(US) Unamicable Split: Inherited Real Property and the Texas Forced Sale Statute

When multiple people inherit an interest in real property, each is responsible for their share of the ad valorem taxes of the property. What happens if one party fails to meet its tax obligations? What recourse is available to a party that pays more than its share of the tax obligations? In Texas, a co-owner may force the sale of an owner’s interest in real property as reimbursement for property taxes paid on the owner’s behalf.

The forced sale remedy is governed by Chapter 29 of the Texas Property Code. The forced sale remedy is limited to cases of real property that is not otherwise exempt from forced sale under the Texas constitution or other state laws and is received by inheritance, under a will, by joint tenancy with a right of survivorship, or by any other survivorship agreement. The remedy is also available when the real property is owned in part by a certain tax exempt nonprofit organizations with a corporate purpose of developing low-income housing.

A person may file a petition for forced sale in the district court of the county where the real property is located if:

  • the petitioner has paid the other owner’s share of ad valorem taxes imposed on the property for any three (3) years in a five (5) year period (or two (2) years in a three (3) year period in the case of a nonprofit organization); 
  • the other owner has not reimbursed the petitioner for more than half of the total amount paid by the petitioner for the taxes on the owner’s behalf; and
  •  the petitioner made a demand that the other owner reimburse the petitioner for the amount paid by the petitioner for the taxes on the owner’s behalf.

Upon completion of the hearing on the forced sale petition, if the court is satisfied that the petitioner has met each of the above requirements by clear and convincing evidence, the court will enter an order that divests the defendant’s interest in the subject real property and orders the petitioner to pay to the defendant an amount equal to the fair market value of the defendant’s interest in the property, as determined by a court appointed independent appraiser, less the amount of defendant’s share of ad valorem taxes paid by the petitioner. The court order should also direct the defendant to executed and deliver a deed conveying the defendant’s interest in the property to the petitioner.
 

Bright Days for Large Scale Solar Operators; Sunstroke for the Smaller Players: Latest News on CfDs

This post was written by: Jonathan Hewitt, Richard Ceeney and Malcolm Dunn

National Grid has made its decisions as to eligibility for participation in the first Contracts for Difference auction but the auction process itself has been delayed as some applicants have asked Ofgem to review National Grid's decisions. However, the Secretary of State for Energy and Climate Change, Ed Davey, by letter, assured the Select Committee that the process could still see contracts awarded by 17 April 2015.

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(US) The EB-5 Visa Program: A Popular Real Estate Financing Program's Reauthorization Is Uncertain

The EB-5 Visa Program has become an increasingly popular vehicle for real estate project financing in the United States. Last year, for the first time in the Program’s history, the annual supply of EB-5 immigrant investor visas, which is capped at 10,000, was fully depleted. More than 11,000 foreign citizens applied for EB-5 Visas in 2014.
 
The EB-5 Program was established by Congress in 1990. It is intended to stimulate the U.S. economy through job creation and capital investment by foreign investors. It is administered by the U.S. Citizenship and Immigration Services (USCIS), a division of the Department of Homeland Security. The EB-5 Program sunsets every three years and must be renewed by Congress for the program to continue. It’s up for review again in September of 2015. 

EB-5 Visas are available to investors who make a direct minimum investment of $1,000,000 in an ongoing project or start a new business in the U.S. which preserves or creates ten or more jobs for U.S. workers. The direct investment amount is reduced to $500,000 if the investment is made in a targeted employment area. Investment through a private or public economic entity known as an EB-5 Regional Center devoted to increased domestic capital promotion, job creation, improved regional productivity and increased economic growth is also permitted. In this case, indirect job preservation or creation can satisfy EB-5 Program requirements. 

Upon making an EB-5 investment and upon approval of the application, a foreign investor (and immediate family including children under age 21) will be granted conditional permanent residence. If the foreign investor can show that the investment satisfies the EB-5 job creation requirements after about two years, the foreign applicant will be granted permanent residence.

