Articles Posted in Real Estate

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Every profession has its toolbox of near essentials. For a lawyer, I think a good craw is just about indispensable. Even though humans don’t actually have “craws” (with the possible exception of Don Rickles), a figurative craw is most useful for the practice of law. You need a place to jam the stuff that just rubs you the wrong way. You’ve got to store the things you just can’t quite digest so that you can pull them out, poke at them a bit, and turn them over as over as you look to make sense of them.

Something that has been stuck in my craw for awhile now has been the Alaska Supreme Court’s decision in Roeland v. Trucano. This came down in late August, and yes, it’s been wedged tightly in my craw ever since.

floss.jpgThe facts of the whole dispute are a bit convoluted. Two folks from Belgium held a right of first refusal on a piece of real property located in Juneau. (Belgians in Juneau? Who knew?) The Trucano guys who gave that right of first refusal made a deal to sell a 25% interest in the property to a fellow named Coates. In exchange, Coates was going to give Trucano a 25% interest in the souvenir shop he was going to put on the property, as well as interests in other businesses that he might someday open in the future in Juneau. (I kid you not, the deal was that vague and open-ended.)

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Chris Slottee, my esteemed colleague here at Atkinson, Conway & Gagnon, has already reported on the Alaska Supreme Court’s recent decision in Edenshaw v. Safeway, Inc. Chris’ blog post calmly notes that the decision may impose greater liability on property owners than was previously the case. I think that Chris has vastly understated the significance of the decision. This new decision totally knocks out one of the bulwarks of established tort law. I mean, what the heck happened to the Gritty Banana Peel Doctrine?

When I was in law school (back in the far, far recesses of the last century), they taught us fledgling lawyers that negligence was not the equivalent of strict liability. To be negligent and liable for someone’s injuries, you had to do something wrong. More specifically, you had fail to act in the manner that a reasonable person would have acted. Negligence law, good old Professor Dente said, accounted for the fact that BAD STUFF HAPPENS. Sometimes, its nobody’s fault and the plaintiff just has to take it in the shorts. (I’m paraphrasing the professor’s comments here.)

falling_man.jpgThis principle of negligence law meant that just because a guy injures himself by falling down in a grocery store does not mean the store owner is liable. If the guy slipped on a banana peel, the store owner is not responsible unless the owner should have cleaned the thing up. So if the banana peel is a fresh one that was not previously tromped upon, it indicates the damn thing just fell on the floor and the store owner can’t be expected to have known about it or to have picked it up. But if the banana peel is all nasty from being on the floor for awhile this demonstrates a reasonable property owner had time to discover the peel and pick it up. This is the Gritty Banana Peel Doctrine.

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Well, after a few months of having other things to occupy my time, namely these darling three month olds (Isaac & Aaden), IMG_0527.jpg it is time for me to renew Atkinson Conway & Gagnon’s attempt to, ahem, timely summarize the Alaska Supreme Court decisions of the week.

First up is Pebble Limited Partnership v. Parnell, S-13059/S-13060, in which the Alaska Supreme Court rejected an attempt to remove an initiative from the November ballot that will impose new requirements on mining in Alaska. The opinion has no real reasoning, as it’s actually an order with an opinion to follow, issued so that the State has time to print ballots for the election this fall. I won’t go into the arguments regarding the merits of the underlying mining initiative, but if you listen to the radio or watch TV for five minutes, you are almost sure to see ads from both sides of the issue.

The only other opinion of real interest is Edenshaw v. Safeway, Inc., S-12583, in which the Alaska Supreme Court held that to prevail on a premises liability claim in Alaska, a plaintiff does not need to show that the business owner had actual or constructive knowledge of the dangerous condition. Instead, the Court held there was only a basic reasonableness test, in which the business owner’s notice of a dangerous condition was a factor to consider, but not a dispositive or required one. This case is a departure from prior cases in which the Alaska Supreme Court held that the State of Alaska had to have actual or constructive knowledge of a defect in a highway to be liable if that defect caused an injury. In Edenshaw, the Court distinguished these prior cases by noting that a grocery store (which was where the injury occurred in Edenshaw) is a much more tightly controlled area, and thus it was more reasonable to impose a general duty of care on the business owner regardless of whether the business owner had actual or constructive knowledge of a dangerous condition on the property.

