The current primary laws affecting residential tenancies are the CDC Agency Order Published September 4, 2020 and California’s AB3088 enacted August 31, 2020 aka The California Tenant, Homeowner, and Small Landlord Relief and Stabilization Act.  Commercial evictions for non-payment of rent may still be limited through Governor Newsom’s September 23, 2020 Executive Order extending the timeframe for the Covid-19 protections through March 31, 2021. The Governor’s Order can be used by local governments to forestall non-payment of rent evictions for commercial tenants suffering adverse financial impacts due to Covid-19.  Further, the new statutes limit local government’s ability to create additional relief for residential tenancies.  AB3088 also requires residential rent repayment to begin by March 1, 2021.

Read Michael Simkin’s detailed explanation of these new laws (and more) in his article published by the Real Property Section of the CLA (California Bar Association).  Click here: Article on AB3088 and other New Covid-19 Rent Laws

Most California commercial leasing transactions use one of the AIR CRE Commercial Leases (“AIR Forms”) or the CAR Commercial Lease form (“CAR Form”).  The AIR Forms are very inclusive at 20+ pages, are balanced for the landlord and tenant, but may not be the right choice for every commercial lease.  The CAR Form is user friendly at 6 pages, but only covers the basics.  The AIR CRE forms have specific leases for office, single, multi-tenant, ground leases and for shopping centers.  AIR also offers addendums for arbitration, options to extend, rent adjustments, right of first refusal, etc.  The primary difference between the AIR and CAR forms are detailed assignment of responsibility.    Read my article published by the CLA (of the California State Bar Association) to answer your questions about the forms.

Click here to read Simkin’s CLA Article comparing the AIR and CAR Commercial Leasing forms

 

Should I use the AIR CRE Commercial Leasing form of the CAR Commercial Leasing form?  The lawyer answer is that they are similar but different!  Most of the time the AIR form should be used, but both have pros and cons for landlords and tenants.  See this attached memo with snippets of the clauses discussed or read below.  Click here: AIR vs. CAR Commercial Leasing Forms  Please let me know what you think of my comments.

Nine AIR Commercial Leasing Forms vs. One CAR Commercial Leasing Agreement?

Most California commercial leasing transactions use one of the AIR CRE Commercial Leases (“AIR Forms”) or the CAR Commercial Lease form (“CAR Form”).  The AIR Forms are very inclusive at 20+ pages, are balanced for the landlord and tenant, but may not be the right choice for every commercial lease.  The CAR Form is user friendly at 6 pages, but only covers the basics.  The AIR CRE forms have specific leases for office, single, multi-tenant, ground leases and for shopping centers.  AIR also offers addendums for arbitration, options to extend, rent adjustments, right of first refusal, etc.  The primary difference between the AIR and CAR forms are detailed assignment of responsibility. Read more below: Continue Reading Comparison of the AIR vs. CAR Commercial Leasing Forms (With Hints!)

Should I use the CAR or AIR Form Agreement to Purchase Commercial Real Estate ?

Here is this article as a pdf with the actual provisions discussed.  Click here: AIR vs. CAR Real Estate Purchase Forms which to use

Most (90%+) of California realtors use either AIR CRE Standard Offer, Agreement And Escrow Instructions For Purchase of Real Estate (Non-Residential) (referred to as “AIR”) and the CAR Commercial Property Purchase Agreement And Joint Escrow Instructions (NON-RESIDENTIAL) (referred to as “CAR”). When it comes to real estate transactions, custom agreements usually are where the malpractice occurs. The AIR forms are designed to keep the transaction moving. The CAR forms allow the buyer more time to inspect, perform, or extend the closing date. Often, it is also more likely the buyer can get the deposit refunded if a CAR form is used.

The primary difference between the AIR and CAR forms are passive vs. active contingency removal.

Most “commercial realtors” will use the AIR form if they represent a seller because it has passive (auto removal) of contingencies. CAR forms are usually used if the realtor does not belong to the AIRCRE organization that licenses those forms. The CAR form is usually more favorable for a buyer. I have membership in both organizations and use AIR and CAR forms. I have also used CAR forms for sellers, as with everything, it just depends. 😊

AIR Agreement has passive or automatic contingency removal of the financing and physical inspection contingency. This means that if the buyer fails to notify the seller that it is not removing its contingencies it is presumed that the contingencies have been waived and the transaction will continue. For example, the AIR form at paragraph 5.2 and paragraph 9.1 provide in part:

Paragraph 5.2 states in part:  “If Buyer shall fail to notify its Broker, Escrow Holder and Seller … in writing… that the New Loan has not been obtained, it shall be conclusively be presumed that Buyer has either obtained said New Loan or has waived this …contingency.”

