Real Estate Legislative Update: 2014 Minnesota Legislative Session

Co-authored by Maher Abduselam, Summer Associate, William Mitchell, 2016

This legislative update contains information on changes in real estate law passed during the 2014 Minnesota legislative session affecting real estate developers, property managers, owners, investors, lenders, and debt management and settlement services. All legislation is effective August 1, 2014, unless otherwise noted.

MINNESOTA REVISED UNIFORM LIMITED LIABILITY COMPANY ACT

In following other states, the legislature has updated the Limited Liability Company Act to a revised form of the Revised Uniform Limited Liability Company Act (Revised LLC Act). The Revised LLC Act shifts towards a partnership-based model rather than the original corporation-based model. The “member control agreement” is now referred to as the “operating agreement.” More importantly, the Revised LLC Act relies on the operating agreement in regards to a member’s contractual rights. This greatly decreases the potential confusion caused by having multiple organizational documents. The revised LLC Act also allows for changes to the statutory standard of conduct that were previously unmodifiable. The Revised LLC Act allows the members, through the operating agreement, to modify the duties of members, managers, and governors unless it is “manifestly unreasonable.” There are also many other changes including default rules, transactions, and remedy for oppressive conduct. The Revised LLC Act will apply to all limited liability companies formed on or after August 1, 2015. The Revised LLC Act will apply to all existing Minnesota limited liability companies beginning on January 1, 2018, when the original LLC Act is repealed. Minn. Stat. §322C.0101.

DRAINAGE SYSTEMS

Before establishing a drainage project, a drainage authority must now consider compatibility of the project with local land use plans, the effects on wetlands, and alternative measures to: conserve, allocate, and use drainage waters for agriculture, stream flow augmentation, or other beneficial uses; reduce downstream peak flows and flooding; provide adequate drainage system capacity; reduce erosion and sedimentation; and protect or improve water quality. Minn. Stat. § 103E.1. The legislature has also mandated that during the planning of the project, a drainage authority must investigate the potential use of external sources of funding to facilitate alternative measures listed above. Minn. Stat. § 103E.015.

BUSINESS ORGANIZATION

The secretary of state shall conduct a prefiling review of documents proposed for filing on behalf of a business entity upon receipt of the documents to be reviewed, payment of $250, and a name reservation form if necessary. Once approved, the documents may be filed with the secretary of state without further substantive review if:

• the documents approved in the prefiling review are submitted within six months of its approval date;
• appropriate filing fee is submitted; and
• neither the applicable requirements nor the status of the business entity has changed.

Minn. Stat. § 5.39.

SAFE AT HOME PROGRAM PARTICIPANT DATA

For a participant to affect real property records, the participant must submit a real property notice in writing to the county recorder. Upon receipt of a real property notice, the county recorder shall provide a copy of the notice to the person who maintains the property tax records in that county. These provisions are effective the day after enactment. Minn. Stat. § 13.045.

RIGHTS OF VICTIMS OF VIOLENCE TO TERMINATE LEASE

Residential tenants may terminate lease agreements without penalty or liability if the tenant fears imminent violence after being subject to domestic abuse, criminal sexual conduct or stalking. The tenant must provide the landlord an advance written notice accompanied by either:

• an order for protection;
• no contact order; or
• a signed document by court official, law enforcement official or qualified third party documenting that the tenant is a victim of domestic abuse, criminal sexual misconduct or stalking.

In a lease agreement governing multiple tenants, once one tenant terminates the lease due to imminent fear of violence, all tenants are responsible for the rent payment for the full month in which the tenancy terminates and all tenants forfeit all claims for the return of the security deposit. Minn. Stat. § 504B.206.

MORTGAGE AND FORECLOSURES OF REAL PROPERTY

Small Servicers

The legislature has eliminated the sunset provision of the definition of “Small Servicers.” “Small Servicers” is defined as a servicer that has conducted 125 or fewer foreclosure sales during the preceding 12 months. These provisions are effective the day after enactment. Minn. Stat. § 582.043.

The Foreclosure Curative Act

The time limits stated in Minn. Stat. §582.27 regarding regulations on validating foreclosure sales (Minn. Stat. § 582.25), apply notwithstanding any common law applicable to mortgage foreclosure sales. These provisions are effective the day after enactment. Minn. Stat. § 582.27.

