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