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Look, I’m willing to admit it. It’s nothing to be ashamed of, not really. Just because most everyone else does not feel this way is no reason that I should deny my true nature. You see, the thing is, I have to confess something: Arbitration clauses in contracts make me nervous.

Yes, I know, I know. Arbitration is trendy, arbitration is hip. It’s as cool as wearing sunglasses on a rainy night in Belltown. It’s as fashionable as those ugly plastic clogs with the holes in them. It’s as scenester as post-post-emo rock. Arbitration is so cutting edge that all those boutique lawyers who are putting the clauses into their copyrighted, intellectual property have paper cuts all over their hands. I mean, Dawg, what sort of hipster doofus doesn’t think that arbitration is just da wicked phat bomb?

Well, actually, that hipster doofus would be me. I paw through a lot of contracts. And every time I get to one where there is an arbitration clause (it’s happening with greater frequency), I wince. Usually I reach in my desk drawer and pull out the faithful red pen, a/k/a d’Artagnan. A swift stroke of d’Artagnan’s blade and the clause is excised from the contract, tossed back into the ever flowing river of the law like so much salmon guts.

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The Alaska Supreme Court does not often delve into the world of commercial lease clauses. When it does so, we commercial real estate lawyers have to sit up and take notice. The rest of you out there can safely ignore these court decisions because they are B-O-R-I-N-G. But those of us toiling in the field have to read them whether we want to or not.

A few weeks ago the Court decided Carr-Gottstein Foods Co. v. Wasilla, LLC. The case turned on the application of a . . .wait for it now . . . WAIVER clause in a commercial lease. And I mean, really, is it possible to get any S-E-X-I-E-R than that? (OK, maybe a waiver clause tied into an insurance subrogation claim would be just a bit more dazzling, but we can’t always get everything we want.)

It seems that in 1996 Safeway’s predecessor (Carr’s) moved out of the stand-alone liquor store it had been leasing in Wasilla from some formerly affiliated company, which I’ll just call Landlord LLC for simplicity. Safeway moved its liquor store into part of its main grocery store space that it was also renting from Landlord LLC. Landlord LLC knew about the move and even helped with it. Landlord LLC later affirmed for lenders that Safeway was not in default on its lease. The head man at Landlord LLC (a lawyer no less) said he thought the move was a technical default under the lease but he decided that he would “keep his options open” and not declare the tenant in default until the “economic ramifications” shook out. (The technical legal term for this is “lying in the weeds.”)

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You see it again and again in lawsuits over contracts. Almost everyone gets confused when its comes to conditions. The courts frequently mess up on the rules that apply to conditions. The lawyers often don’t realize the problems they are dealing with involve conditions. And the clients don’t even know what conditions are. The result is that some poor schmuck who has charged off suing the other side thinking he was given the shaft gets smacked down in court. The poor schmuck finds out that, because of the failure of a condition, the shaft was part of his deal all along.

A condition in a contract is simply something that has to happen before something else happens. Easy to say, but not so easy to apply. Conditions are imposed on one party’s obligation to perform under the contract. The contract might say, for example, that Andy Hardy does not have to buy Aunt Milly’s house until Andy Hardy first sells his existing home. If Andy Hardy cannot sell his existing home then the condition has failed and he is never obligated to actually fork over the money for Aunt Milly’s house.

Andy_20Hardy-Lana_20and_20Mickey_20KissingBut what if Andy Hardy does not really try very hard to sell his existing home because he’s too busy “pitching some woo” with Polly Benedict? Can Aunt Milly take Andy to court and complain that Andy’s out-of-control hormones kept him from making a decent effort to fulfill the condition? This gets us into conditions creating “implied promises” and the ever popular “excuse of conditions.” Aunt Milly might have a good case here, if you can ignore the fact that Andy’s dad is Judge Hardy.

