proposition 19 estate planning

California Proposition 19: How it Will Affect Family Property Transfers and Estate Planning

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The narrow passage of Proposition 19 in the November election creates significant changes to the property tax assessment rules for California parents (and grandparents of parents are deceased) who want to transfer ownership of real estate property to their children or grandchildren. These changes, which take effect on February 16, 2021, will make the majority of these transfers far more costly. This has created urgency among many California property owners to take action ahead of the upcoming deadline in order to protect their wealth for the next generation.

If you are a parent or grandparent who is considering a property transfer, it is important to act quickly to avoid the consequences of the rule changes under Proposition 19. Call Garmo & Garmo today at 619-441-2500 to set up a free consultation with one of our experienced real estate and estate planning lawyers.

History and Previous Rules for Family Property Transfers in California

Proposition 19 is an amendment to rules that were originally created by Proposition 13 in 1978 and Proposition 58 in 1986. Proposition 13 limits increases in the “taxable value” of real property to 2% per year, and the property is reassessed to market value only when it changes ownership.

For example, if you paid $500,000 for home in 2000, the maximum assessed value (with a 2% annual cap) would be $742,974 in 2020. We know that in most areas of California, the market value of real estate property has appreciated at annual rates much higher than 2%, and it is not uncommon for a property that was worth $500,000 20 years ago to be worth several million dollars today.

Although Proposition 13 provided much-needed certainty to California property owners about future tax liability, there were increasing complaints about children getting hit with huge property tax bills when they became owners of their parents’ property. Proposition 58 addressed this issue by changing the California Constitution to help protect these transfers from major tax reassessments.

Proposition 58 made two very important amendments to the state Constitution:

  • A primary residence can be transferred to children or grandchildren with no value limit, and the new owner(s) can use the property for any purpose (e.g., live there, rent it out, use it as a vacation home, etc.)
  • For real property other than the primary residence, up to $1 million in assessed value can be transferred to children or grandchildren without reassessment.

Transfers can be made via a gift, sale, or inheritance, and transfers through a trust also qualify for this exclusion.

What Is Changing Under Proposition 19?

Proposition 19 repeals Proposition 58 (1986) and forces transferred or inherited property within families to be reassessed under most circumstances. The current law allows a parent or grandparent to transfer ownership (without reassessment) of their primary residence without any value cap, and to transfer other properties with a $1 million value cap – regardless of how the child chooses to use the property.

The new law requires the child(ren) to make the property their primary residence, or the property tax value will be reassessed. And even if they do decide to live in the property, there is a $1 million value cap on the reassessment exclusion.

So, if the market value of the property has increased by $1 million or less, then no reassessment is needed. However, if the parents had the property for a long time and the market value has increased by more than $1 million, then any additional amount (above the $1 million) would be added to the tax assessed value. This could cause a major spike in the property tax bill after a property transfer between families is made.

Contact Our Southern California Estate Planning Lawyers

If you are planning to leave your children or grandchildren real estate property, taking action before the February 15, 2021 deadline could be extremely important in order to avoid an expensive property tax reassessment. As this matter is very time sensitive, it is best to get in touch with the attorneys at Garmo & Garmo as soon as possible to discuss your options.

Call our La Mesa office today at (619) 441-2500 or message us online for your free consultation. We look forward to serving you!

Landlord/Tenant Issues duing a pandemic

What are the Tenants’ and Landlords’ Rights Regarding Unpaid Rent During COVID-19?

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The coronavirus outbreak and the resulting shutdown of numerous nonessential businesses has created a crisis situation for many individuals and business owners in California and throughout the country. With the lockdown having gone on for several weeks with seemingly no end in sight, many are having trouble paying for basic necessities like their rent and utilities.

California has imposed a two-month moratorium on evictions for residential tenants who cannot pay their rent because of COVID-19. Currently, this delay runs through the end of May. and Tenants have to pay the past-due rent payments later. Evictions mayresume in June if more government action is not taken, but for now, residential tenants can take some solace in the fact that they cannot be thrown out of their homes for at least the next two months.

