Vessel Documentation, Registration and Flagging

Vessel documentation (also known as Flagging) is a national form of registration, which essentially registers the ownership of your vessel with the shipping agency of the country of choice. In the United States, this is a Coast Guard responsibility, and it is that agency that accepts applications for documentation and also files liens against federally documented vessels. The “Certificate of Documentation” essentially replaces a title and registration that you would receive from state authorities. All maritime countries have similar agencies, with large yachts often flying the flag of the Cayman Islands, British Virgin Islands, Jamaica, as well the flags of the home countries of the owners.

Baylaw, LLC can provide documentation and flagging services for your vessel at a very competitive fixed rate, assuring that you have a lawyer that is looking out for your interests in the closing process.

Documentation or flagging provides conclusive evidence of nationality for international purposes, provides for unhindered commerce between the states, and admits vessels to certain restricted trades, such as coastwise trade and the fisheries.  Vessel documentation also allows for greater flexibility in obtaining financing. Certain types of mortgages, specifically a “Preferred Ships Mortgage”, are only available to documented vessels and are only available from FDIC approved banks or other lending institutions that have received federal approval.

Baylaw, LLC provides documentation and flagging services including, as needed, setting up corporations in the United States or abroad, submitting applications for documentation or registration, perfecting liens and generally problem solving to assure the best experience possible for the vessel owner. We differ from most documentation companies in two ways. First, in addition to getting the proper papers filed, our attorneys are available to consult on complex issues such as avoidance of unnecessary tax, dealing with customs bonds and import duties, as well as review of purchase contracts, crew contracts and charter arrangements. Second, we bill for what needs to be done, instead of setting a price in advance. For simple transactions this will almost always result in savings for the vessel owner. For transactions that become complex, any additional money will go to assuring that you have the best possible maritime advice to solve the problem.

We look forward to working with you.

Legal Considerations for Buying Charter Boats

This article is aimed at people who are considering buying a yacht to be used for charters, or converting their existing yacht for charters.  There are, of course, lots of other things to consider – like how to properly employ a captain and crew; where the boat is going to be located, etc., etc.  But if you are considering charters in the US, this is a good place to start.   Originally published in the Yacht Brokers Association of America Spring, 2015 Newsletter.

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Eventually, many people that love the water and love their boats will entertain the idea of chartering their boat.  Perhaps if they can make a little money with chartering, they can write off their expenses and enjoy more time on the water.  This is a great idea, but one that should be approached with solid planning and much caution.  Here are some of the most important issues to consider:

  1. Income Tax Issues.  In my practice, I leave income tax questions to qualified professionals (and if you are going to consider writing off boat-related expenses, so should you).  Here is a rule of thumb, however — you’d better have income related to the boat if you are going to write off losses related to the boat.  Beyond that, lawyers like me are happy to consult with your qualified tax professional.
  2. Insurance Issues.  Almost all personal yacht insurance policies either ban chartering altogether or limit it to a very small number per year.  Carefully read the yacht policy to determine what limitations are currently in place.  About the worst possible result is that you decide to charter the boat, there is a serious injury or death, and then you find out that you have violated the conditions of your insurance policy.  That mistake could be catastrophic.  If the boat is to be chartered, the policy should reflect the scale and duration of the charters.
  3. Banking Limitations.  Many boat loans forbid the use of the boat for any purpose other than as a private yacht, and provide the bank the option to call the note if that prohibition is breached.  I personally have never seen this become a serious issue in a case, and I struggle to imagine a situation in which it would become a serious issue — but no one wants to be the guinea pig tasked with finding the worst case scenario.
  4. Limitations on Crewed Charters.  Only US flagged boats with a coastwise endorsement can be used to carry passengers in US waters (except for American Somoa, the Northern Marianas, and the Virgin Islands)
    1. To be coastwise, a boat must be built (or completely rebuilt) in the United States, or else it must obtain a waiver.  (The waiver application is here: http://www.marad.dot.gov/ships_shipping_landing_page/domestic_shipping/small_vessel_waiver/small_vessel_waiver_request/small_vessel_waiver_request.htm).  Generally waivers are available if a boat is more than 3 years old, cannot carry more than 12 passengers, and will only be used for passengers, not cargo or commercial fishing (sportfishing is allowed, assuming no commercial sale of the catch).
    2.  Tip for Brokers and Buyers: if the owner hopes to provide crewed charters (especially meaning that the owner selects and employs the Captain), then it is imperative that the boat be qualified for coastwise endorsement.  The safest option for this is a US built vessel or a boat with a previously granted waiver.  Less safe, but possible, is a boat that is more than three years old and to be certified for no more than 12 passengers.
  5. Issues with Bareboat Charters.  Most yachts are not built in the US, and therefore are not eligible for a coastwise endorsement (see above, Limitations on Crewed Charters).  The only chartering option for such yachts is to make them available for bareboat chartering.  Some considerations for bareboat chartering:
    1. A bareboat charter is considered to be equivalent of a lease of property — for all intents and purposes the ownership and control of the boat transfers from the title owner to the charter for the period of time of the charter.  The documents and the actions of the parties should reflect this.
    2. A boat under bareboat charter cannot have paying passengers (ie the Captain can’t charter the boat and then have the passengers pay him) as this is a violation of the coastwise protections.
    3. The title owner of the boat is responsible for providing a seaworthy vessel, and may be liable if issues arise.
    4. Although the charterer is responsible for operations, the title owner may be left holding the bag if the charterer engages in illegal activity (like smuggling) and gets caught.
    5. It is strongly recommended that any boat that is made available for charter comply with the inspection requirements for a similar passenger vessel with USCG certification — anything less may be considered unseaworthy or negligent preparation.
    6. While the boat must be fully in the control of the charterer, the owner can place some restrictions such as requiring certain certifications for the Captain and crew; placing navigational limits on region or running at night.
  6. Placing the Boat in a Charter Fleet.  Many boats in the US (and other destinations) place boat in a charter fleet so it is managed by a charter company.  The benefits of taking this path are that typically the charter company handles the contracting, scheduling, maintenance, etc.  On the downside, there may be significant limitations on the owner’s use and customization of the boat.  For an owner looking for a newer stock boat, and who is willing to accept some limitations in exchange for cost savings, this can be a great option.  Brokers may be advised to consider what boats the charter companies are looking for in order to best advise their buyers.
  7. Corporate Ownership.  A boat that is going to be placed in charter for a significant percentage of its use should consider ownership through a corporate entity like a limited liability corporation.  Such an entity provides some protection against liability (although insurance should be the first consideration), some anonymity for the true owner, and also provides an organizing vehicle for income tax considerations.

