Friday, February 25, 2011

How To Sell Your House with Prudence and Caution

Doron F. Eghbali Real Estate Law

How To Sell Your House With Prudence and Caution

A lot of us seeking to sell our houses, have wondered what we should do except, possibly, hiring a real estate agent and thinking about the day after when we have sold the house. In fact, without having specific plans and objectives, selling a house might not be a pleasant experience and we might not obtain the dollar amount we reasonably deserve. Hence, to facilitate the selling process, let us explore the steps we should take.

SETTING SPECIFIC OBJECTIVES AT THE OUTSET
  • Do you want to wait for the right seller and the right market to sell?
  • Do you want to sell hassle free and get what you put into the property?
  • Do you want to wait, wait and wait for the seller you have in mind, but the market may not bring you in the foreseeable future?
  • Do you want to and can you move out on a few weeks notice?
  • Do you have a place to move into?
  • Do you want to time your sale of you home and purchase of another?
SETTING A REASONABLE SALES PRICE
  • Do your homework.
  • Do not rely on what real estate agents just tell you. It might be you are told a house is worth a lot, so that you list it. Just, they ask you later to lower the price to sell it.
  • Do not overprice it since it might languish in the market.
  • Do obtain a professional reliable appraisal, if possible.
SETTING SIGHTS ON FLAWS AND PROBLEMS IN THE HOUSE
  • Do inspect your house carefully.
  • Do identify any problems or flaws, such as: leaky roof, dry rot, asbestos, flooded basement, termites, septic problems, etc.
  • Do notify the potential buyer of such problems or flaws.
  • Do take disclosure very seriously since if you do not disclose such and possibly other problems, your sale might be sued for fraud, in a number of states.
SETTING YOUR HOUSE IN ORDER COSMETICALLY
  • Do major repair work before the sale, if it economically makes sense.
  • Do beautify your walkway outside your house. Plant some flowers and trim shrubs.
  • Do paint inside, if possible.
  • Do remove extra stuff from your house to make it look neater and larger.
SETTING YOUR SIGHTS ON WHAT IS LEFT AND WHAT IS TAKEN
  • Do decide what you are leaving behind and what you are taking with you.
  • Do leave behind drapes designed for your house and custom cushions. Such incentives attract buyers to be amenable to your pricing or even concerns, to some extent.
SETTING YOUR FINANCING IN PLACE
  • Do calculate what you pocket and what your expenses are.
  • Do calculate real agent's fees up to 6% of the selling price.
  • Do calculate the amount you owe the bank and the net, you receive after all these and probably other expenses, such moving, packing, etc.
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DORON EGHBALI is a Partner at the Beverly Hills Offices of Law Advocate Group, LLP. Doron Primarily Practices Business, Real Estate and Entertainment Law. Doron Can Be Reached at 310-651-3065. For More Information, Please, Visit: HERE.

Thursday, February 24, 2011

Merchandising and Commercial Tie-Ins in Entertainment Transactions

Merchandising and commercial tie-ins are relatively related concepts in entertainment transactions to further optimize dollar amount by promotion of a work and marketing of products. Let us further explore these two concepts and the related concerns from the perspectives of various parties involved in an entertainment transaction.

SOME BACKGROUND ON MERCHANDISING AND COMMERCIAL TIE INS IN ENTERTAINMENT TRANSACTIONS

1. WHAT IS MERCHANDISING?
Merchandising is the marketing of a product that maybe based on the underlying work. Such examples could encompass posters or dolls based on characters in the work, clothing inspired by the work or only the work's title or artwork.

2. WHAT IS COMMERCIAL TIE-IN?
Commercial tie-in is a commercial arrangement between the marketer of the work and the marketer of a product in which the product marketer provides advertising for the work as part of advertising for its own product. Hence, the marketing of the product is "tied in" with the marketing of the work. For example, fast-food chains often advertise giveaways of toys or cups featuring a new movie and its characters, if possible.