Fortune magazine reports that the growth in demand for EB-5 financing is largely attributed to Chinese citizens whom account for more than 80% of applicants. They seek greater freedom, a cleaner environment, and expanded educational opportunities for their children. Some U.S. developers have been active in seeking funds from foreign investors interested in EB-5 Visas. One example is Related Cos., which had an exhibit at the “Invest in America Summit” held each March in Shanghai, China. New York’s Hudson Yards, a Related Cos. development, is reportedly being financed in part through EB-5 program funds.
 
 In 2013, the Inspector General for the Department of Homeland Security harshly criticized USCIS’s management of the EB-5 program, saying poor record keeping made it impossible to verify claims of job creation, and that rules don’t allow the agency to punish EB-5 Regional Centers over instances of fraud. A recent Washington Times report about high-profile incidents of EB-5 fraud and skepticism about the government’s job creation claims have generated an audit of the Program by the Government Accountability Office. The audit is at the request of Senators Chuck Grassley of Iowa, Bob Corker of Tennessee and Tom Coburn of Oklahoma, ahead of Congressional evaluation of the Program for reauthorization in September 2015.

The popularity of the Program has caused concerns about application process timing, which can take up to three years, notwithstanding the fact that USCIS estimates indicate a timeline closer to 14.7 months for issuance of conditional Visas and 8.6 months for Visas. Long processing times can make EB-5 financing less popular for direct investment in individual projects, as developers are often on tight financing timelines.

The results of the Government Accountability Office audit will impact the debate on the future viability of the Program and its reauthorization. Also, there have been calls by some in Congress to make the Program permanent. As we approach September, any uncertainty surrounding extension of the Program, coupled with a strengthening US Dollar, may prove to be a disincentive to foreign investors, frustrating EB-5 financing opportunities for real estate developers.
 

(UK) When Is An Emergency Not An Emergency

this post was written by Sarah Frost and Siobhan Hayes

It is the time of year when the Great British weather batters buildings up and down the country causing signs to fall off some and roofs to cave in! Beware, though, if you are the Landlord or manager of a mixed use building – emergency repairs may cost you more than you think.

Section 20 of the Landlord and Tenant Act 1985 contains detailed provisions regulating residential service charges. If you are the Landlord or manager of a mixed use building which includes long residential leases (i.e. leases longer than 21 years) you will need to comply with Section 20 if you want to recover service costs in full from your residential tenants.

Section 20 imposes a two and sometimes three part consultation procedure for one-off expenditure that would result in a re-charge to any individual residential tenant of more than £250 (“Qualifying Works”). This procedure can take two to three months and applies to all Qualifying Works, urgent or not.

If urgent repairs are required (for example for health and safety reasons), it is possible to apply to the First Tier Tribunal for a dispensation which effectively disapplies all or part of the consultation requirements. This procedure in itself takes approximately 6 weeks and will not assist where urgent works are required.

If you carry out Qualifying Works without going through the consultation procedure and without obtaining emergency dispensation, you may only be able to recover £250 per residential tenant. In some cases this could be extremely costly.

There is no formal “urgent works” procedure currently in place, but accepted market practice is to start emergency Qualifying Works immediately but at the same time apply to the First Tier Tribunal for dispensation from Section 20. Dispensation cannot be guaranteed, but if emergency works are genuinely required (and are not the result of poor building management) it should be forthcoming. It may also be the case that the risk attached to not obtaining dispensation is lower than the risk of allowing a potentially dangerous situation to continue.
 

(US)Northern California Tech Firms Hunt for Space: Dramatic Impact On The Commercial Office Market

In an article published on Law360.com titled "Tech Was 'Not Tethered To Spreadsheets' For 2014 RE Buys," Simon Adams of Reed Smith's Real Estate Practice Group comments on the real estate market effects in Northern California caused by a booming tech industry demand for office space.

Tech companies are doing massive deals, often demanding lease terms and amenities not driven by bottom line considerations. And, they're willing to pay top dollar, affecting the overall market for commercial space.

