Purpose Driven General Counsel

Michigan Real Estate Law Update: Innocent Until Proven Guilty – Termination only after Conviction of Drug & Assault Crimes.

Landlords and Investment Property Owners – something to keep your eye on.

Michigan House Bill 5217 was introduced on January 13, 2016 – you can see the text here.

This Bill will, if passed, affect Landlords and Owners of Rental Properties.

The net effect appears to make it harder to remove tenants engaged in drug activity and assault related behavior on the premises.

As a way of summary: How to Terminate a Tenant under Michigan law.

As property managers and owners are well aware, there are a few ways to terminate tenants provided under Michigan law.

1. 7-Day Notice (non-payment and “domestic assault”).

For non-payment of rent, give tenant a notice to vacate within 7 days or you will sue to evict.

A landlord can also give a tenant a 7 day notice if there has been a police report made related to a tenant’s assault or threatened assault on an individual at the premises.

2. 30-day Notice.

For breach of a “covenant” in the lease, or for terminating tenancy after the term has expired, give tenant a notice to vacate within 30 days or you will sue to evict.

3. 24-Hour Notice for drug activity on the premises.

Under current law, a landlord can give a tenant a 24 hour written Notice to vacate, based upon filing a police report related to a tenant’s unlawful drug activity on the premises (so long as there is a clause to this effect in the lease). If the tenant is not out of the premises within 24 hours, the owner/landlord can sue to evict.

The Proposed Amendments re: Drug Activity and Domestic Violence.

“(b) When a person holds over premises for 24 hours following service of a written demand for possession for termination of the lease pursuant to a clause in the lease providing for termination because a tenant, a member of the tenant’s household, or other person under the tenant’s control has BEEN CONVICTED OF UNLAWFULLY MANUFACTURING, DELIVERING, POSSESSING WITH INTENT TO DELIVER, OR POSSESSING AND THE CRIME WAS COMMITTED on the leased premises.”

Likewise, regarding the “domestic violence” termination – the amendment would also require an individual to have been convicted of an assault related crime before being removed from the premises.

What’s the Difference?

The requirement that an individual have been “convicted” before they can be removed from the premises opens the door to a very indefinite time period.

From the time period that an individual is first charged with an offense through a trial, anywhere from 6 months to a year could have elapsed.

I presume that this amendment is intended to benefit tenants who may have valid legal defenses to their criminal charges. It affords them “due process of law”. Our constitution allows for defendants to be presumed innocent until proven guilty beyond a reasonable doubt by a trial of their peers.

I will note, that this amendment is consistent with the laws of some other States – New Jersey appears to have broader tenant protections in a lot of areas.

Regardless – the net effect of this bill if passed – the “7-day Notice for Domestic Assault” and “24-hour Notice for Drug Activity” will be rendered virtually moot.

Thoughts? Questions?

e-mail: Jeshua@dwlawpc.com

www.dwlawpc.com

Lessons From Trial: WORDS MATTER when Drafting Real Estate Documents

I recently had a trial over a relatively simple real estate document (that, just to be clear, I played no part in drafting).

The Owner and Buyer negotiated the terms of an option to purchase real estate.

The Investor and Buyer negotiated terms that they both thought were plain.

No one thought that the deal would go sour.

But it did.

It went sour because both parties (apparently) interpreted the document very differently, with very different consequences.

The real estate contract contained an ambiguity. It had two different provisions that contradicted each other. So we ended up fighting over the “true interpretation” in trial.

The net effect – both sides incurred attorney fees and wasted a day in trial.

Unfortunately, my client’s experience is fairly common. Words in real estate documents need to be carefully drafted. Case in point:

The case of Matter v Verstraete, published on December 3, 2015.

