Dan
Welcome to sound business insights. I’m Dan Watkins. This episode is about real estate transactions. This podcast is not intended to provide legal advice.

Neil
Welcome back to the sound business insights podcast with Dan Watkins. My name is Neil James. So Dan today, we’re going to be talking about how can the Watkins firm help with a commercial or residential real estate turn transaction.

Dan
We’ve been doing real estate transaction work or real estate contracts for 35 years. So whether it’s commercial, residential, multi-unit residential or any other type of property law, we’ve been helping clients with pretty much every type of real estate contract you could think of.

Neil
So let’s focus first on residential clients with the value of San Diego real estate. There are a lot of risks for a home buyer, just simply buying a home here in San Diego. What risks do they face and how can we help them?

Dan
It’s uh, riskier to buy a property than it is to sell it because the seller wants one thing they want to get paid. The buyer wants value for their money and they want to make sure they’re not buying something that turns into a headache down the road.

Neil
What are some of the things that you can do to help that a realtor can’t offer?

Dan
Realtors are not all made the same and they want to have a sale. A real estate attorney is not motivated by any type of commission or anything like that. So having your contract or your purchase agreement reviewed by an independent counsel, familiar with real estate law will do two things for you. First, you’re going to be told what the law is and what your rights are. And second, some lawyer that you hire with experience is going to tell the issues that you should be watching out for and paying special attention to. And finally, there’s trends in real estate that we see across our desk every month.

And so like today, it’s, it’s solar heating on the roof and things you got to watch out. And next week it’ll next year it’ll be water issues. And, uh, next year it’ll be prescriptive easements. So having an independent non-biased attorney who doesn’t care, whether you buy or sell or close, or don’t close the transaction, having that person just look it over for an hour or two on a $1 million purchase, pretty smart thing to do.

Neil
So one of the issues that comes up sometimes as title issues, a lot of real people purchasing a home in San Diego, aren’t concerned about title. What are the risks that a title issue can create for a residential purchase?

Dan
Well, there’s two types of issues that I’d like to discuss talking about title one is about title insurance and what it covers and what it doesn’t. There are two types of title insurance, and depending on the type of property you have, you may want to decide whether you want to spend extra money for title insurance. Um, the other thing is, if you are selling your house and you are broker or yourself is going through a title company, make sure that title company has a great reputation and won’t end up closing overnight and taking everybody’s money. So pick your title company carefully.

Neil
So failure to disclose is a harsh component of California law, which is really designed to protect the buyer from things that are hidden in a real estate transaction. Tell me a little bit about failure to disclose and how that really impacts a residential real estate purchase.

Dan
The TDS transfer disclosure statement is probably the most important document a seller can fill out when selling their residents. If you don’t disclose something and later on it is found out and it costs a lot of money to repair. You could be hit with attorney’s fees, cost to repair interest, and other damages. Um, that a simple disclosure would’ve avoided.

Neil
A lot of people think if I have my home inspector and I have a home inspector’s report I’m covered, is that the case?

Dan
Not at all, not all home inspectors are created equal. Do your research. If you’re going to buy a property, find home inspectors that are thorough, don’t just go for the cheapest. And don’t automatically go for the one the broker represents or recommends because they usually have a relationship of recommending inspections and then having inspectors not be motivated to find every little problem with the property.

Neil
So we’ve recently had several cases where solar installations are causing problems and they find roof leaks or roof leaks that existed even before the sale took place. What type of process does a homeowner have to go through when they find something that wasn’t disclosed by a seller after the purchase is completed?

Dan
The most important thing is to have your property in inspected by another licensed and recommended solar installer or roof expert, because the beginning of your process to get compensation or do anything with respect to a roof leak is going to start with a report from another expert telling you exactly what you have going on.

Neil
Dan, another question we get a lot is should I take ownership as an individual or married couple, or should we consider setting up an entity to buy a home here in San Diego?

Dan
If it’s your personal residence, obviously you’re going to want to take that in your own name or your, and your spouse’s name. If it’s an investment property, you should probably consult an attorney and your CPA to determine what your goals are and what the tax consequences will be. So those are the two decisions. If you do decide to form an entity, then our law firm would be happy to form either a corporation or a limited liability company for you,

Neil
Dan, with respect to commercial real estate transactions here in San Diego, we may have thought we were out of land, but they sure keep adding new projects. What do you need to know if you’re approaching a commercial real estate transaction here in San Diego,

Dan
We represent lots of clients who buy and acquire and sell commercial real estate in San Diego and all over the country. This area of law is completely different than residential law. You need a lawyer to process the transaction because none of the contracts are rarely ha exactly the same. They’re all different, they’re all negotiated. And they’re all advocated by lawyers from both sides because of the complexity of the transaction and because of the amount involved.

