Avoid Legal Pitfalls Selling Minnesota Multifamily Properties

Brad Schaeppi

By Bradley M. Schaeppi

 

Whether you are new to selling rental property or deal exclusively in rental property, this article offers two examples of state and local laws that apply differently to sellers depending on the number of rental units at the property. If you would like a more comprehensive list, you’re welcome to contact me.

No. 1 – Know the applicability, exemptions and enforceability of a “truth in sale of housing” or “time of sale” local ordinance (or absence thereof).

A good practice is to add a truth in sale of housing investigation to any pre-listing broker checklist. A local municipality may or may not require a truth in sale of housing or inspection prior to the sale of a given property. If a municipality does have a truth in sale of housing requirement, there may be an exemption where it may be wholly advisory in nature, or it may require the buyer or seller to take corrective action prior to or after the closing.

The first investigative step is to locate and review if a truth in sale of housing local municipal ordinance exists where the property resides and, if so, if it applies to your property for sale. Options range from municipalities with no truth in sale of housing ordinance (Maple Grove), to municipalities with ordinances that apply only to a subset of properties (Minneapolis – single family to two-unit duplexes), to municipalities with ordinances that apply to the sale of all property, including commercial five-plus apartment buildings (South St. Paul).

If you have made a determination that a truth in sale of housing is required in the municipality of the property you wish to list, the second step is to determine whether an exemption to the requirement exists. In some municipalities, the timing of the last rental property inspection or issued certificate of occupancy may exempt the seller from the requirement of a separate, independent truth in sale of housing like it is in the city of St. Paul. Even if an exemption applies, a separate decision must be made as to whether a new truth in sale of housing is in the best legal and/or business interest of a seller.

Third, a truth in sale of housing ordinance may require an inspection, but ultimately be an advisory disclosure document for all parties and with limited or no mandatory correction items by the seller or buyer. For example, in the city of St. Paul a hardwired smoke detector is the only required correction in a single-family home, rental or nonrental. It also is possible that the applicable truth in sale of housing ordinances requires identified mandatory correction items to be fixed and re-inspected prior to closing or legally assumed by the buyer at closing, and fixed aft er closing like it is for the city of Minneapolis. In sum, print off and read each and every truth in sale of housing local ordinance in each community in which you sell rental property. If you have questions, consult a real estate attorney and, if possible, a Minnesota State Bar Association certified real estate specialist.

No. 2 – Seller Disclosures

The Minnesota legislature has established a variety of statutory requirements that apply to the sale of real property. Minnesota Statute §513.55 requires sellers of “residential real property” make a written disclosure to the prospective buyers before signing an agreement to sell or transfer the property. When reading various Minnesota Statutes in total (§513.52, §513.54 and §513.55), if a property offered for sale has two residential units or more, the disclosure requirements as established in Minn. Stat. §513.55, do not apply.

Practically, most licensed real estate salespersons and brokers are familiar with the seller’s property disclosure statement as produced by the Minnesota Association of REALTORS. Th e intent of this form is to comply as stated with Minn. Stat. §513.52 through Minn. Stat. §513.60. In summary, if a rental property to be offered for sale has two or more units, sellers are not required to complete §513.55 general disclosure requirements and the REALTOR seller’s property disclosure statement. As a general rule, buyers have remedies in common law that extend beyond and outside those created by Minnesota statute to pursue sellers post-closing. Th us, while Minn. Stat. §513.55 is not a legal requirement for sellers of rental properties with two or more units, salespersons and brokers would be wise to request their sellers make disclosures of “all material facts of which the seller is aware that could adversely and significantly affect an ordinary buyer’s use and enjoyment of the property or any intended use of the property of which the seller is aware.”

Bradley M. Schaeppi represents real estate investors, property management groups, landlords, real estate agents and brokers with advice, transactions and problem solving for potential or active litigation. Prior to starting his law practice in 2011, Brad held positions as project manager for local developers, senior project manager for a publicly traded company, and investment sales associate for a large local real estate brokerage/management company. A member of the real property law section of the Minnesota State Bar Association, he holds certification as a MSBA board certified real property law specialist. Brad can be reached at bschaeppi@hjlawfirm.com or (952) 460-9296.