A buyer (or a buyer’s broker) that is considering purchase of a boat to be used in charter should do some homework before buying.  Considerations such as the location of future charters, the origins of the boat, the size and capabilities of the boat and its marketability should all be evaluated before purchase.  An existing boat can be converted into a charter opportunity, but it is much easier if attention is paid to purchasing the right boat for the job.

J. Dirk Schwenk is a Maryland real estate and maritime law lawyer.  He graduated cum laude from the University of Maryland School of Law in 1997 and has been in private practice ever since.  He has worked on hundreds of matters involving boat purchase, tax, ownership and sale.

 

Contract Law 101 – Maryland Contracts

Back to Basics – Contracts 101.

(Originally published in the Mid Atlantic Mariners Club Newsletter, 2010).

The first rule of contract: capture the intent of the parties.

In every profession, not just the law, we are faced with making, interpreting and abiding by contacts.  Sometimes these contracts are long and impossible to understand (mortgage refinancings, consumer warranties) sometimes they are so fleeting that one hardly notices (“I’ll pick up lunch”).  In law school, we learn that a contract consists of an enforceable promise.  It’s a promise that one can take to court, and the court can make the other comply or award damages for their failure to do so.  All contracts, though, include a major element of hope and trust and if that trust is broken, bad things happen, and the threat of a court’s intervention may not be enough to save the deal.

When a client comes to me about a contract, it is usually one of three things — reviewing a contract that someone else has prepared; papering an understanding where the framework is already in place; or protecting a client from the risks of a particular kind of deal.  The most frequent contracts for me are boat and ship purchase contracts — these often involve a significant outlay of funds before the product is near completion, and therefore require both trust and legal protections.  With all projects, I generally start with the same three questions.  What are you trying to accomplish?  What has already been agreed to?  How much do you know and trust the other party?

 When it comes to reviewing a contract that someone else has prepared for my clients’ signature, I focus on two things.  First, does it capture the items that my client thinks are being agreed to?  Many times I am given a form contract such as a boat brokerage agreement, and the parts of the deal that are most important to my client (the time of delivery and the promises that the boat will be fully commissioned to spec) are nowhere to be found.  Usually this can be handled with an addendum that sets out the specifics (Boat to be delivered to Maryland on date certain at the seller’s risk and expense), but sometimes the brokerage contracts simply will not do the trick.  Lawyers often joke about the boat brokerage and real estate contracts — they do a great job protecting the brokers or agents, but beyond that, its usually a lot of words that don’t say too much.

 My favorite project is when a client comes to me and says … “I agreed to _____ with ______ – can you write a contract for that?”  I like this kind of project (not just for the irony of the fact that there may already be an oral contract) because it usually allows me to work from the ground up, as opposed to slogging through pages of 8 point font prepared by someone else.  I get to start with “what exactly has been agreed to?”  Typically a clients’ answer to that question feels like the tip of the iceberg … “we agreed that I would sell his product for a 10% commission.”  This leaves open all sorts of lawyer-fun — how much do you have to sell; can you sell competitor’s products, too; can they hire other brokers or salespeople; where will suit take place; what happens upon termination?  And what happens if there is no agreement on all of the side issues?  I love that question.

