February 2021 Phoenix Market Update – How to Buy

The Phoenix valley is one of the hottest real estate markets in the country. Two of our cities are in the top 10 for fastest appreciation!

From being in the trenches, I can tell you that helping a buyer get into a home is hard. Really hard. The competition is strong. And regular home buyers have to compete with large, well funded entities making cash offers well above the list price.

So what are some things that you might be able to do, to mitigate these issues? Talk to your real estate agent! If you don’t have one, (shameless plug) you can call me! www.PatrickHarvey.com

So let’s think about a sale from the Seller’s point of view. They want as much money as they can get, they want the buyer to close on time, and they want to feel like the buyer is well-qualified.

In the past I have bought houses for rentals or for flips, in my own portfolio, and when no one else could get sellers to move at a decent price, I occasionally made the earnest money the full price of the house. What my offer looked like (an example) was: No inspection, no appraisal, offer is $200,000 and the earnest money is $200,000 and we will close as soon as 5 days from acceptance or you can stay for a couple weeks after closing.

An offer like that is really hard for the seller to decline! Because the money is in escrow, they know they won’t get beaten up with repair requests, and there won’t be any appraisal. It is as close to a guaranteed deal as you can get. That’s a really, really strong offer.

Now let’s talk about a weak offer: The earnest money is $500, the offer price is 15% below the asking price, the buyer is also asking the seller to pay 3% in closing costs and for the seller to pay for the appraisal. And closing is in 60 days. The lender is out of state and is someone your agent never heard of. That’s a pretty weak offer – but I have closed a few of those (for clients) as well, but not in market conditions like this.

So what’s a good middle ground? If you are using financing for your purchase, you can offer a higher price, but the appraisal contingency will likely hit – The appraised price is likely to be less than what you offered. So either the seller has to reduce the price, or you have to come up with extra cash to close.

Another piece is that in a financed offer, the down payment (different from the earnest money) can be from 0 (in a VA loan) to 50% or more. (A recent client did a re-fi last month and actually added cash to get the loan below the conventional limit, and ended up with what would be a 70% down payment to get the payment as low as possible)

What a seller wants to see is at least 20% down – it shows the buyer is in a strong position. 10% will work, but each time the amount goes down, the offer is weaker, except for VA buyers who are a little different category.

Again, the earnest money should be substantial. When it is $1,000 for a $300,000 purchase, this is a sign of a weak offer. The earnest should, at a minimum, be 1% of the purchase price. More is better.

Don’t be surprised, if, after your offer is accepted, the property is placed in UCB status – Under Contract, Backup offers sought. This means that the seller is hedging their bets, if for some reason the buyer backs out during the inspection period, then they have a backup offer ready to go.

When my wife and I bought the home we live in now, we had made a slightly low offer, and it was accepted. During the inspection period, the seller refused to fix anything – they wanted us to cancel, because they had a substantially higher backup offer! We took the property as-is.

So be aware that this might happen during the inspection period – be ready to have the seller refuse any substantial repairs. It is just the nature of the market today.

Finally make sure you are using a really competent lender. Many sellers are adding an addendum to the contract which makes the earnest money non-refundable in most cases and eliminates some protections for buyers. The way the Arizona purchase contract is written, a buyer can fail to qualify with the lender on the day of closing and get their earnest money returned. The seller may have kept the house off the market for more than a month and incurred costs – and will not be compensated for those costs.

I have a group of lenders I have used, all of whom are quite good, and provide outstanding customer service. Let me know if you need a referral. And of course (another shameless plug), I’d love to be your selling agent or buyer’s agent.

  • Patrick Harvey
  • West USA Realty
  • 480 390 7369

Saying Goodbye to Big Tech

If you are like me, then you are a little unhappy with the likes of facebook, google, twitter, and other Big Tech companies. Google, in particular, for me.

I don’t much care for google because they manipulate search results and give you free stuff with strings attached, but don’t say much about the attached strings.