Neil
And since there’s no standardized commercial real estate contract here in California, Dan, the contract between the parties is going to be the law and that transaction, correct.

Dan
That’s right. Every real estate transaction that we come across is a little bit different in certain ways. And they’re designed to be that way, because if you’re selling a commercial property, you’re going to be thinking of things that are for the benefit of your client and vice versa for the buyer. So when the contracts come back and forth, which they do, they start with an offer or a letter of intent an then they go back and forth on terms and then they’re drafted. So it’s quite a complex process. And all of the issues should be spotted by a licensed professional attorney.

Neil
What type of legal services does the Watkins firm offer for real estate developers?

Dan
Commercial real estate developers are usually sophisticated companies that have their own engineering and have their own urban planners, because a lot goes into a commercial development. On top of that, they’re going to either have their own funding source, or they’re going to have a broker who handles funding. But once those things are all put together and there are agreements drafted for the acquisition of the land or the acquisition of the parcel developed parcel. That’s when we see them come in to have their agreements reviewed by us and, and sometimes negotiated by us on their behalf.

Neil
People might think we create contracts from scratch, but we actually start with a proven boiler plate and tailor it to that specific transaction. Right?

Dan
Well, we don’t, I wouldn’t say we necessarily start from scratch. We’ve been doing it for 35 years. We have our own set of contracts we’ve used for the several decades that have evolved. And we also have spent a lot of money on our online database of real estate, transaction forms and real estate, transaction guides and checklists. And so there’s a lot of education that goes on before we have any of our attorneys help any of our, our buyers and sellers in one of these types of deals,

Neil
Ultimately that saves our clients a lot of money, doesn’t it?

Dan
Well, it spots all the issues and hopefully it allows them to get the benefit of the bargain that they’ve negotiated.

Neil
The entities required to structure a commercial real estate transaction can be quite complex. Would you share a little about the entities, joint ventures and the structures you use to put together these deals?

Dan
These deals vary in many ways. Sometimes they’re just a single entity and they just want a set transaction to acquire a commercial property or to sell a commercial property. And sometimes they come to us and they want to form an entity where there’s going to be several investors. So oftentimes, its family members, other times, it’s just a group of investors getting together to buy a $10 million piece of property. And so we set up the entities and the agreements, whether it be a corporation with a shareholder agreement or limited by liability company with an operating agreement that cover all the issues of how to manage that investment property and the investment with the people who are going to become part owners,

Neil
Attracting investment is one of those areas of California law and the commercial code that really can get well intentioned business people into trouble. What do they need to know about legally raising money for their projects?

Dan
What we’re talking about is the law on investments. And when it becomes a public stock, like the stock market now, California law has, and the federal laws have several exceptions to these rules where, and raise money with people, you know, and get together and form an entity up to 75 people you may know, you can get together and form an investment. But before you do this, you would want to see a lawyer because we call this syndication, we call this small investment rules and regulations, and yes, if you violate those and you end up selling securities, then you can get in a lot of trouble.

Neil
Let’s shift the conversation to someone who might be a client of the developer needing to negotiate a commercial lease. Again, there’s no real standardized commercial lease in California per se.

Dan
Well, there are a lot of different commercial lease standards, and there are a lot of associations that use their commercial leases and there’s commercial lease brokers, but they’re written in such a way that, and they’re so important that certain clauses may seem like they’re boiler plate, but they’re not. And they can be negotiated and they can be amended to make sure that 5, 10, 7 years down the road, you’re not stuck in a situation where you’re being treated unfairly or the lease is crushing your company.

Neil
I think a lot of business professionals underestimate the impact of a commercial lease on the business itself. There are many ways the Watkins Firm can strengthen your side of these negotiations. And this is especially true in a build a suit situ issue, even bathroom access, parking, a lot of ways we can help.

Dan
Well, in the beginning of your commercial lease, you’re going to want to know how they’re going to pay for the tenant improvements. And I’ve seen dozens of different ways in which these are negotiated how the market is having a lawyer that understands whether it’s a landlord’s market or not is important because you don’t want to be asking for outrageous things. But depending on when you lease, you can get all of your tenant improvements paid for, or you can get very little. So that’s the first step. Second step would be making sure that you’re not in an area, where you get some crazy neighbors who are making it impossible for you to run your business, or there’s no parking, or they don’t maintain the building, or there’s improper sanitation going on. Um, there’s so many things that are in the lease that are just taking for granted. And they’re usually written in the landlord’s favor. So if you spend a little time talk to your lawyer or your broker about these issues, get them resolved before you sign. Usually the landlord will, as long, it doesn’t cost them too much money, they’ll say, okay,

Neil
Which is why getting a commercial lease right upfront is an absolute must.