 The Second Rule of Contract: be reasonable.

Assuming that there is enough of a contract to be a contract (generally that it is known what is being agreed to, including when it is to be done and how much it is going to cost) everything else may be an open term.  In some areas of the law, like partnerships, employment and state insurance contracts, there is a whole body of statutes that fills in the blanks.  In those areas people may “agree” to many things that they never even thought of.  If there are not default terms, then the agreement reverts to the rules of reasonableness.  These rules are essentially human instincts — most people will agree most of the time about certain things even if they have never considered them before.  If the contract is to buy a certain thing (say a house), then it is only for that particular thing, not something else.  If it is for something that is largely interchangeable (like a Blackberry), then it may not mean a specific thing, just a thing like it.  You can usually do well in contracts by staying polite and acting reasonably, but sometimes that is mighty hard.

 The rest of contracts is just simple interpretation — if the words on the paper say to do X, and X isn’t illegal or completely unreasonable, then that is what you do.  Words are notoriously tricky things, though, so one must write with care and make sure that everyone abides by at least the most important terms over time.  There are a few contracts (marine insurance, for example) where certain words and phrases have such a history behind them that their meaning is known with some certainty.  But for most contracts, even ones that have been used many times, no court has ever interpreted the key language, and everyone is operating on   hope that the words mean what they think they mean.  This is the real difficulty with “form” contracts — people trust it because its The Form, but who knows whether it captures the agreement that was really intended.

 What can you take away from all of this?  First and foremost, be sure that the contracts you enter into actually capture what is being agreed to — this can be trickier than you think.  Second, sometimes the simplest contracts are the best ones — agree to the key items, and otherwise act reasonably.  Third, there are times when a very thorough papering is necessary — like when a major asset like a house or a business is on the line.  In those cases, have clear goals and good representation that is looking out for your specific interests.

J. Dirk Schwenk is a Maryland real estate and civil litigation lawyer.  He graduated cum laude from the University of Maryland School of Law in 1997 and has been in private practice ever since.

Maryland Partition Actions

Dividing Real Estate in Maryland

What do you do if you own a piece of real property with someone else, but you can’t stand them anymore?  Or you need to sell the property, but they want to keep it?  In law, this implicates the doctrine known as “partition.”  In a partition action, one owner of a property files suit against another and asks that the property be divided up or sold and the money split.  It is similar to what happens in a divorce, but the owners aren’t married.  Typical examples: two brothers are made joint owners in their Grandparents will.  One brother uses the property, the other would like to sell it and use the money to work on his own house.  Also typical two people are in love and buy a house together; their love cools and one moves out.  The person that moves out wants to get her money out of the house; the one that stayed is happy with the status quo.  What to do?  File a partition action and ask the court to either divide up the land (perfect if there are two similar lots) or order the land to be sold and money split (necessary if there is one house on the property and it cannot be split in half).

The right to a partition is set out in the Real Property Article of the Maryland Code.  It says:

“Decree of partition (a) A circuit court may decree a partition of any property, either legal or equitable, on the bill or petition of any joint tenant, tenant in common, parcener, or concurrent owner, whether claiming by descent or purchase. If it appears that the property cannot be divided without loss or injury to the parties interested, the court may decree its sale and divide the money resulting from the sale among the parties according to their respective rights. The right to a partition or sale includes the right to a partition or sale of any separate lot or tract of property, and the bill or petition need not pray for a partition of all the lots or tracts.” § 14-107

As the language indicates, if the property cannot be divided without losing value to its owners, then the court should order that it be sold and the proceeds divided.  That is what is known as a sale in lieu of partition.  Such sales are controlled by a section of the Maryland Rules of Civil Procedure that state: “When the relief sought is a sale in lieu of partition, the court shall order a sale only if it determines that the property cannot be divided without loss or injury to the parties interested.”  MD R PROP ACT Rule 12-401.

This is the correct result — if the property can just be split, as with two similar lots that are not improved with buildings — they should be split and the parties can keep or sell them as they see fit.  If the property cannot be split, however, it needs to be sold.

For the owners of the property, however, there are very strong reasons not to actually go through the sale as it would be ordered by the Court.  Under the Rules, the normal procedure is to appoint three commissioners who can establish a value and oversee the sale.  “When the court orders a partition, unless all the parties expressly waive the appointment of commissioners, the court shall appoint not less than three nor more than five disinterested persons to serve as commissioners for the purpose of valuing and dividing the property.”

MD R PROP ACT Rule 12-401.  These commissioners, in turn, can be paid out of the proceeds of the sale.  “Payment of the compensation, fees, and costs of the commissioners may be included in the costs of the action and allocated among the parties as the court may direct.”  MD R PROP ACT Rule 12-401.  If needed, the sale would then proceed to judicial sale –an auction on the courthouse steps.  This means that, if the owners cannot agree to sell it on the open market, it will likely go for a steep discount and then be subject to significant fees to pay the attorneys, commissioners, trustee, and related court costs.

