Category: Real Estate
Clear ResultsReal Estate
Why Delaware Legal Opinions Matter – Part 3: A Delaware Opinion Is Not a Substitute for Local Counsel
A Delaware legal opinion serves a specific purpose: it provides opinions regarding a Delaware entity and matters governed by Delaware law. It is not intended to address every legal issue arising from a transaction, nor is it a substitute for local counsel opinions involving the laws of other states. Understanding this distinction can help avoid unnecessary opinion negotiations, reduce closing delays, and ensure that opinion requests are appropriately tailored to the role of Delaware counsel. When a lender requires a Delaware legal opinion, it is typically because a borrower, guarantor, or other transaction party is organized and exists under Delaware law. The lender seeks assurance that the Delaware entity has been properly formed, remains in good standing, possesses the necessary power and authority to enter into the transaction, and has properly authorized the execution and delivery of the loan documents. Depending upon the scope of the engagement, Delaware opinion counsel may also provide an enforceability opinion regarding the loan documents against the Delaware entity.1 These opinions are important because Delaware law governs the internal affairs of Delaware corporations, limited liability companies, limited partnerships, and statutory trusts. Delaware counsel is uniquely positioned to analyze these issues and provide opinions concerning Delaware entity law. One common misconception is that because a Delaware entity is involved in a transaction, Delaware counsel should be able to opine on all aspects of the deal. In reality, the scope of a Delaware opinion is generally limited to matters of Delaware law. For example, assume a Delaware limited liability company owns commercial real estate in Arizona and grants a mortgage to secure a loan. Delaware counsel may provide opinions regarding the existence, good standing, power and authority, due authorization, and, if requested, the enforceability of the loan documents against the Delaware entity. However, Delaware counsel generally would not opine regarding: The validity of the Arizona mortgage General enforceability of the loan documents Compliance with Arizona recording requirements Perfection or priority of liens under Arizona real property law Title matters affecting the property State-specific licensing or regulatory requirements Those issues are typically addressed by Arizona counsel, title companies, or other professionals familiar with Arizona law. Likewise, when collateral is located in multiple jurisdictions, local law issues may arise concerning recording statutes, fixture filings, landlord consents, or other state-specific requirements that fall outside the scope of a Delaware opinion. To those unfamiliar with opinion practice, the requirement for several legal opinions in a single transaction may appear duplicative. In reality, each opinion addresses a different body of law. Consider a loan transaction involving a Delaware borrower, real estate located in Texas, and loan documents governed by New York law. The lender may require a Delaware opinion concerning the borrower's existence, authority, authorization, and related Delaware law matters; a Texas opinion addressing real estate and mortgage issues; and a New York opinion regarding matters governed by New York law. Each attorney is providing opinions within the scope of his or her jurisdictional expertise. The lender is not seeking multiple attorneys to answer the same question. Rather, the lender is assembling a comprehensive package of legal assurances covering the various legal issues presented by the transaction. Many opinion disputes arise because the parties have different expectations regarding the scope of the Delaware opinion. Opinion requests are often copied from prior transactions without considering whether the requested opinions are appropriate for Delaware counsel. When lender's counsel, borrower's counsel, and Delaware counsel clearly understand the purpose of a Delaware opinion, the process becomes significantly more efficient. Opinion requests can be tailored appropriately, revisions can be minimized, and transactions can move toward closing with fewer delays. A Delaware legal opinion remains a critical component of many commercial lending transactions involving Delaware entities. However, it is only one piece of a broader legal due diligence framework. Delaware counsel addresses Delaware law issues relating to the entity. Local counsel addresses issues governed by the laws of other jurisdictions. Together, these opinions provide lenders with the assurances necessary to complete complex transactions while ensuring that each opinion giver remains within the scope of their expertise. 1This is not the general enforceability of the loan documents, which is an opinion local counsel provides, it is only the enforceability as to the Delaware entity.
June 18, 2026
Real Estate
Why Delaware Legal Opinions Matter – Part 2: What Delaware Opinions Actually Cover
Welcome to Why Delaware Legal Opinions Matter, a five-part series examining the role of Delaware legal opinions in transactional practice. In this series, you will learn about the scope and purpose of these opinions, the circumstances in which they are required in real-world transactions, how lenders rely on them in real estate finance deals, and practical strategies for obtaining them efficiently without closing delays. For many transactional attorneys and business professionals, the phrase “Delaware opinion” sounds broader and more comprehensive than it actually is. In reality, the Delaware opinion serves a focused and highly specialized role: providing opinions on discrete issues of Delaware law relating to Delaware entities involved in the transaction. Most Delaware opinions address core legal issues such as: The valid existence and good standing of a Delaware entity The entity’s power and authority to enter into the transaction Due authorization, execution, and delivery of the transaction documents Enforceability of the applicable transaction documents against the Delaware entity[1] In certain transactions, perfection or UCC-related matters governed by Delaware law Importantly, the Delaware opinion generally does not address the entire transaction. The opinion does not typically cover the laws of the state where the real estate is located, the economic substance of the transaction, regulatory compliance outside Delaware, or the business terms negotiated by the parties. Instead, the Delaware opinion provides lenders, investors, and transaction parties with comfort that the Delaware entity itself has been properly formed, authorized, and bound under Delaware law. This distinction matters because modern transactions frequently involve multiple jurisdictions and multiple layers of counsel. For example, a real estate financing transaction involving a property in Texas will require a Delaware opinion because the borrower or guarantor is organized as a Delaware LLC. Similarly, an acquisition governed primarily by New York law will require a Delaware opinion because a holding company or acquisition vehicle was formed in Delaware. In these transactions, Delaware opinion counsel operates as part of a coordinated closing team alongside lead transaction counsel, local real estate counsel, borrower’s counsel, and lender’s counsel. The role is specialized but often critical to closing the deal efficiently. Experienced Delaware opinion counsel also helps avoid one of the most common causes of closing delays: opinion requests that are overbroad, inconsistent with customary practice, or disconnected from the actual structure of the transaction. Because Delaware opinion work is highly practice-driven, understanding customary limitations, assumptions, qualifications, and opinion scope is just as important as understanding the Delaware statutes themselves. When handled efficiently, Delaware opinions become a streamlined component of the closing process rather than a last-minute obstacle. [1] An opinion regarding the enforceability of transaction documents against a Delaware entity is limited to the enforceability of such documents against that Delaware entity under Delaware law and should not be interpreted as a general enforceability opinion regarding the transaction documents as a whole or under the laws of any other jurisdiction.
May 20, 2026
Real Estate
Why Delaware Legal Opinions Matter – Part 1: Delaware Law at the Core of Modern Lending Transactions
Welcome to Why Delaware Legal Opinions Matter, a five-part series examining the role of Delaware legal opinions in transactional practice. In this series, you will learn about the scope and purpose of these opinions, the circumstances in which they are required in real-world transactions, how lenders rely on them in real estate finance deals, and practical strategies for obtaining them efficiently without closing delays. In today’s transactional landscape, Delaware is not just a preferred jurisdiction; it is often embedded in the structure of deals that have little or no other connection to the state. A borrower formed in Delaware. A guarantor organized as a Delaware LLC. A holding company sitting at the top of the structure. When that happens, core legal questions in the transaction, existence, authority, and enforceability, are governed by Delaware law, regardless of where the deal is negotiated or the assets are located. That is where Delaware opinion counsel becomes essential. One of the most common misconceptions is that Delaware legal opinions are only relevant to Delaware-based transactions. They often arise when the property or transaction is geographically nowhere near the State of Delaware. For example: property located in Arizona, a loan negotiated by Nevada counsel, or a borrower formed as a Delaware LLC. Even though the transaction is otherwise local, the lender’s ability to rely on the borrower’s existence, authority, and execution is a Delaware law question. At its core, a Delaware legal opinion addresses a defined set of entity-level issues, including whether the: Entity validly exists and is in good standing Entity has the power to enter into the transaction Transaction has been properly authorized by the entity’s governing documents Operative loan documents are enforceable (subject to customary limitations) These are not abstract concepts—they directly address whether the transaction is legally binding on the entity. From a lender’s perspective, these opinions serve as a risk allocation tool. They provide comfort that the borrower is properly formed, authorized, and bound by the transaction documents. In institutional lending, particularly in real estate finance, this is a standard closing requirement. Accordingly, Delaware counsel typically reviews organizational documents, confirms authority and approvals, coordinates with deal counsel, and delivers the opinion on closing. Handled properly, Delaware counsel operates as a seamless extension of the deal team. Delaware entities are used heavily in structured real estate finance and multi-entity borrower structures, where separateness and authority are critical. If your transaction involves a Delaware entity, the key questions are when to engage Delaware counsel and how to do so efficiently. Delaware legal opinions are a core component of modern transactional practice. They are not simply a formality; they are a targeted legal analysis that ensures a transaction is legally effective under Delaware law.
