Law Notes

UPCOMING LLC LAW CHANGE

“The Office of the Secretary of State (OSS) wants to remind all limited liability companies formed prior to August 1, 2015 that they will become subject to a new law passed by the 2015 Legislature, Chapter 322C, beginning January 1, 2018. 

It is recommended that owners contact their attorneys, accountants or other business advisors well before the end of the calendar year to review the impact of the new law.”

Call 218-692-6999 to schedule a consultation.

http://www.sos.state.mn.us/business-liens/business-help/upcoming-llc-law-change/

Kurt W. Porter Prevails at District Court in Dispute over Ambiguous Plat

 

We are very pleased to announce that clients of Severson Porter Law prevailed in a contentious matter spanning several years involving an ambiguous plat of valuable lake properties on the Whitefish Chain.  Kurt W. Porter was the lead trial lawyer representing the Defendants and presented the case at trial.  The Plaintiffs were represented by a highly reputable law firm. The ambiguous plat resulted in an extensive disputed territory that, depending on which party prevailed, resulted in a lot more or a lot less lake shore.  The trial judge issued a very detailed and well written decision. We are overjoyed for our clients.

Lake Home Rental 101

    By: Mark A. Severson

    There are many issues to consider when deciding to offer your lake home for rental. This article focuses on the business and legal aspects by providing a survey of issues surrounding the lake home rental.

    First, consider that when listing your home through short-term rental service providers such as Airbnb, VRBO, etc. you are essentially running a business. As with any business, consider what risks and liabilities may be present. Does it make sense to incorporate and have an entity own the home to provide liability protection? If your home is regularly available as a short-term rental it may make sense to incorporate and run the rental like a business. At a minimum, it is worth discussing with your trusted attorney and accountant.

    Second, consider compliance with rules and regulations. When you rent your home it is imperative to make sure the home rental complies with the laws and ordinances of Minnesota, Crow Wing County, and the municipality or township in which the property is located. This due diligence does not necessarily require retaining an attorney, as most of our local officials are very helpful. Speak with the City Clerk or Administrator and ask for relevant information related to the regulation of short-term rentals. The City or Township official should also be able to inform you of any business license or permits that may be required for a rental operation.

    All that being said, the legal landscape for short-term rentals is frustratingly unclear in Minnesota. In fact, in 2014, a study was conducted by Crow Wing County Land Services on short-term rentals. At that time the County Board had evidently received enough complaints regarding short-term rental nuisances to justify looking into the issue for resolution. Ultimately, nothing was done and the status-quo continued.

    The Crow Wing County Land Use Ordinance, then and now, does not explicitly identify short-term rentals as an allowed, permitted, or conditional use in its land-use tables. Under the terms of the Land Use Ordinance, any uses not listed in the land use tables are prohibited. Accordingly, by not regulating short-term rentals in the Land Use Ordinance, local governments put home owners in a difficult position, since the use is technically prohibited.

    Nevertheless, Crow Wing County and similar counties have implicitly allowed short-term rentals. Many land-use departments take the position that regulation of the use is either under the umbrella of the Minnesota Department of Health or local police powers (responding to complaints of nuisance). Based on the 2014 study and subsequent inaction, it is reasonable to conclude that short-term rentals are an unregulated use that is allowed within Crow Wing County.

    The most common complaint and/or liability with short-term rentals results from the behavior of the guests. The guests are, after all, in “vacation and party mode” in the beautiful Brainerd Lakes Area. Therefore, homeowners should take steps to minimize the potential negative impact a short-term rental can have on neighboring properties and even the lake.

    Homeowners are free to regulate the use of the property and to impose strict rules.
    Consider making it a term to the contract to incorporate by reference any rules of behavior posted on the property. Post rules that prohibit excessive noise or behavior that would burden the neighbors. What constitutes a “burden” can certainly be subjective, but in making the effort to regulate conduct, you have at least done your part in attempting to minimize any intrusion into your neighbor’s ability to enjoy his or her property.

