DC Metropolitan Business Law Alert

DC Metropolitan Business Law Alert

Maryland Estate Tax Exemption To Catch Up to Federal

Posted in Maryland Law, Tax

Maryland’s estate tax is changing.  On May 15, 2014, Governor O’Malley signed into law H.B. 739. The current Maryland estate tax exemption is $1 million per individual. Beginning next year, the estate tax exemption will increase gradually so that by 2019, it will match  the then federal estate tax exemption (currently $5,340,000 per individual, with indexing for inflation).  Also, beginning in 2019, the Maryland estate tax exemption will become “portable” between spouses so that any amount not applied on the death of a spouse will be available at the time of the surviving spouse’s death.  Current federal law already includes provisions for portability between spouses. While not reaching a complete elimination of the estate tax, the new exemption amounts will ultimately result in most estates passing free of Maryland estate tax.

This table shows the revisions to the Maryland exclusion amount —

Decedent dying on or after: Applicable exclusion amount:
January 1, 2014 and before January 1, 2015 $1,000,000
January 1, 2015 and before January 1, 2016 $1,500,000
January 1, 2016 and before January 1, 2017 $2,000,000
January 1, 2017 and before January 1, 2018 $3,000,000
January 1, 2018 and before January 1, 2019
After December 31, 2018 Then Applicable Federal Exclusion Amount

Need Money? D.C. Agencies Release the 2014 Notice of Funding Availability

Posted in DC Law, Real Estate

 Each year several of the District of Columbia development agencies issue a Notice of Funding Availability  (“NOFA”) that sets out information about how real estate developers may apply for local government project funding.  D.C. Department of Housing and Community Development, DC Housing Finance Agency and DC Housing Authority recently issued the 2014 NOFA. [http://dhcd.dc.gov/sites/default/files/dc/sites/dhcd/release_content/attachments/Press%20Release%20-%202014_04_02%20%202014%20NOFA.pdf] The NOFA applies to real estate developers seeking financing from any of the following DC government sources: Community Development Block Grant (CDBG) program; Home Investment Partnership (HOME) program; Housing Production Trust Fund (HPTF) program; 9% Low Income Housing Tax Credits (LIHTC) program; Department of Behavioral Health and Department of Health funds administered by the Department of Housing and Community Development; D.C. Housing Authority’s Local Rent Supplement Program; Housing Choice Voucher Program; Annual Contributions Contract Program; and  Department of Human Services supportive services funds for permanent supportive housing.  June 2, 2014, is the deadline for all NOFA applications.

To apply for NOFA financing, a developer must submit a completed application package to the relevant agency.  A completed application package must include all required agency forms and exhibits, as well as a development proposal for the planned project.  The development proposal must comply with the applicable agency guidelines (which vary from agency to agency) and detail the type of project, the development team involved, the proposed development budget, existing or planned sources of permanent financing and the anticipated development schedule. 

Funds disbursed pursuant to the NOFA are available for real estate developers pursuing gap or primary financing, or both, for  construction or preservation of senior housing, affordable housing, mixed-income housing, mixed-use development and transit-oriented development.  Using NOFA funding has its pros and cons.  Many developers are rightfully concerned that using government funds will result in  burdensome restrictions on, and governmental oversight of, their activities.  With government funding comes additional complications and reporting obligations. Moreover, depending on the program,  using available government funds could adversely  impact the overall profitability of a given project.  While each financing source has its own regulatory approach and requirements, , when leveraged properly, NOFA financing can provide developers access to lower cost debt and in some instances, up-front equity with limited or no repayment obligations. 

Interested in learning more about the NOFA process and how your project may benefit? Ask us.

Important Decision Regarding Identity Protection on Online Customer Review Websites

Posted in Virginia Law

In Yelp, Inc. v. Hadeed Carpet Cleaning, Inc., 752 S.E.2d 554 (Va. Ct. App. 2014), a case receiving national attention, the Virginia judiciary has been called upon to address an issue that is likely to have far-reaching, national implications with respect to:  (i) a person’s right under the First Amendment to speak anonymously; (ii) the ability of online customer review websites to protect the anonymity of persons who post reviews on their websites; and (iii) the ability of businesses reviewed on such websites to protect their reputation.

Many business have faced – or are likely to face – facts like those underlying Yelp.  In Yelp, some reviews critical of Hadeed Carpet Cleaning, Inc. were posted anonymously on Yelp’s website, which invites persons to post reviews about local businesses.  Hadeed sued the unknown posters for defamation in Alexandria (Va.) City Circuit Court.  See Hadeed Carpet Cleaning, Inc. v. John Doe #1, et al., No. CL-12-003401.  Hadeed’s theory was that the posters had not even been its customers, thus making their postings untrue and defamatory.

