On June 27, 2020, Florida Governor Ron DeSantis signed House Bill 469 into effect, and it became law on July 1, 2020. The Bill amends Florida Statute §689.01 by removing the requirement that two witnesses must be present for a commercial or residential property lease to be valid. Prior to the amendment of the Statute, each of the parties were required to have two witnesses present when signing a lease for a term of more than one year. The House Bill provides that subscribing witnesses are no longer required to validate instruments conveying or pertaining to a lease of real property.
This requirement was originally in place to prevent fraud or forgery, as witnesses could be asked to verify the legitimacy of leases after the fact in the case of a challenge. However, as Florida and many other jurisdictions trend more heavily in favor of electronic transactions, it has long been a question of whether witnesses are truly necessary. The burden of the witness requirement has only grown through the use of electronic transactions, often adding unnecessary delay to make sure witnesses are available at the same time as the landlord and the tenant.
While this change in the law is small, it is widely welcomed. The removal of the witness requirement improves the speed and efficiency of transactions by making electronic lease signatures much more easily obtainable. This not only has the potential to save time in the execution of leases by allowing a lease to be signed by just the two parties, it also removes one potential pitfall to invalidating a lease.
If you have questions about House Bill 469 or the execution and other requirements for leases in Florida, please contact our real estate lawteam.
When it comes to residential property sales, a homebuilder’s obligations regarding the nature and extent of information about a home that must be disclosed varies widely by state. While every state requires some form of property disclosure, homebuilders seeking to finalize a deal and buyers eager to gain information about a prospective home or neighborhood likely want to pay close attention to the laws of their state regarding what information must be specifically disclosed.
Under Florida law, whether a residential property seller has a duty to disclose facts which may affect a buyer’s decision to purchase a home is governed by the Florida Supreme Court case, Johnson v. Davis. 480 So. 2d 625 (Fla. 1985). In Johnson, a residential buyer claimed that serious roof defects, known to the seller, were misrepresented or not disclosed prior to sale. Largely abandoning the common law doctrine caveat emptor, or “buyer beware,” the Court reasoned that a seller should be held liable for failing to disclose a property’s material defects of which he or she has knowledge. The Johnson case became the law in Florida, applicable to all residential property transactions, establishing that where a seller knows information about a home, which is neither readily observable nor known to the buyer, but materially affects the property’s value, such information must be disclosed. Subject to a few exceptions, this duty to disclose material facts has been extended to various forms of physical defects and off-site conditions. Thus, it is important that homebuilders in the state of Florida are aware that they have a duty to disclose facts about home conditions of which they have knowledge and which materially affect a property’s value or desirability, where such facts are either accessible only to the homebuilder or are known by the homebuilder to be outside the reach of the buyer’s diligent attention and observation.
Notably, a homebuilder’s duty to disclose material facts affecting a residential property is not all-encompassing. By enactment of state statute, Florida has exempted certain property conditions which, though likely to affect the value of a property, are nonetheless excluded from mandatory disclosure. Specifically, a Florida seller has no duty to disclose that a residential property was the site of a homicide, suicide, or death or that the prior occupant of the property was infected with human immunodeficiency virus (HIV) or diagnosed with acquired immune deficiency syndrome (AIDS) (see Fla. Stat. §689.25(1)(2)). While these “psychological conditions,” unrelated to the physical condition of the home, have been specifically exempted, disclosure of other forms of information, such as the presence of registered sexual offenders in a home’s vicinity, has not yet been definitively addressed. Though Florida Courts have not offered any express guidance, a homebuilder concerned about whether or not it has a duty to disclose such information may potentially be protected from doing so under Florida case law dealing with disclosure of information contained within the public record.