    Also, and perhaps more importantly, consider providing “lake rules” for your guests. Some guests may be visiting a Minnesota lake for the first time and may not know how to respect the health of the lake. It may be helpful to provide a concise guideline on proper lake behavior. For example, provide a reminder not to ever litter in the waters and stress the importance of thoroughly cleaning a boat and trailer if a guest is going from lake to lake. There are many other examples of proper lake behavior addressed in DNR pamphlets that could be provided in a welcome packet.

    All these considerations can be addressed in your short-term rental contract or even on site. It may work out to throw caution to the wind when engaging in a short-term rental, but by clearly communicating what can and cannot be done during the course of a short-term rental, you are doing your guests, your neighbors, and yourself a favor.

    In consideration of all these issues, if you already offer your property for a short-term rental or are considering doing so, it is recommended to involve your trusted accountant, real estate agent, and/or attorney in the process. It is also encouraged to communicate with the local governmental controls – you will likely find that the offices are very helpful on issues such as this and any others related to the use of your property. Finally, it is encouraged to foster a good relationship with your neighbors and attempt to address any concerns they may have with a short-term rental. Often times it is the little acts of kindness in being neighborly that avoids future legal issues.

    Mark A. Severson certified as MSBA Certified Real Property Law Specialist

      Mark Severson has been certified by the Minnesota State Bar Association as a Real Property Law Specialist. Administered by the MSBA, the certified specialist designation is earned by leading attorneys who have completed a rigorous approval process, including an examination in the specialty area, peer review, and documented experience. This achievement has been earned by fewer than 3% of all licensed Minnesota attorneys.

      Riparian Rights: What do you really own?

        By: Kurt W. Porter

        “There are certain interests and rights vested in the shore owner which grow out of his special connection with such waters as an owner. These rights are common to all riparian owners on the same body of water, and they rest entirely upon the fact of title in the fee to the shore land.”
        – Justice Leroy E. Matson –
        Minnesota Supreme Court

        Every person who purchases a lake lot does so with the expectation of exercising the “riparian rights” that come with owning lakeshore property. But what are these “riparian rights”? They are not spelled out in the purchase agreement or in the deed for the property. Riparian rights are those rights inherent to the ownership of shoreline that permit the owner to use and enjoy the water. The right to “use and enjoy water” means the right to make use of a lake over its entire surface. But that use must be reasonable. It cannot interfere with the exercise of similar rights on the part of the other abutting owners who share riparian rights.

        Of course a lake lot owner’s riparian rights, no matter how seemingly reasonable, are not limitless. A landowner’s riparian rights are still subject to state regulation, which is promulgated by the Minnesota Department of Natural Resources, which, in turn, often defers at least some authority to the local branches of government.

        It is difficult, if not impossible, to identify every use of the water that could be deemed “reasonable.” We know it is reasonable, for example, to boat, hunt, and fish. Important to many lake owners, it is also reasonable to install a dock and watercraft lift long enough to reach navigable water depths, so long as the dock and/or watercraft lift do not constitute a hazard to navigation or public health, safety, and welfare. It is likely to be considered an “unreasonable” use if the design and location of your dock extends in front of your neighbor’s beach. To state the obvious, the best practice is to install docks and boat lifts so that mooring and maneuvering of watercraft can normally be confined within the property lines as if they were extended into the water.

        Like many land-related rights, it is possible to separate the riparian rights and sell or assign them independently of the land to which those rights are attached. But even the right to sell riparian rights is limited; many counties (including Crow Wing County) restrict the right to provide access to public waters for non-riparian owners through a riparian lot. It is possible, but difficult. Normally, the public’s only access to a lake is if the public owns land adjacent to the lake.

        If the public owns land that abuts a lake, such as a beach, a mutual right of enjoyment is shared by riparian owners and the public generally. On a public lake, therefore, the private owner has no more right to the recreational benefits such as boating, hunting, and fishing on that lake than does the general public. A common mistaken belief is that the State of Minnesota owns a strip of land around all Minnesota lakes for public use, making all lakes accessible to the public. Much to the relief of all lakeshore owners, this is absolutely false. Like all property, lakeshore is either privately or publicly owned and the general public can access water bodies or watercourses only through public property, not through private property. And, like all property, those unaware individuals who enter private property without permission from the landowner are trespassing and may be prosecuted under the state trespass laws.