For California businesses that are having trouble paying rent, the situation is a lot less clear. The governor’s statewide moratorium on rent evictions does not apply to commercial leases, but there several local municipalities that have enacted commercial eviction prohibitions.

For example, the City of San Diego has prohibited evictions of commercial tenants that are struggling to pay their rent due to a decrease in income caused by COVID-19.However, commercial tenants are required to put their landlords on notice that they cannot pay rent due to COVID-19, and must also provide their landlord with documentation supporting the decreased income. Commercial tenants have to pay the past-due rent payments later, within 6 months of March 25, 2020. The County of San Diego and Cities of Chula Vista, Oceanside and La Mesa have passed similar regulations. .

If you wish to take advantage of these legal protections from eviction, it is important to follow all of the right steps in communicating with your landlord.  Otherwise, you may lose your right to the protection afforded by these new COVID-19 regulations.  Also, it is important to understand the specific law that applies to you and your tenancy, as these regulations differ according to location. Garmo & Garmo is ready and available to analyze your specific situation and can provide you with guidance during this difficult time.  

How Should I Deal with my Landlord if I am Not Legally Protected from Eviction?

There are a lot of Southern California businesses that will not be able to look to a government-imposed eviction prohibition to protect them while the coronavirus pandemic keeps them shut down. Bars, restaurants, and other businesses where larger crowds tend to gather are among those most affected by this situation, and it may not be clear to them what is the best course of action to survive.

One of the first things to do is to take a look at your commercial lease. Review the wording carefully or have your attorney review it to identify any clauses that might relieve you of your obligation to pay rent right now. Whether your lease has an “out” clause that applies to this situation or not depends on the specific language in the contract, but unfortunately, many businesses are going to find that no such language exists. Still, it never hurts to have the contract reviewed.

If your commercial lease offers no avenue to get you out of paying rent, then you will need to try to work something out with your landlord, or have your attorney contact them to work out a solution. In dealing with your landlord, it is important to bear in mind that they and virtually everyone else in the world understand that this is an unprecedented situation.

Your landlord knows that you are out of business and that you are going to have trouble coming up with rent, and they also know that it will probably cost them a lot more to evict you from the building and try to lease it to a new tenant. If you have been a good tenant up until this point, then they want you to stay, and they will want to do everything within reason to keep you there.

It is important to note that you need to be careful how you approach your landlord and how you discuss the situation. For example, you probably do not want to tell them outright that you will not be paying your rent as this could be seen as a “threatened breach” of your contract, which could trigger a default. This is why it is usually best to have your attorney do the talking, even if you have a good relationship with your landlord.

What if I Have Already Received a Default Notice from my Landlord?

If you have received a notice from your landlord indicating that you are in default of your lease, get in contact with an experienced business attorney immediately. You normally have a certain amount of time before a lease is officially terminated and the eviction process begins, so any action to stop this process from going forward must be taken before the clock runs out. Any type of default notice is very serious, and it must be addressed right away. You cannot necessarily count on the shutdown created by the COVID-19 crisis to get you out of it.

We are Here for You

Everyone’s life has been disrupted by the coronavirus pandemic, and we will all get through this together. If you have any type of legal issue that has arisen because of COVID-19, we at Garmo & Garmo are here to help. Like everyone else, we are taking all of the precautions and following the social distancing guidelines laid out by the state and federal government, but we are still operating at full speed, and we are ready to help individuals and businesses in whatever way we can to get you through this difficult time.

Message us online or call our office today at (619) 441-2500 to schedule a free consultation.

commercial least agreement attorney in La Mesa

Why you Need an Attorney to Review a Commercial Lease Agreement

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When you are starting a new business or moving to a new location, one of the most important contracts you will need to sign is a commercial lease agreement. Many business owners are under the mistaken impression that commercial leases are similar to residential leases, and that each contract contains pretty much the same language. 

