Spoiler Alert: No need to read on for the answer to the question posed in the title to this article. The answer is “all of the real or personal property owned by the violator once a certified copy of the order imposing a fine is recorded in the public records.”

But what does this mean in practical terms and why should you be concerned about it. Perfect case in point: A client who is a home builder had located a few vacant residential lots located in Loxahatchee, Florida being offered for sale at the very good price of approximately 50% the value of comparably situated lots by a very sophisticated investor who had purchased these and numerous other properties located in Palm Beach County at bargain rates over an extended period of time at tax deed sales (the “Seller”). Unfortunately, the Seller did little to maintain its large portfolio of properties acquired at tax deed sales during its tenure of ownership and many of these properties had been cited for code violations and built up numerous recorded liens over the years in the various incorporated and unincorporated areas of Palm Beach County in which they were located.

When our home builder client came to us with contract in hand to purchase the two vacant lots in Loxahatchee, our primary focus was to determine whether title acquired by the Seller through the tax deed sale was sufficient or remedial steps needed to be taken by way of a quiet title action in order to establish a proper chain of title. We of course also ran a municipal lien, tax and open permit search against the properties to see if any other issues were presented. The title commitment stated that there were 31 different Code Enforcement Liens recorded against 18 of the Seller’s properties located in Palm Beach County that also show up on the title to each of the vacant lots in Loxahatchee. But while the newly performed municipal lien and tax research noted that there were pending code violations lien against other properties owned by the Seller in Palm Beach County, the municipal lien and tax research specifically omitted any cost or liability figures associated with these 31 different Code Enforcement Liens recorded against 18 of the Seller’s properties because NONE of them were recorded against the specific vacant Loxahatchee lots that our client was purchasing for from the Seller.

So which research is telling the truth? The title commitment that states that 31 different Code Enforcement Liens recorded against 18 of the Seller’s other properties in Palm Beach County also affect title to each of the lots our client was purchasing or the municipal lien an tax research that omitted any cost or liability figures associated with these 31 different Code Enforcement Liens recorded against 18 of the Seller’s properties because the municipal lien and tax research stated that NONE of them were recorded against the specific vacant Loxahatchee lots that our client was purchasing? The Spoiler Alert at the outset of this article gives the answer away with the edited quote from Florida Statutes, Section 162.09 (3).   BELIEVE THE TITLE COMMITMENT. Clearly, if the municipal lien and tax research company is telling you that there are pending Code Enforcement Liens against other properties owned by the Seller in Palm Beach County, these same Code Enforcement Liens affect ALL properties owned by the Seller even though they were not recorded against the specific property which was the subject of the municipal lien and tax research.

Usually, at the end of every year or at the beginning of the new year, landlords send out their “CAM Notices” or “Rent Notices” in which they inform commercial  tenants of their monthly rent for the upcoming year. Depending upon what type of commercial lease a tenant might have, one or more factors  may cause the rent to increase in the new year. Tenants should spend time examining these notices to ensure that the information contained in them is correct and consistent with the lease they entered into and perhaps modified afterward.

Some leases do not directly pass on any of the operating costs of the property. This type of lease is called a “gross lease”.  Notices received under gross leases may only detail an increase in the rent because of a stated increase or fixed percentage increase in the rent provided for in the lease at the outset when it was signed, or alternatively refer to an index, such as the Consumer Price Index as a basis for any rent adjustments in the coming year.

Under a “modified gross lease”, the landlord passes on some but not all of the operating costs of the property to the tenant, such as real estate taxes and insurance. In addition to containing the information noted above, when there is a modified gross lease, the landlord’s notice will probably state the anticipated cost of the passed through expense for  the coming year, and  the tenant’s monthly (i.e., 1/12th)  share of the these passed through expenses based upon the tenant’s pro-rata percentage occupancy of the building.

When all of the operating expenses for the property are passed on to the tenant by the landlord under a lease, the lease is typically referred to as a “net lease” or “triple net” lease. In this instance the rent increase or CAM notice is more elaborate. As before, a portion of the notice details the basis for any increase in the monthly rent due to a  preset rent increase in the lease or an external  formula  for adjusting the rent,  but now the portion of the notice dealing with the operating expenses of the property passed through to the tenant might expectedly contain more information than if the notice related to a modified gross lease.

No matter what the lease type, the tenant should carefully compare the information contained in the landlord’s notice to the lease (e.g., pro-rata percentage of building, basis for base rent increases in the lease independent of any pass through, specifics of the passed through expense, if any). If the rent increase was based upon a CPI increase, the back up for the CPI based increase should be provided.  In the case of both a modified gross lease and a net lease the tenant may want to ask the landlord for copies of the 2017 real estate tax bill and the 2017 insurance premium bill so that the tenant can compare those actual costs to the projected 2018 cost. If the landlord’s notice pertains to a net lease, the tenant may also want to ask for a copy of the property’s operating expense statement for 2017 to compare it to the projected operating expenses for 2018.

This coming year, tenants should also carefully review the monthly sales tax amount that they are being charged. Beginning on January 1, 2018 the state level sales tax will be reduced from 6% to 5.8 % for rental payments attributable to a tenant’s occupancy of a premises during January, 2018 and after.

Certain counties, such as Miami-Dade County, Florida impose a local option surtax on commercial or short term rents. . The recent change in the state level sales tax has no effect on local surtaxes. Thus, in Miami-Dade County, FL. the sales tax rate on monthly commercial rents will be 6.8% instead of the 7% that was previously charged.

