COVID’S IMPACT ON LEASES PART 2: What About Impossibility?

March 25th, 2020

What is the defense of impossibility?

The doctrine of impossibility is an affirmative defense that excuses certain breaches of contract. (“Affirmative defense” means a defense raised by the defendant in answering a complaint alleging breach of contract). Generally, the defense applies when someone makes a promise they are unable to perform because of a change in circumstances that occurred after the contract was entered into. In legalese this is referred to as a “supervening impossibility”. Another key point is the doctrine recognizes that the contract is valid and enforceable, but when a court or jury finds that the doctrine applies, the doctrines operates to “excuse” performance. The defense of impossibility is distinct from a force majeure clause in a contract because the defense need not be in a contract, whereas a force majeure clause is a specific contractual provision that may define conditions in which performance is excused.

When might the doctrine of impossibility apply?

Typically, impossibility may excuse a party from performing its contractual obligation in circumstances such acts of God, supervening illegality, death or disability of a person required to perform, war, and labor strikes. The defense does not apply if the person who seeks to be excused from performing is at fault for making the performance impossible in the first place.

Image result for impossible

What is not a supervening circumstance that makes performance impossible?

Financial hardship and most unexpected difficulties. Courts are nearly uniform in ruling that a price increase, or an increase in the burden of performing, even if unanticipated, is not sufficient to establish that performing a contractual promise was impossible. A key issue is whether the risk was one that reasonably should have been anticipated at the time of contract formation and, if so, whether it should have been addressed in the contract.

What have courts said about impossibility in the context of epi(pan)demics like COVID-19?

Naturally, no case concerning COVID-19 and impossibility has yet found its way through the courts. But courts considered such questions a century ago in connection with influenza and diptheria outbreaks:

  • Crane v. School Dist. No. 14 of Tillamook Cty., 95 Or. 644 (1920)—holding that the closing of a school by a health officer on account of an influenza epidemic was not a sufficient to establish the defense of impossibility because, in part, the closing of the school did not necessarily suspend the need for transporting students.
  • Gregg School Township v. Hinshaw, 76 Ind. App. 503 (1921)—holding that where a school closed because of a flu epidemic, a district’s contract with a teacher was impossible to perform and the teacher was not entitled to payment for the period the school was closed because of the epidemic.
  • Napier v. Trace Fork Mining Co., 193 Ky. 291 (1921)— holding that where a construction contract entitled a contractor to an bonus payment for completing the work before a certain date, the contractor’s completion after that date did not entitle the contractor to the bonus payment even though performance before that date was rendered impossible by the prevalence of the influenza epidemic.
  • Sandry v. Brookyn Sch. Dist. No. 78, 47 N.D. 444 (1921)—holding that a school district was excused under the impossibility doctrine from paying a school bus driver during a three-month period in which the school was closed because an influenza epidemic.
  • Phelps v. School Dist. No. 109, 134 N.E. 312 (Ill. 1922)—holding a school not relieved of liability to pay teacher during a closure caused by diptheria because the spread of a contagious epidemic was something foreseeable that could have been addressed in a contract of employment.
  • Poss v. The Western Assurance Co., 75 Tenn. 704 (1881)—holding a policy of insurance against loss by fire that voided coverage if manufacturing “shall cease to be operated” did not apply where the factory temporarily shut down because of a deadly epidemic.

Before a landlord responds to a tenant’s claim that the lease is impossible to perform, both the lease and local law should be reviewed. Impossibility does not dispute the validity of the contract, but is a legal “excuse” that might allow a court to not hold a party liable for failing to perform their end of a bargain.

Share

COVID’s IMPACT ON LEASES

March 25th, 2020

As tenants and landlords brace for partial closings, lease disputes and funding issues in the midst of the pandemic, many are calling their real estate attorneys to discuss possible protections like force majeure and business interruption insurance. Huddleston Law Offices represents landlords who are receiving calls from their commercial tenants (e.g., restaurants, bars, gyms, & salons that were forced to close), and residential tenants asking for rent concessions, or simply informing the landlords that they cannot (or will not) pay their rent. In many cases these leases do not have rent abatement provisions other than for casualty losses or condemnation. Some complex leases may have force majeure clauses, or commercial tenants may rely on the doctrine of force majeure anyway.