“Players in Silicon Valley are into what you would describe as a land grab,” Simon T. Adams of Reed Smith LLP said. “They are so willing to take real estate positions.”

The demand for space is so great that due diligence periods have narrowed, forcing lawyers to work quickly and creatively to get deals completed before competitors for the same space can take action.

“Lawyers have both anticipated their clients’ needs and desires and at the same time kept a very close eye on other interested parties and anticipated what their reaction would be,” Adams said. “Because of that, they’re willing to change the structure of a transaction or part of a transaction. ... There’s a level of creativity that’s new.”

The full article can be read here.
 

(US) Preservation vs Development: History Complicates San Francisco's Surging Real Estate Development Market

 In an article published on Law360 titled "History Complicates San Francisco's Surging Real Estate Development," Simon Adams of Reed Smith's Real Estate Practice Group comments on the challenges developers face with historic-designated properties in the city.

 " I think [the need for housing is] a particular challenge to San Francisco right now,”  noting the tension between the city’s need for more development — particularly residential — and the challenges of getting such development done in historical building-heavy downtown cores such as SOMA, where many are made of nonreinforced masonry, making renovations a costly endeavor.

The full article can be read here.

 

(UK) Dan's Banger's Didn't Break and other Break Clause news

This post was written by Stuart Wright, Lynsey Ellard and Siobhan Hayes.

We have two items to post on breaks.

  • The first is the surprising news that M&S have been given leave to appeal to the Supreme Court over the issue of the refund of the rent they had paid their landlord when they exercised a break. We will post again when there is news. We have a number of posts on apportioning and refunds of rent that you can read here.
  • The second is The Dan’s Bangers case (Sirhowy Investments Ltd v Henderson & Anor) – involving a second hand car dealer’s site which highlighted the continuing trend in lease break clause cases where compliance with the pre-conditions to a break are required to be strictly complied with for the break to be effective.
     
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(US) The Oil and Gas Industry in Pennsylvania: The State of Compulsory Integration

This entry is a link to an article written by Michael Joy, Robert Jochen and Steven Chadwick

In an article titled"The State of Compulsory Integration in Pennsylvania" that appears in The Legal Intelligencer, Michael Joy, Robert Jochen and Steven Chadwick of our Pittsburgh office review the challenges oil and natural gas developers face in Pennsylvania.

The authors argue that an established compulsory integration process will benefit the industry by providing a predictable permitting process and will increase opportunities for smaller operators. Costs of production will also be lower due to a reduction in the number of wells necessary to tap oil and gas formations. They believe that the state, its residents and the oil and gas companies operating in Pennsylvania will be best served by revisiting and revising the state's outdated laws on pooling and unitization.

 

 

(US) Present Value in Lease Terms: PA Superior Court Holds Reductions in Present Value Must Be Explicitly Stated In The Lease

This post was written by Paul Didomenico and Gerald Dickinson

On August 19, 2014, the Pennsylvania Superior Court affirmed a trial court’s decision not to reduce accelerated damages awarded to a landlord to present value, thereby strengthening the landlord’s position with respect to acceleration clauses in an already landlord-friendly state. The case, Newman Development Group of Pottstown, LLC v. Genuardi’s Family Market, Inc. and Safeway, Inc., provides an important lesson for commercial tenants: Be sure to discuss a provision in the lease that explicitly requires acceleration damages to be reduced to present value upon a breach by a tenant.

Rent acceleration clauses may provide that the accelerated rent will be reduced to “present value” by discounting the aggregate amount by a percentage. The point is that the value of the dollar paid at the time of the breach is worth more than the value of the dollar paid in the future.

In Newman, the landlord and tenant, both of whom are sophisticated parties and were represented by attorneys, negotiated two important aspects to the lease: (1) contingencies of performance over a 20-year term and (2) consequences of breaches of the agreed upon terms. Under the lease, the damage calculation for breach by the tenant included sums for future rents. The lease also provided for the rate of interest the tenant was obligated to pay to the landlord on sums owed as a result of the tenant’s breach. However, the lease did not explicitly require that those sums be reduced to present value.