SOME OF ARTIST'S CONCERNS IN MERCHANDISING AND COMMERCIAL TIE-INS
Despite the fact merchandising and commercial tie-ins could be a bonanza for most parties involved, artists should exercise caution before permitting how their name and features are used. Some of the concerns include, but not limited to:
  • APPROPRIATE REMUNERATION MERCHANDISING USE: Artists are frequently used to be spokespersons for products or endorse products associate with the underlying work. Hence, it is appropriate for the artists to receive remuneration for use of merchandising associated with their endorsement or publicity.
  • APPROPRIATE EXPOSURE AND NOT OVEREXPOSURE: In this area, both artists and sponsors share a common concern: overexposure of the artist. For artists, overexposure related to act as spokesperson or endorser, might make audiences perceive the exposure as quote "selling out" and overexposure may diminish the financial price of artist's endorsement for other works. For sponsors, overexposure might make audiences or potential customers perceive the merchandise as not being genuine. In fact, it is customary to specify the artist's name and likeness will not be used in a manner that won't constitute product endorsement.
SOME OF MARKETER'S CONCERNS IN MERCHANDISING AND COMMERCIAL TIE INSThe ensemble of merchandising and commercial tie ins represent great financial opportunity for the marketer. However, the marketer should exercise caution to avoid any potential litigation, to the extent possible. Some of Marketer's concerns are as follows:
  • APPROPRIATE ACQUISITION OF ARTIST'S NAME AND LIKENESS: The markets should ensure it has acquired the appropriate rights to use the artist's name and likeness for both merchandising and commercial tie ins. It is extremely important the contract clarifies the distinction between the two and their compensation, probably even the lowest possible royalty for merchandising.
  • APPROPRIATE DISTINCTION BETWEEN WHO OWNS WHAT: The marketer should also ensure who owns the character's identity and who owns the character's personality as portrayed by the artist. The latter might be subject to a separate and even higher royalty.
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DORON EGHBALI is a Partner at the Beverly Hills Offices of Law Advocate Group, LLP. He Primarily Practices Business, Real Estate and Entertainment Law. Doron Could Be Reached at: 310-651-3065. For More Information, Please, Visit: HERE.

CAUTION: Home Equity Loan Perils Still Lurking

Recent statistics indicate a slow but, rather, steady revival of home equity loan originations for some select group of homeowners by some regional banks. Nonetheless, homeowners should be extremely mindful of such offers and exercise caution before tapping into their home equity. Let us explore some of the perils still lurking for the unwary.

SOME BACKGROUND

Some homeowners confronting budget shortfall used to tap into their home equity as a piggy bank to finance their necessities or sometimes trappings. Such loans became an albatross around the neck of such homeowners when the price of their properties dropped precipitously combined with another calamity namely when a substantial portion of such people either lost their jobs or wold not earn as much as before to properly pay their financial obligations. This problem was exacerbated further when banks tightened their lending spigots and would not refinance such loans or would lend out more loans to satisfy previous loans. This vicious cycle continued for about three years since the "financial collapse" of 2008.
Now, there are some signs some regional banks have started to loosen their lending spigots and allow some select group of homeowners to again tap into their home equity to acquire loans or lines of credit.

SOME PITFALLS FOR THE UNWARY

1. PERIL OF FURTHER PLUNGE IN THEIR NEIGHBORHOOD HOME PRICES
Probably, one of the most salient perils of tapping into one's equity is the non-remote possibility of further drop in home prices of the loan's recipient. This risk is extremely paramount especially in areas where foreclosure is alarmingly mounting.

2. PERIL OF FURTHER STEEP PRICE FOR HOME EQUITY LOANS OR LINES OF CREDIT 
Compared to car loans and home mortgages, home equity loans and lines of credit are still, generally, very expensive.
Granted, it might be argued, home loans or lines of equity might be better than refinancing since banks might waive origination fees or lines of credit. Nonetheless, most banks instead impose other requirements on the borrower such as borrowing a minimum amount, or keeping a line of credit or loan OPEN for a set number of years.

SALIENT NOTE
Despite the perils just enunciated, some homeowners might find such lines of credit or loans helpful. For example, if homeowners do not need the cash on hand for renovation or other emergencies such as aging parents' medical bills, then with relatively lower interest rates now, such loans and lines of credit might be worth more in 10 years when such rates are reasonably expected to rise further.