Force Majeure And Business Interruption Insurance May Not Be The Solution CRE Hopes

This post will discuss the effect of force majeure provisions in leases and the applicability of business interruption insurance.

Force Majeure.

A typical “force majeure” provision in a lease excuses each party from any delay in performance of that party’s obligation under the lease to the extent that the delay is caused by “strikes, riots, acts of God, shortages of labor or materials, war, terrorist acts or activities, governmental laws, regulations, or restrictions, or any other causes of any kind whatsoever which are beyond the control of such party”.

a. Is the COVID-19 pandemic a force majeure event? Yes, but not in a bad way for landlords. COVID-19 is included within the definition of most lease force majeure clauses. Using the definition above, COVID-19 (and/or the inability to open for business due to COVID-19) falls within one or more of acts of God, …governmental laws, regulations, or restrictions, or any other causes of any kind whatsoever which are beyond the control of such party.

  1. But does the tenant still have to pay rent? Yes. Most force majeure clauses carve out from the force majeure definition the mere obligation to pay money. As a result, under a typical force majeure provision, a tenant who could not be open for business due to governmental restrictions, such as a shelter in place order, would not be in default for breach of a “continuous operations” clause of a lease. However, a typical force majeure provision will not excuse that same tenant from the non-payment of rent (such being an obligation that is performable by the payment of money). Each lease force majeure clause must be separately reviewed. Some unfortunately worded clauses may fail to exclude the obligation to pay money as an event of force majeure, or may even excuse all other tenant performance, including rent payment, during the existence of the force majeure event.
  1. What are the landlord’s options if the tenant doesn’t pay rent? If the tenant is not paying rent in accordance with the lease, the landlord has all rights and remedies provided under the lease.
    • Most leases include, among landlord’s remedies for a tenant default, the right to terminate the lease or terminate the tenant’s right to possess the premises. In electing whether or not to enforce those remedies, a landlord needs to consider whether, at the end of this pandemic, it prefers a leased space (even if it has not collected full rent for some period of time) or vacant, unleased premises. The answer will differ on a project by project and tenant by tenant basis.
    • Landlords should also be prepared for tenant requests for rent abatement. Preliminarily landlords can point tenants to new state and federal SBA disaster loan programs offering zero percent loans that may be converted into grants as a way to assist tenants to make payroll and pay rent. Another option is to negotiate some temporary deferral of rent in exchange for an extension of the lease term, or a “payback” period. State specific emergency declarations may affect the rights and responsibilities of abatement-requesting tenants, and landlords should be aware of same, if any, before negotiating with a tenant.
    • Keep in mind that the laws are changing during this pandemic, and landlords may not have all of the rights and remedies that are set forth in their leases. Temporary moratoriums on eviction (both residential as well as commercial) are already in effect in Oklahoma, and there are rumors that freeze legislation may be enacted at the federal level.
  2. What about force majeure as it affects Landlord’s obligations? The particular landlord lease obligation most likely to be delayed by COVID-19 is the tenant improvements, or construction/delivery obligation. This is a lease-specific issue, but most landlord work or premises delivery provisions include a force majeure concept, pursuant to which the landlord is not penalized for late delivery to the extent it results from force majeure.
    • Landlords need to confirm whether there is a limit on force majeure delays for construction. Sometimes a tenant will not agree to unlimited delays, and instead the parties negotiate a “cap” on force majeure delay days, after which penalties will kick in.
    • Be sure to confirm whether the landlord is obligated to notify the tenant of force majeure delay days as they occur, at the risk of having waived those delay days if it fails to do so.

Business Interruption Insurance.

a. Does business interruption insurance cover losses due to the COVID-19 pandemic? No.