9.1 states in part: “If Buyer fails to notify Escrow Holder in writing, of the disapproval of any of said contingencies within the time specified therein, it shall be conclusively presumed that buyer has approved such item, matter or document.”

However, the CAR form is more lenient for buyers because the default requires affirmative, or active removal of contingencies in writing, or they are not automatically waived/removed. This is usually better for buyers. This is also why CAR forms require a series of Notice to perform/Notice to Cancel/Notice to Close, etc. before a party can terminate the transaction. The CAR form at paragraph 18 provides:

“Any removal of contingencies or cancellation under this paragraph by either Buyer or Seller must be exercised in good faith and in writing.”

The way the escrow closing date is calculated also differs between the AIR and CAR forms.

The AIR Agreement basis the closing date to the buyer’s removal of contingencies.  Paragraph 1.1 of the AIR Agreement ties the closing date to ____ days after waiver or expiration of Buyer’s Contingencies.  It provides in part:

“… (“Escrow”) … to close 30 or ____ days after the waiver or expiration of Buyer’s Contingencies (“Expected Closing Date”).”

The seller must then be aware that if an extension of the date for inspection or another contingency is made, but the seller does not want to extend the closing date, to make that clear when the contingency extension is provided to the buyer.  This may be a factor when 1031 deferred exchanges are involved.

The CAR Agreement sets the escrow closing date to +__ days after acceptance.  Paragraph 1. D. provides in part that:

“Close of Escrow shall occur on (_____ ) (date) (or ___ Days After Acceptance).”

Because the CAR Agreement is tied to the date of acceptance, extending buyer’s date to remove contingencies will not automatically extend the escrow closing date.  Most realtors forget about this which may create a loophole for the seller to serve a notice to perform and maybe notice to cancel escrow.  This is common in today’s “seller’s market”.

The AIR Agreement liquidated damages clause differs from CAR and only applies to the deposit.  AIR limits its built-in arbitration clause to liquidated damages or deposit disputes.  It also provides that if the deposit is paid as liquidated damages to the seller, then any escrow and title cancellation fees are paid by the seller.  If a broader arbitration clause is desired, then the separate AIR form arbitration addendum should be used.  However, even that addendum has limits on what is covered by arbitration.

CAR is consistently buyer friendly.  I like Paragraph 25 because it makes it clear that a clause added by a realtor (or a seller’s know it all lawyer) trying to change the intent of the CAR form is void.  Also, if the deposit is increased, a separate CAR form is required.  CAR’s liquidated damages clause at paragraph 25B is phrased similarly to the AIR form, but they both fail to comply with Civil Code section 1671 unless modified.

As to liquidated damages being kept by the seller, in my opinion both forms do not protect the seller.  The law abhors forfeiture and Civil Code section 1671 provides for a very high burden for the seller to keep the deposit.  But I have a secret way to help sellers, look for another post, maybe 😉.

Dispute Resolution differs between the AIR and CAR Agreements.  (AIR is limited to the deposit, and CAR is broader as to what disputes are included for arbitration.)

The AIR Agreement does not require mandatory mediation of disputes, and if selected, does not require the arbitrator to be an attorney or retired judge.  However, it requires arbitration of disputes about the buyer’s earnest money deposit if the parties initial that provision.

The AIR agreement paragraph 22.2 benefits the seller if the seller wins.  It provides in part:

“Buyer’s resort to or participation in such arbitration proceedings shall not bar suit in a court of competent jurisdiction by the buyer for damages and/or specific performance unless and until the arbitration results in an award to the seller of liquidated damages, in which event such award shall act as a bar against any action by buyer for damages and/or specific performance.”

Most disputes either concern the return of the deposit, specific performance or failure to disclose known defects.  If the buyer loses the fight over the deposit, then it’s game over.  I don’t understand how an arbitration of the deposit issue is tied to a specific performance action unless the seller wants to keep the deposit and not complete the transaction.  I assume this means that parallel proceedings can occur with one party arbitrating and the other suing in Superior Court until the arbitration award is final which would serve to put litigation expense pressure upon the parties to settle.

