In the second annual ranking of Best Law Firms, U.S. News and Best Lawyers® recognize HechtSolberg as a Tier 1 firm in the San Diego metropolitan area for both Real Estate Law and (for the second year in a row) Land Use & Zoning Law.  HechtSolberg is the only firm in San Diego ranked in Tier 1 in both those disciplines. The U.S. News - Best Lawyers® “Best Law Firms” rankings are based on client and lawyer evaluations, peer review from leading attorneys and review of information provided by law firms.

Letters of intent are frequently the first step in countless transactions — leases, purchases and sales of properties and businesses, mergers, acquisitions, financing arrangements . . . the list goes on. The parties typically intend that the letter not constitute a binding contract, but rather a step on the path to forming their binding contract. For the sake of efficiency and economy, the parties want to confirm they are on the same page on the fundamental business points before committing time and money to having the lawyers work on the “formal contract”

Sounds simple enough, and it makes sense. But what happens when the parties have signed a letter of intent, which says that it’s not binding or that it’s subject to a more “formal contract”, and one party walks away before the “formal contract” is signed? Not surprisingly, when there’s enough at stake, the jilted party sues, claiming that the letter really was a binding contract, and that the other party has breached. The U.S. Court of Appeals for the Ninth Circuit is the latest court to weigh in on whether a letter of intent in California, although containing expressions of its non-binding nature, is really a binding contract.

In First National Mortgage Co. v. Federal Realty Investment Trust, a developer sent a “Final Proposal” of basic points for a ground lease transaction to the land owner, expressly stating that the proposal was “subject only to approval of the terms and conditions of a formal agreement.” After the land owner signed the Final Proposal, the ensuing negotiations fell through. The land owner then sued the developer, claiming the Final Proposal was a binding and enforceable lease. The developer argued that the letter was merely a proposal, relying on the clear expression that the parties intended that there would need to be a “formal agreement” before they were bound. Much to the developer’s dismay, the jury concluded that the letter was binding, that the developer had breached and that the developer was liable to the land owner for nearly $16 million in damages. The developer appealed, but to no avail. The Ninth Circuit let the jury’s decision stand — there was sufficient ambiguity and conflicting evidence for the jury to conclude that the parties intended to be bound by the developer’s “Final Proposal”.

If you have questions about whether your letter of intent, deal memo, term sheet or proposal might be a binding contract in sheep’s clothing, we are available to help. Contact Mickey Maher or David Vogel at 619.239.3444.

CLICK HERE to read “Prevailing Wage Update:  Private Developments May Be Public Works, Even in Charter Cities” by HechtSolberg partner Richard Schulman.  The article was published in the March 2011 edition of The Pipeline, The Official Newsletter of the Burnham-Moores Center for Real Estate.

A recent decision of the California Court of Appeal may make your private development a “public work” if you get any government support, such as the proceeds of bonds from community facilities districts — often referred to as Mello-Roos bonds.

In the recent case of Azusa Land Partners v. Department of Industrial Relations, the court held that an entire 1,200-unit housing tract is a “public work” under California’s prevailing wage law because the proceeds of the Mello-Roos bonds would be used to pay for some of the public infrastructure. The court required that prevailing wages be paid for all of the public infrastructure, whether or not funded by the Mello-Roos bonds.

The applicability of prevailing wages to private development projects has been uncertain since 2001, when parts of the statutory definitions were revised. Although Azusa Land arose in the context of prevailing wages, the court’s premise that “public” money transforms a private development into a “public work” could affect everything from reimbursement agreements to due process obligations.

Richard Schulman, a land use partner at HechtSolberg, will be a panelist at a special seminar sponsored by the Building Industry Association of San Diego on February 17, 2011, discussing how the Azusa Land decision affects private developments.  If you are interested in attending this event, contact Karla Valeri of the BIA at 858.514.7026.

For specific questions concerning the effect of the Azusa Land decision on your projects, you may reach Richard Schulman at 619.239.3444.

We are writing to update you on amendments to the Mechanics’ Lien Law that became effective January 1st.  Some published summaries and media reports have created confusion about the changes. We want to clear up the confusion.

