Structuring Complex Easement Agreements in Commercial Real Estate - - PowerPoint PPT Presentation

Structuring Complex Easement Agreements in Commercial Real Estate Deals

Negotiating Use Rights and Restrictions for Air Space, Mixed-Use Developments, Retail Complexes and More

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David Van Atta, Partner, Hanna & Van Atta, Palo Alto, Calif. Jesse S . Ishikawa, S hareholder, Reinhart Boerner Van Deuren, Madison, Wis.

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ST RUCT URI NG COMPL E X E ASE ME NT AGRE E ME NT S I N COMME RCI AL RE AL E ST AT E DE AL S

Stra ffo rd Pub lic a tio ns Ma y 1, 2014

Da vid M. Va n Atta

Ha nna & Va n Atta 525 Unive rsity Ave , Suite 600 Pa lo Alto , CA 94301 Pho ne : (650) 321-5700 dva na tta @ ha nva n.c o m http:/ / www.ha nva n.c o m

Je sse S. Ishika wa

Re inha rt Bo e rne r Va n De ure n s.c . 22 E a st Mifflin Stre e t, Suite 600 Ma diso n, WI 53703 Pho ne : (608) 229-2208 jishika wa @ re inha rtla w.c o m http:/ / www.re inha rtla w.c o m

I. Ove rvie w o f e a se me nt issue s in a hypo the tic a l c o mme rc ia l mixe d-use pro je c t . A. L isma n T

• we rs (g e ne ra l de sc riptio n).

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B. Ide ntific a tio n o f a ll o f the va rio us e a se me nts. C. Ma jo r b usine ss issue s: 1. Who a re the b e ne fic ia rie s (do mina nt pa rtie s) o f e a c h e a se me nt? 2. Whic h e a se me nts sho uld b e in g ro ss a nd whic h sho uld b e a ppurte na nt? 3. Co st a llo c a tio n fo r ma inte na nc e , re pa ir, re pla c e me nt. Po ssib ilitie s: a . Sq ua re fo o ta g e . b . Usa g e (e .g ., e le c tric ity, wa te r). c . F ixe d pe rc e nta g e (po ssib ly sub je c t to a djustme nt b a se d o n pe rio dic third-pa rty re vie w).

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II . Ho w to do c ume nt the e a se me nts? E ithe r RE A o r c o mb ina tio n o f se pa ra te e a se me nts. A. Gra nting c la use 1. Co mmo n la w rule : Gra nto r a nd Gra nte e o f a n e a se me nt c a nno t b e the sa me pa rty.

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2. Co nsid e r d ra fting the RE A to pro vid e tha t e a se me nts a ffe c ting e a c h po rtio n o f the pro pe rty a uto ma tic a lly spring into e xiste nc e upo n the c o nve ya nc e b y o rig ina l d e ve lo pe r o f suc h po rtio n to a no the r pa rty. 3. T

• b e sa fe , d o wha te ve r the title insure r re q uire s to b e a b le to insure the

e a se me nts a s pa rt o f the insure d pro pe rty. T he title insure r ma y re q uire the g ra nting c la use o f the d e e d to inc lud e la ng ua g e suc h a s, "to g e the r with, a nd sub je c t to , tho se e a se me nts se t fo rth in the RE A re c o rd e d a s d o c ume nt no . __________." B. De sc riptio n o f e a c h e a se me nt. 1. L e g a l d e sc riptio n pre pa re d b y surve yo r. 2. Re fe re nc e to a rc hite c tura l d ra wing s a tta c he d to the e a se me nt. 3. Ge ne ric d e sc riptio n (e .g ., with e a se me nt fo r e me rg e nc y e g re ss, re fe r to "a ll sta irwe lls a nd e xits lo c a te d in the b uild ing ").

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C. Sta te me nt whe the r e a c h e a se me nt is a ppurte na nt o r in g ro ss. 1. E a se me nts to utility c o mpa nie s a re in g ro ss. 2. E a se me nts tha t b e ne fit spe c ific pro pe rtie s a re a ppurte na nt. D. Ro le o f a n o wne rs' a sso c ia tio n. 1. Ma na g e , ma inta in, re pa ir, re pla c e e a se me nt impro ve me nts. 2. Re so lve dispute s. 3. Asse ss c o sts to o wne rs. 4. E nfo rc e a sse ssme nts. E . F le xib ility. 1. Ame ndme nt pro c e dure s. 2. Rig ht o f se rvie nt o wne r to re lo c a te e a se me nt. 3. Pro vide fo r pe rio dic re vie w o f fo rmula e fo r a llo c a ting c o sts, b a se d o n a c tua l, histo ric a l use o f the e a se me nt.

