are my options if a Lis Pendens is Wrongfully Filed Against my Property?

A Lis Pendens, also known as , is a legal notice approved by a Massachusetts judge that is recorded at the Registry of Deeds to which the related property is situated. This legal notice provides record notice that there is a legal action pending against the real estate at issue and/or named in the lawsuit. A Lis Pendens may only be allowed if the applicant makes a claim of a right to title to real property or the use and occupation thereof.  The Lis Pendens differs from a real estate attachment in that the Lis Pendens relates to title or occupation of real property and an attachment is a remedy to secure assets to satisfy a potential judgment or prohibit transfer or concealment of property that could satisify a judgment. 

The effect of the Lis Pendens is to "cloud" that title to the property, or otherwise, create a defect in title that will discourage any potential purchasers or transferees from accepting title to the property.  It can also interfere with and prevent a property owned from obtaining a loan whereby the property is being used as collateral for the loan (mortgage). In almost all instances, no purchaser of real estate or lender will complete a transaction and accept title with a legally valid Lis Pendens recorded against the property.  In other words, the title will need to be cleared and the Lis Pendens released before a property owned can warrant clear title to any prospective purchaser or mortgagee (lender). 

The pertinent Massachusetts statute that governs the use and application of a lis pendens is Mass.Gen. Laws ch. 184 s. 15.  The Statute sets the procedure and requirements for obtaining a Notice of Lis Pendens. In order to obtain a Lis Pendens, an applicant must file a verified complaint; identify the real estate and property owners; and describe a claim that relates to title or occupation of the real property.  

What are your options if a Lis Pendens is Wrongfully Filed Against your personal or business property?

In the instance of a Notice of Lis Pendens that was inadvertently filed against a property, a qualified real estate attorney can help you clear title.  There are some cases where the property address or recording information was misidentified by the lis pendens application; an old title abstract was relied on; or there was some other type of clerical error either in drafting or recording the notice.  In these cases, the applicant will release the notice voluntarily.  

In other instances, an applicant who has deliberately an/or has in bad faith filed a notice of Lis Pendens against a property is subject to civil liability. A respondent to a Lis Pendens may file a special motion to dismiss on the basis that it is frivolous. "The special motion to dismiss shall be granted if the court finds that the action or claim is frivolous because (1) it is devoid of any reasonable factual support; or (2) it is devoid of any arguable basis in law; or (3) the action or claim is subject to dismissal based on a valid legal defense such as the statute of frauds." M.G.L. ch. 184, s. 15(c).  If the Court grants the special motion to dismiss, it will dissolve the Lis Pendens and may award legal fees and expenses (including recording fees) associated with the dissolution of the notice.  Legal fees may be awarded for any discovery (including document requests, interrogatories or depositions) related to the dissolution of the notice.  

If you have questions about a Lis Pendens or one was recorded against your property, contact one of our Lynnfield Real Estate and Litigation lawyers for a free consultation.   

Rent, Expenses and Term – Fundamental Components of Commercial Leases

          When entering into a new commercial lease, it is essential that you engage a commercial lease attorney to assist you in reviewing and negotiating the important terms.  This blog article will highlight the most fundamental lease component base rent, expenses that are often passed on to the tenant, and the term of the lease. 

          The most common factor in evaluating the cost of a commercial lease in Massachusetts is the base rent, which is most commonly assessed base on square footage of the rental property.  One should also pay attention to any adjustments in rent per annum.  Once a business owner determines an acceptable rent amount, he/she should consider the rent adjustments and additional expenses that will be associated with renting the space.

          The most common type of commercial lease is the triple net (NNN) lease that will shift the financial burden of property taxes, insurance and common area maintenance (CAMS) and/or operating costs to the commercial tenant. However, triple net leases can also contain additional provisions that expand the scope of tenant financial liability on the leases.  In some cases, commercial landlords may shift the entire burden of property maintenance, repairs, upgrades, and upkeep on the commercial tenant.  This means that the tenant will be responsible for cleaning, snow removal, landscaping, repairs to mechanical systems, and other common every day repairs.  Here, liability may fall on the tenant for the entire building and land, or just a portion thereof, or solely the interior of the property.  In many instances of shared commercial space, commercial landlords will charge the tenant operating costs or CAMS, and maintenance and repairs will be included in the lease.  In this case the tenant will pay its pro rata share of the common expenses, and will not have to bear the entire burden of such expenses.      

