New York Real Estate Lawyers Blog

January 10, 2013

Legal Issues Relating to the Sale of Businesses and Professional Practices

Our firm is often asked by clients to handle the purchase or sale of an ongoing business. This business may also be a professional practice, such as a pharmacy, or medical or dental office. There are many legal aspects of such a transaction, which will be discussed in this blog post.

Such transactions often involve the sale of real estate which is owned by the business being sold. For example, if a pharmacy is being sold, the building in which the pharmacy is located may be owned by the business in question. In such a situation, the sale of the real estate would be part of the transaction in which the actual business is also being sold. For tax purposes, the amount paid by the buyer should be allocated separately to both the real estate (if applicable) and business in question. A further allocation may be made with respect to fixtures and equipment that are part of the transferred items. Therefore, if the total purchase price is $600,000.00, $300,000 may be considered the price for the real estate, and $300,000.00 for the purchase of the actual business. We recommend that all parties consult their accounting professionals to determine the most favorable allocation for tax purposes.

The first legal issue relates to the legal structure of the business being purchased. If the business is an entity such as a corporation, professional corporation (P.C.) or limited liability company (LLC), the entity and its assets can be sold to another party. The first step in this process involves confirming that the corporation is in “good standing” in the State of New York. This involves checking to ensure that the entity has made all necessary filings and is current in paying its franchise taxes. A certificate of good standing should be obtained from the New York State Department of State. In addition, all corporate documentation, including the stock certificates, stock book, and corporate seal should be delivered at the time of the completion of the purchase.

January 3, 2013

New York Law Pertaining to Home Warranties

By Weiss & Weiss

Home purchasers in New York State often request warranties in connection with their home purchase. However, depending upon the type of property purchased, warranties on general construction and mechanical systems will not be obtainable. Without an express and separate warranty, any representations made in the contract of sale with respect to property condition will expire upon the delivery of the deed at closing. As such, the purchaser must generally discover all property defects prior to receiving the deed in order to expect a remedy from the seller. New York is a “caveat emptor” jurisdiction, meaning that buyers generally take title without a seller’s warranty as to condition and without recourse if the buyer discovers unacceptable conditions after the closing.

The most common warranty that is realistic for a New York real estate purchaser to obtain applies to new construction of a home to be used as the primary residence of the purchaser, who is also the first person to live in the home. In this instance, the warranty will have a monetary limit and will expire in stated periods of time depending on the type of item. A standard new home warranty will cover construction defects, flaws in the plumbing, electrical, heating, cooling and ventilation systems servicing the home and material defects. A new home warranty typically excludes appliances, which are covered by the manufacturer’s warranty. However, if the builder installed the appliances improperly, the purchaser can rightfully bring a claim under the new home warranty. A homeowner making a claim must follow the notice deadlines specified in the warranty and afford the builder an opportunity to inspect and correct the defect, as outlined in the warranty.

Most purchasers in New York acquire a home that is “used”, having already been lived in by someone else. The standard contract provision in New York states that all warranties and representations made by the seller expire upon the delivery of the deed, unless they are expressly stated to survive the delivery of the deed. This means that once the deed is delivered at the closing, the purchaser is accepting any conditions that may exist at the property. As such, the purchaser should thoroughly inspect the property immediately before the closing. Any condition that could have been discovered becomes the purchaser’s problem once the closing has concluded. In any event, a purchaser of a used home should receive the benefits of manufacturers’ warranties with respect to appliances.

December 7, 2012

Real Estate Legal Issues Relating to “Super-Storm” Sandy

By Weiss & Weiss

Uprooted Tree.jpg Recent extreme weather conditions in the New York metropolitan area have caused great hardship for many of its residents. We hope that those individuals and families who suffered damage or destruction of their residences are in the process of recovery. This blog post will discuss some of the legal issues which may arise from some of the results of the “super-storm.”

The first issue for many homeowners is when there is property damage which may be covered by their homeowner’s insurance. Most standard homeowner’s policies will pay to repair damage to a house and other physical structures located on the property caused by extreme weather conditions, with the exception of flood damage, which is covered under separate insurance policies that a homeowner may obtain. One example of this may be an uprooted tree which fell on a house and caused damage to a roof. If this occurs, the homeowner should contact their insurance agent and notify them immediately of the damage. The insurance company will then send an insurance adjuster to the property. The adjuster will survey the damage and will then estimate the amount it will take to repair the property. Repairs made before the insurance company has inspected the damages and approved of the cost to repair are unlikely to be reimbursed.

The homeowner may receive a check from their insurance company to pay for the repair work in question. However, where the property is mortgaged, the lender usually must be notified. The reason for this is that most loan documents contain clauses requiring the homeowner to keep the property in good repair and to involve the lender in the event of a casualty. If the homeowner receives a large sum of money from an insurance settlement, the lender has a vested interest in making sure these funds are applied to repair the property, and not spent by the homeowner for other purposes. Most lending documents therefore require that any insurance proceeds in excess of $10,000.00 be endorsed by both the homeowner and a representative of the lender. In practical terms, the check from the insurance company in excess of this amount will be issued to both the homeowner and the lending institution as co-payees. The homeowner must then obtain consent and a written endorsement on the check from their mortgage lender in order to deposit these funds, and must show that the funds are being used to repair the property which is the subject of the mortgage.