You can check it out here

Facts:

Plaintiffs, tenants, entered into a lease that began on September 5, 2009, and continued until October 31, 2015.
The property was subject to a mortgage in favor of defendant Deutsche Bank.
The lease was amended on August 5, 2011. Plaintiffs were granted a right of first refusal (“ROFR”) and Option to purchase the property.
Defendant Deutsche Bank purchased the property at a sheriff’s sale held on October 4, 2011.
On June 13, 2012, plaintiffs and defendant Deutsche Bank entered into a consent judgment, which held that defendant Deutsche Bank had to honor the original terms of the lease between plaintiffs and the original owners.
On May 22, 2013, defendant Deutsche Bank sold the property to defendant George Verstraete.
Plaintiffs claimed they wanted to “exercise their Option to purchase”
Defendant, Verstraete, sued to evict Plaintiffs.
Plaintiffs sued – they basically said “Bank! you forgot to let us know you were selling the Property so that we could exercise our ROFR!”
The Trial Court held “there was nothing in the express terms of the lease preventing the bank from selling the property during the original lease term.”
Plaintiffs Appealed.

LAW – INTERPRETING A CONTRACT

“The first step in contract analysis is to determine the intention of the parties. Quality Prods & Concepts Co v Nagel Precision, Inc, 469 Mich 362, 375; 666 NW2d 251 (2003). “[A]n unambiguous contractual provision is reflective of the parties’ intent as a matter of law” and must be enforced as written. Id. “In interpreting a contract, courts must give the words their plain and ordinary meanings,” and they may not “impose an ambiguity on clear contract language.” Coates v Bastian Bros, Inc, 276 Mich App 498, 503; 741 NW2d 539 (2007).”

A RIGHT OF FIRST REFUSAL IS NOT AN INTEREST IN LAND.

The Court analyzed the lease agreement and found that “Paragraph 17 of the lease only grants plaintiffs an option to purchase the “residence during the lease term period.” Id.

Further – “It does not restrict the owner’s right to sell the property. Nor did it give plaintiffs an interest in the land under which they could deny the sale of the property to others.” Id.

The Tenants thought they had an interest in land sufficient to allow them to purchase the Property and keep the Bank from selling it to a third party. But according to the agreement they signed, they had no such right.

Take away: Pay careful attention to real estate documents. Words Matter.

Business Law Update: In Commercial Leases Courts Will Enforce the Plain Meaning

Happy Friday all!

I read an unpublished court of appeals decision from November 17, 2015 – Mandre Properties LLC v Darren R. Marsh DDS No 322633

The opinion was brief and to the point. It is an easy read

Facts (straight forward):

The parties entered into a commercial lease.

Tenant vacated the premises before the lease expired.

As a result, Tenant breached the lease.

Landlord claimed it was owed $41,661.55

The trial court ordered tenant to pay $6,768.00.

Why the trial court reduced the amount, is unclear from the opinion.

Landlord appealed.

The Court of Appeals reversed the trial court – “you got the amount owed wrong”

COURTS WILL ENFORCE A LEASE THIS IS CLEAR IN ITS MEANING

The Court of Appeals held that the language in the commercial lease was plain and unambiguous – therefore the circuit court should have enforced the lease to its terms.

As the Court of appeals held: “The circuit court was required to enforce the unambiguous contract as written.” citing In re Smith Trust, 480 Mich 18, 24 (2008).

Lesson:

In commercial leases if the language that the parties agreed to is clear the court’s job is to enforce the lease.

As a landlord or tenant to commercial leases, you have a particularly vested interest in making sure that:

The language in your lease is clear;
That you understand what it is you binding your business to.

If a Court is doing its job, it will simply enforce whatever you agreed to.

U.S. Supreme Court’s Latest Ruling – Businesses and Arbitration Clauses

As the USA Today article put it:

“Score one for business over consumers at the Supreme Court this term”

“The justices ruled 6-3 Monday that California customers cannot band together against satellite TV provider DIRECTV because a federal law favoring dispute resolution by individual arbitration trumps a state law that once protected such class actions.”

Also see Yahoo.com – U.S. top court rules for DirecTV in arbitration case

The Court’s ruling is consistent with Michigan law.

Michigan law favors upholding arbitration clauses in contracts.

Under Michigan law, arbitration clauses are to be liberally construed with any doubts to be resolved in favor of arbitration. Amtower v William C. Roney & Co., 232 Mich App 226,233 (1998).

