INDEMNIFYING YOUR LANDLORD FOR ITS OWN NEGLIGENCE

A recent Colorado Supreme Court case, Constable v. Northglenn, LLC, Case No. 09CS1063 (March 21, 2011), is instructive on why it is important for a tenant to fully understand the indemnification provisions in his or her lease.

In the Constable case, a woman who slipped and fell on ice in a shopping center parking lot sued the owner of the shopping center, Northglenn, LLC, for negligence. Northglenn, LLC in turn filed an indemnity claim against Constable, a tenant in the shopping center, under Constable's lease.

The indemnity provision in Constable's lease required Constable to indemnify Northglenn, LLC for injuries sustained in Constable's space or elsewhere in the shopping center if the person was present in the shopping center for the purpose of visiting Constable's space. The indemnity provision also provided that Constable had no indemnification obligation if the harm resulted from Northglenn, LLC's own gross negligence or intentional torts.

The trial court held that indemnity was unenforceable because it purported to make Constable responsible for the parking lot, which was in the exclusive control of Northglenn, LLC, and that it did not clearly define the injuries that would trigger the indemnification obligations of Constable.

The Court of Appeals reversed, concluding that the indemnity provision made it clear that the parties intended that Constable indemnify Northglenn, LLC for injuries sustained in the parking lot by Constable's customers, whether or not the injuries resulted from Northglenn, LLC's own negligence.

The Supreme Court upheld the Court of Appeals ruling, finding that the indemnity provision was not void as against public policy by requiring Constable to indemnify Northglenn, LLC for its own negligence. The Supreme Court recognized that it is against public policy to enforce an agreement indemnifying an actor for his or her own "intentional or willful wrongful acts," but that an agreement indemnifying a party against liability for his or her own negligence is enforceable if the agreement contains "a clear and unequivocal expression that the parties intended that result."

The indemnity language in Constable did not specifically state that the indemnity applied to claims resulting from Northglenn, LLC's own negligence. The Supreme Court found that the language in the indemnity covering "any and all"claims, and the specific exclusion of gross negligence and intentional torts, was a sufficiently clear expression of the parties' intent that Constable would indemnify Northglenn, LLC for its own negligence.

It is not uncommon for a landlord to require indemnity for claims arising out of the use of the premises, even where the claims arise out of landlord's own negligence. It is less common for the provision to require indemnification for causes of action arising outside of the premises where the plaintiff is not an agent, employee or contractor of the tenant.

From a tenant's perspective, because of the lack of control over customers and over common areas of the shopping center, an indemnity provision like that in the Constable case should be carefully considered and negotiated out of the less if possible.

From a landlord's perspective, if the tenant agrees on a provision like that in the Constable case it would be advisable to specifically state in the indemnity provision that it applies to "any and all" claims, whether or not based on the landlord's negligence.

Posted By: Brent W. Houston, Esq.

WHAT TO DO IF YOUR PROPERTY IS LANDLOCKED

A recent Colorado Supreme Court Case, Bly v. Story, 09SC189 (Oct. 18, 2010), is instructive to landowners who find themselves without access to their property. In the Bly case, the plaintiffs, the Storys, owned a 45 acre parcel in Western Jefferson County that was accessed by a road traversing the property of the defendants, the Blys. The Storys discovered that they had no legal right to use the road and commenced a private condemnation action to obtain legal access.

Article II, Section 14 of the Colorado Constitution prohibits the taking of private property for private use "unless by consent of the owner" or "except for private ways of necessity," among other exceptions. The procedure for commencing a private condemnation proceeding is set forth in Section 38-1-102 of the Colorado Revised Statutes.

Unable to reach an agreement with the Blys, the Storys filed a petition in the district court to establish an access easement over the existing road pursuant to the Colorado Constitution and C.R.S. sec. 38-1-102. The district court granted the Storys petition and awarded the Blys $3,300 for the easement and $9,200 for damages to the residue.