  1. Business interruption insurance generally covers a company’s actual loss of business income (e.g., lost rent and similar lost revenues) to the extent that the loss of business income directly results from a casualty such as fire, tornado and the like, during the period of reconstruction and restoration. For business interruption coverage to apply, there must be a “direct physical loss” of the premises caused by a covered cause.
  2. Most policies specifically exclude all coverage for damage or loss “resulting from” a virus. These exclusions began being added to policies between 2003 and 2006 in response to the SARS outbreak.
  3. To the extent that a policy includes civil authority coverage (e.g., losses resulting from “shelter in place” orders), such coverage typically will still require physical damage or direct loss, either to the insured property or an adjacent property in close proximity and will usually be limited to thirty (30) days of coverage.
  4. Some landlords who have maintained more expensive policies may have applicable coverage through endorsements and the like. Prudent landlords will want to obtain an expert review of existing insurance policies to confirm whether coverage exists.

b. Other related issues. The currently existing exclusions of COVID-19 from business interruption coverage are being contested as we speak. Legislative efforts to ban the virus exclusions are under consideration in multiple jurisdictions. Some bills under consideration would require business interruption policies to be “construed” to cover business interruption due to Covid-19 virus.   

Share

Expungements

March 25th, 2020

Oklahomans convicted of nonviolent felony crimes are eligible for expungements without a pardon from the governor. Okla. Stat. Tit. 22, Sections, 18 (A)(12), authorizes expungements of criminal records under the following circumstances: The person was convicted of a nonviolent offense not listed in Section 571 of Title 57 of the Oklahoma Statutes, the person has not been convicted of any other felony or separate misdemeanor in the last seven years, no felony or misdemeanor charges are pending against the person and at least five years have passed since the completion of the sentence.

There are limitations to the expungement.

  • First, the expungement does not restore your right to possess a firearm unless you also receive a pardon.
  • Second, the record will always be available for law enforcement purposes.
  • Finally, private background investigation companies are not notified of your expungement. It will be necessary to send such companies notice of and a copy of the expungement order if you learn that they are still reporting your conviction records to third parties.

There are tremendous advantages to having the felony conviction expunged.

  • First, you are allowed to state to existing or potential employers and sports and volunteer organizations that you have not been arrested or convicted of a felony offense.
  • Second, the district attorney, arresting agency, court clerk and Oklahoma State Bureau of Investigation will remove from public access any record of the arrest, prosecution and conviction.
  • Finally, you will have the peace of mind of knowing that your criminal records are wiped clean.

Share

Office Hours Update

March 18th, 2020

Without exception legal services are essential to protect the rule of law and to help Oklahoma citizens and businesses in times of crisis. If you have legal issues and questions you can have a consultation and still not expose yourself to the virus. I can do consultations via video with anyone who has a smart phone, tablet or computer. I can send you paperwork via email to immediately begin working on your legal matter. If this is something you’d like to take advantage of, call me at 918-237-3857 or email me directly at brian@huddleston.law. Thank you, stay safe, and we will all get through this together!

Share

Contracts Are King, Or Are They? How the Case of Abercrombie & Fitch v. Penn Square Mall Effects The Commercial Leasing Landscape

March 18th, 2020

The commercial real estate leasing industry is notable in the extent to which business terms and legal obligations are memorialized in great detail in written contracts.  The exclusive use of written agreements is driven by the subject of the contracts, i.e., real estate, complexity of designing an agreement that may remain in effect for many years, and the potentially conflicting interests and incentives of the landlord and tenant. Perhaps few industries are as awash in standardized contract forms and boilerplate terms like the real estate industry.

It is understandable and appropriate for commercial landlords and tenants to focus their attention on the important task of memorializing their agreements about known issues such as the allocation of risk of potential unknown factors such as damages for water leaks, and other casualty and force majeure events.  In the event of a dispute, the contract is meant to be the determinant of who bears the risk of loss.  However, the parties should not lose sight of the fact that their legal rights and remedies are not based solely on the agreements they may have signed.

