Florida Law
Florida Commercial Real Estate Law
- Commercial Real Estate Law
Commercial Real Estate Law
Corporate real estate transactions invariably have far-reaching business and economic repercussions. This chapter explains frequently used real estate terminology and considers some of the issues common to commercial real estate transactions in Florida.
Terminology
A stumbling block for many persons entering the real
estate market is the unfamiliar terminology frequently
used by real estate professionals. Real estate law
uses many old terms and concepts because many real
estate laws have ancient roots. However, many rights
and responsibilities regarding real estate have evolved
and been updated over time as societal and business
needs have changed. The following are some of the most
frequently encountered real estate terms.
Assessment
An assessment is a value placed on real property for
purposes of levying local property taxes. Real estate
taxes are calculated by multiplying the assessed value
of a piece of property by the tax rate. Most properties
are reassessed periodically, but a property's assessed
value may not be the same as its actual market value.
Co-Ownership
Co-ownership is ownership of property by more than one
person. The two common ways in which two or more parties
can co-own a piece of property are joint tenancy and
tenancy in common. In Florida, spouses also can own
property as an estate by the entireties, which is similar
to joint tenancy. Each of these forms of co-ownership
is discussed below.
Although there are advantages to co-owning property, there are drawbacks as well. If co-owners cannot agree on use, sale or possession of a piece of property, they may have to go to court to resolve the matter in a partition action. In a partition action, a joint tenant or tenant in common asks the court to split the property in a fair and just manner. Because real property may be difficult to divide and partial interests may be difficult to sell, a court will usually order that the property be sold and proceeds from the sale distributed to the co-owners in relation to their interests.
Deed
A deed is a written instrument that transfers the title
of property from one person to another. The two most
common types of deeds are general warranty deeds and
quitclaim deeds, both of which are discussed below.
Deed Restrictions
Deed restrictions, also known as covenants, conditions
or restrictions, encumber an owner's freedom to use
the land. They may be imposed on a buyer when property
is sold and are included in the deed to the property.
Property developers seeking to retain a certain community
atmosphere often use deed restrictions. Restrictions
may limit the number or types of trees or the color,
size and shape of a house, or may require general upkeep
of the property.
There are ways restrictions may limit the use of property as well, such as zoning ordinances and building codes.
Encumbrance
An encumbrance is an obligation that attaches to a piece
of real property and is held by a party who is not
the owner of the property. An encumbrance is not an
ownership interest in real property. The property may
be bought and sold even though there are encumbrances
attached to the property. Encumbrances attach to property,
not property owners, so a person who buys property
with an encumbrance is bound by the encumbrance. One
of the more common forms of an encumbrance is an easement.
Easement
An easement is a nonpossessory interest in real property
which gives the holder of the easement the right to
use another person's land for a particular purpose.
There are many forms of easements. Public utility companies
frequently have utility easements that permit them
to run gas, water or electrical lines through particular
property they do not own. The owner of property on
a lake shore might sell to the owner of an adjacent
lot without lake access an easement to cross over to
the shore. A person who owns property that is landlocked
may receive an easement from an adjacent land owner
to have access in and out of the property. This kind
of easement is also called a right-of-way.
Estate by the Entireties
Under Florida law, any mortgage encumbering real property
made to two persons who are husband and wife creates
an estate by the entireties in such mortgage unless
a contrary intention appears in the mortgage. The husband
and wife have equal interest in an estate by the entireties,
and enjoy a right of survivorship in the property.
Joint Tenancy
Joint tenancy is a form of co-ownership. Although usually
it is a common way for a husband and wife to own property,
there is no requirement that joint tenants be married
to one another or that there be only two joint tenants.
Each individual owner in joint tenancy has a right
to sell, encumber and possess the entire property.
When one joint tenant dies, his or her interest in
the property is automatically transferred to the remaining
joint tenants. This transfer of ownership to the remaining
owners is known as a right of survivorship.
Lien
Another type of encumbrance is a lien, which is a charge
against property that provides security for a debt
or obligation of the property owner. The lien holder
does not own the property. The owner of property may
voluntarily agree to a lien, such as by taking out
a mortgage. Sometimes a mortgage provides the holder
of the mortgage with additional rights if the property
is sold or encumbered further. A lien can also be imposed,
such as for nonpayment of taxes. One of the most common
liens is a construction lien, often referred to as
a mechanics lien. A construction lien may arise when
someone furnishes labor or materials to improve a piece
of property and is not paid. By giving proper written
notice and filing and serving a claim of lien with
the clerk of the circuit court within the required
time, the construction lienor (the person holding the
lien) may force the sale of the property and payment
of the lien. A property owner must comply with the
construction lien law in order to avoid paying for
labor and materials in excess of the amount specified
in the contract with the general contractor.
