Litigation

Collaborative Law

By: Clark, Campbell, Lancaster & Munson, P.A.

Q: What is a collaborative divorce?  Can the process be used in a business divorce?

A: As a litigator recognizing the costs, risks, and extended timeline of an old-fashioned lawsuit, and noting the existing burdens on our judicial system, I look for ways alternative resolution options for my clients.  In addition to common methods of mediation and arbitration, the family law arena may use collaborative law, which allows separating or divorcing couples to work with their own lawyers plus one or more other professionals to achieve an agreement that addresses the needs of the parties and their children without the threat of litigation.  The couple agrees in advance to have their lawyers collaborate with each other and any third party professionals, who might include, for example, child psychologists and accountants.  As the lawyers work together, and to encourage freely sharing information and ideas, the lawyers cannot represent their clients in any family-related litigation that might occur if no settlement is reached.  The collaborative process can also be used for prenuptial agreements.  Here especially, the process is designed to keep a loving couple from becoming adversarial.  Although collaborative law was first used in the United States in the late 1980s, it was not until March of this year that Florida became the fourteenth state to adopt a uniform law when Governor Rick Scott signed a version that imposes confidentiality on communications during the collaborative process.

In a business partnership, much like a marriage, the parties should not delay discussing ownership of assets, contributions and obligations, and what happens if it all goes south.  When things do go wrong, it is helpful to have had a clear and structured agreement in place to guide the process and avoid litigation.  But even with the clearest agreement, emotions can run high during a business divorce.  The costs of experts to value interests during a buyout and the intrusiveness of financial, asset, and intellectual property disclosures might lead businesspeople to want to find a better way than a lawsuit.  The collaborative process can be used in business formation, restructuring, buyout, and dissolution.  Unlike family law, it can be done completely without filing of any petitions and without regard to any court rules.

Like mediation, the collaborative process allows the parties, who may have creative ideas for resolution, to retain greater control over the outcome, with a settlement offer being accepted only if all parties want to do so.  Unlike mediation, however, the collaborative process eliminates the third-party facilitator who guides the process and places the parties in the driver’s seat.  Many businesspeople prefer to drive with the legal and financial professionals helping to navigate.

In considering whether to use the process, it bears repeating that the collaborative lawyer is not able to participate if litigation eventually arises.  But collaboration is almost always less expensive that the long path to trial.  It also has the business benefit of keeping trade secrets and confidential business information out of the public record.  Under the right circumstances, the process can even preserve a relationship from becoming a burned bridge by focusing on mutual respect and openness.  In the business world, the collaborative approach can make a lot of sense.

The July 14th edition of “The Law” will discuss the process and ramifications of homeowner’s associations foreclosing on their owners for delinquent assessments.

Questions can be submitted online to thelaw@cclmlaw.com

 

99-Year Leases and Property Tax

By: Clark, Campbell, Lancaster & Munson, P.A.

 Q: When does a tenant become an owner for tax purposes?

 A: I “own” a condominium on unit on the east side of Santa Rosa Island in the Florida Panhandle, but I do not actually hold a deed.  Instead, because the island is county land leased to developers under 99-year master leases, I am the assignee of a lease to the unit.  Similarly, Island Resorts Investments, Inc., was subject to a sublease under one of these lengthy master leases on the west side of the island.  The developer brought a lawsuit against the county tax collector when the county started imposing property taxes on the tenant.  The developer argued that it was a tenant not subject to real estate taxes.  A trial court sided with the tax collector, but on appeal a panel of judges held that, primarily because the sublease agreement did not allow for the developer to either get automatic lease renewals or get a deed for a nominal price, the tenant did not have the sort of perpetual dominion rights typical of an owner.

