Disparate Impact - Where do we draw the line?

As a professional in the property management industry with more than 24 years of experience and as a licensed Real Estate Broker in Florida and North Carolina, not to mention being a proud US Citizen of Hispanic descent, I am very concerned with discrimination. I admire the way we try to include everybody in our great Country, The United States of America and I am an advocate to eliminate any possible discrimination in our communities. Living in South Florida, a true melting pot, shows people how people of different ethnic and cultural background can live together in harmony. Of course we still have to solve some discrimination issues in our Country but I do not see any place in the world where people are treated so equally as in our Country.

Not only as President of my company, Florida Property Management Services Inc but as the current President of the South East Florida National Association of Residential Property Managers Chapter (in formation) as a Past Vice-President and Director of the local Chapter of the Institute of Real Estate Management, Past Director of the Florida Association of Realtors and Past President of the Florida Chapter of the CCIM Institute (www.ccim.com), I have always been working towards equality, inclusion and the promotion of non discriminatory practices in all organizations. Furthermore I have participated in several Committees and Advisory Boards concerning professional development of minorities. In summary I am totally in favor of the Civil Rights Act, that all men are created equal and that discrimination practices of any kind cannot be tolerated. What I do not understand is taking such an important issue and try to create problems instead of solutions. Trying to distance more groups of Citizens than bringing them together, worrying more for the things that separate us than for the things that unite us. Recently I heard for the first time the concept of Disparate Impact. 

Here is some background on Disparate Impact:

The U.S. Supreme Court was set to hear arguments in early December regarding the case, Mt. Holly Gardens Citizens in Action v. Mt. Holly which involved the disparate impact housing theory. The case focused on the question of whether or not the Fair Housing Act would permit the government to establish discrimination using statistical analysis instead of if the discrimination was intentional.

Earlier this year a final rule was published by the Department of Housing and Urban Development (HUD) which established a national standard for determining whether a particular housing practice violates the Fair Housing Act (“Act”).

The rule implemented a burden shifting test that requires the charging party to first prove that a practice results in, or would predictably result in, a discriminatory effect on the basis of a protected class. If the charging party is successful proving their case, the burden then shifts to the defendant. The defendant must then prove that the practice taken into question is indeed necessary to achieve one or more of its substantial, legitimate, nondiscriminatory interests.

A major concern with this rule is that the method of proving one’s case is inconsistent with traditional judicial processes in the United States. Historically, the charging party has the burden of proving their lawsuit. It should not be different in this situation.

An additional concern with the final rule is that a legitimate business practice, such as imposing a minimum economic standard or requiring a criminal background check on prospective tenants, may fall into the category of creating an unintended disparate impact on a group of citizens. This may significantly alter typical business activities for property managers if they cannot set standards for tenants pertaining to the ability to pay rent and the safety of other tenants.

So where do we draw the line? This means that if in my daily business I require to check criminal background on all applicants because our policy is not to rent to people with criminal background but if as a result of that policy I am not approving prospects from a protective class under the Fair Housing Act, then I am in violation of the Act. really? Are you kidding me? If I request as a policy that tenants meet the criteria of proving monthly income of 3.25 times the monthly rent and as a result of applying this policy to all applicants regardless of race, ethnic background, etc., one specific group is left out because of applying this policy then I am in violation of the Fair Housing Act. Really? Are you kidding me? 

One thing is to exclude a protective class another thing is applying policies in our businesses that make economic and financial sense for our business to perform to the maximum possible. Isn't this what capitalism is all about? If I want to require 3.25 the rent in income from applicants that is a business decision. the market will tell me and the forces of supply and demand will make me lower it for my business to perform but why do i have to change my business financial policies due to this interpretation.

The rule is out there and of curse we will comply with the rule and all aspects of any law as we usually do BUT,

WHERE DO WE DRAW THE LINE?

Apartment Occupancy Rate Sets Record with Fourth Consecutive Month Increase in May MultifamilyBiz.com (06/18/2015)

According to Axiometrics, the nation's apartment market recorded a monthly occupancy rate of 95.3 percent in May, along with annual effective rent growth of 5.0 percent -- the fourth month in a row that this particular metric was at or above the 5 percent mark.  In fact, the four-month streak was the first since May to August of 2011.  Furthermore, the May occupancy rate -- a 12-basis-point increase from April -- was the highest since Axiometrics started monthly reporting in 2008.  "Owners and investors are having a profitable start to the year," said Stephanie McCleskey, Axiometrics Vice President of Research.  "One interesting point is that rent growth is increasing in previously challenged markets in the East and Midwest, such as Chicago, St. Louis, Philadelphia, Kansas City, Baltimore, and even Detroit."

While Oakland reported the highest annual effective rent growth among Axiometrics' top 50 apartment markets again, the rest of the top 10 underwent a bit of a shake up.  For the first time in at least a year, for instance, the top five did not include all three Bay Area markets, as San Francisco fell to sixth place.  Portland leaped from number four to the second-place spot, while Sacramento eased into that fourth-place opening. Finally, the top five smaller metro areas among the Axio Top 120 in May included three Florida markets and two California markets, just like the month before, although Palm Bay, Fla., replaced Deltona.

Smoke Detectors – The New 2015 Law 
by Harry Heist, Attorney at Law

After a number of years of unsuccessful bills introduced in the Florida Legislature, finally a bill addressing smoke detector/alarms has passed into law. Florida Statute Section 553.883 governs what property managers or owners must do under certain situations with regards to smoke detector/alarms. The law is simple, it is not burdensome, and the sooner property managers begin to comply, even if not necessarily right away, the safer the residents will be, and the less liability exposure that will be placed on property managers and owners. The law applies to battery powered smoke detector/alarms. It does not apply to fire/smoke alarms that are electronically connected, hardwired or part of a centrally monitored alarm system, so this will not have much impact on the multi-family manager.

Prior Law

Prior to the law change, the property manager simply had to use an off the shelf smoke detector/alarm with a removable 9-volt battery. However, problems occurred when residents tampered with the alarm or failed to notify the property manager that the battery was dead. Residents would remove the battery if the low battery signal was going off, and statistics have shown that the majority of injuries and deaths caused by smoke and fire was due to the fact that there either was no smoke detector/alarm, or that is was simply not operational. Property managers would replace the smoke detector/alarms with the cheapest possible models available, deaths and injuries occurred, and lawsuits against property management companies were common.