In addition to agreement-based rights and obligations, Oklahoma “tort” law imposes all sorts of implied rights and obligations independent of what parties may have formally agreed to.  The foremost “tort” obligation is to use reasonable care so as to avoid damage to others.  The failure to use reasonable care is negligence.

Because of the dominance of formal contracts in the commercial real estate leasing industry, courts in other jurisdictions historically were reluctant to recognize the applicability of tort remedies on commercial contracts. The philosophy was that parties were expected to define their obligations in the written agreements that would be the sole determinants of their rights.

One party could not sue another outside of contract for negligence if the harm was merely economic and the duty arose from the contractual relationship. The recent case of Abercrombie & Fitch v. Penn Square Mall, 2018 OK CIV APP 56, 425 P.3d 757 (Okla. Ct App. 2018), however, teaches commercial landlords and tenants that Oklahoma courts will permit the pursuit of both contractual and negligence theories for economic losses. This case emphasizes the serious risk of claims and damages outside the scope of the parties’ carefully negotiated contracts.

Abercrombie & Fitch v. Penn Square Mall, arose from a water leak in a roof drain line running above the ceiling of the leased premises in Penn Square shopping mall. Abercrombie & Fitch, the tenant, filed suit against Penn Square Mall LP alleging Penn Square “had a contractual duty to maintain the mall’s plumbing lines in good order, condition, and repair,” and that Penn Square breached this duty. Abercrombie asserted theories of breach of contract and negligence against Penn Square, and asserted that as a result of the water leak it “incurred substantial damages in cleanup, repair, lost merchandise, lost profits, and interruption to its business,” and sought damages in excess of $300,000. Despite the existence of a commercial lease with a limitation of liability clause, the case went to trial for damages under both contract and negligence theories.  At trial, the tenant was awarded nothing at all for its breach of contract claims, but the jury awarded $243,000 in lost profits, cleanup, repair, lost merchandise, and interruption to its business on the negligence claim. 

The landlord appealed, arguing that the tenant should not have been able to pursue damages for both breach of contract and negligence, and that the lease contract had a clause waiving such consequential damages.  However, the appeals court ruled that the language of the consequential damages limitation in the contract could reasonably be interpreted to relate only to the tenant’s contractual claims and not its negligence claims.  Therefore, the tenant’s judgment for lost profits, cleanup, repair, lost merchandise, and interruption to its business on the negligence claim was upheld.

Abercrombie & Fitch v. Penn Square Mall is a good reminder that commercial landlords and tenants must consider the extra-contractual risks and remedies under Oklahoma tort law.  As the court in Abercrombie found, a waiver of consequential damages provision, depending upon its wording, may only protect against contractual claims, not negligence claims.  Notice and other procedures may be interpreted to relate to contractual claims unless the contract explicitly includes the full universe of claims—both contractual and non-contractual.

The issue of extra-contractual claims can also arise in the context of determining the scope of an arbitration clause.  If an arbitration clause is drafted narrowly to encompass claims arising under the contract, it may not be broad enough to include negligence claims related to the leased premises and the parties’ relationship as a whole.  Absent unusual situations, care should be taken to ensure that the arbitration scope broadly covers all claims that might arise, not just contractual claims.

A good contract will recognize and address the possibility that parties may resort to tort remedies.  That way, the contract will retain its primacy in governing the rights and obligations of commercial real estate landlords and tenants. To anticipate this problem, the drafter should include language in the contract to this effect: “The parties agree that, regardless of the failure of the sole and exclusive remedy, landlord will not be liable for any consequential damages of whatsoever kind or nature.”

Share

Street Law: I Found Bed Bugs In My New Apartment, Now What?

January 25th, 2020

Bed bug bites are caused primarily by two species of insects of the Cimex type: Cimex lectularius (the common bed bug) and Cimex hemipterus, primarily in the tropics. Bed bugs’ increased presence across the United States in recent decades can be attributed largely to a surge in international travel and trade. It’s no surprise then that bed bugs have been found time and time again to have taken up residence in some of the fanciest hotels and apartment buildings in some of the nation’s most expensive neighborhoods. Nonetheless, false claims that associate bed bugs’ presence with poor hygiene and uncleanliness have caused apartment residents, out of shame, to avoid notifying landlords of their presence. This serves only to enable the spread of bed bugs.

