Wisconsin REALTORS® Association - Legal Hotline Hottips
Legal Hottips - September
2, 2008 1.) Offer to Purchase - Inspection Contingency QUESTION: Re: WB-11 Residential Offer to Purchase, blank on lines 298-300. What is the affect of writing "entire premises" on that blank line? ANSWER: The offer first provides that a registered home inspector will perform a "home inspection" of the property. The scope of a home inspection by a registered home inspector is regulated by DRL statutes and rules which set the scope of the inspection. "Entire premises" is arguably the same as or very similar to the property - it includes everything within the bounds of the described property boundaries - structures, land, landscaping, amenities and all other improvements. Few qualified independent inspectors, if any, would be qualified to inspect the "entire premises" if that is inserted on lines 298-300, so this is somewhat ambiguous - it is not clear what is intended. It is also unlikely that the buyer intends to have the entire property inspected twice by two different inspectors. In addition, asking an inspector other than a registered home inspector to inspect the entire property is putting that inspector in a position where he or she may be found in violation of the law regulating home inspectors. That inspector arguably would be inspecting property that requires a DRL registration in order to be lawful. The blank line is intended to be completed when the
buyer wants a "qualified independent inspector" to inspect some
specific feature of the property such as a roofing contractor to
inspect the roof, a chimney sweep to inspect the chimney, a swimming
pool contractor or plumber to inspect the pool or hot tub, a basement
contractor to inspect the foundation, etc. If the buyer does not have a
specific property component in mind when the offer is drafted that may
require a specialized evaluation, it may be better to just put dashes
in those lines rather than create ambiguity or a potentially illegal
procedure. 2.) Landlord/Tenants - Carpet Cleaning Fees QUESTION: If an agent is renting a property, can she require the tenant to professionally clean the carpet before vacating the unit? ANSWER: In 1999 the Department of Agriculture, Trade, and Consumer Protection (DATCP) legal staff indicated the following to the WRA: "It is not illegal per se for the landlord and tenant to agree that the tenant will clean the carpet or pay for the carpet to be cleaned at the end of the lease term. However, the landlord may not withhold the charges for such carpet cleaning from the tenant's security deposit, unless the tenant committed "damage, waste or neglect." Therefore, if the tenant does not clean the carpet at the end of the lease and there is only normal wear and tear on the carpet, the landlord's remedy for this breach is to seek damages through small claims court." Since that time, the Wisconsin Attorney General's office has issued an informal opinion to DATCP regarding the applicability of Wis. Stat. § 704.07 to the carpet cleaning issue. That statute provides that it is a landlord's duty to keep the premises, "in a reasonable state of repair." The opinion interprets this duty to include routine carpet cleaning at the end of a tenancy. In addition, § 704.07(1) states, "An agreement to waive the requirements of this section in a residential tenancy is void." Thus, the opinion concludes, any agreement that waives the landlord's duty to perform routine carpet cleaning at the end of a tenancy or attempts to shift this duty to the tenant is void. This informal attorney general's opinion conflicts with
DATCP's prior opinion. Although it has no precedential value and is
disputed by many, it does sound a warning to landlords whose leases
require tenants to clean the carpet or pay for carpet cleaning at the
end of the tenancy. Landlords who want to be certain that their leases
will withstand any legal challenge from tenants or DATCP may find it
advisable to remove all provisions making tenants responsible for
performing routine carpet cleaning or paying for routine carpet
cleaning at the conclusion of the tenancy. 3.) Listing Contracts - Listing For Lease; Offer to Purchase - Option to Purchase QUESTION: How does a broker write a lease with option to purchase on a commercial property? ANSWER: In addition to the WB-4 Commercial Listing Contract, the broker will also need to enter into a WB-37 Listing Contract for the Lease of Real Property. These two forms will provide the broker with the appropriate authorizations to not only offer the property for sale but to offer the property for lease as well. For purposes of the lease, because the Department of Regulation and Licensing (DRL) does not have an approved form for the lease of commercial property, the lease agreement will need to be prepared by the parties or an attorney. There is an approved form for the option agreement - WB-24 Option to Purchase. 4.) General Real Estate - Miscellaneous Issues QUESTION: The broker is contemplating selling condominium units at a resort into LLC's where they will be owned by up to three owners as shares in the LLC. It will be a type of fractional ownership. Can the broker and agents still sell the LLC interests and use attorney approved/prepared documents. Also how would these interests be marketed, including in the MLS system? Would they be considered a business interest? ANSWER:
Accordingly, the transactions proposed relate to the sale of one-third interests in an LLCs (personal property), not real estate. The broker may work with an attorney with regard to the necessary documentation and any other recommended steps. In addition, the broker should not provide these services if he or she is not competent to do so, unless the licensee engages the assistance of another who is competent. Any person engaged to provide such assistance must be identified along with his or her contribution. Wis. Admin. Code § RL 24.03. Advertising these interests in the MLS may be allowed. The interest offered for sale is a partial interest in a condominium rather than in full fee, but it nonetheless relates to an interest in real property even though the ownership form is personal property. The broker should check with the local MLS to be sure whether this is permitted under the MLS rules. One issue to consider with the project attorney is whether these personal property LLC interests may be classified as securities. A license to act as a real estate broker does not necessarily entitle the broker to negotiate the sale of an interest in a company where the sale will be made by the transfer of stock or an LLC interest. Such transactions may come within the scope of securities laws, and a securities dealer license may be necessary. A security is broadly defined to include all of the readily recognizable investment instruments, such as stocks, bonds, limited partnership interests, and notes, as well as lesser known vehicles. In general, any investment of money in an enterprise, with an expectation of profits to be earned through the efforts of someone other than the investor, is a security. The present Wis. Stat. § 551.02(3)(f) indicates that a real estate broker whose transactions in securities are isolated and incidental to his or her real estate business need not be licensed as a securities dealer. If this exception applies to these transactions, the concern may be whether the broker would be handling too many transactions like this such that the transactions are not "isolated." This exception will only provide a temporary answer if
these interests are considered securities because the state
securities laws were rewritten effective January 1, 2009 and the new
law does not provide this exception for real estate brokers. The
new restated law eliminates specific exclusions under current law from
the definition of a broker-dealer for a personal representative,
guardian, conservator, or pledgee; a person whose dealings in
securities are limited to transactions in mortgage-backed securities;
and a person licensed as a real estate broker who has only isolated and
incidental transactions in securities. The broker may wish to review
these laws with the project attorney to determine applicability in
these specific circumstances. 5.) Mortgage Banking/Finance - General Finance QUESTION: Is there a web page that a broker can use to add a link to the company web site in order to direct people to the information on the first time homebuyer tax credit? ANSWER: The National Association of REALTORS® has created a new brochure located at: http://www.wra.org/pdf/resources/first_time_homeowner_tax_credit.pdf. In addition, a helpful article regarding the tax credit for any buyer can be found at www.washingtonpost.com. Debbi Conrad |