The AIR Agreement requires arbitration under the commercial rules of the American Arbitration Association, requires forfeiture of many normal rights in litigation, and requires that each arbitrator shall be an impartial real estate broker with at least 5 years of full time experience in both the area where the property is located, and the type of real estate involved.  Personally, I do not want a non-lawyer (or non-judge) making a final decision that cannot be appealed.  Therefore, I suggest parties not agree to the arbitration provision as written in the AIR agreement.

The AIR Agreement does not require mediation, but the CAR Agreement requires mediation to be awarded attorney’s fees.

Only the CAR Agreement has mandatory mediation in order to be awarded attorney’s fees.  I think the CAR Agreement is better because it requires that buyer and seller agree to mediate disputes before filing a lawsuit even if the arbitration clause is not signed.  The exceptions are if a an eviction or lis pendens needs to be filed.  The CAR form requires mediation through the C.A.R. Consumer Mediation Center which has many brokers and lawyers who will mediate disputes for less money than a retired judge.  However, the parties are free to choose whomever they want as mediator.  Paragraph 26A provides in part “… then that Party shall not be entitled to recover attorney fees, even if they would otherwise be available to that Party in any such action.”  The penalty for not mediating is severe, the party refusing to mediate may lose his or her right to recover attorney fees even if ultimately prevailing in the dispute.

The CAR Agreement requires that the arbitrator be an attorney, unless the parties choose otherwise.  Paragraph 26. B of the CAR Agreement requires the arbitrator be a retired judge, or an attorney with at least 5 years of transactional real estate Law experience, unless the parties mutually agree to a different arbitrator and gives the right to discovery.  This provision is better than the AIR agreement that requires a broker, not a real estate lawyer.  CAR paragraph 26. B. provides in part: “The arbitrator shall be a retired judge, or justice, or an attorney with at least 5 years of transactional real estate Law experience, unless the parties mutually agree to a different arbitrator.”

Assignment of the Agreement (AIR is more Buyer friendly)

The AIR and CAR forms differ about assignment of a signed purchase and sale agreement.  The AIR Agreement does not require the seller’s consent for a buyer to assign its rights under the agreement.  This makes it much easier for escrow to change the buyer to an LLC owned by buyer or a third party so the buyer can make a quick flip.   Paragraph 1.1 of the AIR Agreement provides in the last part of ¶ 1.1 buyer may assign the contract, but requires the seller to expressly release the buyer (which as a practical matter does not mean much).

AIR paragraph 1.1 provides in part: “Buyer shall have the right to assign Buyer’s rights hereunder, but any such assignment shall not relieve Buyer of Buyer’s obligations herein unless Seller expressly releases Buyer.”

The CAR Agreement is more restrictive because it requires seller’s consent for any assignment of buyer’s interest in the agreement.  From a practical point, the buyer can assign because it would probably be unreasonable for the seller to withhold consent.  But this clause may lead to unnecessary litigation if the seller wants to play games.  The CAR provision is at paragraph 30, providing in pertinent part:

“Buyer shall not assign all or any part of Buyer’s interest in this Agreement without first having obtained the written consent of Seller. Such consent shall not be unreasonably withheld unless otherwise agreed in writing.”

AIR requires the seller to provide tenant estoppel certificates, CAR does not.

This difference is mind blowing.  Many commercial transactions involve tenants in possession.  It is broker malpractice not to obtain tenant estoppel certificates.  I had a case that started after major law firm failed to obtain an estoppel certificate regarding the sale of a large hotel because it was a “small lease”.  While the case was a lot of fun, that small lease cost the hotel hundreds of thousands of dollars in unnecessary litigation.

The AIR Agreement requires the seller to provide buyer with estoppel certificates.  Paragraph 9.1(h) of the AIR Agreement provides in pertinent part that:

“Seller shall within 10 or ____ days provide …Buyer and Escrow Holder with legible copies of all leases, … and with a tenancy statement (“Estoppel Certificate”) … executed by Seller and/ or each tenant…Seller shall use its best efforts to have each tenant complete and execute an Estoppel Certificate for that tenancy.”

The CAR Agreement does not have a mandatory estoppel certificate requirement, rather, it requires a box to be checked for the seller’s obligation to provide signed tenant estoppel certificates.

Which form should I use?

As with most things, there are more than one way to do it.  The AIR and CAR Agreements both get the job done.  From my point of view, both are equal once I have modified them.  And if people want to breach the contract or sue, nothing can stop that.  However, a competent attorney can help eliminate some of the variables.  Commercial realtors (especially when representing a seller will probably use the AIR form.  Switch hitters (realtors that sell both residential and commercial) will probably use what they have on their computer – the CAR form.