SOME CAVEAT
Still, banks impose rather stringent requirements on home equity loan borrowers. For instance, borrowers should have at least a 720 FICO score, at least 20% equity in the home, and income verification such as pay stubs, for the past two years.
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DORON EGHBALI is a Partner at the Beverly Hills Offices of Law Advocate Group, LLP. He Primarily Practices Business, Real Estate and Entertainment Law. Doron Can Be Reached at: 310-651-3065. For More Information, Please, Visit: HERE.

How To Protect Director's Compensation in Entertainment Contracts

Director's role in conceptualizing, structuring, animating and executing a successful motion picture production is, to a great extent, incontrovertible. Nonetheless, such prominent role could perpetuate frictions among various players and leave the director even bereft of "proper" compensation. Let us explore to some extent how directors should navigate the maze of compensation universe and protect their rights, to the extent possible.
SOME BACKGROUND
Director's compensation could be negotiated like authors. Nonetheless, director's compensation is negotiated based on the following prescriptive standards:
  • DURATION OF SERVICES: According to the duration of services rendered by Director.
  • COMMERCIAL SUCCESS: According to the production's commercial success, namely additional contingent compensation.
  • MEDIA USE OR REUSE: According to the use or reuse of media encompassing residuals fees.
  • EXPENSES: According to the director's expenses for directing the motion picture.
  • DGA MANDATED PAYMENTS: According to DGA (Directors Guild of America) mandated pension, health and welfare payments.
DIRECTOR'S COMPENSATION
1. FIXED FEE COMPENSATION
It is customary for directors to receive compensation for their services according to the duration of such services. This means the director receives a flat sum of money for a set period of time. When the director has to work beyond the set time, for instance, for periods of production or post-production, the set fee could be increased by a prorated weekly salary.
NOTE
This set fee, generally, is separate from other compensation director should or could receive. The set fee is generally sacrosanct against other parts of a director's compensation package.
2. CONTINGENT COMPENSATION
In addition to fixed fee, it is essential for director to request and receive some compensation based on the production's commercial success. Such contingent compensation could be based on a portion of "net profits" or gross participation. The most successful contingent compensation could be tied to a share of gross profits as collected by the distributor.
NOTE
This is important for the director to be mindful if the producer is an independent producer. In such circumstances, it would be prudent to determine if the director's contingent compensation is defined as to level of the net proceeds or gross profits received by the producer, distributor or not. As enunciated earlier, it is usually the best to negotiate for a sizable portion of the gross profits as collected by the distributor. Nonetheless, sometimes, directors and their agents should be pragmatic and accept other reasonable offers give the totality of the circumstances.
3. REUSE OR RESIDUALS FEES COMPENSATIONA director may ask for more compensation, in addition to fixed fee and contingent compensation, in the form of residuals fees. Such fees often refer to use of the motion picture the director directed for use in different mediums or repeated use of the motion picture. For instance, a director may negotiate and receive a share of books, video games, theatrical releases based on the motion picture.
NOTE
For productions subject to DGA jurisdiction, usually, a mandatory residual schedule is used for additional uses in domestic or foreign territory.
SALIENT NOTE
This article represents only SOME of the issues and concerns related to directors' compensation in entertainment contracts. You may contact Doron Eghbali, Esq. with any questions.
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DORON EGHBALI is a Partner at the Beverly Hills Offices of Law Advocate Group, LLP. DORON Primarily Practices Business, Real Estate and Entertainment Law. DORON can be Reached at: 310-651-3065. For More Information, Please, Visit: HERE.

What Are Some Latent S Corporations Pitfalls?