A few years back I wrote a post about the benefits of arbitration clauses in contracts. You can check out the full article here. a few highlights:

Benefits

Arbitration clauses have the benefit that they are usually most cost-effective, quick, and they are private (as opposed to court cases which are public filings).

Considerations

Some of the high points to consider:

1. Where is the Other Party located?

For a client who engages in business over state lines, an arbitration clause might not be effective if you are trying to quickly collect a debt that is owed to you. Instead, you might want a “Jurisdiction and Venue Selection Clause”

This clause would include language indicating that no matter where the dispute occurred, the contract will be interpreted under Michigan law, and the parties agree that any dispute shall only be resolved in _______ County (Typically, Kent County, Michigan, for my clients.) Therefore, if your contract contains a jurisdiction and forum selection clause, and you are owed money by a company in Florida, you would not need to retain a Florida attorney to try and collect.

2. Is the Arbitration Agreement between the company and consumers? If so, companies need to be aware of consumer protection rights, and AAA rules regarding dispute resolutions with consumers.

The AAA has ruled that any company that wants to incorporate their services in its arbitration contract must follow their policies:

“The American Arbitration Association’s policy on consumer arbitration is guided by the state of existing law, as well as its obligation to act in an impartial manner. The Association supports the principles of the Consumer Due Process Protocol…All cases involving a consumer where the claim is under $10,000 will be administered under the Consumer Rules and the fee schedule for those rules, without regard to the rules or fees that may be incorporated in the arbitration clause.” See, Consumer Due Process Protocol: http://ftc.gov/os/comments/debtcollectroundtable1/542930-00017.pdf

3. Arbitration can be a gamble.

Businesses should realize that if you elect to arbitrate a matter and you do not like what the arbitrator finds – your rights to appeal may be severely limited.

Questions? Comments?

e-mail: Jeshua@dwlawpc.com

www.dwlawpc.com

Non-Profit Leaders: Creating Entrepreneurial Organizations and Engaging Millennials

Last week MIBiz handed out its Best-Managed Nonprofits Awards

As part of the award ceremony some of the non-profit executives shared their insights “into creating entrepreneurial organizations. Check that MIBiz article outhere.

One observation by Michael Merren, executive director of The Pantry in Grand Rapids:

“I find that (millennials) are very interested in working in the community and are very community-minded,” Merren said. “It’s important that you give them opportunities where they can apply their talent how they want instead of how you think they should.”

I’m sure non-profit leaders in West Michigan would agree with Michael’s observation.

This really is a good follow up to my last post. It is a call to Non-profits to find better ways to engage Millennials in serving.

Non-profits in West Michigan need to continue to find better ways to engage Millennials in meaningful ways.

Millennials: You just need to show up*. Let non-profits in your community know you are there and how you want to serve.

*I was encouraged after writing this blog post this morning to hear this point emphasized at the Grand Rapids Economic Club‘s luncheon today through guest presenter – Neil Pasricha author of “1000 Awesome Things“

To paraphrase – don’t wait until you feel “motivated”, or “competent”-

Just do it.

E-mail: Jeshua@dwlawpc.com

http://www.dwlawpc.com

Waiting For Your Personal Invitation From the Non-Profit CEO?

The Attorney General’s Office issued a press release today in collaboration with The Michigan Nonprofit Association, Council of Michigan Foundations,Michigan Association of United Ways:

A guide to supporting Michigan’s charitable nonprofit organizations

Rosa Parks Circle, Grand Rapids, Michigan

Some good advice for charitable giving.

One point I thought worth mentioning – volunteering.

If a charitable non-profit is worth giving your money to, why not give your time and expertise as well?

I serve on the board of directors for Mel Trotter Ministries.

At Mel Trotter, we are always looking for people to volunteer who have a heart for the homeless and hurting in West Michigan.

We honestly could use anyone who is reading this. If you are passionate about our ministry, there is a place for you to use your time and talent at Mel Trotter. If interested – e-mail me.