Quitclaim Deed
A quitclaim deed is a deed that relinquishes to the
buyer whatever interest the seller may have in the
property. A quitclaim deed gives the buyer the least
amount of protection of any type of deed. If the seller
is the sole owner of the property, the quitclaim deed
is enough to transfer title, but the buyer takes a
risk by accepting a quitclaim deed because it offers
the buyer no guarantee that the title is valid. Quitclaim
deeds are used frequently during the property settlement
phase of a marriage dissolution.
Recording
In Florida, real estate records are kept in each county.
It is important for new buyers of property to record
their deeds at the public records office, located in
every county courthouse. Recording a deed gives "notice
to the world" that a particular piece of property
has been sold and that subsequent purchasers should
be on guard. Title passes even without such a recording
of interest, but a good faith purchaser may later acquire
title to the property if he or she has no notice of
the actual owner's interest because of a failure to
record such interest. Titles in Florida are registered
under the abstract system. Abstract records go back
hundreds of years and an abstract of title is a record
of all the interest entries for that property.
Special Assessment
A special assessment is a tax levied on a piece of property
to pay for improvements that benefit the property,
such as streets, sidewalks and street lighting. Special
assessments are liens on the property until they are
paid.
Sublease
Subleasing means having someone else take over a tenant's
rights and obligations under a lease before the original
lease expires. The right of a tenant to sublet may
be expressly restricted or prohibited by the terms
of a lease or some other restriction against subletting.
For example, the parties may agree that subletting
is not permitted without the consent of the landlord.
A landlord may, however, subsequently waive such a
right to prior consent. However, if subletting is allowed,
the relationship between the landlord and tenant does
not change. All obligations under the original lease
remain. If the new tenant does not pay rent, damages
the unit, leaves before the lease expires or breaches
any condition of the lease, the landlord holds the
original tenant responsible. The original tenant has
a right to sue the new tenant for those costs.
Tenancy in Common
Tenancy in common is a form of co-ownership. Tenants
in common, like joint tenants, share the right to possess,
sell and encumber the property. Unlike joint tenants,
tenants in common do not have a right of survivorship.
Upon the death of a tenant in common, that person's
ownership interest passes to his or her heirs as part
of his or her estate.
Title
Title to real estate is the right to, or ownership of,
property. Title may refer to the actual ownership or
to the documentary evidence of that ownership. Typically,
in order to sell a piece of property, all title matters
must be cleared so that the seller can provide the
buyer with a marketable title. A marketable title is
a title generally free from encumbrances and title
defects that may lead to litigation. An example of
a title defect is a gap in the history of the property's
ownership. In such a case, after the buyer has purchased
the property, someone conceivably could show up and
claim to be the rightful owner. Discovering whether
a piece of property has a marketable title usually
is accomplished through a title search, in which a
diligent search is made of all records relating to
the property to determine whether the owner is authorized
to sell the property and whether there are any claims
against it. If any defects in title are discovered
during the title search, the seller usually is given
time to cure the defect. Title insurance is often obtained
to protect against any hidden defects in the title.
There are two types of title insurance: one that protects
the lender's interest in the property and one that
protects the owner's interest.
Warranty Deed
The most common type of deed is the warranty deed which
provides the greatest protection to the purchaser.
A warranty deed requires the seller to pledge or warrant
that he or she is the legal owner of the property and
that there are no outstanding liens, mortgages or other
encumbrances against it. A warranty deed also guarantees
that the seller may be held liable for damages if the
buyer later discovers the title is defective. A warranty
deed is no substitute for title insurance however.
A seller may disappear, move out of the jurisdiction,
die or declare bankruptcy.
