Pied Piper Speaks:
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Pied Piper Speaks:
We are pleased to announce that we were allowed to enter into a contest hosted by FHA Mortgage Center. They are holding a contest for blogs about the real estate industry, and I decided to enter the Apartment Management blog, and see what damage we could do. It would be awesome if you could support us and vote for our blog. Thanks.
New article by Michael Trainotti
On March 26, 2008 the IRS lost a major case in the tax court dealing with family wealth transfers not being included in the decedent’s estate. As will be discussed below, the tax court found that there was a sufficient business non tax purpose in creating a LLC to manage family assets for the next generation and making lifetime gifts into trusts. This is a very important point in the successful outcome against the IRS.
Facts of Case. Decedent and her physician husband had a long history of having and encouraging a close knit family, having three daughters and regularly taking an annual family vacation which included family meetings considering business and investment matters and often involving accountants and attorneys as invitees. Dr. Mirowski had been developing an implantable defibrillator device and to pursue its development and funding, the family moved to the U.S. in 1968, and within 10 years Dr. Mirowski was successful in developing an implantable cardioverter defibrillator(ICD) thereafter achieving success with implantation in humans.
Mrs. Mirowski at all times was an astute and involved financial manager, as stated by the court, “a careful,
deliberate and thoughtful decision maker, especially with respect to financial matters.” She worked with an investment advisor at Goldman Sachs to handle a rapidly growing investment portfolio, eventually agreeing to the principle of diversification, and in early 2001 consolidated all investments with Goldman Sachs.
The concept of using an investment entity, here a limited liability company (LLC), as a vehicle for pooling of family assets first came up during a presentation to decedent by U.S. Trust.
The LLC documents were finalized following the August 14, 2001 meeting, and now, beginning at page 18 of the Tax Court’s opinion, the findings of fact chronicle the purposes of the LLC, the steps in formation and funding, the gifts by the initial sole member, the decedent, of 16% interests in the LLC to each of the daughter’s trusts, all leading up to the sudden September 10, 2001 deterioration of decedent’s health and her death the next day, the infamous 911 tragedy.
1. Joint management of the family’s assets by her daughters and eventually her grandchildren,
2. Maintenance of the bulk of the family’s assets in a single pool of assets in order to allow for investment opportunities that would not be available if Ms. Mirowski were to make a separate gift of a portion of her assets to each of her daughters or to each of her daughters’ trusts, and
3. Providing for each of her daughters and eventually each of her grandchildren on an equal basis.
Decedent retained outside MFV significant assets, totaling $7.5 million in overall value, of which over $3 million was in liquid form. The court found that there was no express or implied agreement that any LLC distributions would be made to allow decedent to pay gift tax on the gifts of MFV interests. Decedent had substantial liquid assets in her name, the LLC was mandated to make annual distributions of net cash flow, and decedent could have borrowed as needed to pay the gift tax due.
Then the court turned to the gifts by decedent of a 16% MFV interest to each of the three daughters’ trusts.First, no express retained income or enjoyment retention under 2036(a)(1) was found by the Tax Court. The IRS contended that since decedent was the managing member (General Manager) of MFV, her authority “included the authority to decide the timing and amounts of distributions from MFV.”
Not so, said the court, pointing to the operating agreement and State law limitations on such General Manager authority. As to the operating agreement, the provisions regarding annual mandated distributions, the required distributions of capital asset disposition proceeds (including in liquidation, etc.) were significant limitations on the General Manager’s authority, couple with general fiduciary duties.
The Santa Ana winds can bring about fires faster than any fire squad can contain them, so it is best be prepared to deal with them efficiently and to ensure none of your tenants is hurt. Here is some more precautions and what to do once a fire is in the apartment. It comes from phoenix.gov:
Tips for living safely in apartment buildings or mobile home communities:
- Make sure you have smoke alarms that work.
The Fire Code requires working smoke alarm(s) in every apartment unit/mobile home. Existing apartments/mobile homes require smoke alarms in the hallway outside sleeping areas. Newly constructed apartments/mobile homes now require them IN the sleep room, as well. Remember to check the batteries once a month, and replace the batteries once a year.
- The apartment/mobile home complex is required to have a fire extinguisher within 75-feet travel distance.
If extinguishers are not provided outside the apartments/mobile homes, then each apartment/mobile home is required to have one.
- The Fire Code states that no person shall use fixed or portable barbecues in or under any attached covered patios, balconies, covered walkways or roof overhangs.
When in use, barbecues should be located on ground level and be a minimum of 5-feet from buildings, structures, covered walkways or roof overhangs.
