With early signs of an economic recovery, developers, investors, and lenders have cautiously started exploring new deals. With new deals come new contracts, and with new contracts it is important to take another look at some of the “standard” provisions to which many of us have grown accustomed.  One such provision which has become standard in many real estate and lending contracts is the mandatory arbitration provision.  Instead of treating it as an afterthought, parties to the contract should carefully consider whether arbitration makes sense for them.

To begin, it is important to understand some of the potentially beneficial characteristics of arbitration:

  • In an arbitration the parties have the ability to agree on an arbitrator, rather than having a judge assigned to their case at random;
  • While arbitration files remain confidential, court records are generally open to the public unless specifically filed under seal;
  • In an arbitration, the parties can set the discovery and procedural rules ahead of time instead of being bound by the rules of civil procedure (though blindly choosing standard arbitration rules could result in a process at least as expensive as a court proceeding without the tried and true benefits of standard discovery practices); and
  • A binding arbitration provision might allow a large institutional party dealing with many customers to avoid class action law suits.

That said, arbitration comes with a cost. In an arbitration, the parties are responsible for paying the hourly rate of the arbitrator and certain default arbitration rules might even require the use of three arbitrators for high-dollar disputes (regardless of the complexity). Additionally, some arbitration firms charge heavy administrative fees. Therefore, depending on the dollar amounts involved, arbitration might not make sense. 

One final point to consider is that the court system might be better suited for certain types of disputes.  Many courts have special rules and procedures for evictions, suits on promissory notes, and replevins.  In these cases it will likely be much easier to go through the courts rather than trying to reinvent the wheel in an arbitration.

Therefore, prior to including an arbitration provision it is important to consider both the characteristics of arbitration as well as the nature of the parties’ deal. This will allow the parties to make an informed decision about whether arbitration is the best option for them. If it is, then it becomes vital to craft the arbitration provision carefully so that the ground rules for the arbitration are in place before a dispute arises.

Numerous Colorado registered entities have recently received solicitations through the mail offering report-filing services.  Official-looking letters titled “Periodic Report” are being issued and sent by “Corporate Controllers Unit” and seek to have Colorado registered entities pay an “Annual Fee” of $225 to have a “Periodic Report” filed on their behalf.  These letters contain a form requiring the name and address of the registered entity, registered agent, and person submitting the form.  In addition, the letters include a disclaimer towards the bottom of the page which states that “[t]his product or service has not been approved or endorsed by any Governmental Agency and this offer is not being made by an agency of the Government.”  A copy of this letter may be found here.

If your Colorado registered entity receives one of these letters, please be advised that the service offered is unnecessary.  The form contained in the letter is not required to be filed with the Office of the Colorado Secretary of State (the “Secretary”).  Additionally, please note that beginning in 2012 the Secretary will no longer mail notifications for when annual reports become due, but instead will send e-mail notifications to the e-mail address listed on file with the Secretary for the registered entity, and the cost of filing an annual report is only $10.  You can review the record and status of a Colorado registered entity and, if necessary, file an annual report at the Secretary’s website.  Also, information concerning the importance of having your registered entity’s e-mail address on file with the Secretary may be found here.

If you have any further questions or concerns regarding this possibly deceptive report-filing solicitation, additional information and resources may be found here.

We are past the half-way point of the 2011 Colorado legislative session, which began in early January and ends in early May.  Several hundred bills have been proposed, and many have already been “postponed indefinitely” or voted down in committee or in a legislative chamber.  Below are summaries of certain significant bills affecting Colorado real estate law or the commercial real estate industry that continue to be debated as of the date of publication of this post.  Given the many bills under consideration, this list is not intended to be a comprehensive overview.

colorado capitol.jpgReal Estate Finance – Lenders Must Pursue Collateral First (HB 11-1139).  This bill would prohibit consumer loan creditors, credit unions, savings and loan associations, state banks, industrial banks and mortgage lenders from attempting to collect a debt from a borrower personally unless (a) the creditor first attempts to collect the debt from the collateral, and (b) the proceeds from the collateral are insufficient to pay the debt.

Ballot Measures – Constitutional Initiatives and Referenda Require 60% Voter Approval (Senate Concurrent Resolution 11-001).  This resolution would put to the voters via referendum in November 2012, a proposed amendment to the Colorado Constitution that would: (a) beginning in 2013, increase the amount of votes needed to pass a ballot measure for a Constitutional amendment from a simple majority to 60%, except as to measures that repeal Constitutional ballot measures passed prior to 2013, (b) require that a certain number of signatures for Constitutional initiatives be obtained from each congressional district in the State, and (c) increase the voting requirement in the legislature to amend or repeal a successful statutory initiative or referendum from a majority to two-thirds for a three year period after passage.  The scope of this measure clearly goes beyond real estate.  However, it may be of particular concern to the Colorado commercial real estate industry, which has had to defend against various initiatives over the years.  This referendum would make future Constitutional initiatives and referenda more difficult to pass, although it would provide greater protection to successful statutory ballot measures.  The concurrent resolution to establish this referendum has passed the House with minor modifications to the approved Senate version.  It now is back in the Senate for a vote on the modified version.  My colleague Bob Fisher provides more information about this resolution in a post below.