The New Law

The new law is quite simple. Any time a battery powered smoke detector/alarm is replaced, if it is defective, or has exceeded the 10 years lifespan, (dates are usually on the back) the replacement must be with the type that has the 10-year, non-removable, non-replaceable battery. Presumably these batteries will last 10 years and cannot be easily tampered with by the resident once they are activated. They are a bit more expensive than the older type, but a few dollars is all it takes. Buying in bulk as well will save even more money.

Best Practices

The law does not require that the property manager replace a working smoke detector/alarm that is less than 10 years old with the new type. The property manager can simply replace the battery with a fresh battery, test it, and be in compliance with the law. Why take such a shortcut? Do the right thing. Replace all your battery powered smoke detector/alarms with the new 10-year smoke detector/alarms. It is simply the right thing to do. We recommend you do not wait a moment longer. Buy them in bulk and replace them all. Below is the text of the law. The law is not 100% clear and does not answer all the questions we may have now, but one thing is clear: you can and should replace all your battery powered smoke detectors/alarms now and sleep easy.

The New Law Text

Florida Statutes Section 553.883 Smoke alarms in one-family and two-family dwellings and townhomes.—One-family and two-family dwellings and townhomes undergoing a repair, or a level 1 alteration as defined in the Florida Building Code, may use smoke alarms powered by 10-year nonremovable, nonreplaceable batteries in lieu of retrofitting such dwelling with smoke alarms powered by the dwelling’s electrical system. Effective January 1, 2015, a battery-powered smoke alarm that is newly installed or replaces an existing battery-powered smoke alarm must be powered by a nonremovable, nonreplaceable battery that powers the alarm for at least 10 years. The battery requirements of this section do not apply to a fire alarm, smoke detector, smoke alarm, or ancillary component that is electronically connected as a part of a centrally monitored or supervised alarm system.

Accounting for Reserve Items to Properly Calculate Return on a Real Estate Investment

I see mistakes all the time in calculating the return of a real estate investment.  Today the topic is how to properly to account for reserves when one calculates the return on investment. You see brokers and investors calculating the annual return on a real estate investment that has been acquired with no financing as follows:

GROSS INCOME

less VACANCY AND COLLECTIONS

equals GROSS EFFECTIVE INCOME

less OPERATING EXPENSES

equals NET OPERATING INCOME

RETURN = NET OPERATING INCOME/PRICE PAID FOR THE PROPERTY

Using a simple example, let's say a residential property was purchased for $200,000 and it generates in Gross Income $18,000.00 per year, a 5% vacancy and collections is applied for a Gross Effective Income of $17,100.00. Let's assume that Operating Expenses are $6,300.00 per year (this is property taxes, Insurance, maintenance,etc). Then the Net Operating Income is $10,800.00 which will show a Return on the Investment of 5.4% on the first year operation and using a simple cash on cash return. This figure is totally wrong and misleading to an investor. We should account for reserves for replacement, a non-tax deductible deduction that must be applied to the investment every year as a cost for when replacement of items will become necessary in the future. Also from a cash flow standpoint, it is necessary to actually put the funds aside for when the time comes in the future to replace an item. Reserves for replacement are reserves based on the cost and life expectancy of items that must be replaced in a property such as driveways, roofs, air conditioning units, appliances, other equipment and paint. If the cost of a roof is $15,000.00 and its useful life is 25 years, assuming in our example this property ha a new roof then we must account for a roof reserve of $600.00 per year. Let's also assumed that the expected remaining life of an air conditioning unit in our property is 4 years and the cost of an A/C unit is $3,500.00 and that all appliances have an expected remaining life of 5 years with a total cost   of $3000.00 then our total reserves for replacement will be $600 for the roof, $875 for the A/C unit and $600.00 for appliances for a total yearly reserves for replacement of $2,075.00. Then the real Cash on cash Return on the Investment is Net Operating Income of $10,800.00 less $2,075.00 in reserves for replacement over what we paid for the Investment ($200,000.00). 

Net Operating Income = $10,800.00

less Reserves for Replacement = ($2,075.00)

Net Investment Income = $8,725.00

Return on the Investment = $8,725.00/$200,000.00 = 4.3625% (before taxes)

Then 4.3625% is the actual cash on cash return on the investment  before taxes and not 5.4%. Then applying the proper tax rates one can obtain the return after tax and in the event a portion of the purchase is financed the return will be affected by the principal and interest paid and we will discuss this as well as Internal rates of Return in the future in other blogs. 

The point here is that real estate brokers and managers must use an accurate way to calculate the return of an investment for an investor and must include not only all operating expenses an account for vacancies but also account for reserves for replacements. 

Corporate Leases and Guaranties

Properly Executing Corporate Leases and Guaranty Agreements 
by Brian Wolk, Attorney at Law Law Offices of Heist, Weiss and Wolk 

In most cases, property managers receive little or no training on how to deal with a prospective resident or guarantor that is a corporation. The property manager then will either just carry on business as usual, not recognizing the significance of this type of lease transaction, or the property manager will essentially make up rules on how to deal with the prospective corporate resident based on the manager’s common sense. If that happens, the property manager will complicate and jeopardize any future collection or eviction actions. It is crucial that a property manager step back, take a breath, and act in a careful and deliberate manner before executing any guarantee of lease agreement or lease with a corporate entity. Very often, a property manager with the best of intentions, and attempting to increase occupancy at the apartment community, may be blinded by excitement with the possibility of filling numerous apartment homes with a corporate resident. The property manager is an easy target in this situation. The property manager should always keep in mind that the purpose of most corporations is to turn a profit. Accordingly, there are often in-house attorneys or attorneys on retainer who are paid to fully insulate or limit the corporation from liability for any lease obligations. Thus, the property manager better be certain that the lease and guarantee agreements are properly executed, so there is clarity as to who is legally obligated to pay the rent and meet the other lease obligations. To make matters worse, there are applicants who are scam artists, who have no intention of paying rent and who may even submit fake corporate names that do not exist.

Rent Responsibility

In instances when the corporate entity is signing the lease as the resident, an individual person is not responsible for the rent or any other obligation under the lease. To make this easier to understand, the corporation is treated like a person during the term of the lease and any future collection or eviction proceeding. For example, if the rent is not paid, the property manager would name the corporation as the resident being evicted, and only the corporation’s name would be listed on the eviction paperwork filed with the court.

Is there really a Corporation?