While bed bugs are, by their very nature, more attracted to clutter, they’re certainly not discouraged by cleanliness. Bottom line: bed bugs know no social and economic bounds; claims to the contrary are false.

The Burden of Proof: Who’s Responsible for Bed Bugs?

With bed bugs on the rise, property managers are questioning the legal ramifications of their new residents. Can they be held liable if a resident files suit over the presence of bed bugs? It is important to understand that the liability issues surrounding bed bug infestations are governed by state and local law. At the end of this article is the Tulsa Ordinance that clearly delineates the circumstances when the owner or the occupant is responsible for bed bugs in single and multi-family dwellings. Responsibilities of property management companies may vary from state-to-state and range from zero liability to significant exposure. Deciding factors for assigning liability include the responsibilities of the owner and resident as defined by the language in lease documents, policies indicated to the prospective resident and the agreement between the management company and the owner.

In most jurisdictions, owners and management companies should take steps to guard against a negligence or gross negligence tort claim. An owner or management company is negligent if it fails to act reasonably in light of foreseeable risks that result in damages to the resident. The damage to the resident must be proximately caused by the negligence of the owner or management company. A defendant commits gross negligence if its acts or failures to act amount to willful or wanton disregard for its responsibilities. In essence, the defendant acted with reckless disregard or in bad faith. For example, ignoring bed bug complaints or attempting to “self-treat” the problem in an ineffective manner could result in a ruling of negligence.”

Bed Bug Lease Addendums Provide Some Level of Protection

Property management companies and property owners are pushing to shift responsibility onto renters and tenants in leases that say that if bed bugs don’t turn up before or soon after a resident moves in, the resident must pay for extermination. One way to ensure that residents, owners, and property managers work together to minimize the potential for any bed bug outbreak in a rental dwelling or apartment community is to include a bed bug addendum in the lease. The primary purpose of a bed bug addendum is to outline the responsibilities and potential liabilities of residents and owners when bed bugs are discovered in a rental dwelling. Yes, it involves extra paper work and time to train employees and educate residents, but preventing a large jury award from a lawsuit is well worth the extra effort.

The problem with the bed bug addendum is most property owners aren’t actually having apartments inspected by licensed pest control operators or firms, nor are they providing copies of the inspection results. In addition to this, bed bug addendums are one sided, purely for the benefit of the property owners, not the residents. More or less residents take full responsibility for bedbug infestations, regardless if they are responsible for the infestation or not. It can take fourteen days or longer for bedbugs who are already established in a dwelling to make their presence known, so forty-eight hours is absolutely a nonsensical amount of time to “identify” a current infestation in a vacant apartment.

Tulsa Code of Ordinances

TITLE 55 – PROPERTY MAINTENANCE CODE

Section 309. – Pest elimination.

309.1 Infestation. Structures shall be kept free from insect and rodent infestation. Structures in which insects or rodents are found shall be promptly exterminated by approved processes that will not be injurious to human health. After pest elimination, proper precautions shall be taken to prevent re-infestation.

309.2 Owner. The owner of any structure shall be responsible for pest elimination within the structure prior to renting or leasing the structure. Where the infestations are caused by defects in the structure, the owner shall be responsible for pest elimination.

309.3 Single occupant. The occupant of a one-family dwelling or of a single-tenant nonresidential structure shall be responsible for pest elimination on the premises.

309.4 Multiple occupancy. The owner of a structure containing two or more dwelling units, a multiple occupancy, a rooming house or a nonresidential structure shall be responsible for pest elimination in the public or shared areas of the structure and exterior property. If infestation is caused by failure of an occupant to prevent such infestation in the area occupied, the occupant shall be responsible for pest elimination.

309.5 Occupant. The occupant of any structure shall be responsible for the continued rodent and pest-free condition of the structure.

