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Friday, November 15, 2019

What is an SNDA and Why is my Landlord's Lender asking me to Sign it?

As a condition of a mortgage loan, a lender may require that the borrower (or landlord) obtain a signed Subordination, Non-Disturbance and Attornment Agreement (SNDA) from the tenants. A SNDA is a tri-party agreement between the lender (the mortgage), the borrower who uses the proceeds to purchase the property (the landlord) and the tenant. 

A SNDA will reference the lease, lease parties and execution date.  The purpose of the Agreement is the provide that the lease (and any modifications to the lease) will be “subject to” and “subordinate” to the mortgage lien.  This is the “S” in SNDA.  In exchange for the tenant’s agreement to remain behind the lender’s rights to the property, the lender agrees to give tenant protections in the event of a foreclosure. 

A foreclosure of the property would occur if the borrower/landlord failed to pay its mortgage or breached the loan documents and lender could take possession of the property.   In this situation, the ender agrees to leave the tenants in possession and not disturb the tenancy, provided that they have not breached the lease.  The covenant of non–disturbance is the “ND” in the SNDA.  


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Friday, November 1, 2019

3 Must-Ask Questions If You Are Considering Buying A Business

If you are considering buying a business, you need to ask several questions first. Getting the right information will be integral to determining whether this is a smart business decision for you. It will also help you decide how to best carry on the business after you have purchased it. You should ask the following questions before you commit to buying a company.

1. Do the financials seem sound?

The books are going to be very important if you are considering buying any type of business. As a buyer, you should be asking for bank statements and profit and loss statements. You may also want to see any contracts with employees, suppliers, or lessors. Ongoing deals with advertisers should also be examined.

Looking at the financials for specific product areas or by quarter can also be helpful. Smaller businesses may not have as detailed of records as you would like, but taking a look at what they have can be helpful. If they don’t have any records at all or the records consist of receipts in a shoebox, that can indicate a problem. Tax records may be a helpful place to start if the seller doesn’t have anything else.


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Friday, October 25, 2019

What is the Difference Between a Commercial Lease and a License to Occupy Business Space?

When one party agrees to let another party use its business space, they must agree on the terms of use, the fee, the term and how the occupancy will come to an end.  This is referred to as a license to occupy space, which is different from a commercial lease.  A commercial lease is an agreement between a landlord/lessor and tenant/lessee to lease real property.  The landlord-tenant relationship creates a leasehold interest.  A license to occupy real property, on the other hand, is merely a privilege to use the real property and no property estate is created.  

A license is generally revocable by either party upon notice, at will – with or without cause and is usually not assignable the way a lease can be assigned to another entity with the landlord’s consent.  A license to occupy is generally a personal right of the party to the license. The tenant and landlord have a relationship governed by the terms of the lease, and all the rights and remedies available under landlord tenant laws (including the eviction laws), whereas the laws of contract govern a licensee and licensor.  

Generally, a license is for a shorter term than a lease.  The parties may prefer a license agreement for an event to be held in business space for a seasonal duration (such as a Halloween store or a Christmas shop) or as a “pop up store” (which is test run to see if the business location works).  Also, in the retail context, a license for space in a larger department store is often called a “concession.” An example of a concession is a makeup counter in a retail outlet. 

In the office context, a landlord may give a tenant a license to occupy space in the building while the tenant’s permanent leased space is being constructed/renovated, sometimes called “swing space.”  Another example of a license of space is when a company licenses a conference room for an industry conference event to another business entity which event will may be occurring over only a few days.  The parties do not need to enter into a full blown lease with long provisions for such a short duration.  

Both the license and lease agreements will, among other things, list the parties, a description of the space to be occupied, with a floor plan exhibit if applicable, the term (commencement date to expiration date), the fee (called rent or license fee) and the insurance to be carried by both parties. Note:  A license to use space for a one time event where food and drink will be served should include appropriate liquor coverage under the insurance coverage. 

The Bottom Line

A license offers more flexibility for parties wishing to occupy space for shorter durations, with a simpler form of agreement.  A lawyer can assist in reviewing whether a license or a lease is most appropriate in a given context. 


Friday, October 18, 2019

Considerations When Selling Your Business

Finding yourself in a position to sell your business is a monumental achievement. Establishing a business is hard work, and preparing to sell your business is no different. There are many reasons to sell your business: you may be looking to retire, take a less involved role, resolve an ownership dispute, or perhaps your business is now struggling and you are looking for a buyer to try to turn it around. Regardless of the reason that you’re selling, there are some key considerations that you need to be aware of.

