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News for Residential Real Estate Investors: DOJ receives Verdict against Landlord Disability Discrimination.

img_1417Here’s a profound truth those in the real estate industry will readily acknowledge:

Owning and Managing Real Estate is uniquely challenging.

I hear it from my Property Owner/Manager clients. I experience it when I am involved in negotiating in landlord/tenant disputes.

I believe that is why, at least in West Michigan, there is an opportunity for good property management companies – and a handful of companies I work with locally do it really well.

 

Some of the pitfalls property owners/managers have to watch out for are illustrated in a recent press release announce by the Department of Justice.

Yesterday the Department of Justice announced that it obtained a verdict in a disability discrimination case against a Landlord

 

 

According to the press release,

The lawsuit, filed in U.S. District Court in Butte, alleged that Jaclyn Katz, the owner and manager of rental properties in Bozeman, discriminated against Kristen Newman, a tenant with physical and psychiatric disabilities, by charging her a $1,000 deposit as a condition for allowing her to keep her service dog, Riley.  At trial, Newman, her treating therapist and an independent expert testified that Riley assisted Newman in living with the symptoms of her disabilities, including providing emotional support, helping to predict migraines, and reducing suicidal thoughts.  Newman also testified that she repeatedly informed Katz that charging a deposit for a service animal was illegal and that Newman understood that she would have to pay for any actual damage caused by her service dog.

 

 

Not good.

A right to a Service animal is legally protected under the Americans with Disabilities Act.

Michigan Law requires a public accommodation to permit the use of a service animal by a person with a disability.

Among other things:

“A public accommodation shall not ask a person with a disability to remove a service animal from the premises due to allergies or fear of the animal. A public accommodation may only ask a person with a disability to remove his or her service animal from the premises if either of the following applies:

(a) The service animal is out of control and its handler does not take effective action to control it.

(b) The service animal is not housebroken” MCL 750.502c

 

Landlords and property owners should heed the warning of General Deputy Assistant Secretary Bryan Greene of the U.S. Department of Housing and Urban Development’s Fair Housing and Equal Opportunity.

“Many people with disabilities require the assistance of an animal to carry out major daily activities,” said  “Complaints alleging disability discrimination now account for the majority of the complaints HUD receives. HUD will continue to enforce the law and educate the public on the rights of people with disabilities in housing.”

.

I wonder, did the landlord/property owner ever consult with legal counsel on its practices?

There are some lessons to be learned for landlords, property owners, managers, and real estate investors.

 

Two takeaways from this news headline:

 

1. It is worth being proactive and engaging legal counsel. 

Issues arise. When in doubt, e-mail or call your attorney.

 

2. Residential Real Estate Investment is highly regulated.

If you are a landlord leasing out “residential” property as opposed to purely commercial property (business tenant), you are under much more stringent regulations. You must comply with Federal laws, like the Fair Housing Act and state laws, like the Michigan Truth in Renting Act. Make sure you are operating lawfully.

 

Questions? Comments?

email: Jeshua@dwlawpc.com

http://www.dwlawpc.com

Twitter: @JeshuaTLauka

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Business Law Update: A discussion on Business Shareholder Oppression.

March 10, 2017 Leave a comment

There are relatively few court opinions covering the Michigan Limited Liability Company Act. There have been even less on the issue of minority oppression claims. So I was excited to see a recent Court of Appeals decision on that subject. Check out t2017-02-04-08-16-38-2he February 9, 2017 unpublished decision of Wisner v SB Indiana, LLC, et al

The Wisner case involves two separate parties who claimed an owner/manager, Hardy, violated their rights as members and froze them out of the company.

The first question to ask is, “freeze out from what*?”

                         Control – Decision-making

                         Disclosures of Company Business

                         Profits in the Company

                         Employment in the Company.

What should a business owner/operator do to protect himself/herself?

Well, you have two readily apparent choices – address the issue before the business is formed, or address it once the problem arises.

     1. Addressing the problems before the business starts.

The easiest way is this option: Get an Attorney involved at the onset of the business relationship.

Many of these business disputes in closely held companies could be resolved if, before going into business, the parties openly communicated their expectations, concerns, and clearly articulated in the formation documents (articles of incorporation/organization, Bylaws, shareholder agreement, Operating Agreement) a way out of the business relationship.

This could be the most cost-effective way to ensure to resolve business disputes – address them before they happen – with open communication, and clearly and concisely drafted (and executed!) documents.