Maybe rescue mission work isn’t your thing.

It is equally true of all non-profit ministries – they could use you whether they personally let you know or not.

This is a call to everyone, but particularly millennials.

Non-profits may not (do not) do the best job of reaching out to you individually to engage you with their ministries. That’s a “growth area” for non-profits. We are all working on it.

However, that shouldn’t stop you from reaching out to a ministry that you are passionate about and asking the question:

How can I serve?

Millennials – I’m reminded of the Bible – 1 Timothy 4:12 –

“Don’t let anyone look down on you because you are young, but set an example for the believers“

If you are passionate about serving – there is a place for you.

Don’t wait for a personal invitation from the Non-profit’s CEO.

Take the initiative.

Get engaged.

Just show up!

Questions?

Comments?

E-mail: Jeshua@dwlawpc.com

News of Sham Real Estate Companies’ “Bad Acts” a Lesson for Real Estate Investment Companies.

Today the ABAJournal reported the following article: “Deed thieves use sham companies to hide their identities”

According to the ABAJournal:

“Fraudsters are using sham limited liability companies that shield their identities in order to obtain properties without the knowledge or full understanding of the owners.”

Further,

“Some fraudsters search legal notices for delinquent mortgages and then dupe the homeowners into signing over their deeds.”

This unfortunate criminal enterprise underscores a useful aspect of a limited liability company for real estate investors: privacy.

Michigan law requires Limited Liability Companies to have appointed a Resident Agent.

MCL 450.4207(1)(b) requires an LLC to have a resident agent. A person, or business with a physical presence in the State of Michigan.

Michigan law does not require that an “owner” of the LLC be the resident agent.

“The resident agent appointed by a limited liability company is an agent of the company upon whom any process, notice, or demand required or permitted by law to be served upon the company may be served.” MCL 450.4207(1)(b).

Many of my real estate investment clients will utilize my law firm as resident agent when filing their articles of organization with the State of Michigan.

An example of why this might be useful to a business owner…

A while back I had an investor call into my office looking to contact my client – “Investment Company, LLC”. This investor was prospecting commercial real estate to purchase, discovered from reviewing the property tax records that the owner of the commercial property was Investment Company, LLC – and that my name was listed as Investment Company, LLC’s resident agent, through the State of Michigan.

Investor wanted to contact my client’s “decision maker” and see if they would be willing to sell.

I informed my client, and client wasn’t interested in selling. So that’s all I told the investor.

That’s all the investor knew about my client’s identity.

The value of privacy.

Questions? Comments?

email: Jeshua@dwlawpc.com

Real Estate Investors: A Discussion on Laches

If you aren’t into real estate investment in Grand Rapids – maybe you should be.

According to an MLIVE article posted last week, Grand Rapids has one of the hottest real estate markets in the country.

As reported by MLIVE:

“For landlords and real estate investors, Grand Rapids is the second best rental market in the Midwest and one of the hottest markets in the U.S., according a study of 75 real estate markets by All Property Management (APM)“

Great news!

Now on to some legal stuff…

Laches.

A few years back I wrote a post about the legal doctrine of Laches and how laches relates to real estate disputes.

Since then, I consistently get a lot of hits on that post – and a lot of searches for “laches in real estate.”

Why?

I don’t know. Maybe because its an unfamiliar term, unless you went to law school (even then).

Maybe because it is a valid defense to some real estate related actions. (which it is if you read my previous post).

A recent Michigan court of appeals decision came out on the subject, so I thought I would write about it.

As a recap…

The Equitable Doctrine of Laches:

“Laches is an equitable tool used to remedy the inconvenience resulting from the plaintiff’s delay in asserting a legal right that was practicable to assert.” Public Health Dept v. Rivergate Manor, 452 Mich. 495, 507; 550 NW2d 515 (1996).

As such, “when considering whether a plaintiff is chargeable with laches, we must afford attention to prejudice occasioned by the delay.” Lothian, 414 Mich. at 168. It is the prejudice occasioned by the delay that justifies the application of laches.Dunn v. Minnema, 323 Mich. 687, 696; 36 NW2d 182 (1949) .