Establishing a Strong Team

Selling a small business has many moving parts that will be discussed further below. As a result, it is essential that you establish a strong team to help you through the sale. The three team members that you will want to identify early on are an attorney well-versed in the sale of a company, an appraiser who can accurately value the business, and potentially a broker who will work hard to identify potential buyers. Your choice on these team members, and whether to include all three, will depend upon the complexity of the business and its potential valuation.

Timing

Timing the sale of your business is crucial, as is identifying that you intend to sell the business well in advance. Ideally, you will want to have identified an intent to sell two years prior to the anticipated sale date. By beginning the process two years ahead, you can ensure that you’ve established a strong team that you trust that will help you through the process. Additionally, there is tremendous due diligence that will need to be completed to value the business and ensure all legalities are sorted.

However, while planning two years in advance is ideal, it isn’t always possible. When an unforeseen event occurs that forces you to sell the business sooner than anticipated, you will still follow the same process but will do so on a more compressed timeline.

Valuing the Business

Your business appraiser should work diligently with you to ensure that the business is accurately valued. To value the business, the appraiser will analyze market conditions, the business’ operating history, and the business’ future potential. Ultimately, the appraiser will present a formal valuation of the business that can then be utilized when pricing the business for sale.

Using a Broker or Selling Yourself

A final consideration when selling your business is whether you want to sell the business yourself or go through a broker. The decision to use a broker should depend on a number of factors including your availability, who you intend to sell to, and the timeline for which you need to sell. If you’re selling to someone you know, then a broker will likely not be necessary as a knowledgeable business attorney will be able to handle the sale. However, if you’re selling on the open market, then a broker may be ideal as he or she is highly experienced in selling small businesses and will know how to command the highest price in the shortest time possible.


Friday, October 4, 2019

What is Title Insurance?

A new home is often the biggest financial investment for many individuals and families. With the down payment and all the costs of closing on a home, a buyer may seek to cut costs, however, title insurance is not the place to do this. Most consumers are familiar with health insurance and car insurance, but title insurance can be a bit confusing.

A Primer of Title Insurance

When a buyer purchases real property, the seller is conveying (i.e. transferring) title or legal ownership.  Ownership of real property can be held by a person, a husband and wife, two or more individuals or by a corporate entity, partnership or LLC.   A title company offers insurance that the title transferred is good and without defects. The amount of insurance taken is based on the value of the real property and is paid in one lump sum at closing.  It is not a continuing monthly payment like a mortgage. 

There are two types of title insurance policies -- a homeowner’s policy and a lender’s policy.  A bank will not want to give a mortgage to a borrower/buyer without the lender’s policy.  The bank wants to protect its interest in the real property, as does the homeowner. 

The buyer customarily orders and pays for both the homeowner’s policy and the lender’s policy.  The policy will vary depending on the type of ownership – condominium, cooperative, freestanding house or commercial property.  A title company will issue the title policy and provide the insurance. 

The policy will contain an abstract (i.e. summary) of the chain of title/transfers and will accurately describe the property with a legal description (referred to as “Metes and Bounds) that is more detailed than merely the address. The policy will also contain a list of any liens on the property such as tax liens or mechanic’s liens (for unpaid work performed by contractors), as well as a list of any “encumbrances” such as other mortgages.

A buyer wants to obtain “clear title” without any legal doubts or possible litigation.  A title company will provide some “exclusions” or items it will not insure against.  Examples of exceptions are an easement or right of way over the property or a mortgage by the prior owner (which should be paid off or assumed before transferring the property). 

Title insurance is also designed to protect against fraud in the transfer.  The title examiner will look for long lost heirs or an ex-spouse who could claim rights to the real property being transferred.  The title policy will run bankruptcy and Patriot Act searches on the buyer and the seller to ensure the transfer is not in violation of any bankruptcy or anti-terrorism laws.  The title company may also run environmental searches to determine if the property is located in a flood or tideland zone, which may affect its insurability.

When there is a tenant occupying the real property, a recording of the parties and a memorandum of lease is recorded in the county clerk’s records where the property is located. This provides notice of the tenancy to the potential buyer, and is listed on the title searches.

The Bottom Line

Title insurance is a critical component of buying a home. As with any financial purchase, selecting a reputable title company is key as is shopping around for competitive prices.  American Land Title Association otherwise known as “ALTA” is an industry organization that attempts keeps high standards for title insurance companies.  Ultimately it is a valuable tool that will provide you with peace of mind when making such a large financial investment.