REAL ESTATE BROKERS AND AGREEMENTS

Brokers

The legislature has defined buyer’s and seller’s brokers as a licensee who represents and owes fiduciary duties to the buyer and seller, respectively. In a limited liability company licensed as a broker, “primary broker” means each officer of the company individually licensed as a broker. Minn. Stat. § 82.55. In advertisements, any licensee must include the real estate brokerage name more prominently then the licensee’s name. Minn. Stat. 82.69.

Override Clause

The definition of an override clause now includes a provision in the buyer’s representation agreement that allows the broker to receive compensation after the agreement has expired for showing the purchased property before the agreement had expired. The duration of the override clause may be up to two years when used in conjunction with the purchase or sale of a business. Minn. Stat. § 82.55.

Trust Funds

Monies received from a potential buyer may now be deposited in the listing broker’s trust account pursuant to a written agreement. If the agreement is silent in that regard, the money must be deposited within three business days of either receipt of the money or final acceptance of the purchase agreement, whichever is later. Trust funds may now be disbursed upon the occurrence of either the close of the transaction, pursuant to an affidavit as required by law in cancelling a residential purchase agreement (Minn. Stat. § 559.217), written agreement between parties, or a court order. Disbursement now must be made within 10 business days following consummation or termination of the transaction if the agreement is silent in that regard. Minn. Stat. § 82.75.

LANDLORD-TENANT DISPUTES

The housing courts and housing calendars can use referees almost exclusively for landlord and tenant cases. Minn. Stat. § 484.013.

ANNEXATION BY ORDINANCE

The legislature has enacted certain limitations on municipality’s ability to annex unincorporated land consisting of less than 120 acres that abut a municipality. Minn. Stat. § 414.033.

OCCUPATIONAL LICENSES AND CERTIFICATES

Professional Engineers

No persons unlicensed as a professional engineer may use the term professional engineer, any initials including “P.E.” or “PE”, or in any other way make a representation that would lead the public to believe that the person was a professional engineer. Minn. Stat. § 326.02.

Reinstatement of Expired Licenses or Certificates

Expiring licenses and certificates may be reinstated by satisfying all prior continuing education requirements but are now capped at 48 professional development hours. Minn. 326.10.

Professional Ethics

Professional engineers, licensed architects, land surveyors, landscape architects, geoscientists and certified interior designers must earn two professional development hours dedicated to professional ethics. The ethics hours must be earned during the biennium to which they are applied and cannot be carried forward. Minn. Stat. § 326.107.

DESIGN PROFESSIONAL SERVICES CONTRACTS

Indemnification agreements in design professional services contracts that require an indemnitor to indemnify the indemnitee from or against liability for loss or damage resulting from the negligence or fault of anyone other than the indemnitor or others for whom the indemnitor is legally liable, is void and unenforceable. Provisions in a design professional services contracts for any actual or proposed maintenance or improvement of real property, highways, roads, or bridges located in Minnesota and that makes the contract subject to the laws of another state or requires that legal action occur in another state is also void and enforceable. These provisions are effective August 1, 2014, and apply to contracts or agreements entered into on or after that date. Minn. Stat. § 604.21.

TRANSFER ON DEATH DEEDS

Married persons are no longer defined as husband and wife, but rather spouses married to each other. Minn. Stat. § 507.02. If a spouse is not a grantor or an owner and joins in the execution of, or consents in writing to, the transfer on death deed, it shall be taken as conclusive proof that the spouse no longer has or can claim any statutory or martial interest in the real property transferred. However, such transfers shall remain an interest for purposes of complying with and satisfying some claims or liens. Minn. Stat. § 507.071.

SNOW REMOVAL

The legislature has eliminated the sunset of a road authority’s ability to remove snow from unopened or private roads if public safety is jeopardized. This section is effective the day following enactment and applies retroactively to May 2, 2014. Minn. Stat. § 160.21.

NOTARIES PUBLIC

Maximum fees to be charged by a notary public have increased from one dollar to five dollars. Minn. Stat. § 357.17.

ACQUISITION OF REAL PROPERTY BY A STATE AGENCY

State agencies cannot pay more than ten percent above the appraisal value to acquire real property. If the real property is less than $100,000, then the agency may pay more than the ten percent above the agency’s appraised value but no more than the seller’s appraised value. Minn. Stat. § 16B.297.