The amendments change the definition of “claim of lien” by adding two new requirements.  The requirements are intended to ensure the property owner is immediately notified of the lien.

First, before recording a lien, the claimant must serve the property owner with a notice entitled “NOTICE OF MECHANIC’S LIEN ATTENTION!”  The amendments specify the contents of the required notice.  Second, the lien presented to the County Recorder for recording must be accompanied by both a copy of the notice and an affidavit of proof of service - a sworn statement that the notice was served on the property owner. The amendments also specify the permitted methods by which the notice must be served.  And the new law is not forgiving — failing to follow these requirements makes a claim of lien unenforceable as a matter of law.

In addition, the lien claimant must file a notice of pending action (sometimes called a lis pendens) within 20 days after filing the lawsuit to foreclose the lien.  Before the amendments, filing a notice of pending action was optional - now it’s mandatory.

If you have any questions about the technicalities and effect of the new requirements, contact Jerry Goldberg, Greg Markow or Jim Ehlers at 619.239.3444.

On July 30, 2010, the Court of Appeal based in San Diego issued an opinion in Pinnacle Museum Tower Association v. Pinnacle Market Development (US), LLC.  The CC&Rs for this mixed-use development included provisions requiring that construction disputes, if they could not be resolved informally, be decided in arbitration rather than in court.  After the property owners association filed a construction defect lawsuit, the trial court refused to compel arbitration because it felt that arbitration was “unconscionable” - i.e., grossly unfair.  The Court of Appeal agreed that arbitration would be unconscionable.  The Court of Appeal also held that, although CC&Rs are agreements between associations and developers, CC&Rs could not be viewed as agreements to arbitrate.  The Court of Appeal “published” its opinion, which made it binding on all trial courts throughout the state.

Richard Schulman prepared the initial request and the reply asking that the Supreme Court take the case (the “petition for review” and the “reply for the petition for review”).  The California Supreme Court is not required to take most civil cases - it is only required to take death penalty cases - and only takes cases that raise important, unsettled legal principles or that present conflicts among the various Courts of Appeal.  The petition argued that the Court of Appeal’s decision in this case conflicted with both prior case law holding that CC&Rs are agreements and a federal law prohibiting discriminatory treatment of arbitration agreements.  The Supreme Court unanimously granted the petition and agreed to take the case on November 10, 2010.

HechtSolberg has now associated in as co-counsel of record and filed the opening brief on the merits with the high court on December 10, 2010.  The property owners association has until mid-December to file its opposition brief but may request additional time.  HechtSolberg will then have twenty days to file its reply brief.  Oral argument is likely to take place late in 2011 with a decision expected a month or two thereafter.  All Supreme Court decisions are published.

The Court of Appeal’s opinion raises the basic questions of whether and under what circumstances CC&Rs can ever be used to provide for arbitration between the developer and the property owners or the owners’ association.  The Court of Appeal’s opinion was so broad that it effectively barred the use of CC&Rs to provide for arbitration of construction disputes with the developer.  Thus, HechtSolberg’s opening brief with the Supreme Court argues that arbitration is a process favored by both state and federal courts.  The brief also argues that the lower courts’ finding of unconscionability violated a federal law protecting arbitration agreements; the supposedly “unconscionable” aspects of the arbitration provisions would actually nullify entire sets of CC&Rs.

If you have any questions about this, feel free to call Jerry Goldberg or Richard Schulman of the firm.

Vantage Pointe, San Diego’s largest mixed-use high-rise condominium tower, was sold recently to Equity Residential, one of the nation’s largest multi-family REITs.  HechtSolberg attorneys represented Calgary based developer, The Pointe at Balboa Limited Partnership, in the structuring, documentation, completion and eventual sale of Vantage Pointe. Equity Residential plans to operate the 40‑story, 679-unit tower as an apartment complex.

