Legal Blog - Law Offices of Richard Palumbo

Friday, April 26, 2019

What is an SNDA and Why is my Landlord's Lender asking me to Sign it?

As a condition of a mortgage loan, a lender may require that the borrower (or landlord) obtain a signed Subordination, Non-Disturbance and Attornment Agreement (SNDA) from the tenants. A SNDA is a tri-party agreement between the lender (the mortgage), the borrower who uses the proceeds to purchase the property (the landlord) and the tenant. 

A SNDA will reference the lease, lease parties and execution date.  The purpose of the Agreement is the provide that the lease (and any modifications to the lease) will be “subject to” and “subordinate” to the mortgage lien.  This is the “S” in SNDA.  In exchange for the tenant’s agreement to remain behind the lender’s rights to the property, the lender agrees to give tenant protections in the event of a foreclosure. 

A foreclosure of the property would occur if the borrower/landlord failed to pay its mortgage or breached the loan documents and lender could take possession of the property.   In this situation, the ender agrees to leave the tenants in possession and not disturb the tenancy, provided that they have not breached the lease.  The covenant of non–disturbance is the “ND” in the SNDA.  

The lender will step in the shoes of the landlord in the event of a foreclosure and agree not to evict the tenant because of the landlord’s default.  The lender then agrees to “attorn” to the tenant, the “A” in SNDA.  The lender essentially acts as the new landlord but will not want to agree to take on all agreements given to the tenant by the borrower/landlord.  In addition, the lender will likely not agree to honor any rights of the tenant to purchase the property, be liable for any acts or omission of the landlord before the lender took over, credit tenant for any prepaid rent paid the original landlord or return the security deposit (unless the prepaid rent and security deposit have been transferred in writing the lender.)

The tenant will be required to deliver notice to the lender of any default by the landlord under the lease. If the landlord does not cure the default in the cure period under the lease, the lender can step in and cure the default. The lender’s rationale for this is the lender wants to ensure the lease remains in effect, that the landlord continues to collect rent money and can use such funds to pay the mortgage.  Because the actions of each party affects the others, notices by one party of default under the lease and loan documents should be given to the other two parties.  

The agreement should be signed by an authorized signatory and notarized by a notary public from said state to prevent forgery. Additionally, a SNDA is recorded in the county where the property is located to serve as publicly available notice of the agreement.  A commercial lease will often contain the bank’s standard form of SNDA as an exhibit to the lease to be negotiated with the lease.  A sophisticated tenant should request an SNDA for existing and future lenders.  

It should be noted that a similar agreement in a ground lease scenario is called a Non Disturbance Agreement (NDA) and there is no subordination in that context.

An SNDA is a commonly used tool to protect and lender and a tenant when the landlord borrows funds to purchase the leased building. 

Friday, April 12, 2019

What is the Difference Between a Commercial Lease and a License to Occupy Business Space?

When one party agrees to let another party use its business space, they must agree on the terms of use, the fee, the term and how the occupancy will come to an end.  This is referred to as a license to occupy space, which is different from a commercial lease.  A commercial lease is an agreement between a landlord/lessor and tenant/lessee to lease real property.  The landlord-tenant relationship creates a leasehold interest.  A license to occupy real property, on the other hand, is merely a privilege to use the real property and no property estate is created.  

A license is generally revocable by either party upon notice, at will – with or without cause and is usually not assignable the way a lease can be assigned to another entity with the landlord’s consent.  A license to occupy is generally a personal right of the party to the license. The tenant and landlord have a relationship governed by the terms of the lease, and all the rights and remedies available under landlord tenant laws (including the eviction laws), whereas the laws of contract govern a licensee and licensor.  

Generally, a license is for a shorter term than a lease.  The parties may prefer a license agreement for an event to be held in business space for a seasonal duration (such as a Halloween store or a Christmas shop) or as a “pop up store” (which is test run to see if the business location works).  Also, in the retail context, a license for space in a larger department store is often called a “concession.” An example of a concession is a makeup counter in a retail outlet. 

In the office context, a landlord may give a tenant a license to occupy space in the building while the tenant’s permanent leased space is being constructed/renovated, sometimes called “swing space.”  Another example of a license of space is when a company licenses a conference room for an industry conference event to another business entity which event will may be occurring over only a few days.  The parties do not need to enter into a full blown lease with long provisions for such a short duration.  