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Recent Maryland Tax Decision Exposes Out-of-State Patent Holding Companies to Income Tax Liability

Posted in Maryland Law, Tax

Frequently, companies with significant patent portfolio or other intellectual property assets create a subsidiary or affiliated holding company to manage and enforce those assets. In many instances, these holding companies are formed to achieve some income tax benefit for the parent corporation or other related subsidiaries by providing a state-level deduction for royalty payments made to the holding company in exchange for licenses to use its intellectual property.

Last week, the Maryland Court of Appeals issued a much anticipated tax decision, ruling the state may tax a Delaware patent holding company on royalties received from licenses of its patent portfolio to a related company doing business in Maryland. The decision, Gore Enterprise Holdings, Inc. v. Comptroller of the Treasury; Future Value, Inc. v. Comptroller of the Treasury, No. 36, September Term, 2013 (Md. March 24, 2014), could have a significant impact on any out-of-state patent holding company whose sole business is licensing its intellectual property to a parent or related company doing business in Maryland.

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Wynne Decision: Update on Maryland Out-of-State Tax Credit Against County Income Tax

Posted in Maryland Law, Tax

As we previously reported, on January 28, 2013, in Maryland State Comptroller of the Treasury v. Wynne, the Maryland Court of Appeals held that Maryland must permit Maryland resident taxpayers with pass-through income from other states to claim a credit for out-of-state income taxes paid against not only their Maryland state income taxes but also their Maryland county income taxes.  The court determined that the failure to allow the credit against the county income tax is unconstitutional under the dormant Commerce Clause of the United States Constitution.

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Three Key Ways to Reduce Your Costs in Negotiating a Tenant-Friendly Commercial Lease

Posted in Real Estate

As a real estate attorney, I am often asked by tenant-clients, “What can I do to lower costs in negotiating my lease?”  While the commercial leasing playing field is often wildly skewed in favor of the landlord, here are a few pro-active ideas to return some balance to the relationship.

First, invest some time and energy in selecting your broker.

A broker often sets the tenor of the leasing process – for better or worse.  An enthusiastic, knowledgeable broker who is available when you call is an essential part of your leasing team.  There is some potential for a divergence of interests:  a broker is usually paid by the landlord and a disreputable broker may push for unnecessary tenant concessions simply to get the deal done (so that commission comes in).  However, a tenant-protective broker can provide market-area and general knowledge that will lend credibility to a tenant’s positions in the lease negotiations.

Next, do the best you can to have a detailed and customized letter of intent (LOI).

A detailed LOI is by far the best tool a tenant has to initiate a beneficial negotiation process with the landlord.  In negotiating the LOI,  both sides will then be clear about basic lease terms.  The LOI negotiations may possibly expose differences in positions regarding crucial aspects that otherwise could be deal-breakers later.  Even more importantly, you will have an excellent gauge of the landlord’s positions and cooperation (or lack thereof)  very early in the process.  A strong LOI will mitigate having to assume the landlord understands your business’s special sensitivities and is committed  to fostering a working relationship as lease negotiations proceed.

Finally, you should review a draft lease before your legal counsel.

Your initial review of a draft lease should include your liberal comments about issues, discrepancies, and comments important to you and the use of the space.  You should also have your broker, IT staff, insurance broker and space planner/architect, as needed, review the draft lease.  Your broker is well positioned to champion tenant advantages concerning market-area issues such as tenant concessions on renewals and area-specific treatment of certain leasing aspects like assignment/subleasing.  And, your insurance broker, architect and IT staff will further fine tune the lease before you spend a single legal dollar on the lease review process. This initial review will give your attorney valuable input regarding the particular needs of your business for the leased space. Your attorney’s expertise about the legal ramifications of the draft lease then will add value to an already improved lease.  The result — a more comprehensive and customized lease at a lower legal cost.

New Prince George’s County Right of First Refusal Imposes Restrictions on the Sale of Apartment Complexes in Certain Areas of the County.

Posted in Maryland Law, Real Estate

The Prince George’s County Council recently enacted legislation that will affect the transfer of any multifamily rental facility having 20 or more units that is located in a designated area of the County (“MRF”).  The legislation is not yet fully implemented and no areas have been designated, but certain notice requirements are in effect now.  A December 2, 2013, Right of First Refusal Interim Advisory Notice (“Interim Advisory Notice”) provides that the Director of the Prince George’s County Department of Housing and Community Development (“DHCD”) will promulgate implementing regulations by January 1, 2014, and will offer a list of proposed designated areas to the Council by July 1, 2014.  As of January 2, 2014, the implementing regulations have not been released; however, DHCD has confirmed that they are in the final stages of review.

