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Profession changing in turbulent times.

Real estate lawyers are coming to terms with changing times and the softening edges of case law. They note that while some legal issues such as concern over the environment are evolving slowly, others are changing overnight, as did the rent laws earlier this month.

Lawrence S. Borah, a partner in Finkelstein, Borah, Schwartz, Altschuler & Goldstein P.C., said the "big item" right now in his landlord/tenant practice is the changes made by the New York State legislature with regard to luxury decontrol and registration of apartments.

In terms of the annual registration issue, Borah noted that for any action docketed after July 1, 1991, where the problem was a failure to register, the owner can now file the late registration and there would be no overcharges.

"It's very good for buildings where they were taken over by banks or where the people who operated the buildings didn't know what they were doing," he said. "The penalty [of treble damages] was enormous for just an oversight."

Since the Division of Housing and Community Renewal has not issued the regulations yet to implement the new law, Borah feels the situation will have to be watched. "What we're going to be doing is asking for reconsideration in all those cases," he said.

Environmental Impact

Richard G. Leland, a partner and head of the environmental group at Rosenman & Colin, said there is a tremendous amount of interest and concern among lenders with regard to environmental liability.

He has already seen cases over electromagnetic fields, rarely heard of just a few years ago. "Like asbestos, this will start out in tort issues first," he explained.

Leland said when researching his case, he found there was no scientific evidence of any risk in an office environment. "Not at the kinds of levels you typically find in an office," he noted.

There was a case in California, he said, where a jury found personal injuries from a nearby power sub-station. "People have a lot of concern about these issues," he added.

He advised office building owners to be careful about new installations and to make sure there is adequate space for the electromagnetic fields to disburse. "I wouldn't go running around to test my space," he cautioned. "Maybe a kind of 'sit tight' attitude has to be taken."

New York City attorneys, such as the land use group at Rosenman & Colin, are finding they are working under a complete reform of the environmental review process. Now, Leland said, the lead agency is that which needs to give the approval for the project and the city's environmental quality review office has been disbanded. "It has streamlined the review process somewhat," he added.

There are still lingering asbestos cases, observed Kenneth M. Block, who recently changed firms to become a partner at Brown Raysman & Millstein. He observed that in new installations the tenants want to make sure they don't have complaints from their employees about the indoor environment and are showing a little more concern.

With regard to indoor air quality issues, Leland said, people have to recognize that modern office products can create air emissions that have to be properly ventilated.

"Ventilation systems will have to be kept better and cleaned more frequently," Block noted.

Outside the city, he observed, there is still a concern abut radon and leakage from underground fuel tanks.

Nancy A. Connery, a partner with Schoeman Marsh & Updike, is also chair of the Committee on Co-op and Condominium Law of the Association of the Bar of the City of New York. She is worried about a recent decision against the city with regard to lead paint liability but does not think the end result will put owners out of business unless they are forced to remove all the lead from apartments.

"Total abatement is expensive," she explained. While she believes the issue is going to end up in the hands of the product liability attorneys, because it is difficult to prove the degree of injury, she said, "I don't think landlords and insurance companies are going to go belly up."

Clauses

Connery also represents a number of owners of small buildings and commercial tenants. Many owners have recently developed leases that she said are far more reasonable and allow deals to be wrapped up more quickly. These documents, she said, have less boilerplate in the rider and less onerous provisions on issues like assignments and subleasing. In addition to saving time, fees are lower.

"You don't want to spend two months negotiating a lease but around two weeks," she said.

This is because she has observed considerable comparison shopping with tenants still looking for a better deal even while getting to the last wraps on a lease with another party. "Send a document that can be quickly negotiated because comparison shopping can be annoying," she added.

When she is representing tenants "and the other side gives me a long lease and a hard time," Connery complained, "it's frustrating and starts everyone out on a bad foot."

Joshua Stein, a partner at Latham & Watkins, a national full service law firm, said in representing one landlord, they sent out a pro-landlord lease and got back from the tenant word that they were not going to negotiate and sent back their own document. "They sent us a lease that was just as much pro-tenant as ours was pro-landlord," recalled Stein. "We were put in the position of negotiating."

He knows of another Manhattan owner who is using a very simple lease as a selling tool.

The tenants are probably able to get a better deal, Block believes, because its a buyers market and they can obtain better obligations as to things like air standards. In the past, he explained, the clause was 'we will give you heat or air conditioning during this time.'