The tenant argued that the reduction to present value was already implied in the lease pursuant to Pennsylvania law, thus it was not necessary to draft the explicit present value language into the lease.

The Superior Court disagreed:

“To the extent it was intended to be consideration in the calculation of damages for breach, a discount rate would have been so stated in the lease.”

In other words, there was nothing in the lease that suggested that the parties intended for a reduction to present value of future damages, nor does Pennsylvania law mandate such a reduction.

The important take away is that parties should not assume that future rent will be reduced to present value. Instead, parties must remember to negotiate those terms explicitly into the lease agreement. Otherwise, courts under Pennsylvania law will not permit a reduction to present value to be implicitly read into what is, otherwise, an unambiguous lease agreement.

The Tenant has filed a Petition for Allowance of Appeal to the Pennsylvania Supreme Court. We are monitoring the case as the matter moves through the appeal process.
 

(US) PA Landlord Tenant Act: More PA Legislation on Abandoned Property

Pennsylvania Act No. 129 of 2012 (effective September 4, 2012), amended the Landlord and Tenant Act of 1951 to provide for the disposition of personal property deemed abandoned by a tenant. The Pennsylvania legislature has returned to this subject with Pennsylvania Act No. 167 of 2014 (effective December 21, 2014). Under the prior law, there were two relatively limited circumstances under which a tenant’s personal property remaining in a rental premises was deemed to be abandoned:

  • upon execution of an order of possession in favor of the landlord, or 
  • the tenant physically vacating the premises and providing a forwarding address or written notice stating that the tenant has vacated the premises.

Unfortunately the law did not cover the circumstance where the tenant simply abandons the premises without notice. The new law adds three additional circumstances under which a tenant may be deemed to have abandoned personal property: 

  • the tenant has vacated the premises following the termination of a written lease;
  • an eviction order or order for possession has been entered and the tenant has vacated the premises and removed substantially all personal property; and 
  • the tenant has vacated the premises without communicating an intent to return, the rent is more than 15 days past due, and thereafter the landlord has posted a notice regarding the tenant’s rights regarding the personal property.

The statute also includes a form of notice to be used.

The new law continues the requirements set forth in the prior law requiring the landlord to store abandoned property for 10 days after giving notice to the tenant, which period is extended to 30 days after the date of the notice if the tenant requests.

There are several problems created for landlords under the new law.

First, where does the landlord store the property during the 10 or 30 day periods? The law states that it may be at a place of the landlord’s choosing, but what if the landlord does not have a storage facility? Then, presumably, the landlord must store the property at the premises, creating problems with the use of the premises for the landlord or a new tenant during such periods. Even if a new tenant is willing to allow storage of the prior tenant’s property during the 10 or 30 day period, retrieval by the prior tenant could be problematic. If the landlord does have a separate storage location, the landlord will have to arrange to have the property moved to such location.
 
Second, the law states that the tenant is responsible for the landlord’s costs of storage, but the law does not address whether the landlord may demand reimbursement as a condition of releasing the property to the tenant. Therefore, it seems likely that landlords will have difficulty recovering costs of storage.

Third, the new law adds a provision making the landlord liable for treble damages, attorney fees and court costs for violations.

The new law also adds a provision making conflicting provisions of the lease control (except where the landlord has notice of a protection from abuse order). Therefore, the landlord and tenant may (and probably should) agree in the lease to alternative provisions.
 

(US) Lease Recapture Provisions: Don't Get Caught By Poor Drafting

Under some circumstances recapture provisions can offer substantial benefits to both landlord and tenant. The tenant is relieved of its future performance obligations, and the landlord can put the premises to better use, in a direct relationship with a new tenant, perhaps gaining rent at a newly higher market rate or a lease for a longer term. In the situation where the tenant has outgrown its space, or needs to move to a smaller space and determines to offer the lease for assignment or the premises space for sublease, the tenant may have to reconcile this business decision with a cost of transfer. Like all lease provisions, recapture provisions can contain traps for the unwary.