On appeal, the Blys asserted that the trial court erred in denying their motion to dismiss because the Storys failed to adequately describe the easement in their petition, and also that the trial court erred in not presenting evidence to the jury regarding the construction cost of the road for purposes of valuing the easement.

The Supreme Court, in upholding the trial court's decision, stated that Colorado law does not require the petitioner to provide a legal description of the property in the petition and that the Storys' general description of the dimension and location of the easement (i.e. 20 foot easement across the existing dirt road) was sufficient. Further, the Court stated that the Storys were not required to specify in detail the intended use of the condemned property and that the Storys' general statement that the easement was sought "to provide access to [their] landlocked property in order to permit the use and enjoyment of [their] property" was sufficient.

As to the issue of presenting the construction cost valuation method to the jury, the Supreme Court held that the trial court did not abuse its discretion in denying that evidence, but such evidence is admissible.

Post By: Brent W. Houston, Esq.

CONTRACT ASSUMPTION DEFENSE -- ABSOLUTE BAR TO BANKRUPTCY AVOIDANCE POWERS

After filing for chapter 11 bankruptcy, the debtor in possession has the option of either assuming or terminating "executory contracts," meaning contracts having future performance obligations. To assume an executory contract, the debtor must first cure all outstanding defaults and provide adequate assurance of future performance. 11 U.S.C. sec. 365(b).

The U.S. Bankruptcy Court for the District of Colorado has affirmed that, once an executory contract is assumed, payments made under the contract cannot be avoided as "preferences." In re Centrix Financial, LLC, Bankr. Case No. 06-16403 (June 15, 2010). In general, payments made by the debtor within 90 days before filing a bankruptcy petition (one year if made to an insider) on account of a pre-existing debt and made while the debtor was insolvent can be avoided as "preferences," meaning the debtor in possession or bankrutpcy trustee may assert a claim against the recipient to recover amounts paid by the debtor prior to filing for bankruptcy. 11. U.S.C. sec. 547.

In addition to holding that payments made on an assumed contract cannot be avoided as preferences, the Bankruptcy Court held that all payments made under the assumed contract were unavoidable, even though only part of the services provided for in the contract were to continue post-petition. In other words, the whole integrated contract was assumed, not just the parts the debtor wanted to keep.

In the Centrix case, the debtor entered into one contract with the defendant for postage metering and mailing services and a second contract for professional services. The debtor intended to assume only the second contract, and the liquidating trustee appointed by the court attempted to avoid as preferences the payments made with respect to the postage metering and mailing services contract . The defendant successfully argued that the two contracts were in fact one integrated contract, because in the second contract's integration clause, the first contract was incorporated in and made a part of the second contract. The court held that the entire integrated contract was assumed, not merely the part intended to be assumed by the debtor.

Posted By: Brent W. Houston, Esq.

MECHANICS' LIENS: BONDING AROUND LIEN DOES NOT CURE FAILURE TO RECORD LIS PENDENS

Under Colorado law, in order to preserve mechanics' lien rights, a mechanics' lien claimant must commence an action to enforce the mechanics' lien and record a lis pendens within six months after completion of the project. C.R.S. sec. 38-22-110. The general contractor or owner of the property against which a mechanics' lien is recorded may obtain the release of the mechanics' lien by filing with the court a surety bond or other undertaking (e.g., a letter of credit) in the amount of 150% of the lien claim and costs allowed to date. C.R.S. sec. 38-22-131.

The Colorado Court of Appeals recently upheld the dismissal of a mechanics' lien foreclosure action because the plaintiff failed to record a lis pendens within the statutory six-month period, even though trial court ordered the release of the mechanics' lien following submission of a surety bond by the general contractor. Weize Company, LLC v. Colorado Regional Construction, Inc., 09CA1369 (June 10, 2010). The plaintiff acknowledged that it did not record a lis pendens but argued that filing a lis pendens was "superfluous" because proceeding against the bond would not affect title to the property, and therefore not recording a lis pendens did not interfere with the statute's purpose of making titles to real property "more safe, secure and marketable." The Court of Appeals, in rejecting this argument, stated that "the validity of a lien would still be of concern to a person interested in title to the liened property because the surety could become insolvent. In that event, 'any lien claimant shall be entitled to enforce such lien claim in the same manner as if no bond had been filed.'" Id. at 18, quoting, C.R.S. sec. 38-22-129(5). This rationale confuses the type of bond at issue. C.R.S. sec. 38-22-129(5) applies to performance and payment bonds, not lien release bonds. Also, the lien release bond statute plainly states that the lien is released and the property is discharged from the action to foreclose such lien. C.R.S. sec. 38-22-132. No exception like that provided for payment and performance bonds is specified for lien release bonds.