April 22, 2026
Real Estate
Understanding Like-Kind Property and IRS Requirements for a 1031 Exchange
A 1031 Exchange is a valuable tool for real estate investors to defer capital gains tax when investment property is sold, provided the proceeds are reinvested in replacement property. According to the IRS, like-kind exchanges, when you exchange real property used for business or held as an investment solely for other business or investment property that is the same type or “like-kind,” have long been permitted under the Internal Revenue Code. Generally, if you make a like-kind exchange, you are not required to recognize a gain or loss under Internal Revenue Code Section 1031. If, as part of the exchange, you also receive other property or money (not like-kind), you must recognize a gain to the extent of the other property and money received. You can’t recognize a loss. Under the Tax Cuts and Jobs Act, Section 1031 now applies only to exchanges of real property and not to exchanges of personal or intangible property. An exchange of real property held primarily for sale still does not qualify as a like-kind exchange. A transition rule in the new law provides that Section 1031 applies to a qualifying exchange of personal or intangible property if the taxpayer disposed of the exchanged property on or before December 31, 2017, or received replacement property on or before that date. Thus, effective January 1, 2018, exchanges of machinery, equipment, vehicles, artwork, collectibles, patents, and other intellectual property and intangible business assets generally do not qualify for non-recognition of gain or loss as like-kind exchanges. However, certain exchanges of mutual ditch, reservoir, or irrigation stock are still eligible for non-recognition of gain or loss as like-kind exchanges. Properties are of like-kind if they’re of the same nature or character, even if they differ in grade or quality. Real properties generally are of like-kind, regardless of whether they’re improved or unimproved. For example, an apartment building would generally be like-kind to another apartment building. However, real property in the United States is not like-kind to real property outside the United States. The rules of the exchange in order to qualify for the capital gains deferral are as follows: First, the definitions: the property that is sold in a 1031 Exchange is referred to as the “relinquished property,” and the property that is subsequently purchased is referred to as the “replacement property.” There may be one or multiple relinquished/replacement properties. Any real property can be exchanged for other real property within the same state or other state(s). Property outside of the United States, however, is not considered like-kind. In order to avoid paying any taxes on the sale of the relinquished property, the replacement property must be of equal or greater value than the net sale price of the relinquished property. Also, if all of the proceeds from the sale of the relinquished property are not reinvested in the replacement property, and some of the cash is taken out, this is known as “boot.” Boot is taxable up to the amount of total realized gain on the sale. A key point to watch for is utilizing less debt to purchase the replacement property. For example, the relinquished property is sold for $2,000,000 with debt in the amount of $1,000,000, and the replacement property is purchased for $2,000,000 using $500,000 of debt. Even though the replacement property’s value is equal to (or more than) the replacement property, the $500,000 difference in debt would be taxable. This can be offset, however, if more cash is put into the replacement property purchase. The timing of identifying and purchasing the replacement property is very important. The possible replacement property(ies) must be identified within 45 calendar days of the sale date of the relinquished property. Up to three properties, of any value, can be identified, but only one (or two or three) must be purchased within the time frame below. Keep in mind that all of the net proceeds must be reinvested, or there will be taxable boot. More than three replacement properties can be identified, but their value cannot exceed 200% of the value of the relinquished property. Otherwise, 95% of what was identified will need to be purchased. The replacement property must be purchased within 180 calendar days of the sale of the relinquished property. The actual rule, however, states that the closing on the replacement property must be completed on the earlier of 180 days or the next due date to file an income tax return, including extensions. So, if the relinquished property is sold between October 17 and December 31, the replacement property must be purchased on or before April 15 if the seller’s tax return is filed accordingly or an extension request is made in order for the full 180 days to complete the transaction to be allowed. The tax return and name appearing on the replacement property must be the same as those on the relinquished property. If the property is owned using a wholly-owned limited liability company, known as a single-member LLC, the LLC is treated as the taxpayer. Below is the 1031 Exchange Process. Determine whether the property should be the subject of a 1031 Exchange. Not every property is a good candidate for a 1031 Exchange. For example, if there is significant passive activity losses whereby those losses will be greater than or equal to the gain on the sale of the property, it may not be a good fit for a 1031 Exchange. In addition, the taxpayer1 should run the numbers on the tax savings and consider that rates may be different compared to what they may be down the road. The seller should discuss the tax consequences with an accountant or tax attorney to determine whether a 1031 Exchange is appropriate. Contact a Qualified Intermediary. Assuming that a 1031 Exchange is appropriate, the taxpayer should contact a qualified intermediary. A qualified intermediary is a person (or entity) who is not the taxpayer (or a disqualified person). The qualified intermediary enters into a written agreement with the taxpayer (the exchange agreement) under which the qualified intermediary: Acquires the relinquished property from the taxpayer Transfers the relinquished property to the buyer Acquires the replacement property from the seller Transfers the replacement property to the taxpayer The exchange agreement must expressly limit the taxpayer’s rights to receive, pledge, borrow, or otherwise obtain benefits of money or other property held by the qualified intermediary. The property to be relinquished should be listed for sale. The property would be listed whether or not there is going to be a 1031 Exchange, and there is no different procedure for a 1031 Exchange (other than including a 1031 disclosure in the sales contract), so there will be no elaboration regarding listing real property for sale at this time. Look for replacement property(ies). At this point, the taxpayer should start looking for replacement properties. Possible replacement property(ies) must be identified within 45 calendar days of the sale date of the relinquished property. One easy way for a 1031 Exchange to fail is by not identifying potential replacement properties in time. The sale of the relinquished property. The sale is very similar to a typical real estate sale, except the qualified intermediary will hold the sales proceeds in a special account. The taxpayer cannot have access to the proceeds from the sale of the relinquished property. From this account, the proceeds will be distributed to purchase replacement property or properties. Identify the replacement property. The replacement property or properties must be identified within 45 days of selling the relinquished property. The property(ies) must be identified to the qualified intermediary. Purchase the replacement property(ies). Working with and through the qualified intermediary, the replacement property or properties must be purchased within 180 days of selling the relinquished property (or the next due date to file an income tax return, including extensions). The funds for this purchase must be sourced from the qualified intermediary’s account. The taxpayer may bring additional cash if needed to close the transaction. 1The person/entity selling the relinquished property and buying the replacement property will be referred to as the taxpayer.
March 19, 2026
Real Estate
Delaware Non-Consolidation Opinions: A Critical Tool in Structured Finance Transactions
In sophisticated commercial real estate and other finance transactions, bankruptcy risk is not an abstract concern; it is a central underwriting consideration. One of the primary legal tools used to manage that risk is the Delaware non-consolidation opinion. Although these opinions are now standard in many large transactions, their purpose and legal foundation are often misunderstood by deal participants who do not regularly work with Delaware entity structures. This article explains what a Delaware non-consolidation opinion is, why lenders require it, and what transaction counsel should understand about its scope and limitations. What is a Delaware Non-Consolidation Opinion? A non-consolidation opinion addresses whether, in the event of a bankruptcy filing by a parent entity or affiliate, a bankruptcy court would be likely to substantively consolidate that entity with a related but legally separate borrower. In most real estate finance transactions, the borrower is a Delaware-organized single-purpose entity formed specifically to own and operate the collateral property. Substantive consolidation is an equitable doctrine developed under federal bankruptcy law. When ordered, it permits a court to disregard entity separateness and treat multiple affiliated entities as a single debtor, pooling assets and liabilities and fundamentally altering creditor expectations. A Delaware non-consolidation opinion does not state that consolidation is impossible. Rather, it provides a reasoned legal analysis concluding that, based on the borrower’s structure and governing documents, a bankruptcy court should not order substantive consolidation, provided that applicable separateness requirements are met. Why Substantive Consolidation Matters to Lenders From a lender’s perspective, substantive consolidation represents a material credit risk. If a borrower’s assets were consolidated with those of an insolvent affiliate, a lender that underwrote a loan based on a discrete collateral package could find itself competing with unrelated creditors in a combined bankruptcy estate. For this reason, lenders, rating agencies, and securitization participants focus heavily on entity separateness. Non-consolidation opinions serve as a risk-allocation mechanism, confirming that the transaction structure is designed to preserve separateness under prevailing legal standards. Why Delaware Law is Central Most special-purpose borrowers in structured finance transactions are organized under Delaware law. As a result, Delaware entity statutes and case law play a critical role in the non-consolidation analysis. While substantive consolidation is governed by federal bankruptcy principles, courts routinely look to state law to determine whether affiliated entities were properly formed and respected as separate legal persons. Delaware’s well-developed body of entity law, together with its emphasis on contractual freedom and corporate formalities, is one reason lenders routinely require that non-consolidation opinions involving Delaware entities be delivered by Delaware counsel. Key Structural Features Analyzed Delaware non-consolidation opinions are transaction-specific, but they typically analyze several core structural features, including: Single-purpose provisions limiting the borrower’s activities Separateness covenants requiring separate books, records, and bank accounts Restrictions on commingling assets or liabilities Independent managers or directors whose consent is required for a voluntary bankruptcy filing Limitations on intercompany indebtedness and guarantees Arm’s-length dealings among affiliates The opinion assumes that these provisions are observed in practice. Failure to maintain separateness after closing can materially undermine the analysis. What These Opinions Do and Do Not Do A Delaware non-consolidation opinion is not a guarantee of a particular bankruptcy outcome, nor is it insurance against future misconduct. It does not address facts that may arise after closing or violations of separateness covenants. Instead, it is a carefully reasoned legal analysis, delivered subject to customary assumptions and qualifications, that allocates bankruptcy risk based on existing law and the transaction’s structure. When Non-Consolidation Opinions Are Required These opinions are most commonly required in: CMBS and CRE securitizations Large commercial mortgage financings Mezzanine loan and preferred equity structures Credit-tenant and master-lease transactions Portfolio financings involving affiliated borrowers As transaction structures have grown more complex, non-consolidation opinions have become a standard closing deliverable rather than an exception. Conclusion A Delaware non-consolidation opinion is not boilerplate. It is a critical component of modern real estate finance transactions and a key element of lender risk analysis. When supported by proper entity structuring and ongoing compliance with separateness requirements, these opinions provide meaningful comfort that borrower separateness will be respected, even in a bankruptcy scenario. For lenders and deal counsel working with Delaware-organized borrowers, understanding the role and limits of non-consolidation opinions is essential—and engaging Delaware counsel with regular opinion experience remains a best practice.