Getting away from Twitter is hard, if you use it at all – because there is no alternative, at the moment. They got Parler shut down – mostly Amazon did that, and I don’t see any real alternative. So I just quit using it. I tweet out ads, but don’t pay them.

Facebook is another story. If you aren’t sharing pictures of cats, then it’s arguing about politics. Not my kind of place, anymore. And there are a couple alternatives to it, MeWe, and Gab come to mind. But there is nothing wrong with using facebook – I just won’t spend any ad dollars there. I won’t support it. If I see something advertised there, I won’t buy it. Pretty easy stuff. One person alone won’t make a difference, but just like with GME (read about GameStop if you haven’t already), a bunch of ordinary folks working together can make a difference.

So let’s talk about google. From biased search results to invasive spying – if you are getting something for free from there, then you are the product. It didn’t bother me too much until I started noticing what was happening with the Gmail app on my phone. If I clicked a link in an email, the first thing that happened is that Chrome (a google product) opened and sent the URL to google server. THEN Chrome redirected to the link I clicked on.

So Gmail looks at your email and tracks every link in every message, and reports back to google if you click the link. Scary. Not their business. But Gmail is free, right? So you are the product. So rather than the Gmail app, I use something called FairEmail (on my android phone). And I like it MUCH better than Gmail or the built-in mail apps.

Now, the Chrome browser is another story. I don’t know what it tracks, but I am sure that if a little email app tracks everything, that their browser probably tracks even more. So I quit using it. There are many alternatives, but I landed on Brave, and so far, it works just as well as, maybe better than chrome.

And I do still have a Gmail email, but I am moving away from that, as well. After some research, I found protonmail, which was created by some smart guys from CERN, and it is based in Switzerland. An account such that you have <name>@protonmail.com is free, but I support them with a paid subscription and use <name>@<mywebsite.com>

There is so much stuff that we have come to rely on, because google gave it to us for free (sort of) and promised to “don’t be evil”. But I think google IS evil, and I will avoid them as much as I can. The hardest thing to leave is the search engine. Of course, I don’t support it by buying ads, and I won’t click on ad based results – only organic results. But also I now use DuckDuckGo, which is a privacy based search engine, and while it is not as feature laden as google, it works quite well. I find that I only look for something on google maybe once a week now.

There are other options, I used Quant for awhile, but it is not yet feature rich enough for my use. But I really like the Brave browser, the FairEmail app on my phone, and protonmail. And I might still be posting pictures of cats on Facebook, but if you want an actual discussion about anything serious, you can find me on Gab.

This post is entirely my opinion.

–PLH

Do You or Your Clients own Residential Rentals?

Many of us either own rentals, or have clients with rentals. With the onslaught of new rules and regulations coming from the COVID pandemic, property management has become more challenging. But there are some great ways to mitigate the potential damage.

The biggest issue we face, as landlords, is that tenants stop paying rent, and we can’t evict them for non-payment. We still have bills to pay, mortgages to service, repairs to pay for – but if our tenants can’t or won’t pay, is there anything we can do?

There might not be much, if you don’t have a lease, or if your lease is one of the one or two page leases promulgated by the various realtor associations. These leases, like the residential purchase contract, are heavily weighted first and above all else, to protect the brokers. The second main purpose is to protect the buyer or tenant – and lastly, the seller or owner. So you want to make sure you have a strong lease. Have someone who has been in the business for a while help you with it – I strongly suggest you talk to the best evictions attorney in your area and have them help you. Even if you are an attorney yourself! Work with someone in the trenches.