There are several legal doctrines to examine to determine if a commercial tenant’s lease obligations are excused.  The start is Civil Code §1511 and Civil Code §1514  This post examines  the doctrine of “frustration of purpose” which is close to the related “impossibility of performance” doctrine, but frustration more properly relates to the consideration for performance.  (Autry v. Republic Productions (1947) 30 Cal.2d 144)

Frustration of purpose requires  supervening events, unknown at the time a contract is made, so that without fault, a basic assumption on which the contract is made, cannot be performed.  (FPI Development, Inc. v. Nakashima, 231 Cal. App. 3d 367 (3d Dist. 1991)
If the debtor’s performance is excused by these causes, the debtor may owe part of the consideration according to the benefit which the creditor receives from the actual performance. (Civil Code, § 1514)

Saleen cars look awesome!  Too bad the one in this case (not as pictured) only drove for 50 miles than died.  Civil Code §1717 has a mutuality component.  The defendant was added as an alter ego of a debtor under a Riverside Superior Court judgment, but was found to NOT be the alter ego.  Therefore, he was entitled to an award of attorney fees although he was not a party to the contract sued upon in the former action which contained an attorney-fee provision.  The case is hereMSY Trading Inc. v. Saleen Automotive, Inc  The logic is if the person sued as an alter ego had been found to be the alter ego, he  would be liable for attorney fees under the contract so, if the person is found not to be an alter ego it’s only fair to grant fees in favor of that defendant.

The appellant MSY Trading Inc. imports and exports vehicles. It obtained a stipulated judgment in Riverside against SMS Retail Corona and SMS Signature Cars, Inc. regarding its purchase of a defective Saleen brand automobile.  Unable to collect on the judgment, MSY filed with the Riverside Court to add the famous business executive and former race car driver Steve Saleen and Saleen Automotive as judgment debtors, arguing that they are alter egos of the defendants. The court declined to add Steve Saleen, however, it added Saleen Signature Cars as a judgment debtor.  (The lesson is don’t through around alter ego without sufficient facts).

The reason Saleen Automotive was added is because a stipulated judgment was agreed to including Saleen Automotive.  The Court stated that whether by inadvertence or otherwise, Saleen Automotive was not a signatory to the settlement agreement.   So that was a pretty easy call for the courts to add the entity.

I find it amazing how lawyers make false arguments.  1st, the appellate court pointed out that the respondent MSY argued that Saleen was late filing his notice of appeal.  The Court pointed out that “Somewhat ironically, if plaintiffs are correct, their own appeal (filed December 3, 2018) is untimely too.”

2nd, the Saleen defendant opposed the award of fees against the Saleen entity.  The court pointed out the glaring floaw.  Saleen Signature Cars was added to a judgment that contains an award of contractual attorney fees. The amended judgment did not eliminate the prior judgment, it simply added a party. Thus Code of Civil Procedure section 685.040 applied which allows post judgment fees for enforcing a judgment!  Moral, sometimes you do not want what you ask for!  Or maybe what is good for the goose is good for the gander.  Or pay your debts!  I also think for the size of the judgment, both sides spent more on attorney’s fees than the ultimate judgment so don’t waste judicial resources.

 

 

I see this case more as a discovery matter and a lesson for lawyers and clients not to lie.  But it also stands for malicious prosecution, a favorable termination requires more than a dismissal of the underlying action.  The person wrongfully sued who has prevailed must show a favorable termination on the merits that reflects on his innocence of the alleged wrongful conduct to support a subsequent action for malicious prosecution.  This matter turned on a discovery issue, and Rams Gate hiding information in discovery.

This case involved the purchase of a Sonoma County winery by the defendant (Rams Gate Winery).  For me, I especially liked the 1894 law pointed out by the Court stating: “…under Wittenbrock v. Parker (1894) 102 Cal. 93 (Wittenbrock), Ram’s Gate must be constructively charged with information in the hands of its transactional counsel,…”  I love this because the transactional lawyer in the underlying purchase and sale transaction had possession of the information his client asserted it did not have.  It is critical that lawyers send all documents and convey all facts about a transaction to their client!  Roche v. Hyde – filed June 30, 2020, First District, Div. Four
Cite as 2020 S.O.S. 3283  Full text click here >

Further, this hotly litigated case had a unique issue  involving Rams Gate winning a summary adjudication motion.  While only part of the case was decided, Rams Gate only won due to its withholding of discovery.  Therefore, the exception to the interim adverse judgment rule recognized in Carpenter v. Sibley (1908) 153 Cal. 215 (Carpenter) applied for judgments procured by fraud or perjury applies.

