Articles Posted in Real Estate

Most Rhode Island home buyers will require a home inspection as a contingency to close the sale after they have submitted an offer on a home. While a general home inspection is a good idea and should be included in any home purchase, a recently published article makes the argument that buyers should also have other specialized inspections performed to protect themselves from unforeseen maintenance expenses that could arise.

The specialized inspections that should be performed on a home before purchase depend on several factors, including the age of the home and maintenance history. A general home inspection may bring the possibility of issues to light that should be followed up on by an inspector with specialized expertise, but some latent defects in a home may be missed entirely without a specialized inspection from the start. Important inspections may include a roof inspection, an electrical inspection, a pest inspection, and a radon inspection, among others.

The roof is one of the most important structural components of your home, and a damaged or defective roof can cause serious and expensive damage in the event of heavy rain or snow. For a relatively low price, a licensed roofing contractor can inspect the roof and ceilings of a home to find problem areas that could signal leaks or rot. Inspectors can also use specialized equipment to see if heat is escaping from a roof and causing unnecessary utility expenses.

The purchase or sale of a home or other real estate property in Rhode Island starts with a buyer making an offer on the property that the seller accepts, and the parties enter into a purchase agreement contract to proceed with the transaction. A transaction is not complete, however, until all of the final documents are executed, payment is tendered, and the title is transferred to the buyer at the closing. Unfortunately for sellers, it is not uncommon for buyers to back out of a purchase after an offer is accepted, and the property is under contract. A recently published trade industry article discusses how a contract can fall through, and outlines the methods sellers can take to protect their rights and minimize the damage done if a buyer gets cold feet and backs out before a sale is finalized.

The most common way a sale falls through before closing involves contingency clauses in the initial contract. Contingency clauses release a buyer from the obligation to purchase a property if certain conditions occur. The most commonly triggered contingency clauses involve a buyer getting out of a contact because they cannot secure financing on the property or are unable to sell their current home in time to purchase the new home. Contingency clauses may also be triggered if a home inspection or appraisal yields results that give the buyer second thoughts about the agreement’s terms. With the help of a skilled Rhode Island real estate attorney, sellers can ensure that contingency clauses in the initial purchase agreement are not drafted too broadly to encourage a buyer to change the terms of an agreement after the offer has been accepted.

Even if all of the contingency clauses are met and a buyer should proceed with a purchase, they may get cold feet or have second thoughts and try to get out of the sale. If this happens, a seller is left in a difficult position, because they are losing time and money while the home sits under contract, and if a buyer ultimately backs out, a seller may be left back at square one, putting the home back on the market. To prevent these problems, sellers can employ a qualified Rhode Island real estate attorney to include conditions within the purchase agreement that allows the seller to sue a buyer for damages if they back out of a sale without justification. Additionally, sellers can include what is known as an escape clause in the purchase agreement, which allows a seller to entertain and accept offers from other prospective buyers while the home is under contract. With an escape clause, if a seller wants to accept an offer from a different buyer, the original buyer will be given a certain amount of time to waive the contingencies and proceed toward a closing, or else the new buyer will be in a position to purchase the property.

If you have made an offer on a piece of real estate in Rhode Island, and the seller accepts the offer, there is a contractual obligation to proceed in good faith with the purchase. However, the process is far from over. During the time period between the contract acceptance and the closing and transfer of title, several tasks must be completed, and many documents need to be prepared and properly executed to avoid unnecessary delay and expense in the closing process.

Many of the tasks to complete before closing are based on the need for a buyer to secure financing of their property. Although not all of these steps must be taken if a buyer is paying in cash, a prudent cash-in-hand buyer will proceed with these steps anyway, to ensure the property is as promised. A qualified Rhode Island real estate attorney can act as a closing attorney and advise a buyer how to proceed with the transaction in a way that will protect their contractual rights without unnecessary expense.

If a buyer is seeking financing on the purchased property, a lending institution will generally require that a survey is done on the property before the closing. The buyer is usually responsible for paying for the price of the survey. However, a recently performed survey may be used or updated at a reduced cost. In addition to a land survey, a buyer seeking financing may be required to obtain an appraisal of the property to get a loan. Cash buyers may want an appraisal independently to ensure that the property is worth what they are paying. A qualified Rhode Island closing attorney can refer a buyer to a reputable appraising agency to perform the appraisal.

Performing a home inspection prior to a Rhode Island residential real estate closing is an important part of the real estate process. Depending on the agreement between the buyer, the seller, as well as their brokers and the financers, a home inspection may be paid for by any party. However, it is in the interest of all parties that a thorough and comprehensive Rhode Island home inspection is performed before a transaction is finalized.