- Don’t park in front of fire hydrants and don’t park in fire lanes.
Respecting the fire restrictions may literally save your life. When friends visit, be sure to remind them to park only in appropriate parking areas.
- Never leave smoking materials burning. Never smoke in bed.
In 2001, the most common cause of apartment/mobile home fires was careless disposal of smoking materials.
- Have a fire escape plan. Practice it.
Know at least two ways to get out of your apartment/mobile home. Pick a family meeting place outside the apartment building/mobile home. Don’t use elevators (they may take you right into the fire.)
- Make sure there’s a number on your apartment/mobile home door.
If there isn’t, contact management.
- Keep a copy of your apartment/mobile home number and apartment building number, inside your apartment/mobile home, near the phone.
The information will then be handy for babysitters, and it will be there if you panic.
- Complex owners and managers need to be sure gated driveways are accessible to firefighters.
75-percent of multi-housing complexes and mobile home communities are now gated. Work with the fire department to make sure access and requirements are met.
- Don’t run extension cords under carpets or from unit-to-unit.
They can easily overheat. Extension cords are for temporary use only. They are not to be used as a substitute for permanent wiring.
- Get acquainted with the elderly folks in your building or community.
If there’s a fire, they may have extra difficulty getting out. You may be able to help them, or you can direct firefighters to the elderly person’s apartment/mobile home.
What to do if there’s a fire
- Get out of the apartment.
- Once out – STAY OUT! Do not go back in for ANY reason.
- Call 9-1-1 from a safe location.
- Give the dispatcher as much accurate information as you can.
- Use your fire escape plan. Go to the designated family meeting place.
- Try to let neighbors know to get out. Help elderly folks or families who have many children.
- Have someone meet the fire trucks when they arrive, if it can be done safely.
- Keep the fire lanes open.
- If you can’t get out, use a mobile phone to stay in touch with 9-1-1 dispatchers. Shine a flashlight or wave a sheet out the window to alert firefighters that you’re trapped.
- Stay calm.
The past couple years California has been rocked with many wild fires that caused tremendous damage, and the worst part is that it has claimed lives. Apartments, and dorms for college kids, can be one of the easiest places for a fire to catch victims. Here is some information from a website that can show the causes and how to prevent them
From Ontario Tenants:
Consider that some of the leading causes of apartment fires are:
- Cigarettes! Don’t smoke if you are in bed, or if you are likely to fall asleep on a couch.
- Candles! They are particularly dangerous around children, pets such as cats, if left on an uneven surface or near draperies and upholstered furniture.
- Cooking fires. Don’t leave your cooking unattended. If the contents of a pot or skillet are on fire, first try to smother it with a metal fitting lid.
- Baseboard heaters. Make sure that they are not close to furniture, draperies, or that other flamable items could fall to rest on them such as newspapers. Check the wall outlet to make sure it is not overheating when the heater is on.
- Lamps using quartz halogen bulbs. These bulbs produce pure intense light due to running hotter than normal incandescent lamps. Ensure that nothing touches the bulb when in operation. Make sure nothing is ever placed on the light and that draperies will not flow onto the lamp with a breeze, especially with upward facing lamps
A few quick safety tips:
- Pull electrical plugs out of the wall socket only by the plug and never by the cord !
- Make sure cords are in good condition, that they are not frayed or cracked.
- Cords should not have any furniture resting on them.
- If you need an extension cord for an air conditioner, use one meant exclusively for air conditioners and only one. Check to make sure that neither end of the extension cord and where it is plugs into the wall socket are not overheating when the air conditioner is in operation.
- If an outlet has loose-fitting plugs, contact the landlord/superintendent to have it replaced. Badly contacting outlets can overheat leading to fires.
- Have any broken wall plates replaced.
Never cut off the third (safety/ground connection) off of electrical cords. That third prong is to protect YOU if the outlets are properly grounded.
As you may already know, we have recently added Real Estate classifieds on our magazine. Most of the classifieds are multi-family housing units and investment properties. Most of them are in the Southern California region, but we also have many properties outside of California if you are looking for out of state investment opportunities that are more affordable.
Finally I got down to putting up the classifieds online, so that everybody has the ability to look at the properties in an easy-to-use format. So head along to our website and check out the potential investments that are out there. The coming years point to a low in the housing market, and no one sees it picking up steam for years, but that means it is great for those buying and looking for the long-term.
The next area we are looking at from Frommers.com is San Fernando Valley and Central Eastern, which is Zone 4 and 1.