Dan
It’s the only law of your property, as opposed to residential. There are all kinds of laws out there helping residential tenants, but there are very few out there helping business owners who lease from landlords it’s arms link negotiation, buyer, beware, and, and make sure you get it right in the beginning.

Neil
Let’s talk about an area of commercial real estate law that can cause issues for the developer property owner or contractors that work on those projects, mechanics liens. Dan, help us understand what a mechanics lean is and why it’s important from the perspective of the property owner, as well as the contractor.

Dan
Well, mechanics liens are commonly seen in residential situations where there’s tenant improvements by a residential owner, but they’re also seen in the commercial situations and they get it more complicated because you got a landlord and you have a tenant. And the tenant is usually responsible to the landlord for all liens that are caused by him or her. And if you are, if the landlord’s hiring the contractor, then the liens will come on them. But you put the, your lease, your commercial lease in between that. And all of a sudden you have to bond around the mechanics lien, or you have to take action to make sure that the property that was improved has been approved by the landlord. It can get quite complex.

Neil
You also need to make sure mechanics lanes are released as well.

Dan
Yes, If you’re going to hire a contract yourself, then you may need four different release of mechanic lean forms so that you are getting them on a timely manner. You also want to know how you’re going to pay your mechanic or your contractor because contractors have subcontractors and they have suppliers. So you need to know who’s working on your property. Who’s providing supplies and materials to your property and how you can get lean releases from them in a timely matter. So you don’t end up paying the contractor and then having to pay double because he didn’t pay the supplier.

Neil
Dan, what do our listeners need to know about easements?

Dan
Easements, covenants, and restrictions, but easements are what most people hear about. They affect how you can use your real property. And they are usually in your title report and they’re recorded with the county recorders. And they can really, really throw a loop in a homeowner or a property owner who want to do something to their property, or whose neighbor wants to do something to their property. And it affects you. And there’s also something called prescriptive easements. Prescriptive easements are easements of use that just because somebody owned their property for a long time in a certain fashion, they say they now have a right, for example, to keep their fence four feet onto your property, because it’s always been there.

Neil
What are some of the issues we face when we’re trying to solve easement challenges?

Dan
Well, big issues happen with CC&Rs conditions, covenants and restrictions and CC&Rs are in addition to easements. And they’re a lot of times the governing body, your property. When you live in one of these planned developments that have a board and neighbors acting like they’re your boss, walking around, checking the height of your mailbox. So when you buy a property in a development, have somebody or your broker or somebody, a lawyer, look at your CC&Rs to see what your rights are before you sign in on the dotted line. Resolving easement issues. Very important. If it’s just between two property owners, I would recommend seeing a lawyer and having your title reviewed to make sure you’re in the right. Your lawyer will probably have one of his expert consultants go out there and check whatever issue there is. Make sure we have everything in the right and can prove it, and then send a letter to your neighbor or send a letter to the local governing body that’s messing with you. Who’s trying to stop you from putting your add-on or your new garage in, and then I suggest a mediation or some type of settlement conference. If you can’t resolve it on your own.

Neil
Well, that naturally leads us into the area of real estate dispute. And one of the topics that’s most interesting to me in real estate is the concept of specific performance. Would you share a little about specific performance and how it affects real estate transactions and litigation?

Dan
Real estate contracts are a little different than other types of contracts because a piece of real estate, according to the law is in unique. And because it’s unique, like if I pay you $5,000 for a car, and then you don’t give me the car, you got to give me the $5,000 back. But if I pay you $5,000 for a piece of real estate, and you don’t give me the real estate, well, that real estate was so unique, according to the law, that I should have a right to not my $5,000 back, but to specifically enforce our contract and have a court order title, be put in my name and possession, be given to me by the sheriff. So that’s specific performance. In Latin. We call it filing a lis pendens or notice of pending action to cloud title to the property and recording it with a county recorder’s office. And you can see there are aggressive ways to enforce your right to purchase real estate,

Neil
California real estate law also provides a mechanism to basically return the buyer to the position they were in before the transaction and ever happen.

Dan
Well, on, on the flip side of trying to enforce the agreement, if you end up buying a piece of property and, it’s a dog, it’s not very good and it’s not anything you ever thought it would be, and you don’t want to take on fixing it, or it’s unfixable, you should be able to ask for a different remedy. That is, I want all my money back and all the money I’ve spent so far getting here return to me, and you can bring an action for that as well.

Neil
We get a lot of questions relating to neighbor disputes. Dan, there are a lot of ways for people who live next door to one another to get into a dispute, can you talk a little about those issues and what we can do to help those people?