S Corporations could be regarded as favorable business structures since shareholders could avoid double taxation and take advantage of protecting their other assets against liability except the ones invested in the S Corporation. Nonetheless, there are salient caveats before embarking on forming an S Corporation as opposed to other forms of business entities, especially LLCs. Let us intelligently and incisively explore some of the issues in more depth.
SOME BACKGROUND ON S CORPORATIONS
One of the most advantageous characteristics of S Corporations is the ability to avoid double taxation i.e. paying taxes at both corporate and individual level. In S Corporations, income is taxed like partnerships. Each item of income is "passed through" directly to the shareholders and it is not taxed at all at the corporate level.
This "pass-through" advantage provides owners of S Corporations with the advantages of corporate form such as centralized management and limited personal liability, while avoiding double taxation.
SOME LATENT PITFALLS IN S CORPORATIONS
  • S CORPORATION GENERATION OF OPERATING LOSSES: If a business is expected to generate losses, LLC could be more advantageous than an S Corporation. This is because S Corporation shareholders cannot write off losses exceeding their actual investments. In other words, S Corporation shareholders can write off losses equaling their investments PLUS any other amounts they are "at risk". On the other hand, LLC members could write off investments equaling their investments PLUS their ALLOCABLE SHARE OF LLC DEBT.
  • S CORPORATION ALLOCATION OF LOSSES AND PROFITS: In S corporations, profits and losses are distributed among shareholders in proportion to their stock ownership throughout the year. On the contrary, generally, LLC members could agree to allocate profits and losses disproportionately. This means LLC members could agree to allocate profits on one basis and allocate losses on another basis.
  • S CORPORATION LIMITATION TO ONE CLASS OF STOCK: S Corporation are limited to one class of stock while LLCs can have different financial interests.
  • S CORPORATION PROSCRIPTION FOR FUTURE SERVICES OR UNSECURED PROMISES: S Corporations shareholders are proscribed from becoming shareholders in exchange for rendering future services or giving unsecured promise to pay. In contract, LLC membership can be obtained through future services or any other obligation to pay including a promise to pay.
CAVEAT
This article provides ONLY SOME of the issues relevant to S Corporations. For any questions, you may contact Doron Eghbali, Esq.
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DORON EGHBALI is a Partner at the Beverly Hills Offices of Law Advocate Group, LLP. He Primarily Practices Business, Real Estate and Entertainment Law. Doron Can Be Reached at: 310-651-3065. For More Information, Please, Visit: HERE.

Why and How Are Condition Precedents Salient in Real Estate Contracts?

Condition precedents play an integral role in protecting disparate parties in contractual transactions. Such salience comes to the fore, especially, in real estate transactions where parties do not have substantive control over financing or other requirements laid out in the contract. In the absence of well-drafted enforceable condition precedents, parties are left bereft of real protection. Let us explore, to some extent, such salient building block of contractual transactions.
SOME BACKGROUND
Condition precedent is referred to a condition which must take place before a party to a contract has to perform. If a condition precedent does not take place, no duty of performance arises and no tender is required AND the party protected by the condition precedent is not in breach, if the party does not perform. In other words, in a real estate sales contract, if the contract encompasses a condition precedent specifying the buyer must first acquire a bank loan, and then the buyer is obligated to pay the seller, if the bank does not approve the buyer or the loan process takes longer, the buyer is not in breach, if the seller does not buy the property, with the proviso the condition precedent is enforceable.
Condition precedents in real estate contracts are not only limited to buyers. Sellers also insert a variety of condition precedents to ensure they are not bound to perform if certain conditions do not occur. For instance, sellers might need a way out of the contract without incurring any unreasonable costs, if the buyer's credit references are not satisfactory for the seller OR if the seller cannot find real estate for 1031 tax exchange, living or other reasonable reasons.
DRAFTING AND ENFORCING CONDITION PRECEDENTS IN REAL ESTATE CONTRACTS
There are several points to consider while drafting enforceable condition precedents. The following are just a few of such considerations:
1. LENDER'S APPROVAL: "GOOD FAITH" AND "REASONABLE EFFORTS"
It is incumbent on attorneys and clients alike, to include in real estate contracts a condition precedent, i.e. conditioning the sale upon LENDER'S APPROVAL. This point seems to be easy, but often overlooked.
CAVEATS ON LENDER'S APPROVAL CONDITION PRECEDENTS
  • The condition precedent cannot be entirely in control of one party without no qualifiers. In such circumstances, there is no mutuality of obligation and NO PARTY CAN ENFORCE THE CONTRACT. Usually, the courts dislike this result and often construe the contract as to deny the party with unfettered discretion to perform the contract. A party who has failed to make a good faith effort to obtain financing, is found LIABLE even though the obligation to perform the contract as a whole has not arisen. Such breach is typically treated as a total or material breach as though the defaulting party had refused to consummate the sale itself.
  • To avoid the problems just set forth, contract should contain "GOOD FAITH" and "REASONABLE EFFORTS". Nonetheless, it is insufficient if the defaulting party only invokes such principle without putting in any good faith or reasonable efforts to obtain financing.
2. VAGUENESS OF "GOOD FAITH" AND "REASONABLE EFFORTS"Understandably, the problem arises when it comes to interpretation or construction of "good faith" or "reasonable efforts". The reality is that how hard the defaulting party should seek financing before such efforts are deemed reasonable or in good faith. Courts are, to some extent, divided on this issue. Nonetheless, most of the courts follow SOME of the following guidelines:
  • Most courts are willing to fill in the missing terms by referring to reasonable expectations and practices in the locality.
  • The actual behavior of the parties might provide additional information even if the terms are indefinite or ambiguous.
  • A party may waive the indefinite provision. However, such waiver is effective only if the provision was inserted for the benefit of the waiving party. For financing conditions, the buyer is often deemed to be the benefiting party. Such construction might prove more problematic in non-financing condition precedent circumstance.
SALIENT NOTE
This article in no way supplants a thorough investigation of the facts and the law pertinent to the situation at hand. In fact, this article provides ONLY a small portion of this salient topic.
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DORON EGHBALI is a Partner at the Beverly Hills Offices of Law Advocate Group, LLP. He Primarily Practices Business, Real Estate and Entertainment Law. Doron Can Be Reached at: 310-651-3065. For More Information, Please, Visit: HERE.

