New Maryland Legislation Would Expand Real Property Transfer and Recordation Tax Exemption to Affiliated LLC Transactions.

Posted by Aaron Rosenfeld on April 23, 2013

On April 8, 2013, the Maryland legislature passed a bill that, following the Governor’s signature (which is expected), will now extend a real property transfer and recordation tax exemption to certain transfers among affiliated limited liability companies.  Currently, Sections 12-108(p) and 13-207(a)(9) of the Maryland Code provide an exemption from real property transfer and recordation taxes for certain transfers among only affiliated corporations.  Limited liability companies do not qualify for the exemption.  The new legislation changes the term “corporation” in those provisions to “business entity,” which is defined for these purposes as a limited liability company or a corporation (but not a partnership).  The exemption (when enacted) is applicable to the following three types of transfers:

(1)  a transfer of real property between a parent business entity and its wholly owned subsidiary business entity or between 2 or more subsidiary business entities wholly owned by the same parent business entity.  To qualify, (a) the parent business entity must be an original owner of the subsidiary business entity, or (b) it must have become an owner through gift or bequest from an original owner of the subsidiary business entity, in either event, for no consideration, nominal consideration or consideration that comprises only the issuance, cancellation, or surrender of the ownership interests of a subsidiary business entity;

(2)  a transfer of real property resulting from a corporate reorganization described in § 368(a) of the U.S. Internal Revenue Code (which provision is not applicable to limited liability companies); or

(3)  a transfer of real property from a subsidiary business entity to its parent business entity for no consideration, nominal consideration or consideration that comprises only the issuance, cancellation, or surrender of the subsidiary’s ownership interest.  To qualify for this type of transfer, (a) the parent business entity must have previously owned the real property, (b) the parent business entity must have owned the ownership interest of the subsidiary for at least 18 months or (c) the parent business entity must have acquired the ownership interest when the subsidiary business entity was already in existence and had owned the real property for a period of at least 2 years prior to the acquisition.

Once signed by the Governor, the amended law will have an effective date of July 1, 2013 for all transfers occurring thereafter.

Calculating Lost Profits, Maryland Style

Posted by Aaron Rosenfeld on January 22, 2013

In CR-RSC Tower I, LLC v. RSC Tower I, LLC the Maryland Court of Appeal held that evidence of post-breach market conditions is not admissible to mitigate consequential lost profits if the contracting parties did not contemplate future market conditions at the time they entered into the contract. Specifically, the court determined that “consequential lost profits are calculated with reference to what the parties can reasonably be said to have anticipated when they entered into the contract” based on the information that was “known to the parties” when they contracted.

In this case, the court held that a commercial landlord could not introduce evidence of a real estate market crash that occurred after the breach of the contract in order to mitigate the consequential lost profits damages because, at the time the parties entered into the agreements that were the subject of the case, each party contemplated, and the terms of those agreements reflected, a relatively stable real estate market that would have resulted in profits to both sides. The court thus upheld a more than $36 million award against defendants who, after deliberately breaching and essentially refusing to go forward with their obligations under the contracts, were precluded from arguing that the final damages award was much too high in light of the changed market conditions resulting from the 2008 real estate crash.

This key case regarding the calculation of damages in Maryland highlights an extremely valuable lesson for those (e.g., land developers or potential real estate buyers or sellers) contemplating breaching a contract and betting that the cost of litigation will deter a prospective plaintiff from suing. A business person must ascertain in advance of deciding to breach what her/his ultimate final exposure may be. The Maryland Court of Appeals decision in CR-RSC Tower I will help immensely in that analysis.

To Waiver or Not to Waiver, that is the Question?

Posted by Aaron Rosenfeld on July 26, 2011

In Hovnanian Land Investment Group, LLC, et. Al. v. Annapolis Town Centre at Parole, LLC the Maryland Court of Appeals held that a party’s conduct (whether express or implied) may waive a condition precedent set out in a written purchase agreement despite a specific clause in the agreement requiring that all waivers must be in writing.  Relying on its own past opinions and the opinions of renown jurists, Benjamin Cardozo and Oliver Wendell Holmes, the court, quoting Cardozo, determined that “[t]he clause [in a contract] which forbids a change may be changed like any other.  The prohibition of oral waiver may itself be waived.”  Citing the common law rule, the court reaffirmed its past holding that the freedom to contract does not guarantee the validity of a non-waiver clause, and that “even when a contract specifically states that no non-written modification will be recognized, the parties may yet alter their agreement by [oral] negotiation.”  This decision is an important reminder that actions can speak louder than words.  Thus, a contracting party’s actions may result in the waiver of a contract’s express terms even with the most careful and artful drafting.

Maryland First State to Adopt the International Green Construction Code®

Posted by Rebecca Tzou on April 15, 2011

Maryland has become the first state to enable local jurisdictions to adopt the International green Construction Code® (IgCC®). If adopted, the IgCC will become a part of the building codes of those adopting jurisdictions. The IgCC establishes a baseline approach for new and existing buildings regarding energy conservation, water efficiency and other "green" matters. While heartened by the Maryland legislators’ nearly unanimous actions in passing the IgCC, “green industry” commentators were not surprised. Maryland has more LEED certified projects than any other state relative to its population and boasts the first certified LEED Platinum building (the highest LEED rating possible). LEED certification is an internationally recognized, voluntary certification system administered by the U.S. Green Building Council. Receiving LEED certification provides verification that a building project was designed and constructed using strategies to improve environmentally sound performance (e.g., improved indoor environmental quality and natural resource usage efficiencies).

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