 


Friday, September 27, 2019

What Is A Joint Venture Agreement ("JV")?

There are several types of business organizations that are recognized by the law as a legal entity. This includes an individual (a natural person or individual proprietorship), corporation, partnership, limited liability partnership, joint venture or any other form of business organization. 

A joint venture is an agreement between two or more entities to combine their property and/or efforts for an undertaking and to share the profits and/or losses equally (unless otherwise specified). Each party to a joint venture agreement (a “joint venturer”) contributes to and has control over the business venture.  There must be intent by the parties to associate as joint venturers either by their actions or by a written joint venture agreement.  

A joint venture’s closest entity “cousin” would be a partnership.  The difference is that a joint venture is usually for a single limited purpose whereas a partnership is typically formed for an ongoing enterprise.  A joint venture has a duration that is specified in the agreement, or if not stated, then until the undertaking is completed or no longer possible.  A real estate example would be a joint venture to build a development.  The joint venture would end when the agreement states it ends, when the development is built or when a municipality declared it not permissible to build.

A joint venture agreement should clearly define the scope of the joint venture and what activities are permitted and prohibited.  In addition, a joint venture will have tax implications that should be considered and addressed upfront.  The parties to a joint venture may also agree to confidentiality and non-competition agreements as well.  

An important concern in forming a joint venture is potential liability to third parties.  A lawsuit brought by a third party for damages or personal injury caused by one joint venturer can be imputed on the other participants. For example, joint venturer A could be liable for the negligence of joint venturer B in the undertaking.  

In the context of a real estate transaction, a typical provision found in a commercial lease to protect the landlord and tenant from the possible imputed liability of a joint veture is:

“No Joint Venture.  This Lease shall not be construed to create a partnership, joint venture or similar relationship or arrangement between Landlord and Tenant hereunder.”

The Bottom Line

At the end of the day, a joint venture can be quite an “adventure” and parties to a joint venture agreement should consider the benefits and risks before collaborating resources with the goal of mutual gain. 

 


Friday, September 13, 2019

What You Should Know About A Brokerage Agreement Before You Sell Your House

When engaging a realtor to list a home, the realtor will ask a seller to sign a listing agreement which will detail the broker arrangement and the terms of paying the commission.  You should consult an experienced real estate attorney before you sign a brokerage agreement  

Key Terms of a Real Estate Brokerage Agreement

A brokerage agreement should properly identify the property (by address or block and lot) and the price the home is offered for sale.  Additionally, the agreement should list a term and expiration date. If the house doesn’t sell during this time (usually 6 months or less then a year) the seller may want to engage a new broker to sell the home.  

In any event, a seller should not enter into a brokerage agreement with no end. In addition, there will often be a “grace period” whereby if anyone that the agent showed the property to buys the property within thirty (30) days after the termination of the listing agreement, the agent is entitled to the commission.  The agreement should provide the percentage of commission the listing agent will receive as well as the commission the buyer’s agent will receive. A total commission of 2-6 percent of the sale price is customary and varies from locale to locale.   

An exclusive agency agreement means the realtor is entitled to a commission even if the seller brings the buyer.  In some instances a seller may ask for exclusions to the exclusive agreement, meaning the agent is not paid if a neighbor or relative of the seller’s buys the home after the seller showed the property.  

A seller will want to be clear if the agreement is with a particular agent at a real estate office.  If the seller enters into the agreement without a named agent (i.e. “Christian W. Breyers” of We Sell Homes Realty), anyone in the real estate office who consummates a sale is entitled the listing commission.   

When a listing agent who represents the seller also brings the buyer, that is called a “dual agency” and both parties (Seller and Buyer) must be notified that the agent represents both and that each party should provide written informed consent to any conflict of interest.  The agent’s fiduciary duties of disclosure and undivided loyalty will not be the same in a dual agency. 

The agreement should list the methods the agent will use to market the property, such as internet sites, newspaper listings, and open houses. The agreement should state who pays the expenses of marketing and photographing the property (generally the agent’s expense.)

The Takeaway

A listing agreement to sell a home is an important agreement in a real estate transaction that should be reviewed by your attorney for the foregoing issues.