Purchasing Real Estate
Many real estate transactions are fairly complex. Because
a purchaser may later be held liable for such things
as environmental hazards or injuries due to the condition
of the structure, it is imperative that a prospective
buyer make a thorough investigation of the property
before buying. A good purchase agreement should provide
the buyer with ample opportunity to assess such risks
and verify all terms of the lease. If the purchaser
is acquiring rental property, it is his or her responsibility
to verify the terms of the rental agreements and to
explore any claims tenants may have against the seller,
since such claims may later become the legal responsibility
of the purchaser. An experienced real estate attorney
should be able to advise on the many issues of concern
to parties buying real estate.
Of increasing concern to businesses are environmental hazards that may come with acquiring real estate. Cleanup of leaking underground oil storage tanks or hazardous emissions, for example, may become the responsibility of a new owner under state and federal environmental laws. Even a new owner who neither contributed to nor knew of the contamination may be required to pay for the cost of cleanup.
Leasing Real Estate
When a tenant rents a residential space, the tenant
and the landlord become parties to a contract known
as a lease. The lease sets out the essential terms
of the contract such as the involved parties, amount
of rent, when rent is to be paid, duration of the lease
and who pays for utilities. Leases for more than one
year are said to fall within the statute of frauds
and must be in writing to be enforceable.
Leases can be structured in a variety of ways. A lease with a specified termination date is known as a tenancy for years. Unless the parties agree otherwise, on the last day of the lease, the tenancy is terminated and there is no advance notice required since the termination date was already specified. A periodic tenancy continues for a specified period of time (e.g., year-to-year, month-to-month), but there is no definite termination date. Unless terminated according the requirements set by Florida law, a periodic tenancy is automatically renewed from period to period. A tenancy at sufferance describes the situation in which a tenant wrongfully stays beyond the termination of his or her lease. Landlords wanting to remove (that is, evict) a holdover tenant must follow a procedure set by Florida law. All tenants have the right to sublease their rental property, provided the lease or other binding restriction does not specifically prohibit it.
Negotiating a Lease
Many businesses will have specific needs that are not
satisfied by a standardized lease agreement, such as
the operating expenses provisions of the lease. It
is in a property owner's best interest to prepare a
written rental agreement that addresses both parties'
rights and responsibilities in the event problems arise.
The following items should be addressed in any rental
agreement:
* Amount of and conditions for returning the security
deposit
* Who is responsible for maintenance of fixtures, appliances
and common areas of the property, and what standards
apply
* Renewal rights at the end of the lease
* Cancellation rights
* Circumstances under which the owner can enter leased
premises
* Who is obligated to insure the property and which
party is named beneficiary under any insurance policy
* Subleasing rights or prohibitions
* Any restrictions on rental of adjacent space
Security Deposit
Landlords commonly require renters to pay a security
deposit prior to taking possession of the premises.
The security deposit normally is used to cover the
costs of any damages (beyond ordinary wear and tear)
or unpaid rent. Under Florida law, a landlord must
hold the security deposit in either a non-interest
bearing account, an interest-bearing account (with
the tenant receiving either 5 percent interest annually
or 75 percent of the interest the deposit actually
earns), or post a surety bond in an amount equal to
the security deposit. Within 30 days of receiving the
security deposit, the landlord must notify the tenant
of the manner in which he or she is holding the money.
At the end of the lease, the landlord has 15 days to
return the money (with interest, if applicable) or
notify the tenant of a claim against the security deposit
for damages. If the landlord makes a claim, the tenant
has 15 days to object. If the tenant does not object,
the landlord may deduct the amount of the claim from
the security deposit and must return the remainder
to the tenant within 30 days of the date of the notice
of the claim. Any unsettled dispute the landlord and
tenant may have as to damages can be resolved in court.
Real Estate Development
In the past, there were no controls over how a property
owner could use his or her land. But as the population
grew and cities became more crowded, the number of
controls on land use became more and more extensive.
Today, almost every city and town has some type of
land use plan. A property owner has many land ownership
rights, but these rights are also restricted by controls
from the local, state and federal governments. In any
real estate transaction, it is important to understand
exactly what regulations apply to certain properties
and to the rights of the property owners.
Construction Contracts
Construction contracts are a highly specialized subcategory
of contract law. Most construction projects involve
many parties, each with unique expectations, deadlines
and responsibilities. Architects, engineers, contractors,
subcontractors and lenders all have to understand their
rights and responsibilities. Failure to have an experienced
real estate attorney negotiate and draft documents
can lead to numerous headaches and unplanned expenses.
Good planning includes discussion of construction liens,
periodic inspections, bonding, timetables and appropriate
rewards or punishments for early or late completion.