Some BASICS of Film Production Contracts

Film production contracts encompass some "standard production guidelines" which producers must adhere to. Such standard production guidelines include but are not limited to: picture length adherence, budget adherence, screenplay adherence, rating adherence, cover shots adherence and end credits adherence, among other provisions. Let us further explore this salient rather complicated topic.
SOME BACKGROUND ON THE ROLE PRODUCERS
Producers, unlike writers or directors, do not necessarily have specific functions. Producers could do some, most or all of the following depending upon their title and scope of responsibility:
  • LINE PRODUCER: Often, most productions include line producers, whether or not such individual is referred to it by such title. The Line Producer is often the hands-on manager of the production preparing budgets, securing locations and negotiating leases, among other functions.
  • PRODUCER STATUS BY VIRTUE OF ASSOCIATION: It is conceivable and standard practice to earn producer status solely because the person is a personal manager to the film's star, is the film writer, is film star's friend or is the film star. In such scenarios, studios, usually, do not require full-time producer work from such individuals.
  • EXECUTIVE PRODUCER: This title was traditionally bestowed on people who helped secure financing for the film. Nonetheless, this is no longer necessarily the case. For instance, it is possible production companies accord such status to one of their people credited with spearheading the project during its development stage.
FILM PRODUCTION REQUIREMENTS
It is customary for most studios to require producer to adhere to the following guidelines:
1. BUDGET ADHERENCE
Studio contracts, generally, provide that "the picture shall be produced and delivered in accordance with the approved budget - subject only to the changes approved by the studio, in writing". In fact, as the contract specifies, producer needs to closely watch the approved budget and should not unreasonably expect more budget or deviations from what the studio approved, unless the studio in writing acquiesces to such changes.
2. PICTURE LENGTH ADHERENCE
Studio contracts, generally, provide that the completed picture must have a running time of "not less than 95 minutes and not more than 110 minutes." Nonetheless, it is possible that the studio and producer could modify such length of time and agree on the precise running time, at the end. It behooves the producer to closely work with the editor to consummate such picture length, as agreed to by the parties.
3. RATING ADHERENCE
Studio contracts, generally, specify a particular rating requirement in the producer's agreement. Such rating requirement, usually, varies based on the type of the film. For instance, if the movie is an animated feature for children, such requirement would be for a "G" rating. It is important to note the Motion Picture Association of America (MPAA) is the final arbiter of the rating. Producer, based on the specific language of  the contract, might be expected to use his best or reasonable efforts to accomplish this objective.
4. SCREENPLAY ADHERENCE
Studio contracts, generally, specify a particular language ensuring the motion picture adhere to the approved shooting script. This requirement is intended to minimize, to the extent possible, any "significant" deviation from the approved screenplay for which the studio agreed to pay.
5. COVER SHOTS ADHERENCE
Studio contracts, generally, require the producer to include "cover shots". Cover shots are referred to alternate scenes and language used to replace or "cover" scenes containing nudity or profanity shot for the film's theatrical release. Such cover shots are used to supplant such scenes or dialogue in television network, airline, or other versions of the motion picture.
6. END CREDITS ADHERENCE
Studio contracts, generally, impose running-time limits on end credits. The contracts require that the end credits not exceed 3 minutes.
DISCLAIMER
This article NEITHER in any way supplants seeking competent professional legal counsel NOR serves as legal advice. In fact, this article encompasses ONLY SOME of the salient points concerning this rather complicated topic.
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DORON EGHBALI is a Partner at the Beverly Hills Offices of Law Advocate Group, LLP. Doron Primarily Practices Business, Real Estate and Entertainment Law. Doron Can Be Reached at: 310-651-3065. For More Information, Please, Visit: HERE.

