Posted on January 30, 2009 by Pat Burk

Why are LLCs a good fit for real estate holding companies?

Limited Liability Companies or LLCs are a good fit for real estate holding companies because they are straight forward and flexible.  Its really that simple.  Iowa's new LLC law has created some undue complexities, but a limited liability company continues to be an appropriate vessel for holding real estate in most situations. You should contact your tax professional to determine the appropriate tax status. My comments here relate solely to the type of entity best utilized for real estate ownership.

LLCs combine the concepts of a partnership with the liability protection of corporations. Within the bounds of the applicable statute, the means by which an LLC can be managed and controlled are virtually endless. Use your creativity. For example, minority shareholders can have equal decision making authority in relation to the issuance of new ownership certificates and other items of similar importance. Not that corporations don't have some flexibility, they just don't have the flexibility associated with the partnership concept.

So next time your thinking of creating a new entity for land ownership, look to an LLC first.  It likely will meet all of your needs. Many of these same issues are discussed in the Iowa LLC Blog by attorney Marc Ward. Marc's blog is definitely worth a look if you are thinking of taking advantage of the benefits LLCs have to offer.

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Posted on November 15, 2008 by Pat Burk

Construction Defects - When is a Home Builder Liable?

Determining when and if a home builder is liable for a construction defect in Iowa has long haunted builders and owners alike.  To showcase quality, builders frequently offer limited warranties as part of the construction contract. These are often one-year warranties  The trouble for owner's is they may or may not have discovered a potential defect within this time period.  Primarily, a Builder just wants to know when claims can no longer be made.

In a blow to builders, a recent Iowa Supreme Court case suggests certain warranties may extend beyond those provided in the construction contract: Speight v. Walters Development Company, Ltd. (Iowa 2008). However, the issue of whether these warranties can be waived as part of the construction contract remains unclear.

To further a builder's worries, the Iowa Supreme Court ruled in Speight that the Implied Warranty of Workman-Like Construction applies to subsequent purchasers.  In other words, purchasing a used home does not necessarily bar an action against the original builder for a construction defect.  The claim must be raised within five-years of the date of discovery based upon Iowa Code Section 614.1(4).

The most troubling aspect of this opinion is not the ruling itself, but the apparent upholding of the application of a fifteen-year statute of repose, or fifteen-year right to bring a claim against the builder in this situation: See Iowa Code Section 614.1(11).  Coupled with the right of a subsequent purchaser to bring implied warranty claims, the application of this fifteen-year limitation is simply unfair to builders and unlikely to benefit a truly damaged owner.  The Iowa legislature should address this worrisome legistlation immediately.  This unrealistic statute of repose serves only to limit quality homebuilders in the market and force those in the market to raise prices to cover potential losses or, worse, operate under continually changing entities which may ultimately be bankrupt to avoid future and existing claims.  A seven year statute of repose in this situation would be more than sufficient.  This would provide a buyer five years to discover a legitimate defect with two years remaining to bring the claim.

In short, claims for legitimate construction defects in homes may be brought by original purchasers and subsequent purchasers alike provided they are brought within five years of discovery and fifteen years of the date the work creating the defect occurred.  However, outside of any contractual warranties, the defect must have violated the Implied Warranty of Workman-Like Construction. Proof of the time of discovery and violation of the implied warranty are not simple matters.  Whether owner or builder, contact a qualified attorney if these issues should fall into your lap.

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