Real Estate Outline

Week 1
o Step 1: The first step in developing residential real estate is getting
permission from the jurisdictional bodies where you want to develop.
Bodies include:
Zoning authority has huge effect on price.
EPA requires Phase I Environmental Study. Law creates
titleholder liability if you dont do an inquiry beforehand.
Army Corps of Engineers governs wetlands.
Sanitary district usually the municipality unless small
community
Utilities erected by utility companies
Roadway jurisdiction access on to public roadways
Water District can be village or city, but often is its own thing
FEMA flood plane issues
o Step 2: Diligence
Physical and Legal
Title Insurance!
Schedule A: Bundle of Rights subject only to stuff in
Schedule B
o Step 3: Purchase
There are four ways to acquire property:
Cash deal: 30 days due diligence and close. Its harder for
smaller companies to compete w cash offers.
Option: buying the right to buy the property for a
particular price in a particular time frame
Earnest Money
o Basically LDs that go toward the purchase price at
closing. Different from an option because option
payments dont go toward the purchase price.
Traditional Financing
o But you need collateral (planned zoning) and pre-
sales to satisfy the bank.
o Remedies
Buyers remedies
Specific Performance
Rescission
Unusual: damages (LDs) not penalties/forfeitures
Specific performance
Sellers remedies
Rescission
Damages (LDs) seller gets to keep earnest money.
NO specific performance because money is fungible.
Case: Guel v. Bullock.
In order to be enforceable under the Statute of Frauds, a
contract for the sale of real estate requires:
o Description of property that is sufficiently certain
so it can be identified
o Price, terms, and conditions of sale
o Names of the vendor and vendee
o The signature of the party to be charged
Week 2: ZONING/LAND USE
o In Illinois, zoning authority comes from the state Constitution. It allows
municipalities to regulate buildings height, bulk, setback lines; also
intensity of use, zoning for 3 different categories, etc.
o Zoning Codes
Zoning codes have two parts: the map and the text.
Includes omitted land as a catchall for unzoned land. This
designation is usually the most restrictive. You dont make it open
space because of takings issues.
o When building a building
Heightfind definition of height, check to see what defined grade
is. Building cannot go higher than that, even if actual structure sits
above grade. (This will be on the final.)
House dimensions
Find dimensions of lot
Find yard dimensions
Subtract yard dimensions from lot dimensions
Check to see if floor area exceeds Maximum Gross Floor
Area (distinction between cellar and floors; check about
garages, other bulk standards)
o Public Meetings
Public meetings are the best way for the municipality to know
what the impacted people think about a development, and for the
rest of the community to become stakeholders and adapt to whats
going on. These require notice.
Planning commission hears most things. The zoning board of
appeals is separate and deals with variances.
o Open Meetings Act
Requires
Gathering of people (by any means)
Majority of quorum (quorum = half the members of public
body + 1)
Purpose of discussing public business
Exceptions
Sale/acquisition/lease of land
Litigation meetings
o Infrastructure Deals
Basically, the municipality wants to be sure that there will be
infrastructure sufficient to support the new development. So, e.g.,
you cant have cable before you have electricity.
o LaSalle Bank v. Cook County (LaSalle Standards)
Guy wanted to rezone his residential parcel so he can build oil
tanks there. Court runs through six factors to find that this is
unconstitutional.
Court says munis have zoning authority, and that courts presume
validity of discretion UNLESS the muni decision is arbitrary,
capricious, or unrelated to public health, safety, and welfare.
Standards are mushy
Existing uses and zoning of nearby property
Extent to which property values are diminished by
particular zoning restrictions
Extent to which the destruction of property values of
plaintiff promotes health, safety, morals or general welfare
of the public
Relative gain to the public as compared to hardship
imposed upon the individual property owner
The suitability of the subject property for the zoned
purposes
The length of time the property has been vacant as zoned
considered in the context of land development in the area
and the vicinity of the subject property.
o Sinclair v. Richton Park
Munis actions are arbitrary and capricious (because there was
Court mandates muni rezone to what they Ps requested it to be
zoned as.
Week 4: Development Agreement
o Development agreements are contracts between the government unit
and developer. Both parties are trying to protect themselves from
contingencies that can arise later. Municipality is putting in roads and
stuff, so they want to be sure that theyre getting stuff back. Zoning
must also be for public health and welfare. Once Development
Agreement is made public, its provisions are essentially covenants that
run with the land. These can be easier to enforce than ordinances, etc.
Including things like provisions for liens act as a self-enforcement
mechanism.
o The municipality will agree to a
Map amendment
Approval of special uses, final plans, site plans, variations/waivers
o Contract Zoning
Zoning isnt supposed to be used as consideration for a contract.