Both the license and lease agreements will, among other things, list the parties, a description of the space to be occupied, with a floor plan exhibit if applicable, the term (commencement date to expiration date), the fee (called rent or license fee) and the insurance to be carried by both parties. Note:  A license to use space for a one time event where food and drink will be served should include appropriate liquor coverage under the insurance coverage. 

The Bottom Line

A license offers more flexibility for parties wishing to occupy space for shorter durations, with a simpler form of agreement.  A lawyer can assist in reviewing whether a license or a lease is most appropriate in a given context. 

Friday, April 5, 2019

What is Title Insurance?

A new home is often the biggest financial investment for many individuals and families. With the down payment and all the costs of closing on a home, a buyer may seek to cut costs, however, title insurance is not the place to do this. Most consumers are familiar with health insurance and car insurance, but title insurance can be a bit confusing.

A Primer of Title Insurance

When a buyer purchases real property, the seller is conveying (i.e. transferring) title or legal ownership.  Ownership of real property can be held by a person, a husband and wife, two or more individuals or by a corporate entity, partnership or LLC.   A title company offers insurance that the title transferred is good and without defects. The amount of insurance taken is based on the value of the real property and is paid in one lump sum at closing.  It is not a continuing monthly payment like a mortgage. 

There are two types of title insurance policies -- a homeowner’s policy and a lender’s policy.  A bank will not want to give a mortgage to a borrower/buyer without the lender’s policy.  The bank wants to protect its interest in the real property, as does the homeowner. 

The buyer customarily orders and pays for both the homeowner’s policy and the lender’s policy.  The policy will vary depending on the type of ownership – condominium, cooperative, freestanding house or commercial property.  A title company will issue the title policy and provide the insurance. 

The policy will contain an abstract (i.e. summary) of the chain of title/transfers and will accurately describe the property with a legal description (referred to as “Metes and Bounds) that is more detailed than merely the address. The policy will also contain a list of any liens on the property such as tax liens or mechanic’s liens (for unpaid work performed by contractors), as well as a list of any “encumbrances” such as other mortgages.

A buyer wants to obtain “clear title” without any legal doubts or possible litigation.  A title company will provide some “exclusions” or items it will not insure against.  Examples of exceptions are an easement or right of way over the property or a mortgage by the prior owner (which should be paid off or assumed before transferring the property). 

Title insurance is also designed to protect against fraud in the transfer.  The title examiner will look for long lost heirs or an ex-spouse who could claim rights to the real property being transferred.  The title policy will run bankruptcy and Patriot Act searches on the buyer and the seller to ensure the transfer is not in violation of any bankruptcy or anti-terrorism laws.  The title company may also run environmental searches to determine if the property is located in a flood or tideland zone, which may affect its insurability.

When there is a tenant occupying the real property, a recording of the parties and a memorandum of lease is recorded in the county clerk’s records where the property is located. This provides notice of the tenancy to the potential buyer, and is listed on the title searches.

The Bottom Line

Title insurance is a critical component of buying a home. As with any financial purchase, selecting a reputable title company is key as is shopping around for competitive prices.  American Land Title Association otherwise known as “ALTA” is an industry organization that attempts keeps high standards for title insurance companies.  Ultimately it is a valuable tool that will provide you with peace of mind when making such a large financial investment.


Friday, March 29, 2019

What You Should Know About A Brokerage Agreement Before You Sell Your House

When engaging a realtor to list a home, the realtor will ask a seller to sign a listing agreement which will detail the broker arrangement and the terms of paying the commission.  You should consult an experienced real estate attorney before you sign a brokerage agreement  

Key Terms of a Real Estate Brokerage Agreement

A brokerage agreement should properly identify the property (by address or block and lot) and the price the home is offered for sale.  Additionally, the agreement should list a term and expiration date. If the house doesn’t sell during this time (usually 6 months or less then a year) the seller may want to engage a new broker to sell the home.  

In any event, a seller should not enter into a brokerage agreement with no end. In addition, there will often be a “grace period” whereby if anyone that the agent showed the property to buys the property within thirty (30) days after the termination of the listing agreement, the agent is entitled to the commission.  The agreement should provide the percentage of commission the listing agent will receive as well as the commission the buyer’s agent will receive. A total commission of 2-6 percent of the sale price is customary and varies from locale to locale.   

An exclusive agency agreement means the realtor is entitled to a commission even if the seller brings the buyer.  In some instances a seller may ask for exclusions to the exclusive agreement, meaning the agent is not paid if a neighbor or relative of the seller’s buys the home after the seller showed the property.  