February 18, 2026
Real Estate
Real Estate Isn’t About Property Any More Than Birthdays Are About Cake
Most of us don’t give much thought to why we celebrate birthdays. We just do. Cake. Candles. A brief moment where time pauses and the individual is acknowledged. But like many things we take for granted in modern commerce and real estate, birthday celebrations have a surprisingly technical — and instructive — history. As with title, entity formation, and legal opinions, the story starts long before anyone thought about “best practices.” In ancient civilizations, birthdays were not universal celebrations. They were reserved for the powerful. Ancient Egypt marked the “birth” of pharaohs as gods, often tied to coronation rather than literal birth. Ancient Rome eventually extended birthday celebrations to ordinary citizens, but primarily men, and often as markers of legal and social standing. For centuries, women’s birthdays went largely unrecognized in formal society. In other words, birthdays were originally about status, authority, and legitimacy, not cake. That framing should sound familiar to anyone who works in real estate or finance. Much like early birthdays, property rights and legal recognition historically belonged to a narrow group. Over time, those rights expanded, but only after systems developed to recognize, document, and protect them. Early Christianity rejected birthday celebrations altogether, viewing them as pagan, self-indulgent, and astrologically dangerous. The concern was that marking a birth invited misfortune or temptation. Instead, the Church focused on death anniversaries and saints’ days. There’s an interesting parallel here: early resistance wasn’t about the event itself, but about risk allocation. Celebrating a birthday meant acknowledging time, change, and uncertainty — concepts that institutions have always been cautious about embracing without structure. Sound familiar? Modern real estate transactions didn’t become efficient until we developed standardized ways to address risk: title insurance, surveys, due diligence, and legal opinions. Before that, uncertainty ruled. Birthdays became mainstream only once societies improved record-keeping. Once people could reliably document dates of birth, identity, lineage, and legal status, birthdays shifted from superstition to celebration. That shift mirrors what happens in real estate every day. A deal becomes financeable not because the property exists, but because it can be documented, verified, and relied upon. The asset matters. The paper matters more. The tradition of birthday candles traces back to ancient Greece, where candles were used to communicate wishes to the gods. Over time, that symbolism softened into ritual rather than belief, but the structure remained. In real estate, many transactional “rituals” operate similarly. Opinions, certificates, and closing deliveries are not superstitions. They are structured ways of saying: “We’ve examined the facts, allocated the risk, and everyone can proceed with confidence.” What began as protection becomes tradition and eventually, expectation. Birthdays today are about the recognition of the individual. Real estate transactions are increasingly about the same thing, especially as entity structures grow more complex and deals across jurisdictions. Both require clarity of identity, reliable records, and trusted intermediaries. Without those, celebration or closing doesn't happen. We celebrate birthdays today because systems evolved to make them safe, meaningful, and universally recognized. The same is true for modern real estate transactions. Progress doesn’t come from ignoring risk. It comes from understanding it, documenting it, and building structures that allow people to move forward with confidence. That’s as true for a birthday candle as it is for a closing table.
February 4, 2026
Real Estate
Delaware Real Estate Closings: Why Delaware Attorneys Are Always Required
Contrary to just about every jurisdiction in the country, all real estate settlements for real property located within the State of Delaware must be performed by a Delaware-licensed attorney. The Delaware Supreme Court has determined that nearly all aspects of a real estate transaction constitute as the practice of law. Therefore, every real estate settlement — whether residential or commercial, purchase or refinance — must be conducted by a Delaware-licensed attorney. Anyone not a Delaware-licensed attorney performing these services is engaging in the unauthorized practice of law and is subject to sanctions. The practice of law, as defined in Delaware, “occurs where there is an exercise of judgment on a legal matter by someone acting in a representative capacity.” Delaware State Bar Association v. Alexander, Del. Supr., 386 A.2d 652, 661 (Del.), cert. denied, 439 U.S. 808 (1978). The basis for Delaware attorneys’ requirement to perform all real estate settlements derives from the case of In the Matter of: Mid-Atlantic Settlement Servs., et al. 755 A. 2d 389 (Del. 2000) (commonly referred to as “Mid-Atlantic). On September 22, 2006, the Supreme Court of Delaware approved the report and recommendations of the Delaware Board on Professional Responsibility, which determined as follows: An attorney licensed to practice law in Delaware is required to conduct a closing of a sale of Delaware real property. An attorney licensed to practice law in Delaware is required to conduct a closing of a refinancing loan secured by Delaware real property. An attorney licensed to practice law in Delaware is required to be involved in a direct or supervisory capacity in drafting or reviewing all documents affecting transfer of title to Delaware real property or where Delaware real property is used as security for the repayment of a debt or the performance of an obligation, with the exception of home equity loans in which the lender is acting in a pro se capacity and no evaluation of exceptions to title is required. The participation of an attorney licensed to practice law in Delaware is necessary in evaluating the legal rights and obligations of the parties, representing the buyer in examining the title and removing exceptions to the title, supervising the disbursement of funds, and responding to questions concerning the legal effect of documents and ramifications of a transaction by which title to Delaware real property is transferred or where Delaware real property is used as security for the repayment of a debt or the performance of an obligation, with the exception of home equity loans in which the lender is acting, in a pro se capacity and no evaluation of exceptions to title is required. Subsequent to Mid-Atlantic, the question arose whether Delaware attorneys could perform “witness only” closings, in which the Delaware attorney was present for the signing of the documents and to answer questions, while the rest of the transaction was performed by non-lawyers. The main issue is whether attorneys are required to perform disbursements. On September 22, 2006, the Supreme Court of Delaware approved the report and recommendations of the Delaware Board on Professional Responsibility, finding that attorneys must directly supervise the disbursement of funds from real estate transactions pursuant to Rule 1.15(A) trust accounts. According to the report, attorneys who allow title companies or other third parties to disburse settlement funds are engaging in the unauthorized practice of law and could face sanctions.
January 15, 2026
Real Estate
Business Legal Maintenance: What to Review Before January
As the year comes to a close and businesses prepare to wrap up 2025, there’s one critical task that should not be overlooked — a comprehensive legal check-up. Just as we schedule annual physicals to safeguard our personal health, your business deserves the same level of care. Whether this year was highly productive or presented challenges, it’s essential to keep your finger on the pulse of your operations and potential liabilities. If your business didn’t meet expectations, a thorough check-up is even more critical—sometimes the insights we least want to hear are the ones that help us move forward. Below are several key legal areas to review as you head into the new year. Assessing these items will help you determine whether it’s time to consult your business attorney. Business Structure and Governing Documents Whether your business is an LLC, a partnership, or a corporation, its structure is controlled by state law. Operating agreements, partnership agreements, and bylaws are the foundational documents every business should have in place. Take a look, do you have one? If not, it is certainly time to discuss this with an attorney. If you do, read through the pages to review key terms. Make sure you understand them and that they continue to be accurate. The terms that are most likely to change are as follows: Are all current members/owners listed on the schedule of owners or in the document? Has the purpose of the company shifted/changed since it was originally formed? Are the capital accounts property reflected? (you should consult your attorney or accountant on this one) If you have two or more members/owners, do you have a Buy-Sell Agreement. You should. Are the roles and responsibilities of the members/owners clearly defined? Trademarks and Patent Work If you want to secure your business name and reputation, you will likely want to file for trademarks at some point. The same holds true if this has been a growth year or a rebranding year. For those of you who are working in any field where you routinely develop something, you may want to seek the assistance of a patent attorney. Patent attorneys help protect your inventions, source codes, and processes from competitors. Licensing and Regulations When are your licenses up for renewal? Have any laws or regulations changed in how you get those renewals? Take a quick look and create a system to make sure you never miss a deadline for registrations, which can throw a huge wrench in your business effectiveness. Website Does your website need updating? How does it hold up to privacy laws? Several states have privacy laws regarding what information you can collect, or at least how you can collect it. A well-written privacy policy can alleviate many of these concerns. Legal Forms and Contracts Do you routinely use standard forms or contracts to conduct your business? You should review them to ensure these documents address all your needs and legal updates. The best way to avoid a lawsuit is to have a robust documentation system. Employee Agreements, Handbooks, and Non-competes Review your company’s source documents, i.e., handbooks, employee contracts, and non-competes, to ensure they still address your needs. Note: If you do not have these documents, contact an attorney. Review your employee files to ensure they are complete. Does each employee have a signed receipt for the employee handbook? Does each employee for whom it is applicable have a signed non-compete and/or non-solicitation agreement? Do you have I-9’s and other required documentation for each employee? Legal and Pseudo-Legal Matters Insurance: Do you have it? Do you have all the correct coverages? You should also review your lease(s) and/or mortgages to make sure your insurance coverages match the requirements of those documents. This yearly business legal checkup is not exhaustive. These are some easily identifiable legal issues that typically require review and updates from year to year. There are numerous other legal topics that should be discussed with your business attorney regularly to ensure your business is well-protected. Cheers to a profitable, productive, and healthy 2026.
December 16, 2025
Real Estate
The Role of Delaware Legal Opinions in Today’s Corporate Transactions
In commercial transactions, legal opinions often serve as both a risk-allocation device and a due diligence tool. Among the states, Delaware occupies a special place in opinion practice because of its role as the preferred jurisdiction for entity formation, corporate governance, and sophisticated financing structures, as outlined in the previous article, Five Reasons Delaware Reigns Supreme for Business Formation. A “Delaware legal opinion” is typically rendered by counsel admitted to practice law in Delaware on issues governed by Delaware law—most frequently concerning the formation, existence, power, and authorization of a Delaware entity. Legal opinions are not guarantees of outcome; they are professional judgments based on law and fact as of the opinion date. In a Delaware context, legal opinions are most often requested in three categories of transactions: Financing transactions – Lenders frequently require Delaware legal opinions when the borrower or guarantor is a Delaware corporation, limited liability company, limited liability partnership, or limited partnership. Mergers and acquisitions – Opinion letters provide assurances that the Delaware entities involved are duly organized, validly existing, and in good standing. Securities offerings – Opinions regarding valid issuance of shares and due authorization are common in both private placements and public offerings. For counterparties, a Delaware legal opinion provides assurance that the entities they are contracting with are legally valid and authorized to enter the transaction. For clients, an opinion may be a necessary condition to close the deal. Although every opinion letter is transaction-specific, certain opinion points recur with regularity in Delaware practice. These include: Due Organization and Good Standing – Opinion giver confirms that the entity has been duly formed under the Delaware General Corporation Law (DGCL), the Delaware Limited Liability Company Act, or other applicable Delaware law and remains in existence and is in good standing. Power and Authority – The entity possesses the power under its governing statute and charter documents to enter into the transaction. Due Authorization – Proper approvals (board, members, or managers) have been obtained. Execution and Delivery – The documents have been validly executed and delivered by the Delaware entity. Enforceability –The obligations under the agreement(s) are enforceable against the entity, subject to customary exceptions (such as bankruptcy or equitable principles). Opinion givers frequently rely on certificates from the Delaware Secretary of State (e.g., good standing certificates) and officer or manager certificates to establish factual predicates. No Delaware legal opinion is absolute. Instead, it is qualified by assumptions, limitations, and exceptions designed to keep the opinion within the bounds of what is professionally supportable. Some common qualifications include: Bankruptcy Exception – Enforceability opinions are subject to limitations arising under bankruptcy, insolvency, and similar laws. Equitable Principles Limitation – Enforcement may be subject to general principles of equity. Choice of Law Limitation – Opinions are limited to Delaware law; no view is expressed on the law of other jurisdictions. Assumptions – Opinion giver may assume genuineness of signatures, legal capacity of natural persons, and authenticity of documents. Delaware lawyers rendering opinions occupy a careful balance between advocacy and objectivity. Although engaged by a client, opinion counsel owes professional duties to the counterparty receiving the opinion. Courts and bar associations recognize that the opinion recipient is entitled to rely on the lawyer’s professional judgment, but that the lawyer is not an insurer of the transaction. Consequently, opinion practice demands diligent factual inquiry (review of charter documents, resolutions, certificates); accurate legal research grounded in Delaware statutory and case law; clear communication of scope, assumptions, and limitations. Failure to adhere to customary standards can expose opinion counsel to professional liability, even though such claims remain rare. Delaware’s prominence in U.S. business law ensures that Delaware legal opinions will remain a cornerstone of corporate, financing, and M&A transactions. While often treated as routine closing deliverables, these opinions embody careful professional judgment, rigorous analysis, and adherence to customary standards. For opinion givers, the discipline is one of precision, ensuring that each word reflects exactly what can be supported under Delaware law, and nothing more. For opinion recipients, reliance on a Delaware opinion provides comfort that the legal foundation of their deal is sound. In this way, Delaware legal opinions both reflect and reinforce Delaware’s reputation as the nation’s preeminent forum for business law.