November 30, 2012

New York Residential Real Estate Contracts- Legal Issues

By Weiss & Weiss

Residential real estate contracts in New York State are prepared and negotiated by attorneys, rather than by other real estate professionals such as real estate brokers. This custom allows the opportunity for parties to real estate transactions to have professionally prepared contracts, serving as the road map for the entire transaction. There are particular provisions in a typical New York residential real estate contract of which our readers should be aware.

The most common conversation that we have with our real estate clients, whether they are the purchaser or the seller, pertains to the closing date. The standard contract clause will provide that the closing date will be “on or about “x” date”. This has been interpreted by New York courts to be a ” target=”_ date, not a date that either party must absolutely attend a closing and complete the transaction. We advise our clients not to schedule the movers, arrange for contractors to commence renovation projects or set up the closing of another transaction based upon an “on or about” closing date. New York legal custom generally allows thirty days after the target “on or about” closing date before one of the parties may legally expect to hold the closing.

At this point, it would then be appropriate for one of the attorneys to send a “time of the essence” closing date notice. A time of the essence notice must be in writing and will specify the time, date and location when the party sending the notice expects to perform its contractual obligation, deemed “law day”. New York Courts have held that time of the essence notices are to be sent on no less than thirty days notice. The party sending the notice needs to attend the closing on “law day” and to perform the closing, such as by having their client sign closing documents and having other parties such as title closers attend. In fact, it is common practice to have a court reporter attend the time of the essence closing to document a party’s failure to perform, so that a contract downpayment may be seized or another remedy for breach of contract employed.

November 13, 2012

Legal Defenses to Foreclosure Actions in New York State

By Weiss & Weiss

Our firm is often retained to defend, as well as prosecute, foreclosure actions in New York State. When we are representing the defendant in a commercial or residential foreclosure action, we examine many legal issues to determine whether the action can be successfully defended in Court. Often, a defendant is simply seeking a delay in the lawsuit to enable it to attempt to refinance the property and pay off the mortgage, or to negotiate with the lender during the course of the litigation for more favorable loan terms.

In several cases litigated by our firm, the lender’s attorney used a basic “foreclosure form” lawsuit for the complaint against our client. However, the basic facts as alleged in the lawsuit may not match the actual facts of the individual case. Many foreclosure specialty firms operate on a volume basis, and there is not always complete and thorough review of the contents of the pleadings. In those situations, we have been able to have the lawsuit dismissed or delayed, allowing our clients time to obtain additional funding for the property or to remain as occupants of the property.

Another important defense available to a potential foreclosure defendant involves the legal owner of the mortgage and note at issue. Many loans are sold from the original lender to a servicing company. The servicing company may also sell the loan to another company during the loan period in question. By the time there is an alleged default, the borrower may be dealing with a different company than the original lender.

October 18, 2012

Constructive Trusts and Real Estate in New York State

By Weiss & Weiss

A constructive trust is a legal concept which may occur in the ownership of real property in New York State. It can be imposed by a Court in New York State when there is evidence that the actual ownership of property is not accurately reflected in the deed to the property in question.

To give an example, two siblings agree to purchase a property, such as a house. They both agree to contribute the same amount of money to the purchase of the house. However, only one sibling can qualify for a mortgage, as the other has bad credit. In order to obtain a mortgage and purchase the property, the two parties agree that the property shall be purchased in the name of the sibling with good credit, and the deed and mortgage shall also be only in that sibling’s name.

After the property is purchased, both siblings contribute to the upkeep of the house and to the payment of the mortgage. After several years, the sibling who is not the record owner passes away. The surviving owner then claims that, because he is the only person on the recorded deed and the sole obligor on the mortgage, that he is the sole owner of the property. Of course, the heirs of the other sibling object and claim a fifty-percent share in the property.

October 5, 2012

Examining Potential Personal Liability for Corporate Obligations in New York State

By Weiss & Weiss

One of the main purposes behind the formation of a corporation in New York State is to insulate the principals of the corporation from personal liability for the corporation’s debts and obligations. The general law is that once a corporate is legally formed, and the business observes the specific requirements for corporate formation and structure, such as the filing with the New York Secretary of State of a certificate of incorporation, the officers and directors of the corporation are not personally liable for the obligations of the corporation.

Of course, as with any general principle of law, there are always exceptions. Some of these exceptions include a situation where it can be shown in Court that the corporation was formed fraudulently, and is serving as a mere “alter ego” of an individual. Proving this can be difficult, and would depend on the individual circumstances of the corporation’s day-to-day operations. This legal concept is known as “piercing the corporate veil,” and is applied very rarely to assign personal liability to a corporation’s officers and directors.

