This year, hurricanes, with record rain, storm surges and winds, have resulted in severe damage to both commercial and residential buildings, mold contamination, and significant interruption to businesses in the impacted areas. Several Caribbean islands have been wiped away, Key West is unrecognizable, and Houston may have lost more than 150,000 homes. For most of us, luckily, the damage was less severe. My wife and I have leaks in our roof and elsewhere and lost a window (but gained an indoor tree). We lost power for about four and a half days. Friends in South Miami are still without power as of the writing of this post.

The legal implications of the hurricane aftermath extend well beyond mere rebuilding. Mold contamination and water intrusion must be addressed and properly remediated. Design and construction defects may be alleged to have exacerbated the extent of the damage from the hurricane. Employers may face workers’ compensation claims from employees and also may have vacation and lost wages concerns. Insurance coverage may be at issue. Construction costs may have escalated causing losses to builders or developers. Building permits and development approvals may expire due to delays caused by the hurricane. Condominium associations may not have sufficient reserves to act on emergency repairs. Construction licensing regulations may affect the ability to commence repairs and provide penalties for failure to engage properly certified contractors.

So what to do?

  • Make sure you and your family, employees and customers will be safe in your home or building.
    • Are there electrical system damage and risks?
    • Is the water safe to drink?
    • Is there a risk to the structural integrity of improvements?
    • Other Physical Hazards (don’t panic, but snakes and scorpions like piles of debris).
    • Contamination? Such as leaking petroleum tanks, chemical spills and the like.
  • Address potential health risks, whether mold or risky property conditions.
  • Secure your property and protect it from potential or further loss of property value.
  • Deal with Insurance.
  • Deal with Government Agencies such as FEMA
  • Deal with FP&L’s reimbursement programs.
  • Check with your mortgage lender. The lender may have the right to collect insurance proceeds and disburse the funds as repair and rebuilding proceed.
  • Only then commence to restore your property. Use only licensed and insured contractors. Where required by law, obtain all necessary permits and approvals. If you are part of a condominium or property owners’ association, make sure all Board approvals are obtained.
  • Get on with your life

Our lawyers have assisted clients in resolving insurance disputes, negotiating agreements in connection with assessment and remediation services, resolving design and construction defect claims,  implementing programs for addressing employee benefits, preparing hurricane and disaster response plans, and in finding their way through myriad environmental regulations.   In one recent example,  we resolved an insurer’s denial of coverage for water damage based on a theory that the building envelope was defectively designed or constructed and that the damage was not caused by a windstorm (as provided in the policy). By engaging the proper experts, a successful argument was made that the building envelope was properly designed and constructed and that it was indeed the hurricane-force winds that caused the water intrusion.

In another example, we assisted a client in requesting an extension of the expiration date for various development approvals that could not be met due to the direct delays of the hurricane, the difficulty in obtaining materials and the need to redesign to address increases in construction costs.

In addition to helping guide our clients in making proper recovery efforts, we are also focusing our clients’ attention on preventative measures to avoid future repeat damage and liability. We have found that many building and business owners have been hesitant to expend significant sums in prevention, in part to the belief that the recent hurricane landfalls in Florida were merely a fluke.  Whether global warming or a regular climatological cycle, it appears that the Atlantic hurricane season has been on an upswing that may continue for a decade or more. Proper preparation can lessen the business impacts and speed up recovery efforts.

 

Selecting the right property to buy or lease can be tricky. Every one knows the old adage “location, location, location”.  Clearly, location is crucial to every one involved in a real estate project from brokerage to development to construction; from lending to investment; from management to leasing, location will be a crucial factor in everyone’s return on the investment in real estate.  However, a corollary to location is zoning, zoning, zoning.  A property that does not have the proper zoning and land use designation for the proposed use, and one that can not be appropriately re-zoned, or variances obtained, will have no value to a buyer, developer, tenant or investor and location will add no value.

This rule applies to properties that are being purchased or that are being leased. A retail location might be the best spot in town for your client’s hot new night club.  But zoning might not allow any business which serves alcohol to be located in that location because a church is located within 1000 feet.  Or, noise regulations prohibit music after 10:00 because of the hospital across the street.   These are some of the things that should be considered even before entering into a contract or a lease.  They can save time and money.

When purchasing a property, it is a good idea to have preliminary, exploratory conversations with city planning and zoning staff to discuss the site. This is a good way to learn what the city would be comfortable with.  The meeting will help the buyer understand what approvals will be necessary for the project and will assist in formulating a timeline for obtaining approvals.

Upon preparing the contract, the buyer should make the obligation to close contingent upon obtaining the necessary approvals. The approvals can be specific, but I like to keep them as generic as possible.  For example, I define “Approvals” as all approvals necessary to enable buyer to obtain building permits to construct the Intended Improvements.  When pushed, I will list approvals to include, without limitation, zoning, land use, platting, site plan, and I will expand as necessary.