Initially, the property manager must verify that the corporation truly exists, as the full corporate name should accurately be referenced on the lease. Corporate officer information should also be verified, as the property manager also needs to confirm that the person claiming to be a corporate representative has actual authority to do so. The corporate representative with whom you deal may not be an officer, but you can require correspondence written on corporate letterhead signed by an officer that the person with whom you are dealing has the power to bind the corporation. The Florida Secretary of State maintains records concerning corporations, including corporate officer information, and it is usually fairly simple to verify this information online. The corporation may be incorporated in a different state, and the corporate information may need to be verified under that state’s secretary of state website. However, if the corporation is doing business in Florida, it should still register with the Florida Secretary of State. In some cases, we recommend that the property manager obtain the articles of incorporation. Never blindly accept the information provided to you by the corporate contact you are dealing with. It is imperative that the property manager use diligence and verify that the information provided is completely accurate.

Investigating the Corporation

If the corporate entity is bogus, then the apartment community owner’s ability to collect past due rent will be seriously jeopardized, and any eviction process can also be severely compromised, since the eviction action would be filed against an entity that does not exist. At that point, you are at the mercy of the presiding judge. Take your time, and do not let the applicant rush you.

The Inactive Corporation

Sometimes a property manager will discover that the exact name of the corporation exists in the records maintained by the Florida Secretary of State. However, it may turn out that the corporation was voluntarily dissolved or was administratively dissolved for failing to pay annual fees to the Secretary of State. The property manager must recognize that a corporate entity that is dissolved has absolutely no power to enter into lease guarantee agreements, residential leases or any other contracts.

Corporate Tenant Lease Execution Procedures

First, the corporate resident’s name that is listed on the lease must be an exact match with the name on file with the Secretary of State. This requirement has no exceptions. For example if the names do not match up by only one letter, the lease will be drafted incorrectly.

Lease Must Disclose the Actual Names of the Occupants

All properly managed apartment communities obtain criminal background checks on their residents. In truth, many corporate residences are essentially halfway houses or residential drug treatment programs that could indeed place convicted, violent criminals on the grounds of your apartment community if given the chance. When executing a lease with a corporate resident, the actual names of the occupants must be listed, or else the apartment manager will be powerless to verify if those occupants have any criminal history. Also, if the actual names of the occupants are not placed on the lease, the corporation could have a never ending parade of unsavory characters moving in and out of the apartment home, who constantly request that you provide them with keys to the unit or who cause unreasonable disturbances throughout the apartment community.

Corporate Lease Signature Block

It is imperative that the signature block on the corporate lease identify clearly the name of the corporate entity that will be listed as the resident under the lease. Also, the signature block must disclose the name of the corporate representative authorized to sign the lease on behalf of the corporation.

Properly Listing the Corporate Representative on the Lease

It is vital that the corporate representative’s name and complete title be placed on the lease when that representative signs the lease: for example: Brian Williams, as Vice-President of OYIL Corporation. In this example the corporate representative would be the vice-president. The property manager can verify this information by utilizing the Secretary of State website. The property manager must never blindly believe that the person signing the lease has legal authority to sign the lease on behalf of the corporation. Keep in mind, the corporate representative will have no individual liability and would not be listed on any eviction complaint, as that person signed the lease in a representative capacity on behalf of the corporation.

Negative Fallout from Failing to Properly List the Corporate Representative on the Lease

Under Florida Law, there is a strong presumption that if a lease is signed without the designation of the person signing in a representative capacity, then the person is signing in an individual capacity. For instance, the signature block has Beth Smith and the name of the corporate entity listed, but not Beth Smith’s corporate representative capacity or title. Negative consequence may result. Since the intent of the parties was that the individual would not be liable, a judge would probably prohibit the property manager from holding the individual, Beth Smith, liable for the lease obligations. In addition, because the apartment community drafted the lease incorrectly, the corporation could very well avoid liability for any obligations under the lease. That is truly a horrible result for your company, and your regional manager will be very upset.

Guarantee Agreements Involving Corporate Residents Must Be Properly Executed

Unless the property manager has researched the state of the finances of the corporation and determined that the corporation has a long standing history of promptly paying its bills, and the property manager believes with complete certainty that the person signing the lease has the authority to sign on behalf of the corporation, it will be safer for the property manager to have an individual sign a guarantee of lease. The person signing the guarantee would be responsible for all past due rent any other amounts owed under the lease if the corporation defaults on its obligations to the landlord. The guarantee agreement must have clear and exact written language to that effect. However, if the individual signs the guarantee of lease agreement and includes any reference to the company or corporate title, then the guarantee may be essentially worthless, because it will not be enforced against the individual. This result may occur when there is no clear language demonstrating that the person signing the guarantee of lease agreement intended to be personally liable. Also, if the property manager wishes to include the individual on the lease itself, then the signature block should state the following, for example: “Beth Smith, signing in her individual capacity”.

The Corporation as the Lease Guarantor

In many instances, the property manager due to resident selection criteria will not be able to approve an applicant unless the applicant obtains a guarantor. Very rarely, the guarantor will be a corporation. Therefore, in order to enforce the guarantee agreement against the corporation, all of the rules for proper execution which apply to the lease signing process will also apply when the corporation is guaranteeing the lease. The properly trained property manager must verify that the corporation is in existence, and the guarantee of lease agreement must list the name of the corporation exactly as it is listed with the Secretary of State, and the person signing the guarantee of lease must have the authority to do so. Likewise, the signature block must clearly list the name of the corporate representative and the corporate representative’s exact title. Call your attorney if you have questions about this process.

It is all about lifestyle in multifamily living

It is all about lifestyle in multifamily living. Apartment complexes, condominium developers and even home owners associations are trying to attract buyers and renters not only offering a housing solution but a whole lifestyle. In recent years it is more important to offer the right amenities and lifestyle than the physical configuration of a specific unit, although this will always have an impact on a buying or leasing decision but to a lesser degree. The following article from GlobeSt.com shows what condo developers are doing in Miami, amenities never seen before in a condominium project.

From Globest.com "MIAMI—Developers are working hard to differentiate their Downtown Miami condos, but the market hasn’t seen anything quite like this yet. Paramount Miami Worldcenter will be home to America’s first outdoor soccer fields in a high-rise residential development.

Soccer is the world’s most popular sport and is gaining massive attention in Miami as the city works through details of a new soccer stadium. In the meantime, residents at Paramount can have kick all the goals they want in an indoor regulation size soccer field located within a two-acre sports complex on the ninth floor of the 60-story tower.

