Obstructed View Ruling a Good Lesson for Orange County Homebuyers

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The rigid nature of California’s laws on an obstructed view was recently illustrated in a case heard by the California Court of Appeal. The case is Boxer vs. City of Beverly Hills.

orange-county-lawyer-hammerThe City of Beverly Hills planted some redwood trees in a park near the Boxers’ home. At first, the trees were not a problem for the Boxers, but as they began to grow, and redwoods can grow quite tall, the Boxers began to lose their stunning views of the Hollywood Hills and Los Angeles Basin. They had enjoyed these views for some time. But the problem for the Boxers was even worse than the loss of the daily enjoyment of the view. The Boxers own a very nice property in Beverly Hills. The view significantly enhanced the value of their property, as is often the case with truly impressive views. This was not, therefore, a trivial concern for the Boxers, but a serious financial problem.

The Boxers did not rush off to court right away due to the obstructed view. Beginning in 2005, they sought redress with the City, through correspondence and negotiation. They were continuously ignored, however, so they eventually had no choice but to pursue their remedies in the Los Angeles Superior Court.

The theory pursued by the Boxers was that the law of “inverse condemnation” should apply to the City’s activity with the obstructed view.  Inverse condemnation is a legal term for the situation wherein the government takes private property without paying appropriate compensation. Here, the Boxers argued that the growth of the redwoods undermined the value of their property through the obstructed view, causing monetary damages. The Boxers further argued that the loss they were suffering from the City’s refusal to cut the trees was massive, whereas all the City would lose if it cut the trees was the expense of the tree cutters.

The Boxers, unfortunately, would not find any help in the courts, at any level. The Superior Court threw out their suit, and the Court of Appeal affirmed the lower court’s decision. California’s doctrines on obstructed views are rigid. In the state of California, as a matter of law, there is no remedy for the mere impairment of view as it pertains to private property.

The Court clarified that obstructed views, in and of themselves, can never be the basis for an inverse condemnation case. Other factors may provide sufficient grounds for a lawsuit, when combined with the loss of a view. For example, noxious fumes emanating from a source related to government activity, or physical encroachment and damage, together with the loss of a view, may enable court action.  But loss of view itself does not make the grade.

One way to protect a homeowner’s view is to enter covenants (recordable agreements that run with the land and identify the affected properties) or easements, whereby a neighbor agrees that no building will go forward on his or her property that will undermine a view. To make the covenants or agreements enforceable, landowners record them with the county recorder’s office, and often pay consideration, to avoid a claim down the road that the agreements are unenforceable or “lack consideration.”

California offers its residents some truly breathtaking views, but it is important for potential homeowners to note that in the state of California, there is no firm “right” to a view. Homebuyers, particularly looking at homes on the higher end of values, should keep this in mind when inspecting homes for sale.  If you are threatened with the loss of a view, or have been notified that court action may be sought against you by a neighbor for your own building activity, contact us through hammers-law.com.  A property owner’s right to enforce a view requires very specific elements and you want to be sure that all such elements are satisfied before initiating legal action.

California Attorney Busted for Business Fraud in San Diego

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It may come as little surprise, but attorneys can, and often do, commit business fraud. Unfortunately, in the wake of the financial meltdown in 2008, numerous “mortgage attorneys” have found themselves at the center of controversy, and in some cases, behind bars.  A recent example is the case of Arizona Attorney Jeffrey Greenberg, who, together with Coronado businessman Courtland Gettel, was charged with extensive fraudulent activity involving home loans, fake San Diego lien releases, and fraudulent Arizona rehab loans.

Greenberg and Gettel pleaded guilty in a San Diego federal court on May 17th to charges of conspiracy and wire fraud conspiracy. In reaching their deal, both defendants agreed to forego profits from fraudulent land deals they made and to pay restitution.

