December 3-December 16, 2014—
COLORADO REAL ESTATE JOURNAL
— Page 23
Law & Accounting
A
lice failed to consider
howto findherway out
of the rabbit hole before
she entered it and found herself in
a curious wonderland with whim-
sical rules and no easy path out of
the world with mixed-up order. A
variety of stakeholders who may
have or acquire an interest in a par-
tially finishedreal estateproject that
also has been encumbered with
declarations of covenants, condi-
tions and restrictions governed by
the Colorado Common Interest
OwnershipAct, CRS 38-33.3-101 et.
seq., may find the path to complet-
ing the development to be a similar
adventure.
Many real estate projects that
were left partially completed or
were foreclosed upon during the
recession are now opportunities
for completion of the development
to avoid having blighted property
within a CCIOA controlled com-
munity. Whether representing a
developer, lender, seller or investor
in one of these partially completed
projects, it is critical to determine
the path to successfully develop
the pockets of property left vacant
prior to acquiring or taking posses-
sion of the unfinished project.
One of the threshold issues is
to determine the bundle of sticks
being acquired. A review of the
CC&Rs and the plat/map is criti-
cal to determine if the property is
included within the CCIOA com-
munity and, as a result, subject
to the restrictions set forth in the
CC&Rs. Additionally, it is critical
to determine whether the prop-
ertywas properly annexed into the
CCIOA community or whether it
was de-annexed from the develop-
ment in anticipation of the original
developer’s desire not to develop
the property. Due diligence would
include a determination of the
“property” being acquired, includ-
ing access to theproperty for devel-
opment purposes, any restrictions
on the use or development of the
property and the status of any enti-
tlements.
Another issue to consider,
assuming the
property
is
subject to the
CC&Rs, is the
status of the
special declar-
ant
rights
described in
the CC&Rs.
Special declar-
ant
rights
under CCIOA
include devel-
opment rights
andother spec-
ified rights in theCC&Rs. Have the
special declarant rights lapsed or
been assigned?Who holds the spe-
cial declarant rights and may that
party transfer the special declar-
ant rights to the party desiring to
develop the property? If the prop-
erty was subject to a foreclosure or
deed in lieu, what happened to the
special declarant rights in the fore-
closure or other sale of the security
interest? Were the special declar-
ant rights preserved and can they
now be assigned? Critical among
the special declarant rights are
the rights to make improvements
and the rights to use easements
through the community to make
the improvements.
Section 304 of CCIOA outlines
the process for succession to special
declarant rights in a foreclosure or
sale of a security interest in the
property. A person acquiring title
to the foreclosed property succeeds
only to the special declarant rights
that are specified in a writing and
recorded at or about the same time
by the person when acquiring title
to the property. This right may be
preserved solely for the purpose
of transferring to another party.
Section 304 of CCIOA also states
that the period of declarant con-
trol terminates unless a transfer of
declarant rights is conveyed. Sec-
tion 304 of CCIOAassumes a lapse
of the special declarant rights if the
acquirer of the property fails to
record a notice of transfer.
Section 210 (5) of CCIOA may
provide some relief to both the
holder of an interest in unde-
veloped real property subject to
CCIOA CC&Rs and the associa-
tion attempting to manage and
control the undeveloped property.
Development rights lapse under
Section 210 (5) of CCIOAunless the
association, upon the request of the
declarant or the owner of the real
estate subject to the development
right, agrees to an extension of time
with the extension and any terms
andconditions of the exerciseof the
development rights included in an
amendment executedbytheowner
oftherealestateandtheassociation.
This provision provides an asso-
ciationwith undeveloped property
in its community, the opportunity
to revive the lapsed development
rights and permit the development
of the property. Given the associa-
tion’s duty tomaintain andupkeep
the community, Section 210(5) is a
tool to meet the association’s obli-
gations andpermit development of
the undeveloped property within
the community.
Overall, it is critical to include
a process to determine the feasi-
bility of completing the develop-
ment as part of the purchase or
transfer agreement. Part of this
process includes having access to
theassociationandanyunrecorded
documents that govern the devel-
opment of the property that are not
publicly available. The association
may have a design reviewcommit-
tee and design review guidelines
that were not recorded. It is critical
to know what the guidelines are
prior to the endof theduediligence
period, this right must be specified
in the purchase agreement, as it
is not mandated by CCIOA that
nonmembers of the association
have access to such documents.
It also is important to provide the
developer, lender, seller or investor
the right to walk away from the
uncompleted project prior to any
money becoming nonrefundable,
if it is determined that there is no
feasible path to develop the project
and to get out of the maze of the
rabbit hole.
s
Amy Brimah
Managing partner,
Brimah LLP, Denver
tions (preventing a tenant from
opening up another store within
close proximity to the store paying
percentage rent and thus canni-
balizing sales); continuous opera-
tion provisions (requiring tenant to
operate continuously to maximize
gross sales); audit and recordkeep-
ing requirements so landlord can
check the tenant’s reporting; and
the timing of payment and recon-
ciliation (often the landlord will
want to be paid monthly, but a
“true up” should be performed
at the end of the year to address
seasonal sales variations).
n
Conclusion.
Apercentage rent
provision in a retail lease can be an
equitable means of sharing risks
and protecting the interests and
financial stability of the parties.
At the same time, if the provision
is negotiated without taking into
consideration the implications on
the lease as a whole, a percent-
age rent provision can be drasti-
callyone-sided. Because of this, is it
important that retail landlords and
tenants consider historical sales
data and financials, review esti-
mated sales projections and reach
out to as many resources as pos-
sible for guidance (i.e., real estate
brokers, property management
companies and attorneys) before
entering into a lease contemplating
the payment of percentage rent.
s
Our attorneys advise clients in transactional real estate,
construction, and real estate financing. We assist a wide
range of clients with acquisitions, planning, development,
operation, leasing, and sale of real property.
Our firm is experienced in the resolution of land use,
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