November 19, 2025
Real Estate
Five Reasons Delaware Reigns Supreme for Business Formation
Why is the majority of Fortune 500 companies incorporated in the state of Delaware? Why are more than 75% of all new initial public offerings in the United States done by companies incorporated in Delaware? Why is Delaware able to generate more than 25% of its general fund revenue from the incorporation business? And, why have other states been unable to steal this business away from Delaware? Here are the top five reasons to form an artificial entity in Delaware. The Delaware court system is well established and highly respected. The Delaware Court of Chancery specializes in corporate issues and uses judges instead of juries. This means that in every litigation, a judge with a lot of expertise in complex corporate law matters will preside, and the opinions are relatively consistent. In addition, Delaware has historically and consistently been ranked one of the top judiciaries in the country. Delaware offers a lot of flexibility for structuring a business entity. Delaware’s corporate statutes are highly flexible with respect to corporate governance, allowing significant freedom in determining the composition, powers, and management structure of the board of directors. The Delaware limited liability company statute creates even more flexibility. If a structure can be imagined, chances are it can be accomplished with a Delaware LLC. Delaware offers greater privacy. Delaware entities do not need to disclose officer or director names on the formation documents. Delaware LLCs do not need to disclose the names of its members. This creates a certain level of privacy, if needed or desired. Investors prefer Delaware entities. Venture Capital investors, investment banks and other lending institutions typically prefer Delaware entities above all other states because of the reasons stated herein. Bi-partisan political consensus. When it comes to corporate law in Delaware, the politicians understand its importance, and Delaware’s importance. The bi-partisan political consensus in Delaware, therefore, attempts to keep the Delaware entities’ statutes modern and up-to-date, and to rely on Delaware’s corporate law specialists for advice on how to do this.
October 20, 2025
Real Estate
NYDEC Expands its Jurisdiction over Wetlands
Expansive changes to New York’s Freshwater Wetlands Permitting Program took effect on January 1, 2025, increasing regulated freshwater wetlands. The changes came after the New York State Department of Environmental Conservation (NYDEC) enacted new regulations which amended its Freshwater Wetlands Jurisdiction and Classification rules. The updated rules are expected to protect an additional one million acres of wetlands by 2028. The changes come after New York’s legislature modified the Freshwater Wetlands Act (the “FWA”) in 2022 to make several changes to the way the Freshwater Wetlands Program is to be administered for those in need of Freshwater Permit prior to conducting certain activities in a protected wetland or adjacent area. Such activities include, but are not limited to, the excavation or grading of soil, the modification or construction of buildings, septic systems, bulkheads, dikes or dams, and the application of pesticides in wetlands. NYDEC announced that the changes provide increased protections for wetlands that will help the New York adapt to increased flooding risk associated with the changing climate and conserve critically important natural resources, including threatened and endangered species and the wetlands that they inhabit. These environmental benefits result from NYDEC expanding the areas that are subject to its regulations and the requirement to obtain jurisdictional determinations and/or Freshwater Wetland permits for projects located in such areas. The newly enacted regulations take effect in two stages. The first, which became active on January 1, 2025, expands the areas that fall within the definition of “Wetlands of Unusual Importance.” This includes wetlands in urban and flood-prone areas, wetlands inhabited by rare plants or animals, wetlands important to water quality, and vernal pools. The second stage begins on January 1, 2028, and reduces the size of wetland areas that trigger NYDEC’s jurisdiction from 12.4 acres to 7.4 acres. Individuals in New York can be assured that this expansion in jurisdiction will increase the number of permits needed under the FWA. Another significant change is that property owners must now apply to NYDEC for a jurisdictional determination to ascertain: whether their land contains either state-regulated freshwater wetlands or state-regulated adjacent areas (a “parcel jurisdictional determination”) and/or whether a proposed activity on a parcel subject to NYSDEC freshwater wetlands regulation requires a permit (a “project jurisdictional determination”). Simply, the new regulations not only require significantly more project developers to work with the DEC to determine if their project impacts freshwater wetlands but also require landowners who are planning activity on their property to obtain a determination from NYDEC as to whether freshwater wetlands are located on any portion of their property. In order to allow for a more just transition for permittees, certain projects are exempt from the new requirements until either January 1, 2027 or July 1, 2028, depending on the type of project. The revised regulations become applicable on January 1, 2027, for “minor” projects (as defined in 6 NYCRR § 621.4) or on July 1, 2028, for “major” projects, provided that such projects had achieved certain developmental thresholds before January 1, 2025. In addition to the finalized 2025 regulations, in order to ease the enhanced permitting burdens, DEC has published a statewide draft general permit for public comment (GP-0-25-003). This can be found on DEC’s Freshwater Wetlands General Permit website, for various activities in State-regulated freshwater wetlands (the “Permit”). The General Permit is proposed to be issued for the following: Repair, replacement, or removal of existing structures and facilities. Construction or modification of various residential, commercial, industrial, or public structures. Temporary installation of access roads and laydown areas. Cutting trees and vegetation. Drilling test wells. Routine beach maintenance and replenishment. The comment period runs until January 27, 2025. Considering these changes to the Freshwater Wetland Program, it is imperative that new or expanding project applicants work with experienced wetland permitting attorneys in order to avoid project delays and/or assessment penalties.
February 21, 2025
Real Estate
Will 2025 Bring Greater Equity Investment and Debt Financing in NJ? NJ Aspire 3.0 aspires to do just that.
On January 23, 2025, Governor Phil Murphy enacted significant amendments to the New Jersey Aspire Program by signing Senate Bill 1323/Assembly Bill 2076 into law. The amendments, collectively referred to as “NJ Aspire 3.0” are designed to enhance the program’s effectiveness in stimulating redevelopment projects across New Jersey. The key revisions in NJ Aspire 3.0 concern project award amounts, eligibility periods, tax credits, eligible project expenses, and occupancy requirements. Increased Project Award Amounts: Award amounts for eligible projects have been increased to bridge financing gaps more effectively, aiming to attract greater equity investments and facilitate debt financing for redevelopment projects. Reduced Eligibility Periods: The maximum eligibility period for most projects has been reduced from 15 years to 10 years. For projects located in Government Restricted Municipalities (“GRMs”), this period is further reduced to five years. Under the prior law, only Trenton, Atlantic City, and Paterson were considered GRMs. NJ Aspire 3.0 adds Camden, East Orange, and New Brunswick to the list of GRMs. The adjusted eligibility periods aim to encourage more timely project completion and quicker utilization of the program benefits. Carry Forward Tax Credits: Purchasers of tax credits can now carry forward unused credits for up to five years, providing greater flexibility in tax planning. State Buyback of Unused Tax Credits: The state will now buy back unused tax credits and tax credit transfer certificates at 85% of their value, providing a safety net for developers who are unable to utilize or sell their credits. This is an increase from the 75% floor provided by the previous law. Proration of Tax Credits: The obligation to prorate tax credit awards has been eliminated, a change that applies retroactively to the inception of the New Jersey Aspire Program. Eligible Project Expenses: Projects in GRMs are now permitted to include land acquisition costs as eligible project expenses, capped at 20% of the total eligible project costs. Occupancy Requirements: The previous mandate for a 60% occupancy rate has been removed for residential developers and commences in the 4th year of the eligibility period for commercial developers. This eases the compliance burden for residential developers and provides commercial developers with additional time to achieve necessary occupancy levels. These legislative updates are anticipated to make the New Jersey Aspire Program a more robust tool for closing financing gaps in redevelopment projects, thereby attracting greater equity investments and facilitating debt financing. NJ Aspire 3.0 has the potential to significantly enhance opportunities for real estate developers and investors by incentivizing economic growth and community revitalization across New Jersey. By offering targeted incentives for real estate development projects, the program aims to attract private investment, support the creation of mixed-use, commercial, and residential spaces, and stimulate job creation, particularly in underserved or high-priority areas. By doing so, NJ Aspire 3.0 aims to enhance the state’s economic competitiveness and foster equitable and sustainable growth. Understanding the legal nuances of eligibility and compliance is critical, ensuring developers and investors maximize the program’s advantages while adhering to its requirements. Developers and investors in New Jersey’s redevelopment sector should review these changes carefully to understand the new opportunities and requirements.