So what sorts of things should go in the lease? Over the years I have managed my own rentals, here are a few things:

  • Violation of the lease if they change the locks without written permission.
  • Violation to have a car not registered to a tenant if it is there for more than a week.
  • Violation to store anything in the yard. Such as tires, car parts, damaged furniture, trash.
  • Violation to operate a business of any kind out of the home, that requires in person visits from customers.
  • Violation of the lease if they do not maintain renter’s insurance.
  • Violation if they install a trampoline in the yard.
  • Violation if they do not keep the pool gate locked when the pool is not in use.
  • Violation if they let trash or debris accumulate.
  • Violation to keep inoperable vehicles on the premises
  • Violation to store inoperable vehicle in the garage. (redundant but…)

There are many other things you can list. You should also be sure to include a crime free lease addendum so that you can evict them for smoking illicit or formerly illicit substances. When I first started, I had a lease that was 3-4 pages long. Today, it is more than 10, mostly listing tenant responsibilities. But what about non-payment?

You can evict for non-payment, but the court is likely to stay the case until the moratorium is lifted. The incoming president is planning to extend it through September! But I think you can still simply end the lease, with notice, at the end of the lease term. For sure you can evict for cause.

When it comes time to get a new tenant, consider renting to a section 8 voucher holder. This is what I have done, and today all but one of my tenants is a section 8 tenant. This is wonderful, because the government pays the rent. Sometimes the tenant is responsible for a small amount, but they pay it promptly because they do not want to lose their voucher! In any case, even if they don’t, you might be getting $1500 from the State and $100 from the tenant – but I’d rather lose out on $100 a month instead of $1600 a month!

I had heard many horror stories about section 8 tenants before I decided to rent to them. I was working with a company, as their listing agent, to sell their portfolio. I had suggested renting them to Section 8, but they refused, saying it was too problematic. At the same time, I met another gentleman, who owned a hundred rentals in Phoenix (and had been friends with John F Long, who developed Maryvale. All 100 of his homes were rented to people with housing assistance, mostly section 8. And he and I talked about it at length, and those discussions are why most of my properties are section 8 now.

It has been a great experience, my tenants are happy, they take excellent care of the homes, and… I get paid on time every month, every time.

A Cool Season for Ice

When you head out to a restaurant or bar, one of the things that is wonderful is the ice. I love the little square, perfectly clear ice cubes (well not really ‘cubes’) that come in a glass. Some places have more round ones, but I am a fan of the little flat square ones.

And if you are old enough, you remember how ice worked at home – with metal trays.

Today, most refrigerators make ice for you – and even use filtered water. We are all familiar with the crescent shaped ice that comes out of these in-freezer ice makers, right?

Not a pretty sight. So what’s the deal? Is it that hard to get decent ice? The old metal (and newer plastic) trays make nicer looking ice that those awful crescent shaped things!

I’m not sure why the ice in the trays tends to look nicer than ice from the ice maker, even with a filter. But both of those options entrain air into the ice. In the automatic ice maker in the freezer, the water sprays in after going through the valve at the bottom of the fridge, and sometimes the water in the pipe to the ice maker has been sitting there for a LONG time.

So how do the bar ice machines work? The same basic machine has been made for decades, and most of the parts of the various brands are interchangeable.

They have a compressor just like a fridge, but it is used to get a flat, inclined plate very cold, and then there is a circulation pump that runs water over the plate. The water is always moving, and a layer of ice builds up on the plate. After the ice is thick enough (and there is a control for this, totally based on how long it flows the water over the plate), the compressor becomes a heat pump and slowly warms the plate so the ice will slide off.

The ice slab slides off the plate and lands on a mesh of wires, which heat up and cut the ice into the little squares. Then they fall into the bin.

The bin is not cooled, the mass of ice is what keeps it cool. And the ice is continuously melting, so these sorts of ice machines have to have a drain. They are relatively expensive to operate, since they make ice almost continuously. There is a sensor in the bin, (near the top right, usually) that will shut off the cycle when the bin gets full.

But the ice is always fresh, since it is continuously (but slowly) melting, and the cubes are beautiful and clear because they are made from running water. Even if you are not using filtered water – the cubes will look perfect.

These machines do require maintenance, in 15 years I have replaced the compressor once (in warranty), rebuilt the control board twice, replaced the circulation pump 3 times. They are expensive to maintain, but the parts are easily available on Amazon or eBay, and repair instructions are easy to find. No repair I have ever done took more than 20-30 minutes (I let a professional replace the compressor).