Greenberg used his legal knowledge and real estate experience to help his co-conspirators gain access to loans (mortgages) against multi-million dollar properties in La Jolla and Delmar, California. How did he do this? He and his co-conspirators filed bogus lien releases with the San Diego County’s Recorder’s Office that made it look like the properties were free and clear of prior loans. He then helped his “clients” apply for new loans against the same property from new lenders. Then, they put the funds received from the lenders in their pockets and defaulted on the loans, leaving the lenders to fight amongst themselves to seize the collateral. Another co-conspirator was a notary public who notarized fraudulent documents, recorded them in her book, then reported the book stolen to the state of California.

The fraud in Arizona began with co-defendant Gettel, who had a real estate investment company in that State. Using that company, co-defendant Greenberg helped other co-defendants apply for real estate rehabilitation loans. They never used the money for that purpose, of course. The money went towards the co-defendants’ personal expenses.
This fraudulent activity went on for more than a year and involved 8 multi-million dollar loans. Altogether, the co-defendants’ business fraud resulted in losses of $33.6. To make matters worse, Attorney Greenberg used his client trust account for these fraudulent deals, which of course violates the State Bar Rules of Professional Responsibility.

There are some important takeaways from this story. First, please note that attorneys involved in business fraud (mortgage or otherwise) are a small number of bad apples in the barrel…they aren’t the whole barrel!

Second, it is really difficult for people like Greenberg and Gettel to get away with business fraud in the area of real property. Real property transactions are matters of permanent public record, because real estate sales transactions are recorded in the County Recorder’s office.  Critical pieces of evidence are available for all eyes to see, for all time. In other words, you can run but you cannot hide from recorded transactions, and they typically provide detectives and prosecutors with important initial evidence upon which to build a case.  When prosecutors are diligent, they’re usually going to bust the bad guys on these deals.  orange-county-lawyer-hammerThat certainly happened in this case.

Further details of portions of this story are available in the San Diego Reader article entitled “Real Estate Fraudsters Stole More Than 30 Million.”

To talk more about real estate fraud, business fraud, or any related wrongdoing, please do not hesitate to contact Stephen Hammers at hammers-law.com.

Business Fraud and the Trusted Employee

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orange-county-lawyer-hammerBusiness owners are often filled with pride at the notion of employing friends and family in the workplace. Employers treat employees “like family” and often accomplish great things based upon the mutual trust they establish with employees. Unfortunately, the same trust that may propel a company to great success can be its undoing. Business fraud can and often does occur within small businesses. If left unchecked, the most trusted of employees can level great and irreparable harm to an overly trusting business owner.

Workers who are most attentive and likely to follow the rules may be the ones to watch most carefully. This position was advanced in a recent Washington Post article by Ariana E. Cha, who cited a Harvard study for the premise that strict adherence to the rules by an employee may be an indicator of a secret, “Machiavellian” agenda.  See, Washington Post Article by Ariana E. Cha, Dec. 15, 2015.

In 2012, the ACFE or Association of Certified Fraud Examiner’s estimated the median loss for a small organization that experienced fraud was $140,000. In fact, the Association found that small organizations, those with less than 100 employees, are the most likely to be victimized by business fraud. Nearly 32% of all small business experience some kind of fraud. The most common types of inner office fraud include billing fraud, corruption, check tampering, skimming, and expense reimbursement fraud.

Small businesses are especially vulnerable because they often lack the manpower needed to segregate duties and design adequate internal controls. Business owners enlist a small number of trusted employees to handle financial affairs and often do little follow up to ensure financial statements are correct. Employers assume criminal fraud can only be committed from the outside, and that they’ll see it coming long before they suffer any loss. They do not consider that the smiling bookkeeper or associate who greet them every morning can be diverting funds or skimming with expense reimbursements.

Those who commit business fraud do not fit the criminal stereotype. The typical employee thief has worked at a company 4 or 5 years, is in good standing, and is usually a first time offender.  According to the ACFE’s report, 87% of those who commit business fraud have never been charged with a fraud-related offense and 84% have never been punished by an employer for fraud-related behavior. When faced with personal financial stress, even the most trusted employee may submit to the overwhelming temptation to take company money. Some employees rationalize their behavior, believing that the money is a temporary loan that they intend to repay at a later date. Others may resentful, believing that they have spent years attending to their employer’s financial wealth and are entitled to greater financial compensation.