In Nelson v. Wiggs, the Third District Court of Appeal held that enactment of housing code regulations, and availability of those regulations in the public record, was sufficient to place information regarding a property’s possible flood risk within the diligent attention of any buyer. 699 So. 2d 258 (Fla. 3d DCA 1997). Finding that such information was readily observable and within a buyer’s diligent attention, the court consequently determined the residential property’s seller had no duty to disclose. Like the county regulations in Nelson, information regarding the physical residences of registered sexual offenders and predators in the state is made publicly available by the Florida Department of Law Enforcement (FDLE) (see Fla. Stat. §§944.606, 775.21). Florida Statutes detailing procedures for dissemination of such registry information note that the systems serve to ensure public access; moreover, the expressed legislative intent of Florida Sexual Predators Act, which requires a sexual offender’s registration, is community notification to ensure that “accurate information be maintained and accessible” to the public (see Fla. Stat. §§943.043, 775.21(3)). Given the ease with which information from Florida’s sexual offender registry can be found, including the proximity of a sexual offender to any given residential property, whether or not a sexual offender lives within a neighborhood may likely be considered public information within the reach and diligent attention of any buyer. Therefore, as in Nelson, the existence of a public record, albeit one that details the location of Florida’s registered sexual offenders as opposed to housing regulations, may likely discharge a homebuilder from any resulting duty to disclose that a sexual offender resides within a property’s vicinity.
Moreover, while Florida has not directly addressed the issue, either statutorily or through existing case law, several other states who have specifically considered the question have determined a seller is without a duty to disclose that a sex offender’s residence is nearby. Specifically, in Glazer v. LoPreste, the Supreme Court of New York Appellate Division held that the presence of a sex offender in the neighborhood was neither peculiarly within the knowledge of the seller nor unlikely to be discovered by a purchaser exercising due care, such that no claim against the seller existed for failing to disclose the information. Additionally, in Arizona, where a couple brought suit alleging they had unwittingly purchased a home located next door to a registered sex offender, the Arizona Court of Appeals held that any claim against the seller was precluded by an Arizona statute preventing civil action against a transferor or lessor of real property who failed to disclose a transferred property was in the vicinity of a sex offender. In other states which statutorily require some disclosure, such as California, a seller of residential property only need notify the buyer that a state sex offender registry exists, with no accompanying duty to provide any additional information. Similarly, in Michigan, Connecticut, Alaska and Washington, the only required disclosure is that public information pertaining to sex offenders exists, such that buyers then have the ability and duty to investigate such information further.
Ultimately, in the state of Florida, a homebuilder need not disclose the residence of a sex offender nearby; however, more express guidance may await legislative action or a suit directly challenging the issue. While proximity to a known sex offender may be considered to materially affect property values, the existence of a public registry suggests that, like Nelson v. Wiggs, the presence of a sex offender in the neighborhood is not a matter exclusively known to the seller, rather it is information contained in a public record within the buyer’s diligent attention. For a buyer, this means that consulting FDLE’s sexual offender registry may be a prudent step towards finalizing any residential property transaction. In practice, homebuilders should consider including the website information for the FDLE’s sexual offender registry in their standard set of community disclosure documents. It is worth noting that while a homebuilder may not have a duty to disclose the proximity of sexual offenders in a neighborhood, where a homebuilder or sales associate undertakes to disclose some facts, the homebuilder must disclose the whole truth and any fraudulent statements or misrepresentations could run the risk of subjecting the homebuilder to suit. Homebuilder sales associates may be well advised that where they find themselves questioned by a buyer, the safest course of action is to point the buyer in the direction of the FDLE registry, thereby enabling the buyer to learn for themselves the proximity of a sexual offender to their prospective home.
If you have questions about your standard disclosure documents or disclosure obligations as a homebuilder selling residential property, please contact one of Shuffield, Lowman & Wilson, P.A.’s homebuilder practice group real estate attorneys.
Landlords and tenants in commercial lease agreements are justifiably concerned about the payment of rent during the COVID-19 crisis. Tenants all over the state are finding themselves unable to pay rent, as well as other monetary obligations under their leases, either as a direct result of the virus or as a result of the various effects of the virus, and are thus left wondering whether they will be evicted from their homes or places of business. For example, the “stay-at-home” orders issued by various state, municipal, and county governments have required many businesses to shut down entirely, eliminating all of the income necessary for the business to keep up with its rent obligations. Meanwhile, many Landlords’ rely upon rent and other monetary amounts paid under the lease to pay off their own obligations, including the mortgage on the property being rented, and are understandably worried about whether they will be able to make the next mortgage payment.