I use a reverse osmosis water system for our drinking water, and I have the ice maker plumbed into that water – Yes, we are Ice Snobs!

Now you have just a little more knowledge about ice cubes…

Flood Irrigated Lots

In the Phoenix valley, it used to be more common for residential lots to receive untreated irrigation water. These days, what is more common is that potable, treated water is used for lawns and trees. I was aware of irrigated lots, but didn’t know much about them – until now.

Early this summer, we bought another investment property, this one in Glendale. It was a wholesale deal, where the time from when it became available to when we had it under contract was less than 4 hours. And there are no refunds, no inspections, you like it, you buy it. We bought it. I did drive by and do a brief inspection before committing, and I knew in general what we were buying, but I was very pleasantly surprised to find that it was a home on a flood irrigated lot.

The irrigation systems are managed by SRP, and there are a host of independent irrigation companies who handle the details. In Glendale, the city manages delivery of water, so it is a hands-off process, for the most part. There are various gates and valves that need to be positioned correctly to receive and get maximum benefit of the irrigation water, and many folks just hire one of the irrigation companies to do this; but Glendale hires someone for us, and that makes it easy.

What happens? In the summer, generally April-October, your lot gets flooded an inch or so deep, twice a month. If you are with SRP and not sub-managed by glendale, you can also get water once a month or so, in the winter. They shut the system down for a month or two also, for maintenance, in the winter.

Flood irrigation is inexpensive! and it is why we can have a quarter acre of grass and trees, without paying thousands in water bills each year.

When we bought the house, the previous owner had not been using irrigation for some time, and all the grass looked dead. After the very first irrigation, magic happened:

Of course, along with the nice grass comes mowing and edging. But even with the front and back yards, it takes maybe an hour or two, once a week. Worth it to have such a nice back yard!

Flood irrigation is a relic of the valley’s past, and one I hope continues for a long time. These lots are highly sought after, and if you own one, you probably spend way more time in your back yard than most people! — And you won’t want to sell it.

==PLH

Rentals and Evictions in the Pandemic Era

When our nation got shut down, lots of folks lost their jobs. And as a result, many were unable to pay their rent. A number of my friends and associates are landlords or property managers, and they were all lamenting the situation. Some states, like Arizona, were hit harder, because the governor ordered a moratorium on evictions. Later, the CDC added their own. Evictions became more interesting, shall we say, but still possible. This is a tale of one of my recent experiences in that area.

Most of my rentals are rented to tenants who need housing assistance. I did this on purpose, after watching other friends have payment issues with their rentals. When you decide to lease your home to a Section 8 qualified tenant, the State pays most, if not all, of their rent. And if they are paying a portion of their rent, and then they lose their job, the State will usually step up and pay all of it.

Because of the standards used by the various agencies, a rental to a typical tenant who is not taking advantage of a Section 8 program will often be for a higher monthly rent than housing assistance can authorize. So landlords do take a hit on the rental income, but in my experience it isn’t much. And I personally prefer to rent to Section 8 qualified tenants, because they need the help, and I think it is a good thing to do.

But this tale is about a tenant who was not using housing assistance, and how they took advantage of the landlord.

Typically, rentals end in a few ways. The tenant can give notice to terminate at the end of the lease period, or the landlord can give notice. Or, you might drive by your property one day and find that the power is off, the doors are open, and all the furniture is out on the lawn. This is called abandonment, and we will talk about it a bit more a little later. Other ways the lease can end involve the tenant not making payments, or by them violating the lease terms. Usually in these last two cases, the tenant really wants to stay, and they will pull out the stops to avoid eviction.

This particular tenant had been a decent one for many years, but recently due to some familial circumstances, the responsible party in the household changed. When it did, the rent started being late, when it had previously never been late. On the second occasion that it was late (or was it the 3rd?) I stopped by to see what was up, as I generally have good relations with my tenants.