The fraud often begins small with extra charges on a company credit card or money missing from petty cash. Even though business owners may notice some suspicious activity, they often dismiss it, believing that employees would never violate trust. This often results in greater losses for the company as the fraud continues to grow over time.
Many small businesses never report fraudulent behavior. A Business owner may be embarrassed because a particular crime has been committed by a family member or trusted employee. It’s estimated that less than 3% percent of businesses file criminal charges while over 30% of small businesses fall victim to fraud. It can take years for a small business to overcome the loss of income that results from employee fraud.

If you suspect you have been the victim of business fraud, contact us today. Attorney Stephen Hammers has over 24 years experience in general business and real estate law. He understands that fraud has a high burden of proof in our court system and works diligently to document and represent employers who fall victim to fraud. He will work with you to ensure a fair and equitable outcome.

DUAL AGENCY IN REAL ESTATE SALES REACHES THE CALIFORNIA SUPREME COURT

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sgh-photo-4COne of the areas of real estate law that is most often litigated in California is dual agency.  Our State permits a single agent or agency to represent both the buyer and seller in the negotiation and sale of real estate.  A case regarding dual agency has just reached the California Supreme Court, and the decision by the Court could have serious implications on the real estate industry in California.  The case pits a Malibu homeowner, Hong Kong multimillionaire Hiroshi Horiike, against a Caldwell Banker affiliate.  The same Coldwell Banker brokerage was hired on both sides of the transaction, for Horikke as buying agent, and for the seller as listing agent.

There are good arguments on both sides of the coin when it comes to dual agency.  Dual agents often require lower commissions. They can streamline escrows and reduce the “game playing” of multiple agent deals.  The flip side is that the client often does not reap the benefits arising from single party representation. Brokers are in many instances called upon to act like lawyers, looking out for their client’s best interest when the other side appears to be taking advantage. When the same agent handles both parties, the adversarial aspect of the representation arguably disappears.

In the case involving Horikke, the t0pic of disclosures created a serious problem for the dual agent.  Horrike bought a stunning Tuscan style house overlooking the Pacific Ocean for $12.25 million cash in 2007.  The listing agent provided Horikke with a brochure that stated the house was 15,000 square feet, but county records showed that the house was only 9,500 square feet. The discrepancy in square footage resulted from various factors.  Notably the City of Malibu’s measurement metric is different than other cities and municipalities.  It includes garages and other spaces beyond the primary residence.

When Horikke was in the process of applying for permits to remodel his residence in 2010, he discovered that the house was not as large as he thought it was.  After making this discovery, he decided to sue.  Horikke’s agent, the “selling agent” or “buyer’s agent,” was associated with the same firm as the listing agent, Coldwell Banker, ergo, the “dual agency.”  Hirokke thus sued the listing agent, Chris Cortazzo, arguing that Cortazzo owed him fiduciary duties because he was associated with the same firm representing Hirokke.  In paricular, Hirokke argued that Cortazzo had given another prospective buyer a handwritten note, encouraging the buyer to hire a specialist to verify the square footage of the residence.  Horikke argued that Cortazzo and Coldwell Banker owed him a fiduciary responsibility to provide the same such note.  The case went to trial and the trial court disagreed with Horrike. It found that the listing agent had no fiduciary responsibility to the buyer and that the brokerage itself was not responsible for breach of fiduciary responsibilities based on the actions of individual agents.

The Court of Appeal disagreed with the trial court. The justices found that Cortazzo was in the wrong even if his actions were unintentional.  The justices wrote, “A trier of fact could conclude that although Cortazzo did not intentionally conceal the information, Cortazzo breached his fiduciary duty by failing to communicate all of the material information he knew about the square footage.”  Cortazzo and Coldwell Banker thus petitioned the California Supreme Court to review that ruling.

Cases like this give the real estate industry reason to keep a close eye on their dual agency practices. When the Supreme Court provides its decision on this most recent case, agents should take note.

Contact Orange County real estate attorney Stephen Hammers for more news and relevant information regarding dual agency in California real estate transactions.