“The world’s number one sport is coming to Paramount Miami Worldcenter,” says developer Daniel Kodsi, who has developed a real estate portfolio of over $1.1 billion in mixed-use, multifamily, condo and single-family homes over the past 25 years. “We are including amenities for families who wish to live in the core of Downtown Miami but also want plenty of open green space to play. Paramount has already attracted buyers from around the world…”

Beyond soccer, the outdoor sports complex will be home to tennis courts, a running course, yoga deck, and basketball court or use the fitness center or boxing studio inside. Meanwhile, a “jam room” will come fully equipped with drums, guitars, a piano and recording studio. Private outdoor bath houses offer serene pools with 180-degree view from a top-floor indoor lounge.

“An amenity like the soccer field really catapults Paramount Miami Worldcenter into a league of its own,” says OneWorld Properties’ president and CEO Peggy Olin Fucci, who is leading marketing efforts for the property. “We have already received tremendous feedback from South American, European and Asian buyers.”

Paramount Miami Worldcenter is located on Biscayne Bay and surrounded by the American Airlines Arena, Adrienne Arsht Center, and the Pérez Art Museum Miami. The tower will be within walking distance of the new pedestrian 7th Street Promenade, which will be home to premier restaurants and outdoor cafes.

The project features 473 city and bay-view residences. Residences will range in size from 1,300 to 2,300 square feet, with prices averaging $700 per square foot. The project is scheduled to break ground in the second quarter of 2015 with occupancy slated for the third quarter of 2018.

Downtown Miami condo prices are soaring. Prices for resale condo units in Downtown Miami from the last boom have increased 75% over the past two years, rising from an average of $230 per square foot to $400 per square foot. The DDA credits most of appreciation to value recovery stemming from market stabilization and the launch of new projects since 2011.

“Strong buyer demand, appreciating prices, and growing appeal among renters continue to fuel the downtown Miami condo market,” says Anthony M. Graziano, senior managing director forIntegra Realty Resources in Miami, whose firm conducted the study. “While we expect price increases to slow with time, downtown is well positioned to absorb the new condo inventory currently under development should present-day buyer trends hold.”

A Green Building Culture

Model D (09/23/14) Mondry, Aaron

The Green Garage, a renovated historic Model T showroom in Detroit, typifies a growing green building culture in that city, using as many sustainable design elements as possible. The building weathered one of Detroit's snowiest winters and rainiest summers with built-in stormwater management, high-resistance insulation, UV-light-blocking windows, solar panels, radiant heat, and other features that enabled the building to use just 15 percent of the energy of a comparable office building. Another historic Detroit building, 71 Garfield, was retrofitted with geothermal heating and cooling, foam insulation, and a rooftop solar array, among other improvements. It uses one-third of the energy it used before the renovation. Meanwhile, Detroit-Wayne Joint Building Authority president Gregory McDuffee renovated the Coleman A. Young Municipal Center with simple and inexpensive changes that are expected to save approximately $1.8 million a year. Some of the changes included cutting energy for lighting by having cleaning staff clean during the day rather than at night, using single-stream recycling to reduce waste, and retrofitting 4,000 cooling boxes to save energy. More efficient insulation and windows are "relatively simple changes that pay for themselves within a year," says EcoWorks' Jacob Corvidae. Making buildings more energy efficient enables businesses to use saved capital for business expansion. "It gets back to our competitiveness as a city and as a nation," says Green Garage owner Tom Brennan. "If we have high infrastructure costs that have to be born in our products and services, then we're setting our businesses up for failure."

Security Deposits and Advance Rent in Residential Tenancies in Florida

We are not lawyers and therefore do not provide any legal advice to clients but want to point out some important aspects of the Florida Landlord Tenant Act which are very important and we see mistake after mistake made by Landlords and even some Landlord's agents.

Whenever money is deposited or advanced by a tenant on a rental agreement as security for performance of the rental agreement or as advance rent for other than the next immediate rental period, the landlord or the landlord’s agent shall either:

(a) Hold the total amount of such money in a separate non-interest-bearing account in a Florida banking institution for the benefit of the tenant or tenants. The landlord shall not commingle such moneys with any other funds of the landlord or hypothecate, pledge, or in any other way make use of such moneys until such moneys are actually due the landlord;

(b) Hold the total amount of such money in a separate interest-bearing account in a Florida banking institution for the benefit of the tenant or tenants, in which case the tenant shall receive and collect interest in an amount of at least 75 percent of the annualized average interest rate payable on such account or interest at the rate of 5 percent per year, simple interest, whichever the landlord elects. The landlord shall not commingle such moneys with any other funds of the landlord or hypothecate, pledge, or in any other way make use of such moneys until such moneys are actually due the landlord; or

(c) Post a surety bond, executed by the landlord as principal and a surety company authorized and licensed to do business in the state as surety, with the clerk of the circuit court in the county in which the dwelling unit is located in the total amount of the security deposits and advance rent he or she holds on behalf of the tenants or $50,000, whichever is less. The bond shall be conditioned upon the faithful compliance of the landlord with the provisions of this section and shall run to the Governor for the benefit of any tenant injured by the landlord’s violation of the provisions of this section. In addition to posting the surety bond, the landlord shall pay to the tenant interest at the rate of 5 percent per year, simple interest. A landlord, or the landlord’s agent, engaged in the renting of dwelling units in five or more counties, who holds deposit moneys or advance rent and who is otherwise subject to the provisions of this section, may, in lieu of posting a surety bond in each county, elect to post a surety bond in the form and manner provided in this paragraph with the office of the Secretary of State. The bond shall be in the total amount of the security deposit or advance rent held on behalf of tenants or in the amount of $250,000, whichever is less. The bond shall be conditioned upon the faithful compliance of the landlord with the provisions of this section and shall run to the Governor for the benefit of any tenant injured by the landlord’s violation of this section. In addition to posting a surety bond, the landlord shall pay to the tenant interest on the security deposit or advance rent held on behalf of that tenant at the rate of 5 percent per year simple interest.

(2) The landlord shall, in the lease agreement or within 30 days after receipt of advance rent or a security deposit, give written notice to the tenant which includes disclosure of the advance rent or security deposit. Subsequent to providing such written notice, if the landlord changes the manner or location in which he or she is holding the advance rent or security deposit, he or she must notify the tenant within 30 days after the change as provided in paragraphs (a)-(d). The landlord is not required to give new or additional notice solely because the depository has merged with another financial institution, changed its name, or transferred ownership to a different financial institution. This subsection does not apply to any landlord who rents fewer than five individual dwelling units. Failure to give this notice is not a defense to the payment of rent when due. The written notice must:

(a) Be given in person or by mail to the tenant.