And this time, I noted a few things: There was a car in the garage which was not operable, and actually had no engine (not allowed in the lease). And there was a car in the driveway, which seemed to never move. And there were holes in the walls from fists or slamming doors, the bedroom closet doors were missing, and the bedroom doors had holes in them.

On top of this, the house situation could best be described as squalor, and there were young children in the home. I saw roaches and other insects, and the tenant complained about scorpions. There was no free counter space, there were heaps of dirty dishes and random items everywhere. So it became clear that they were destroying the property, and an eviction was likely.

Per the ALTA, I prepared a 10 day notice citing some, but not all, of the issues that were visible, and sent the notice via certified mail. I timed it so that my 10 day inspection would occur on or just before the last day of the month, so that I could provide a month’s termination notice if they had actually fixed everything. But of course, at the 10 day inspection, they had not fixed much. Still the car in the garage, still the holes in the drywall (although they had covered some with large round disks made to keep doorknobs from denting the wall; I wonder what happened to all the spring door stops I had on every door?) And of course, the squalor was worse. I was tempted to call child protective services, but I figured the eviction would result in a better (or at least temporarily cleaner) place for them.

When we got the court date for the hearing, it was done virtually by phone, and of course the tenants claimed they had made all the changes I required in the 10 day notice. So the judge scheduled a trial a few days later, and I immediately drove to the property to take more photos to show what shape the property was in, at least from the outside. It was easy to see many things that were not corrected — still.

And of course at the trial, the tenant insisted that everything was fixed, even while looking at the photos of the same specific complaints that were not addressed, even after the hearing. The trial was also virtual, and everyone appeared by phone.

And of course, the judge ruled in my favor. The interesting part of the hearing and trial, for me, was listening to the other cases, and how the judge handled them. Because of the Governor’s order, and the more recent CDC order about the pandemic and evictions, the judge worked hard to make sure the tenants knew their rights and had the opportunity to exercise them. This is a problem for landlords, and I hope the behavior is limited to few judges. It is a little like getting a speeding ticket, going to court, and then the judge tells you that if you bring a get out of jail free card with you when you come back, she will let you off. Yep, that really happened. I know which judge to vote against now!

So once the eviction is ordered, the judge gives the landlord a writ of restitution. But because tenants have appeal rights, the writ does not actually issue until 5 days later, at which point you can hire the constable to forcibly remove the tenant from the property. This whole process is lengthy.

Let me lay it out for you: Day 1, send the 10 day lease violation notice via certified mail. Day 6, the 10 day clock starts (5 days for certified mail to be deemed service.) Day 17, conduct the inspection to see if the items have been corrected. Day 17 file papers with the court for the eviction. Day 20 (it varies depending on the court schedule), eviction hearing. If they no-show or plead guilty, you can get the writ then. If they plead not guilty, then a trial is scheduled. Day 22, trial (might be sooner or later depending on the court schedule and when tenants say they can appear). Day 28, writ issues. Day 29, you can hire the constable. Day 30-31, the constable schedules the eviction. Day 32+, the constable performs the eviction and control of the property is returned to the landlord.

When the constable shows up at the door, the tenants will have excuses – and one of them might be the CDC rule about evictions during the pandemic. However, all the eviction rules related to the pandemic involve non payment of rent, and not lease violations. So when the tenant tries to plead against eviction with a pandemic related argument, if they were evicted for breaking the lease, they will still have to go. The moral of this story is to make sure you have strong wording in your lease so you can support a lease violation if it becomes necessary.

If you think the tenant has abandoned the property, it is faster – if the landlord can reasonably say the property has been empty for a week, then they can post a 5 day abandonment notice on the door, and if no one calls you and it is still empty 5 days later, the landlord can change the locks.

