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Trees and Forests in Los Angeles Real Estate Litigation

Los Angeles real estate involves high prices but some parties (and lawyers) kill deals over small value items

The old saying bemoans the person who “can’t see the forest through the trees” (or “forest for the trees”). It is a way of saying that we should not get stuck on the small details at the risk of missing the bigger goal. In real estate litigation this concept is constantly at play and an experienced real estate litigation attorney has to help clients see the forest when all they can see right now is that one very annoying and troublesome tree.

Here are some real world examples from lawsuits we have handled:

In one case our client was the trustee of a family trust. His goal (the forest) was to sell a commercial property and distribute the proceeds to the beneficiaries. The family felt that the property was worth $5 million. The trustee received an offer of $5.8 million for what was marketed as a commercial property with a school as the tenant. Prior to the close of escrow the Buyer discovered that the property also contained two rent-controlled residential units with tenants. The Buyer demanded a $200,000 price reduction in order to deal with the undisclosed problem. Rather than agree to any price reduction our client wanted to just cancel the entire transaction.

Real estate deals involve negotiations. While the Seller does not have to accept a reduction, he does have to ask whether there will be a better deal down the road. If his goal is to sell the property for the best available price (and this is the best available price), the Seller should evaluate whether this offer, which is still significantly above what they thought they would make, helps them towards their goal (regardless of whether the request for a discount is an affront or a blow to their pride). Often the tree is an emotional one—pride, anger, insult, etc.

In another case—partnership litigation between two 50%-50% partners in a business—we were able to negotiate a very good buy-out of the other partner. Our client had the potential to earn back the buy-out price within the first year of profits. However, he was more focused on what his ex-partner would be getting. He asked why his partner was getting so much. Our goal was to buy-out the partner so that our client owned the business 100%. Therefore the only real consideration was whether our client was getting a good deal for himself and it should not really matter whether the ex-partner got paid as well.

The forest and trees dilemma often arises in family litigation over real property, partnership disputes and other lawsuits involving personal relationships (rather than straight business relationships).

Another example of this issue arises in boundary disputes over real property. Oftentimes a fence or boundary marker is not on the boundary. One party feels like they are “losing” property that they thought was theirs. Of course property is measured by its legal description and not by where a fence or marker may sit. Someone who buys a 1-acre parcel, for example, still has a 1-acre parcel if an errant fence is relocated to the proper boundary. It is true that a landowner may have visually believed that the property was larger because of the placement of the errant fence but that is merely a mistake in perspective. The true legal boundary never changed.

Real estate attorneys can help their clients recognize perspective in negotiations by outlining beforehand where the path of negotiations may lead. If a party is happy to settle for a particular monetary amount (say, $750,000), an effective litigation attorney and negotiator will explain to the client that the strategy will involve, for example, a series of demands and counter-offers that will hopefully lead to the desired result. So a client should not get hung up when the first demand is for $1,000,000 and the other side counters with $500,000. The client’s goal was never $1,000,000 so the client should not get attached to this number or feel insulted or disappointed when the negotiations end at $750,000. After all that was the goal all along.

Of course all of this is predicated on one important idea: that you have a goal in the first place. Oftentimes an attorney is only too happy to file a lawsuit and begin litigation. But do you know where you are heading? Do you know what the goal of the litigation exercise is? The first step in business litigation should be a complete evaluation of the case and a plan for getting to the agreed-upon resolution.

Don’t let this or that tree get in the way of the forest.

 

Los Angeles business litigation attorney Laine T. Wagenseller handles numerous business and real estate lawsuits in Los Angeles. He is the founder of Wagenseller Law Firm in downtown Los Angeles. The lawyers at Wagenseller Law Firm are experienced trial attorneys. Contact us at (213) 286-0371.

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