For tenants, relief from upcoming rental payments may come in the form of a “Force Majeure” clause – a clause often contained in contracts, including commercial leases, which excuses performance for various “Acts of God.” However, one should strongly consider all of its various options before choosing to not pay rent and send a landlord notice of a Force Majeure event; the failure to pay rent may result in a default under the lease, which may have repercussions that outlast the current crisis.
Communicate First. A tenant should not immediately assume that it’s facing a default under the lease simply because he or she cannot pay rent at the current rate. Instead, tenants should first reach out to their landlords and discuss options to avoid a default, such as a temporary deferment or abatement of rent obligations, or a temporary reduction in rent. Likewise, landlords should be reaching out to their lenders to discuss alternative repayment options during the crisis. Commercial lenders may often be less flexible in offering relief, but they also may not necessarily want to go through a foreclosure and take possession of a commercial property which they may not have the resources to manage, and where mortgage payments may resume shortly once things return to normal. Landlords should consider whether there are any obligations they might not be able to comply with, such as co-tenancy requirements, construction of improvements, or maintenance requirements, and negotiate relief from those obligations, as well. Ultimately, it is incumbent on all parties to work together now and avoid conflicts, which may end up far outlasting the COVID-19 crisis itself.
Consider what efforts have been taken by governments to prevent evictions or foreclosures.| While many governmental orders restricting evictions or foreclosures have focused specifically on residential properties, other governmental entities, such as local court systems, have entered orders creating moratoriums on foreclosure actions and eviction actions that may extend to the commercial context. For example, on April 2, 2020, Chief Judge Donald A. Myers, Jr. of the Ninth Judicial Circuit in Florida, serving Orange and Osceola counties, issued an administrative order suspending all foreclosure actions and sales until May 19, 2020. Such orders do not excuse rent payments or mortgage payments, but they may provide some additional leverage for tenants in negotiations with their landlords, and to landlords in negotiations with their lenders. In general, Court System closures, which have been enacted in various counties across Florida, also provide similar relief.
Review your lease for other provisions that may provide relief from payment obligations. For example:
Provisions which provide for rent abatement in the event of loss of access to building or cessation of landlord’s services;
Condemnation/casualty provisions if they extend to loss of use due to governmental action or other loss of access to premises;
Co-tenancy requirements that may permit termination of a lease or a reduction in rent if a neighboring tenant is no longer in business;
Review insurance policies. Landlords should review their rent loss coverages, and tenants should review their business interruption coverages.
What does the Force Majeure clause say? Force majeure clauses will only be enforced based on their specific language, which can vary greatly from lease to lease. One should take time to review and understand the force majeure clause before taking any action.
Many force majeure clauses in commercial leases specifically exclude payment of rent or other monetary obligations from the type of performance that will be excused. If this is the case, the Force Majeure clause may not help a tenant who cannot pay rent but may nonetheless help provide the tenant a break from other lease obligations, such as the obligation to remain in business, which may be impossible under the current circumstances.
What kind of events are covered? Force majeure clauses generally list the events that will trigger their effect. Common examples are natural disasters (tornadoes, floods, hurricanes, etc.), wars, riots, labor strikes, and governmental action. In the context of the COVID-19 crisis, the most important terms may be “pandemic,” “epidemic,” “illness,” or other related terms. If those terms are not listed in the force majeure clause, one may consider whether “governmental action” is listed, and whether such a triggering event has occurred considering the “stay-at-home” orders and other government-imposed restrictions which have so severely restricted what a business can do to stay afloat financially. Finally, Force Majeure clauses often contain general “catch-all” language meant to encompass any event that is “beyond either party’s control,” which could certainly cover many of the circumstances currently impacting business.
Why is the tenant unable to pay rent? In order for a force majeure clause to excuse the payment of rent or other obligations under the lease, a tenant must be unable to pay rent as a result of the COVID-19 virus, governmental action, or other related circumstances beyond the parties’ control, as applicable. Some questions to ask here include: has someone at the tenant’s business contracted the illness, or has the location been in contact with an infected individual, such that the tenant will have to close its business for purposes of quarantining itself from the public? Has the tenant been ordered or mandated by a governmental entity to close its business?