So you have them out, and you are all set right? No … Pursuant to ARS 33-1370, you get to inventory and store their property. I recommend taking thorough videos in addition to making a list of the major items left in each room. Then you send the inventory along with where the property is stored, and the moving (if you moved it) and storage costs (pro-rated rent is what I charge, so for a 900 a month rental it is $30 a day storage.) You get to keep their stuff for 14 days before you can dispose of it, which means selling it and offsetting what they owe with what you get from the sale. Also, if the tenant informs the landlord in writing before the 14 days are up, that they want to get their property and are willing to pay the storage fees, then the landlord needs to give them access to get the property. So in the worst case we are at an additional 14 days so Day 45, more or less.

One landlord friend had a car left in their driveway which was not registered to anyone in the rental, and when performing a title search noticed that there was a lien on the car, and the lien holder repossessed the car. This absolves the landlord for any responsibility for the car.

The tenant has to notify the landlord in writing, of their intent to retrieve their property. Without this notice, the landlord is not obligated to do anything; but most of them will want the tenant to haul off as much of their property as possible!


Please note, I am a landlord, not a lawyer, and so this is not legal advice. If you are contemplating an eviction or writing a lease, I STRONGLY urge you to use the services of an attorney who is in the trenches and deals with this sort of thing every day.

–PLH

Alacrity

Alacrity: That’s a policy choice in ending insubstantial quarters’ availability for homeless persons seeking shelter. Sadly, the advance of the novel coronavirus may force the hand of leaders in some urban areas, should chronic unemployment swell the ranks of persons lacking shelter.

For almost 20 years, I’ve been a Habitat for Humanity volunteer, although the intensity of my involvement waxes and wanes with my arthritic state. I love the fellowship of folks together trying to help a small family gain greater independence and security. I’ve had the honor of working on about 12-15 Habitat builds in central Arizona, as well as another 3-4 in Puerto Peñasco in Sonora, Mexico through Amor Ministries. I recite this only to point out that I’m familiar with charitable building of shelter for the under-housed. But neither of these organizations, nor any analogous organizations around North America, nor all of them combined, can under their present delivery models make a serious dent in the rising population of homeless persons. Why? In the case of Habitat, because the typical build lasts between 13 and 18 weeks to complete, a wide swing of time to account for different housing product and uncontrollable weather conditions. There’s joy in proceeding slowly, using volunteers that can work (ordinarily) only on weekends, doing redemptive, deliberate work to complete a solid if slightly imperfect finished residence and lot. And it’s too slow, when you consider that a finished Habitat residence accommodates typically no more than six people.

If Habitat doubled, or heck, quintupled its output, it would still be too slow to resolve the sheltering of individuals who, unaided, cannot make housing choices. The need for affordable housing is too great and currently seems destined to grow. America needs to act as if this were the aftermath of a massive natural disaster. This housing should be built at the rate of 50 thousand units annually. How is that going to happen? Well, it won’t, if local leadership doesn’t adopt two mindsets. First is that the problem of homelessness must be addressed in her or his lifetime, not later. Second, the concession must be made that template construction is going to result in producing indestructible, dependable shelters – not elegant housing. Decent housing – not fancy accommodations, produced under a few design templates. Will that, you wonder, mark that housing as made “for those people?” It may indeed – and if it’s sturdy and enduring, that’s the tradeoff – addressing the shelter problem, not anyone’s aesthetic preferences.

The raw materials to allow this sort of acceleration in production exist now. They’re cargo storage containers, cutting and welding torches, and insulating materials. There are thousands of cargo storage containers sitting in port cities ready for acquisition across the country. These containers come in very few configurations – they’re 20 or 40 feet long, and a bit taller (9.5’) for the refrigerated Conex boxes than the unrefrigerated sort. A 40-footer yields essentially 300 square feet of livable space, since nearly all Conex boxes are 8 feet wide – a respectable “tiny house” interior footage. There’s been a lot of writing on their conversion into housing opportunities. Here’s a recent blog post from April, 2020, from Curbed: https://www.curbed.com/2020/4/10/21165288/shipping-container-house-build-cost.