Located in Downtown San Diego, Vantage Pointe was completed in 2009 as a for-sale mixed-use condominium project consisting of 679 residential condominiums, 26,425 square feet of retail space, and 968 underground parking spaces.  HechtSolberg represented the developer during the initial structuring of the project and through construction.  When completion of the project coincided with the downturn in the housing market, our common interest development group successfully restructured the project into a vertical master planned community - creating a hybrid condominium-apartment project. This structure allowed the developer to rent 244 of the 679 units as a separate sub-project and market for sale, with approval from the California Department of Real Estate, the first 99 units as another sub-project. With Fannie Mae’s approval, this structure effectively reduced the presale requirements to 70% of 99 units.  Although the developer met the presale requirement, it was unable to successfully restructure the construction loan with its lender and again turned to HechtSolberg when it sought to sell the entire project.

Negotiating and closing the complex sale required simultaneously reaching an agreement with the lender on the project’s $210 million construction loan and readying the project for conversion to a full rental complex. HechtSolberg used concentrated teams of attorneys from the firm’s transactional, litigation, and common interest development practice areas to effectively represent and protect the developer’s best interests within a compressed due diligence and closing period.  Within a combined due diligence and closing period of just five weeks, our attorneys worked together to address all aspects and complexities of the transaction, including protecting the developer’s interests in three-party negotiations with the lender and the buyer, quickly clearing mechanic’s liens and terminating existing condominium purchase contracts and interim occupancy agreements, and electronically producing due diligence documents to reduce cost and time.

As reported in MarketWatch, Vantage Pointe sold for $200 Million.  It was conceived and constructed as the largest mixed-use high-rise condominium project in San Diego and concluded as one of the largest property sales in this region.

When you buy a debt secured by a distressed property, your ultimate goal is to acquire the property. Your path for realizing that goal is to step into the lender’s shoes, and then to acquire the property by foreclosing. After you acquire the debt, you may be able to negotiate a deed in lieu of foreclosure with the borrower, but don’t count on it — and even if it’s offered, you may not want to take that deed in lieu.

From a contract standpoint, the purchase price, the deposits, the feasibility period, the escrow and the closing will all be familiar concepts, just as if you are buying a property. The closing documents will be a bit different, as will some of the representations and warranties (assuming the selling lender is generous enough to make them), and there will be some different or additional defined terms.

At closing, you will receive the original promissory note endorsed to you as the new holder. Instead of a deed, an assignment of the deed of trust that secures the note will be recorded. You should also receive assignments of the other rights and elements comprising the lender’s collateral package. Be alert for qualifications or reservations in the closing documents that negate promises or representations made in the purchase and sale agreement. (more…)

Four HechtSolberg lawyers - David Bagley, Susan Daly, John Hecht and Paul Robinson - were recently selected for the 2010 edition of The Best Lawyers in America, a leading referral guide to the legal profession. Published since 1983, The Best Lawyers in America recognizes attorneys chosen by their peers for their expertise in their respective fields.  David Bagley, Susan Daly, John Hecht and Paul Robinson received the honor for their work in the real estate legal profession.

HechtSolberg is pleased to announce that Governor Arnold Schwarzenegger has appointed our partner Paul Robinson to the San Diego County Regional Airport Authority Board.  Paul assumed his new position Monday, May 17, and will serve a term running through June 30, 2011.

Paul is a specialist in land use, environmental and governmental law.  He has been with HechtSolberg since 1980 and is a partner in the firm’s Land Use, Planning and Entitlement group.  Before joining the firm, he was an assistant to Mayor Pete Wilson and before that, a deputy city attorney.

During his 37 year legal career, Paul has successfully represented dozens of commercial and residential land owners in significant development projects throughout San Diego and Southern California.

Paul is a member of the Real Property and Public Law sections of the California State Bar, Real Estate and Land Use sections of the San Diego County Bar Association, Lambda Alpha International, National Association of Home Builders Legal Action Network and the San Diego Lincoln Club Board of Directors.  He is active in the San Diego Chamber of Commerce and the Downtown Partnership.  Paul also currently serves as chair of the Mission Bay Park Committee, a mayoral and City Council appointment.

Paul has been chosen by his peers to be listed in the 2007, 2008, 2009, and 2010 Best Lawyers in America publication.