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Chapter 15 Non-Residential Specialties Chapter Outline Subdivisions Office Buildings Commercial Properties Industrial Properties Agricultural Property Undeveloped Land Bulk Sale Liquor License Personal Property Plus Real Property Internal Revenue Code 1031 Exchanges and Accommodators Chapter 15 At the conclusion of this chapter, you will be able to: 1. Understand the difference between the previously residential sale escrow and the sale escrow instructions used to transfer property ownership from a developer/builder to a home buyer. 2. Give a definition for what type of transaction requires an escrow. 3. List the types of documents used for a subdivider/builder home sale to a buyer. 4. Differentiate between real and personal property. 5. Explain the requirements for an escrow involving a commercial, retail property. Subdivisions The process involves the conversion of land into a completed project. Involves special title insurance policy coverage due to mechanic’s liens Priorities Off-site work On-site work Notice of Non-Responsibility Office Buildings Generate income Commerical tenant Common area Office Building Escrow Lease agreement Profit & Loss statement Sign restrictions Non-Competitive covenant clause Tenant association documents Maintenance reports Employee records Vendor contracts and contacts Parking assignments and information What is commercial real estate ? Industrial or agricultural Non-owner occupied Retail usage Multi tenants Commercial Escrow Legal parties and property description Loan information (new and existing) Insurance information Lease agreements and deposits Industrial Property Raw land Long-term lease of land with tenant who constructed the improvement Land and improvements Industrial Property Escrow Environmental issues Zoning laws and regulations IRC 1031 tax exchange Franchise requirements Fire department clearance City inspection clearance Agricultural Property Farms Vineyards Groves With buildings Without buildings •EMBLEMENTS Agricultural Property Escrow Farmer’s Home Administration (FmHA) Forest Service Park Service Bureau of Land Management Department of Agricultural Army Corps of Engineers Undeveloped Land Geological survey Flood Zone Seismic zones Mineral, gas, and oil rights Easements Bulk Sales Transfer Change of Ownership Covenant Not to Compete Provision Personal Property Real Property Financing Documents Bulk Sales Escrow Uniform Commercial Code (UCC) Notice to Creditors of Bulk Sale County search for name: Fictitious Business Name Doing Business As (DBA) Release from California Franchise Tax Board State Board of Equalization Use Tax Certificate of payment Employment Development Department (EDD) Liquor License Alcohol Beverage Control (ABC) On-Sale general liquor license Off-Sale general liquor license Licenses issued specific for each county Transfer requires government approval Personal vs. Real Property Personal Property: Bill of Sale Subject to sales tax Shorter depreciation Real Property: Grant Deed Affixed, annexed, appurtenant No movable, by law IRC 1031 Exchange Escrow Allows investor to sell one property and obtain another property without paying income tax on the profit at the time of the sale Defers the tax due. Not “tax FREE”. Exchangor Relinquished property Replacement property Intermediary: Accommodator Constructive receipt Think About It! The owner of 80 acres in the unincorporated county area near Golf Cart City bought the lot as an investment for $50,000 with a barely livable, very old wooden house. After 10 years of living on the property it is now inside the city limits and the owner is approached by a developer with an offer for $1 million cash plus the “model” condominium unit free-and-clear to live in after all units are sold, including the unit upgrades, furnishings and attached fixtures. The seller accepts the offer. Escrow opens and the preliminary title report is received by the buyer. The city council has zoned the area that includes the undeveloped land for one single-family detached home per acre. The developer calls escrow to cancel since the offer was contingent upon securing financing for the development of the condominium project. Another developer opens escrow with the same seller on the same property with the same escrow company for $300,000. What are the rights of the seller to sue the city for the loss of value? Think About It! (Answer) A zoning ordinance is a legitimate exercise of a government’s right to police power. The restriction on population density of an area is to reasonably protect the public health, welfare and safety for sanitation, police and fire protection and prevention, adequate schools, libraries, etc, and other infrastructure needs. The ordinance is non-discriminatory since it applies to ALL property owners in the area. If the value is lowered too much the property owner might sue the city for confiscation, but in this case even though the decrease in value is substantial, the seller is realizing a profit.
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