Economic downturn is not a Force Majeure event – Something that has been an unfortunate result of the current circumstances has been an overall weakening of the economy and financial markets. This alone may not be a Force Majeure event that would excuse the payment of rent. This is a critical distinction for tenants who have been deemed providers of “essential services” for purposes of the “stay-at-home” orders issued by the various governmental authorities. Such tenants, such as restaurants and grocery stores, have been permitted to stay in business, but may nonetheless be experiencing financial strain due to reduced sales. In other words, their inability to pay rent may come more as a result of the economic downturn caused by the COVID-19 crisis, than as a result of the actual force majeure event (i.e. the actual virus itself, or the governmental action resulting therefrom). In that case, it is less certain whether a tenant can successfully claim force majeure.
With so many factors to take into consideration, it can be difficult deciding which avenue is the best to take. Our commercial litigation and real estate teams are here to assist tenants and landlords with navigating this financially trying time by advising our clients on their options based on the specific terms outlined in their contracts.
For more information about whether COVID-19 is considered a Force Majeure event, you can contact us here.
In December of 2017, the U.S. Congress established the Qualified Opportunity Zone (“QOZ”) program, designed to help economically-distressed communities where new investments, under certain conditions, may be eligible to generate preferential tax treatment for investors. Investments made in these designated QOZs through a qualified legal entity referred to as Qualified Opportunity Fund (“QOF”) are intended to provide much-needed new investment and capital into economically depressed communities throughout the United States and Puerto Rico. In short, the QOZ program is an economic development tool designed to spur economic development, revitalize communities in need, and create jobs in distressed communities by attracting new investments in exchange for select income tax benefits.
In general, here is how the QOZ program operates. If an investor disposes of assets (e.g., stocks, real estate, an operating business), on or after Dec. 22, 2017, which triggers taxation of capital gains to the investor, then such investor may seek to utilize the QOZ program. The investor can either create or locate a QOF to invest a portion of its transaction proceeds (e.g., cash) within 180 days of the divestment (sale) transaction date. Once capitalized, the QOF must, in turn, invest a certain minimum amount of its assets (directly or indirectly) into an operational business or real property located in a QOZ. The QOF oversees and manages the investment in the QOZ until the QOF decides to divest from the QOZ investment at a future date. In exchange for this QOZ investment, the QOF receives certain income tax benefits that it passes along and up-the-chain to its owners and investors.
As you can imagine, the rules and regulations governing QOZs and QOFs are complicated and require detailed analysis; the previous paragraph is a rather simple summary of a QOZ transaction. Below is a list of some very important highlights to keep in mind when considering an investment using the QOZ program.
The QOZ program is designed to provide three (3) tiers of income tax benefits to investors:
The investors can defer income taxation on prior capital gains that are invested in a QOF until the earlier of December 31, 2026 and the date on which the investment in a QOF is relinquished (known as the capital gain deferral piece).
If the investor holds the investment in the QOF for longer than 5 years then there is a 10% bonus exclusion of the deferred income taxation on the prior capital gains. If the investor holds the investment in the QOF for longer than 7 years then the bonus exclusion bumps up to 15% (known as the tax basis step-up piece).
If the investor holds the investment in the QOF for no less than 10 years, then the investor is eligible to liquidate or cash-out from the QOF free of income taxation on any new tax gains generated from appreciation of this QOF investment (known as the non-recognition of new taxation piece).
Only capital gains (although both long-term and short-term) are eligible for deferral under the QOZ program. Ordinary income (non-capital gains) is not eligible for deferral under the QOZ program. However, all capital gains are eligible for roll-over into a QOF. The QOZ program is not limited to gains from real estate, stocks or any specific asset or transaction, and a pot of various sources of capital gains can be used to invest in a QOF. In other words, an investor can dispose of many different assets in various transactions and trigger capital gains from these items, and then invest all (or a portion of) these capital gains into a QOF to receive the income tax benefits.