In negotiating a new lease, landlords and tenants both would do well to pay particular attention to the language of the recapture provision that describes the triggering event. Landlords will want to have some certainty as to whether or not the tenant has triggered the provision. A well drafted recapture provision will allow the landlord the option to dispossess the tenant of the premises and avoid allegations of breach of the lease. Provisions often found in retail leases allowing the landlord to recapture if the tenant’s business “goes dark” for a certain number of days will require very specific definitions of the various events under tenant’s control that could trigger the recapture. In addition, tenants will want a certain time limit on how long the landlord must wait, or may wait, before exercising its right.

With a typical office recapture provision – a right to recapture when the tenant proposes an assignment or a sublet – tenants will want to limit the level of effort and expenditure required on tenant’s part before the landlord’s recapture right is ripe. A lease that requires the tenant to engage a broker, advertise the space, find a subtenant and fully negotiate the sublease before the landlord must make its determination to recapture could have a severe chilling effect on the tenant’s ability sublease. The landlord in this example will want the recapture provision to include adequate time for due diligence on the proposed assignee or subtenant and any potential new tenant before it has to make a decision to recapture the space.

Careful consideration of this provision during lease negotiation will, if actioned on a later date, provide both parties with greater certainty over the course of the lease term.
 

(US) DC Real Property Tax Abatement: Another Tool to Free Up Cashflow

In many cases nonprofit organizations do not have large endowments or reserves in place from which they draw upon to readily accomplish and sustain a real estate acquisition. In today’s market, buyers are typically expected to contribute between 10-20% cash equity upfront as well as meet reoccurring payments of debt service, operating expenses and real estate taxes. As a result, many transactions require creative ways to maintain sufficient cash flow from various sources to fund operational and programmatic needs.
 
Some nonprofit organizations have been able to make their project work by obtaining a real property tax abatement from the local jurisdiction within which the property resides. Some nonprofit organizations are automatically exempt from real property taxes simply due to the nature of their charitable mission, however, it is not quite as easy in other jurisdictions. For example, in the District of Columbia, a nonprofit organization must meet very specific criteria to fit within the real property tax exemption category. On the other hand, although an abatement is not guaranteed, any nonprofit is eligible to request a tax abatement from DC Council.

The abatement frees up cash flow for a finite period so that the organization’s cash can be used towards other necessary expenditures. In the past, our clients have achieved varying amounts for different periods of time. We have seen one nonprofit organization receive a $5 Million Dollar tax abatement over the course of 5 years while another received up to $20 Million Dollars for a period of 10 years.

A variety of factors may impact a tax abatement request. Certainly the size and duration of the abatement are significant factors that weigh heavily on the outcome of the request. However, other factors that should be highlighted to help achieve a favorable result are the benefits that the organization specifically brings to the District of Columbia, the services that the organization brings to District residents, how many jobs are created for District residents, whether the organization is relocating into the District from outside the city or moving into an area that is in need of revitalization and more!

In summary, receiving a tax abatement is not guaranteed since it is subject to and at the discretion of the DC Council. However, if you use the proper channels, it is typically a fairly quick process to determine the likelihood of being successful. Thus, the monetary risk is fairly minimal but the potential gain can be the deciding factor when it comes to making the project financially viable.
 

(US) Not All Title Companies Are Created Equal: Choosing Wisely

Selecting a title company for a transaction is influenced by a number of factors, including the level of customer service, responsiveness and sophistication (particularly when dealing with complex commercial transactions). Knowledgeable and responsive escrow officers and underwriters can facilitate closings tremendously. However, underwriting guidelines may adversely affect an underwriter’s ability to deliver an acceptable title insurance policy.

