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Developing Real Estate
Wayne State University Law School
Rattner, Richard D.

Developing the Commercial Real Estate Project

Richard Rattner

Fall 2016

Development Process

Overview

Fact #1: Time and money are the two most important elements in any real estate development deal.

Fact #2: Litigation is very costly, time consuming, aggravating for the client and you present your sophisticated real estate problem to a judge or jury.

Preparation for the first meeting with the client:

Prepare – in writing
Prepare – research the property involved (if known)
Prepare – become familiar with client’s prior work, if any

Take a Journalistic Approach

Who: is your client?
What: is the subject of this transaction?
Where: is the project located?
When: does your client expect to complete the transaction?
How: does your client plan to finance the real estate transaction?
Why: is your client pursuing this transaction?

Introduction to Commercial Brokers

Ethics and Real Estate Practice

Disproportionate number of malpractice claims
“Independent Professional Judgment”
“Free of self-dealing”

Prohibited Absolutely

Free of dual representation

There are reasonable arguments for abolishing dual representation outright.

Dual Representation

Cannot represent a client if the representation will be directly adverse to the interest of another client unless:

The attorney believes that representation otherwise prohibited will not be adverse to another client’s interest; and
Each client consents after consultation and disclosure of all relevant facts.

Broker – Client Relationship

Essentially: A relationship of an Agent-Principal.
Common Law Fiduciary Duties:

Mackey v. Baker, 327 Mich 57, 41 NW2nd 331 (1950)

Facts: The trial court held that the broker and his wife held the real estate as constructive trustees and required them to make conveyance of the land to the clients. On appeal, the court found that the broker, while he was the agent for the clients, obtained confidential knowledge of their desires to purchase the land, and their financial ability and willingness to pay for the land. The broker concealed the fact that he had learned that the land would be made available for sale in probate proceedings until he had obtained title to the property. Therefore, the broker violated his obligation to his clients.

Outcome:The court affirmed the trial court’s judgment in favor of the clients in their action against the broker and his wife seeking to establish a constructive trust as to title to real estate and held that the broker and his wife were required to convey the land to the clients where the broker breached his duty to the clients by purchasing the property for himself and his wife.

Role of Brokers

Duties of a Broker MCL 339.2512d(2)

Sec. 2512d.

(2) A real estate broker or real estate salesperson acting pursuant to a service provision agreement owes, at a minimum, the following duties to his or her client:

(a) The exercise of reasonable care and skill in representing the client and carrying out the responsibilities of the agency relationship.

(b) The performance of the terms of the service provision agreement.

(c) Loyalty to the interest of the client.

(d) Compliance with the laws, rules, and regulations of this state and any applicable federal statutes or regulations.

(e) Referral of the client to other licensed professionals for expert advice related to material matters that are not within the expertise of the licensed agent.

(f) An accounting in a timely manner of all money and property received by the agent in which the client has or may have an interest.

(g) Confidentiality of all information obtained in the course of the agency relationship, unless disclosed with the client’s permission or as provided by law, including the duty not to disclose confidential information to any licensee who is not an agent of the client.

Exercise reasonable care and skill
The performance of the terms and conditions of the service provision agreement
Loyalty to the interest of the client
Compliance with all laws, rules and regulations – local, state and federal
Referral of client to other professionals for expert advice
Timely accounting of all money and property received
Confidentiality of all information obtained in the course of the agency relationship

Services of a Broker MCL 339.2512

y confidential information specific to that potential buyer or seller.

(2) Unless knowingly waived by execution of a limited service agreement, a real estate broker or real estate salesperson providing services under any service provision agreement shall, at a minimum, provide to the client the duties described in section 2512d(2) and the services described in section 2512d(3)

Provides that broker must disclose to a potential buyer or seller the:
Types of agency relationships that are available; and
The duties involved in these types of agency relationships

Scope of Agency

Broker Relationships

Seller’s Broker (“agent for Seller”)
Buyer’s Broker (“agent for Buyer”)
Designated Agency:

Different clients of a brokerage firm may be represented by different licensees/agents of that firm.
Buyer could have one agent in the firm
Seller could have another agent in the same firm

Designated Agency

Under designated agency policy, upon permission from both buyer and seller, the real estate firm may appoint agent “A” as the designated agent for the buyer and agent “B” as the designated agent for the seller. Each agent is then allowed to represent exclusively the interests of his/her client in the transaction.

Without an agreement and disclosure, consented to by the clients:

Default Rule – A client is deemed to be associated with, and have an agency relationship with the entire brokerage firm.

Fraud, Statute of Frauds, Entities and Contractual Analysis

A word about emails and legal practice

Use caution
Who is the recipient?
What are you saying?
Should someone else take a look at your drafting?
What is your emotional state (mad, sad, happy, “being clever” or “being funny”)?