(b) State the name and address of the depository where the advance rent or security deposit is being held or state that the landlord has posted a surety bond as provided by law.

(c) State whether the tenant is entitled to interest on the deposit.

(d) Contain a specific disclosure stated in the Law

(3) The landlord or the landlord’s agent may disburse advance rents from the deposit account to the landlord’s benefit when the advance rental period commences and without notice to the tenant. For all other deposits:

(a) Upon the vacating of the premises for termination of the lease, if the landlord does not intend to impose a claim on the security deposit, the landlord shall have 15 days to return the security deposit together with interest if otherwise required, or the landlord shall have 30 days to give the tenant written notice by certified mail to the tenant’s last known mailing address of his or her intention to impose a claim on the deposit and the reason for imposing the claim. The notice shall contain a statement in substantially the following form:

This is a notice of my intention to impose a claim for damages in the amount of   upon your security deposit, due to  . It is sent to you as required by s. 83.49(3), Florida Statutes. You are hereby notified that you must object in writing to this deduction from your security deposit within 15 days from the time you receive this notice or I will be authorized to deduct my claim from your security deposit. Your objection must be sent to   (landlord’s address)  .

If the landlord fails to give the required notice within the 30-day period, he or she forfeits the right to impose a claim upon the security deposit and may not seek a setoff against the deposit but may file an action for damages after return of the deposit.

(b) Unless the tenant objects to the imposition of the landlord’s claim or the amount thereof within 15 days after receipt of the landlord’s notice of intention to impose a claim, the landlord may then deduct the amount of his or her claim and shall remit the balance of the deposit to the tenant within 30 days after the date of the notice of intention to impose a claim for damages. The failure of the tenant to make a timely objection does not waive any rights of the tenant to seek damages in a separate action.

If the Landlord hires a professional management company to lease and manage the property, then the company will place most likely all security deposits and advanced rents in a security deposit non-interest bearing escrow account in a Florida financial institution and will have the proper notification in the lease agreement. This makes it easier for Landlords to keep, handle and disburse security deposits and advanced rents, being able to comply with the Law. 

Requiring Renters Insurance from multihousingnews.com

In the article “Owner Beware,” by Keat Foong (originally posted on multihousingnews.com), we learn that apartment companies are increasingly requiring residents to obtain renters insurance. According to a survey of apartment companies conducted by the National Multi Housing Council (NMHC), 66 percent of lessor respondents required renters insurance, which is up from 44 percent in 2009, and in 2008 only 24 percent required the insurance.

Large apartment companies like Greystar seem to be the driving force behind the policy. “We consider [requiring renters insurance] an industry best practice that eventually will become an industry standard,” says Michael Greene, senior director of business operations at Greystar.

There are a variety of reasons why apartment companies are beginning to implement renters insurance more, the most important benefit being the owner’s ability to recover damages. If a resident happens to damage the property the apartment company’s master insurance may cover the cost, but there’s the possibility of a deductible and raised rates.  With renters insurance the landlord would simply recover the costs from the resident’s insurance company. Landlords are also protected in the event that there is a theft or loss that a tenant blames on the property owner.

Coverage under a renters insurance policy usually covers damage caused by smoke, fire, explosions, and water. The typical policy has three fundamental components of coverage: Liability coverage, personal possession coverage and external living expenses coverage.

Although landlords are increasingly electing to require tenants to carry renters insurance, there are often state statutory limits on the amount of control a lessor can exercise over the resulting insurance purchase transaction.  Under most states’ laws, apartment companies are not allowed to requireresidents to use a particular insurance company. However, the landlords are allowed to provide a list of insurance companies as an option to residents. Indeed, landlords may identify favored insurance companies with which they have agreements for lower rates and pre-approval. Such arrangements offer incentives for both the landlord and tenant.

As the requirement of renters insurance becomes more common in the apartment marketplace, there appears to be little pushback by renters. In fact, it is reported now that residents have begun to not only accept, but almost expect the requirement.

Are foreclosures over?

The U.S.housing market is beginning to show signs that it has turned a corner. According to the latest home price report from Trulia, asking home prices were up 5.1% in 2012. This is a big turnaround after falling 4.3% in 2011. Las Vegas and Seattle topped 2012’s biggest turnaround markets according to the report. The report also mentions that nationally, rents rose 5.2% year-over-year, with Houston, TX and Oakland, CA experiencing the largest percent change in rents. According to data from Realty Trac the crisis may not be over and opportunities exist for investors of single family homes, since the rental market may get better in 2013, at least in some areas.

Let's look at the 12 leading States with largest number of foreclosure filings in November 2012:

In Washington State 1 in every 756 homes received a foreclosure notice  in November 2012, this is up 45.37% from a year before.

Wisconsin  has the same ratio of new foreclosure filings but this reflects a 21.70% down from the previous year. Indiana had 1 in every 684 homes, up 31.14% from the previous year, Michigan 1 in every 621, down 47.04%, Georgia 1 in 494 down 32.9% and Arizona 1 in 468 which is down 43.51% from 2011. Then you see Ohio with 1 in every 458 homes, up 9.96%, South Carolina 1 in 455, up 16.68% and California 1 in 430, down 50.08% but still a lot of filings. 

Nevada had 1 in every 390 homes which is actually down 53.82%, Illinois 1 in 392, which is up 9.05%.

Then we get to the State of Florida where we operate. Florida showed 1 foreclosure filing in November 2012 for every 304 homes, which is actually up 19.7% from November 2011. Especially in South Florida we have seen a lower inventory of single family homes and therefore some positive trend and prices. International private investors plus many domestic institutional investors moving to increase their single family rental portfolios, may be the driving force, but still high unemployment and an economy with many unsolved problems may hurt our local market and trends may change. It is difficult to quantify the shadow inventory of single family homes held by financial institutions and somewhere in the foreclosure process but it is there and these new foreclosure filings are also there and a sign of possible problems for our Florida market. Of course South Florida may be the area with the best positive influence but still something that opportunistic investors should take into account and move fast in their investment decisions.

Our particular view is that the train has left the station but there is still a chance to catch it, investors still have an opportunity, and it may greater than many think, to acquire quality residential real estate for their rental portfolios and Florida is a key State with a bright future. The time to act is now when there are still opportunities out there as the numbers show. 