January 24, 2025
Real Estate
Navigating Tough Lending Markets: Financing Strategies for Warehouse Buildouts
In the ever-evolving landscape of commercial real estate, securing financing for warehouse buildouts can be challenging. It has become increasingly challenging in the current market with persistent inflation, rising interest rates, and tightening lending standards in response to economic uncertainty, geopolitical tensions, supply chain disruptions, and fluctuating market demands. However, navigating these hurdles is possible with strategic planning and innovative approaches. Here’s a guide on how to finance a buildout for warehouse space when faced with a difficult lending market: Thorough Business Plan: Begin by crafting a detailed business plan outlining your vision for the warehouse space, potential uses, projected cash flows, and return on investment. Highlighting the project’s market demand and potential profitability will be crucial in convincing lenders of its viability. Build Relationships with Lenders: Establishing strong relationships with lenders is key, especially in challenging financial environments. Research and identify lenders with experience or interest in financing similar projects and contact them directly. Networking events and industry conferences can also provide opportunities to connect with potential lenders. Alternative Financing Options: Explore alternative financing options beyond traditional bank loans, such as private equity, crowdfunding, or mezzanine financing. These avenues may offer more flexibility and willingness to invest in projects that traditional lenders might overlook. Government Programs and Incentives: Investigate government programs and incentives, such as tax credits, grants, or low-interest loans, that support commercial real estate development. These initiatives can provide valuable financial assistance and make your project more appealing to lenders. Collateral and Equity Contribution: In challenging lending markets, lenders may require a higher level of collateral or equity contribution to mitigate their risk. To strengthen your loan application, be prepared to offer additional assets or invest more equity in the project. Demonstrate Strong Management and Expertise: Highlight your experience and track record in managing similar projects or operating warehouse facilities. Lenders are more likely to trust borrowers who demonstrate expertise and a proven ability to successfully execute complex real estate ventures. Optimize the Buildout Plan: Streamline the buildout plan to maximize efficiency and minimize costs without compromising quality. Consider phased construction or implementing value engineering techniques to reduce upfront expenses and improve the project’s financial feasibility. Secure Tenants: If possible, secure pre-leases and/or anchor tenants for the warehouse space before seeking financing. Having committed tenants in place can give lenders added confidence in the project’s revenue potential and decrease perceived leasing risk. Mitigate Environmental and Regulatory Risks: Conduct thorough due diligence to identify and address any environmental or regulatory risks associated with the project. Proactively addressing these issues can alleviate concerns for lenders and increase the likelihood of securing financing. Negotiate a Tenant Improvement Allowance: Tenant Improvement Allowances are funds provided by landlords to tenants for tenant buildouts. The amount offered can vary significantly based on the lease length, space condition, and market conditions. A Tenant Improvement Allowance can be particularly beneficial for startups or businesses with significant initial capital expenditures. Should you wish to pursue this option, be ready to present detailed plans and budgets for the proposed improvements. Consult with Legal Counsel: Seek guidance from legal counsel specializing in commercial real estate finance. Their expertise and insights can help you navigate the complexities of the lending market and identify the most suitable financing options for your specific project. By implementing these strategies and maintaining a proactive and diligent approach, financing a buildout for warehouse space in a challenging lending market becomes feasible. While obstacles may arise, perseverance, creativity, and strategic planning are key to overcoming them and realizing your vision for the project. For personalized assistance tailored to your specific needs and circumstances, please feel free to contact Faith Miros or Mark Wendaur. We are here to help you successfully navigate the complexities of your warehouse buildout.
June 5, 2024
Real Estate
Legal Considerations for Warehouse Leases in the Transportation and Shipping Industries
Warehouse leases are integral to the operations of businesses within the transportation and shipping industries, providing essential storage hubs for goods in transit. Navigating the legal landscape surrounding warehouse leases requires careful consideration of various factors to protect the interests of both landlords and tenants. From mitigating liability concerns to ensuring regulatory compliance, here are essential legal considerations to address when entering into warehouse lease agreements. 1. Lease Terms and Conditions Warehouse leases should comprehensively outline the terms and conditions of occupancy to ensure clarity and protect the interests of all parties involved. These terms should include, but not be limited to, the duration of the lease, permitted use of the space, rental rates, payment terms, options for renewal, restrictions on alterations, obligations regarding maintenance and repairs, termination rights, and provisions for parking arrangements. When evaluating your space requirements, consider factors like storage capacity, loading and unloading requirements, and any unique features needed for your operations. Make sure that the lease contains an adequate and clear description and depiction of the space. This becomes especially critical for new construction leases when the square footage of the space can only be estimated at the time of lease signing. In such cases, the lease should reserve a right for you to measure and confirm the square footage upon delivery of possession by the landlord and should define the method of measurement to be used. 2. Build-Out / Tenant Improvements It is imperative at the outset to have clear guidance for the initial build-out of your space, including who is responsible for what, who pays for what, and the sequence in which the build-out must occur to ensure timely delivery of the space. The governmental approvals required for such build-out and determining the parties’ obligations to secure such approvals are of significant importance. The timeframe to obtain any necessary approvals will factor into negotiating the rent commencement date. Moreover, make sure to negotiate and have the lease explicitly state who shall own such alterations and any requirements for restoring the space to its original condition at the expiration of the lease. 3. Liability and Insurance Determining liability for loss, damage, or theft of goods stored in the warehouse is crucial. The lease should outline insurance requirements for both parties, including general liability insurance and property insurance. Provisions should also address indemnification obligations to protect against legal claims arising from warehouse operations or landlord negligence. 4. Casualty and Condemnation Accidents and other forces of nature happen, and when they do, both parties generally want the space to be restored as soon as possible. You should consider rent abatement and termination rights dependent upon the timeframe for restoration. Events of condemnation (eminent domain), while not terribly common, do happen, and the lease should not be silent about what happens when they do. 5. Maintenance and Repairs Establishing clear maintenance and repair responsibilities guidelines is crucial for preventing disputes between landlords and tenants. The lease should specify which party is responsible for maintaining the warehouse’s structural integrity, along with overseeing essential systems such as HVAC, plumbing, and electrical. Additionally, it should outline provisions for emergency repairs and articulate the process for addressing maintenance concerns. By defining these responsibilities upfront, both parties can mitigate potential conflicts and ensure the smooth operation of the leased premises. The lease structure will determine whether you are required to pay additional rent for property taxes, insurance, and maintenance expenses. Under a triple net lease, the costs of owning and operating the building are passed through to you. To safeguard your interests, limits should be imposed on potential increases in the amounts of operating expenses over the term of the lease, certain costs should be excluded from being passed through to you, and you should have audit rights. These measures ensure transparency and protect you from unforeseen financial burdens, enhancing the overall fairness and sustainability of the lease agreement. 6. Compliance with Regulations Warehouse operations are subject to various regulations at the local, state, and federal levels, including zoning laws, building codes, and environmental regulations. Not only should the lease require compliance with applicable laws and regulations, with provisions for audits, permits, and certifications as necessary, but you should also perform due diligence prior to lease execution to ensure you do not inherit landlord’s or a prior tenant’s liability. 7. Security Measures Security plays a paramount role in warehouse operations to protect valuable inventory from potential theft or damage. A comprehensive lease agreement should address security measures such as surveillance systems, access controls, and fencing. Landlords may also have obligations to provide adequate lighting and secure entry points to the premises. 8. Subleasing and Assignment You should seek flexibility to sublease or assign your lease rights to third parties. The lease should outline the process for obtaining landlord consent for subleasing or assignment, including any conditions and restrictions to such consent and any exceptions from requiring such consent. At the lease negotiation stage, you should consider the potential for a future sale or merger of your business, in which case flexibility of assignment of your lease rights is particularly important. 9. Termination and Default The lease should include provisions for termination and default, specifying circumstances under which either party can terminate the lease. This may consist of failure to pay rent, breach of lease terms, or insolvency. In addition, the lease should include clear guidelines for notice periods, cure periods, and remedies in the case of default to protect the interests of both parties. From your perspective, you will want to ensure you receive notice of any alleged event of default and an adequate opportunity to cure before the landlord can exercise remedies. Conversely, the landlord will want to ensure that it has events of default that can be triggered automatically or quickly, as well as enforceable remedies. 10. Dispute Resolution Mechanisms Despite efforts to prevent conflicts, disputes may arise between landlords and tenants during the lease term. The lease should include mechanisms for resolving disputes, such as mediation, arbitration, or litigation. Clear procedures for dispute resolution help expedite resolution and minimize disruptions to warehouse operations. Addressing these legal considerations in warehouse leases is essential for protecting the interests of landlords and tenants in the transportation and shipping industries. By clearly defining rights, responsibilities, and obligations upfront, you can minimize legal risks and disruptions in the operation of your business, ensure compliance with regulations, and maintain a positive landlord-tenant relationship throughout the lease term. For personalized assistance in tailoring your warehouse lease to suit your specific needs and circumstances, please feel free to contact Faith Miros or Mark Wendaur. We are here to help you navigate the complexities of warehouse leasing with expertise and care.