         

        NOTHING EASY ABOUT EASEMENTS

        By: Mark A. Severson

        With multiple law offices in the Brainerd Lakes Area, a significant portion of our practice is devoted to easements. Clients often come in with their own assumptions of what an easement is and what it entails. The world of easements is as broad as it is complex. Easements can be an incredibly useful tool to resolve disputes or problems either through real estate transactions or litigation. Specifically, an easement can be used to provide access for a driveway or even to a lake. An easement can also be used to preserve wetlands or to protect certain portions of land from development or use. This overview provides a mere snapshot of the concept of easements.

        Easement Defined

        easement
        An easement is defined as the right in the owner of one parcel of land, by reason of such ownership, to use the land of another for a special purpose not inconsistent with a general property right of such owner. The grantor of the easement retains fee title to his or her land. The benefitting party gains the ability to use the grantor’s land for the stated purpose set forth in the easement. In simple terms, an easement provides the right to use another’s land for whatever purpose the easement was created. That use, however, is limited to the specifically described uses in the written document creating the easement. The use may be exclusive to a benefitting party or others may have rights to use it at the same time (non-exclusive). An easement may be perpetual and “run with the land” or not run with the land and be available to only the benefitting party during the benefitting party’s lifetime. An easement can also expire by its own terms or with a deadline. Finally, an easement can be deemed abandoned if not put to its intended use within forty (40) years.

        Ambiguous Description of Location

         

        When a real estate attorney is not used to draft the easement the most prevalent issue is not specifically defining the location of the easement through a legal description or the area is defined by the entire lot (blanket easement). In the case of a blanket or undefined easement as to the location, the portion of the land not actually used may be released from the easement or a Court could reform the easement based on evidence of actual use (again, if it is not used at all in a forty year span, the easement could be deemed abandoned).

        Negative Easement: Banning Certain Uses

        It is even possible, if the relevant parties agree, for example, to use a “negative easement” to prevent the construction of a dock that would obstruct the lake view. A negative easement bans or restricts a particular use on the burdened land. It does not allow the owner of the dominant estate to make some direct use of the burdened land. A negative easement may be used for many reasons including, but not limited to, for light, air, lateral support, views, or even water flow.

        Conservation Easements: Restrict Uses of Land

        A conservation easement is another type of negative easement, to restrict use of land in a natural form, at the request of government or private landowners. Typically, a conservation easement is used with the goal of preserving natural habitats such as a lake or a stream. A conservation easement is intended to leave certain property in its natural state by preventing development or intense uses. In the case of a lake, certain activities could be restricted along any fragile areas such as the shoreline to improve water quality. More often than not conservation easements are created through the efforts of the responsible government entities. Like all easements, the landowner with the property burdened by the easement still retains fee title in his/her property; however, once granted, the restriction on use must be considered in its valuation.
        Again, this merely scratches the surface of easements. There are other types of easements. For example, a prescriptive easement can be established by use of the property if certain legal elements are satisfied.
        If you have a property that could use an easement or is already burdened by an easement or, perhaps, benefitted by an easement, it may be prudent to have a discussion with a real estate attorney over the rights and duties involved in the easement. Done properly, easements can ease the use of one’s property and, hopefully, encourage and foster neighborly relationships.

         

        Lake Improvement District as Legal Option to Preserve a Lake

        By: Mark A. Severson

        One of the most precious resources in Minnesota is our pristine lakes. The value of lake property is tied to the health of the lake. If a lake is overcome with invasive species it inevitably impacts the value of lake properties. Thankfully, active and sophisticated lake associations accomplish much in the way of maintaining the health of a lake. However, associations do have some limitations that a Lake Improvement District (“LID”) can address. For example, collection of funds can be a difficult obstacle for lake associations to maintain a budget. A LID removes the difficulties associated with begging fellow lake property owners for money. It is not merely about money though as the goal of a LID is to preserve and protect the particular lake and to enhance the use and enjoyment of the lake.