Future of Residential Rental Market

No question that the mortgage meltdown and real estate debacle of the last 5 years, have had consequences in all of us, one way or another, that never were possible in our minds as Americans. The concept of homeownership, part of the American Dream, it is not present in the minds of new generations as it used to be. Availability of capital to purchase a home and Creditworthiness of Buyers is at the lowest level in history. Even with interest rates at historical low levels, and maybe dropping more in the short term, and lower home prices, it is not easy to afford a home these days. The Census Bureau shows 17.5% increase in rentals between 2005 and 2010, but many areas have seen much higher increases. Chicago 40%, Phoenix 70%, san Antonio 48%, Dallas 38% Austin 40%, Las Vegas 67%, Orlando and Denver 22% and Orange County California 37%. Apartment vacancies dropped from 8% in 2009 to 5.6% in 2011 as a national average, pushing national rent prices up 2.5% nationally. We will see more investors come into the single family rental business and we predict that millions of dollars will come from institutional investors and REITs into the single family rental market. We do not think Congress will get rid of the mortgage interest deduction for primary residences but if they do rents will skyrocket, renting will become more much attractive that owning, even for those that can afford to purchase a home. Some may point out that unless we allow rent paid for a primary residence to be a tax deductible item, something common in other countries, we are putting extra weight on those forced to rent, but we do not think this will have any life in Congress, based on the current deficit and fiscal cliff. Such a measure will also push rents up. Our personal opinion is that either home buying is fueled by homeownership or rental investment acquisitions, the need for shelter will continue to push real estate development of new homes and purchases of existing homes, having a healthy real estate market at the end, one way or another. Population growth and employemnt rate are crucial for the health of the real estate market.

Tenant Protection Act of 2009

landlords and Tenants must know about the Tenant Protection Act enacted in 2009 as a consequence of the foreclosure crisis. Simply put the Act states the following: Protecting Tenants at Foreclosure Act of 2009 The Protecting Tenants at Foreclosure Act protects tenants from eviction because of foreclosure on the properties they occupy. These provisions took effect on May 20, 2009, and originally were scheduled to expire on December 31, 2012. However, the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) changed the expiration date to December 31, 2014. The tenant protection provisions apply in the case of any foreclosure on a “federally related mortgage loan” or on any dwelling or residential real property. They provide that “any immediate successor in interest” in such a foreclosed property, including a bank that takes title to a house upon foreclosure, will assume the interest subject to the rights of any bona fide tenant and will need to comply with certain notice requirements. Under this law, the immediate successor in interest of a dwelling or residential real property must provide tenants with a notice to vacate at least 90 days before the effective date of such notice. The date of a “notice of foreclosure” is defined as the date on which complete title to a property is transferred to a successor entity or a person as a result of a court order or pursuant to provisions in a mortgage, deed of trust, or security deed. Tenants also must be permitted to stay in the residence until the end of their leases, with two exceptions: (1) When the property is sold after foreclosure to a purchaser who will occupy the property as a primary residence or, (2) When there is no lease or the lease is terminable at will under state law. However, even when these exceptions apply, tenants must still receive 90 days notice before they may be evicted. The protections of this law apply to tenants under a “bona fide” lease or tenancy. A lease or tenancy is “bona fide” only if: (1) The mortgagor or a child, spouse, or parent of the mortgagor under the contract is not the tenant; (2) The lease or tenancy was the product of an arm’s-length transaction; and (3) The lease or tenancy requires the receipt of rent that is not substantially less than fair market rent or the rent is reduced or subsidized due to a federal, state, or local subsidy The law states that “federally related mortgage loan” has the same meaning as in section 3 of the Real Estate Settlement Procedures Act of 1974 (12 USC 2602). The definition includes any loan secured by a lien on one-to-four family residential real property, including individual units of condominiums and cooperatives.

History of Fair Housing

On April 11, 1968, President Lyndon Johnson signed the Civil Rights Act of 1968, which was meant as a follow-up to the Civil Rights Act of 1964. The 1968 act expanded on previous acts and prohibited discrimination concerning the sale, rental, and financing of housing based on race, religion, national origin, sex, (and as amended) handicap and family status. Title VIII of the Act is also known as the Fair Housing Act (of 1968). The enactment of the federal Fair Housing Act on April 11, 1968 came only after a long and difficult journey. From 1966-1967, Congress regularly considered the fair housing bill, but failed to garner a strong enough majority for its passage. However, when the Rev. Dr. Martin Luther King, Jr. was assassinated on April 4, 1968, President Lyndon Johnson utilized this national tragedy to urge for the bill's speedy Congressional approval. Since the 1966 open housing marches in Chicago, Dr. King's name had been closely associated with the fair housing legislation. President Johnson viewed the Act as a fitting memorial to the man's life work, and wished to have the Act passed prior to Dr. King's funeral in Atlanta. Another significant issue during this time period was the growing casualty list from Vietnam. The deaths in Vietnam fell heaviest upon young, poor African-American and Hispanic infantrymen. However, on the home front, these men's families could not purchase or rent homes in certain residential developments on account of their race or national origin. Specialized organizations like the NAACP, the GI Forum and the National Committee Against Discrimination In Housing lobbied hard for the Senate to pass the Fair Housing Act and remedy this inequity. Senators Edward Brooke and Edward Kennedy of Massachusetts argued deeply for the passage of this legislation. In particular, Senator Brooke, the first African-American ever to be elected to the Senate by popular vote, spoke personally of his return from World War II and inability to provide a home of his choice for his new family because of his race. With the cities rioting after Dr. King's assassination, and destruction mounting in every part of the United States, the words of President Johnson and Congressional leaders rang the Bell of Reason for the House of Representatives, who subsequently passed the Fair Housing Act. Without debate, the Senate followed the House in its passage of the Act, which President Johnson then signed into law. The power to appoint the first officials administering the Act fell upon President Johnson's successor, Richard Nixon. President Nixon tapped then Governor of Michigan, George Romney, for the post of Secretary of Housing and Urban Development. While serving as Governor, Secretary Romney had successfully campaigned for ratification of a state constitutional provision that prohibited discrimination in housing. President Nixon also appointed Samuel Simmons as the first Assistant Secretary for Equal Housing Opportunity. When April 1969 arrived, HUD could not wait to celebrate the Act's 1st Anniversary. Within that inaugural year, HUD completed the Title VIII Field Operations Handbook, and instituted a formalized complaint process. In truly festive fashion, HUD hosted a gala event in the Grand Ballroom of New York's Plaza Hotel. From across the nation, advocates and politicians shared in this marvelous evening, including one of the organizations that started it all -- the National Committee Against Discrimination In Housing. In subsequent years, the tradition of celebrating Fair Housing Month grew larger and larger. Governors began to issue proclamations that designated April as "Fair Housing Month," and schools across the country sponsored poster and essay contests that focused upon fair housing issues. Regional winners from these contests often enjoyed trips to Washington, DC for events with HUD and their Congressional representatives. Under former Secretaries James T. Lynn and Carla Hills, with the cooperation of the National Association of Homebuilders, National Association of Realtors, and the American Advertising Council these groups adopted fair housing as their theme and provided "free" billboard space throughout the nation. These large 20-foot by 14-foot billboards placed the fair housing message in neighborhoods, industrial centers, agrarian regions and urban cores. Every region also had its own celebrations, meetings, dinners, contests and radio-television shows that featured HUD, state and private fair housing experts and officials. These celebrations continue the spirit behind the original passage of the Act, and are remembered fondly by those who were there from the beginning. Source: US Department of Housing and Urban Development