A more common situation, and one which will be examined in more detail in this blog post, is where a corporate officer or director personally guarantees the obligations of the corporation. One example is where the corporation seeks a commercial lease for office space or a retail store. A landlord may demand that a corporate officer personally guarantee the corporation’s obligations under the lease. If the corporation then defaults under the lease, the individual who guaranteed the lease may find himself personally liable for the corporate obligations under the lease.

September 27, 2012

Lawsuits Concerning Conditions in New York City Cooperative Buildings

By Weiss & Weiss

The Wall Street Journal recently reported the filing of a lawsuit by “Law & Order” actress S. Epatha Merkerson concerning conditions in her New York City cooperative apartment. While the lawsuit has gained the attention of the press because it involves a celebrity, the conditions described in the lawsuit are commonly experienced by numerous New Yorkers.

The lawsuit alleges that the condition of the building’s roof caused leaks and mold conditions to the cooperative apartment owned by the actress. After the purchase of the cooperative apartment, the cooperative made repairs to the roof over the plaintiff’s apartment. Said repairs are alleged to have been insufficient, causing continued water leaks and mold to develop. The actress claimed that she was unable to live in the cooperative apartment, as well as being unable to sell the apartment or sublet it at market value.

Most of the claims in the lawsuit involve the statute known as New York State’s Warranty of Habitability Law. This law requires that residential premises be fit for human habitation and that residents not be subjected to conditions that are dangerous, hazardous or detrimental to their life, health or safety. The Warranty of Habitability Law is most commonly applied to rental apartments in New York State. Nonetheless, it is longstanding caselaw in New York State that the Warranty of Habitability Law also applies to cooperative apartments. The application of the Warranty of Habitability differs depending on the type of housing to which it is applied. For instance, if a condition is solely within the walls of the apartment and was not caused by an external factor, it is the responsibility of a cooperative shareholder individually. In a rental unit, the same condition would be the responsibility of the landlord, but not the tenant.

September 19, 2012

Property Partition Actions – Additional Issues

By Weiss & Weiss

A prior blog post discussed issues relating to a property partition action in New York State. To summarize, when two or more co-owners of a property are unable to agree on the disposition of a jointly-owned property, a partition action may be brought by one of the owners. The Court will review the evidence and rule on the disposition of the property.

The general legal principle underpinning a partition action is that the property dispute should be handled fairly and equitably for all parties. This means that a Court will attempt to divide the property, if possible, according to the ownership interests of the parties to the case.

The first question that a claimant must answer is whether the property is capable of being physically divided in a fair manner among the co-owners. The physical division of a property is a fact issue for a Court to determine. Residential property such as a house is usually not capable of being sub-divided among the parties. For example, a single or two family house cannot be physically divided into separate properties, each with their own lot and tax bill. If the land in dispute is simply vacant land without any improvements, then it may be possible to divide the lot into separate properties, with the co-owners receiving shares of the new lots in proportion to their ownership percentages of the original property.

September 14, 2012

Lost or Destroyed Wills in New York State

By Weiss & Weiss

blog photo 91412.jpg When an estate in New York is probated in Surrogate’s Court , it is a legal requirement to submit the original signed will as part of the Court filing. On occasion, the original will intended to be submitted may be lost or destroyed. There are several potential reasons for the original being unavailable, perhaps it is simply misplaced, a person adversely affected by the will may have intentionally destroyed the document or the decedent decided that the will no longer conformed to his wishes for the disposition of his property and destroyed the document prior to his demise.

Surrogate’s Court Procedure Act Section 1407, the statute that governs probate proceedings in New York State, provides solutions to this situation. In New York State, it is presumed that a will has been revoked if the original can no longer be located, particularly if it was signed and the original was known to be kept in the testator’s possession. The person proposing to have a copy or a draft of a will admitted to probate needs to demonstrate by clear and convincing evidence that the will has not been revoked, that the will was executed as required by New York State law, and that the testator had capacity to make the will, which was entered into without fraud or undue influence. At least two credible witnesses are then required to testify as to the provisions of the will or a copy or draft of the will that is true and complete is to be submitted to the Court. A photocopy of the will may then be admitted to probate in this instance if it is demonstrated that the original will was not last in the possession of the decedent. However, the fact that the testator possessed a fully executed copy of the will at his death will not prevent said copy from being admitted to probate.

Further, if the will was lost or destroyed by a cause not of the decedent’s act, the Surrogate’s Court will be likely to admit the will to probate. The witnesses may indicate that the will was destroyed without the knowledge or consent of the testator or that the will was destroyed when the testator was under undue influence or without mental capacity to revoke. Acceptable causes of destruction for these purposes include a fire at the facility where the will was stored. The recent anniversary of the terrorist attacks on September 11, 2001 reminds us that storage locations were also destroyed on that day and that important documents such as wills were also ruined. If the proponents of the will can show that the attorney who drafted the will or the bank with the safe deposit box holds the original, but for some reason cannot or will not release same, the Court will be likely to admit a copy of the document to probate.