Friday, September 6, 2019

An Overview of Common Start-Up Costs

Starting a new business is an exciting time. For serial entrepreneurs, starting a new business is often more routine because they have developed a system from their prior ventures. For those who are just diving into entrepreneurship, understanding how to handle the early stages of the business, such as start-up costs, won’t be so routine. If you have a business idea and you’re considering taking the plunge with a start-up, it is essential to have a good business plan which will provide structure for handling the early stages of the company as well as managing start-up costs. The core start-up costs include:

Legal Fees

When establishing a business plan, many entrepreneurs overlook the cost of legal fees. For many, legal fees are an unwanted expense which results in pursuing subpar legal documents online. Unfortunately for many entrepreneurs, these documents fail to account for the individual needs of the business and entrepreneur, which can result in expensive litigation and exorbitant future business expenses. When establishing a start-up, always consult with a business attorney to ensure that you and your company are protected.

Regulatory Costs

Another often overlooked cost is related to regulatory costs. Depending on your start-up, you may be required to receive certain licensure and permitting from the state, local governments, or professional associations. These costs can quickly build up from a fee standpoint, and failure to satisfy these requirements can result in greater costs as your business may not be able to operate while you wait for the licensure, permit, or other regulatory approval.

Insurance

Insurance protects you and your company from unexpected events that would otherwise cripple the company. Carrying the proper insurance means that your employees are protected, your customers are protected, your business is protected, and you are protected. In addition to potentially being illegal in your area, attempting to skip out on insurance has the potential to sink your company and make you personally liable.

Marketing Expenses

Even if you have the greatest product in the world, no one can buy it if they don’t know it exists. Thus, your business plan should always include a budget for marketing. The avenue you pursue for marketing will be specific to your business, but always take the time to budget for marketing costs.

Employee Expenses

One of the largest expenses for companies around the world is the cost of labor, or the amount it costs them to have employees. When budgeting for employees, you need to be realistic in what you are requiring of each employee when estimating the wage that the employee will require. In addition to an employee’s salary, don’t forget about employee benefits. Underestimating the cost of an employee can cost you thousands in unplanned expenses.

Administrative Costs

An often-overlooked expense is the administrative cost of operating the business. Here, you need to budget for accounting costs, payroll costs if you intend to have employees, and information technology costs. Additionally, some may include the costs of operating a website as an administrative cost, although others may budget their website as a marketing expense.

As you can see, there are numerous costs common to start-ups that need to be addressed in the business plan.


Friday, August 23, 2019

What You Should Know About a Brokerage Agreement for the Lease of Commercial Space

A landlord and a broker typically enter into a brokerage agreement in connection with the leasing of commercial space. The best way to protect your interests is to consult an experienced real estate attorney before signing such an agreement. 

Key Terms of a Commercial Lease Broker Agreement

A broker who finds a tenant for a landlord of commercial space is entitled to a commission. The broker will want the agreement to be “exclusive” which means the broker gets paid the commission regardless of which party brings the tenant.

The landlord should verify that the broker is licensed in the state where the rental property is located. The agreement should identify the rental space (office or retail) and the building address. Generally, the commission will not be earned until a lease is signed, the tenant has paid the first month’s rent in advance and taken possession of the property.  

The agreement will describe the rate of commission for the initial term of the lease and any renewal periods. If a lease has an escalating rent provision, the parties may agree on a flat commission or a commission based on a percentage of ech years’ rent. Certain items that are not included in the rent may be excluded when calculating commissions such as the utility costs, any free rent or construction costs.  The agreement should also consider the rate of commission if the tenant takes on additional space in the building (whether adjacent or on another floor).  

An example a commission rate schedule for a five (5) year lease with an option to renew: 

For the first (1) year of the lease, or any fraction thereof               5%

For the second (2) and third (3) year, or any fraction thereof        4%

For the fourth (4) and fifth (5)year, or any fraction thereof            3%

Any renewals                                                                                  2%

While a commission rate may be calculated based on the changing rental rate, the commission is usually paid in one lump sum at the time of lease signing. It should be noted that if a tenant terminates, or violates a provision of, the lease, the landlord can sue the tenant to recover damages --  the amount the commission paid to the broker.

The agreement may provide a protective clause known as a broker indemnity whereby both parties state there are no other brokers entitled to the commission.  If the brokerage commission is not paid, the broker can place a lien on the property.  

A landlord may want certain key individuals in a brokerage agency to work on the lease the property and may name such individuals.  Then, a new broker can only be placed on the matter if the landlord consents to such broker.  

The Bottom Line

In the end, a commission agreement for the lease of property varies from a commission agreement for the sale of the property and the forgoing issues deserve serious consideration.