Many times, going into the contract, the parties know precisely what zoning is going to be required, or the seller has already begun the process of re-zoning in anticipation of a sale for such a use. This should not affect buyer’s contingency as the use drives the value of the property and must be in place prior to closing.

Zoning diligence before contract can make negotiations smoother and faster. It can also help buyers and sellers set a realistic price for a property, particularly because with proper approval contingencies, buyers won’t have to close if the zoning is not sufficient for the intended use.  But patient sellers will be more likely to get their desired price.

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        An Indiana couple has struck back against Marriott and its profitable vacation club. Anthony and Beth Lenner filed a lawsuit against Marriott Vacation Club and others in Federal Court in Orlando last month under the RICO Act claiming Marriott tricked them into thinking that they were buying a timeshare interest in real estate. Instead, the plaintiffs only received a license to use real estate. The lawsuit alleges violations of both the RICO Act and the Florida Vacation and Timeshare Act.

             The complaint seeks unspecified damages and will seek class action certification. Plaintiffs seek to abolish the points program which, attorneys say is unique among timeshare companies. Actually, that is not the case. I have to admit that my wife and I like to travel and often take advantage of “unique offers”. Over the last few years, we have accepted invitations to visit a few vacation club properties for ridiculously low prices. The clubs offer us hotel reward points, rental cars and other gifts. In exchange, we agree to attend a “brief” presentation. In the last year we visited 2 different clubs, a Starwood in Hawaii and a Hilton in New York. We have visited others over the years, but the pitch is always the same. For nearly the cost of our house, we could acquire an interest in the beautiful resort/club. We would receive several hundred thousand points so use each year at the dozens of club locations in exotic locales around the world. Each location “costs” different amounts of points. So, our total room nights would be between 7 and 14 each year depending on 1) which club we buy, 2) where we use the points and 3) when we use the points.

             We would receive a deed. We would pay annual maintenance and taxes which would amount to about $250 per month in Hawaii and $350 per month in New York. And, best of all the pitch goes, we would be saving over $500,000 over our life time in vacation costs! But companies wanted our down payment that day or the deal was off. As an incentive, they offered several hundred thousand hotel reward points as well, meaning we would have over 4 weeks of travel in the first full year. Both companies would finance us for 12 months. Then, we could pay off the balance or refinance. The interest rate? 23.9%! What a deal!

             As a real estate attorney, there was so much that I could say to the sale people about these offers. But I didn’t. My wife and I just wanted our gifts and to return to our vacation. But these were high pressure sales jobs. Remarkably, I did well not to argue. Much of what I would have said will come out in the Marriott lawsuit:

  • There is no property interest to deed in the points program. There is not a legal description. While Marriott has created a trust and owners get some beneficial interest in the trust, that is not an interest in real estate. If this were an actual timeshare, the deed would be for a specific unit and a specific week, or a fractional interest in a unit. The trust ties to real estate, but the interest is a license interest.

 

  • Marriott, through a title company (who is also a defendant), provides title insurance to the buyers at the buyers’ cost. There is no insurable interest because there is no interest in real estate. I don’t believe that the vacation clubs that I visited offered me title insurance, which goes to show that Starwood and Hilton recognize that they aren’t really selling real estate.

 

  • Marriott implemented the points program as a means to quickly dispose of excess inventory which it acquired when the real estate marketed crashed. It took back thousands of units which were not being used. Their points program has now caused an over sale. Owners have great difficulty booking rooms less than 6 months in advance. If you “own property”, you should be able to show up and use it whenever you want. Starwood and Hilton and other like clubs use the program to finance construction of new properties. In fact, one resort we visited did not even offer us a “unit” in the resort we were visiting. They offered us pre-construction pricing in a resort that was still in planning stages in Mexico. In New York, we were offered a unit in the building we were staying in or one under conversion several blocks away. So, buyers buy interest in buildings that don’t exist. In theory, the closing can’t occur and the deed can’t be delivered until the building is completed. But the points are awarded upon payment. The buyer already has its license. In a true timeshare or other condominium, other than the down payment, no money is paid until completion.

 

  • Maintenance is used to pay the hotel’s operating cost. Yet, the owner rarely, if ever visits the “home resort/club” and is encouraged to use the points to explore the system. The owner is paying to maintain a building he/she doesn’t really have an ownership interest in. But my personal gripe here is with the sales pitch. The sales people pitch on the annual cost savings on vacation. But if you are spending $2,500 or so per year on maintenance, there is not any real savings on the cost of hotel room nights. That’s 10 nights of hotel at $250 per night. Plus, the six figures spent for the right to stay there. Sounds like a license to me.

 

  • What is going to happen when the Marriott/Starwood merger is complete? Will the programs combine seamlessly? Will they remain separate? Are the properties comparable? Do the point systems have parity?

 

            This is a case to watch. The other clubs using points systems should be watching closely. Some clubs have better systems in their programs than Marriott. However, as this case progresses, lawsuits against the other clubs could and should follow.

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