A seller will want to be clear if the agreement is with a particular agent at a real estate office.  If the seller enters into the agreement without a named agent (i.e. “Christian W. Breyers” of We Sell Homes Realty), anyone in the real estate office who consummates a sale is entitled the listing commission.   

When a listing agent who represents the seller also brings the buyer, that is called a “dual agency” and both parties (Seller and Buyer) must be notified that the agent represents both and that each party should provide written informed consent to any conflict of interest.  The agent’s fiduciary duties of disclosure and undivided loyalty will not be the same in a dual agency. 

The agreement should list the methods the agent will use to market the property, such as internet sites, newspaper listings, and open houses. The agreement should state who pays the expenses of marketing and photographing the property (generally the agent’s expense.)

The Takeaway

A listing agreement to sell a home is an important agreement in a real estate transaction that should be reviewed by your attorney for the foregoing issues.

Friday, March 15, 2019

What You Should Know About a Brokerage Agreement for the Lease of Commercial Space

A landlord and a broker typically enter into a brokerage agreement in connection with the leasing of commercial space. The best way to protect your interests is to consult an experienced real estate attorney before signing such an agreement. 

Key Terms of a Commercial Lease Broker Agreement

A broker who finds a tenant for a landlord of commercial space is entitled to a commission. The broker will want the agreement to be “exclusive” which means the broker gets paid the commission regardless of which party brings the tenant.

The landlord should verify that the broker is licensed in the state where the rental property is located. The agreement should identify the rental space (office or retail) and the building address. Generally, the commission will not be earned until a lease is signed, the tenant has paid the first month’s rent in advance and taken possession of the property.  

The agreement will describe the rate of commission for the initial term of the lease and any renewal periods. If a lease has an escalating rent provision, the parties may agree on a flat commission or a commission based on a percentage of ech years’ rent. Certain items that are not included in the rent may be excluded when calculating commissions such as the utility costs, any free rent or construction costs.  The agreement should also consider the rate of commission if the tenant takes on additional space in the building (whether adjacent or on another floor).  

An example a commission rate schedule for a five (5) year lease with an option to renew: 

For the first (1) year of the lease, or any fraction thereof               5%

For the second (2) and third (3) year, or any fraction thereof        4%

For the fourth (4) and fifth (5)year, or any fraction thereof            3%

Any renewals                                                                                  2%

While a commission rate may be calculated based on the changing rental rate, the commission is usually paid in one lump sum at the time of lease signing. It should be noted that if a tenant terminates, or violates a provision of, the lease, the landlord can sue the tenant to recover damages --  the amount the commission paid to the broker.

The agreement may provide a protective clause known as a broker indemnity whereby both parties state there are no other brokers entitled to the commission.  If the brokerage commission is not paid, the broker can place a lien on the property.  

A landlord may want certain key individuals in a brokerage agency to work on the lease the property and may name such individuals.  Then, a new broker can only be placed on the matter if the landlord consents to such broker.  

The Bottom Line

In the end, a commission agreement for the lease of property varies from a commission agreement for the sale of the property and the forgoing issues deserve serious consideration.

Friday, March 1, 2019

What You Should Know Before You SIgn a Co-Working Space Agreement

Co-working is a popular, flexible work style for sharing a workspace and reducing overhead costs for the users. Users can choose an unassigned seat at a desk or a more formal private office setting. Co-working is on the rise in many industries but special care and concern should be noted for professions such as law that require confidentiality.  

What is a user office agreement?

There are many companies that offer co-working facilities, especially in urban environments and these providers will often require the user to sign a User Office Agreement.  The agreement should clearly state that it is not a landlord/tenant lease. In fact, the landlord is the owner of the building, where as the co-work provider is the tenant and the member is a co-work user. 