April 9, 2024
Real Estate
When's A Property Settlement Agreement Not A Property Settlement Agreement? (Part Two)
Originally posted on 01/16/20, content updated on 11/23/23 In this second of a multi-part series (read part one here), I consider a second alternative “use” for a marital property settlement agreement, or PSA. With the help of Shakespeare’s Romeo and Juliet, I’ve previously noted that a document need not necessarily be defined solely by its name, and particularly, that a PSA can legally serve as more than merely an agreement settling property rights between spouses contemplating divorce. For instance, in my prior example, a legally enforceable PSA moonlit as a real property deed in the right circumstances. Like a multi-faceted Swiss Army Knife, that same PSA might also serve you further as a written “assignment” if and when no separate, stand-alone, self-titled “assignment” document exists. At least that’s among the possible outcomes I am currently seeking to convince the Virginia Supreme Court to adopt in Wood v. Martin, Record No. 190738! As with deeds in my prior example discussed in Part One, assignments need not be self-contained in a document so titled. Legally speaking, an “assignment” of a right or interest in property is an act by which one person transfers to another, or causes to vest in that other, all of the right or interest the person has in particular property. For instance, assuming no express contractual limitations on my doing so, I might assign an unencumbered interest I have as a tenant in an apartment lease to a new tenant (as opposed to a “sublease” arrangement where I maintain my original relationship and rights with the landlord). “Signing over” a check is another example of a simple assignment which occurs when the payee on the check (i.e. the one to whom the check is to be paid) transfers to an assignee by signing the back of the check as “payable to [assignee’s name]” the right to cash the check and to receive the full face value. In Virginia, any order, writing, or act “appropriating” a fund, amounts to an enforceable assignment of the fund, so long as it appears that the one transferring an interest intended to do so, and the one to whom the interest was being transferred understood as much and accepted it. Certain insurance-related, protectionist statutory provisions serve to prevent creditors from reaching the proceeds of a debtor’s life insurance policy, but certain categories of “creditors” of the insured debtor, including those with a written assignment of the policy proceeds, are expressly excluded from this limitation. So what befalls an ex-spouse anticipating proceeds of a life insurance policy when their former spouse dies without having honored the obligations of the couple’s PSA? Is such an individual protected by the court’s decree and the court-ordered relief to which they’d bargained? Or is the ex-spouse reduced to a mere “creditor” forced to line up with everyone else for a share of whatever else the deceased may have left behind? If a consensually court-ordered PSA serves to transfer from one spouse to another the former’s interest in life insurance policy proceeds (including the legal right to designate the beneficiary of same) and incorporates the latter’s acceptance of the transfer, nothing more is required to effect a written assignment under such circumstances. Having been granted such a right in the policy proceeds, the surviving ex-spouse, as assignee of the proceeds, is the rightful owner thereof, and not merely a “creditor” to whom the general exemption statute (Va. Code § 38.2-3122) applies (see Faulknier v. Shafer,264 Va. 210, 216 n.6 (2002), reserving on this issue). As such, both the potential statutory bar to recovery for divorcees as “creditors” of their ex-spouses and a possible malpractice trap for unwitting divorce lawyers are thereby mooted — at least insofar as proper notice of the assignment is provided to the insurer before another creditor perfects a priority claim to the proceeds and/or the insurer, without notice of the PSA assignment, pays out the proceeds to a differently named beneficiary. Much like a delivered but unrecorded real property deed, a PSA assignment is not invalidated or rendered unenforceable merely because the insurance provider wasn’t timely provided a copy, or because the provider’s assignment form wasn’t used. Again, like a deed, there are no “magic words” or specific forms required to create an assignment, and the document creating and embodying an assignment need not be called such. So when is a property settlement agreement not a property settlement agreement? When it’s a legally enforceable written assignment, of course. [Practitioner’s Note: One shouldn’t underestimate the potential significance of the insurer’s notice requirement(s)! Failing to meet the insurance provider’s notice requirements or other procedures for perfecting an assignment might, in limited circumstances, force a PSA doubling as an assignment to cede priority on equitable grounds to other would-be claims to the policy proceeds. For instance, while an unnoticed PSA assignee’s assignment remains no less valid and enforceable, the holder of such an assignment must anticipate taking an equitable back seat to either or both one who subsequently lends against the value of the assigned policy proceeds without knowledge or notice of the PSA obligation and/or another (subsequent spouse, perhaps?) who similarly bargained something of value in exchange for being named beneficiary of the proceeds and, unlike the unnoticed PSA assignee, timely took the necessary steps with the insurer to perfect their bargained-for interest.]
November 23, 2023
Real Estate
When's A Property Settlement Agreement Not A Property Settlement Agreement? (Part One)
Originally posted on 11/20/19, content updated on 11/20/23 In this first of a multi-part series, (read part two here) I address some of the multiple potential “uses” to which one can put a property settlement agreement, or PSA, to use when other options aren’t available. “How’s that?” you ask. For starters, to constitute a deed in Virginia at least, one thing not required of a document is that it be titled “deed” to be a deed. To be a valid Virginia deed, a document – regardless of its title — must reflect a “present intent to transfer” to an identifiable recipient and actually be signed by one transferring an interest insufficiently identified the real property. In the course of assisting a judgment-creditor client pursue a multi-million dollar, post-judgment collection, we sought to reach some real property of a debtor in partial satisfaction of the judgment amount. The crafty debtor had successfully avoided finalizing his divorce from his estranged wife such that, according to the land records at least, the couple’s real property appeared to remain subject to “tenancy by the entirety” (TBE) protection from creditor claims. However, a little third-party discovery from the debtor’s estranged spouse confirmed that she claimed no interest in the property pursuant to a legally enforceable PSA entered into by the estranged spouses (despite not having finalized their divorce). The PSA terms included an expression of her present intent to transfer to the debtor-spouse all of her interest in the couple’s real property, which was sufficiently identified for Virginia deed purposes. Our adversary sought pre-trial dismissal arguing (among other things) that a PSA could not be a deed and that even if one could, this PSA wasn’t one because it lacked any “present intention to transfer” language. Accepting the premise that the PSA itself could legally be a deed, the Circuit Court refused to dismiss the case, and instead, afforded the judgment-creditor the right to have a jury decide whether the PSA sufficiently expressed the non-debtor spouse’s “present intent to transfer” the real property. Voila! When is a property settlement agreement not a property settlement agreement? When it’s a deed! In my example, a little creative lawyering (and a receptive, open-minded judge!) afforded the judgment-creditor client newfound negotiating leverage from a seemingly unassailable TBE property interest of a “married” judgment-debtor. At least on that occasion, called upon to serve the judgment-creditor’s need as “deed,” the estranged couple’s PSA unwittingly “doffed” its name, yet smelled every bit as sweet, indeed! (See what I deed there?)
November 20, 2023
Real Estate
How do Shared Equity Agreements Work?
As discussed in the last edition of This Week in Real Estate, many homeowners are interested in shared equity agreements. Let’s discuss how those agreements work. Here are a few examples of shared equity agreements in action. Scenario 1: Securing a down payment Harry Homeowner wants to buy a home that costs $250,000. To avoid Private Mortgage Insurance (PMI), he needs to put down $50,000. He saved up $25,000 but is not sure how to get the rest. He hears about a shared equity investment company and finds out they will lend him the other $25,000. In exchange, they get an interest in his property and its future appreciation or depreciation. Harry’s agreement sets the term at 30 years. That means he won’t have to make a single repayment on the amount until he sells the home or thirty years have passed, whichever comes first. At the end of the agreement, Harry will repay the initial investment along with 35% of the property’s gain or loss over the span of the agreement. Note that the amount of the company’s interest in the gain is considerably more than the percentage of the initial investment. Repayment Fifteen years later, Harry is ready to sell his home. Depending on how the value of his home has changed, here’s what could happen. If Harry’s home has increased in value to $350,000, he will owe the investor the initial investment of $25,000 plus 35% of the $100,000 gain ($35,000). The total payment would be $60,000. If the value of Harry’s home stayed the same, he would owe the investor the initial investment of $25,000 and nothing more. What if Harry’s home value drops to $200,000?He’ll need to repay the difference between the initial investment ($25,000) and the investor’s percentage of the loss (35% of -$50,000=-$17,500). The total repayment amount would be $7,500. Scenario #2: Cashing out some home equity Ophelia Owner has a home worth $500,000. She still owes $300,000 on her mortgage and has $200,000 in home equity. She wants to cash out $50,000 and reaches out to an equity-sharing company to make it happen. Equity sharing agreement Ophelia agrees to sell $50,000 of her equity in exchange for a 25% stake in her home’s appreciation over the next ten years. Repayment When the 10-year term is up, it’s time for Ophelia to pay, here are three possible outcomes: If Ophelia’s home increases in value to $550,000, she will have to repay the initial $50,000 plus 25% of the $50,000 appreciation, for a total of $62,500. If she is not ready to sell her house, so she will have to pay out-of-pocket or refinance the debt. However, refinancing the debt will result in additional financing fees. And even if she sells her home, the $37,500 she gains from the appreciation won’t cover the full $50,000 repayment. This outcome could be problematic for some homeowners. Before making a shared equity agreement, check market trends and predictions to make sure you’ve got a good chance of gaining money instead of losing it. Next week, we will examine who would truly benefit from a share equity agreement.
September 1, 2022
Real Estate
This Week in Real Estate: Share Equity Agreements
As home prices continue to rise across the county, many homeowners are researching whether to obtain home equity loans to take advantage of the value appreciation and unlock some of the increased equity. I similarly did this research. While researching home equity loans, I came across a vehicle that investors have been using for quite some time but is now available in the residential home consumer market – share equity agreements. Shared equity agreements, sometimes known as home equity investments, enable a home buyer or homeowner to share home equity in exchange for a one-time cash payment from an investor. Such agreements allow you to liquidate part of your home equity for cash or sometimes are used in the home purchasing process to help prospective homeowners with a down payment. Investors give homeowners a lump sum in exchange for a share in the future value of their homes. When the homes are sold (or when the contract term ends), the investors receive their share from the sale. If the value of the house increases, so does the amount the investor receives. If the house drops in value, the investor also shares in the loss. There are no interest rates or monthly payments to worry about. The homeowner doesn’t pay off the investor with monthly payments or interest. Instead, at the end of the contract, the homeowner agrees to pay the investor’s initial investment and a fixed percentage of the change in home value. In a few cases, the investor’s share is based off the overall value of the property at sale. The end of the contract is set for a predetermined date (terms are typically 10 to 30 years) or when the home is sold. You can buy out the investment at any time. Shared equity appreciation agreements give investors a low-risk way to invest in real estate that can also offer them tax benefits. There are a growing number of reputable firms offering these products to consumers. Generally, these firms are partnered with large institutional investors, such as pension funds, who are looking for investment exposure to real estate assets. A shared appreciation mortgage gives an investment company or investor a stake in the home’s future equity. However, the investor won’t have anything to do with the day-to-day running of your home. They can’t make decisions on how you decorate or what remodeling projects you take on. However, they will benefit if your home’s value increases. You will also be responsible for any expenses, taxes, or insurance costs. When your equity sharing agreement contract finishes, the homeowner repays the investing partner the amount they initially loaned to the homeowner, plus a percentage of the appreciation in the home’s value. If the home decreases in value, the investor will receive less money. A shared equity finance agreement isn’t technically a mortgage. It may be easier to qualify for a shared equity agreement than a home loan product. Credit and income requirements are typically more lenient. Next week, we will examine how the shared agreements actually work.
