Friday, October 31, 2014

Jackin' with Effective Dates

Pursuant to a Lease of September 3, 2004, Sidney Wicks leased various commercial properties in Addison Texas to Transcontinental Realty Investors. On May 17, 2006, Sidney formed the Sidney Wicks Revocable Trust and assigned all of his properties to the Trust. The assignment was not made in the traditional form of Deed, but rather in a more general form of “Assignment and Declaration,” which presumably was not recorded with the Dallas County Clerk.

TRI began making rental payments to the Trust on receipt of the Assignment and Declaration.

On December 2, 2010, Sidney filed a lawsuit against TRI for breach of the Lease, then later amended it to substitute the Trust as the Plaintiff instead of Sidney. TRI answered the lawsuit by contending that the Trust lacked standing to assert claims, stating that Sidney should have been the correct party – not his Trust – as Sidney failed to convey his property interests by Deed.

TRI’s point was that the 2006 Assignment and Declaration is not effective in Texas to transfer ownership in real estate. Only Deeds in Texas would suffice for that purpose. And, if the Assignment and Declaration is ineffective, then the Trust lacked standing or capacity to sue TRI as only Sidney would have that right.

On July 1, 2011, the trial court granted the Trust’s Motion for Judgment, finding that there were no material issues of fact in controversy, and that the Trust was entitled to Judgment by operation of Texas law.

The trial court did not deal with damages though, and reserved that issue for a jury trial to be conducted more than one year later.

On September 6, 2011, Sidney executed and recorded a General Warranty Deed which transferred his real estate to the Trust. On the same date Sidney also executed an “Assignment and Assumption of Lease.” Both the Assignment and the Deed stated that although the documents were signed on September 6, 2011, they each had an “effective date” of May 17, 2006. Over five years prior to the date that each was executed and the Deed recorded.

Having already won Round One, the issue of damages owed by TRI to the Trust proceeded to a jury trial. In October 2012 the jury determined in Round Two that TRI owed the Trust $1 million plus interest, attorney’s fees and expenses.

The trial court converted the jury’s award to Final Judgment. TRI appealed.

TRI again claimed that the Trust lacked standing in Court. That Sidney failed to timely sign and record a Deed to the Trust. That using an artificial “effective date” was not lawful. And that Sidney would have been the proper party in interest at the time of the lawsuit. Not the Trust.

The Trust countered by arguing that there was no provision in Sidney’s Lease with TRI requiring that an assignment would only be effective upon execution. And, consequently, Sidney was not prevented from executing the docs in 2011, with a 2006 “effective date.”

The Appellate Court agreed with the Trust. Sidney’s Trust won and Transcontinental Realty Investors lost. See Transcontinental Realty Investors, Inc. v. Sidney Wicks, Trustee of the Sidney Wicks Revocable Trust; No. 05-13-00362-CV; Texas Court of Appeals; 5th District; August 5, 2014.

Lessons learned:

1.  I see this issue often. Parties want to make documents “effective” as of a date that is not identical to the date the documents were actually signed, notarized and / or recorded. Title companies see this daily. In my world, the documents and the Settlement Statements very rarely line up 100% with the actual date of closing / funding / recording.

2.  This appellate decision makes clear that, at least in Texas and assuming there is no prohibition against it in documents already signed by the parties, using an artificial “effective date” can be lawful.

3.  Practice Point: Although using an “effective date” that does not exactly line up with the “execution date” may be Ok generally, I suspect it may not be acceptable for tax purposes, including federal income tax, Texas franchise / margin tax, Texas sales tax, and even local ad valorem tax. Be careful and get professional advice before you go jackin’ with effective dates.

Reprinted with the permission of North Texas Commercial Association of REALTORS®, Inc.