Agricultural Land Taxation – Split Assessment for Agricultural Land with Residence (HB 11-1146).  This bill would allow tax assessors to divide a parcel for assessment purposes into agricultural land and up to two acres of residential land unless the residence is “integral to agricultural operations.”  The phrase “integral to agricultural operations” would be defined by the Colorado property tax administrator.

Property Disclosures – Commercial Properties Must Disclose Energy Data (SB 11-130).  This bill would require owners and operators of commercial properties, defined to exclude multifamily properties sold or leased on a unit-by-unit basis, (a) to upload to the Environmental Protection Agency data necessary to generate an energy performance rating, and (b) disclose the building’s energy performance rating (if one is generated by the EPA) to a buyer, tenant, or lender at the time of conveyance and upon request by such parties.  The bill would only cover commercial buildings in excess of 50,000 square feet during 2012, but would cover all commercial buildings thereafter.

Also, a bill restricting private transfer fees is expected to be introduced this session but has not been introduced yet.  Further information on these and other bills affecting real estate may be obtained by visiting www.statebillinfo.com.

Photo by cliff1066™ (Flickr).

Last week I attended the 20th annual Rocky Mountain Land Land Use Institute conference at the University of Denver Sturm College of Law.  Nicola Villa with Cisco was the Keynote Speaker on Friday morning.  Mr. Villa works with the Connected Urban Development (“CUD”) program across the world in cities like Amsterdam, San Francisco and Seoul.

Launched in 2006, CUD was born out of the the Clinton Global initiative intended to help lower carbon emissions across the world.  CUD’s goal of reduced carbon emission is achieved through high connectivity – broadband, wireless and “smart urban structures.”  CUD works by changing how cities deliver services, how residents work and commute and how real estate resources are used and managed.

CUD continues to evolve.  Last year, the next phase of the CUD was announced at the Shanghai World Expo.  It’s called SMART 2020: Cities and Regions.  The program is administered by a non-governmental organization and seeks to help cities collaborate with each other and the business community to develop a global industry platform for information technology in the sustainable city.

At least 12 successful pilot projects in participating cities have demonstrated CUD’s potential.  One important pilot project that could have far reaching implications for urban development is called the Smart Work Center (“SWC”).  SWCs are structures located in residential areas that offer a highly connected professional work environment.  These centers are equipped with networking technology and collaboration tools, which allow users to connect to colleagues and customers.  Users from many different organizations share the SWC’s resources.  This type of office sharing arrangement could reduce the need for centralized offices and other development in the heart of downtown areas in participating CUD cities.

Action is now pending in the Colorado General Assembly to reform the State’s constitutional initiative process, which is the mechanism available to the electorate for amending the Colorado Constitution.

Under the existing constitutional structure, an initiative proposal for a constitutional amendment will be placed on the ballot for the State’s general election if the proponents can secure petition signatures from registered voters equal in number to 5% of those that cast votes at the last general election for the office of the Secretary of State (Colo. Const., Article V, Section 1(2)).  An initiative measure that reaches the general election ballot becomes law and amends the Colorado Constitution if approved by a simple majority vote (Colo. Const., Article V, Section 1(4)).

The Colorado initiative process has often come under criticism as setting too low a bar in allowing the State’s fundamental organic governing document, its Constitution, to be amended by a mere majority of voters.  Advocates of initiative reform contend that most constitutional initiative proposals would more appropriately be grist for the legislative process; while not perfect, the representative form of government arguably furnishes a policy-making filter that the existing initiative process lacks.  Supporters of the existing initiative process hold that it is a pure form of democracy, empowering the common citizen at a grassroots level.

Historically the Colorado initiative process has produced various controversial constitutional amendments (e.g., the Taxpayer Bill of Rights (TABOR); Amendment 2, which barred legislative protections based on sexual orientation and was ultimately declared unconstitutional by the U.S. Supreme Court; and authorization for medical marijuana).  In other circumstances, the constitutional initiative process has embroiled opposing factions in expensive, time-consuming political campaigns beyond those commonly entailed in legislative affairs.

Members in the two houses of the Colorado General Assembly have proposed Senate Concurrent Resolution (SCR) 11-001 to amend the constitutional initiative process.  If passed by the General Assembly, SCR 11-001 would go on the ballot for the 2012 general election.  SCR 11-001 would modify the initiative process in two significant respects:

  • The petitioning process would entail a level of geographic distribution:  initiative proponents would have to obtain signatures from each U.S. Congressional District in Colorado at least equal to 70% of the total number of required signatures divided by the total number of Congressional Districts.
  • The voting requirement for adopting a proposed amendment would be raised to 60% from the existing simple majority standard.

The 60% threshold would not apply to the repeal, in whole or in part, of initiatives previously adopted under the old initiative structure.  Instead those repeals would require only a simple majority vote, thereby preserving the same “playing field” for removing initiative measures adopted under the old structure. (Interestingly, though, it appears that the new geographic distribution standards in the petitioning process would apply to any such repeal efforts.)

It may be informative to contrast Colorado’s initiative structure with the requirements for amendment under the United States Constitution.  Any amendment to the U.S. Constitution has to be proposed by a two-thirds vote in each house of Congress, or by two-thirds of the state legislatures, and can be adopted only by ratification of three-fourths of the states (U.S. Const., Article V).  Apparently the founding fathers saw merit in imposing rigorous standards for constitutional amendment.