March 31, 2022
Real Estate
This Week in Real Estate: Title Insurance
This Week in Real Estate (TWIRE) has explored different series in previous editions. TWIRE will now focus on a new series of discussions on a topic that is very important in the world of real estate: title insurance. Over the next several week's TWIRE will discuss what it is, the different types and provisions included in title insurance policies. What is Title Insurance? Title insurance is a form of indemnity insurance that protects lenders and real estate owners from financial loss sustained from defects in the title to a property. When a property is financed, bought or sold, a record of that transaction is generally filed in public archives. Similarly, records of other events that may affect the ownership of a property, like liens or levies, are also archived. When you buy title insurance for your property, a title company searches these records to find and remedy, if possible, several types of ownership issues. First, the title company searches public records to determine the property's ownership status. After this search, the underwriter will determine the insurability of the title. Even the most skilled title professionals may not find all problems associated with a property. Some risks, such as title issues due to filing errors, forgeries or undisclosed heirs are difficult to identify. After the title company finishes its search, it provides a title insurance policy that will help protect the purchaser, borrower and/or lender from a variety of issues that might be uncovered later. Types of Title Insurance Policies There are two types of title insurance policies: a lender’s policy and an owner’s policy. Both types of policies are typically offered as a bundle together. Lender's Policy A lender’s policy is required in just about every purchase and refinance transaction, and the borrower typically pays for it. This insurance typically insures that the lender is in the lien position it has contracted to be. Should there be a potential title issue, this policy protects only the mortgage lender in the amount of the loan. Owner's Policy On the other hand, an owner’s policy protects the buyer. Although it’s not required by law for borrowers to purchase an owner’s policy, it is highly recommended to make sure that you, as the title holder, are protected from any potential legal issues that may come up. Next week, we will begin to discuss the different parts of each insurance policy.
November 4, 2021
Real Estate
This Week in Real Estate: Fifteen Football Historical Fun Facts
This Week in Real Estate paid homage to Major League Baseball’s Opening Day. Therefore, This Week in Real Estate would be remiss to take the opportunity to honor the National Football League’s Opening Weekend of the 2021 football season and must take a time out from its regularly scheduled program to discuss some historical football Fun Facts (courtesy of mentalfloss.com). Football was essentially rugby until 1882, when new rules were established that gave each team three tries to advance the ball five yards. That’s also why the field looks like a gridiron. Lines had to be established so teams knew how far they had to go. Kickers got more respect in those early days. Originally, touchdowns were only worth four points, while field goals were worth five. In football’s early days, the forward pass was illegal, so most plays were variations on a theme of “ball carrier smashes into the line of scrimmage.” Unsurprisingly, this limited playbook led to a lot of injuries. As president, Teddy Roosevelt threatened to ban football unless new rules were established to ensure player safety. The revised rules introduced the forward pass. The new rules also cut the time of the games by ten minutes. Games were originally 70 minutes long. The huddle was first used in the 1890s by quarterback Paul Hubbard, who was deaf. Hubbard was concerned the other team could interpret his hand signals, so he brought his teammates into a round formation to call plays. The first professional football player was William “Pudge” Heffelfinger. He was paid $500 to play in a game in 1892. The first televised professional football game took place in 1939. It wasn’t quite the huge spectacle that pro football has become—that first broadcast only appeared on approximately 500 TV sets. If you’re talking to a mathematician, the shape of a football is best described as a “prolate spheroid.” But everyone will know what you’re talking about if you just say “football-shaped.” Fans who pay attention to the ball itself will notice a subtle difference between the pro and college balls. While both levels use identically sized balls, college games are played with balls that have white stripes painted on either end. These markings supposedly make a passed ball easier to spot while it’s in flight. The longest field goal made in pro football history was 64 yards. The longest attempted field goal in pro football history was 76 yards. It missed. The name “football” was originally fitting since the game was largely played with players’ feet. The first college game took place in 1869, but modern fans likely wouldn’t have recognized the action. Each team had 25 men, and players weren’t allowed to pick the ball up. Instead, they advanced towards the goal by kicking it or swiping at it with their hands. When future president Herbert Hoover attended Stanford in the early 1890s, he was a student manager of the football team. According to team lore, when Stanford and the University of California met on the field for the first time in 1892, there was a delay after Hoover forgot to bring the ball. Modern games don’t have this problem: Pro rules dictate that the home team has to have 36 balls (for outdoor games) or 24 balls (for indoor games) ready for inspection by the referee two hours before a game’s starting time.
September 16, 2021
Real Estate
This Week in Real Estate: Commercial Leases — Base Year Lease
This Week in Real Estate continues its discussion on Leases. This week we’ll remain our focus on commercial leasing and discuss the base year commercial lease. In a base year lease, a base year is selected (usually the first year of the lease). The landlord agrees to pay the property’s expenses (Real Estate Taxes, Insurance and CAM) for the base year. The landlord continues to pay the property expenses at the base year level and the tenant agrees to pay its pro rata share of any increases in property expenses in excess of the amount of the base year. For example, if the property expenses for the base year (say 2020) are $100,000 and the expenses increase to $150,000 for the year 2021, a tenant with 20% of the square footage (or its pro rata share is 20%) would pay $10,000 (20% of the $50,000 increase) in 2021 in addition to the tenant’s base rent (with a NNN lease, the tenant would pay its pro rata share of the entire $150,000 in 2021 or $30,000 in addition to the base rent). Each year thereafter, the tenant pays its pro rata share of the property’s expenses but only to the extent that those expenses exceed the $100,000 established in the base year. In most cases, the annual increase in expenses is estimated at the start of each year and tenants pay monthly to spread out the cost over the year. In the above example, if at the beginning of 2021 the landlord over-estimated the increase in property expenses at $60,000, the tenant would pay monthly payments of $1,000 (20% of $60,000 divided by 12 months) totaling $12,000. The tenant thus overpays $2,000. At the end of 2021, the landlord would perform an expense reconciliation resulting in the extra $2,000 being credited back to the tenant. When presented with a base year lease, Tenants should take steps to minimize the uncertainty of their share of future expenses. First, ensure that the base year calculation is accurate. Landlords shouldn’t be reluctant to review their calculations with prospective tenants. Second, ask for historical data and trends to see how expenses have increased over time. This gives tenants a reasonable basis from which to anticipate future expenses. Tenants that move into a commercial space after the first of the year should ask for 12 months of base year protection guaranteeing 12 months of tenancy before expenses become due. Larger landlords are typically more amenable to this request. Tenants should also consider asking for a cap on operating expenses. Most landlords will be reluctant. However, it’s worth asking for as there are certain circumstances that can result in significant unanticipated expenses associated with remodels, improvements and/or tax reassessments after the sale or transfer of ownership of the property. Tenants and landlords should be careful when negotiation gross-up provisions in base year leases. With gross-up provisions, landlords calculate tenants’ pro rata share of variable expenses (expenses that vary with occupancy) based on 95% or 100% occupancy allowing landlords to recoup their actual expenses from existing tenants when occupancy is low. In base year leases, tenants need to ensure that the gross up provisions apply to the base year as well as succeeding years to avoid significant increases in expenses when occupancy levels rise after the base year. Otherwise, if the base year is one with less than full occupancy, tenants will be responsible for the expenses associated with full occupancy later (increases in expenses due to new tenants). As long as the base year is included, tenants with base year leases benefit from gross-up provisions. To avoid future conflict, the lease should specifically identify which expenses will be variable and which will be fixed. Finally, tenants should seek audit rights to ensure that expenses are accurately determined and that landlords are only being reimbursed for actual expenses. So long as landlords accurately account for expenses, base year leases are advantageous to both landlords and tenants. Tenants’ burden for common expenses is limited to increases over the base year level and landlords maintain revenue stability.
August 20, 2021
Real Estate
Distressed Real Estate and COVID-19 - The Future is Here, Act Now
While COVID-19 restrictions and moratoriums may be coming to an end, COVID-19’s impact on real estate will continue to unfold. Landlords and tenants must still follow best practices: in short, know your contract, know your rights and remedies, and analyze the effect and cost of exercising those rights and remedies on your business and relationships. As retailers had to convert or expand online, curbside, and delivery services, real estate owners will need to reimage their space and the future demands and uses for their space. Short and long-term solutions will require creative and forward-thinking. Real estate has been down, but with a lot of capital still to be deployed across sectors, it is not out. Whether you view COVID-19 as an apocalypse or an accelerator of change already on the horizon, there is no better time than now to reimagine the future and consult your advisors to better understand the promises and pitfalls of the emerging real estate landscape.
June 21, 2021
Real Estate
This Week in Real Estate: Commercial Leases — Net Leases
This Week in Real Estate continues its current series on Leases. This week, we’ll remain focused on commercial leasing and discuss the different types of net commercial leases. The net lease is a highly adjustable commercial real estate lease. The base rent for a net lease is fixed (typically with an escalation which is set at the outset of the lease), but is lower than a gross lease. The tenant also pays fixed operating expenses such as property taxes, insurance, and common area maintenance (CAM) items. There are four types of net leases: Single Net Lease: In a single net lease, tenants pay a set rent and a piece of the property tax (which would be negotiated with the landlord). The landlord then pays building expenses, while the tenant pays utilities and other services directly. Double Net Lease: A double net lease is similar to the single net lease, except the tenant also pays a piece of the property insurance along with the property tax. The landlord is responsible for maintenance of the common area, but the tenant is still responsible for his or her own utilities and garbage services. Triple Net Lease: For the triple net lease, also know as “net net net leases” or “NNN Leases”, the tenant pays the base rent and in addition three primary operating expense categories, hence the “NNN” definition. These categories include (1) CAM (Common Area Maintenance charge), to cover the landlord’s property management, waste, water, landscaping and general maintenance, (2) property taxes, and (3) building insurance. In addition to the base rent and NNN charges, the tenant also pays their own utility charges for the subject premises, contracted directly with the service provider. Landlords typically estimate expenses and charge tenants a portion of these expenses based on their proportionate, or pro-rata share. Triple net leases are generally the most landlord-friendly commercial lease type, and tenants should always scrutinize NNN charges and negotiate limits on the amounts they can be increased annually. NNN charges can also fluctuate monthly as operating expenses increase or decrease, making it harder for a business to forecast and budget their occupancy costs. Absolute Triple Net Lease: This is the triple net lease on steroids. The tenant takes on all costs enabling them to have sole responsibility of the building. The benefit to the tenant in this lease is that the tenant can virtually own a building without buying it. The benefit to the landlord is she collects rent, but has little to no responsibility to maintain the property. Next week’s edition of This Week in Real Estate will discuss the base year and percentage leases.