Tips for Orange County Business Owners to Avoid Fraud

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Orange County business owners can avoid fraud and the damages and penalties that arise therefrom. It is a harsh reality that a business can not only suffer at the hands of a wrongdoer, but also incur penalties and damages after being the victim! The issue is rampant in California.  In Orange County, fraud attorneys are employed regularly to address it.  We provide some examples here and tips as to how owners can avoid and cope with fraud.

  • Avoid Misleading Letters Fraud: The State of California Tax Franchise Board warned businesses about a scam called the “misleading letter.” California corporations and LLCs are not required to file board minutes with any government authority. LLCs can file the necessary information return with the California Secretary of State for $20. The misleading letter scam contacts businesses and tells them they need to file board minutes or information returns for a higher fee. The letters have official looking forms and ofsgh-photo-4Cficial sounding names. The letters threaten fines and penalties and suspension of the business’ powers, rights, and privileges for failure to comply. Do not comply with those demands; rather, ensure that you are filing the proper and necessary forms, such as information returns, with the Secretary of State.  Filing the wrong forms with a fraudulent group does not relieve you of responsibility to file the proper forms with the State.  If you receive these fraudulent demands, submit written complaints and a copy of the misleading letter to: CALIFORNIA OFFICE OF THE ATTORNEY GENERAL, CALIFORNIA DEPARTMENT OF JUSTICE, PUBLIC INQUIRY UNIT, PO BOX 944255, SACRAMENTO, CA 94244-2550.
  • Avoid Payroll Fraud: Payroll fraud can happen to anyone.  Essentially, the fraud occurs at the hands of employees who turn in false time records, or overstate their working hours.  Grifters are smart. They will keep their fraudulent activities to what usually amounts to the neighborhood of a rounding error on your books. So without reconciliation of payroll to time-keeping records, you will never pick up on their schemes.  In fact, Forbes says that 27% of businesses encounter payroll fraud. It occurs in businesses with fewer than 100 employees more often than large companies. Orange County business owners can avoid fraud in this area by regularly reconciling payroll accounts to the business’s time-keeping system. The reconciliation should occur monthly or at least quarterly. Any longer than that and the money will be long-gone before you realize what’s happening.
  • Avoid Second Check Fraud: This type of fraud generally involves a trusted bookkeeper or an accountant. The scam calls for the grifter to write a second check to herself when paying one of your suppliers to whom you regularly write checks. The grifter writes the second checks for small amounts and codes them with the code for your regular supplier. The scam may take place over several years. It is not unusual for such fraud to aggregate to substantial amounts (a half million dollars or more) over several years. Even if you  check financial records, you may not notice an overage that appears in a reasonable range and spread over several expense accounts. You can avoid this by having more than one person with check signing authority and more than one person reconciling the bank accounts.
  • Avoid Over-Zealous Ordering: This type of fraud usually involves an administrative assistant or office manager who regularly orders supplies. The grifter over-orders supplies, then returns them for a refund in the form of a gift card. He/she takes the gift card, buys something small, and then pockets what’s left of the card. It may not seem like high dollar fraud but even a $50 gift several times a month can add up over the years.
  • With Friends Like these…: Hiring employees simply because they are family or friends or someone you have sympathy for is never a good business decision. Such emotional hires often work into positions of trust with check-writing ability or some other control over financial matters and often with little supervision. All potential employees should face the same strict standards. Make personal accountability and checks/balances a part of your business’ culture. Establish at initial job interviews that your company has zero tolerance for fraud and has established office procedures that ensure a second set of eyes reviews all activities related to financial matters. Trust, but verify.
  • Stolen Credit Cards: Accepting a stolen credit card leaves your business without recourse to recover the money stolen. Always, always check several forms of identity, check if the system declines the card, and check to see if the card’s number appears on the stolen credit card list. Of course, if your business does a lot of internet business or other non-face-to-face transactions, you are most ripe for this type of fraud. Orange County business owners can avoid fraud by checking all identifying information, especially for larger orders. Get phone numbers, address, the three-digit code on the back of the card, the precise name, etc. Mismatched addresses are a clue to fraudulent orders. If you are suspicious of an order, do not process it. Trust your intuition.