Therefore in deciding on the issue of Laches, a Court will ask two questions:

1. was there a delay in bringing the claim and, if so,

2. did it prejudice the Defendant?

Question: Why is laches relevant to real estate disputes?

Answer: Because many real estate claims are based in “equity” as opposed to “law”- e.g. –an injunction, specific performance, action for quiet title…

Another Question: If someone fails to bring a legal claim in a timely manner can it be barred by laches?

Another Answer: See Hamilton v Jeannot.

Let’s fast forward to the September 3, 2015 case of Hamilton v Jeannot

Facts:

Like most cases that end up going to trial, the facts of this case are a bit complex, including various business entities, bank work outs, and various individual investors. You can tell that what appeared to start out as a good business relationship turned south quite abruptly.

The case surrounds the various “parties’ efforts to renovate and reopen the Brookside Inn and Restaurant in Benzie County, Michigan.”Hamilton v. Jeannot, 2015 Mich. App. LEXIS 1654, *2 (Mich. Ct. App. Sept. 3, 2015)

It lead to one of the parties, Hamilton, filing suit against the others for conversion, claim and delivery, defamation, and unjust enrichment.

The Trial Court dismissed all of those claims.

relevant to our discussion on laches, the trial court determined that “Hamilton’s long delay in bringing his claims for conversion and claim and delivery prejudiced the ability of the Jeannots and Eden Brook to present a defense to those claims. Accordingly, it applied the equitable doctrine of laches to bar those claims.”

On Appeal, the Court answered the question: is Laches only an “equitable defense” or does it apply to a legal claim?

Laches: Equity versus Law.

The Court of appeals explained at some length and cited historic case law and legislative history that show a clear intent that “laches” applies to equitable claims, but not to legal claims.

Legal claims are governed by “statutes of limitations” – e.g. if you don’t bring a breach of contract claim within 6 years of the date it was breached, you are likely to be barred from recovery.

However, in Hamilton the Court was “compelled” to apply laches to legal claims, given the binding case law precedence. Per the Court: “[t]his Court has held that courts may apply the doctrine of laches to bar actions at law, even when the period of limitations set by the Legislature has not passed.” Id, page 14.

So, even though the Court of Appeals really did not want to apply laches as a defense to a claim at law, it did.

But, the court decided that the facts of the case did not justify compel applying laches, so it reversed the trial court on that point.

Two take aways:

1. If you own investment real estate and are sued, the doctrine of laches may apply as a defense to bar the party that is suing you from recovery.

2. Much to the Hamilton Court’s dismay, even if there is a relevant statute of limitations that has not yet passed, laches may bar recovery if you can show a delay in bringing the claim that has caused you to be prejudiced.

Questions? Comments?

e-mail: Jeshua@dwlawpc.com

Lessons From Trial: Business Owners – Don’t Be so Quick to File a Lawsuit.

Happy Friday, all!

It’s been a while since my last post. My month of October was swallowed up alive by a jury trial spanning 11 days over a 3 week period. So, forgive me, but I am going to go off on a rant about businesses litigation. Because it is what is on my mind at the moment.

I. Litigation and Football.

The past month whenever I told anyone that I was busy in trial (mostly through my auto-respond e-mail) – the response I often received was “good luck“.

Kind of brings me back to the days of playing high school football. (Yes, I am one of those guys who reminisces about such things…much to my dismay, I wasn’t tall enough to play for Michigan State…)

On game day, I would get a lot of: “good luck in your game tonight!”

Indeed – in litigation, like a high school football game, there are winners and there are losers.

Litigation, like football, is an adversarial process.

II. So where am I going with this? Mediation.

In Kent County, we have an effective business court. I am thankful that business lawyers have the business court as a viable tool to resolve business disputes.

That being said, for businesses there are often more effective ways to resolve disputes than to go to war – initiate a lawsuit, go through the court system for two years, and have the case resolved by way of a 3 week trial in front of a jury or judge.