Dan
One of the things we get a lot are view disputes, view disputes are people who go into a community where they have a beautiful view and they assume that their neighbor can’t build up and block their view or their neighbor can’t plant trees and block their view. Now, this brings us back to easement’s conditions and restrictions. There’s no specific view law in California, but our in San Diego county, but there are CC&Rs and titled documents that do address this issue. When they create the white paper for a development where they put in all these homes and they create not all the rules and regulations, but sometimes they have height restrictions on buildings and plants and trees. And so having an idea of what is stated in your CC&Rs and bylaws is really important when you invest such a large amount of money in real estate,

Neil
What’s the best advice you give to someone who’s in a dispute with their neighbor?

Dan
Try to work it out between yourselves. See if you can work it out in a neighborly fashion, because these matters tend to just turn neighbors into knit pickers with each other. So, but if that doesn’t work, then go see a lawyer right away. Don’t let it devolve into name calling and things like that. Because if you see a lawyer, he’ll tell you, or she’ll tell you whether you have a legal right or have any remedies or are in the wrong. And once you’ve seen a lawyer and you know, whether you’re in the wrong or the right, and you know what it’s going to cost or how to go about resolving it, it’s a lot better than just having arguments in the street.

Neil
Dan you’ve often said it’s important to educate our clients so that they can understand the situation they’re in

Dan
That’s right. A lot of disputes never get resolved, then you turn to a lawyer. However, if you turn to a lawyer and just get advice, coaching, what are the facts in your case are and where you should be looking for issues, then you are more capable. When you go talk to your neighbor or talk to your partner or talk to whoever, and you can resolve many disputes because you’re more educated. You know what the lawyer would say, you know your rights, you know where to accept defeat. And you know, when to dig your heels in. So a lot of our problems and our issues and our disputes between parties are resolved just by us staying out of the scene and coaching from the sidelines.

Neil
One of the hottest topics in California right now is water. Water Law is huge in California. Can you share a little bit about our services in this area of the law?

Dan
We’re one of the few law firms in town that actually practices water law. We’ve represented some of the largest water companies in the state and private owners, private farmers, private developers regarding water law, water rights, and their long and aggressive history in California. Over the last 200 years,

Neil
We’re talking about disputes with even something like a well, we’ve got several neighbors sharing a well we’ve got disputes where water is being diverted. If there’s an issue with water on your property, you need to speak with the Watkins firm,

Dan
Right?! Riparian water law is the law for water and the use of water and the sharing of water and who gets water. And whether it’s upstream water or downstream water, and we have underground water. And there are so many old and established laws that very few lawyers ever come across. And we, we work with them every year, every month for some client, who’s having a dispute with a neighbor or, actually a water district.

Neil
And San Diego county has a lot of water districts.

Dan
That’s right. San Diego county, I think has 23 water districts that may be wrong there, that make up the San Diego county water authority. And then San Diego county water authority is one of 26 members of the metropolitan water district of Southern California, which is the biggest water district in the entire United States. And that’s where we get our water. We get our water through five pipelines that come all down the state from the Colorado river, from Northern California, all the way to San Diego county. And, uh, each one of these water districts has a board of fellow San Diegans who are usually retired or semi-retired and can have personalities of their own that can affect you and your real estate and your right to water. So, yes, the there’s always issues. The phone’s always ringing. Sometimes we can help. Sometimes we can’t.

Neil
Well, Dan we’ve discussed a lot of different types of real estate disputes. How are these issues usually resolved?

Dan
Well, 98% of all disputes resolve before trial. So if you are going to be in a dispute with somebody and you’re going to hire a lawyer pay good money, you should be thinking about that 98%. Instead of having these stressful thoughts about being victorious in trial, because 98% of the time you want to be successful before trial. And so that’s how we approach it. We approach every litigation, not just real estate, we want to have a leveraged resolution and a leveraged settlement where we’ve gathered so much evidence. We have all the law you need, and we are ready to prove our case. And then we also get the other side to be in a position where they can’t prove their case. And we try to resolve it either through just direct negotiations, through mediation, through arbitration and filing a lawsuit. One thing we don’t want you to do, and we don’t do ourselves is yell and scream like a scared dog and bark at the other side, and bark at opposing counsel. Stay professional, focus on the facts, and also focus on the advice we’re giving you about how to gather the information, put it in chronological order so that it makes sense and it’s easily provable.

And we can obtain a resolution that’s fair to you and fair to the other side. And by maintaining that higher ground, the Watkins Firm is able to resolve most of these challenges while preserving the relationship and not antagonizing other parties, right? And you cut down your ability to resolve when you start being threatening, because then the other side threatens back and then no one ever listens. So if you can keep the lines of communication going with opposing counsel or opposing party, then you have a better chance of resolving your matter without charging your client a whole bunch of money. And most of the time you’re going to get a better result.

Neil
Thanks Dan.

Dan
Sure.  You can learn more about the Watkins firm at watkinsfirm.com or call our office at (858) 535-1511.