The Court held that “As a matter of first impression, we hold that egregious discovery misconduct—here, the withholding of a critical piece of evidence in willful violation of multiple court orders, including a sanctions order, where the suppressed evidence likely would have resulted in a summary judgment victory for Roche—may provide a basis for applying the fraud or perjury exception under Carpenter.”

I am continually amazed how lawyers and their clients lie and withhold information in discovery.  Courts are not idiots, and when they discovery a lie in discovery, they tend to not believe anything the party (or their lawyer) say and the case is lost.

P.S.  The initial transaction was in 2005, this case is still not over and its 2020!  However, the prior owners of the winery have both passed away.  The opinion n is 95 pages long, but has a nice discussion of the facts and law.

Los Angeles County now accepts online notarization.  LA County Recorder Accepts Electronic Notarization

Essentially you Facetime the notary, provide your ID and they email you the notarization certificate and document notarized.  It is the absolute best way to notarize.  I’m sure its only a matter of time for the fraudsters to exploit it.

I have used www.notarize.com.  They have an app, it costs $25 and is simply amazing!  I believe Virginia, Texas, Minnesota and others directly allow for electronic notarization.  See also here:States allowing online notarization

LOS ANGELES (Updated April 24): “All civil trials scheduled to begin for the period March 17 through June 17 have been or will be continued by General Order. Because civil jury and non-jury trials are not included in the enumerated time-sensitive essential functions set out in these General Orders, they will be continued, or advanced and vacated and a trial setting conference will be scheduled. The parties will receive individual minute orders issued by the trial judge to whom the case is assigned continuing these trials to a date after June 17 or advancing and vacating the trial dates and scheduling a trial setting conference on or after June 22. The length of the continuance will be determined by reference to a number of factors, including most critically, the ongoing need to protect the public, potential jurors, attorneys, witnesses, court staff and judicial officers through the use of social distancing. Many courtrooms, jury boxes, jury deliberation rooms, audience seating and size and counsel table locations may not be well-suited to maintain the social distancing measures that we assume will continue even after our court moves into hearing non-emergency matters. Thus, our total available supply of jury trial-ready civil courtrooms may remain constrained for some period of time. The length of the continuance will also be influenced by the ability of our criminal courts to summons and secure a sufficient number of jurors to enable them to meet all constitutional speedy-trial requirements. Given that any pool of potential jurors must first be allocated to those criminal matters with constitutionally mandated trial dates, civil jury pools will be restricted for the foreseeable future. Further, limiting the ability of civil courts to resume civil jury trials immediately upon reopening of the courts to non-essential matters is the need to comply — to the greatest extent possible — with the statutory preference schemes articulated in CCP section 36, and the statutory mandates for unlawful detainer trials. The same considerations requiring the court to continue civil jury trials for the period from now until June 17 apply to those trials currently scheduled to begin on or after June 22. While the continuance orders may not be immediately issued, counsel should be prepared for the possibility that courts will find good cause for further continuances of non-preference civil jury trials throughout the summer. Because our courtrooms and courthouses are very likely still to be operating under social distancing requirements when we resume operations, counsel are strongly encouraged to appear telephonically for all calendar matters. In fact, our ability to resume calendars of any substantial size, is wholly dependent on counsel’s willingness to appear telephonically. The electronic filing system for non-complex civil matters continues to accept filings. Motions for Complex courts can be filed using drop boxes. Civil law and motion matters are not enumerated as time-sensitive essential proceedings under the Court’s existing and future General Orders. The Court at this time must direct its resources to ensuring that the constitutionally and statutorily mandated time-sensitive essential matters in criminal, dependency, delinquency, mental health, probate and family law can be timely heard and decided. Also, please keep in mind that more than 75% of the court staff is away from the courthouses during this emergency period. The court simply cannot process civil law and motion matters at this time.” More “All courtrooms will remain closed for judicial business through May 12, except time-sensitive, essential functions. All other matters will be continued by the Court. Access to all Los Angeles County courthouses remains restricted at all times to judges, commissioners, court staff, co-lessees, Judicial Council staff and vendors, and authorized persons.” More “Los Angeles Superior Court Presiding Judge Kevin C. Brazile, in a webinar on Friday…speculated that civil trials will start up again in August or September, and said civil trials now scheduled for late June will probably be continued.” More “Effective March 23 and until further notice, the Superior Court of Los Angeles County will close the Clerk’s Offices at all 38 courthouses.” More