As a general matter, it is not permitted. Ziemer v. Peoria. The
exception is when the contract zoning benefits the health, safety,
and welfare of the community. Zoning is a legislative function, so
therefore it cannot be subject to bargaining or contract.
Ziemer v. Peoria
Agricultural land rezoned to business, with the condition
that the land only be used for a dance hall and the owner
give a 50 foot right of way designation.
Goffinet v. County of Christian
236 Acre farm rezoned to industrial to create plant that
would create natural gas, with promise that if the factory
stopped making gas then it would return to agricultural
use. This is the essence of a special/conditional useif theyd
gotten a variance or whatever, then this wouldnt be an issue in
the first place. Theres a natural gas shortage in the area.
Balancing public need vs. erosion of concept of zoning as only out
there to promote public health, safety, and welfare
o Fiscal Impact Study (done by taxing body)
Addresses operating benefits year to year
Assesses the cost and revenues to the various bodies affected by
the development. Government wants to be make sure it can afford
to protect public health, safety, welfare after construction happens.
o Impact Fees
Address planning
Dedication of land, or cash in lieu of land
Based on growth projections and FMV, respectively
Naperville cases: impact fees are okay so long as they are uniquely
and specifically attributable to developers activities.
o LLCs
We have them for the benefit of pass-through taxation and liability
shields. Madeline, you already know everything about this.
Basically know the reasons why an LLC is well suited to do real
estate development.
Westmeyer v. Flynn: a judgment creditor may choose to file a new
action to pierce the corporate veil of a judgment debtor in order to
hold individual shareholders and directors liable for a judgment
against the corporation.
Homeowners Associations
o You dont need them if there are only single family homes.
o Declarant (developer) declares (in a declaration) that there is going to be
particular covenants and easements that run with the land. The
declaration then says that there will be an association that is formed that
deals with these issues. Once someone buys the land, its always subject
to these covenants and easements. Corporation stays in existence all the
way through. Board of directors is initially the principals of the
declarant (people who work for the builder). Buyers get one vote per lot,
builder gets 3 votes per lot. So this lets the buyer control the association
for a long time to make sure that the developer can pay off its creditors,
ensure zoning compliance, etc. Even after turnover, declarant has the
right to continue building and development.
o By purchasing a lot that has covenants, conditions, restrictions (CCRs)
o Role
Own and maintain common areas
Own and maintain structures (e.g., roof)
Maintain other things (e.g., wetland, remedial barriers, etc.)
Architectural approval
o Important stuff in Declaration
Developer control/turnover of association
Access, ingress/egress easements
Maintenance obligations
HOA maintains certain things (roof, building exterior,
structure itself, exterior appearance, etc.)
Owner maintains other things (fireplace, windows, etc.)
Assessments
Used to provide budget for association.
If resident doesnt pay, theres a late fee, interest
Shortfall provision: developer only pays assessments on
vacant or under construction to the extent that other
assessments dont cover the Associations budget. Condos
are different because they require that the moment you create a
condominium, every unit is on the hook for assessments from day
1. This is why we dont like building condos.
Insurance requirements for Association
Rules and Regulations
E.g., no more than 3 pets, only home offices, etc.
Home uses are governed by both zoning and private
covenants.
Easements allowing HOA to construct and repair things.
Covenants dealing with architectural restrictions. These tend to be
more restrictive with townhomes. Most communities dont have
architectural review of single family homes, but do regarding
multifamily homes.
Condo Ownership
o You own the box that you live in outright. You then own a percentage of
the common elements in the rest of the building.
o Declaration must say that all units are responsible for assessments from
day 1. This is because its riskier to have a vertical structure. The rule
ensures that developers use more caution when building them.
o Deposits: have to be set in separate, interest bearing account
o Buyer can rescind the contract within 5 days if theres a disclosure defect
Fee simple ownership e.g., townhomes
o People prefer this because
we like home ownership normatively
there tends to be less red tape than with condos
you dont have to start paying assessments right away
you dont have to set aside deposits
builder has fewer disclosure requirements
Implied Warranty of Habitability Spring Mill Townhomes v. OSLA Financial
Services
o Building defect in roof. HOA sues developer for breach of implied
warranty of habitability. HOA had obligation to maintain the building
and didnt have title.
o Implied warranty of habitability is a contract claim. So because HOA
didnt have title to the building, and because the scope of the HOAs
obligation only covered maintenance, not repairs, it didnt have standing
to sue.
Property additions Westfield Homes v. Herrick
o When there is a restrictive covenant giving HOA specific authority to
not allow particular things, then the HOA cant arbitrarily/capriciously
deny permission to build something that isnt included on the list of
things that are per se not allowed.