       2. Addressing the problems once they occur: Shareholder/Member Oppression Lawsuit.

Michigan law provides a cause of action against the shareholders/member
s who are in control of a company and oppressing minority owners:

Minority Shareholder Oppression, MCL 450.1489 (Minority Member Oppression, MCL 450.4404)

“A shareholder may bring an action…to establish that the acts of the directors or those in control of the corporation are:
illegal;
fraudulent;
or willfully unfair and oppressive to the corporation or to the shareholder.” (*in my experience this has been the most often the scenario where these cases arise – from the “freezing out” the minority owners from the business)
“If the shareholder establishes grounds for relief, the circuit court may make an order or grant relief as it considers appropriate, including, without limitation,
an order providing for any of the following:
(a) The dissolution and liquidation of the assets and business of the corporation.
(b) The cancellation or alteration of a provision contained in the articles of incorporation, an amendment of the articles of incorporation, or the bylaws of the corporation.
(c) The cancellation, alteration, or injunction against a resolution or other act of the corporation.
(d) The direction or prohibition of an act of the corporation or of shareholders, directors, officers, or other persons party to the action.
(e) The purchase at fair value of the shares of a shareholder, either by the corporation or by the officers, directors, or other shareholders responsible for the wrongful acts.”

Although this Statute applies to closely held corporations, there is also a virtually similar Michigan statute that applies to LLCs.

Therefore, if a court finds that those in control of the business committed misconduct against a minority owner amounting to “oppression”, the Court has broad discretion to create the type of relief it deems is best.
Back to the Wisner Case:
Without getting into the details of the case, there are two points the Court made relating to oppression claims.
a. Is failing to communicate with the minority members oppression?
The Wisner Court looked at the claims made by the minority member – that the manager “cut him off from communication.” The court found that, although Defendant substantially interfered with the minority member’s ability to com
municate…this did not constitute unfair and oppressive conduct.  The court found that “it does not appear that his rights as a member of the LLC provided by MCL 450.4102(q), including any right to receive a distribution, or vote were substantially interfered with by Defendant’s conduct.”
b.  If the Operating Agreement allows activity – that activity cannot be “oppressive”
The court also noted that at the formation of the company the parties had executed an operating agreement to govern their relationship.
The court noted that the oppression statute “had no application if the conduct at issue was authorized by an operating agreement. So to the extent that any of Mr.
Hardy’s actions were authorized by the agreements, then he cannot be found to be willfully unfairly oppressing these members.” Id. Pg 4.
“Likewise the case law has indicated that even a breach of those operating agreements would not be enough to find that he was willfully unfair and oppressive in his conduct.”

Lesson:

Sometimes filing a law suit for Minority Oppression is warranted due to the egregious misconduct of those in control of the company.  However, to constitute “oppression” giving a minority owner relief, such conduct will need to be proven with sufficient facts.

The obvious take away points are two-fold:

1. Get an attorney involved before the business relationship begins and clearly document the
business relationship, especially an exit strategy
. Any conduct the parties agree to in their shareholder/operating agreement cannot be “oppressive”.

2. If you are being frozen out of control in a business – Michigan law gives you broad remedies, including the minority shareholder/member oppression statutes.

Questions?

Comments?

e-mail: Jeshua@dwlawpc.com

http://www.dwlawpc.com

Twitter: @JeshuaTLauka

Michigan Legislation Update: The Urban Food Initiative. Community Revitalization To Include Downtown Grocery Stores.

February 15, 2017 Leave a comment

Two Thanksgivings ago I took my family to New York City.

Even amidst the chaos of protecting my 4 young children from darting out in2015-11-26-13-04-02to oncoming traffic – we absolutely loved the City.

We loved the walk-ability of City life – that you could walk down a block to a grocery store and get all of your household needs.

I love downtown Grand Rapids.

If Grand Rapids wants to encourage urban living, it needs a downtown grocery store.

Yesterday, House Bill 4207 was introduced in the Michigan house. Known as the “Urban Food Initiative” it would provide incentives for community revitalization that would include a downtown Grocery Store.

Specifically, HB 4027 would make “Urban Food Initiatives” allowable to receive funds under the Michigan Community Revitalization Program

The Bill defines Urban Food Initiatives as:

Property that will be used primarily as a retail supermarket, grocery store, produce market or delicatessen that is located in a downtown area…that offers unprocessed USDA inspected meat and poultry products or meat products that carry the USDA organic seal, fresh fruit and vegetables, and dairy products for sale to the public.”

Clearly having available and healthy food options in a downtown are necessary to City living. Check out today’s article from Next City about the Food Revolution in Detroit.

A downtown grocery store is necessary if a City wants to attract urban living – it is also necessary to provide healthy food options for those living downtown without readily available transportation.

I think particularly of the under-employed and the homeless who receive services from organizations like Mel Trotter Ministries. Grand Rapids has a need for affordable housing for the most vulnerable in our society. It would be great to see grocery options as well.

I am looking forward to tracking the progress of this bill. I am also encouraged by the many businesses in West Michigan asking the question: “How am I building a better community?

e-mail: Jeshua@dwlawpc.com

http://www.dwlawpc.com

Twitter: @JeshuaTLauka