Recently, title underwriters have changed underwriting guidelines regarding matters shown on an updated ALTA survey. Traditionally, title companies agreed to limit survey related exceptions to “as shown on the survey” based on an ALTA survey. Now, despite providing an updated ALTA survey for the insured property, a title company in a recent deal involving Indiana real estate was unwilling to limit survey related matters to “as shown on the survey” when the client requested the survey deletion endorsement to its title policy. The title company attempted to limit its coverage relative to survey issues by inserting “as approximately shown on the survey” based on the recent ruling in Lawyers Title Insurance Corporation v. Doubletree Partners, L.P., (5th Circuit, January 14, 2014). In the Doubletree Partners case, which involved Texas property and a Texas title policy, the insured obtained the survey deletion coverage and the title insurance company was liable for damages suffered as a result of a flowage easement affecting the property that was not accurately reflected on the survey. As a result of the Doubletree Partners case, the title company changed its national underwriting guidelines which are now out of step with other insurers.

Oil, gas and mineral leases offer another example of a title company changing its underwriting guidelines in a manner inconsistent with longstanding practice and the title insurance market as a whole. Typically, oil and gas leases affecting real property where the primary term has expired, are removed as exceptions to title by the title company upon producing an affidavit of non-production. However, many title underwriters refuse to remove expired oil and gas leases based on an affidavit of non-production and, in many cases, will not remove expired oil and gas leases absent a release of the lease, contrary to generally accepted practice within the industry.

The insured is not without options. Before selecting a title company, careful research into different title companies’ practices is recommended.
 

(UK) BRING ME SUNSHINE: UK Government Reviewing Support For Renewable Projects From The Renewable Obligation Scheme

This post was written by Malcolm Dunn and Julia Berry

The solar industry has experienced further recent upheaval as the Government is again reviewing the support it gives for renewable projects from the Renewables Obligation Scheme. The initial intention was that there would be a gradual transition for renewable projects to new Contracts for Difference up until March 2017.

However, at the start of this month the Department for Energy and Climate Change announced that it would be unaffordable to keep the RO Scheme open for large solar projects (i.e. greater than 5MW) and so it would be closed to new projects from 1 April 2015. DECC is offering a concession by the introduction of a “grace period” in order to acknowledge projects where significant financial commitments have been made subject to them having been incurred prior to 13 May 2014. To take the benefit of such grace periods, projects must have :

1.   A grid connection offer and acceptance;
2.   Confirmation of land ownership (including an option to purchase); and
3.   A planning application submitted (which cannot be materially varied);

before 13 May 2014. Even then, those projects would then need to be commissioned and accredited prior to 31 March 2016 to qualify for the RO Scheme.

The consultation is ongoing and so at this stage there is uncertainty as to how the “grace periods” will be interpreted. For this blog, we just want to consider the planning aspects and discuss what might represent a ‘material’ variation from an original application.

Of course, it is not uncommon for non-material amendments (under Section 96A of the Town and Country Planning Act) to be made on large solar applications and if DECC follows the planning regime, then such changes would not be considered as material variations.

The difficulty that might arise is if the changes are regarded as ‘minor material’ and so an application under Section 73 is required. Of course, whilst the planning regime consider these changes to be material, they are not sufficiently material as to require a new planning application and so it will be interesting to see what interpretation is made by DECC.

Practice Note – these “grace periods” mean that investors need to be even more careful in the planning due diligence that they do on solar projects as it is not always apparent when planning amendments have been made – some LPAs will put the applications separately on their websites rather than linking them to the main consents.

For more detail on these changes and the UK Government’s evolving policy on support for the Renewables sector, follow this link .
 

(US) Pennsylvania Rehabilitates the Abandoned & Blighted Property Conservatorship Act

Property owners, lien-holders and community development organizations in Pennsylvania, take note. Governor Corbett recently signed House Bill No. 1363 amending the act of November 26, 2008 (P.L.1672, No.135), also known as the Abandoned and Blighted Property Conservatorship Act. Depending on your viewpoint, the amendment gives much needed teeth to a tool for combating blight, or expands the already broad power of neighboring residents and business owners to interfere with a legitimate property owner’s interest. The amendment sailed through the Pennsylvania Legislature without a single “nay”, showing the Commonwealth is unified on the topic of remediating blighted real estate holdings.