The Court of Appeals concluded that the legislature did not intend to provide any exception to the lis pendens requirement and found no case implying any such exception. This strict construction may cause problems with clearing mechanics' liens via lien release bonds, because the lis pendens makes the property unmarketable. Until the Supreme Court or General Assembly weighs in on this issue, the lien claimant will need to record a lis pendens whether or not a lien release bond was recorded prior to commencement of the foreclosure action. This will cause the general contractor and/or property owner to have to take the additional step of obtaining an order releasing the lis pendens.

Posted By: Brent W. Houston, Esq.

Colorado's New Commercial Real Estate Brokers Commission Security Act

The newly enacted Commercial Real Estate Brokers Commission Security Act, H.B. 10-1288, creates a statutory lien in favor of Colorado real estate brokers for commissions earned in connection with leasing of commercial real estate. The lien, however, does not attached until the broker procures a tenant for the property or otherwise earns the commission, a notice of intent to record a notice of lien is served upon the owner of the property, the broker makes a good faith attempt to obtain a settlement through mediation, and the broker records a notice of lien between thirty days after the notice of intent was served and ninety days after the tenant takes possession of the leased property or after the compensation is due, whichever is later. C.R.S. sec. 38-22.5-106.

At least thirty days before recording a notice of lien with the clerk and recorder of the county in which the property is located, the commercial real estate broker must serve a notice of intent to record a notice of lien upon the owner of the property by personal service or certified mail, return receipt requested. C.R.S. sec. 38-22.5-104(1). Also, after recording the notice of lien, the broker must provide the owner with a copy of the notice of lien by personal service or certified mail, return receipt requested, otherwise the lien is valid for only ten days after it is recorded. C.R.S. sec. 38-22.5-107(1). An action to foreclose the lien must be commenced within six months after recording of the notice of lien. C.R.S. sec. 38-22.5-107(2).

The Colorado Commercial Real Estate Brokers Commission Security Act takes effect on August 11, 2010, unless a referendum against the act is timely filed.

Post By: Brent W. Houston, Esq.

Revival of Colorado Judgment Lien Based on Foreign Judgment

The Colorado Supreme Court recently held that, in order to revive a judgment lien recorded in Colorado based on a foreign judgment domesticated in Colorado pursuant to the Uniform Foreign Enforcement of Judgments Act, C.R.S. secs. 13-53-101 et seq., the judgment creditor must revive both the foreign judgment in the jurisdiction in which it was originally issued and the domesticated foreign judgment in Colorado before filing a transcript of the revived domesticated judgment in the county where the orginal transcript was recorded. Wells Fargo Bank, N.A., v. Kopfman, 08SC783 (March 15, 2010).

In this case, the judgment creditor attempted to revive a judgment lien based on a foreign judgment domesticated in Colorado by simply reviving the foreign judgment in Arizona, where it was originally issued, and recording an affidavit of renewal in the county in which the original transcript of judgment for the domesticated judgment was recorded. The trial court ruled that the judgment lien was properly extend. The Court of Appeals reversed, and the Supreme Court granted certiorari and affirmed.

Under Colorado law, a judgment lien is valid for a period of six years after entry of judgment, and may be revived prior to expiration of the six-year period by reviving the judgment "as provided by law" and recording a transcript of such revived judgment in the county in which the original judgment was record. C.R.S. sec. 13-52-102(1). With respect to foreign judgments, "the six-year period begins to run from the date the foreign court entered the original judgment. " Kopfman, supra, p. 10.