If a home inspection fails to reveal a structural defect or other physical issue occurring on a building or lot, the question of liability for the defect is not clearly settled under Rhode Island law. Relevant publications have discussed the liability of home inspectors for their own diligence when they declare that a home is free of defects. Under Rhode Island law, home inspectors are required to maintain liability insurance of $250,000 and obtain a state license to perform their services. In the event that a home inspector is negligent and fails to discover a defect that should reasonably be found by a qualified home inspector, they could be liable in a civil lawsuit brought by the buyer seeking compensation for damages related to the defect.

If a home inspector does find an issue with a structure and a buyer decides to purchase the home anyway, the seller may not be protected from legal action brought against them by the buyer. The Rhode Island Supreme Court has weighed in on this very issue. In the case, the plaintiff was the buyer of a home that was found to have signs of water damage and possible flooding issues. After purchasing the home, the plaintiff did not seek to address the water issues, but later sued the seller when a flood caused severe damage to the home.

Buyers interested in purchasing a residential or commercial property in Rhode Island are able to use technology and the convenience of Multiple Listing Services (MLSs) to quickly and efficiently review property listings that may interest them. The MLS is a database created by two or more brokers that provides information about properties that are on the market. Brokers using an MLS can review each other’s property listings, and ultimately connect buyers to sellers. Because the MLS is often made accessible online, its use has made it easy for buyers to find properties to purchase, however inaccuracies within MLS listings can lead to problems that Rhode Island buyers may not foresee.

According to an article published in an industry trade journal, much of the information found on an MLS is automatically populated from property tax records or other publicly available information that may not be accurate or up to date. The article notes an example where the square footage of a home is listed in the MLS as different from the actual square footage, and a potential buyer is misled as to the size and value of the home they are looking into.

Who Is to Blame if the Information Contained in an MLS Listing Is Inaccurate?

According to recently decided court cases, a seller or the seller’s broker can be held accountable for failure to disclose the correct information about a home to a buyer. If this information came from an MLS listing and was prepared by a third-party broker, they may also be responsible, although obtaining compensation from a third party can be difficult.

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States and municipalities often find it necessary to procure private lands in order to complete development or infrastructure projects. State laws in Rhode Island and other states are designed to encourage government entities and private landowners to reach an agreement for the purchase of private land when the government desires such land for a development or infrastructure project. If a state or municipality is unable to reach an agreement to purchase private land to complete a project, the public entity may pursue a “taking” of the land, where the owner is forced to transfer title of the land to the government, and is to be compensated a fair price for their property. However, the government’s power to seize land in this manner is not unfettered, as is demonstrated by a recent state supreme court ruling in such a case.

In the recently decided case, the plaintiff is the state of New Hampshire, which sought to purchase a part of a parcel of land that was owned by the defendant to expand a highway that was adjacent to the land. According to the facts discussed in the judicial opinion, the state and the defendant could not reach an agreement to transfer the land. The state initiated a proceeding with the New Hampshire Board of Tax and Land Appeals to seize title to the land. The request was granted, and the defendant objected to the taking, bringing the issue to court. At the lower court level, the state argued that the board’s decision to grant the taking was not based on fraud or a mistake of law, and the court found the argument sufficient to uphold the taking.

The defendant appealed the ruling to the state supreme court, arguing that the lower court applied the incorrect legal standard to review the board’s decision to grant the taking. Rather than the standard of fraud or legal mistake, the defendant argued that the lower court was required to evaluate the plaintiff’s claim and defendant’s objection anew, and determine whether the necessity, public use, and net public benefit to taking the land would outweigh the infringement on the defendant’s property rights. The high court agreed with the defendant, holding that the legal standard applied by the lower court was not proper, and ultimately reversed the decision and sent the claim down to the lower court for reconsideration under the new standard. Although the defendant has not definitively prevented the taking with this legal victory, the lower court will be more likely to rule in their favor when applying the required legal standard.

A residential real estate transaction in Rhode Island is a complicated and delicate process that usually includes several professionals in addition to the buyer and seller. Purchases and sales of real estate also require the preparation and review of many documents, including an examination of a title for marketability, preparation of a deed, drafting a durable power of attorney, drafting a residency affidavit, and conducting a closing of the transaction, among other activities. The Rhode Island Supreme Court recently addressed the question of which of these duties must be performed by (or under the supervision of) a licensed attorney, and which, if any, can be performed by another type of real estate professional.

The recently decided case was brought to the Rhode Island Supreme Court by a unique procedure. Specifically, the case came about when a committee of the Rhode Island Bar Association requested the court to give its interpretation of a law pertaining to cases in which the committee was determining whether several parties should be charged with the unauthorized practice of law for fulfilling several duties in a real estate transaction without the supervision of a licensed attorney.