The fact is that commercial leases are far more complicated than those on the residential side, and they contain many potential pitfalls and financial risks for the tenant. This is because use of commercial space is very different from the way a residential property is used. Pretty much everyone rents an apartment as a place to live, while a commercial property is rented for some type of business use. But each business is unique, and there are many specific ways you may want to use a commercial space, all of which should be addressed in your contract.

Because of the complexities involved with commercial leases, it is always a good idea to have an experienced business lawyer review this type of contract. Here are five specific reasons you should have an attorney review a lease agreement:

Accuracy

Before a commercial lease agreement is drafted, there is usually an agreement in principle between the landlord and the tenant. Important points are usually agreed to, such as monthly rent, square footage being rented, term and renewal periods, security deposits and upfront rent, tenant improvement allowance, and many others. These conditions are often included in a letter of intent (LOI). A tenant should expect the points that were agreed upon and spelled out in the LOI to be accurately reflected in the lease agreement, but this is not always the case. A lawyer can thoroughly review the contract to make sure everything is accurate.

Use of Space

One common issue that some tenants do not think through as thoroughly as they should is the way they are allowed to use the space they are renting. The lease defines the commercial activities the tenant is allowed to participate in, but the language may be too narrow.  For example, if you are opening a coffee shop, you might also want to sell hats, t-shirts, and coffee cups with your logo on them. If that is the case, make sure this is specified in your lease agreement. Along these same lines, you should also insist on an “exclusive use” clause, which would prevent another coffee shop (or whatever type of business you are opening) from renting space in the same commercial location.

Common Area Maintenance (CAM) Fees

Commercial lessees are typically required to share the operating expenses of the commercial building or complex. For example, tenants may share the cost of security, parking lot maintenance, lighting and other electricity for common areas, etc. These fees can get very expensive, however, if they are dependent on how many tenants are renting space and several tenants suddenly move out. You should insist that your CAM fees be based on a percentage of total available square feet for rent, rather than total amount of square footage rented. You should also ask for a detailed report of what the CAM fees were for the previous year, so you have a good idea of what to expect.

Out Clauses

Commercial leases typically run for three to five years or longer, and the tenant is usually required to provide a personal guarantee for the entire term of the lease. As personal guarantor, you lose all protection that your business entity may provide (e.g., LLC, Corporation), and you are personally on the hook for any unpaid rent, property damage, or other liabilities. Landlords usually do not want to remove the personal guarantor clause, but you may be able to negotiate some flexibility into it. 

For example, the landlord may agree to some “out” clauses in your contract, such as the ability to leave if your sales have not reached a certain level by a certain period of time. Or you may be able to negotiate the right to sublet all or part of your commercial space to another party. A landlord may agree to this as long as they are able to approve the new tenant, and as long as the original lessee remains liable for any unpaid rent or property damage done by the new tenant.

Negotiate More Favorable Terms and Conditions

As we have eluded to in the previous points, perhaps the most important reason to have an attorney review your lease agreement is that commercial leases are usually written by the landlord (or more often their attorney), and this means that the contract will be worded in a way that is most favorable to the landlord. Your lawyer can often negotiate better terms and conditions, which can put you in a much more favorable position when you take occupancy of your commercial space.

Speak with an Experienced San Diego Commercial Lease Agreement Attorney

As mentioned earlier, commercial leases typically run for several years, and there are a lot of complicated clauses that could create major trouble for you as the tenant down the road. With so much at stake, it makes sense to spend what probably will amount to less than one month’s rent to have a lawyer review your lease agreement before you lock yourself in for this type of commitment.

The experienced business law attorneys at Garmo and Garmo, LLP provide comprehensive guidance with commercial leases and all other types of business matters for clients throughout San Diego County and Southern California. To schedule a free consultation with one of our attorneys, call our office today at 619-441-2500 or send us a message through our web contact form.

exclusive easement in La Mesa

What is an Exclusive Easement in California?

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We do not handle exclusive easement cases, this blog post is for informational purposes only.