Template designs for single Conex boxes and combinations of welded boxes readily can be produced, because there are so few alternative sizes. It’s practically steel Lincoln Logs – type draftsmanship. (Sounds dismissive from someone not expert in drafting, but that doesn’t change my point, one reinforced by a number of Websites where designers are displaying their model homes built from Conex boxes. If you can design a tiny house, you’ve got this challenge in hand.) Templates could be created that retain a few “selections” for the prospective owner for windows, door styles and exterior colors. These types of dwelling units are now permitted by law in nearly every state. Part of the transition to their acceptability is the result of the tiny home trend.

The next step after seizing on acceptable template designs satisfying existing building codes is to allow for greater density. Even “protective” Oregon is considering allowing four small homes on lots currently zoned for single-family homes in its cities having a population of 10,000 or greater. Further, projects made from Conex boxes should be permitted with limited required parking to eliminate more than one required parking stall per dwelling unit plus a few guest stalls.

Cities with surplus residential lots should surrender them to builders under Development Agreements enabling tracts to be re-subdivided for lot configurations yielding humane if not upmarket density. Dwellers can plant vegetation in community gardens or containers on their individual tract and are free to decorate away inside these unit’s interiors. This is not mean-spirted parsimony. This is solving a problem. And by the way: What message is delivered by the NGO community telling a housing prospect there is a wait of many months, if not years, for their dwelling to be readied? Is it less shabby treatment advising someone to wait their turn, when sturdy housing can be modularly designed and configured, permitted and erected on slabs, in weeks instead of months or longer?

Ganja Sense His Nekkid Self-Promotion?

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Force the (Legal) Issue, Before Courts Are Overpowered

For folks who cannot get enough of the argument that force majeure has excused anyone from performing an unpleasant or difficult contract obligation, you’ll want to watch Pacific Collective LLC v. Exxon Mobil, filed in Los Angeles County Superior Court, in Case No. 20-STCV-13294.

In that litigation, the Plaintiff California retail developer (Pacific) claims the state’s coronavirus lockdown was an “act of God” preventing it from completing a $4.2 million property acquisition with the seller. Apparently, Pacific Collective invoked a force majeure contract clause on March 30, a day before the acquisition was to close. It claimed the closing couldn’t be held without defying Los Angeles County “stay at home orders.” (That’s interesting, considering that funds today are wire transferred and closing document recording is digital. Then, there’s DocuSign.) Three days later, Exxon Mobil Corp. notified the developer it would cancel the sale and keep the company’s deposit, according to the lawsuit.

There’s more. The plaintiff also wants the court to issue an injunction preventing owner Exxon Mobil Corp. from selling to any other buyers. Until when? Until Pacific Collective gets the mood? In some jurisdictions, Sellers are required to mitigate damages in a contract dispute, and one method is to try to locate a substitute buyer for the defaulting Buyer. (In the sale of goods covered by the UCC, that’s known as “cover;” but this isn’t personal property at issue.)

Add to your reading list a piece in the April 17 New Yorker magazine piece by Carolyn Kormann, who interviews a disease ecologist hunting down viruses among cave-dwelling bats, blaming human activity for our exposure to deadly novel viruses. Last I looked, the article was here: https://www.newyorker.com/culture/annals-of-inquiry/the-pandemic-is-not-a-natural-disaster?utm_source=onsite-share&utm_medium=email&utm_campaign=onsite-share&utm_brand=the-new-yorker.

Eventually, an appellate court’s going to take on sorting out whether force majeure clauses cover horrible events like Covid-19 merely because the event is horrible – irrespective of what, or who, promoted the horror. If states don’t sort this out at the appellate, there will be more lawsuits over contract performance than any trial court system efficiently can manage. Then you’ll witness overwhelming forces at work!