Co-working agreements resemble a gym membership more then a lease agreement.   For example, the user agreement will list certain “house rules,” which give users the day-to-day rules regarding using the space and sharing it with other users.  Some of the key provisions to look for before signing a user agreement in addition to the fees to be paid are:

  • Term -- A user should review the term of the agreement. Is it month-to-month or annual?  How does a user cancel? Is there a notice period?  
  • Amenities -- A user will want to understand what amenities comes with the member’s agreement, such as use of copy machines (or is there a printing fee?), coffee, refreshments, mail delivery services, networking events and file storage/lockers.  
  • Access -- Can the user access the space 7 days a week/365 days a year (24 hours a day) with a key card or does the particular facility have closed hours.  
  • Relocation Rights --  If a user selects a formal office with walls and locked door, the user should be aware of any relocation rights the provider may have. Relocation rights basically give the provider the right to move the user to a different office, which may or may not have the same square footage, to accommodate a new user.
  • Internet -- The provider may provide free WiFi along with certain disclaimers regarding liability and damage to the user’s business.  Some providers will request users waive any rights in the event of a data breach.  This provision should be reviewed carefully especially for legal or financial industry users who may work with sensitive information.  
  • Disputes -- As with many other contracts, the method for resolving disputes -- arbitration, mediation or litigation -- should be specified.

The Bottom Line

Co-working is becoming a popular alternative to the traditional office lease. Users should review the user agreement to ensure that it provides for a productive and economical work style.

Friday, February 22, 2019

Why Does a Tenant Need to List "Additional Insureds" on its Insurance Policy for Leased Property?

When a landlord and tenant enter into a commercial lease for a retail store or office space, the lease will likely contain a long insurance provision as well as an indemnity provision.  An indemnity is a promise whereby one party promises to indemnify (or compensate) the other against some anticipated loss.  

The commercial lease insurance provision will state the types of insurance the landlord must carry on the building, such as casualty insurance for damage caused by fire, hazards or terrorism and liability insurance to cover damage to property, bodily injury or death. By contrast, the tenant will be required to obtain and pay for insurance covering casualty or liability occurring within the leased premises and coverage for the certain events that occur in common areas of the leased building, especially if due to the tenant’s negligence.  

The tenant is the named insured – that is the party paying for the insurance whose credit was reviewed when issuing the policy and determining the premiums.  The landlord will request certain types of insurance in certain amounts be on a “per occurrence” basis with permitted deductible amounts. Landlords will sometimes request a tenant to carry business interruption insurance.  The rationale behind this request is if an event occurs that interrupts tenant’s business, the tenant ymay lose revenue and then not have sufficient funds to pay the rent.

Why is the tenant being asked to add others to its insurance policy for casualty and liability ?

On most casualty policies (with the exception of business insurance), the landlord will ask to be named as an “additional insured” on the tenant’s casualty policy, together with other interested parties such as the landlord’s agents (e.g. the property management company, or the mortgage lender).

An “additional insured” is a person or entity other than the named insured who is protected under the terms of the insurance policy sometimes referred to as the “loss payee. “ Typically an endorsement to the policy is added to cover additional insureds.  Landlords feel this protection is like “a belt and suspenders.”

The landlord will sometimes request a full copy of the tenant’s insurance coverage, with an endorsement showing the additional insureds listed, but more commonly will request a “Certificate of Insurance” which is a one-page sheet showing the types of coverage, amounts and deductibles and the lists the parties covered as additional insureds. 

The Bottom Line

Both the tenant and landlord should have their attorney carefully review the insurance provisions of the lease and indemnity clause to determine that there is adequate protection for each party and reasonable coverage given the specific risks.

Friday, February 15, 2019

Why Landlords Want Tenants to Obtain Renter's Insurance

Residential landlords will often include a provision in the lease requiring the tenant to carry renter’s insurance. Landlords do not want be sued by tenants for damage to their possessions and want tenants to look to their own coverage. Tenants often balk at an additional cost and mistakenly assume that they are covered under the landlord’s policy. This is not the case. 

In fact, the landlord’s insurance will cover repairs to or replacement of the structure from things from fire, water or storm damage. Damage to or theft of the tenant’s possessions are not covered. Tenants will often believe their possessions are not worth much, when you make an inventory (TVs, computers, clothing, books, mattress, furniture) it adds up!  

A common lease provision reads as follows:

“The Tenant shall be responsible for obtaining at Tenant’s own cost and

expense, a tenant’s insurance policy for the Tenant’s furniture, furnishings,

clothing and other personal property.  The Tenant’s personal property shall not

be the responsibility of the Landlord, and will not be insured by the Landlord. 

The Tenant’s insurance policy must also include liability coverage.  Upon

request, the Tenant shall periodically furnish Landlord with evidence of

Tenant’s insurance policy.”  

Some savvy Landlords will go further and add: 

“Tenant shall provide a copy of renter’s insurance at the time of lease signing

and at each renewal of the lease.  Tenant shall provide written notice of any

interruption of Tenant’s insurance during the Lease term.”  