Easements are frequently used in real estate contracts. An easement grants the non-owner of a property the right to use that property for a specific purpose. The party for whom the easement is granted may derive a number of benefits from the property, and this is often given in exchange for some type of compensation or consideration, but it does not convey any ownership rights. 

One common example of this type of an easement would be a utility company that is granted the right to run its power lines across land it does not own. It would be impractical for the utility company to buy up all the land it would need to run its power lines, so obtaining easements from various property owners makes more sense. 

Easements are often granted from one private property owner to another for various purposes.  For example, if one owner has land that is isolated and he needs to cross his neighbor’s property in order to access his own land, he may obtain an easement to build a driveway across his neighbor’s property.

Most easements are non-exclusive, meaning that the owner retains the right to use the property, and the right to grant easements to others for various uses. One scenario in which easements may be granted to multiple parties is when road access is granted across a private property owner’s land to access a property for public use, such as a school or shopping center. With a non-exclusive easement, the property owner may continue to use the land as they choose, so long as they do not interfere with the rights of the easement holder(s).

Exclusive Easements in California

Although they are rare, there is a type of easement that may restrict the rights of the property owner and others to use the land. This is known as an exclusive easement. With this type of arrangement, only one party (or maybe a limited number of parties) have the right to use the land for a specified purpose. 

There are a few ways that an exclusive easement may be acquired. First of all, exclusivity may be expressly granted by the property owner in a contract. Going back to the owner whose property is landlocked and needs to cross his neighbor’s property to access it, the contract could state explicitly that only the current owner (of the landlocked property) and future owners have the right to use the specified parcel of land as a driveway. This would exclude the owner from granting an easement to any other party.

An exclusive easement may also be implied due to a party’s exclusive use of land without the owner’s objection for a certain period of time. This is similar to the legal concept known as “adverse possession”, where another party can come onto a piece of land, occupy it for a certain length of time without objection, and gain legal ownership of it. The only difference is that an easement does not convey ownership of the land.

Another way an exclusive easement could be implied is by a party’s conduct on a property. For example, if a water district obtains an easement to build and maintain a reservoir on a portion of a private property owner’s land, the water district may be entitled to exclusive use of the land because this may be necessary to prevent contamination of the water.

This has been known to happen between private property owners as well. In a case from 2007 (Blackmore v. Powell), a property owner granted an easement to his neighbor “for parking and garage purposes.” At the time the easement was granted, there was no garage on the property. The easement holder built a garage later, and a court held that the language in the contract not only entitled them to build the garage, they also granted exclusive use of the garage finding that it would be impractical to share it with the owner.

What Does the Term “Exclusive” Mean?

There have been a number of legal disputes over the years over the meaning of the word “exclusive” when it comes to exclusive easements. Does it only mean that the easement holder (and anyone else mentioned in the contract) has the exclusive right to use it? Or does it also mean that the owner is excluded from using the property as well?

In Blackmore v. Powell, the court did find that the landowner could not use the garage because it would be impractical. In another dispute, Gray v. McCormick (2008), a landowner wanted to use the property (for which he had granted an easement to his neighbor to use as a driveway) to bring his horses back and forth to their barn and pasture. The neighbor who held the easement wanted to pave the driveway and make other improvements and did not want the horses crossing it. A California appellate court found in favor of the easement holder, pointing to the exclusive use clause in the contract.

Call Our San Diego Real Estate Attorneys for Assistance with Land Use Issues

Easements are commonly used in real estate, but as we have seen in so many cases, they can also be the source of contentious legal disputes. If you are involved in a real estate deal in California, it is absolutely essential to have the contract reviewed by an experienced attorney, so the language is precise and in keeping with your best interests. A properly written contract can save you untold stress and money by helping to avoid an expensive legal battle down the road.

For any type of legal help with easements and other real estate matters in Southern California, contact the seasoned attorneys at Garmo and Garmo, LLP today. Call our office at 619-441-2500 or send us a message through our web contact form to schedule a consultation.

commercial real estate lawyer in el cajon

I Am Looking to Buy a Commercial Building – What Type of Due Diligence Should I Do?