107.6 Transfer of ownership. It shall be unlawful for the owner of any dwelling unit or structure who has received a compliance order or upon whom a notice of violation has been served to sell, transfer, mortgage, lease or otherwise dispose of such dwelling unit or structure to another until the provisions of the compliance order or notice of violation have been complied with, or until such owner or the owner’s authorized agent shall first furnish the grantee, transferee, mortgagee or lessee a true copy of any compliance order or notice of violation issued by the Code official and shall furnish to the Code official a signed and notarized statement from the grantee, transferee, mortgagee or lessee, acknowledging the receipt of such compliance order or notice of violation and fully accepting the responsibility without condition for making the corrections or repairs required by such compliance order or notice of violation.

Share

The Federal Protecting Tenants at Foreclosure Act is Permanent

October 5th, 2019

The Protecting Tenants at Foreclosure Act of 2009 expired on December 31, 2014. Now it is back and it is permanent. The law limits the rights of new owners of foreclosed properties from evicting tenants after a foreclosure, and was passed as a result of widespread hardships after the collapse of the mortgage markets. By 2014, it was felt that such protections were no longer necessary. But the law has been revived. On May 24, 2018, President Trump signed into law a bill which contained major rollbacks to the Dodd Frank Act. It ALSO revived the Protecting Tenants at Foreclosure Act of 2009 and makes it permanent.

Tenants cannot be evicted after a foreclosure, and can stay until the expiration of their lease term. The only exceptions are if the rent is dramatically below market (whatever that means) or if the tenant is closely related to the borrower. It provides protections to bona fide tenants in foreclosed properties where the foreclosed mortgage is a “federally related mortgage loan” (a very broad category of mortgage loans as defined in the federal Real Estate Settlement Procedures Act (“RESPA”)). An amended version of the Tenants Protection Act is available here.  A sample letter for tenants and advocates to use to implement the Tenants Protection Act is available here.

Are Commercial Loans Covered?

An important question for lenders, mortgage holders and servicers is whether the Tenants Protection Act is limited to residential one- to four-family mortgage loans, or whether commercial loans are covered.  The answer is that some commercial loans are covered; where a loan is made to an individual or entity to purchase or improve property which is one- to four-family residential property, the Tenants Protection Act provisions for notice and eviction must be followed, even if the borrower took the applicable mortgage loan for a commercial purpose.  Commercial purpose loans that meet the definition of “federally related mortgage loans” must comply with the Tenants Protection Act.

A “federally related mortgage loan” is any loan (other than a temporary loan such as a construction loan), which is secured by a first or subordinate mortgage on real property that is designed to be a one- to four-family residential property (including condominiums and manufactured homes), and the property has to be located in a U.S. state.  Refinancings and purchase money mortgages are included.  The mortgage loan (1) must be made by a lender that is either federally regulated or its deposits are insured by the Federal Government; (2) is insured, guaranteed or supplemented by the Federal Government; (3) is made in conjunction with programs administered by HUD or by another federal agency; (4) is intended to be sold to Fannie Mae, Ginnie Mae or Freddie Mac; (5) is made by a “creditor” as defined by the Consumer Credit Protection Act (15 USC §1602(f)) and that creditor makes or invests in $1,000,000 worth of residential real estate loans per year; (6) is a reverse mortgage made by one of the aforementioned lenders; (7) is an installment sales contract for residential one- to four-family residential property.

Protecting Tenants at Foreclosure Act of 2009 Basics

As a refresher, the Tenants Protection Act requires immediate successors in interest to foreclosed properties, including banks that take title to property after foreclosure, to provide a notice to vacate to any bona fide tenant at least ninety (90) days prior to evicting those tenants as a result of foreclosure.  In the event a foreclosure does take place, the Tenants Protection Act requires the successor owner of foreclosed property to honor any existing leases with renters until the end of the lease terms.  Protection is not available for the former mortgagor, the mortgagor’s spouse, child or parent.  A “bona fide” lease is the result of an arm’s-length transaction, and the rent has to be fair market value or government subsidized.  The Tenants Protection Act also provides Section 8 tenants in foreclosed properties certain protections.