        A LID is a newly formed local unit of government with taxing authority that is established by resolution of the appropriate County Boards and/or city governing bodies, or by the Commissioner of Natural Resources. The County Board delegates specific authorities to the LID. The process of establishing a LID is enumerated in Minnesota Statutes and Minnesota Administrative Rules.

         

        Process to Establish a LID

        To convince the County Board to pass such a resolution a petition must be signed by at least Twenty Six percent (26%) of the proposed district property owners. There are specific legal requirements for the content of the petition. The County Board has thirty (30) days to act on a petition. Before the County Board conducts a hearing on the petition, it must notify the town board of a town wholly or partially within the boundaries and ask for a response. The County Board must also send the petition to the DNR and Pollution Control Agency for review and comment within at least 21 days prior to the public hearing. Then, within 30 days after being notified of the petition, the County Board must hold a public hearing on whether the requested LID should be established. Finally, within 30 days after holding the public hearing, the County Board shall, by order, establish or deny the establishment of the petitioned LID.

        Improvements Eligible for Establishment of LID

        The types of improvements eligible for the establishment of a LID include, but are not limited to, (a) studying the sources of and solutions to lake problems, (b) preserving and improving water quality by means of water and related land management, (c) sedimentation and silation control, (d) shoreline erosion control, (e) aquatic nuisance control, and (f) preserving and improving fish and wildlife habitat, (g) preserving and improving recreational potential of the lake, and (h) any other purpose approved by the County Board.

        Financing LIDs

        County Boards have myriad options for financing LID projects, services, and general administration. The options include, though only after seeking other sources of funding, assessing costs to benefited properties, imposing service charges, issuing general obligation bonds, levying an ad valorem tax on property within the district, or any combination of these options.

        Conclusion

        LIDs offer many tools and resources to preserve lake quality. Lakes that enjoy significant use, high boat traffic, and likely guest boat traffic, may find it advantageous to have a LID. Many neighboring lakes have successfully implemented LIDs. This law firm has formed a LID that has all but saved a lake that many thought at one point could not be saved and is experienced in LID development and management. A LID may not be the best option for a particular lake but it is a useful tool offered within Minnesota.

         

         

        Common Interest Communities 101: Choosing the Right Type of CIC

        By: Kurt W. Porter

        The previous post in this series, “What Are CICs”, introduced a few of the most basic concepts related to common interest communities, or “CICs”. As was briefly discussed, all CIC’s in Minnesota are one of three types: (1) a “Condominium”, (2) a “Cooperative”, or (3) a “Planned Community”.  This post explores the three types of CICs and some of the factors that may be considered in determining which type of CIC to use. With this, however, comes the obvious disclaimer that each individual situation is different and the factors listed here are only some that may be applicable in a general sense.

        The first type of CIC is the most frequently used, likely because it is the most broadly defined. Any CIC that is not a Cooperative or a Condominium (the other two types of CICs) is a “Planned Community”.  In a planned community the owner owns the unit.  Units are generally defined to include at least the structural residence (if not also the land around the structure).  There is an owner’s association tied to the planned community; the owner’s association will own and maintain all other property in the planned community that is not a unit.  This other property is known as the common property.  Another reason planned communities tend to be used more frequently is because the ownership structure of a unit in a planned community is generally easier for potential buyers to understand.  The homeowner owns his or her unit, and the owner’s association owns everything else.  For the same reason, financing to purchase units in a planned community tends to be easier than, for instance, in a cooperative.  Planned communities work well for, among other things, townhomes and single family detached homes.

        In a Condominium-type CIC, a unit owner owns his or her unit, which is typically defined as the space between the walls, ceiling, and floor (and, thus, does not include the structure around the unit, i.e., the building in which the unit is located).  This is a drawback for those if the condominium CIC is new construction; a condominium unit does not physically exist until all the floors of all the buildings (if there is to be more than one residential building) are framed in.  Unlike a planned community, where a separate entity (the owner’s association) owns the common elements of the CIC, in a condominium CIC unit owners share an undivided percentage of interest in the common elements. This may be a marketing point for the sale of units, as some potential buyers will undoubtedly enjoy the idea that they own an interest in the common elements of the property.  Similar to planned communities, condominiums are fairly easily financed, which may make them more marketable to the consumer.