The year is young and there is still time to save money by critically reviewing the landlord’s recent rent or CAM notice

Florida’s recording statute gives priority to the real property lienholder who is first to record in the public records of the county where the property is located. There are certain limited exceptions to this general rule. One of the exceptions that most mortgage lenders doing business in the state of Florida are familiar with is the exception for the first lien priority created by Florida statutes for ad valorem or real estate taxes assessed by the property appraiser against real property.

Previously, mortgage lenders could accurately quantify the amount of the potential prior lien for unpaid real estate taxes that could prime their lien by examining county tax records. However, under the very recent case of Miami-Dade County vs. Landowne Mortgage, LLC, 2017 Fla. App. Lexis 14751 (3rd DCA), this analysis may no longer be accurate when refinancing an existing homeowner. In the case, Miami-Dade County filed a 2014 tax lien against the property on which Landowne had previously secured its first mortgage in 2007. The 2014 Miami-Dade tax lien imposed against the property was for up to 10 years worth of improper homestead exemptions previously received by the present owner of the property during his prior years of ownership. Florida Statutes, Section 196.161 allows property appraisers a look back period of 10 years to recoup the amount of any homestead exemptions improperly received, plus a 50% penalty and 15% interest. However, prior to this most recent ruling, it was not clear that a tax lien filed against a property for improperly received homestead exemptions would have a retroactive effect, which would prime the prior recorded lien of a mortgage granted by a lender who had no knowledge of the existing property owner’s improper claim of a homestead exemption.

This problem does not arise in connection with loans to homeowners who are buying a home and obtaining purchase money financing (as opposed to refinancing an existing loan) because the tax lien for improperly received homestead exemptions will only attach to the property owned by the non-exempt owner at the time the tax lien is filed. Prior to the filing of a tax lien of this nature, any purchaser for value of the property on which the improper homestead exemption was claimed will take free and clear of this retroactive tax lien.

Cash strapped local governments aided by ever improving data gathering techniques and the Miami-Dade County vs. Landowne Mortgage, LLC decision may  increasingly turn to real estate tax revenues presented by improperly claimed homestead exemptions. Accordingly, residential mortgage lenders who are refinancing loans for existing homeowners should seek advice from loan counsel who can effectively address this new landscape.

In the middle of last year I assisted two young partners in the purchase of a tax preparation business with an impressive roster of existing clients. Because my clients had been considering this purchase well before contacting me, they had undertaken that part of the work involving the organization for the new LLC that they wanted to acquire the target business with. By the time the deal had reached me, the term sheet had been agreed upon. So I prepared the asset purchase agreement and the usual closing related agreements where the Seller agrees not to compete with his former business by opening a similar business for a certain time period, solicit former customers, disclose confidential information about his former business to third parties, as well as consult with the new owners to show them how to run the business comprised of the assets they had just purchased. The asset purchase closed without any difficulty and things went along as planned with both of the partners rolling up their sleeves and working in excess of 60 hours per week to share the busy workload. Then, at the start of tax return preparation season in the beginning of January, one of the partners died. As it turned out, the partners did not prepare an Operating Agreement in the organization of the LLC.  Now, the deceased partner’s wife is claiming his membership interest in the LLC that owns this business and wants to know when she will receive her share of the profits from the returns that were prepared by the surviving partner and the remaining employees of this business.  Did the partners contemplate that the surviving spouses would become partners in the entity upon the death of one?  Did they think about buying out the deceased partner’s membership interests so that the surviving spouse would be taken care of and provide for a mechanism (such as key man insurance) to fund the buy out?

The ideal time for the owners of a company to enter into an operating agreement (for an LLC), partnership agreement (for a partnership) or a shareholder’s agreement (for a corporation) is when the company is formed. This is the best time to ensure the owners share a common understanding of their expectations of each other and the business. The longer partners wait to draft the agreement, the more likely intervening events will be allowed to the control relationship between partners. Don’t let this happen to you or someone you know. Take control of events to the extent that you can by having a written agreement between the owners of the business when it is started.

Not all companies starting out qualify for conventional financing. Companies with a good customer base but without an extensive operating history in need of working capital may find a form of alternative financing by factoring accounts receivable. Factoring accounts involves the sale or assignment of the company’s existing or future receivables to a company, referred to as a “factor,” and, in exchange, the factor provides capital to the company.

In a typical sale arrangement, the factor may pay only 60 percent of the face value of the receivables and charge a fee equal to a percentage of the amount advanced. The factor becomes the owner of the account and the party who owes the receivable to the company may be directed to make payment directly to the factor or the company may collect the account as agent for the factor and remit any payments received under the sold receivable to the factor. The sale of the account receivable may be on a “non-recourse” basis where the factor assumes the risk of the customer not paying the account receivable or there may be a right of charge back or guaranty where the company is obligated to buy back any receivables for which payment has not been received within a certain period of time.

In those instances when the account receivable is assigned to the factor and not sold, the factor may advance a higher percentage of the accounts or percentage of the face value of the invoice. But under the assignment scenario, the cost to the company for the advance is tied to how long it is until the factored invoice is paid by the company’s customer and, in the latter instance, the assignment is usually not made on a “non-recourse” basis.

Factors have traditionally taken the position that factoring is not the same as lending and therefore, factors are exempt from Florida’s laws limiting the amount of interest that can be charged. But as you can see, the lines between the factoring and borrowing become blurred both when the business is selling or assigning its accounts receivable, especially when a guaranty or right of charge back tied to whether the customer will pay the company’s invoice. If you would like our assistance with entering into a relationship with a factor, or already have a relationship with a factor with which you need assistance, please call us.

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