           When entering into a new commercial lease, one of the most important features to consider (other than the price) is the term of the commercial lease. In this case, it is important that you consult a Boston area commercial lease attorney to help you with the various issues and considerations that can arise when evaluating a lease term.  In many cases, commercial landlords will offer better rent terms with a longer term of tenancy.  However, this is not a general rule, and a business owner should consider their medium and long term goals for growth prior to committing to a location.  Commercial leases are excessively difficult to avoid for tenants in Massachusetts without significant financial penalty or litigation, so it is best to determine whether the needs and plans for the business align with the term of the proposed tenancy. Additionally, a prospective tenant should conduct significant due diligence prior to entering into a long term lease, including a inspections of the physical condition of the building, assessment of traffic and parking, review of local bylaws, regulations and permit/license requirements, and a review of the surrounding area for its character, propensity for crime, ongoing development, and other features of the area.

            If you are a business owners in Eastern Massachusetts who requires assistance from a commercial real estate attorney that is experienced in drafting, reviewing, negotiation and consulting with clients on commercial leases, you may contact the Law Office of Stefan Cencarik for your leasing needs.  Our commercial lease attorneys are able to help guide you through this process and we can leverage our network of professionals to assist you in evaluating your next business location.

Commercial Leasing for New Businesses

When considering a new commercial lease for your business, it is essential that you assemble the right team to assist you with assessing the value of the location and contract, negotiating and reviewing the lease terms, and assessing other important features of the building and location.  In addition to using the services of a commercial real estate broker and/or commercial leasing specialist, it is crucial that you engage a commercial lease attorney.  An attorney that is experienced in drafting, reviewing and negotiating the different material terms and clauses in a commercial lease can help ensure that you sleep better at night after signing a long term contract for new office or facility.

A commercial lease is a legally enforceable contact that will span a considerable amount of time, such as five years, and will becoming a significant part of your operating budget.  A commercial lease is unlike a residential lease in Massachusetts as the residential tenant protections do not apply in this area.  In this regard, commercial leases are regarded strictly as a business transaction and the commercial landlord is providing a significant amount of authority and rights over the commercial tenant.  There are many clauses concerning default, destruction of the property, base rent adjustments, maintenance expenses, and others that can shift financial and legal responsibility from the landlord to the tenant.  These clauses become traps for the unwary and the involvement of a commercial lease attorney can help you avoid these trap and put your business on the path to success. 

The Law Office of Stefan Cencarik, PLLC and its commercial lease attorneys (commercial real estate lawyers) are adept at drafting, reviewing, negotiating and consulting with clients on commercial leases.  We can also leverage an experienced trusted professional network so as to recommend the right consultant and brokers to help you find, select, and evaluate your next commercial lease property. 

Selling Real Estate Without a Broker - Considerations and Pitfalls

With the real estate market in Eastern Massachusetts favoring sellers of real estate, we have noticed a trend and tendency of some sellers to list their property for sale by owner and avoid the use of real estate brokers all together.  The simplest explanation for this decision is cost.  Many sellers realize that they can avoid a 2.00 - 2.5% commission to a listing broker if they consummate a sale without assistance.  But what is the true "cost" and what are the disadvantages of not using a listing broker for a real estate sale? 

Statutory, Regulatory and Common Law Compliance - Real estate brokers know exactly the types of Massachusetts statutes and regulations that must be satisfied during each transaction. Real estate brokers are also trained on the various types of common law issues, such as misrepresentation or breach of contract, that can arise during a transaction. And they have been trained on how to avoid those types of common law liability. If you are not using a real estate professional, and unless you are an attorney or real estate professional yourself, you will not be able to satisfy and comply with the numerous laws and regulations associated with real estate transactions in Massachusetts. And in that instance, you are exposing yourself to liability.  

Market Valuation - What is your property worth and what purchase price can you reasonably expect to receive?  Finding the right listing price is crucial. Brokers have the skills and resources to help advise you on the realistic value of your property, and a listing price that will attract several ready, able and willing buyers.  It is common for homeowners to over estimate the value of their homes based on their own personal attachment and knowledge of the property. A broker can provide you with a neutral and experienced third party opinion on the value of your real estate.  If you list your property too low, then you are not maximizing the sale price. If you list your property too high, then you will scare off buyers, particularly the ones who are taking out a mortgage and are responsible for a 20% down payment.  In this instance, the value of a broker should not be underestimated. 

All the "little things" - Who is going to collect signatures and deposits for the purchase and sale agreement? Who will make the mandatory disclosures and obtain the required certificates for closing? Who will coordinate inspections, viewings, and walkthroughs?  Who will serve as tour buffer and advocate if your transaction enters troubled waters? Who will greet potential buyers and handle inquires at open houses? Do you have an expansive and established network in the area that you are selling your home that you can market to? This list is limited, and can very extensive, and all the "little things" that a real estate broker will do for you to ensure that you close on-time are invaluable. 