Excessive Social Distancing: 15-yard penalty and Loss of Down

A restaurant chain wrote this text in a form letter, sending it to dozens of landlords across the land last week:
“As you know, the COVID-19 crisis is having a devastating impact on the restaurant industry on an unprecedented level. The National Restaurant Association projects an economic impact of at least $225 billion with five to seven million jobs lost. Bagel Brands is no exception to this impact, and it is therefore now incumbent upon us to balance this impact on all of our stakeholders as best as we possibly can. At Bagel Brands we are focused on giving the highest priority to protecting the health and well-being of our customers and team members as we also ensure the long-term viability of our company.

I am writing to update you on steps we are taking with respect to our landlords. We understand that we are in this together and while these are necessary steps, the consequences to both top line and bottom line are significant to our businesses. Our objective is to emerge on the other side of this COVID-19 business crisis in a position to regain our footing, re-staff our operations, and once again grow our brand.

To mitigate some of the impact of this COVID-19 crisis, Bagel Brands will implement revised rental payments beginning April 1st.

Revised rental payments will provide relief to protect Bagel Brands’ continued operations while also supporting some payments to you. The amount we will send you reflects our estimates of what we can pay given the current and anticipated business environment.”

The letter then went on to say that the rent would be reset every month, depending on how BB saw things unfolding, and that BB wasn’t waiving any of its lease defenses, including (naturally) force majeure.

Not only does this violate Widener’s precepts of (a) being kind to one another in these difficult times, and (b) being communicative, this posture only makes sense in certain contexts – not in every set of leasing circumstances, in other words. And the knuckle-headed reliance on the French expression for “uncontrollable conditions” continues to baffle me. So, a bit of history from, golly, back to the preceding decade.

A fellow named Trump had development companies and joint ventures called loosely the Trump Organization (“TO”). TO wanted to build its biggest mixed-use hotel project to date in the business center of Chicago. To do so, TO had taken out a $640 million loan — including $40 million Donald J. Trump personally guaranteed — to finance the Trump Tower on the site of the old Chicago Sun-Times building. When $40 million was due in 2008, TO didn’t pay the installment, after the bank advised TO it would not amend the note to provide an extension for the installment due date. Deutsche then sued on Nov. 28, 2008.

TO, in a counter lawsuit filed in New York City, asserted “force majeure.” TO claimed that the 2008 economic crisis was a “once-in-a-century credit tsunami,” an act of God equivalent to an earthquake. Since the Great Recession couldn’t have been anticipated, and it wasn’t the TO’s fault, TO and the guarantor weren’t obliged to pay Deutsche Bank anything.

The TO complaint alleged:
“This action by Deutsche Bank [refusing to grant an extension to pay the impending installment] is a breach of Deutsche Bank’s obligations to Borrower and the other lenders. Deutsche Bank has created a disjointed and dysfunctional group of lenders and Deutsche Bank’s actions will cause tremendous damage to Plaintiffs, the Trump brand, the Project, and those lenders who are trying to act reasonably and in good faith.”

Claims and counterclaims in the litigation settled in 2010, with Deutsche Bank’s lender group giving a five-year extension on TO’s previously defaulted loan.

Does that mean that the “force majeure” is a viable defense? Settlements occur for myriad reasons, and just some of them are based on merits of legal claims. If you believe that “force majeure” automatically excuses your performance of any of your legal obligations in these days of isolation and stay at home orders, you’re free to proceed to defy your landlord and other creditors. And you’re foolish. At a minimum, you’re not Donald J. Trump.

To recap: Covid-19 isn’t an act of God. It was caused entirely by homo sapiens. If your store can still be operated, you’ve not got a leg to stand on, IF your lease says the tenant must either be denied all access to the leased premises or otherwise be put out of business altogether. And lost profits is not synonymous with “loss of all revenues.” If your store has a drive through feature or pickup window, you don’t have a force majeure defense, in all likelihood.

Get a lawyer to read your lease’s force majeure clause, if it contains one. You need to understand what the language says before acting. Not what you think it means, or what you hope it means. If you guess wrong, you could have a judgment taken against you for the rent due for the entire remaining lease term. It’s too early in this crisis to be filing for bankruptcy, folks.