 The bottom line: if you own property and the other side won’t sell, or if someone has sued you to partition a property you own — you will need pragmatic, effective counsel that realizes that all fees and costs will ultimately come out of the value of the clients’ property.

J. Dirk Schwenk is a Maryland Real Estate, Waterfront Property, Civil Litigation and Maritime Lawyer from Annapolis, Maryland.  He provides civil litigation services in real estate issues, contract disputes, environmental and zoning issues, adverse possession and boundary disputes.  He graduated cum laude from the University of Maryland School of Law in 1997 and has been in private practice in Maryland ever since.

Maryland Boat Lien Sales and Marina Collections

Maryland marinas and marine businesses have a number of options to collect on unpaid bills.  Baylaw, LLC offers competitive rates to conduct lien sales. We have the legal expertise to assure that you select the right method to ensure the greatest return with the least likelihood of ending up worse a write off.

Maryland Boat Lien Sales: 

Three reasons to use Baylaw, LLC to conduct lien sales: 

Baylaw LLC Lien Sales

Baylaw Marina Collections

1. We know when the best option is to hold an auction, use the abandoned boat process, arrest a vessel under federal maritime law or simply sue for the amount due. We also know when to tell you that your best option is to walk away and not pursue the debt. 

2. The Marina or Marine Business can always negotiate with its customers.  We never stand in the way of a negotiation. We never tell owners that they have to pay our fees to get their boat.  Your customer is your customer.  

3. We will not put you at risk for claims of unfair debt collection or consumer protection act violations, and if litigation ever does arise, we will know what to do.  

Four Options:

There are four basic options if the boat owner will not pay: 1) conduct a lien sale; 2) seek title as an abandoned boat; 3) arrest the boat under federal maritime law; or 4) file suit against the owner in state or federal court.   Each of these options has its pros and cons.  Baylaw, LLC can help you decide which is appropriate for your situation.

1) Maryland boat lien sales: The most important facts for a lien sale are that you have possession of the boat and the owner’s bill is unpaid at least 30 days.  If those facts are present, and the boat is not a federally documented boat, then a lien sale is a good option.  Notice of the sale must be sent to the owner and secured lienholders and the sale must be conducted in a public place.  Baylaw, LLC does that work at a competitive flat rate.

2) Abandoned boats: This is a good option if the owner is unknown or will not respond.  If the owner will respond and challenge, it is better to conduct a lien sale.

3) Maritime arrest: this is a good option for a higher value claim or where the marina or maritime business does not have possession of the boat.  If a bill is unpaid, an arrest can be done in any jurisdiction where the boat can be found.

4) Sue for damages: This is another option if the boat is no longer in the hands of the marine business and is especially effective if the owner of the vessel is known and has assets.

If you need assistance with collecting a debt concerning a boat, please contact Dirk Schwenk at 410 775 6805 or dschwenk@baylawllc.com.

 

Condominium Units – Damages from Common Elements

Damage to your Unit as the Result of a Defect in the Common Elements: Who is Responsible?

A common problem for condominium unit owners is when their unit is damaged as a result of a defect in a common element of the condominium.  Common elements, as defined by the Maryland Condominium Act (the MCA), are all of the condominium property except the units.  For instance, the lobby area of a condominium and the pipes and wires that run from unit to unit are all common elements.  A common problem that arises is when a defect in the common elements causes damage to your unit.  The question that often comes up is: “who is responsible for paying for that damage?”

The answer, generally, is that the council of unit owners’ property insurance will cover the loss.  However, the council of unit owners – or the Condominium Association – will often refuse to reimburse a unit owner for damage to his or her unit.  Generally, they will hide behind the language in §11-108.1 of the MCA, which states that “each unit owner is responsible for maintenance, repair, and replacement of his unit.”  However, there is an important exception to this rule:  when the damage is caused by a defect in the common elements, the council of unit owners is responsible to cover the loss through its property insurance.  We can reach this conclusion by further examining the text of the MCA.

Section 11-114(a)(1) of the MCA mandates that the council of unit owners maintain property insurance on the common elements and units, insuring against those risks of direct physical loss commonly insured against.  Furthermore, § 11-114(g)(1) of the MCA imposes a duty upon the council of unit owners to promptly repair or replace any portion of the common elements and the units that are damaged or destroyed.  If the council fails to take corrective measures, and a condo owner’s unit is subsequently damaged as a result of the failure to fix the defect, the council of unit owners’ property insurance will cover the loss, and the insurance deductible is a common expense.  Md. Code Ann., Real Prop. § 11-114(g)(ii) (West).