The Supreme Court held that, when read together with C.R.C.P. 54(h), which provides the procedure for reviving a judgment, and the Uniform Enforcement of Foreign Judgments Act, the term "as provided by law" in C.R.S. sec. 13-52-102(1) requires that the judgment be revived first in the original foreign jurisdiction and then in the jurisdiction in Colorado in which it was domesticated.

Posted By: Brent W. Houston, Esq.

YOUR OLD SHED IS ON YOUR NEIGHBOR'S PROPERTY - WHAT HAPPENS?

The Colorado Court of Appeals recently ruled on a case involving the rights of neighboring land owners with respect to a metal shed used and maintained by one neighbor ("Shed Owner") on the land of the other neighbor ("Land Owner") for many years. Hunter v. Mansell, 09CA0799 (Colo. Ct. App., March 4, 2010).

The shed in question was constructed in 1974 by Shed Owner's predecessor in title. Shed Owner purchased the property in 2001, and at the time of purchase, was informed by the seller that the shed encroached on Land Owner's property. In 2006, Land Owner filed a trespass action against Shed Owner seeking removal of the shed. Shed Owner countered with a claim alleging she was the owner of the land on which the shed was located by adverse possession.

On the adverse possession claim, the trial court ruled that Shed Owner did not own the shed site because Shed Owner's predecessor disclosed to Shed Owner that the shed encroached on Land Owner's property, and, therefore, Shed Owner could not "tack" the previous owner's adverse possession period for purposes of the 18-year period prescribed by statute.

Under Colorado law, a person who has been in exclusive and uninterrupted possession of another person's real property for at least 18 years and the possession has been actual, adverse, hostile, and under a claim of right, such person becomes the owner of such property by adverse possession. C.R.S. sec. 38-41-101. For purposes of calculating the 18-year period, a current owner may add or "tack" continuous adverse possession by prior owners.

The trial court held that the disclosure of the encroachment constituted a disclaimer of any "claim of right" to the disputed strip of property on which the shed stood. The Court of Appeals rejected this analysis because the 18-year statutory period had already expired when the "disclaimer" took place. It stated that "[u]pon expiration of the statutory period, ownership vests in the person adversely possessing and it can be transferred only by deed, not by a disclaimer." Hunter, supra, at 12. Notwithstanding, the Court of Appeals upheld the trial court's dismissal of Shed Owner's adverse posession claim because possession of the property was not "hostile" for the statutory period. The Court found that Shed Owner's possession of the disputed strip was initially permissive, and therefore not hostile, because the evidence showed that Shed Owner's predecessor entered into a lease of the disputed strip within the first 18 years after the shed was constructed, thereby terminating any adverse possession.

Regarding Land Owner's trespass claim, the trial court's remedy was to give the Shed Owner the choice of leasing the disputed property indefinitely for one dollar per month or purchasing the disputed property for an appraised value. The Court of Appeals reverse the trial court's remedies and remanded for entry of a mandatory injunction requiring the removal of the shed from Land Owner's property. Although not necessary to its ruling, the Court rejected the notation that a court could award a trespasser the right to purchase property from the owner of that property.

The general rule is that removal is the appropriate remedy for trespass of this type. However, exceptions have been made where the encroachment is slight or harmless (e.g. a commercial building encroaching by a couple of inches) and/or the expense of removal greatly outweighs the damage suffered by the plaintiff (e.g. removing two inches from a commercial building compared to the value to plaintiff of those two inches of land). See Golden Press v. Rylands, 235 P.2d 592 (1951). In such cases, the court may fashion other appropriate awards (e.g. damages related to the value of the lost property).

In Hunter, the Court of Appeals held that removal of the shed was not sufficiently costly to warrant breaking from the general rule favoring an injunction for mandatory removal, particularly where the majority of the costs cited by Shed Owner were related to improves to the shed incurred after Shed Owner acquired the property with knowledge of the encroachment.

Posted By: Brent W. Houston, Esq.