The San Fernando Valley
The San Fernando Valley, known locally as “The Valley,” was nationally popularized in the 1980s by the notorious mall-loving “Valley Girl” stereotype. Sandwiched between the Santa Monica and the San Gabriel mountain ranges, most of The Valley is residential and commercial and off the beaten track for tourists. But some of its attractions are bound to draw you over the hill. Universal City, located west of Griffith Park between U.S. 101 and California 134, is home to Universal Studios Hollywood and the supersize shopping and entertainment complex CityWalk. About the only reason to go to Burbank, west of these other suburbs and north of Universal City, is to see one of your favorite TV shows being filmed at NBC or Warner Brothers Studios. There are also a few good restaurants and shops along Ventura Boulevard, in and around Studio City.
Glendale is a largely residential community north of Downtown between the Valley and Pasadena. Here you’ll find Forest Lawn, the city’s best cemetery for very retired movie stars.
Pasadena & Environs
Best known as the site of the Tournament of Roses Parade each New Year’s Day, Pasadena was spared from the tear-down epidemic that swept L.A., so it has a refreshing old-time feel. Once upon a time, Pasadena was every Angeleno’s best-kept secret: a quiet community whose slow and careful regentrification meant nonchain restaurants and boutique shopping without the crowds, in a revitalized downtown respectful of its old brick and stone commercial buildings. Although the area’s natural and architectural beauty still shines through — so much so that Pasadena remains Hollywood’s favorite backyard location for countless movies and TV shows — Old Town has become a pedestrian mall similar to Santa Monica’s Third Street Promenade, complete with huge crowds, midrange chain eateries, and standard-issue mall stores. It still gets our vote as a scenic alternative to the congestion of central L.A., but it has lost much of its small-town charm.
Pasadena is also home to the famous California Institute of Technology (CalTech), which boasts 22 Nobel Prize winners among its alumni. The CalTech-operated Jet Propulsion Laboratory was the birthplace of America’s space program, and CalTech scientists were the first to report earthquake activity worldwide in the 1930s.
The residential neighborhoods in Pasadena and its adjacent communities — Arcadia, La Cañada–Flintridge, San Marino, and South Pasadena — are renowned for well-preserved historic homes, from humble bungalows to lavish mansions. These areas feature public gardens, historic neighborhoods, house museums, and quiet bed-and-breakfast inns.
We want to let you know that we are accepting submissions for the “Your Story” promotion, where you tell about your apartment management stories, until June 31, and then we will decide the winner in our July issue.
From now until June 31 we are accepting stories no longer than 1,500 words, and we would also like a picture to put with the story.
So if you would like an extra $100 dollars, then send in the best stories you have about the apartment industry to us. We are excited to hear what you have to say.
Stephen B. Fainsbert, Esq.
The case of Kelly McClain v. Octagon Plaza, LLC (“McClain vs. Octagon”) decided by a California Appellate Court on January 31, 2008, involves a dispute over the total square feet in a shopping center (“Shopping Center”) and the specific square feet in the property leased in the shopping center (“Leased Space”) by McClain (“Tenant”) from Octagon (“Landlord”). The lease was on the American Industrial Real Estate Association “Standard Industrial/Commercial Multi-Tenant Lease – Net” (“Lease”) form. The Lease provided that the square footage of the Leased Space was “approximately 2,624 square feet”. The Lease went on to say that “Unless otherwise provided herein, any statement of size set forth in this Lease, or that may have been used in calculating Rent, is an approximation which the Parties agree is reasonable and any payments based thereon are not subject to revision whether or not the actual size is more or less.”
The amount of square feet was important since the Lease provided that: (1) the common area expenses (“Common Area Expenses”) paid by the Tenant were to be calculated as a percentage of the square feet in the Tenant’s property in relation to the total square feet in the Shopping Center, which percentage was stated to be 23%, and; (2) the rent was calculated on the basis of $1.45 per square foot per month.
A dispute arose concerning the calculation both of the Tenant’s Leased Space and the total space in the Shopping Center, which ended up in litigation. It turns out that in January 2003 when Tenant investigated leasing in the Shopping Center, Octagon informed her that the Leased Space she was interested in renting was exactly 2,624 square feet. Perhaps not quite trusting Octagon, Tenant attempted to confirm the size of the Leased Space. The principal owners of Octagon, Ted and Wanda Charanian, acted like they were offended by Tenant’s inquiries concerning the total square feet in the Leased Space and contended that measuring of the area would be unreasonably costly due to the unusual angles in the Leased Space. The Charanians insisted that they had “intimate knowledge of every detail of the shopping center,” and that McClain should rely on their representations regarding the size of the Leased Space and the Shopping Center. SOUND FAMILIAR? — LIKE THAT OLD NEGOTIATING TACTIC: “YOU CAN TRUST ME.”