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II I . Spe c ific issue s a pplic a b le to a ll e a se me nts. A. Pe rmitte d use rs o f the e a se me nt: c o nside r c usto me rs, invite e s, a g e nts, c o ntra c to rs. B. L imit pe rso na l lia b ility o f a pa rty fo r b re a c h o f the e a se me nt a g re e me nt to a c ts/ o missio ns

• c c urring during tha t pa rty's pe rio d o f o wne rship o f the b e ne fite d/ b urde ne d la nds, a s the

c a se ma y b e . C. E xc lusivity vs. no ne xc lusivity. D. Rig hts re se rve d to se rvie nt la nd o wne r. At c o mmo n la w, the se rvie nt o wne r ma y ma ke a ny use o f the se rvie nt pro pe rty so lo ng a s it do e s no t ma te ria lly a nd a dve rse ly inte rfe re with the rig hts o f the do mina nt o wne r. E . Issue s a rising with e a se me nts in g ro ss: 1. Assig na b ility o f e a se me nt. 2. Cha ng e in use o f e a se me nt. 3. E xa mple : b e ne fic ia ry o f a 10-fo o t wide wa te r ma in e a se me nt g ra nts rig hts to a c a b le T V c o mpa ny to put its impro ve me nts within the e a se me nt.

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F . Dura tio n o f e a se me nt. In ma ny jurisdic tio ns, a n e a se me nt is c o nstrue d to b e pe rpe tua l unle ss the e a se me nt do c ume nt sta te s o the rwise . G. Re lo c a tio n o f e a se me nt b y se rvie nt o wne r.

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1. Co mmo n la w: no t a llo we d witho ut se rvie nt o wne r's c o nse nt. 2. Re sta te me nt (T hird) o f Pro pe rty (Se rvitude s) 4.8(3) sta te s: Unle ss e xpre ssly de nie d b y the te rms o f a n e a se me nt, a s de fine d in § 1.2, the o wne r

• f the se rvie nt e sta te is e ntitle d to ma ke re a so na b le c ha ng e s in the lo c a tio n o r

dime nsio ns o f a n e a se me nt, a t the se rvie nt o wne r’ s e xpe nse , to pe rmit no rma l use o r de ve lo pme nt o f the se rvie nt e sta te , b ut o nly if the c ha ng e s do no t (a ) sig nific a ntly le sse n the utility o f the e a se me nt, (b ) inc re a se the b urde ns o n the o wne r o f the e a se me nt in its use a nd e njo yme nt, o r (c ) frustra te the purpo se fo r whic h the e a se me nt wa s c re a te d. Se c tio n 4.8(3) ha s b e e n a do pte d b y o nly a ha ndful o f sta te s.

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H. Ove rb urde ning the e a se me nt. 1. E xte nsio n o f the e a se me nt to b e ne fit a dditio na l la nds: g e ne ra lly this is c o nside re d

• ve rb urde ning unle ss the rig ht to e xte nd ha s b e e n re se rve d in the e a se me nt

do c ume nt. In the dia g ra m b e lo w, suppo se tha t L

• t 2 o wne r g ra nte d the e a se me nt o ve r the sha de d

a re a to L

• t 1 o wne r, a nd tha t sub se q ue ntly, L
• t 2 o wne r a c q uire s L
• t 3. Do e s the b e ne fit
• f the e a se me nt e xte nd to L
• t 3?

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2. Cha ng e in the de g re e o f use . E xa mple : ro a d se rving a pa sture (Pic ture A) e ve ntua lly b e c o me s a ma jo r a rte ria l se rving a 21-lo t c o mme rc ia l de ve lo pme nt (Pic ture B). Ge ne ra lly this is no t a llo we d unle ss the inc re a se in the b urde n wa s re a so na b ly fo re se e a b le a t the time o f e ntry into the e a se me nt do c ume nt.