Homeowners in Foreclosure Pilot Program

NEW YORK – March 23, 2012 – Bank of America says it has begun a pilot program offering some of its mortgage customers who are facing foreclosure a chance to stay in their homes by becoming renters instead of owners.

The “Mortgage to Lease” program, which was launched this week, will be available to fewer than 1,000 BofA customers selected by the bank in test markets in Arizona, Nevada and New York.

Participants will transfer their home’s title to the bank, which will then forgive the outstanding mortgage debt. In exchange, they will be able to lease their home for up to three years at or below the rental market rate. The rent will be less than the participants’ current mortgage payments and customers will not have to pay property taxes or homeowners insurance, the bank said.

“This pilot will help determine whether conversion from homeownership to rental is something our customers, the community and investors will support,” Ron Sturzenegger, legacy asset servicing executive of Bank of America, said in a statement.

Among requirements to qualify for the program, homeowners must have a BofA loan, be behind at least 60 days on payments and be “underwater,” owing more on their mortgages than their homes are worth.

The bank based in Charlotte, N.C., said it will at first own the homes, then sell them to investors. If the program is successful, it could be expanded to include real-estate investors who buy qualifying properties and keep the occupants on as tenants.

“If this evolves from a pilot into a more broadly based program, we also see potential benefits from helping to stabilize housing prices in the surrounding community and curtail neighborhood blight by keeping a portion of distressed properties off the market,” Sturzenegger said.

Foreclosure tracking firm RealtyTrac says foreclosure activity has picked up in some states, as banks deal with a backlog of homes with mortgages that had gone unpaid yet remained in limbo due to delays stemming from foreclosure-abuse claims.

Nevada has the nation’s highest foreclosure rate as of last month, with one in every 278 households in the state receiving a foreclosure-related filing, twice the national average, according to RealtyTrac. Arizona ranks third behind California, while New York has not been as hard hit, with one in every 4,604 households receiving a foreclosure-related filing.

source:Claudette Bruck, CCIM Legislative Chair Florida CCIM Chapter

Florida Amendment 4 "Why vote Yes on 4"

1. Eliminating Property Tax Loopholes

Amendment 4 empowers the Legislature to stop “recapture”, a property tax trap that forces some homeowners to pay higher property taxes even if their home’s market value declines.

2. Saving Small Business Owners

Amendment 4 will lower the cap on assessment increases for non-homestead properties from 10% to 5% per year. For small businesses and commercial property owners, Amendment 4 provides the stability and the tax relief that they need to get out of this recession and create the jobs Florida needs now.

3. Renewing Florida’s Promise

With nearly 1 million Floridians still out of work and hundreds of thousands more underemployed, we must pursue new policies that will drive prosperity back to Florida and restore our economic future. Amendment 4’s new cap on non-homestead properties will attract new investment in Florida’s economy, which will help revitalize communities impacted by the recession, and spur job growth in the cities and counties that need it most.

4. Empowering New Homeowners

Families looking for their first home or looking to move back into a home after downsizing for the recession will benefit greatly from Amendment 4. Amendment 4 offers an additional homestead exemption for new homebuyers that will last up to five years, rewarding new homeowners for finding the right home for their needs.

Foreign Investors in US Real Estate

Investors around the world have always had great interest in properties in the United States and the reasons are clear. Not only real estate offers a safe investment with good returns but it also offers total control of the investment and it is an excellent hedge against inflation. The United States offers good economic and political stability like no other country in the world. Therefore any investor interested in real property should have in his/her portfolio real estate in the United States of America but many considerations are important when it comes to foreign investors acquiring properties in the US. Last year 72% of the foreign investors surveyed stated they will increase their investments in properties in the United States in the following 12 months, mainly in commercial real estate although the influence of foreign investment in residential properties is very high in South Florida and it is one of the reasons a real estate market recovery should be soon a reality in our area.

One of the most important aspects is the tax laws affecting foreign investment in real property. In 1986 there were many changes in the law and all foreign investors should be aware of all recent changes as well so they can establish the proper structure under which take title to properties. Can I take title under my personal name? Shall I take title under a domestic US corporation or limited liability company? Who should be the owner of that US entity, me and my family or a foreign company or trust controlled by us? Or shall I take title under an offshore company? In using offshore companies, should they be from my Country of origin or shall I use tax heaven jurisdiction?

All these questions are very important before one makes a decision to invest in properties in the United States because they will affect the operation and returns of the investment and proper planning will avoid costly mistakes.

It is crucial to analyze current US Treaties with the Country of origin. If the foreign investor’s country has a treaty with the US this will affect the type of entity and structure as well as the operation of the investment so it should be analyzed carefully taking into account possible future changes.

It is very important to analyze the income tax liability of the investment based on the chosen structure since this will affect the after tax return on the investment as well. The analysis should be of the nature to have potential estate and income tax issues in concert with the desired succession plans and investment objectives of the foreign investor.

Only property managers and brokers with the right experience in structuring investments for foreign clients have the knowledge to assist clients in analyzing real estate returns and investment objectives and are the ones that can properly orchestrate the work of other professionals such as real estate attorneys, tax attorneys and accountants to properly assist the foreign investor in optimizing portfolio operation and returns while enjoying all the benefits of a safe and sound investment in real property in the United States.