        Cooperatives are relatively rare in Minnesota.  This may be for a number of reasons.  For instance, instead of owning a unit (or any real property), a person owns a membership interest or share in the cooperative.  It should be noted that the ownership interest in a cooperative is more often than not deemed as personal property but in rare instances may be couched as real property.  As a member of the cooperative, the member is entitled to lease a particular unit in the cooperative.  Because the individual units are not separately legally defined, financing can be troublesome.  A lender does not have a separate legal description to which it can attach a mortgage as security.  Instead, the lender must use the membership interest in the cooperative that is merely pledged as security against the loan by the owner.  Only a minority of lenders in Minnesota will have the experience or ability necessary to finance a cooperative.  Obviously, this can make marketing membership interests in a cooperative difficult.

        The factors discussed above are only some of the many considerations one should undertake before delving into the arduous process of creating a CIC.   The CIC statutes are extremely complex and ever changing, and strict compliance by the developer is legally required to avoid potentially severe adverse consequences.  The absolute necessity of advice from an experienced real estate attorney at the inception of the development cannot be overstated.

        *This article does not constitute legal advice and is not intended to constitute advertising or solicitation for legal services. Nothing in this article should be construed by you as a source of legal advice. You should not rely or act upon the contents of this article without seeking advice from your own attorney.

        Series: Should I Incorporate My Business?

          By Lonny D. Thomas

          On average, I probably talk to at least one business person each week who asks me whether I think it would be appropriate or necessary for him or her to incorporate his/her business. (By incorporating, I mean operate the business as a corporation, limited liability company or other type of recognized business entity, all of these specific issues will be addressed in a separate blog. For purposes of this blog, when i say “incorporate”, I mean operate my business through a separate legally created business entity, regardless of the type of entity selected, rather than through the individual as a sole proprietorship.) Let me start by saying that it is almost never absolutely necessary to incorporate, the question is more whether it would be appropriate or prudent to incorporate.

          The primary legal reason for incorporating your business is to protect your personal assets from claims or liabilities that are incurred by your business. The importance of this fundamental concept is not fully appreciated or understood by many business owners.

          Incorporating your business essentially creates a different “person” that is responsible for the debts of the business. Subject to certain exceptions, most of which you as the owner of the business entity will control, the corporation is exclusively liable for the debts and obligations of the business operated by the corporation, not you individually as the owner (shareholder) of the corporation. Conversely, the individual owner of an unincorporated business generally will be held individually liable for the debts of the business.

          That does not mean that all persons who operate a business should always incorporate. In addition to the initial costs of setting up the corporation, there are other expenses caused by operating as a corporation which could militate against incorporating. For example, a corporation must file its own separate income tax returns and maintain separate financial books and records, all of which cost money.

          Although there certainly are businesses for which it probably does not make sense to incorporate, I think it is fair to say that it makes more sense for most businesses to incorporate. There are a few rules of thumb that I use in helping clients decide whether it makes sense to incorporate. Just a few of these are as follows.

          Does the business have any employees (other than the owner) for whose actions the owner could be held personally liable? It generally makes no sense for a business owner to expose his/her personal assets to claims asserted against the business owner based only upon claims for the conduct of a third party employee. Creating a protection barrier against such claims against the owner and his/her individual assets is a sound basis for incorporating.

          Does the business use vehicles that are operated by either employees or independent contractors in the operation of the business? Your insurance agent will tell you not to worry about this element. But with all due respect to the insurance business, insurance companies are in the business of accepting premium payments from customers and then denying coverage/claims whenever there is a legal basis for doing so. Whether the claim is covered by insurance is not nearly as threatening if the claim is against your corporation rather than against you individually.