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3. Cha ng e in the kind o f use . E xa mple : b e ne fic ia ry o f a n e a se me nt fo r a te le pho ne tra nsmissio n line a ssig ns its rig hts to a c a b le T V c o mpa ny. I. Sta nda rd o f ma inte na nc e sho uld b e spe c ifie d, e .g ., "the pa rking lo t sha ll b e ma inta ine d to the sta nda rd fo llo we d in first-c la ss sho pping c e nte rs in Po lk Co unty, Io wa ." J. Insura nc e / inde mnific a tio n. K . Mo rtg a g e e c o nse nt. Ha ve a ll ho lde rs o f a ll re c o rde d pre e xisting mo rtg a g e s a nd e nc umb ra nc e s c o nse nte d to , a nd sub o rdina te d the ir rig hts in the mo rtg a g e d o r e nc umb e re d pro pe rty, to the e a se me nt? 1. If the y ha ve n’ t, the y will no t b e b o und b y the e a se me nt, a nd fo re c lo sure

• f the mo rtg a g e o r e nc umb ra nc e ma y te rmina te the e a se me nt

do c ume nt a s it a pplie s to the mo rtg a g e d/ e nc umb e re d pa rc e l. 2. If the y ha ve n’ t, the g ra nt o f e a se me nt ma y b e a n e ve nt o f de fa ult unde r the mo rtg a g e o r e nc umb ra nc e .

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L . F le xib ility. 1. Ame ndme nt. a . In a n e a se me nt with multiple b e ne fic ia rie s, pro vide fo r a me ndme nt o f the e a se me nt b a se d

• n c o nse nt o f a spe c ifie d pe rc e nta g e o f

se rvie nt a nd do mina nt o wne rs. b . But: c o nside r limiting , o r pro hib iting , the te rmina tio n o f a ny e sse ntia l e a se me nt witho ut the c o nse nt o f the se rvie nt o wne r who is b e ne fite d b y suc h e a se me nt. 2. Divisio n o f se rvie nt pa rc e l: if the se rvie nt pa rc e l is la te r sub divide d, tha t the po rtio n o f the b urde ne d pa rc e l tha t do e s no t inc lude the e a se me nt pro pe rty sho uld b e a uto ma tic a lly re le a se d fro m a ny o f the o b lig a tio ns impo se d b y the e a se me nt o n the se rvie nt o wne r. 3. Pro vide fo r dispute s re : usa g e o f the e a se me nt to b e de te rmine d b y o utside e xpe rt o r b y a rb itra tio n. M. Re me die s

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I V. Spe c ific issue s re la te d to c e rta in spe c ia lize d e a se me nts. A. Air rig hts e a se me nts. 1. Ho rizo nta l sub divisio n re g ime re q uire s e a se me nt fo r sub ja c e nt suppo rt to pro vide fo r suppo rt o f impro ve me nts c o nstruc te d in the a irspa c e . a . Co sts o f ma inte na nc e , re pa ir, re pla c e me nt o f the pilla rs, lo a d-b e a ring wa lls, o the r me a ns o f suppo rt ne e d to b e a llo c a te d b e twe e n se rvie nt a nd do mina nt pro pe rtie s (a ssuming do mina nt pro pe rty a lso is b e ne fiting fro m the sa me ).

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b . Ne e d a thre e -dime nsio na l de sc riptio n o f the a ir rig hts. c . Pro vide tha t if the re a re mino r e nc ro a c hme nts (b e c a use o f the a s-b uilt impro ve me nts va rying slig htly fro m the thre e -dime nsio na l de sc riptio n), a n e nc ro a c hme nt e a se me nt sha ll e xist to a llo w the e nc ro a c hme nt fo r so lo ng a s the impro ve me nts sta nd. 2. T

• we r c ra ne "o ve rswing " rig hts.

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a . Co nside r limiting the tra nspo rt o f c o nstruc tio n ma te ria ls o ve r se rvie nt pro pe rty. b . L imit dura tio n to te mpo ra ry c o nstruc tio n pe rio d. c . Co nside r g ra nting re c ipro c a l rig hts to se rvie nt pro pe rty o wne r, so tha t in the future , se rvie nt o wne r wo uld ha ve the sa me o ve rswing rig hts o ve r the do mina nt pro pe rty if se rvie nt o wne r ne e ds to use a c o nstruc tio n c ra ne . B. E a se me nts fo r la te ra l suppo rt. In de nse ly de ve lo pe d a re a s, e xc a va tio n o n o ne pa rc e l ma y le a d to de sta b iliza tio n o f impro ve me nts o n ne ig hb o ring pa rc e ls.