Wednesday, October 1, 2014

How Not to Evict

Jessica Briones was a tenant at Brazos Bend Villa Apartments, Richmond, Texas (has Richmond been subsumed by Houston yet?). She had occupied her unit since January 2007. Jessica’s lease obligated Brazos to furnish her 10 days notice to discuss with Brazos a possible breach or allegation of lease termination, before Brazos could take any action adverse to her possession.

Evidently Brazos was concerned that Jessica was using or possessing marijuana in her apartment, so on April 30, 2012, Brazos furnished Jessica notice of lease termination coupled with a written statement that she had the right to meet with a property manager within 10 days to discuss the termination. The notice also demanded that she vacate by June 1, 2012. Jessica did not go gentle into that good night (that’s from a famous villanelle written by Dylan Thomas a century ago . . . oh never mind).

Consequently, on June 6, 2012, Brazos filed a lawsuit for eviction in JP Court in Fort Bend County. Brazos won so Jessica appealed.

The appeal was heard in Fort Bend County Court At Law, where according to Texas procedural rules both parties were granted an entirely new trial. A full-on mulligan. Brazos again won a Judgment for exclusive possession, plus attorneys’ fees of $2,950 through trial, and $10,000 for an appeal to the next level.

Brazos then obtained a Writ of Possession placing Brazos in possession of Jessica’s apartment. Regardless of the fact that Jessica was now on the outside of the apartment community, she again appealed claiming that Brazos failed to furnish her proper notice.

Basically, Jessica’s position was that Brazos was required to furnish her 10 days in which to discuss any alleged breach with Brazos before demanding that she vacate. And that the notice given, being a lease termination coupled with a statement that she could discuss the termination with a manager within the next following 10 days, did not comport with the Lease she had signed and both parties had honored in the previous five years.

The appellate court agreed with Jessica. Brazos was required to furnish Jessica at least two written notices. The first should have given her 10 days to discuss the proposed breach or lease termination with a property manager. The second should have given Jessica notice that her lease was terminated and she needed to vacate if she wanted to avoid legal proceedings.

Jessica won; Brazos lost. See Jessica Briones v. Brazos Bend Villa Apartments; No. 14-12-01125-CV; Texas Court of Appeals; 14th District; September 9, 2014.

Lessons learned:

1.      Even when tenants have been removed from the premises – voluntarily or involuntarily – they may still litigate and if they lose, then they may appeal. It’s an interesting dichotomy in law that protects rights of tenants. And if you consider it, there can be no other logical way as appeals take years to conclude. This one was completed in a bit more than two years, but a further appeal to the Texas Supreme Court would have added two more years.

2.      We handle many tenant evictions here. It is a rarity that the notices furnished to the tenants 100% comply with the lease and laws. Property managers use preprinted eviction forms and they work well for normal evictions where the tenant doesn’t pay rent. However, those same notices often are insufficient when the lease obligates the Landlord to furnish notices and opportunities to cure defaults before the lease can be terminated. Or when tenant’s breach is not related to the failure to pay rent, but is something unusual instead.

3.      Read your form lease. Do it now. Find all the ways the tenant can breach and make a list. Is it complete? Then review the lease to determine what steps the landlord must take before terminating the lease. Another list. After that – one more task – find out exactly what type of notice must be furnished before you can terminate a lease, to whom it must be given, by whom, how it is to be posted / mailed / delivered, at what address must it be posted, delivered or sent, and at what timing interval. Then, compare it to Texas laws. And make a final list.

Are you satisfied?

See http://law.onecle.com/texas/property/92.0081.00.html for residential self-help rules.
See http://law.onecle.com/texas/property/93.002.00.html for commercial self-help rules.
See http//law.onecle.com/texas/property/91.001.00.html, http://www.statutes.legis.state.tx.us/Docs/PR/htm/PR.24.htm and https://www.supreme.courts.state.tx.us/rules/trcp/trcp_part_5.pdf for Texas rules that apply to both residential and commercial judicial evictions.

Reprinted with the permission of North Texas Commercial Association of REALTORS®, Inc.