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The purchase of a commercial property can involve a high degree of risk, particularly if you don’t find out as much as possible before closing the deal. While there are some protections in place for purchasers of residential properties, it is assumed that the parties involved in commercial real estate transactions are more sophisticated.

The old adage of “buyer beware” applies strongly to commercial real estate purchases. Traditional rulings of the courts indicate that the buyer will be stuck with whatever they purchased with limited recourse. Because this is a likely result, extra caution makes sense in these transactions with a thorough due diligence process.

What is Due Diligence?

Due diligence for commercial real estate means conducting a thorough investigation into every aspect of the transaction before closing. As the buyer, this process helps you learn more about the seller, the property, and the financial aspects of the deal so there are no surprises after the transaction is complete.

The scope of your due diligence will depend on the transaction and your goals as a buyer. For example, a buyer who is purchasing property to develop will have different needs than someone that is buying property to use for the operation of a business or as an investment to generate revenue.

Once you have established the use for the property and your goals, you can create a framework for your due diligence process. In general, there are three broad categories of due diligence; physical due diligence, legal due diligence, and financial due diligence.

Physical Due Diligence

As its name suggests, you want to ensure that the building structure, land, and other physical features are everything that was represented to you by the seller. Lenders and buyers require certain standard third-party reports that reveal a great deal of information. These include the appraisal, zoning compliance, building/engineering reports, and environmental investigation.

Buyers shouldn’t rely on the seller’s representation that a property is in compliance with zoning. If you plan to make changes to the property, it’s vital you independently research the site’s zoning as well as the requirements to make a change with the local planning department.

A building/engineering report is the equivalent of a home inspection report on a residential property. This will give you an in-depth look at the property’s electrical, HVAC, and other vital systems. The engineer will also note any structural or maintenance issues.

Most lenders require a minimum of a Phase I Environmental Report. The findings of this report will determine if there is any cause for concern and let you know whether further testing is warranted.

Legal Due Diligence

Another essential aspect of due diligence is the examination of the title. Working closely with the title company, we can deliver a commitment to issue a title policy which ensures that you will get a clear title to the property upon closing. If there are any impediments, such as liens or municipal code violations, these should be discovered sooner rather than later.

Financial Due Diligence

One of the most important aspects of due diligence is the financial element. People don’t purchase a commercial property to lose money, so you should have every assurance that what you are buying is indeed a good investment.

As a buyer, you should obtain the financial documentation showing the property’s current and past net operating income. Specifically, you’ll want to see at least three years of financial data on the property. What monthly and annual expenses are associated with owning and running the property? If the property has tenants, a review of the leases is necessary to determine the terms of the leases and other important considerations.

Buyers should also insist on examining the tax returns of the person or entity that currently owns the property (the seller). These figures should confirm the reported financials. On the other hand, if the seller is reporting dishonest numbers on their taxes, this could be a red flag for the transaction.

While historical records are vital, it’s also important to take a close look at any changes you plan to make to the property. How will these changes to the property impact these financial results?

San Diego Due Diligence Real Estate Attorneys

Due diligence is a complex, comprehensive, and critical process in any commercial real estate transaction. As the buyer, you don’t want any stone left unturned since an omission or misrepresentation can be costly.

The experienced real estate attorneys at Garmo and Garmo, LLP provide comprehensive due diligence services for clients throughout San Diego County and Southern California. For a free consultation with one of our attorneys, call our office today at 619-441-2500 or send us a message through our web contact form.

Upcoming Presentation: Counseling the Real Estate Investor Client

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Join attorneys Freddy Garmo and Robert Garmo along with the Southern California Institute for a special presentation in La Jolla which will discuss Counseling the Real Estate Investor Client. During this presentation, Freddy and Robert will explain the strategies they have successfully employed at all stages of the buying and selling process. They will also discuss the importance of working with a team of advisers to help counsel real estate investors to made smart investments.

Save the Date

Interested in attending one of these free presentations? Please contact our office at 619-441-2500 to speak with a team member, as space is limited.