The above list is not an exhaustive description of all the benefits of real estate brokers in transactions. From a legal observational standpoint, we have noticed a trend that real estate brokers provide tremendous value in each transaction and help smooth the process until closing. If you are preparing to sell your home, and would like to consult with a real estate lawyer, please contact us at 781-463-6063.  

Concerns for the First Time Home Buyer

With the short supply of turn key "starter" two and three bedroom homes for sale in Eastern Massachusetts, first time home buyers are now faced with new pressure to quickly make an offer and get under contract as soon as possible.  It is understood that a first time buyer is eager to end the long and enduring search for a new home, however, failure to pay attention and overlook important pitfalls and traps may lead to long term issues.  

Inspections - We are hearing more and more often that buyers are willing to waive inspections and blindly accept the condition of the property being purchased "as is." Unless you are a third generation trades person or have substantial experience in inspecting and renovating residential homes, it is highly likely that you will be unable to identify some serious, and expensive, issues with the property.  Waiver of inspections solely benefits the Seller in the transaction and provides no benefit to the buyer.  If you do not have the property inspected by a certified and qualified home inspector, you could inherit serious issues such that affect the building structure, mechanical systems, or cause other problems such as pest infestation, mold, or others. 

Repair Credits - If you are waiving inspections, and are not asking for credits to allow for the improvement or repair of certain features and systems at the property, then you will essentially inherit a liability for those items after the completion of the sale. It is common for purchasers to request that the sellers provide a credit to repair or replace, for example, a leaking roof, faulty electrical panel, non-functioning oil / gas boiler, rotted eaves-flashing-siding issues, and the like.  If you are not taking a credit at closing for these repairs, then your cost of purchasing the home will increase by the cost of these repairs. 

Short Closing Window - Unless you are paying cash for your new Massachusetts real estate purchase, you should not agree to complete the sale in less than forty-five days. Your mortgage broker and/or lender will be hard pressed to complete and clear your loan to close on short notice.  Your real estate attorney, who will be abstracting and reviewing your title, will also have to place a rush order on all work, and may have difficulty obtaining all items necessary to close.  In other words, if you agree to a short deal time frame, it is entirely possible that you will have to request an extension from the Sellers. Your mortgage lender and closing attorney cannot control all contingencies that can potentially extend the deal time frame. There are limited circumstances and contingencies that allow extensions of the time for performance (deadline to close), and you may end up risking your deposit if you encounter sellers that are unforgiving and who will not agree to extension. 

These are some initial concerns for a first time home buyer of real estate in Massachusetts. Our firm represents buyers and sellers of real estate in Essex, Middlesex, and Suffolk counties, including the cities and towns of Boston, Peabody, Danvers, Lynnfield, Wakefield, Woburn, Andover, Burlington, and others.  We will update this blog article shortly with additional concerns and recommendations for the first time home buyer.  If you are purchasing a new home, please feel free to consult with us anytime at 781-463-6063. 

Issues With Mortgage Contingency Clauses in Purchase and Sales Agreements

During the drafting and negotiation of the purchase and sale agreement concerning any real estate transaction in Massachusetts, it is important to understand how your mortgage contingency clause may come into play if you are trying to sell your current residence and purchase a new residence.  Often real estate lawyers in Massachusetts are requesting a provision that does not allow a purchaser of real estate to withdraw from a transaction without penalty if a mortgage commitment contains a condition that an existing residence be sold prior to the purchase.  The clause will often read as follows: "The BUYER understands and agrees that rejections for mortgage financing on the basis of the unsold status of his/her present home will not be a reason to terminate Agreement pursuant to the mortgage contingency."  This provision can create substantial issues for a purchaser as the deadline to close rapidly approaches. 

It may be that a lender will not issue at mortgage commitment due to the fact the buyers have not sold their present residence.  In this instance, under the terms of above clause, the buyers will not be able to terminate the agreement pursuant to the mortgage contingency under this scenario. It must be for an entirely different reason other than failure to sell a present residence.  

Although a lender may issue a mortgage commitment, it may contain a condition that the buyers must close the sale of their existing home prior to loan approval or consummation of the purchase of the new property.  This will create a timing issue with the transaction; now the buyers are acting in two different roles (as buyers and sellers), and relying on two separate lenders to finance two separate transactions.  This situation involves a high amount of stress on the homeowners as well as puts deposits at risk, and may involve a temporary move to a hotel until the completion of the purchase.  

