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SBM Real Property Law Section eNewsletter

March 2014

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Co-Editors:
Howard A. Lax, Bodman PLC

Patricia Paruch, Kemp Klein Law Firm

Majestic Golf Lesson for Landlords

By Lawrence Shoffner

In Majestic Golf, the trial court refused to enforce a lease-termination provision, finding the tenant's non-economic default "immaterial." Because the tenant had always paid its rent on time and had invested over $6 million in leasehold improvements, the trial judge concluded that forfeiture would be an "unduly harsh and oppressive" remedy. The Court of Appeals reversed, holding that—by reading the requirement of a "material breach" into the lease—the trial court had improperly "rewrote or reformed the contract." The Majestic Golf lesson for tenants was to never ignore lease-default provisions. (See L. Shoffner, Majestic Golf Lesson for Tenants, Real Property Law Section e-Newsletter, December 2012).

On December 20, 2013, the Michigan Supreme Court reversed and remanded the case, concluding that there were genuine issues of material fact (a) whether landlord's notice complied with the lease and (b) whether landlord's conduct resulted in waiver of default. Majestic Golf, LLC v. Lake Walden Country Club, Inc., (Mich. No. 145988, December 20, 2013). This reversal now provides a corresponding lesson.

Majestic Golf lesson for landlords: (1) carefully read the lease's notice and remedy requirements before sending a notice of default to ensure compliance; (2) expressly identify the notice as a "notice of default" and state the potential consequences for non-compliance, whether the lease requires it or not; (3) identify in the notice the section of the lease in default; (4) state in the notice that the landlord does not intend to waive the default, nor any remedy; and (5) expressly restate the non-waiver language in all subsequent communications, including e-mails.

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New Uncapping Exemption for Certain Family Members

By Robert C. Anderson, Elder Law Firm of Anderson Assoc., PC

PA 497 of 2012 creates a new uncapping exemption for deeds signed on and after December 31, 2013 (MCL 211.27a(7)(s)). Unfortunately, planning opportunities will be more limited than was hoped.

The new provision exempts from uncapping transfers of residential property among certain family members related by blood or affinity to the first degree. The State Tax Commission defines "blood or affinity to the first degree" to include a spouse, father, mother, sibling, child, stepchild, mother-in-law and father-in-law, but not grandchildren, grandparents, stepfather, stepmother, sons- or daughters-in-law, and deeds to or from a trust, LLC or a probate estate.

A strict reading of MCL 211.27a(7)(s) shows that the exemption applies to completed present and not to future transfers because the exemption uses the word "is" to define when a transfer takes effect. (See also Sebastian J. Mancuso Family Trust v. City of Charlevoix, 300 Mich App 1, 831 NW2d 907 (2013)).

The 27a(7)(s) exemption cannot prevent uncapping upon the death of a life-estate holder or Power of Appointment in a Lady Bird deed. However, new exemption 27a(7)(s) would be useful to allow future generations to prevent uncapping. Example: Father adds son to title as joint tenants; father dies; son adds his own son to title as tenant in common or joint tenant. No uncapping.

Finally, a parent must consider the stepped-up tax basis rules of IRC 1014 when he makes a presently-completed transfer to a child. The transfer creates a carry-over tax basis, and the child will incur capital gains taxes as to pre-death appreciation upon the parent's death if the property is sold. The parent can avoid this by using a joint tenancy, life estate, Lady Bird, or trust deed, allowing capture of a stepped-up tax basis under IRC 1014.

In conclusion, P.A. 497 has limited usefulness. The other Proposal A exemptions offer more advantages.

Interested in writing a future article for the e-Newsletter?
Please contact co-editors:
Howard Lax at HLax@bodmanlaw.com or Patricia Paruch at Pat.Paruch@kkue.com.

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The views and opinions expressed in these articles are those of the authors, and they do not reflect in any way the positions of the State Bar of Michigan or the Real Property Law Section. These columns are meant for informational purposes only and should not be construed as legal advice.
IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the Internal Revenue Service, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) was not intended or written to be used, and cannot be used, by any person for the purpose of (i) avoiding tax-related penalties or (ii) promoting, marketing, or recommending to another person any transaction or matter addressed in this communication.