Real Estate

What happens when a landlord fails to deliver possessions of the premises in a timely manner with its construction substantially complete? What happens when an existing tenant fails to vacate the premises in a timely fashion that the landlord intends on leasing? Without the correct protections, a tenant may find themselves without the ability to move their project forward because of a negligent landlord. For example, the tenant may be forced to open during an unpopular period that causes the restaurant to perform poorly.

At a bare minimum, restaurant tenants should require their landlord to earnestly pursue possession and broaden their rent-free period to align with the actual delivery date. On the other hand, tenants should attempt to negotiate the right to cancel the lease in cases where the landlord’s obligations are not substantially complete, or possession has not been delivered by a specific date following the execution of the lease. Other items that should be negotiated include:

• The reimbursement of any miscellaneous costs that are incurred in pursuit of business.
• Prepaid rent.
• Terms for refunding the security deposit.

For the buyer, the document proves their right of ownership and serves as a receipt for payment made to the seller. The buyer, for their part, can ascertain that a physical transaction occurred and that they are the rightful owner of the real property. A quitclaim bill of sale is typically used for the selling or gifting property within an immediate family circle. It is also frequently used during the tax deed sale process, such as public auctions, where real property is purchased.

When a quitclaim transaction has taken place and the ownership of property is transferred from the seller to the buyer, it is important to have a record of the process since there is no warranty applied to the property.

Purchasing property “as is” means the seller is not guaranteeing the condition of the property or that the property is free of defects. Unless the seller adds a warranty provision for a certain number of days, the transfer is without a warranty. The “as is” clarifies that there were no verbal or written warranties made to the buyer. This protects the seller in case of a dispute.

It is recommended that restaurant tenants always consider their ability to procure the required government licenses, permits, and approvals to alter, build, or otherwise operate their restaurant from the premises. For example, restaurants that are planning on serving alcohol will need to work with their local and state regulators to ensure that they’re following the proper regulations. It’s a good idea for restaurant tenants to build special terms into their lease agreement that allows them to terminate the lease in cases where critical permits/licenses cannot be obtained within the contingency period. Important items to negotiate related to the right to terminate include:

• Termination fees.
• Whether the landlord will be allowed to obtain the permit/license on behalf of the restaurant.
• The type of permits that will qualify (liquor licenses, conditional use permits, health permits).
• The length of the contingency period.

Exclusive use clauses prevent landlords from allowing other occupants in a shopping mall to operate a similar concept that may compete with the business of the tenant. The need for this clause in the agreement is unquestionable and is critical for the future success of the restaurant. On the other hand, landlords are also looking to protect their investment and do not want to inordinately restrict themselves from leasing to other potential clients. The exclusive use clause is usually one of the most challenging issues to negotiate in a commercial restaurant lease. In cases where the landlord is easy to work with, important issues to consider include:

• Triggering events that would terminate the exclusive use right.
• The scope of the landlord’s obligation to protect the exclusive use right.
• Determining to whom the prohibition applies.
• Defining the exclusive use.

Another interesting aspect of negotiation relates to the tenant’s obligation to share in the expenses to maintain, manage, and operate the common areas in shopping malls. Smart tenants will try to decrease the pooling of expenses to be passed on to them by:

• Limiting the definition of common area costs.
• Excluding certain costs from the definition of common area costs.
• Limiting the landlord’s ability to exclude specific portions of the shopping mall.
• Requesting a maximum cap amount.
  • The cap will usually prevent the tenant’s portion of common area expenses from substantially increasing by more than a predetermined percentage over the life of the lease. The cap amount is usually a fixed percentage, but it may also be based on an index, such as the consumer price index.

Savvy landlords will attempt to exclude all items from the cap that are out of their control, including:

• Utilities.
• Insurance.
• Taxes.

Landlords my also try to ensure that the cap is cumulative. Meaning, all prior unapplied carryovers may be applied in future years. It is recommended that tenants require that the cap be calculated based on a noncumulative basis.

A contract for deed in Texas is a contract between a seller and a purchaser whereby the owner of property or land retains the title or deed until the purchaser finishes making the installments of the agreed upon purchase price.

What Is a Contract for Deed in Texas?

There are several alternative names for a contract for deed. They include:

• Land purchase agreement.
• Simple land contract purchase agreement.
• Land sale contract.
• Land contract.

A land contract or contract for deed is a real estate contract purchase whereby the seller retains the title or deed of the property until the purchaser can finish making installments of the agreed upon asking price. Signing a contract for deed is not the same as taking on a mortgage. Rather, a contract for deed can be used as a financing tool when a Texas homeowner wants to sell land or property.

A contract for deed may represent a simple transaction between two parties, however significant risk can be involved. It is important to understand the process of a contract for deed agreement. First, a buyer and seller must agree upon the terms of the contract and the sale price. The negotiated terms will vary with each individual contract. However, a contract for deed will typically require set monthly payments and a down payment to be made.

Additionally, the contract usually stipulates that the buyer must make payments to the seller without taking on a mortgage. During the negotiations, the seller should present the warranty deed to the buyer to verify that they own the title and property. Seller financing or owner financing is a process used when a buyer cannot gain financing through more traditional methods. Instead, the buyer must make direct monthly payments to the property owner.

When Should You Use a Contract for Deed?

If a property seller is managing the financing for the real estate purchase, using a contract for deed is recommended. This means that the purchaser will be making monthly installments in order to pay back the loan. There are several instances when a contract for deed is normally used. They include:

• When a buyer has a poor credit rating and is unable to get financing from a professional lender.
• When a buyer has a sporadic employment history.
• When a buyer has a high personal debt to income ratio.
• When a buyer has changed his/her employment situation.
• When a buyer has insufficient funds for a down payment or to use as collateral.

How Do I Determine Payments?

In a contract for deed, part of the monthly installment will go toward paying the interest owed, and part will go toward paying the principal. This is similar to a typical mortgage process. It is recommended to contact local mortgage brokers or financial institutions to learn what interest rates lenders are currently charging. This will help calculate a fair interest rate and determine the appropriate payments.

What Is a Purchase Default on a Land Contract?

Generally, purchase defaults will include the following conditions:

• When the purchaser is late on a payment, there will be a notice period to rectify the default. During this time, a late fee will be added with the amount already predetermined in the contract agreement.
• In the event that a purchaser does not remedy the default, only a limited time will be allowed to pay off the remaining balance. Additionally, the individual will need to vacate the property. The agreed upon timeframe will have already been established in the land contract.
• If the purchaser is able to rectify the defaults that have occurred, then the contract can be reinstated if the seller agrees. However, the right is at the seller’s discretion. Due to this stipulation, it is critical that both parties agree to reasonable repayment terms to decrease the chance that the purchaser will default.

Property Titles in Texas

In the state of Texas, one of the biggest differences between purchasing real estate with a contract for deed versus using a traditional mortgage is the time frame needed for the property title to transfer. When working with a traditional mortgage loan, the purchaser will typically obtain the property title at the closing.

The mortgage company will hold a property lien, and the purchaser will hold the title to the property until the purchaser pays off the mortgage. However, in Texas, a contract for deed will impede the property title transfer. To clarify, only after the buyer completes the terms of the contract will the title transfer for the contract for deed.