The Abandoned and Blighted Property Conservatorship Act allows the court to appoint a conservator to rehabilitate deteriorating residential, commercial and industrial buildings. The conservator is then responsible for bringing buildings into municipal code compliance when owner fails to do so, and steps into the owner’s shoes for the purposes of filing plans, seeking permits, and submitting applications.
 
The Act does not relieve the actual property owner of any liability or obligation with respect to the property, and the property owner may become responsible for debts incurred as a result of the conservatorship.

A brief summary of the changes to the Act:

Expansion to Vacant Lots and Adjacent Property: The amendment allows conservators to take over vacant lots, which is a boon to neighbors eying up a trash-filled lot for a community garden. Previously, it was uncertain whether the Act only applied to land containing buildings or other improvements. Adjacent properties may be now considered in a single petition if they are owned by the same owner and used for a single or interrelated function.

Definition of Abandoned Property and Standard for Assessment: The Act now provides a definition of “abandoned property”, which was curiously missing from the original text considering the Act’s title. This fills a much-needed hole for judges, who previously had to dig into the legislative history and other acts to provide a definition. The court must give “reasonable regard” to the conservator’s determinations when assessing the rehabilitation plan, including costs to develop the property.

Expansion of Potential Conservators: The definition of a “party in interest” is expanded. Neighboring residents or business owners, previously limited to a 500 foot radius, may now petition the court if they are located within 2,000 feet of the subject property (in Philadelphia terms, essentially a change from 1 block to 4 blocks). A non-profit may have participated in a prior rehabilitation project within a five mile radius of the subject property, rather than a one-mile radius. The old definition tended to limit prospective non-profit conservators to a handful of neighborhoods.

Swapping Lien Priority: Important for senior lien-holders: a senior lien-holder can lose its priority status if it declines to provide financing for the rehabilitation. New rehabilitation financing can get priority status over the senior lien if the court determines the change in priority is necessary to induce another lender to provide financing. Furthermore, distribution from the proceeds of a sale now go first to Commonwealth liens, unpaid property taxes, and properly recorded municipal liens. It appears other government liens, such as federal income tax liens, have been moved further down the list.
 
Shifting Burden of Proof: The burden to prove whether the property has been on the market in the past 12 months has been shifted to the owner, who must present “compelling evidence” that the property has been actively marketed. Previously, the burden was on the petitioner to prove a negative, i.e., that the property had not been marketed.

Petition Costs Recoverable: The owner must reimburse the petitioner for costs of preparing the petition whether the owner elects to repair, the owner sells the property to the conservator or the court approves the conservator’s petition. Previously, if the recalcitrant owner opted to repair the property, the petitioner had no mechanism to recoup its costs. The ultimate goal of the petition –a repaired property- ends up being realized, even if conservatorship does not end up with control of the property, which incentivizes more petitions and workouts.

Reduced Time to Sale: The conservator must control the property for three months before sale (without a successful petition from the owner to terminate the conservatorship), down from six months.
 
Miscellaneous Provisions:
• Bids for contracts are no longer required if the conservator is financing the development.
• If the owner opts to repair the property, a bond is required rather than left to the discretion of the court.
• The petition requires submission of title reports, and notice to certain municipal authorities, such as utility providers.
• A hearing is no longer required for abatement if the court approves the submitted plan.
• The developer’s fee has been expanded to include a conservator’s fee.

Property owners should consider curing any outstanding municipal code violations, including health, fire or occupancy, and completely secure any abandoned property in compliance with the Doors & Windows Ordinance. In addition, senior lien holders should review requests for rehabilitation financing carefully to retain lien priority.

Lastly, neighbors, business owners, and non-profit community development organizations should take note.  You might want to take a tour of the scofflaw buildings in the neighborhood.