To avoid the severity of this clause, it should be disclosed as early as possible (preferably in the offer to purchase) to the sellers that you currently own a property that is presently for sale, and request a prior sale contingency. The timing of the sale of your residence and new purchase can also be adjusted, and you may have to consider a transitional period between your two homes.  If you are concerned that your offer will be rejected with a prior sale contingency, you should speak with a qualified real estate lawyer about carefully crafting the mortgage contingency provisions in your purchase and sale agreement.  

Before You Overbid Listing Price and Waive Inspections on that New Home...

It is a little known secret that the residential real estate market in Eastern Massachusetts, particularly the Greater Boston area, is a Sellers' market.  There is a shortage of turn key homes at affordable prices and, at the same time, mortgage interest rates have been climbing slowly.  The prices of residential homes, particularly in the "starter home" category, in the $300,000 - $400,000 range continue to rise.  And with a healthy economy in Massachusetts, and a vibrant job market, the demand for real estate also continues to rise steadily.  

Our Lynnfield real estate lawyers have made numerous observations concerning potential home buyer's decisions while making a new offer to purchase a single family home or condominium. In an effort to make a more compelling offer to purchase that will be accepted by the sellers of the home, buyers are electing to waive inspections and are offering prices that exceed the listing price. Our real estate attorneys, who typically begin representation during the purchase and sale agreement, have reviewed numerous offers whereby buyers demonstrated that they have made aggressive efforts to secure the right to purchase a home. But at what cost?

Before you overbid the listing price on a residential property in Massachusetts, it is important to consider the possible results of your overbid.  If you are borrowing from a mortgage lender, that company will conduct an appraisal of the property to ensure that there is sufficient equity in the property to secure the lender's mortgage.  Lenders will also want to see a lower loan to value ratio (LTV) that averages 80.00% (Check with your mortgage broker for specific requirements).  In other words, the amount that you are borrowing should be 20% less than the purchase price.

If you are overbidding the purchase price of a home, and do not have sufficient cash on hand to achieve an average 80.00% LTV ratio, you may: 1. Not receive a mortgage commitment, or be denied financing that may put your deposit at risk depending on the language and timing the mortgage contingency clause in your purchase and sale agreement.  2. Receive a higher interest rate from your lender, which means that your overall cost of borrowing the funds will increase and so will your monthly payment. 3. You may have to purchase private mortgage insurance (PMI), which will increase your monthly payment and the overall cost of borrowing; and/or 4. You will be scrambling to pull together additional cash proceeds so that you may close the transaction.  These are less an ideal scenarios, and it is recommended that you remain in close contact with your mortgage broker and real estate lawyer when you are considering an overbid on a property.  

Our real estate lawyers have also noticed that many potential purchasers of real estate are waiving inspections.  In other words, the inspection contingency clause contained in the offer to purchase has been stricken and waived.  When in effect. this clause makes the transaction contingent on the buyer's satisfactory inspection of the property, which is usually conducted by a certified home inspector.  These inspections can reveal potentially expensive and critical defects in the structural, electrical, plumbing, mechanical, heating and air conditioning systems, as well as other features of the property.  It is not recommended to waive property inspections (even with new construction) and this appears to be an imprudent concession by a potential buyer who is making one of the largest financial investments during their lifetime.  

If you are a potential buyer or buyer of real estate and require assistance with your offer to purchase or purchase and sales agreement, please contact one of our real estate attorneys at 781-463-6063.  We provide all real estate legal services throughout Eastern Massachusetts. 

 

Inheriting Tenants at a Residential Property

Our real estate lawyers at the Law Office of Stefan Cencarik, PLLC located in Lynnfield, Massachusetts are addressing the potential issues that may arise when a new property owner inherits tenants. In other words, what types of liability issues may a purchaser / incoming landlord take on when acquiring real estate that is rented to residential tenants? 

The first question that should be asked is what type of contractual relationship exists between the outgoing landlord and the residential tenants. Are the tenants at will? Does a written lease agreement state a certain term of months of years for the tenancy? Any real estate lawyer representing you in the purchase of the property will need to know the type of tenancy and need to review copies of all lease agreements.  This is so that your counsel may determine whether the outgoing landlord and tenants are meeting their obligations; determine what rights and responsibilities each party have; as well as determine the material components of the leasing arrangement such as monthly rent, term, security deposits, maintenance responsibility and others.  