I’m a proponent of mediation. I’ve previously written posts about mediation.

To be fair, mediation and arbitration don’t always work. Arbitration clauses in particular have critics, particularly in consumer transactions, as a recent ABAJournal article notes.

III. Benefits of Mediation.

Mediation and arbitration provisions in contracts have a place. In particular, mediation can:

resolve disputes quickly, without spending hundreds of thousands of dollars in legal fees.
resolve disputes privately.
could save business relationships and personal relationships.
could save years of emotional and mental turmoil that can impact your business life and personal life.

IV. Mediation Clauses Aren’t For Every Scenario.

I’m not saying that arbitration and or mediation provisions work in every contract. They don’t. For instance, you don’t want an arbitration provision without the ability to go to court to enforce an injunction to gain immediate relief from bad actions by another company/person.

But arbitration and mediation provisions should be considered.

They have a place.

Ok. I’m done with my rant. Have a great weekend.

Questions? Comments?

E-mail: Jeshua@dwlawpc.com

Looking for Social Entrepreneurs and Business Leaders to Prosper our Local Communities

Last week I attended an event held by the Koeze Business Ethics Initiative at Grand Valley State University. the conversation was titled: “Social Capital, Economic Diversity and Civic Well-Being in Flint and Grand Rapids”

The room was packed full of leaders in the Grand Rapids and Flint Communities interested in hearing about, in the words of Dr. Michael DeWilde “what we can do to better encourage practices and policies that will help ensure a city’s…prosperity in the long term.”

I was privileged to sit at a table with Kevin Stotts of Talent 2025; Elissa Hillary of Local First Emily Loeks of Celebation Cinemas, Ellie Frey Zagel of Family Business Alliance and Keith Maki and John Longschamp of Cascade Engineering.

These leaders are tackling the issue on a daily basis – how do we ensure our local community’s long term prosperity?

A few take aways for me:

1. Michigan is not a B-Corp State – Why not?

I’ve previously written and presented on Beneficial corporations (B-Corps). 27 states (excluding Michigan) allow for the formation of “B-Corporations” Essentially, B-Corps have two purposes:

a. to create profit; and b. “create a material positive impact on society and the environment”

B-Corps also Impose heightened fiduciary duties on their board of directors – to consider social/environmental consequences for board decisions.

Not in Michigan…

Bills that would authorize the formation of B-Corps have been proposed, but never enacted.

B-Corps are a way for businesses to instill at their most fundamental level, values that go well-beyond merely turning a profit for its shareholders.

It’s about time for another bill to be introduced (and passed) in the Michigan legislature.

2. We need more business leaders sacrificially engaging our community.

We need more business leaders committed to actively serving.

From Dr. DeWilde and Davis’ study, it appears that there is a correlation to a prosperous cities and cities where the business community is actively engaged in non-profit service.

Needs are all around us in our local community. At some level, all of us who work in the business community know this. The problem is, there is often a disconnect between the conceptual problems like “poverty” “broken homes” “hunger” “substance abuse” and how we let those realities affect our daily lives.

We need more people who are willing to simply show up and engage the needs in our local community on a personal level.

I like to use my church, Crossroads Bible Church as an example. Crossroads is part of the Westside Grand Rapids neighborhood. We have come alongside Stocking Elementary School to serve the children in that school in many ways. Some of our members have taken to mentor students. Before then, most of these mentors knew, in theory, that there were children growing up in poverty and broken homes in Grand Rapids (even if they hadn’t experienced those situations themselves). Now, they can put a face and a name to children in desperate need of adult role models. We have become invested.

We need more people who are willing to just show up and engage the needs all around us. Just show up.

3. Crowdfunding to support our local businesses.

How do we get people in our community to support local business?

Support equity crowdfunding for locally owned start-up businesses.

We know that crowdfunding has worked so well for community development. The MEDC’s matching grant program is proof of this.

Get local investors excited about owning a stake in a local business. Take an active role in bettering our community.

Questions? Comments?

e-mail: Jeshua@dwlawpc.com