When fully implemented, the owner of a MRF will have an obligation to grant the County an assignable right of first refusal to purchase the MRF (“ROFR”) soon after the owner has entered into a qualifying sale of the MRF (as described below).  There are statutory exceptions to the ROFR.  Among them is a written agreement with the purchaser, approved by DHCD, affirming that the MRF will remain rental housing, and will not be converted to a condominium or a non-residential use for a period of at least 3 years after the sale.  The County may assign its ROFR rights to a non-profit, governmental agency, tenant organization, or other third-party entity.  

For purposes of the ROFR, a qualifying “Sale” occurs when (1) the owner enters into a bona fide contract to sell the MRF to a third party; (2) there is a transfer of a majority interest in the owner in a 12 month period; or (3) the owner leases the MRF for a term of more than 7 years.  Within 5 days of entering into a contract for the sale of a MRF, the owner must give DHCD a written offer to purchase the MRF on substantially the same terms and conditions as those given to the third party.  Within 7 business days after its receipt of the offer, DHCD must notify the owner if it elects to exercise the ROFR, and DHCD must close on the purchase within 180 days.  Additionally, within 5 days of entering into a contract for the sale of a MRF, the owner must (1)  provide written notice of the sale to each tenant by hand or certified mail, return receipt requested; (2) post notice of the sale in public areas of the MRF; and (3) provide written notice of the sale to DHCD by certified mail, return receipt requested.  The notice to DHCD must be in the form of a Notice of Sale Affidavit supplied by the County which must include  copies of the sales contract, the notices that were served to tenants, and the rent roll of the MRF.  If DHCD is satisfied with the owner’s submissions, within 7 days following submission of the information DHCD will issue a certificate of compliance, in recordable form to the owner, the purchaser or any other interested party establishing compliance with the legislation.  

According to the Interim Advisory Notice, until full implementation of the law, the County will not enforce the offer requirement of the ROFR; but, owners must comply with the notice requirements of the ROFR, as set forth above.  Thus, because the County has not yet designated the areas to which the law will apply, an owner who is entering into a contract for the sale of a MRF that is located anywhere within the County must follow the notice requirements.  Failure to comply could result in a penalty of $100 per unit, per day for each violation.

The Council enacted the ROFR with the aim of  preserving rental housing for low to moderate income residents by preventing the conversion of rental housing to condominiums or non-residential uses, and giving the County the ability to purchase and rehabilitate rental housing in areas of the County as a means of revitalization.  However, the law itself does not establish such conversions as a trigger for the ROFR obligation.  Rather, all sales of rental housing are subject to the ROFR. 

We will continue to monitor the implementation of this law.   


Proposed Bill May Increase Public Access to Documents Filed with the Virginia State Corporation Commission

Posted in Virginia Law

If your company is doing business in Virginia, then you should be aware of a proposed bill in the Virginia General Assembly that may increase public access to documents your company files with the Virginia State Corporation Commission (“SCC”). The proposed bill would amend the Virginia Freedom of Information Act (“Virginia FOIA”) to make the SCC subject to its terms, legislatively overturning a 2011 decision of the Supreme Court of Virginia which held that the Virginia FOIA does not apply to the SCC.

If passed, the SCC would be required to respond to FOIA requests from the public in the same manner as other Virginia governmental agencies. The bill would also give requesters who are dissatisfied with the SCC’s response the right to file suit against it in the Supreme Court of Virginia for a review of the SCC’s decision to withhold requested information.

For regulated industries, such as telecommunications, the bill may increase public access to information supplied to the SCC that the submitter considers to be proprietary and confidential. If passed, the bill will permit requesters, who previously did not have the ability to sue under the Virginia FOIA, to litigate whether submitted information was properly withheld under the statutory exemptions for confidential and proprietary information.

Originally proposed in January of 2013, the bill was recently endorsed by the Virginia Freedom of Information Advisory Council (“the FOIA Council”), a Virginia state agency that assists in resolving disputes over FOIA issues. Specifically, the FOIA Council voted to support negotiations between the General Assembly, the SCC and members of regulated industries to reach agreement on a compromise bill.

We will continue to track this bill’s progress and provide updates on its status.

5 Things for the Virginia Lawyer to Keep in Mind When Addressing Non-Compete Issues

Posted in Business Litigation

Special Counsel Joseph D. Wilson authored the VBA Journal article “5 Things for the Virginia Lawyer to Keep in Mind When Addressing Non-Compete Issues.” The article provides an overview of a non-compete, which is an agreement that restricts the party subject to it from engaging in certain activities that compete with the business of the beneficiary of the non-compete, and outlines several points for lawyers to consider when negotiating, drafting, or litigating disputes over non-competes. Mr. Wilson uses recent and noteworthy decisions to illustrate his suggestions, and concludes that lawyers who understand these five items will be equipped to tackle any non-compete issues that may arise.

5 Things for the Virginia Lawyer to Keep in Mind When Addressing Non-Compete Issues