Furthermore, even if the council of unit owners couldn’t have fixed the problem before it caused damage to your unit – e.g. if a pipe bursts and floods your unit – the council of unit owners’ insurance will still cover the loss.  What this means is that the council of unit owners is responsible for reimbursing you if a defect in the common elements causes damage to your unit.

This insurance coverage should also generally apply in situations where your unit is damaged as the result of another unit owner’s negligence.  Section 11-114(g)(iii) of the MCA provides that “[i]f the cause of any damage to or destruction of any portion of the condominium originates from a unit, the owner of the unit where the cause of the damage or destruction originated is responsible for the council of unit owners’ property insurance deductible not to exceed $5,000.”  This seems to mean that the coverage extends to defects not only in the common elements, but also defects in other unit owners’ units that cause damage to your unit.

If your unit has been damaged by some defect in the common elements or as a result of some other unit owner’s negligence, you should not be forced to pay out of pocket for repairing the damage.  If you find yourself in this situation, please contact us and we will be glad to assist you in enforcing your rights as a condominium owner.

 

Lien Sales – The Times Just Changed.

In October, 2014, the Maryland Court of Special Appeals issued a decision concerning Maryland’s lien and recovery business.  Lien and recovery companies are hired by mechanics and marinas to collect overdue charges for repairs and storage on vehicles and boats. At least as long as I have been practicing, lien companies have added a “processing fee” to the amount owed, and required that the boat or vehicle owner pay the processing fee in addition to the overdue charges in order to get their boat or vehicle back.  If the owner didn’t pay up, then the vehicles were put up for auction.  In Allstate Lien and Recovery Corp. v. Stansbury, however, the vehicle owner fought back.  Mr. Stansbury asserted that including a $1000 processing fee in the amount required to redeem the vehicle was an unfair and deceptive practice, and violated Maryland’s laws against unfair debt collection.  The trial court, and now the Court of Special Appeals, agreed that the inclusion of the processing fee was a violation of the Consumer Protection Act and the Consumer Debt Collection Act.

Violations of the Consumer Protection Act and Consumer Debt Collection Act both have significant consequences.  Consumer Protection Act violations are grounds for shifting attorneys’ fees from the consumer to the business — which means that Allstate Lien and Recovery in this case is likely to be responsible for tens of thousands of dollars (even hundreds of thousands) of fees for Mr. Stansbury’s lawyers.  A violation of Consumer Debt Collection allows for “damages of emotional distress and mental anguish suffered with or without accompanying injury.”  This means that a jury is free to award money for distress and upset, even without any kind of physical symptoms, if the debt collector has acted badly.  Since the lien and recovery company is the agent of the mechanic or marina — those businesses may also be on the hook if the lien and recovery company acts badly.

You are warned.  The unlawful $1000 processing fee may be costing Allstate Lien and Recovery (or hopefully their insurer) hundreds of thousands of dollars beyond what they paid their own attorneys to defend the case.

With those warnings, when does a garageman’s lien attach?  Here is the statute:

 

(a)(1) Any person who, with the consent of the owner, has custody of an aircraft and who, at the request of the owner, provides a service to or materials for the aircraft, has a lien on the aircraft for any charge incurred for any:

(i) Inspection, maintenance, repair, servicing, or rebuilding;

(ii) Storage, parking, handling, or tiedown; or

(iii) Parts, accessories, materials, or supplies.

(2) The operator of any airport on which an aircraft lands or which is otherwise used by an aircraft has a lien on the aircraft for any landing fee, flight fee, or other charge so incurred.

(3) A lien is created under this subsection when any charges giving rise to the lien are incurred.

(b)(1) Any person who, with the consent of the owner, has custody of a boat and who, at the request of the owner, provides a service to or materials for the boat, has a lien on the boat for any charge incurred for any:

(i) Repair, rebuilding, maintenance, servicing, or wet or dry wharfage;

(ii) Storage; or

(iii) Parts or accessories.

(2) A lien is created under this subsection when any charges giving rise to the lien are incurred.

(c)(1) Any person who, with the consent of the owner, has custody of a motor vehicle and who, at the request of the owner, provides a service to or materials for the motor vehicle, has a lien on the motor vehicle for any charge incurred for any:

(i) Repair or rebuilding;

(ii) Storage; or

(iii) Tires or other parts or accessories.

(2) A lien is created under this subsection when any charges set out under paragraph (1) of this subsection giving rise to the lien are incurred.

(d)(1) A park owner has a lien against a resident’s mobile home, if the park owner obtains a judgment against the resident under Title 8A, Subtitle 17 of the Real Property Article, and the resident fails to yield and render possession of the premises as ordered by the court.

(2) A lien under this subtitle shall be:

(i) Stayed if the resident files an appeal in accordance with Title 8A, Subtitle 17 of the Real Property Article; and

(ii) Extinguished if the resident redeems the premises in accordance with Title 8A, Subtitle 17 of the Real Property Article.

(3) A lien is created under this subsection when the resident fails to yield and render possession of the premises as ordered by the court.

