Thought Leadership

Avoid Legal Pitfalls Selling Minnesota Multifamily Properties

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 the author, Bradley M. Schaeppi.

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 non-rental. 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 after 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.

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®. The 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. Thus, 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.”

This article originally appeared in Real Estate Agent Magazine and is republished with permission.