To read more about payroll fraud, read the Forbes.com article “Payroll Fraud – A Big Threat and How to Avoid it.” To talk more about business fraud, or anything else, please contact us.

Orange County Easement Attorney Obtains Judgment and Ends Dispute Between Neighbors

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Neighbor disputes are unfortunate, and while every effort should be made to avoid litigation, sometimes it is simply not possible. When an easement dispute erupted recently, the owner whose land was burdened by the easement contacted Orange County easement attorney Stephen Hammers for help.  The neighbor, who was himself an Orange County attorney, owned the right to landscape the easement area, and use it for general recreation, imposed certain restrictions on the landowner’s use of the easement area for construction on her residence.  This greatly delayed the construction.  The neighbor claimed his easement rights prevailed over the landowner’s use of the easement area for such purposes. Litigation became necessary, and Hammers succeeded in getting the client an injunction to allow continued entry onto the easement.  Judge Moberly in the Orange County Superior Court issued Mr. Hammers’ client the injunction. Meanwhile, the client had also discovered multiple instances of water intrusion into the home, so Hammers also sought a mandatory and permanent injunction precluding wrongful discharge of surface waters in the easement area by the neighbor. The neighbor cross-complained for interference with his property rights and injury to real property. He sought hundreds of thousands in damages, punitive damages and injunctive relief. After several days of testimony between these Irvine neighbors, the court found in favor of Mr. Hammers’ client, issuing permanent, mandatory and prohibitory injunctions, as well as attorney’s fees. All claims on the neighbor’s cross-complaint were denied. The neighbor then appealed to the California Court of Appeal, Case No. G049734. Mr. Hammers again represented Plaintiff on the appeal. The Court of Appeal affirmed the trial court’s judgment in every respect on July 16, 2015, awarding costs of appeal to Mr. Hammers’ client.

Client Homeowner/Developer v. Bhakta
Case No. 30-2012-00600613
Verdict (Judge Chaffee): In favor of Plaintiff, Represented by Mr. Hammers

LANDLORD UNABLE TO INCREASE RENT ON TENANT

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The Appellate Court in the First District struck another ruling in favor of rent control this week.  The residential landlord was surely displeased with this pro-tenant ruling.

Mosser Companies (landlord) owns a nine-unit residential apartment building in San Francisco. The apartment at issue in this case is subject to rent control under the San Francisco Residential Rent Stabilization and Arbitration Ordinance (S.F. Admin. Code, § 37.1 et seq.; ordinance), which limits rent increases to tenants in occupancy (id., § 37.3(a)). Under Civil Code section 1954.53, which provides that “an owner of residential real property may establish the initial rental rate for a dwelling or unit,” local jurisdictions are authorized to impose rent control limiting rate increases until “the original occupant or occupants who took possession of the dwelling or unit pursuant to the rental agreement with the owner no longer permanently reside there.”

The question before the Court of Appeal here was whether the son of tenant parents who years before rented a unit in landlord’s building, and who with landlord’s consent resided with his parents when their rental agreement was entered, is an “original occupant” within the meaning of the statute.  If so, the landlord would be precluded from establishing a new unrestricted rental rate for the apartment when the son remained in the apartment after the parents  departed. The San Francisco Rent Stabilization and Arbitration Board (rent board) and the trial court concluded that the son, although a minor when the rental agreement was entered and not a signatory to the rental agreement, is nonetheless an “original occupant” entitled to the continued protection of the rent control provision.

The Court of Appeal sided with the Rent Control Board on this, protecting the right of the tenant to claim the benefits of the rent restriction when he became an adult.  The Court did seem to question the law on this issue though.  It expressly stated that it had to follow it, but wondered whether the legislature should not take another look at it.  In its concluding paragraphs, the Court writes: “Whether the application of rent control protection to occupants who begin their residency as minors is wise economic policy is a question for legislative, not judicial, determination. Local and state legislators are free to make these public policy determinations provided the rent regulation does not deprive property owners of a fair return on their investment.”  That is not a mere adoption and application of the rent control law; rather, it is a suggestion about action that might be taken in the legislative branch.  The Court was under no obligation to even mention the legislature in this opinion.  Lobbyists for landlords should take note!