Md. Code Ann., Com. Law § 16-202 (2014).

If you are owed money for repairs, storage or maintenance, here are the steps you should follow:

  1. retain possession unless and until paid in full;
  2. act promptly to hire a competent lawyer or lien sale company to prepare the statutory notices of lien.
  3. Accept payment in full — don’t add in charges that cannot be substantiated.

Baylaw, LLC can prepare statutory notices for a reasonable flat fee and walk you through the process of getting paid or obtaining title.  Please email Dirk Schwenk dschwenk@baylawllc.com, or Jeff Toppe jtoppe@baylawllc.com for details.

 

Contracts to Purchase or Sell Real Estate

For most people, if they encounter a real estate contract, it will be a prefabricated agreement presented by a real estate agent.  It may seem as if it is a final document, created by experts, and protecting your interests.  To a degree it will, but it is also there to protect the brokers and the other party, and many of its terms can be negotiated.  Remember that brokers and agents are typically paid out of the proceeds of the deal.  This means that they they have a strong incentive to get you to go through with the deal, even if it may not be in your best interest.  If you grow concerned — get a knowledgeable lawyer — the fees will be much cheaper than making a mistake.   This article is broken up into three sections: 1) Basic requirements for a contract; 2) disclosure considerations; and 3) investigation that is worthwhile to do when entering into a real estate contract.

Maryland Real Estate Contracts — basic requirements: 

There are only a few required elements to a real estate contract — most of the rest is filler required by statute and terms that help the brokers to enforce their right to receive a fee (and to protect themselves in the event of future litigation).

1. A writing, signed by the parties, that identifies the property and the basic terms of the contract:

In Maryland, as in most states, there is no enforceable contract to transfer land unless there is at least a written document identifying the property and the nature of the contract and signed by the seller.  The relevant code states no “interest in land may be assigned, granted, or surrendered, unless it is in writing signed by the party assigning, granting, or surrendering it, or his agent lawfully authorized by writing, or by act and operation of law.  Md. Code Ann., Real Prop. § 5-103.

2. Statutory Disclosures

There are a long list of disclosures that are required to be placed in Maryland real estate contracts by statute.  These include everything from the application of the Critical Areas laws, to notices about where deposits are placed by the broker, to sections on the homeowners associations, to land that cannot be used for residential purposes.  (See Maryland Real Property Article Section 14-117).  It should be noted, however, that failure to include those provisions does not render the contract void — it just means that a seller can sued for the failure to disclose, if the failure causes damages.  “Unless specifically provided, a contract for sale is not rendered invalid by the omission of any statement referred to in this section.”

3. A Deed

After a contract is reached, a deed is required to be filed in order to complete the transfer of property.  A deed is a somewhat more technical instrument, but its basic requirements are a sufficiently specific description of the property, identifications of seller and buyer, and it has the seller’s signature, property witnessed.  To be effective against someone else trying to claim ownership, it must be filed and indexed in the land records.

Maryland Real Estate Contracts — Thinking About Your Contract:

Aside from the boilerplate in a contract, there some things you should pay close attention to:

1. Special Disclosures:  As a purchaser, you can request specific disclosures from the seller – here are some you may want to consider:

a. Mold, mildew, flooding.  If there is any one thing that can ruin a house, its water damage, mold and mildew.  You definitely want to carefully look for any sign of water damage, including the kind of painting and repairs that might indicate past damage.  You can — and if there is any doubt you should — specifically request that the sellers disclose in writing any past water damage, mold, mildew or repairs.

b. Past litigation.  If there has been a past case concerning the house, such as against a homeowners association or neighbor, you probably want to know what that case was about.

c. Any unpermitted additions or structures.  If there is anything on the property that was not permitted, you want to know about it before you purchase not after — it can be very difficult to remedy such a situation.

2. Deadlines and Conditions.  If the contract is conditional (say on disclosure of water damage), and that condition is not fulfilled, then be sure to know exactly how and when to rescind the offer.

3. How much is the broker being paid?  If you are a seller, this item is negotiable, and it is a zero sum game.  Any money that your broker gets, is money out of your pocket.

4. “Other”:  Many contracts contain a blank term for special agreements — this often turns out to be the most important term in the deal.  Is there a boat that is supposed to transfer?  Is there a plan to lease the house back to the seller for a period after closing?  These things need to be written down clearly if they are going to be enforceable.

5. Homeowners Associations, Condo Associations and Improvement Associations.  If you are buying property in a subdivision, you definitely want to know what the covenants are and how they are enforced in the community.  This information should be available as part of the mandatory disclosures — READ IT!  You don’t want any surprises.  If it is not given to you, it should be on file in the land records of the County — find it or have your attorney get it for you.