Now, Block said, with a well represented tenant the owner has a higher standard to meet. "The clauses we've been in involved with discuss the obligation for preventative maintenance," he explained.

Development

Michael Caretnay Bailkin, a partner in Stadtmauer Bailkin Levine & Masyr who represented Alexander's in its dealing with the City of New York and continues to represent a number of major discounters, said he sees this activity increasing. There is a strong interest on the part of discounters in The Bronx, Brooklyn and Queens and a lesser extent into Manhattan, he noted, because it doesn't have the land available.

"They recognize this is a strong market with strong demographics and they have oversaturated the suburbs so that the inner city and New York is the place to be," he said adding they like New York in particular because of the great densities.

Not only does the land have to be acquired, Bailkin noted, but most of the land tracts are zoned for manufacturing and industrial purposes and the company needs to obtain variances or rezoning before mounting its retail activity.

Bailkin said the chains are also becoming more flexible realizing they are not going to find the 10 acres they are used to in the suburbs and exploring parking structures and smaller sites.

Working Out

While Stein said there is still plenty of restructuring, his impression is that the banks are becoming more realistic as to values. "They are either selling or dealing with white knights," he noted. "The logjam is starting to break."

He also believes the city should be doing something to help owners. "Operating costs and taxes being what they are, even with no debt it's tough to make a buck," he observed. "The owners tenants and operators can't afford to keep paying [taxes.]"

Richard Liebman, a partner in Liebman & Liebman of Rockville Center, said recently he is finding he can obtain a contract of sale for a property directly from the mortgagor in default while the bank brokers the deal. "The bank has been paying the mortgagors a consideration to cooperate," he explained, but when the deal goes down, "you have the records, you get your conditions and get a good deed."

When the client is buying a property pursuant to a judgment, he said, the due diligence is "ridiculous" and the client gets a 'quit claim' deed."

Foreign Clients

Stein noted that in the last six months they are encountering more interest from purchasers, particularly those from overseas.

Kevin J. Toner, a partner with Werbel McMillin & Carnelutti, the firm that represented the Banco di Napoli in its recent townhouse purchaser, noted that Italians like their lawyers and advisors to assist them in making decisions.

"They want them to lay out crisply some options," Toner said. "They don't merely want the assistance in conveyance, they want advice and counsel as to the business aspects of the situations."

For investments, the Italians look to the East Side for both stability and security purposes. "They have their own belief and understanding of Manhattan in stable, secure neighborhoods," Toner observed. "They like their retail on Madison and Fifth for quality space New York City is the perception of America.

Toner explained that transactions involving the Italians involve several steps because for Federal tax purposes the ownership of the properties is placed in an off-shore corporation. "More often than not a domestic corporation holds the real estate and the domestic shares are owned by the offshore corporation," he explained.

The attorney advised having multilingual capabilities in an office that works with foreigners. His firm has onstaff an Italian lawyer, usually from their Milan office and many of the secretaries are bilingual with one qualified to do legal translations. Toner also advised sensitivity to the cultural differences, such as the general closing down of businesses in Italy for the month of August.

Co-ops

Sam Schneeweiss, a partner with Becker Ross Stone Destefano & Klein, represented a client recently who was selling a unit on Central Park West for more than $1 million. Schneeweiss was holding the escrow of 10 percent equaling $130,000 and didn't know whether to keep it or release it while his clients did not know whether or not to keep seeking purchasers.

They were waiting and waiting to hear whether the purchasers were accepted by the co-op board. "No one heard anything," said Schneeweiss, "and the managing agent wouldn't return calls."

After three months, someone in the agents office finally told them the purchasers had been rejected "without even an interview."

Schneeweiss believes either the co-op or managing agent should be formally notified of an acceptance or rejection.

David L. Berkey, a partner in Gallet Dreyer & Berkey, said there are major problems for cooperatives and condominiums in obtaining mortgage money, even in a setting where there are large blocks of sponsor units but enough cash flow to support the debt service on the underlying mortgage.

While there is refinancing available for those buildings that are solid enough to obtain mortgage money, he notes it is those buildings with problems that the banks won't touch and would reap the most benefit from lower rates.

"Banks are refusing to lend and even preventing the marketability of individual apartments," he noted.

Berkey says the combination of tax problems and tight money has "chilled" transactional real estate over the last few years.
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Article Details
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Title Annotation:Legal Review; evaluation of legislation and economic conditions affecting real estate industry
Author:Weiss, Lois
Publication:Real Estate Weekly
Article Type:Column
Date:Jul 21, 1993
Words:1859
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