An investor can defer payment of capital gain taxation to the latest date of Dec. 31, 2026, so long as such prior capital gains are invested into a QOF within 180 days of the divestment (sale) transaction that triggered the tax gain. The S. Internal Revenue Service (“IRS”) clarified that the clock for the 180-day period for investing the capital gains in the QOF begins for most taxpayers on the date the capital gains would be recognized for U.S. federal income tax purposes. For individuals, this rule means the date on which the dispositions of assets trigger capital gains taxation. For partnerships, the 180-day period begins to run on the date the partnership disposes of assets triggering capital gains taxation. But, if the partnership does not reinvest its capital gains in a QOF, then the partners may reinvest their allocable share capital gains, and the 180-day period for each partner begins on the last day of the partnership’s tax year in which such disposition of assets occurred. This partnership rule also applies to S corporations (but not C corporations).
Only the amount of the capital gains must be invested into a QOF to defer all the income taxation related to them. There is no requirement that all cash received by an investor from the disposition of assets must be reinvested in a QOF to receive the income tax benefits; just an amount of assets (e.g., cash) equal to the amount of the prior capital gains.
Think of a QOF as an investment vehicle, whether a partnership or a corporation, that acts as the funnel for the various investors to collect money and other assets to invest it into the QOZs. The QOF can be a new or existing entity, and could be an entity created by the investor solely to invest its money and assets. A QOF becomes qualified with the IRS by self-certifying that it is a QOF and filing IRS Form 8996 (Qualified Opportunity Fund) with its federal income tax return. For example, a QOF could be a newly-formed Florida limited liability company that is organized by the investor, capitalized by the investor and at least one other person, taxed as a “partnership” for U.S. federal income tax purposes, and invests its money by acquiring QOZ property.
The QOF must acquire, own and hold QOZ property to generate the income tax benefits. However, the QOF is not required to utilize all its cash and assets to acquire, own and hold QOZ property, but there is a minimum threshold that must be satisfied by the QOF. Also, there are strict limitations and rigorous requirements surrounding the QOZ property acquired, owned and held by the QOF.
Current operating income generated from an investment in a QOF is subject to income taxation, and does not receive any special tax exceptions or tax exclusions.
An investor does not need to live, work or have a business in a QOZ to receive the income tax benefits. All the investor must do is invest prior capital gains into a QOF and elect to defer the taxation on such capital gains pursuant to the U.S. federal tax code.
For an investor to receive the full array of QOF taxation benefits, the latest date (according to the current S. federal tax code requirements) by which capital gains must be invested into a QOF is Dec. 31, 2019.
For an investment to comply with and satisfy the requirements of the QOZ program, the investment must be an equity ownership interest in the QOF. Loaning money to a QOF (i.e., debt instruments) is not an eligible investment for purposes of the QOZ program.
The income tax benefits generated by the QOZ program are not mutually exclusive of other tax benefits under the S. federal tax code, such as New Markets Tax Credits (NMTCs), Low-Income Housing Tax Credits (LIHTCs), and section 1031 like-kind exchanges (assuming some capital gains are triggered by the transaction). The QOZ program could be combined with other programs.
The QOZs were designated by the Governor of Florida prior to March of 2018, and QOZs represent specific “census tracts” located within low-income communities. Here is a website link to a map showing the various QOZs within the State of Florida:
As you can see, the rules and regulations governing QOZs and QOFs are complicated and require very detailed analysis. All facts and circumstances should be taken into consideration when considering, and prior to making, an investment into a QOF using the QOZ program. Should you have any questions regarding the QOZ program, please feel free to contact Nathaniel Dutt, Esq. at ndutt@SLLaw.com or Jordan Horowitz, Esq. at jhorowitz@SLLaw.com, or either at 407-581-9800.
If you are unable to qualify for a loan backed by traditional collateral, you can still secure the loan using assets such as art, yachts, accounts receivables or service contracts. At ShuffieldLowman, we can assist borrowers and lenders alike in performing the due diligence necessary to confirm whether traditional collateral will be sufficient or whether non-traditional assets can be used to secure the transaction. Watch as ShuffieldLowman attorney, Jordan Horowitz, explains more about non-traditional asset-based financing.
A very important component to any real estate transaction is the review of a current survey, no more than 90 days old, of the subject property. ShuffieldLowman can assist in reviewing your commercial or residential survey to confirm that aspects such as the legal description, title commitment, and encroachments and access have been examined. Reviewing the survey prior to closing will help avoid any problematic issues down the road. Watch as ShuffieldLowman real estate attorney, John Junod, explains the importance of a survey review in real estate transactions.