Friday, August 16, 2019

Small Business Money Management: Three Healthy Financial Habits

Small business is the cornerstone of the American economy. Despite the press coverage that large companies receive for setting new market capitalization highs, or for causing a stir about where they’re locating their new headquarters, small business as a group is the largest employer in the United States. This means that most people rely on small business for their wellbeing and livelihood. As the owner of a small business, your success is their success.

No matter how good a business idea is, the business may fail without proper financial management. Maximizing a company’s finances requires strong analytical and decision-making abilities. To help reduce some of the stress, below are three healthy financial habits that will help any small business owner:

  1. Keep your Business and Personal Expenses Separate

    For many small business owners, the line between business bank accounts and personal bank accounts is blurred at best. Small business owners frequently use their business credit card to pay for personal goods such as a TV or vacations or tap their personal accounts to pay for business expenses. Commingling bank accounts and spending can create tax issues for you and your business and expose you to personal liability.

    First, being unable to differentiate what was spent on the business from personal goods and services can prove to be a major headache at tax time as you attempt to rectify the accounting. Additionally, the commingling of funds can result in inaccurate financial statements which can create tax liabilities going forward if you or the company were to be audited by the Internal Revenue Service.

    Second, many owners believe that because the business is a separate corporate entity, such as a limited liability company, they are protected from personal liability. While this is partially true, this legal protection can quickly be undone by a showing that the business’ funds were treated as personal funds. Thus, to protect your business and yourself, ensure that your business and personal expenses are kept separate.

  2. Pay all Bills on Time

    Ensuring that all bills are paid on time will save you time and money in the future. Late payments can result in additional fees including interest, and may even result in damaged credit. This will increase the cost of borrowing and may even make obtaining credit in the future more difficult. Whether you set reminders or use post-it notes around the office, make sure to pay your bills on time.

  3. You don’t Always Need Top of the Line

    When buying new equipment for the business, remember that the top of the line equipment is likely unnecessary. Rather than buy a brand-new truck that will quickly be used and abused by you or your employees, consider a one or two-year-old truck that costs substantially less while providing the same benefit to your business. Similarly, if you’re getting computers for general office use such as email, word processing, and Excel, you won’t need the newest and shiniest ultrabook. By focusing on value and meeting your needs rather than your wants, you can ensure that your business earnings are preserved.


Friday, August 2, 2019

What You Should Know Before You SIgn a Co-Working Space Agreement

Co-working is a popular, flexible work style for sharing a workspace and reducing overhead costs for the users. Users can choose an unassigned seat at a desk or a more formal private office setting. Co-working is on the rise in many industries but special care and concern should be noted for professions such as law that require confidentiality.  

What is a user office agreement?

There are many companies that offer co-working facilities, especially in urban environments and these providers will often require the user to sign a User Office Agreement.  The agreement should clearly state that it is not a landlord/tenant lease. In fact, the landlord is the owner of the building, where as the co-work provider is the tenant and the member is a co-work user. 

Co-working agreements resemble a gym membership more then a lease agreement.   For example, the user agreement will list certain “house rules,” which give users the day-to-day rules regarding using the space and sharing it with other users.  Some of the key provisions to look for before signing a user agreement in addition to the fees to be paid are:

  • Term -- A user should review the term of the agreement. Is it month-to-month or annual?  How does a user cancel? Is there a notice period?  
  • Amenities -- A user will want to understand what amenities comes with the member’s agreement, such as use of copy machines (or is there a printing fee?), coffee, refreshments, mail delivery services, networking events and file storage/lockers.  
  • Access -- Can the user access the space 7 days a week/365 days a year (24 hours a day) with a key card or does the particular facility have closed hours.  
  • Relocation Rights --  If a user selects a formal office with walls and locked door, the user should be aware of any relocation rights the provider may have. Relocation rights basically give the provider the right to move the user to a different office, which may or may not have the same square footage, to accommodate a new user.
  • Internet -- The provider may provide free WiFi along with certain disclaimers regarding liability and damage to the user’s business.  Some providers will request users waive any rights in the event of a data breach.  This provision should be reviewed carefully especially for legal or financial industry users who may work with sensitive information.  
  • Disputes -- As with many other contracts, the method for resolving disputes -- arbitration, mediation or litigation -- should be specified.

The Bottom Line

Co-working is becoming a popular alternative to the traditional office lease. Users should review the user agreement to ensure that it provides for a productive and economical work style.


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