CHARITABLE SOLICITATION LIMITED BY COURT OF APPEAL

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The Fifth District Court of Appeal has announced an important ruling in Donahue Schriber Realty Group v. Nu Creation Outreach, Case No. F068287. The case pertains to the right to solicit charitable donations on sidewalks near store entrances.

A number of business and real estate clients of Price, Crooke, Gary & Hammers and Stephen Hammers have inquired about this issue. This past holiday season, per inquiries to pcghlawyers.com and hammers-law.com, we were advised that more charitable organizations solicited money in front of businesses and stores than ever before. We have found that businesses have been generally tolerant of such activity. Things change, however, when potential customers are discouraged to enter a shop due to excessive solicitation or blockage of entrances. Disagreements and even altercations can erupt in front of stores and business owners understandably object to such activity.

The confrontation in the Donahue Schriber case began when two solicitors for Nu Creation Outreach collected donations on the sidewalks adjacent to the entrances of stores within plaintiff Donahue Schriber’s property. Plaintiff’s shop “policy” was to disallow charitable solicitation of donations within its property. The owners allowed other forms of expressive activity on the property, such as collecting signatures for petitions in designated areas. Plaintiff asked the solicitors to leave the premises, but they refused. When plaintiff called the police, the officers refused to arrest the solicitors without a court order.

Plaintiff hired counsel and moved for a preliminary injunction, claiming disruption of its business. The trial court granted the injunction, precluding charitable solicitation near plaintiff’s place of business. The preliminary injunction provided that solicitors would only be permitted to request donations in a designated public forum. It precluded solicitors from standing right in front of the business or the areas surrounding the entrance of the business or real estate office. The Court of Appeal found no error in that decision, specifying that the shop’s entrances, as well as its “aprons,” were not a public forum.

Business owners and real estate companies are well advised to seek counsel if they encounter problems with excessive charitable solicitation. All solicitation is not problematic, of course, and there are instances wherein solicitors are well within their rights to collect charitable donations. But when there is blockage of entrances or other such difficulties, action should be taken. In addition to retail shops, the activities can be disruptive to professional service organizations. The appellate court’s decision in Donahue Schriber demonstrates that companies such as real estate offices can obtain relief.

This ruling raises an important issue in the landlord tenant context. Who has the obligation to take action when solicitors create problems in front of a lessee’s retail store, the lessee or the lessor? The answer often lies in the allocation of risk and common area provisions of a business lease. If you are experiencing a solicitation problem, or are uncertain of your rights as lessor or lessee, contact an attorney.

Stephen G. Hammers, Price, Crooke, Gary & Hammers, Incorporated, 10 Corporate Park, Suite 300 Irvine, CA 92606 (949) 573-4910; (800) 511-6058; www.hammers-law.com

STATUTE OF FRAUDS KILLS BORROWERS’ SUIT AGAINST BANK

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Banks have been scrutinized for lending practices for years, and particularly so following the market downturn in 2008.  Inappropriate and unmonitored loans went into default in the millions across the United States beginning in that year.  The federal government took numerous, specific actions designed to control and regulate lending institutions.

Borrowers continue to file lawsuits as a result of poor lending practices.  The claims in these suits, while in some instances quite legitimate, are still required to follow the basic parameters of California law.  Sometimes, these lawsuits fail due to hard and fast rules regulating oral promises and the “statute of frauds.”  Such is the result in the recent case of Jones v. Wachovia Bank (2014) H038382; Sixth App. Dist., Santa Clara County.

Plaintiffs Mark and Roberta Jones sought damages after losing their home in a foreclosure sale which they understood from a phone conversation with the bank would be postponed to a date 10 days after the actual sale date.  The Jones further alleged they “had ready funds available to cure the outstanding default within the time prescribed by law and made preparations to timely submit funds to Wachovia. Plaintiffs were prevented from doing so by the advancement of the trustee sale date, which the Jones claim was contrary to the oral representation made by Wachovia on the telephone.