Monday, February 21, 2011

Paying and Caring for Somebody? Probably, You May Deduct Some Taxes

With taxes looming over us and haunting our financial and non-financial decisions alike, it is time to delve into our expenses and find places where we could deduct some taxes, if possible. There are some ways to deduct some of the medical expenses you incur while caring for a friend or relative. Let us explore this important subject further, in some detail.
1. CAREGIVERS' DEDUCTION OF UP TO $3,650 FOR 2010 (STRINGENT CRITERIA)
Many of us care for some people, however to be able to claim some deduction as a care recipient on our taxes, we must pass ALL of the following criteria:
  • Caregiver MUST provide, at least, half of the care recipient's financial support for 2010.
  • Caregiver MUST live with the non-family member receiving care and financial support for the whole past year. If the care recipient is a family member, they could be living on their own.
  • Caregiver MUST provide for somebody who is a legal resident of the US, Canada or Mexico or US citizen.
  • Caregiver MUST provide for a person whose GROSS personal income for 2010, EXCLUDING social security benefits, does not exceed $3650.
  • Caregiver MUST provide for somebody who cannot file a joint tax return.
THEN, if ALL of the above criteria apply, then we MIGHT reduce our taxable income by $3,650 for 2010.
2. CAREGIVER'S CREDIT OF UP TO $1,050 FOR 2010
Even if the Caregiver does not meet of all of the requirements laid out above, the caregiver MIGHT be able to take advantage of dependent care credit of of up to $1,050 if AMONG OTHER THINGS, the care recipient is "mentally or physically unable to care for himself or herself."
3. CAREGIVER'S ITEMIZED DEDUCTION OF MEDICAL EXPENSES EXCEEDING 7.5% OF AGI
Still, there might be another tax break, if the caregiver is not eligible to receive the $1,050 tax credit. This is when the caregiver itemizes tax deductions and the money spent on qualifying expenses exceed 7.5% of Caregiver's Adjusted Gross Income (AGI).
For instance, if the Caregiver's AGI is $60,000, then the Caregiver MAY ONLY deduct whatever is beyond $4,500 (7.5% of $60,000) for qualifying expenses.
A. DEFINITION OF QUALIFYING EXPENSES
Some of the examples of Qualifying Expenses include, but not limited to:
  • Insurance Premiums
  • Out of Pocket Costs for Doctors and Hospitals
  • Some Equipment
  • Nursing Home Bills (Restrictions Apply)
B. CAVEATCaregiver, still MUST provide at least half of the Care Recipient's financial support, in this scenario.
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DORON EGHBALI is a Partner at the Beverly Hills Offices of Law Advocate Group, LLP. He Primarily Practices Business, Real Estate and Entertain ment Law. Doron Can Be Reached at: 310-651-3065. For More Information, Please, Visit: HERE.