Before addressing the questions of whether each of the specific duties in question must be performed by a licensed attorney, the court made clear that all parts of a real estate transaction are best performed under the supervision of a licensed attorney. The court seemed to encourage both parties of a real estate transaction to employ a qualified Rhode Island real estate attorney throughout the process, although the Court ultimately answered the question of whether a non-attorney could perform some of the duties without committing the unauthorized practice of law slightly differently.

Access to water greatly affects the value of developed and undeveloped property in Rhode Island. In areas outside cities and towns that do not have access to municipal or other public water systems, wells may provide the only water for residential or commercial development. A recently decided appeal by a state Supreme Court demonstrates the types of conflicts that may arise when tracts of property served by a well are divided up and sold to different owners.

The plaintiffs in the recently decided case were the owners of a property in rural New Hampshire. The defendants had purchased a part of the original property from the plaintiffs nearly 20 years ago. They were granted a temporary easement to use the well on the plaintiffs’ property to allow water for the home they intended to build on the property. According to the deed, the easement was temporary, and valid only until another water source became available for the defendants to use. After the defendants had used the well on the plaintiffs’ property for 19 years without constructing another well or obtaining an alternate water source, the plaintiffs filed a lawsuit seeking to prevent the defendants from using the well.

At trial, the plaintiffs argued that the deed’s language was not clear as to the term of the easement, but the fact it was stated to be a temporary easement implied that the defendants would be responsible for obtaining their own water at some point. The trial court agreed with the plaintiffs, finding that the deed’s language gave an easement to the defendants until another source of water “becomes available” must have implied that the defendants were to make reasonable efforts to obtain another water source. As a result of the ruling, the defendants were given three years to construct a well and stop using the plaintiffs’ well, as the easement would no longer be valid. The defendants appealed the ruling to the state Supreme Court.

Rhode Island tort law generally sets a statute of limitations that mandates when a claim can be pursued against an architect, developer, or construction company for defects in the construction of a building. If a Rhode Island construction lawsuit is not filed within the statute of limitations, a plaintiff will not be able to obtain relief for their claim. Thus, it is essential to know the time when the statute of limitations period begins to run.

A recently decided case out of Massachusetts demonstrates the uncertainty surrounding statutes of limitations for tort claims, especially when building defects occur in a multi-phase project that is completed over a matter of years.

In the recently decided case, the plaintiffs include the owners of several condominium units that are part of a multi-phase development that was completed between 2008 and 2015. The plaintiffs discovered alleged design and construction defects in the common and limited common elements of the condominium, which may have entitled the owners to damages from the defendants. The plaintiffs filed a lawsuit against the defendants based on their claim. Because Massachusetts has a six-year statute of repose for the type of claim filed, the defendants asked the court to dismiss all of the portions of the claim applicable to units in the development that were completed more than six years before the filing of the case. The federal district court denied the defendant’s motion, and the case was appealed to the Massachusetts Supreme Judicial Court (the Court).

Short-term rentals offer a way for investors and homeowners to generate an income by renting out their property for a period of less than one month. Rhode Island short-term rentals can include vacation homes managed by the owner or an agency, as well as homes or parts of homes that are rented through Airbnb or a similar service. A recent policy analysis published by a real estate industry group discusses some of the regulations that apply to short-term rentals as well as issues that are relevant to all property owners and residents who may seek to rent their property as a short-term rental or are affected by other’s decision to do so.

Sales Tax Requirements for Short Term Rentals

Property owners interested in renting out a property as a short-term rental may not be aware that the Rhode Island legislature expanded the hotel sales tax requirement to include the short-term rental of residential properties in 2015. Property owners who use a rental agency or online booking system like Airbnb will not have to worry about collecting or paying the sales tax on their rental property, as the agencies are responsible for including the tax in the rent that they collect from the short-term tenants. However, property owners who independently advertise and rent out their property as a short-term rental must collect and pay the sales tax themselves. Owners who rent out an entire home as a short term rental must collect and pay a seven percent sales tax and a one percent local hotel tax on any income from the short term rental. Owners who rent out a single room or portion of a home must collect and pay the seven percent sales tax, the one percent local hotel tax, as well as a five percent state hotel tax on all proceeds from their rental.

Community Issues with Short Term Rentals in Rhode Island

The analysis acknowledges that the increase in the short-term rental market has many positive effects on local economies and property owners in recent years. However, several issues arise as a result of the increased amount of short-term rentals on the market. A primary issue within a community is the nuisance caused by an increase in short-term rental properties. Neighbors complain of loud noise, traffic issues, and increased trash, among other problems. Increased regulations and the diversion of tax revenues to address these problems may alleviate the nuisance complaints caused by short-term rentals.

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