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The Alaska Supreme Court’s decision last week in Mullins v. Oates is a cautionary tale for those selling real estate in Alaska. The case shows that you have to be careful about how your deal gets put together. For just this reason, its always helpful to have a pessimistic, worrywart real estate lawyer in your corner who can point out the pitfalls up ahead.

In the Mullins case, Alice Oates, the owner of some land and a building in the burgeoning metroplex of Tok, Alaska, sold the property to Margret Mullins. Mullins apparently lacked the ability to get a bank loan so Oates engaged in a form of owner financing for the deal. Oates sold the property to Mullins under a contract of sale. (The phrase “contract of sale” should mean that red lights are flashing for all the cynical real estate lawyers out there. The red lights are also probably flashing even for the optimistic, sunny-side-of-the-street real estate lawyers out there, if there actually are any such creatures.)

You see, a sale on a contract means that the seller hangs on to the title to the real estate until the seller is paid in full. The buyer gets the immediate right to occupy the property and can even make improvements to it while its being paid off. But if the buyer fails to make the required payments, the contract says that the seller can take the property back and throw the buyer out into the street. At least, the contract gives the seller that right in theory.

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February 2008 has been the month for closing commercial real estate deals here at Atkinson, Conway and Gagnon. In the first two weeks of this month alone, I have personally closed a half dozen transactions in which something like $20 million has changed hands. I say “something like $20 million” because they do not actually let me handle the money itself in these deals. I just make it possible for the money to get passed around amongst the other kids on the playground.

The deals this month have ranged from helping a client sell a couple of office buildings to assisting a client in buying a Midtown trailer park. (Earl Hickey, Come On Down!) Its always gratifying to see a deal come together and successfully close.

Some deals are harder to get closed than others. The deals over the office buildings were particularly troublesome. While my client was in Anchorage, the buyers were a couple of Delaware limited partnerships run by a guy in New York with a lender in Seattle and a lawyer and title company in Washington D.C. The money also had to go through a bond broker and bond trustee before any of it could find its way into my client’s pockets. All the e-mails scurrying back and forth amongst this crowd trying to pull these deals together could have crashed and melted the entire computer infrastructure of any number of Central Asian countries. Like the Republic of Uzbekistan for instance, where the President-For-Life has his very own Apple IIe sitting on his desk.

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The business lawyers at Atkinson, Conway & Gagnon know that, when leasing out an office, industrial or warehouse property, there are some simple things you can do to protect against problems down the road. One thing you should be sure to do is resist the temptation to just pick up a commercial lease form you happen to have lying around and use it for your deal. You need to go through that lease form in detail to make sure it’s a suitable document. Better yet, you should have your lawyer go through that lease form to make sure it’s put together correctly.

To illustrate my point, I give you the case of Buzz Lightyear, Space Ranger of the Gamma Quadrant, from the Pixar movie Toy Story. (Stay with me here because I promise it all ties together in the end.) As you will recall, the flashy Mr. Lightyear burst upon the scene in Andy’s room operating under the notion that he actually was a real Space Ranger. No matter how hard Woody tried to convince Buzz otherwise, Buzz just did not accept that he was merely a toy, a child’s plaything.

darjeeling.jpg That is, until Buzz fell into the hands of the neighboring family. The evil Sid wanted to blast Buzz to bits, and Sid’s little sister Hannah dressed Buzz up in doll clothes to participate in a pretend tea party. Buzz’s whole world was turned inside out when he found himself as “Mrs. Nesbitt” and seated at a little toy table next to a couple of headless dolls that Sid must have mutilated. As his delusion dissolved around him, Buzz moaned: “One minute you’re defending the whole galaxy, and, suddenly, you find yourself sucking down Darjeeling with Marie Antoinette . . . and her little sister.”