Author: matt540

How Landlords Can Protect Health & Avoid Liability During Covid-19

States have needed to continuously update their coronavirus response protocols as infection rates rise and as the world learns more about the Covid-19 pandemic. Moreover, the Centers for Disease Control and Prevention (CDC) also provides guidance that states, business owners, and landlords should follow. Landlords and businesses are expected to keep up with the myriad changes, implement programs and policies in accordance with the protocols and guidelines, and take new precautions as the situation evolves.

Both landlords and businesses may face liability if they fail to adhere to the protocols and rules, or fail to adapt to changes quickly enough, even when the precautions are already taken would have been viewed as sufficient just days before. Many states invite whistleblowers to report noncompliance, and failure to abide by the applicable rules can lead to fines and possibly even lawsuits. Accordingly, it is important that landlords and business owners promptly identify the applicable rules and protocols, that they implement compliant programs and policies so that people stay safe, and that owners mitigate their potential liability.

Although each state has different rules, the CDC and state guidelines provide that landlords generally are responsible for maintaining and cleaning common areas. This includes lobbies, communal bathrooms, hallways, and stairways. The CDC provides detailed guidance on the types of cleaning solutions that should be used. Owners of office buildings should also increase ventilation and circulate outdoor air where possible. The particular details, however, often present unique challenges to landlords who are used to operating under one set of rules, only to discover a different set now applies.

As a firm with offices in Connecticut and Virginia, we will be focusing this document on the law of these two states. Under Connecticut law and CDC guidance, landlords should develop a cleaning plan to ensure their buildings remain safe. In addition to thoroughly cleaning the common areas, buildings should post signs displaying the updated policies, including social distancing, use of masks, and ordering people to go home if they are sick. Facilities are encouraged to complete a self-certification to receive a “Reopen CT Badge” which advertises that the building adheres to Connecticut’s rules.

Business owners and landlords should be aware that Governor Ned Lamont has reverted back to Phase 2.1 in Connecticut. While marketed as a “slightly modified version of Phase 2,” this stage introduces several material changes that can confuse even careful observers [1].

[1] “Latest Guidance,” Connecticut Covid-19 Response; available at: https://portal.ct.gov/Coronavirus/Covid-19-Knowledge-Base/Latest-Guidance (Nov. 6, 2020).

For instance, private gatherings in indoor commercial venues may have no more than 25 people, the same as in Phase 2. However, private gatherings in outdoor commercial venues can have no more than 50 people (far fewer than the 100 allowed in Phase 2). A commercial venue could receive fines for hosting a group of 75 people, mistakenly thinking the gathering was still legal under Phase 2 rules. It is important to note that the capacity requirements vary depending on the type of business, so it is essential to check with the Phase 2.1 regulations before implementing a capacity policy for your business or building.

Overall, restrictions under Virginia law are similar. Owners must ensure that social gatherings are limited to 50% of the event spaces’ occupancy or 25 people, whichever is less. However, one particularly unique aspect is that different parts of the Commonwealth can operate under different sets of rules. For instance, until recently, it was only restaurants in the Eastern Region of Virginia which were required to stop selling alcohol in restaurants at 10 PM. A restaurant chain’s Virginia Beach location, therefore, had different responsibilities than the same restaurant’s Alexandria location.

Landlords and business owners must be diligent to ensure compliance with rules and guidance promulgated by the CDC. It is better to proactively avoid problems than to react to accusations or respond to whistleblower complaints or even lawsuits. Landlords and business owners should be vigilant in complying with the state rules to mitigate potential liability. The stakes go beyond just avoiding a fine; these actions also help save lives. And regardless of the financial penalties, the public relations problems alone should incline landlords to comply with the rules.

Legal counsel can help you navigate the Covid-19 rules so that buildings avoid noncompliance, mitigate potential liability, and minimize the risk of spreading Covid-19. Jacobi & Case has trained lawyers in both Connecticut and Virginia who are available to answer questions.

Essential Legal Issuses in Purchasing Mult-Family Investment Properties

Investing in multi-family property is a great way to build wealth. Multi-families are also great first investments for new investors looking to make a smaller purchase to get their feet wet before buying something bigger. However, when buying a multi-family property there are a number of legal issues that every real estate investor should be aware of that do not arise when purchasing a condominium or single-family home. I have outlined three important issues to consider when purchasing a multi-family property.

1. ZONING: IS THE PROPERTY A LEGAL MULTI-FAMILY PROPERTY?

One of the first things I advise clients buying multi-families is that they need to understand whether the property is a legal multi-family. This comes in two forms: it must be either a permitted use under the current zoning regulations or a “legally non-conforming” property. If it is neither, then the purchaser may be in for serious problems down the road. That is why every investor should understand the zoning issues that can arise when purchasing a multi-family property and how to navigate through them.

If the multi-family property is a permitted use under the zoning regulations, then you can rest comfortably that the property’s use does not violate the zoning regulations. However, what if the multi-family is in a zone where a multi-family property is not a permitted use? Is it an illegal use, and therefore should a buyer shy away from the purchase? Not necessarily?