The Court of Appeal reviewed some of the basic principles of agreements for real estate loans and modifications.  They are summarized here.  In California, a real property loan generally involves a promissory note secured by a deed of trust in which the debtor (a home buyer) is the trustor, the creditor (a lending institution) is the beneficiary, and a neutral third party serves as the trustee. When a debtor defaults on a loan, the creditor has the right to invoke the power of sale provided by the deed of trust.

The statute of frauds requires certain agreements involving real property to be in writing.  A deed of trust is covered by the statute of frauds (Civ. Code, § 1624(a)(6)), and an agreement to modify a deed of trust is governed by Civil Code section 1698.  An agreement to postpone a valid sale of property beyond the date when said property may be sold under and according to the terms of a trust deed obviously is an agreement to alter the terms of the instrument, raising the issue of the statute of frauds.

To prevent (“estop”) a defendant from asserting the statute of frauds, a plaintiff must show unconscionable injury or unjust enrichment if the promise is not enforced. The doctrine of estoppel has been applied where an unconscionable injury would result from denying enforcement after one party has been induced to make a serious change of position in reliance on the contract or where unjust enrichment would result if a party who has received the benefits of the other’s performance were allowed to invoke the statute.

Here, the plaintiffs were unable to show injury, much less the unconscionable injury needed to avoid application of the statute of frauds. At a minimum, the Jones would have to show that they changed their legal position in some way, or undertook some act that showed detrimental reliance upon a promise by the Bank.  They could not do so, and their claim thus failed.

This opinion by the Court of Appeal demonstrates that the statute of frauds is still an important legal hurdle that a borrower must overcome if he or she is going to sue a bank on alleged oral promises.  There is considerable work for a lawyer to do when making a claim of this nature.  Worse, most loan documents have attorney fee provisions, meaning that if the borrower makes a claim against a bank and fails, the borrower could end up with a judgment for attorneys’ fees when he or she loses.  Borrowers should be very cautious about pursuing a claim on an oral promise by a bank representative, and a thorough discussion with counsel about whether to pursue a case should include the risk of loss.

 

HOW TO KEEP COMPETITORS OUT OF YOUR RETAIL SPACE

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Most retail shops operating in a mall or other commercial area would like a guarantee that the landlord will not rent to a competing business.  This guarantee is often negotiated in the lease as an “exclusive use” provision.  Here are some things to consider when negotiating exclusive use provisions:

What’s the use?  Commercial tenants should specifically define their “use” in the Lease.  What kinds of other businesses might be allowed in the absence of the provision?  For instance, if a tenant has an ice cream cone shop and also sells a few ice cream cakes, can the landlord still rent to a bakery? If a coffee retailer has “exclusive use,” does that mean a sandwich shop can’t also sell coffee?  Commercial tenants should be specific in the negotiations with the landlord in order to deter competing businesses from renting in the same building.

What about pre-existing tenants?  A landlord can promise not to rent to a competing business in the future, but what happens if an existing tenant wants to change its business model and start offering competing products?  Retail tenant are reminded to inquire about existing leases and the specific nature of the businesses of the other tenants.  Again, use the lease to negotiate the issue of exclusions and limitations in use of the business area by the competing businesses.

What if things change?  What happens if a tenant re-focuses its business and the use changes? Can it still keep the competitors away…and can it do so with regard to the new focus of the business? What if the tenant sublets some space or assigns the lease – does the exclusive use still apply?  If the tenant temporarily falls behind on the rent, does it lose the right to exclusive use?  All of these issues can and should be addressed in the lease.

What’s the remedy? If a tenant moves in, and changes the focus of its business to compete with an existing tenant having a similar business, and an exclusive use provision, what is the landlord’s remedy?  The Lease will often describe the notice provisions and “events of default.”  A Notice of Default and eventually a Notice to Quit may be proper remedies.  Conversely, can a tenant take legal action if a landlord violates the contract and leases space to a competitor?  Again, remedies are typically proscribed by the Lease, and if the evidence is availing for the tenant, an action for injunction will likely be an appropriate measure.   Be wary of withholding rent, and be sure to consult with an attorney before taking any action that could be construed as a default.