Maryland Real Estate Contracts — Investigation Before Contract

Any contract requires a certain amount of trust with the other party — here are some things that are relatively easy to find, and very important to know:

1. Is the other party going to run to Court?  Most people never end up in trial – they never sue their neighbors – they just go about their business and pay their bills.  Some people are not like that — they always end up suing (or being sued by) the people that they deal with.  If someone makes you an offer on your house (or you make an offer on their house) take a few minutes to find out whether the other party is a repeat litigator — if they are, there had better be a good explanation or the hassle may take away from the joy of the transaction.

2. Are there proper permits?  Go to the planning department in the County where the property is — ask whether there are any issues with the property.  They can help.  You do not want to buy a house based on an addition that will need to be torn down.

3. Is there a bad neighbor?  Few circumstances are worse than buying a house only to find that you live in fear of your neighbor.  Many bad neighbor situations are the result of a dispute about the true boundaries — a survey can help you determine if there any encroachments either way.

4. What is the neighborhood/house/street really like?  Go to the property without the agent.  Walk along the street at night.  Is it what you want?  If not, move on.

Good luck!

J. Dirk Schwenk is a Maryland Real Estate, Waterfront Property, Civil Litigation and Maritime attorney from Annapolis, Maryland.  He provides civil litigation services in contract disputes, environmental and zoning issues, adverse possession and boundary disputes.  He does real estate law, including preparing and filing deeds.  He graduated cum laude (with honors) from the University of Maryland School of Law and has been in private practice in Maryland ever since.

 

 

 

Real Estate Law, Riparian Rights and the View

Waterfront Property and the Elephant In the Room: What About the View?

Imagine a waterfront house with a large privacy fence that blocks all view of the water — its a strange image.  If there is no view, the property loses most of its “waterfront” essence and most of its value, so somehow, somewhere, the law must protect a waterfront owner’s view.  But I regularly hear other attorneys and government officials recite the old saw: “there is no right to a view.”  They are wrong in some ways, but they do have good reason to say that.  Maryland law (and the law in most coastal states) is silent about the water view.  Concerning riparian rights, Maryland’s court says:

The term “riparian rights” indicates a bundle of rights that turn on the physical relationship of a body of water to the land abutting it….  This bundle includes at least the following rights: (i) of access to the water; (ii) to build a wharf or pier into the water; (iii) to use the water without transforming it; (iv) to consume the water; (v) to accretions (alluvium); and (vi) to own the subsoil of nonnavigable streams and other “private” waters. To be sure, access to the water is a primary asset of riparian rights.  Gunby v. Olde Severna Park Improvement Ass’n, Inc., 174 Md. App. 189, 239-40, 921 A.2d 292, 322 aff’d, 402 Md. 317, 936 A.2d 365 (2007).

The view wasn’t an issue in the Gunby case, but this is an accurate summary.  Florida law, for example is much different: “Upland owners hold several special or exclusive common law littoral rights: (1) the right to have access to the water; (2) the right to reasonably use the water; (3) the right to accretion and reliction; and (4) the right to the unobstructed view of the water.” Walton Cnty. v. Stop Beach Renourishment, Inc., 998 So. 2d 1102, 1111 (Fla. 2008).

Are Maryland property owners without protection then?  The answer is no, the view is protected, but getting to that can be a bit convoluted.  First and foremost, “access to water is a primary asset of riparian rights.”  Most things that obscure the view, such as a fence or wall or, to a lesser degree plantings, also obstruct access and therefore can and should be challenged.   (Need more on potential issues and solutions for waterfront purchases?  Look here.

A pier typically obscures the view and water access to a lesser degree than a fence — but it seems clear that someone else should not be able to build one in front of a lot owned by someone else.  This brings up the riparian owners’ right “to build a wharf or pier into the water.”  When it comes to someone else other than the owner putting in a pier, this is what I consider a negative right.  If the riparian owner as the affirmative right to build a pier, it follows that they also have the negative right to prevent a non-owner from building a pier.  This right is also captured in the Maryland Code (and most County and City zoning provisions) insofar as it is only the owner that has the right to build a pier in front of waterfront property.  The owner “may make improvements into the water in front of the land to preserve that person’s access to the navigable water …. After an improvement has been constructed, the improvement is the property of the owner of the land to which the improvement is attached.” Md. Code Ann., Envir. § 16-201.

And so, there are ways to protect a riparian owner’s view of the water, even if that right is not specifically laid out in Maryland’s cases or statutes.   If you are not an owner, however, the options to protect a view are drastically more limited — that will need to be a topic for another article.

If you are in a situation where you are concerned about a neighbor infringing on your view — send me an email at dschwenk@baylawllc.com or give me a call at the number to the right.

J. Dirk Schwenk is a Maryland Real Estate, Waterfront Property, Civil Litigation and Maritime Lawyer from Annapolis, Maryland.  He provides civil litigation services in contract disputes, environmental and zoning issues, adverse possession and boundary disputes.  He graduated cum laude (with honors) from the University of Maryland School of Law and has been in private practice in Maryland ever since.