The tax collector has vowed that the fight is not over, and a Florida Supreme Court ruling may be forthcoming, but the case raises questions of when a tenant can be a so-called “equitable owner.”  To understand why this is even a question, it is important to know that lawyers and courts consider ownership as a “bundle of rights,” and someone can have all or some of those rights.  You can have a right to exclusive dominion of a property, for example, but not the right to build on the land.  Or you can have the right to build but must turn over all improvements to another owner once you stop using the property for a specified purpose, upon the expiration of a specified term, or even upon a specified person’s death.  You may or may not have the right to sell or sublease the property you occupy.  If you have the entire bundle of rights, you are obviously the “owner” in all senses.  But if you have only some of the rights, the question arises as to what your responsibilities are, including as to real estate taxes.

In Florida, to be deemed an equitable owner for such tax purposes, a tenant must hold virtually all of the benefits and burdens of ownership, including the obligations to insure, maintain, and pay taxes (according to the lease).  Although these obligations are common in commercial leases, the key piece that makes equitable ownership uncommon is that the lease must either be perpetual or allow for the tenant to purchase the land for nominal value.  On the face of this rule, a lease with a purchase option could fall into this definition if the eventual purchase price is small enough.  Generally speaking, however, if the tenant’s right to occupy the property can be taken away at the option of the landlord or other legal owner at any time or at a specified time, as is the case in virtually all residential leases and most commercial leases, the tenant will not be an equitable owner with responsibilities directly to the state for property taxes.  Even if the tenant is not responsible to the government, however, the lease may require the tenant to pay the taxes, and the tenant must comply with his obligations under the lease.

Negotiating a lease and understanding your rights and responsibilities, including those not specifically set forth in the written agreement, should not be taken lightly.  Legal counsel can assist in the event a tenant or landlord has concerns over a residential, commercial, or land agreement.

The June 30th edition of “The Law” will cover the new collaborative law procedures for Florida family law cases and how the same concepts can be applied in business disputes.

Questions can be submitted online to thelaw@cclmlaw.com

Litigation

Contract Interpretation

By: Clark, Campbell, Lancaster & Munson, P.A.

 Q: When does a poorly drafted contract become unenforceable?

A: Having someone with a background in contracts and litigation help you draft agreements will decrease disputes over the interpretation and effect of your bargains. But even with the best legal assistance, unanticipated circumstances may arise that lead you wishing you had clearer terms in the beginning.

Courts do not want to interfere with freely made deals. If everyone agrees that the contract should have said X even though it really says Y, you can agree to live with X. If the other side wants to take advantage of the mistake but you can prove X was his original intent, you can ask a court to “reform” the agreement to match the intention. When there is a dispute over original intent, however, the original intent must be “clear and convincing” to overcome the clear terms of the written agreement.

Reformation is used for many purposes, including inserting obligations, signatures, and property erroneously not in the original writing or even deleting property erroneously added to the contract. Depending on the facts, you typically have to ask the court within four or five years to reform the deal, but a twenty-year period applies to reformations of deeds.

Similarly, if the other side knew and took unfair advantage of your mistake, reformation may be appropriate. In the absence of unfair conduct, however, courts cannot help resolve a one-sided mistake except to rescind (or undo) the contract and put the parties back in the positions they were in before the agreement. That option is available only if the mistaken party was not negligent and the non-mistake party will not be significantly harmed.

Like with mistakes, if a contract has ambiguities or vague terms but the parties agree what was intended, they can live by whatever legal terms they wish. Where the parties do not agree on interpretation, however, courts will review for two types of ambiguities: those clearly existing on the face of the contract due to insensible or unusual language (“patent ambiguity”), and those that become apparent only when some outside evidence is presented, including how the contract plays out in practice (“latent ambiguity”). Showing that a particular term makes sense in the four corners of the contract but could have multiple meanings to the parties because of other information is the classic latent ambiguity. Patent ambiguity, if not resolvable through reformation of mistake, may lead to an unenforceable contract, because Florida does not allow evidence beyond the four corners of the document to explain the ambiguity. Latent ambiguities by their nature, however, require resorting to outside evidence.

Through these processes, courts look to determine what parties actually intended and avoid preventing receipt of intended benefits.

The June 16th edition of “The Law” will cover when leases become equitable ownership and create property tax liability.

Questions can be submitted online to thelaw@cclmlaw.com