The multi-family property may be a legal non-conforming use. A property is considered legally non-conforming if the use complied with the zoning requirements prior to the date that the town changed the zone to remove such use from that zone. For example, if a multi-family was a permitted use in the R2 Zone in 1999 and the town thereafter removed multi-family from the R2 zone, as long as the property was in use as a multi-family prior to the change of zoning it can continue as a multi-family property after the change of zoning as a “legally non-conforming” property.

However, it is possible that an owner illegally converted property to a multi-family property in a zone that does not permit it. This would mean the property is an illegal multi-family, and is, therefore, a property you do not want to purchase. This is why it is important to explore the zoning and the history of the property to make sure you do not purchase a property that violates the zoning regulations. As long as the property is in a zone that permits multi-family or the property is legal–nonconforming, you can safely purchase the property. Make sure you ask your attorney these questions as part of your due diligence activities.
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2. PROTECT YOURSELF: CREATE A LIMITED LIABILITY COMPANY (LLC) TO LIMIT LIABILITY

Buying a multi-family, or any property with tenants is a transaction that comes with risks and potential exposure to liability. For example, what if a tenant slips and falls and files a lawsuit against you arguing that her injuries are a result of you failing to comply with your obligations under the lease? What if a tenant accidentally starts a fire that spreads and causes damage to other homes in the surrounding neighborhood? These are examples of the inherent risks in buying multi-family properties. One important thing you can do to limit your liability is to create a Limited Liability Company (LLC) and to take the title in the name of the LLC.

Taking title in the name of the LLC will limit your liability to the value of the Property and will insulate you from most personal liabilities. Since the LLC is the owner of the property, any lawsuit concerning the property properly names the company as the defendant and not you individually. Since the LLC’s only asset is the property, the maximum exposure from any lawsuit is the value of the property. In other words, any judgment obtained by a tenant, neighbor, or other potential plaintiffs may only look to the company’s assets to satisfy the judgment and not your personal assets. If the property was owned by you individually, a plaintiff could look to your personal assets (bank accounts, other real estates, etc.) to satisfy a judgment.

Setting up the LLC may seem like a simple process, but there are various things to consider. For example, if you are creating an LLC with more than one member, you should think about the authority of each member. Drafting a detailed operating agreement will prevent problems between members in the future.

3. TENANTS AND LEASES: DO YOUR DUE DILIGENCE

When buying any property with tenants, it is essential to do your due diligence with respect to the tenants and the leases. As an investor, you want to make sure that the tenants are current on the rent. You do not want to purchase the property only to learn that the tenants are six months behind on the rent and are vigorously fighting an eviction lawsuit. Therefore, it would be prudent to request that the seller sign a document called an estoppel certificate. This document will require the Seller to make a representation that the leases are in full force and effect and that the tenant, and current on the rent.

It is also prudent to review each lease with your attorney. You should be aware of the termination date of each lease and whether the tenant has the option to renew. If the leases are to terminate a month after closing, you should be prepared for the possibility of vacancies. Moreover, if the tenants have an option to renew, this may interfere with your plans to lease to other tenants. Occasionally, leases have options to purchase. This type of provision is problematic for any investor as the tenant would have the option to purchase the property after you closed. You would need to obtain a waiver from the tenant in this situation. This is why it is imperative to review each lease thoroughly with your attorney to make sure you know what you are getting into.

In summary, it is in your best interest as a real estate investor to carefully perform due diligence and review each lease carefully before purchasing an investment property.

The End of The Transfer Act

The Connecticut legislature overwhelmingly voted to sunset the Connecticut Transfer Act, the law which has regulated contaminated properties in the state for the last 35 years. Instead, Connecticut will shift to a release-based remediation program where “any person who creates or maintains a release to the land and waters . . . shall, upon discovery of such release (1) Report the release . . . and (2) Remediate any release to the standards identified in [the adopted] regulations.”

This massive revision to the environmental laws is theoretically intended to accelerate the cleanup of polluted lands while revitalizing the economy. The program will become effective when implementing regulations are first adopted.

However, the law contains only the most rudimentary guidelines, instead of leaving to a Working Group the process of developing the myriad regulations necessary to provide standards, prioritize cleanup sites, and identify contaminant concentration levels. Without any of this information, it remains to be seen whether this release-based system will actually benefit the Connecticut economy or lead to a cleaner environment.

The breadth of this new law also presents increased liability challenges to businesses and property owners. Failing to properly report a release or merely maintaining a polluted property is enough to constitute a violation. Furthermore, the legislature expanded the definition of a “person” for purposes of the release-based remediation program. A person will include “any officer or governing or managing body of any partnership, association, firm or corporation or any member or manager of a limited liability company.”

An amendment to the bill clarifies that (A) the officer, body, member, or manager must be in a position of responsibility that allows the person to influence corporate policy, (B) there must be a nexus between the individual’s actions (or inactions) and the violation of the Act, and (C) the actions (or inactions) of the individual facilitated such a violation.

The largest implication of this expanded definition is the ease with which liability can attach to the individual without having to undergo the difficult process of piercing the corporate veil. Under the release-based system, an entity’s officers can face significant liability for creating or maintaining a release even if the conduct was performed within the scope of their corporate authority. This language also conveys that it will be far easier to target parent corporations who may have deeper pockets.

Businesses and their executives must be very careful to avoid inadvertent violations. Those potentially impacted by this new law should reach out to environmental counsel to help guide them through the new laws.