 

 

The End is Near — Settlement and Dispute Resolution

As a lawyer it sometimes feels as though you work and work but nothing is ever fully resolved.  This month has been different for me – I have actually put the final signatures on settlements of four different kinds of cases — all central to the kind of work that I do.  The cases included:

1. a dispute on the location of a boundary as it pertained to riparian rights and a pier location;

2. a dispute on insurance coverage on damages to a boat;

3. a dispute between a purchaser and broker on a boat purchase; and

4. a dispute over erosion control efforts on community property.

Resolution of a case is always a team effort that includes dedicated clients that are willing to do the hard work of obtaining facts and facing the risk that a case does not go their way.  Patience and appropriate strategy a must.  If the opportunity presents itself to obtain results through negotiation and settlement, the entire team must have a clear idea of the achievable goals and be ready to compromise as needed.

Dispute on Boundaries, Riparian Rights and Pier Location

In Calvert County, Maryland, our client owned a property with a house at the end of a street in an incorporated town.  When the town was designed, his lots did not reach the water and the town owned a strip of land which included the entire waterfront.  Over time, however, erosion ate through the land between his property in the water, so that some lots in the subdivision were entirely submerged, and my client had a small cove that provided access to the bay.  The town took ownership of the submerged lots and a small remaining parcel that was still above water, leading my clients to worry that the town intended to put a walkway around his property which would isolate his property from the bay and decrease his privacy.

We filed a declaratory judgment action stating that he had obtained riparian rights when the water reached his property and asserting adverse possession over the land next to his lot.  After discussions with the Town stemming from the suit, it came to light that the town was willing to forego putting in a walkway if it could get an easement along the water to install a flood control berm.  Although the negotiations were difficult, we eventually reached an agreement that allowed for my client to have a location that allowed him to install a pier for access to the Chesapeake Bay; maintained my client’s privacy; and met the town’s needs for installation of flood control.

Dispute on Insurance Coverage on Boat Insurance

In Anne Arundel County, Maryland, we had a client whose boat had water enter into the core of his boat hull and eventually cause rot and damage.  When the boat was on jackstands at the marina, the hull partially crushed and required significant fiberglass and core repairs.  The client filed a claim under his hull insurance policy but surveys were inconclusive as to how the water entered the hull.  We filed suit asserting coverage under the all-risks policy of marine insurance, arguing that if the source of the water was not known, then none of the exclusions to the policy supported the denial of coverage.  We were unable to resolve the dispute through discussions with the adjuster, so we filed suit seeking a declaration of coverage.  Resolution was difficult and lengthy, but the client obtained money for repairs that he would not have had if he accepted the denial of coverage.

Dispute on failed erosion control project

Controlling erosion is a major issue for waterfront owners and waterfront communities, and the quality of contractors and erosion control projects is highly variable.  With new requirements preventing bulkheads and restricting hard shorelines, poor work can increase erosion or worse, leave large loose stones that can injure or even kill unsuspecting community members.  We recently obtained an insurance settlement to allow for reconstruction of a failed erosion control project on community land — the project was so bad that it required installation of “keep off” signs on the community’s main beach area as well as environmental citations against the contractor and a community board member.  Resolution required changing the way that the community’s erosion control funds were managed and contracts awarded, as well identifying appropriate experts to testify on the deficits with the project.  The Court’s intervention was required to determine significant related issues about the nature of the community’s land and covenants as well.  Perseverance was required — luckily it was a community that had leaders and community members that were willing to carry through with a difficult job to the end.

Dispute with Buyer and Broker in Boat Purchase Contract

One of the most interesting aspects of boat purchase/boat broker and boat tax cases is that they often involve many different states.  This case was no different.  The contract called for arbitration in New Jersey, where my client was located.  The boat was located and seat rialed in Tennessee.  The listing broker broker was in Alabama and the buyer was located (and the boat was delivered to) Illinois.  The buyer alleged that there were undisclosed problems with the boat and filed suit in Illinois (where he signed the contract).  Right away, the case involved the tension between arbitration and litigation; maritime and State common law; and the substantive law of multiple states — and all of that before getting to the question of whether the purchase contract’s terms protected my broker-client.  My client’s first questions to me concerned whether I was comfortable working across so many jurisdictional lines and areas of law.  Luckily those issues come up in most significant boat purchase disputes, and I had an idea of how to mitigate the issues of the Plaintiff having filed in Illinois.

This was a rare case in which there was an intense week of work preparing motions to dismiss or stay the action in Illinois.  We argued that the contract called for Arbitration in New Jersey, and that therefore the suit in Illinois could not go forward there.  Since there was some question about whether the arbitration clause would be enforced, we also argued that since boat was delivered to the purchaser in Tennessee, that was the appropriate State if the case was not going to be in New Jersey.  Ultimately we were able to reach a rapid resolution prior to the Court ruling on the motions.