Petersen v. Hubschman
o It is appropriate to hold that in the sale of a new house by a builder-
vendor, there is an implied warranty of habitability which will support
an action against the builder-vendor by the vendee for latent defects
which will avoid the unjust results of caveat emptor and the merger
doctrine (see merger below).
o Merger
In a contract for a real estate conveyance, all agreements merge
with the deed, so the agreement doesnt exist unless you write it
on the deed. This was the common law default rule. So the buyer
doesnt want merger to apply to the conveyance contract.
o Breckenridge v. Cambridge Homes
1. The IWOH can be waived when the waiver is brought to the
purchasers attention, the consequences of the agreement are made
known to them, and the buyer waives those rights.
2. Court will notice if the IWOH is being exchanged for a
commercially reasonable warranty.
3. Reading between the lines, the buyers couldve tried to
enforce the much more comprehensive and clearly defined
warranty that they DID have.
Warranties: 2 types
o Standard 1 year limited warranty (systems, structure, other matters)
o 2 party, 2-10 warranty. 1 year covering a lot of stuff, 2
nd
year covering
mostly mechanical systems, then 10 years covering major structural
defects. Dispute resolution mechanisms are crucially important.
You should have a service line item in your charges to cover random stuff
that comes up.
Goodwill
o If someone has a problem, you should see if the problem is in everything
else. If the problem is everywhere, you dont want to cover it.
o If its more or less unique to the home, then when you do the repair you
have the buyer sign something saying that youre doing it out of the
goodness of your heart and that you werent obligated to fix itideally
that you wont fix anything else unless its covered by the warranty. This
is also good for managing peoples expectations.
RWC warranties carveout consequential damages.


o Mostly contextual. There are lots of jurisdictional bodies that have a say in different aspects of
the development. Might be asked to name a handful of these (e.g., a jurisdictional highway
authority rather than Illinois Highway Authority.) FEMA, floodplain issues, army corps of
engineers. If there are wetlands, EPA, etc. Water/sanitary/storm districts jurisdiction may not be
coextensive with municipality.
o Guel case: important, simple, focus on key issue: is a property defined with enough specificity
that you can identify it at the exclusion of any other property.
o Dont spend a lot of time on chronological aspects of development except as context for what we
did.
Week 2
o Bulk standards: need to be able to read chart and apply them as we did in class. Well be dealing
with an interior lot (so dont worry about having road on more than 1 side. When giving final
size of house, maybe say that you need to set out an extra 6 on both sides to allow for
adjustment. Floor:area ratio in Northbrook code is called gross floor area.
o Go through Northbrook code to be familiar with it.
o Open Meetings Act: know what it means and who can do what.
o Know what plat of subdivision does.
o Within context of the cases: zoning authority is delegated from the state. Know policy arguments
surrounding all this stuff, LaSalle and Sinclair, etc.
Week 3
o Understand general concept of infrastructure deal in agreement. What assurances, etc.
municipality wants. So just know main points of what comprise the agreement.
o Definitely focus on contract/conditional zoning. We looked at 2 different cases that had different
results, why they made sense and why they didnt. We should know the rules of the two cases
and be able to compare them.
Week 4
o Conceptually: understand what a fiscal impact analysis is in terms of proving up a zoning case.
Understand what impact fees are.
FIA: within purview of municipality because of state constitutions delegation of
authority to promote public health, safety, and welfare. Looks at revenue that property
will generate from property taxes; also lists expenses/burdens that will be created.
Impact Fees: Understand Naperville case and what it did in Illinois. Know what fees in
lieu are.
Week 5
o Importance of single-purpose entity, why its used.
o Evolution of LLC, why we have it, etc.
o Know LLC Act.
o Case law is important.
o LLC operating agreement was mostly to get us ready for negotiating exercise, so spend relatively
less time on that.
Week 6
o HOA: What is it, why its there, how its power is turned over, structure (not for profit), how
control works, maintenance obligations of common area or other aspects of the project that may
be unique (e.g., wetland buffer).
o Townhome developments (fee simple) cf. condo. With townhomes, HOA is responsible for
maintenance of exterior and structure. Know the rest of the differences between these things.
Why is fee simple better than condominium, etc.
o In a building with more than one unit side by side, you can make it either townhome or condo.
o Associations: assessments, right to levy them, shortfalls, what assessments are going towards
(stuff the association has an obligation to maintain)
Week 7
o Another negotiation exercise. Most of what we talked about was prep for that.
o Things we need to know: remedies. Understand what remedies afforded by law are in real estate
contract, understand that you can limit those by contract, understand what happened in
Grossinger case in terms of language drafted by attorney and what that did to undermine the
outcome that they actually wanted.
Class 8
o Cases
o Look at RWC warranty, but not so much technical specs. Know how to find things in there, and
know what the headings are.
Sample question: lots of stuff happens, buyer tells you to fix it. What do you do?
What are the big exclusions?
Fischbein prefers calls
o 847.417.5610
o Weekend before is fine.