The second question that should be asked concerns the financial affairs of the outgoing lessor and tenant-lessee relationship. Your Greater Boston real estate lawyer will need to understand the rent payment history; present amount of rent; method of payment; amount of security deposit; location and type of holding account for the security deposit; and others. This is in addition to any expenses required for tenant unit maintenance and repair issues. 

Finally, your real estate attorney will need to understand whether there are any civil or insurance claims, or other State or local administrative or regulatory actions, demands, or issues associated with the tenants.  In most cases, these types of problems are rare, however, it is not uncommon for landlords to be subject to claims by tenants for negligence (such as slip and fall on the exterior premises); negligence or breach of the warranty of habitability (concerning the condition of the property); or a landlords' failure to comply with zoning or other fair housing laws.

The reason that a buyer of a tenant occupied property must review these issues is that residential landlords in Massachusetts are subject to a tremendous amount of regulations and liability. There are statutes and regulations concerning fair housing, sanitary codes, security deposits, rent deposits, and others. Additionally, Massachusetts General Laws ch. 93A, regulating unfair and deceptive trade practices, also applies to residential landlords, and violation of the regulations concerning residential properties constitute per se deceptive and unfair trade practices.  The penalties for a G.L. ch. 93A violation include up to triple damages and reimbursement of legal fees and costs associated with prosecution of the claim.  

If you are buying real estate in Massachusetts that contains tenants, you should consult with a real estate lawyer that specializes in residential and commercial transactions, and has deep knowledge of the due diligence process.  This expertise is crucial so that you purchase an investment without fear of liability and to ensure that you are making a prudent financial decision.  The Law Office of Stefan Cencarik, PLLC provides commercial and residential real estate services and is able to serve as your real estate lawyer in Lynnfield and the Greater Boston area.  

Real Estate Ownership Divorce: The Right to Partition

How does a property owner divide or force the sale of real estate? All joint owners of real estate, except for property held by spouses as "tenants by the entirety," have the right to sever their ownership interest, request physical division of the land and/or force liquidation of the property.  In Massachusetts, M.G.L. ch. 241 s. 1 permits owners of real estate who own an undivided interest in the property to request that the Massachusetts Land Court or Probate & Family Court order the partition the property.  In other words, property ownership in Massachusetts is not intended to ensnare and force unwilling participants in continued joint ownership arrangements. 

The partition statute has few exceptions and provides joint owners of real estate a "way out" of a ownership arrangement.  This may be a useful tool to property owners who no longer wish to be part of an informal business partnership; separated partners and co-habitants; individuals who have inherited property from deceased relatives; or joint property owners who are not "pulling their weight" in relation to maintenance, insurance, property taxes, and upkeep.  In these instances, a property owner may file a petition for partition, which is an extreme remedy after informal efforts have failed to amicably divide or separate the ownership interests.  

In most partition cases that involve property in the well developed areas of Eastern Massachusetts, some type of building (single or multi-family houses, or condominium) and land, in the cases of houses, will be involved.  In some cases, if undeveloped land is subject to a partition action it is possible to request that a Court fairly divide the land between the owners, and then each owner will be free to sell, develop, transfer, encumber, and otherwise take any action that a owner in full possession may do. In other cases, for example, that involve a single family home that is occupied by one or more of the owners, it is likely that a partition action will result in a court order to sell the property on the retail real estate market. A real estate broker will need to be retained; the property will be marketed and sold to the highest offeror; and the proceeds will be divided according to the Court's order. There is an option to hold a public auction for the property, however, this is unlikely to maximize the sale price on the open retail market. Or in some cases, property owners often enter into a buyout arrangement where one owner will purchase the interest of the other in the context of a private sale. 

The partition of real estate has some drawbacks in terms of the financial cost of litigation as well as the infighting over the division of financial proceeds that may result.  The sale of the property must also provide for the payment of all liens of records, including mortgages, executions, property and income tax liens, and other of record. This will, of course, reduce the amount of net proceeds after the sale in addition to reductions for real estate broker commission, legal fees, tax stamps, recording fees, and other closing costs.  Despite these costs, many property owners may wish to seek a partition if there is no other way out of the joint ownership arrangement. 

The Law Office of Stefan Cencarik, PLLC of Lynnfield, Massachusetts maintains a comprehensive real estate practice from representation of buyers and sellers of residential and commercial property; resolution and litigation of issues with real estate; representation of commercial landlords and tenants; and condominium associations.   If you have any questions about these matters,  please feel free to contact one of our Greater Boston real estate lawyers at 781-463-6063.  We provide a free initial consultation, and are responsive to the deadlines and timetables of any new matter.