This additional provision prevents a tenant from letting the renter’s insurance lapse for non-payment or alerts the landlord if the insurance carrier dropped the tenant.  A failure to provide the insurance could be a breach under the lease.  

Tenants should consider who is listed on the insurance policy,  in particularl  roommates and couples, to be sure all occupants’ possessions are covered. Some renter’s policies can extend to possessions damaged or stolen while traveling.  A Renter’s policy can also cover a hotel stay or other interim housing if a tenant must leave its rental because of damage.  

In conclusion, renter’s insurance is not as costly as one may think and it is a good investment and protection tool for both the landlord and the tenant.

Tuesday, February 5, 2019

What Happens if I Die in Rhode Island Without a Will?

No one likes to think about dying. It can be an extremely scary and uncomfortable discussion, not to mention it makes us face the reality of our own mortality – something we generally prefer not to do. But while the discussion may prove very uncomfortable for you, the effects of dying in Rhode Island without a will can be downright painful for those that you leave behind.

Rhode Island Intestate Laws

When someone dies without a Rhode Island will, they have died “intestate.” When someone dies intestate, their state’s laws govern their estate.
Read more . . .

Friday, February 1, 2019

What Is A Joint Venture Agreement ("JV")?

There are several types of business organizations that are recognized by the law as a legal entity. This includes an individual (a natural person or individual proprietorship), corporation, partnership, limited liability partnership, joint venture or any other form of business organization. 

A joint venture is an agreement between two or more entities to combine their property and/or efforts for an undertaking and to share the profits and/or losses equally (unless otherwise specified). Each party to a joint venture agreement (a “joint venturer”) contributes to and has control over the business venture.  There must be intent by the parties to associate as joint venturers either by their actions or by a written joint venture agreement.  

A joint venture’s closest entity “cousin” would be a partnership.  The difference is that a joint venture is usually for a single limited purpose whereas a partnership is typically formed for an ongoing enterprise.  A joint venture has a duration that is specified in the agreement, or if not stated, then until the undertaking is completed or no longer possible.  A real estate example would be a joint venture to build a development.  The joint venture would end when the agreement states it ends, when the development is built or when a municipality declared it not permissible to build.

A joint venture agreement should clearly define the scope of the joint venture and what activities are permitted and prohibited.  In addition, a joint venture will have tax implications that should be considered and addressed upfront.  The parties to a joint venture may also agree to confidentiality and non-competition agreements as well.  

An important concern in forming a joint venture is potential liability to third parties.  A lawsuit brought by a third party for damages or personal injury caused by one joint venturer can be imputed on the other participants. For example, joint venturer A could be liable for the negligence of joint venturer B in the undertaking.  

In the context of a real estate transaction, a typical provision found in a commercial lease to protect the landlord and tenant from the possible imputed liability of a joint veture is:

“No Joint Venture.  This Lease shall not be construed to create a partnership, joint venture or similar relationship or arrangement between Landlord and Tenant hereunder.”

The Bottom Line

At the end of the day, a joint venture can be quite an “adventure” and parties to a joint venture agreement should consider the benefits and risks before collaborating resources with the goal of mutual gain. 


Wednesday, January 30, 2019

An Overview of Common Start-Up Costs

Starting a new business is an exciting time. For serial entrepreneurs, starting a new business is often more routine because they have developed a system from their prior ventures. For those who are just diving into entrepreneurship, understanding how to handle the early stages of the business, such as start-up costs, won’t be so routine. If you have a business idea and you’re considering taking the plunge with a start-up, it is essential to have a good business plan which will provide structure for handling the early stages of the company as well as managing start-up costs. The core start-up costs include:

Legal Fees

When establishing a business plan, many entrepreneurs overlook the cost of legal fees. For many, legal fees are an unwanted expense which results in pursuing subpar legal documents online. Unfortunately for many entrepreneurs, these documents fail to account for the individual needs of the business and entrepreneur, which can result in expensive litigation and exorbitant future business expenses. When establishing a start-up, always consult with a business attorney to ensure that you and your company are protected.

Read more . . .

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The Law Offices of Richard Palumbo, LLC assists clients with Real Estate Law, Business Law, Probate, Evictions for Landlords and Property Damage matters in Rhode Island including Cranston, Warwick, Coventry, Johnston, Providence, Pawtucket, Central Falls and all areas throughout RI.

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