Dodd-Frank Clarifies When Prior Notice of Foreclosure Occurs

A major change in the Tenants Protection Act brought about by Dodd-Frank concerns the interpretation of the provision that allows bona fide tenants of foreclosed properties to continue to reside at the property for the remaining term of the lease executed with the former owner only if that lease was entered into “as of the date of foreclosure”.  Prior to the amendment found in Dodd-Frank, it was unclear when the “date of foreclosure” occurred.  If the cut-off period began when foreclosure notices were sent, borrowers and tenants could no longer enter into leases that would have to be honored once the foreclosure notices were mailed and advertised.  Thus, under the prior version of the Tenants Protection Act, a foreclosing owner would take the position that leases entered into AFTER the date the foreclosure notice was mailed were not effective, and the foreclosing owner would not have to honor those leases.

Dodd-Frank changes all that by clarifying the phrase and explaining “For purposes of this section, the date of a notice of foreclosure shall be deemed to be the date on which complete title to a property is transferred to a successor entity or person as a result of an order of a court or pursuant to provisions in a mortgage, deed of trust or security deed.”    Unfortunately, ambiguity remains.  While Dodd-Frank clarifies that “notice of foreclosure” does not mean any correspondence or advertising undertaken by the mortgagee leading up to the foreclosure sale, it leaves the post-foreclosure timeframe unclear.  Put more simply, Dodd-Frank shifts the ambiguity from pre-foreclosure sale to post-foreclosure sale.  This is due to the use of the term “complete” in the new definition, i.e., what does “complete title” mean?

Debate is already underway as to whether “complete title to a property is transferred to a successor” occurs at the time of the foreclosure sale or at the time of recording of the foreclosure deed.   In Bankruptcy Courts, Judges who have opined on the issue of when the foreclosure sale is final from a bankruptcy perspective find that the foreclosure is final when the gavel goes down completing the auction, and the purchase and sale agreement is executed by the buyer.  On the other hand, there is an argument that the buyer at foreclosure who tenders a deposit and signs the purchase agreement only has equitable title; no legal title passes until the foreclosure deed is tendered to the buyer.  Still another interpretation is made by the foreclosing owner who seeks to evict any holdover borrowers or tenants from the property after foreclosure.  Post-foreclosure property owners are going to have to watch out for borrowers and mortgagors whose properties are in the process of foreclosure, as they could enter into lease agreements with tenants AFTER the foreclosure sale date, but before the foreclosure deed goes on record, and the foreclosing owner would be required by law to honor those lease and tenancy agreements.

In sum, post-foreclosure property owners must give ninety (90)-day pre-eviction notices to bona fide tenants, but the date on which that notice has to be given will now be later in the process — on or after the date the foreclosure deed is recorded.  Ninety (90)-day notices sent on behalf of the servicer during the foreclosure process will no longer satisfy the Tenants Protection Act.  Post-foreclosure property owners should do everything they can to ensure that foreclosure deeds are recorded expeditiously after a foreclosure sale to cut off the rights of mortgagors from entering into new lease agreements with bona fide tenants so that the new owner does not have to contend with honoring the terms of those new lease agreements.

Further, since bona fide leases survive the foreclosure until the end of their term, the tenants have state law based remedies for violations of the tenants’ rights against successors in interest in foreclosed properties. Nativi v. Deutsche Bank National Trust Company, 223 Cal. App. 4th 261 (2014).

Share

OKLAHOMA ALLOWS INDEPENDENT CONTRACTORS TO OPT OUT OF WORKERS COMP COVERAGE

March 5th, 2019

Generally, every employee hired in Oklahoma or who is injured in Oklahoma is covered by the workers’ compensation laws of the state.  Independent contractors are not employees and are therefore not covered.