Our organization has the knowledge an skills of assisting foreign investors as well as the contacts with the right professionals to assure investment success.

Condo Inventory in Miami Florida

It seems that international buyers and investors have been helping the Condo market in Miami, especially the Brickell Avenue corridor and Downtown Miami. Almost 85% of the excess inventory is gone and new projects are being planned around Brickell Ave and the Biscayne Blvd area. Prices per suqre foot have gone up from $200/sq.ft to about $300.00 to $350.00/sq.ft in some cases and new projects are being priced between $325.00 and $380.00/sq.ft.

Inventory of rental units has also decreased putting pressure on the rental market. Rents have gone up an average of 15% for condo units in this area. Looking at all areas in Miami-Dade and Broward Counties, one can see rental inventories down and rental rates going up, making more attarctive residential rental investments. The expansion on the Panama canal is fueling the local economy creating jobs to expand the Port of Miami, Port Everglades and Fort lauderdale and Miami International Airports. The Canal expansion should be done in 2014 when we may see another possitive growth of our local economy and in the meantime who knows if we approve gambling and the projects that will come with it.A positive outlook for rental properties in our area.

What is the price per square foot?

Most of the time this is a question most investors and buyers ask when considering purchasing commercial real estate. With construction and replacement costs being more and less the same throughout the nation (in most cases cost of materials and labor do not differ that much)and some influence by the local demand and supply, one may think there should not be a great difference from one location to the other. In fact replacement cost has an influence on the cost of an existing building. Furthermore, local demand and supply will put pressure on how much buildings are trading per square foot in a specific area. There are other factors such as environmental conditions and property characteristics and condition or physical obsolescence if present. But in commercial/investment real estate the most important factor to determine the actual value of a building is how much the asset can produce, either in income for an investor or use value for a user. When an investor looks at acquiring income producing properties, an income approach to value will have more weight than any other method such as comparison sales or reproduction cost and appraisers use it all the time. This is why you can see that recently a 15,000 sq ft shopping center in good condition with a large expected economic life sold in Broward County Florida for $3,525,000.00 or $235.00 per square foot and a retail space totalling 15,000 sq ft, in a very similar condition, sold on Broadway, New York City for $136,550,000.00 or $9,103.33 per square foot. Although it is very important to know replacement costs, recent sales, property and location conditions, all comes down to the internal rate of return of the investment over a specific holding period and the question is more how much it produces rather than what is the cost per square foot. One an analysis is performed on a specific real estate investment and the results make sense for the investor, then all other conditions should be analyzed, future growth in the area, future supply, future demand from users of this property type, demographic and market forces, government plans, environmental hazards and property condition to determine when and how much capital improvements will be required and how much reserves for replacements should be put aside. When we blend all these factors into our investment and financial analysis, if we achieve the required return for our investment criteria, we will move and purchase the property, most of the time not paying too much attention to what is the price per square foot.

Property Management Trust Accounts

Misuse of trust accounts is the number one reason why property management companies are audited. That’s why it’s vital that the proper trust fund accounts are established as needed, and used properly.

Improperly using trust accounts that were established to maintain owner funds and tenant security deposits can result in stiff penalties, such as license suspension or revocation. Improper tracking or usage of tenant security deposits can also result in the management company being responsible for the cost of damages incurred while the property was occupied.

Trust accounts are traditionally used as a method to keep tenant deposits and rent payments separate from operating capital. For example, in both California and Arizona, rent payments must be placed into a trust account no later than three business days after the funds have been received.

Funds placed in the trust account can only be withdrawn by the broker or broker-officer whose name the account is established under. Brokers are not allowed to tap into these funds except for trust related items. To complicate matters, many states currently require that security deposits be kept in a trust account, with some state statutes requiring that the deposit be in a separate trust account, while others allow them to be placed with the owner’s trust account. For instance, in Arizona, brokers must maintain a separate account for all tenant security deposits. Note that in most states, security deposits received on broker-owned properties do not have to be deposited into a separate trust account, but it’s always wise to check your own state’s requirement.

In recent years, some states have implemented new laws requiring property managers and owners to specify in the management contract exactly how trust accounts will be used. Even if your state has statutes specific to the use of trust accounts, it’s best to spell out any specifics in the management contract.

The Department of Real Estate in each state has its own set of established rules and regulations governing the proper and improper usage of trust accounts, and it’s wise to get yourself up to speed on these regulations.

While your state’s department of real estate will continue to perform audits, if your management company has followed the statutes, and maintained ‘good accounting practices,’ you should be able to sail through any audit that your property management company may be subjected to. (Source propertymanagement.com)

New Accounting Rules Affecting Tenants & Landlords

The Financial Accounting Standards Board and International Accounting Standards Board have been working on a project to modify how leases are reported by tenants. Currently the standards require that tenants evaluate leases to determine if they are capital or operating leases. Capital leases are recorded as Assets and related Liabilities on the company's Balance Sheet. Operating leases are expensed as the lease term passes and future lease obligations are disclosed in the footnotes to the financial statements. Most real estate leases are recorded as operating leases. The new rules will require that all leases are recorded as a right to use Asset and lease related liability, calculated using the present value of all lease payments. These "Assets" will be amortized over the life of the lease and lease obligations will be reduced as lease payments are made with an interest component to take into account time value of money. We see many possible implications of this new rule. No question these new rules will affect the company's Debt/Equity ratio, maybe forcing a company to shorten the length of its leases to meet its covenants. A shorter lease will require only a fraction of the debt to be recognized in the balance sheet. Under the rule renewal options must be included if it is likely the option the option will be exercised. Landlords also have to change the way they report leases. For leases with significant risk and benefits associated with, they will have to record a liability for the obligation to provide space and an asset for the rents to be received. For all other leases landlords will have to use the derecognition approach, meaning they will have to record a lease receivable for the future rents and a residual asset representing the lessor's right to the underlying asset at the end of the lease term. Like with the case of a tenant, the term of the lease would require auditor's judgement and must be re-evaluated at each reporting date. These new rules will affect, landlord's and tenant's, leasing decisions in the future. Commercial real estate entities must contact their accountant and business advisors regarding these changes. It is our opinion that the proposed standard will create an incentive for shorter leases, creating more volatility and affecting property values. It may also create situations where tenants may be better off purchasing rather than leasing space. All these changes and their possible effects must be discussed with a Certified Public Accountant before making any decisions.