Needless to say, Landlord defended the legal action brought by Tenant on the basis that the Lease stated that the square footage of the Leased Space and the Shopping Center was an agreed-to, fixed number. Among many different claims Tenant made in the lawsuit was “fraud in the inducement” by Landlord. Fraud in the inducement is when a misrepresentation is made, followed by a contract (in this case, a lease) in which “the promisor knows what he or she is signing but the consent is induced by fraud.”
As the dispute became more intense, Tenant obtained a copy of Landlord’s application for earthquake insurance, which interestingly disclosed that the correct size of the Shopping Center actually was 12,800 square feet, rather than 11,835 square feet, as represented by Landlord in the Lease. Further investigation showed that Leased Space was 2,438 square feet, rather than the 2,624 square feet, as represented; therefore resulting in the fact that Tenant should have been allocated 19% of the common area expenses as opposed to 23% and should have been paying $3,535.10 per month rather than $3,804.00. These errors in the calculation of both the Leased Space and in the Shopping Center Space would have obligated Tenant to pay more than $90,000.00 over the term of the Lease.
It should be noted that the Appellate Court received this case after the Trial Court dismissed the lawsuit because of the language in the Lease stating that the calculations of square feet set forth in the Lease were accepted as a given, whether accurate or not. The issue raised in this case on appeal is whether you can get away with exculpatory language or disclaimers in a lease, or in any agreement, including a real estate purchase and sale agreement, if the representations are inaccurate. Of course, it did not help that the Charanians became indignant when the accuracy of their representations of the amount of space in the Leased Space was questioned. The Appellate Court determined that exculpatory language or disclaimers in the Lease did not insulate Landlord from liability for fraud or prevent Tenant from demonstrating justified reliance based on representations of Landlord. What the Appellate Court did in this case was to send this case back to the Trial Court for a judge or jury to make a factual determination if there was fraud in the inducement and to enter a Judgment for the Tenant if there was a finding of fraud in the inducement notwithstanding the exculpatory language and disclaimers in the Lease.
This case is most instructive in giving examples of other instances where prior courts have held that you cannot understate something or say something is approximate or “As Is” and thereby insulate yourself from liability. There must be reasonable belief in the estimates or statements made. In another case cited by the Appellate Court, it was asserted by tenant that, when he leased space in the commercial center, landlord’s agent told him that other units in the shopping center would be “occupied by businesses likely to attract heavy ‘foot traffic’”. That lease also provided landlord the exclusive right to select tenants. The Appellate Court in that case said that if tenant could provide that he reasonably relied on the statements of landlord’s agent and could prove that the landlord did not attempt to obtain the type of tenants who would induce heavy foot traffic, then tenant could prevail in his lawsuit and collect damages from landlord.
In essence this comes down to making “a positive assertion of fact” which allows the basis for suing for fraud in the inducement. In this particular case, as stated above, Tenant claimed the Charanians “exaggerated the size of her unit by 186 feet, or 7.6% of its actual size, and increased her share of the common expenses by 4%, through a calculation that understated the size of the Shopping Center by 965 square feet, or 8.1% of its actual size.” While these discrepancies do not seem large, they still involve a $90,000.00 increase over the 5 years of the Lease term – not exactly pocket change!
What does this case tell us? It sends out a message that you cannot be ‘cute’. You cannot give limited disclosure or make limited statements and then expect to be insulated from any claim. Such a claim could be in a house sale, for example, where sellers say that they think there may be some construction in which no permits were obtained, but that, nonetheless, the construction complied with building code requirements. In this situation, if the sellers had clear knowledge that no permits were obtained and/or never investigated thoroughly to find out whether there was, in fact, compliance with the building codes, the sellers would be liable. You cannot make a limited or general statement and hope that you get away with stating something like the property is sold “As Is” and, expect to not be liable.
The “As Is” clause has always been both questionable and difficult issue. Currently the law is that, if you say “As Is,” you have to make that statement holding reasonable belief, having investigated whether or not it is true. This is why “As Is “ provisions drafted by sophisticated attorneys are often very detailed and will contain language that states the property is sold “As Is” without a duty of inquiry and will include other limiting, carefully drafted language.