June 14, 2021
Real Estate
Setting A Price For A Minority Ownership Interest
This Week in Real Estate continues its current series on Leases. This week, we’ll remain focused on commercial leasing and discuss the different types of net commercial leases. The net lease is a highly adjustable commercial real estate lease. The base rent for a net lease is fixed (typically with an escalation, which is set at the outset of the lease) but is lower than a gross lease. The tenant also pays fixed operating expenses such as property taxes, insurance, and common area maintenance (CAM) items. There are four types of net leases: Single Net Lease: In a single net lease, tenants pay a set rent and a piece of the property tax (which would be negotiated with the landlord). The landlord then pays building expenses, while the tenant pays utilities and other services directly. Double Net Lease: A double net lease is similar to the single net lease, except the tenant also pays a piece of the property insurance along with the property tax. The landlord is responsible for maintenance of the common area, but the tenant is still responsible for his or her own utilities and garbage services. Triple Net Lease: For the triple net lease, also known as “net net net leases” or “NNN Leases”, the tenant pays the base rent and, in addition, three primary operating expense categories, hence the “NNN” definition. These categories include (1) CAM (Common Area Maintenance charge), to cover the landlord’s property management, waste, water, landscaping and general maintenance, (2) property taxes, and (3) building insurance. In addition to the base rent and NNN charges, the tenant also pays their own utility charges for the subject premises, contracted directly with the service provider. Landlords typically estimate expenses and charge tenants a portion of these expenses based on their proportionate or pro-rata share. Triple net leases are generally the most landlord-friendly commercial lease type, and tenants should always scrutinize NNN charges and negotiate limits on the amounts they can be increased annually. NNN charges can also fluctuate monthly as operating expenses increase or decrease, making it harder for a business to forecast and budget their occupancy costs. Absolute Triple Net Lease: This is the triple net lease on steroids. The tenant takes on all costs enabling them to have sole responsibility of the building. The benefit to the tenant in this lease is that the tenant can virtually own a building without buying it. The benefit to the landlord is she collects rent but has little to no responsibility to maintain the property. Next week’s edition of This Week in Real Estate will discuss the base year and percentage leases.
June 4, 2021
Real Estate
This Week in Real Estate: Commercial Leases
This Week in Real Estate’s continues its current series on Leases. This week we’ll focus on commercial leasing and begin discussing the different types of commercial leases. In general, there are three types of commercial leases: Gross, Net, and Modified Gross (Base Year) Leases. Gross Lease or Full-Service Lease The first type of commercial lease is the gross or full-service lease. It’s the easiest to understand. In a gross lease, the rent is all-inclusive. The landlord pays all or most expenses associated with the property, including taxes, insurance, and maintenance out of the rents received from tenants. Utilities (except utilities that are separately metered and the tenant agrees to pay) and janitorial services are included within one easy, tenant-friendly rent payment. When negotiating a gross lease, the tenant should ask which janitorial and other services are provided and how often they are offered. Excess utility consumption beyond building standards is sometimes charged back to the tenant, so if the tenant is a big consumer of electricity, this point should be clarified in the lease. The tenant pays his own property insurance and taxes. As costs increase over time, many gross and full-service leases will contain escalation clauses that increase rents overtime to offset tax increases and higher insurance and maintenance costs. It is important that a tenant shopping for space understand any escalation clauses to project rent expense into the future. A benefit of this type of lease is that it is supremely easy for the tenant, which can forecast expenses (even with the escalations, which are outlined in the lease) without worrying about an unexpected lobby maintenance charge, for example. The landlord assumes all responsibility for the building while tenants concentrate on growing their businesses. Next week’s edition of This Week in Real Estate will net lease, the different types (there are three), and what they are.
May 14, 2021
Real Estate
This Week in Real Estate: Ten Things Every Landlord Should Know
This Week in Real Estate’s current series is focusing on Leases. This week, we’ll focus on residential leasing and the Top Ten Things Every Landlord Should Know. 1. Become familiar with your jurisdiction’s Landlord-Tenant Code. 2. Don't rent to anyone before checking his or her credit history, references and background. Haphazard screening and tenant selection too often result in problems. 3. Get all the important terms of the tenancy in writing. Beginning with the rental application and lease or rental agreement, be sure to document important facts of your relationship with your tenants. 4. Establish a clear, fair system of setting, collecting, holding, and returning security deposits. Inspect and document the condition of the rental unit before the tenant moves in to avoid disputes over security deposits when the tenant moves out. 5. Stay on top of repair and maintenance needs to make repairs when requested.If the property is not kept in good repair, you'll alienate good tenants. And they may have the right to withhold rent, sue for any injuries caused by defective conditions, or move out without notice. 6. Respect the privacy of your tenants. Notify tenants whenever you plan to enter their rental unit and provide as much notice as possible. Make sure you are aware of your jurisdiction’s minimum notice requirements. 7. Disclose environmental hazards such. Landlords are increasingly being held liable for tenant health problems resulting from exposure to environmental poisons in the rental premises. 8. If you choose to obtain one, choose and supervise your manager carefully. If a manager commits a crime or is incompetent, you may be held financially responsible. Do a thorough background check and clearly spell out the manager's duties in writing to prevent problems down the road. 9. Purchase enough liability and other property insurance. A well-designed insurance program can protect your rental property from losses caused by everything from fire and storms to burglary, vandalism, and personal injury and discrimination lawsuit. 10. Treat your rental property like a business. It’s important to remain professional and consistent with your tenants. Everyone falls on hard times, but allowing tenants to not pay rent or break rules is a recipe for disaster.
May 7, 2021
Real Estate
This Week in Real Estate: Leases
This Week in Real Estate will focus on a new series of discussions on a topic that is very important in the world of real estate: leases. Over the next several weeks, TWIRE will discuss what they are. What are the different types, and what are the provisions included in the lease that are frequently overlooked but could have major implications? A lease is a contract outlining the terms under which one party agrees to rent or lease property owned by another party. It guarantees the lessee’s, also known as the tenant, use and occupancy of a property or asset and guarantees the lessor, the property owner or landlord, regular payments for a specified period in exchange. Both the lessee and the lessor have rights and responsibilities and face consequences if they fail to uphold the terms of the contract. Leases are legal and binding contracts that set forth the terms of rental agreements in real estate and real and personal property. These contracts stipulate the duties of each party to effect and maintain the agreement and are enforceable by each. For example, a residential property lease includes the address of the property, landlord responsibilities, and tenant responsibilities, such as the rent amount, a required security deposit, rent due date, consequences for breach of contract, the duration of the lease, pet policies, and any other essential information. Not all leases are designed the same, but there are some common features: rent amount, due date, lessee and lessor, etc. The landlord requires the tenant to sign the lease, thereby agreeing to its terms before occupying the property. Leases for commercial properties, on the other hand, are usually negotiated in accordance with the specific lessee and typically run from one to 10 years, with larger tenants often having longer, complex lease agreements. The landlord and tenant should retain a copy of the lease for their records. This is especially helpful when disputes arise. Next week, we will discuss residential leases, specifically in the State of Delaware, and the Ten Things Every Delaware Residential Landlord Should Know.
April 30, 2021
Real Estate
This Week in Real Estate: LLC and LLP Asset Protection
Pursuant to most LLC and LLP statutes, there are three types of asset protection provisions— a liability shield provision, “pick-your-partner” provisions, and charging order provisions. Essentially: Liability shield provisions protect the personal assets of partners, members and managers (except contributions to the entity) from liability for claims by third parties against their LLC or LLP. “Pick-your-partner” provisions protect the management rights of members and partners from the members' or partners’ creditors. Generally, charging order provisions limit a judgment creditor’s recourse to a members' or partners’ basic economic rights, in other words, their right to allocations of income and losses and their right to distributions of cash and other assets. As This Week in Real Estate has discussed numerous times, the Delaware LLC Act is the preeminent act in the country. Section 18-303 of the Delaware LLC Act provides in its entirety as follows: 18-303 LIABILITY TO THIRD PARTIES (a) Except as otherwise provided by this chapter, the debts, obligations and liabilities of a limited liability company, whether arising in contract, tort or otherwise, shall be solely the debts, obligations and liabilities of the limited liability company, and no member or manager of a limited liability company shall be obligated personally for any such debt, obligation or liability of the limited liability company solely by reason of being a member or acting as a manager of the limited liability company. (b) Notwithstanding the provisions of subsection (a) of this section, under a limited liability company agreement or under another agreement, a member or manager may agree to be obligated personally for any or all of the debts, obligations and liabilities of the limited liability company. See 6 Del. C. § 18-303. Similarly, for LLPs, Section 15-306 of the Delaware RUPA. This provision provides in its entirety as follows: 15-306 PARTNER’S LIABILITY (a) An obligation of a partnership arising out of or related to circumstances or events occurring while the partnership is a limited liability partnership or incurred while the partnership is a limited liability partnership, whether arising in contract, tort or otherwise, is solely the obligation of the partnership. A partner is not personally liable, directly or indirectly, by way of indemnification, contribution, assessment or otherwise, for such an obligation solely by reason of being or so acting as a partner. (b) Notwithstanding the provisions of subsection (c) of this section, under a partnership agreement or under another agreement, a partner may agree to be personally liable, directly or indirectly, by way of indemnification, contribution, assessment or otherwise, for any or all of the obligations of the partnership incurred while the partnership is a limited liability partnership. See 6 Del. C. § 15-306. Here are the most important things regarding statutory liability shields: Statutory liability shields do not confer limited liability on LLCs or LLPs themselves, but only on their members or partners. In any claim against an LLC or an LLP, all of its assets will be at risk, and the most important way for an LLC or LLP to protect against this risk is by acquiring and maintaining adequate liability insurance. Statutory liability shields do not protect LLC members or managers or LLP partners from liability for personal misconduct. LLC members or LLP partners may be personally liable for claims against their entity on veil-piercing grounds. Liability shields do not protect partners, members and managers from claims by members that they have breached their fiduciary or contractual duties to the entity. Under many acts, including the above Delaware LLC Act § 18-303(b) and Delaware RUPA § 15-306(e), members and partners may waive their limited liability in their operating or partnership agreements or otherwise.
April 9, 2021