Mortgage Financing
Many attorneys practicing real estate law spend a substantial
portion of their practices negotiating mortgages secured
by real property. These negotiations are often quite
complex. Mortgage financing for new real estate can
be as difficult to obtain for an established business
as for one that is starting up. To help move the process
along, a business often has to give up a degree of
control over business decisions that affect the property.
A lender may want to impose liabilities for the property
onto the borrower, while at the same time retaining
a say in how the property is managed. It is important
for a borrower to try and retain as much flexibility
and control as is possible. For example, a borrower
may want to retain control of insurance proceeds in
the event of damage to the property so that the property
can be restored, while a lender may want to require
that such proceeds go toward debt owed.
Foreclosure
Foreclosure is a legal action in which property that
has been used as security for a debt is sold in order
to pay off that debt. Mortgages provide for foreclosure
in order to give lenders the right to recover the money
they loaned. Foreclosure is initiated by the grantor
of the mortgage, must occur in the county in which
the property is located, and must follow a default
by the debtor on the terms of the mortgage. In Florida,
a mortgagee may redeem the foreclosed property at any
time before the court approves the sale of the property
by payment of all sums due as calculated in the judgment
of foreclosure.
Zoning
Zoning regulations are a particular type of land use
control. Their purpose is to control and regulate development
and growth of a community in a way that is best for
the general public as determined by local government.
This is accomplished by dividing a community into areas
(zones) that can be used only for certain purposes.
Zones generally fall into four basic categoriesresidential, commercial, industrial and agricultural. Most cities or counties further divide property into much more intricate specifications, such as a zone for single-family houses within a residential area, or areas zoned for light-industrial and heavy-industrial operations.
It is important to find out exactly how a property is zoned, for this could have serious consequences on how the property can be used both at the present time and in the future. Zoning ordinances are changed through amendments. Such changes can be sought by an individual property owner or by local governments. The changes must be determined to be in the best interest of the community, and the opinions of persons affected must be sought through public hearings after notice in compliance with the law.
Another way to seek relief from zoning laws is through a special use permit. Such permits make exceptions for uses of property that are not otherwise allowed under the zoning laws. Other ways around zoning laws include spot zoning, which rezones a small area or even one plot of land. Again, this is only allowed if it benefits the community.
Land Use Law
In addition to zoning laws, there are other laws that
may impose specific standards regarding how property
can be used, such as how a building can be built, how
big or small it can be, and where it may be placed
on the property. These specifications may be laid out
in local regulations or in building codes. Building
codes are developed to protect public health and safety.
To ensure compliance with building codes, many municipalities
require that property owners obtain building permits
before they begin any type of construction or development.
On shorelines, the state adds other rules regarding the size and shape of buildings as well as their locations on lots to these local regulations. The additional regulations are intended to avoid adverse environmental consequences resulting from building construction.
Other kinds of land-use regulations serve to protect the environment. Any development that may have an effect on the environment must conform to local, state and federal regulations. For example, the National Environmental Policy Act is a federal law that requires federal agencies to create environmental impact statements and give permission to developers planning projects that could adversely affect the environment. Such statements detail the effects of projects on areas such as air and water quality, safety and wildlife. More information about these rules is provided in the Land Use & Environmental Law Chapter.
Water Law
With the purchase or sale of real estate comes certain
air rights, mineral rights and water rights. Water
rights include the use of underground water as well
as water that touches the owner's property. Landowners
whose property touches flowing water are riparian owners,
which means they have the right to use the bordering
water for reasonable and beneficial use, such as boating,
swimming and other recreational purposes. Riparian
owners do not, however, have any actual ownership of
the water itself, and may not legally divert the water
to land that does not adjoin the stream or lake. An
owner may not use the adjoining water in a way that
affects the quality or availability of the water further
upstream, downstream or down the coast, by polluting
the water or changing its flow.
Resources
The Florida Bar, 650 Apalachee Parkway, Tallahassee,
Florida 32399-2300, (904) 561-5834 has the following
free pamphlets: Buying a Home and Buying a Condominium.
Also, call Florida Call-A-Law to hear recorded information
on real estate issues at (904) 561-1200.
Commercial Real Estate Transactions, Stuart M. Saft,
Shepard's/McGraw Hill, Inc., Colorado Springs, CO,
2d ed., 1995.