          What is the nature of the business you are operating and what is the nature of the claims that can be reasonably anticipated to arise from the business? Some businesses, by their very nature, should not be expected to generate claims that cannot be “fixed” by the business, if they arise at all. For example, a painter or sheet rocker (who has no employees) is likely to be able to repair or otherwise “fix” a customer complaint based only upon the quality of his/her work. Simply, repaint the defective workmanship. Conversely, an electrician, whose defective wiring burns down the house, probably has a bigger problem, and is likely not protected by insurance coverage.

          There may also be tax reasons to incorporate, but I am not trained in tax matters and do not provide tax advice. I defer to other professionals in connection with the analysis of this issue. But, I know enough to advise that it is worth looking into whether incorporating will provide deductibility for expenses that not otherwise be deductible if the business were not incorporated.

          In sum, I think it is fair to say that most businesses, especially as they become more and more successful, are probably better off being incorporated. If you would like to discuss with us whether it is reasonable to incorporate your business contact us at your convenience.

          Common Interest Communities 101 Series: What are CICs?

            By: Kurt W. Porter

            Most land developers may be familiar with the basic concepts of common interest communities, or “CICs”.  Often when one thinks of CICs, the first thought that comes to mind is townhomes: each person owns his or her residential unit and contributes (usually through an association fee) to the taxes, insurance premiums, maintenance costs, or construction costs associated with a different area of land that is generally available for use to all others in the CIC, often called “common area.”  While townhomes are often cited as the quintessential CIC, not all CICs need be set up as townhomes.  In fact, CICs need not be residential land developments at all and may be used to create storage units, boat slips, and many other types of non-residential uses.

            This series addresses the concept of CICs in Minnesota.  It is an ever-changing area of law that is complex and laced with numerous pitfalls for the unwary developer.  This is true from the very beginning of a land development when one must determine what type of CIC is the best fit for the intended use of the property. It is also important to note that the laws regulating CIC’s are very dynamic and materially change regularly, both by changes in statutes and Court decisions.

            To begin, a CIC may be “flexible”, which merely indicates that land may be added to the CIC at a later time.  While the designation may seem inconsequential, a flexible CIC has additional requirements that must be considered before the CIC is even created.  An informed decision as to whether or not a CIC should be designated as flexible can help save many headaches down the road.   As a buyer, the purchaser of a CIC unit in a flexible will want to know whether the purchased unit is part of an existing unit that will not expand, or may be only a less important unit in a larger and ever expanding project.

            Whether or not a CIC is flexible, all CIC’s must be one of three types of CICs in Minnesota: (1) a “Condominium”, (2) a “Cooperative”, or (3) a “Planned Community”.  These three types of CICs are distinguished and characterized by the level of ownership afforded to the individual property owners in the CIC.  For instance, in a cooperative, a homeowner’s association owns all the real estate, which is divided into “units”, and each member of the homeowner’s association is entitled to lease a unit (this is very important for finance purposes because the leasehold interest is personal property and cannot be mortgaged, which complicates buyers obtaining financing for lenders who are not familiar with cooperatives).  Whereas the owner in a condominium CIC owns his or her unit, but the unit is typically defined as the space between the walls, ceiling, and floor (and, thus, does not include the structure around the unit, i.e., the building in which the unit is located).  In a planned community, again the owner owns the unit, but units in planned communities are generally defined to include at least the structural residence (if not also the land around the structure).  Planned communities are the most frequently used type of CIC in Minnesota.

            There are both short term and long term considerations that must be taken into account for each of the three types of CICs.  The Minnesota legislature has taken great pains to draft the CIC statutes to favor and protect unit purchasers (including prospective unit purchasers).  As was mentioned earlier, the CIC statutes are extremely complex and ever changing, and strict compliance by the developer is legally required to avoid potentially severe adverse consequences.  The absolute necessity of advice from an experienced real estate attorney at the inception of the development cannot be overstated.

             

            *This article does not constitute legal advice and is not intended to constitute advertising or solicitation for legal services. Nothing in this article should be construed by you as a source of legal advice. You should not rely or act upon the contents of this article without seeking advice from your own attorney.