Stephen B. Fainsbert is a partner in the West Los Angeles law firm of Fainsbert Mase & Snyder, LLP. Mr. Fainsbert has practiced law in the real estate and real estate exchange area for over forty years and has extensively written and lectured on these subjects both for the real estate industry and for attorneys through the California Continuing Education of the Bar program. Mr. Fainsbert is co-author of Real Property Exchanges, Second Edition, Continuing Education of the Bar, June 1994, which was published by the University of California Press and is recognized as the leading book on this subject. Mr. Fainsbert has been designated one of Southern California’s “Real Estate Super Lawyers” in both Los Angeles Magazine and Southern California Super Lawyers magazine every year since 2004. If you have any questions concerning this article or any other related matter, Mr. Fainsbert may be contacted at (310) 473-6400, by fax at (310) 473-8702
Here is the third part of our introducing the area of Los Angeles, and now we are moving in the heart and downtown area of Los Angeles. The most noticeable name is Hollywood, and from this city produces the movies that have defined America as a nation and produced celebrities that we all know and love. And around we see the rough cities of LA that have had many a violent past. These cities are throughout our first 3 zone areas, which include central eastern, southern and western.
Yes, they still come to the mecca of the film industry — young hopefuls with stars in their eyes gravitate to this historic heart of L.A.’s movie production like moths fluttering to the glare of neon lights. But today’s Hollywood is more illusion than industry. Many of the neighborhood’s former movie studios have moved to more spacious venues in Burbank, the Westside, and other parts of the city.
Despite the downturn, visitors continue to flock to Hollywood’s landmark attractions, such as the star-studded Walk of Fame and Grauman’s Chinese Theatre. And now that the city’s $1-billion, 30-year revitalization project is in full swing, Hollywood Boulevard is, for the first time in decades, showing signs of rising out of a seedy slump, with refurbished movie houses and stylish restaurants and clubs making a fierce comeback. The centerpiece Hollywood & Highland complex anchors the neighborhood, with shopping, entertainment, and a luxury hotel built around the beautiful Kodak Theatre designed specifically to host the Academy Awards (really, you’ll want to poke your head into this gorgeous theater).
Melrose Avenue, scruffy but fun, is the city’s funkiest shopping district, catering to often-raucous youth with secondhand and avant-garde clothing shops. There are also several good restaurants in between.
The stretch of Wilshire Boulevard running through the southern part of Hollywood is known as the Mid-Wilshire district, or the Miracle Mile. It’s lined with tall, contemporary apartment houses and office buildings. The section just east of Fairfax Avenue, known as Museum Row, is home to almost a dozen museums, including the Los Angeles County Museum of Art, the La Brea Tar Pits, and that shrine to L.A. car culture, the Petersen Automotive Museum.
Griffith Park, up Western Avenue in the northernmost part of Hollywood, is one of the country’s largest urban parks, home to the Los Angeles Zoo, the famous Griffith Observatory, and the outdoor Greek Theater.
Despite the relatively recent construction of numerous cultural centers (such as the Walt Disney Concert Hall and Cathedral of Our Lady of the Angels) and a handful of trendy restaurants, L.A.’s Downtown isn’t the tourist hub that it would be in most cities. When it comes to entertaining visitors, the Westside, Hollywood, and beach communities are all far more popular.
Easily recognized by the tight cluster of high-rise offices — skyscrapers bolstered by earthquake-proof technology — the business center of the city is eerily vacant on weekends and evenings, but the outlying residential communities, such as Koreatown, Little Tokyo, Chinatown, and Los Feliz, are enticingly ethnic and vibrant. If you want a tan, head to Santa Monica, but if you want a refreshing dose of non-90210 culture, come here.
El Pueblo de Los Angeles Historic District, a 44-acre ode to the city’s early years, is worth a visit. Chinatown is small and touristy, but can be plenty of fun for souvenir hunting or traditional dim sum. Little Tokyo, on the other hand, is a genuine gathering place for the Southland’s Japanese population, with a wide array of shops and restaurants with an authentic flair.
Silver Lake, a residential neighborhood just north of Downtown and adjacent to Los Feliz (home to the Los Angeles Zoo and Griffith Park), just to the west, has arty areas with unique cafes, theaters, graffiti, and art galleries — all in equally plentiful proportions. The local music scene has been burgeoning of late.
Exposition Park, south and west of Downtown, is home to the Los Angeles Memorial Coliseum and the L.A. Sports Arena, as well as the Natural History Museum, the African-American Museum, and the California Science Center. The University of Southern California (USC) is next door.
East and South Central L.A., just east and south of Downtown, are home to the city’s large barrios. This is where the 1992 L.A. riots were centered. It was here, at Florence and Normandie avenues, that a news station’s reporter, hovering above in a helicopter, videotaped Reginald Denny being pulled from the cab of his truck and beaten. These neighborhoods are, without question, quite unique, though they contain few tourist sites (the Watts Towers being a notable exception). This can be a rough part of town, so avoid looking like a tourist if you decide to visit, particularly at night.