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1. Che c k sta te sta tute s a nd c o mmo n la w to de te rmine whe the r ne ig hb o r ha s rig ht to la te ra l suppo rt. If no t, ne ig hb o r sho uld se e k la te ra l suppo rt e a se me nt fro m e xc a va to r. 2. Issue s to a ddre ss in e a se me nts fo r la te ra l suppo rt: a . Ne ig hb o r ma y ne e d rig ht to re vie w/ a ppro ve o f e ng ine e ring , e xc a va tio n a nd c o nstruc tio n pla ns. b . Do mina nt o wne r ma y ne e d rig ht to insta ll unde rg ro und so il na iling a nd sho ring syste ms tha t ma y e nc ro a c h upo n o r pe ne tra te se rvie nt pa rc e l, a nd to ha ve suc h syste ms re ma in fo llo wing c o mple tio n o f c o nstruc tio n. c . Do mina nt o wne r ma y ne e d a c c e ss to po rtio ns o f the ne ig hb o ring pa rc e l's surfa c e during the c o nstruc tio n pe rio d.

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C. E a se me nts fo r pla c e me nt a nd o pe ra tio n o f wind turb ine s a nd c e ll to we rs.

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1. De pe nding o n sta te / lo c a l sub divisio n la ws, use o f a n e a se me nt (inste a d o f a de e d o r le a se ) ma y a vo id the a pplic a tio n o f la nd divisio n re q uire me nts. 2. Wind turb ine e a se me nts sho uld inc lude rig hts to insta ll, ma inta in, re pa ir a nd re pla c e : a . Wind turb ine s. b . E le c tric a l tra nsmissio n a nd c o mmunic a tio n line s, tra nsfo rme rs, junc tio n b o xe s, ro a d impro ve me nts. c . Me te o ro lo g ic a l e q uipme nt to me a sure wind spe e d.

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3. Ce ll to we r e a se me nts sho uld a ddre ss: a . Ra dio inte rfe re nc e (o f to we r with se rvie nt o wne r's e q uipme nt a nd vic e ve rsa ). b . Duty o f do mina nt o wne r to c o mply with F CC re g ula tio ns. c . Do mina nt o wne r's a b ility to a llo w o the r use rs to use the to we r.

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4. Ce ll to we r a nd wind turb ine e a se me nts sho uld spe c ify a nnua l b a se c o mpe nsa tio n to la ndo wne r. a . T

• a vo id ma king this pub lic re c o rd, c o nside r putting the c o mpe nsa tio n

pro visio ns in a se pa ra te , unre c o rde d do c ume nt. b . Pro vide fo r e sc a la to r, suc h a s c o st o f living o r pe rio dic a ppra isa l me c ha nism. 5. Ce ll to we r a nd wind turb ine e a se me nts sho uld spe c ify c o mpe nsa tio n fo r de stro ye d c ro ps (e .g ., tha t ye a r's a ve ra g e b ushe l/ a c re o n b a la nc e o f fa rm x tha t ye a r's pric e pe r b ushe l x a c re a g e o f c ro ps de stro ye d). 6. Ce ll to we r a nd wind turb ine e a se me nts sho uld spe c ify o b lig a tio ns o f do mina nt pa rty to re mo ve impro ve me nts upo n e xpira tio n/ te rmina tio n o f the e a se me nt. 7. Ce ll to we r a nd wind turb ine e a se me nts sho uld spe c ify o b lig a tio n o f do mina nt pa rty to pa y re a l e sta te ta xe s a ttrib uta b le to la nd the se rvie nt o wne r c a n no lo ng e r use a nd to inc re a se s in a sse sse d va lue re sulting fro m the impro ve me nts b e lo ng ing to the do mina nt pa rty. 8. Ce ll to we r a nd wind turb ine e a se me nts sho uld spe c ify o b lig a tio n o f do mina nt pa rty to c o mply with F AA re g ula tio ns.

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