Thursday, February 17, 2011

Why and How Are Condition Precedents Salient in Real Estate Contracts?

Condition precedents play an integral role in protecting disparate parties in contractual transactions. Such salience comes to the fore, especially, in real estate transactions where parties do not have substantive control over financing or other requirements laid out in the contract. In the absence of well-drafted enforceable condition precedents, parties are left bereft of real protection. Let us explore, to some extent, such salient building block of contractual transactions.
SOME BACKGROUND
Condition precedent is referred to a condition which must take place before a party to a contract has to perform. If a condition precedent does not take place, no duty of performance arises and no tender is required AND the party protected by the condition precedent is not in breach, if the party does not perform. In other words, in a real estate sales contract, if the contract encompasses a condition precedent specifying the buyer must first acquire a bank loan, and then the buyer is obligated to pay the seller, if the bank does not approve the buyer or the loan process takes longer, the buyer is not in breach, if the seller does not buy the property, with the proviso the condition precedent is enforceable.
Condition precedents in real estate contracts are not only limited to buyers. Sellers also insert a variety of condition precedents to ensure they are not bound to perform if certain conditions do not occur. For instance, sellers might need a way out of the contract without incurring any unreasonable costs, if the buyer's credit references are not satisfactory for the seller OR if the seller cannot find real estate for 1031 tax exchange, living or other reasonable reasons.
DRAFTING AND ENFORCING CONDITION PRECEDENTS IN REAL ESTATE CONTRACTS
There are several points to consider while drafting enforceable condition precedents. The following are just a few of such considerations:
1. LENDER'S APPROVAL: "GOOD FAITH" AND "REASONABLE EFFORTS"
It is incumbent on attorneys and clients alike, to include in real estate contracts a condition precedent, i.e. conditioning the sale upon LENDER'S APPROVAL. This point seems to be easy, but often overlooked.
CAVEATS ON CONTINGENT ON LENDER'S APPROVAL CONDITION PRECEDENTS
  • The condition precedent cannot be entirely in control of one party without no qualifiers. In such circumstances, there is no mutuality of obligation and NO PARTY CAN ENFORCE THE CONTRACT. Usually, the courts dislike this result and often construe the contract as to deny the party with unfettered discretion to perform the contract. A party who has failed to make a good faith effort to obtain financing, is found LIABLE even though the obligation to perform the contract as a whole has not arisen. Such breach is typically treated as a total or material breach as though the defaulting party had refused to consummate the sale itself.
  • To avoid the problems just set forth, contract should contain "GOOD FAITH" and "REASONABLE EFFORTS". Nonetheless, it is insufficient if the defaulting party only invokes such principle without putting in any good faith or reasonable efforts to obtain financing.
2. VAGUENESS OF "GOOD FAITH" AND "REASONABLE EFFORTS"Understandably, the problem arises when it comes to interpretation or construction of "good faith" or "reasonable efforts". The reality is that how hard the defaulting party should seek financing before such efforts are deemed reasonable or in good faith. Courts are, to some extent, divided on this issue. Nonetheless, most of the courts follow SOME of the following guidelines:
  • Most courts are willing to fill in the missing terms by referring to reasonable expectations and practices in the locality.
  • The actual behavior of the parties might provide additional information even if the terms are indefinite or ambiguous.
  • A party may waive the indefinite provision. However, such waiver is effective only if the provision was inserted for the benefit of the waiving party. For financing conditions, the buyer is often deemed to be the benefiting party. Such construction might prove more problematic in non-financing condition precedent circumstance.
SALIENT NOTE
This article in no way supplants a thorough investigation of the facts and the law pertinent to the situation at hand. In fact, this article provides ONLY a small portion of this salient topic.
________
DORON EGHBALI is a Partner at the Beverly Hills Offices of Law Advocate Group, LLP. He Primarily Practices Business, Real Estate and Entertainment Law. Doron Can Be Reached at: 310-651-3065. For More Information, Please, Visit: HERE.