The issue of whether a person or entity is an employee or an independent contractor is a complicated one. Nevertheless, the Workers’ Compensation Commission provides CC-Form-36A: Affidavit of Exempt Status under the Administrative Workers’ Compensation Act and CC-Form-36C: Cancellation of Affidavit of Exempt Status for use by contractors. The Affidavit of Exempt Status is a two-page document, and the independent contractor must complete and sign both pages. The second page includes an 11-part checklist to aid in determining whether the person is or is not a bona fide independent contractor. The form states “[i]f the greater weight of the statements do not describe your business, you should not sign the attached Affidavit …”. In other words, there is no single factor which controls. The Affidavit of Exempt Status which the proposed independent contractor must complete includes questions such as whether the company exercises very little control over his work; whether he is engaged in business for others; whether the company does not supply the things needed to perform his job; whether the work he does is not the regular business of the company; and whether he has the right to terminate the relationship without any liability.

Just because a person has incorporated or is an LLC does not automatically transform that person into an independent contractor. That is but one factor. A written contract with the customer/owner will not alone transform the worker into an independent contractor. Independent contractors and companies alike must be aware of this area of the law in order to avoid the myriad of problems which can arise from misclassifying a worker.

With the new tax laws benefitting independent contractors with a 20% deduction from their income, now is a good time for companies to re-assess any persons/entities which may be classified as independent contractors.

Share

Street Law School: Getting A Criminal Record Expunged Is Getting Even Easier Than Before

November 14th, 2018

On April 26, 2018, Oklahoma Governor Mary Fallon signed into law SB 650, making felony offenders eligible for expungement (sealing) for the first time without requiring that they first be pardoned.  Effective November 1, 2018, a person may apply to the court for expungement of a single nonviolent felony conviction five years after completion of their sentence, if the person has not been convicted of any other felony or separate misdemeanor in the past seven years, and if no felony or misdemeanor charges are pending. Okla. Stat. Ann. § 18(A)(12).  This 2018 change to the law reduces the waiting period from ten years to five; deletes a requirement that the person have no prior felonies, or any separate misdemeanor in the past fifteen years; and omits a requirement that the person first be pardoned.  Oklahoma’s additional provisions for expungement of misdemeanor convictions, non-conviction records, and pardoned felonies may be further explained by any Oklahoma attorney that includes expungements as a part of their practice.

Links to the Oklahoma Statutes dealing with expungement of criminal records:

Convictions and arrest records (Section 18 Expungement)
Identity Theft (Section 19a Expungement)
Expungement of a Victim’s Protective Order (Section 60.18 Expungement)
Deferred or delayed sentences (Section 991(c) Expungement)
Expungement for Victims of Human Trafficking (Section 19c Expungement)
Share

In Oklahoma you can easily change your “regular” LLC into a Series LLC.

October 26th, 2018

Have you got a regular LLC? Considering whether or not to change it into a Series LLC? Here are some of the things to think about before making the change:

  1. Are you in a Series LLC state? In Oklahoma the answer is: Yes! So you can file an amendment to your Articles of LLC to legally convert your regular LLC into a Series LLC.
  2. If you want to start a whole new Series LLC, you can do that too.
  3. If your LLC is from a non-Series LLC state, and if it is really important to you to keep your existing LLC’s history, Tax ID number, etc., you can move your LLC’s corporate home to Oklahoma and simultaneously convert it into a Series LLC. That would allow you to keep your existing history. You would then dissolve your existing LLC in your home state, to cancel it off the books. And finally, you’d have to reintroduce your newly converted Series LLC, this time as a foreign entity, back into your home state.
  4. Are you in a state that isn’t Series LLC friendly? All states permit LLCs from out-of-state to cross-register in, when required. The same goes for Series LLCs (you cross-register the parent only; there is no way to cross-register Series LLC Cells at this time).
  5. Beware of California which looks at each Cell in the Series LLC as a distinct entity for tax purposes. As such, every Cell would register with the Franchise Tax Board and pay the state’s minimum $800/year franchise tax fee!
  6. There are many variables when you’re structuring a business. Unless you talk to someone who’s got some knowledge and experience on the legal side, it’s hard to know what you don’t know. And that can leave you vulnerable.
Share
  • Categories

  • Archives