Maryland Legislature Effectively Kills the IDOT

Posted by Aaron Rosenfeld on May 16, 2012

The Maryland Senate’s passage of the widely debated and publicized Budget and Taxation bill effectively eliminates a long-used approach to avoid the current payment of mortgage recordation taxes on a commercial real estate loan. Rather than providing a direct deed of trust on the real estate to secure the loan, the property owner would create a related entity to act as borrower (usually a wholly owned subsidiary) and the property owner would guaranty the loan, securing the guaranty with an indemnity deed of trust (an “IDOT”). Under existing law, there is no current recordation tax on the IDOT.  Effective July 1, 2012, Maryland’s recordation tax law will apply to IDOTs (except in the case of an IDOT securing a loan of less than $1,000,000 or to the extent recordation tax is paid on another instrument securing such loan).  We expect this amendment to the recordation tax law to end the general use of IDOTs in Maryland, thereby increasing the cost of financing for most commercial real estate borrowers.

Virginia Supreme Court Ruling Denies Real Property Taxation of Non-Exempt Entity for Taxes Associated with an Exempt Entity's Ownership Interest in Property Owned as Tenants in Common.

Posted by Aaron Rosenfeld on April 05, 2012

The Virginia Supreme Court recently considered whether a municipal corporation has the authority to impose additional real property taxes against a tax paying entity which owns real property as a tenant in common with a tax exempt entity.  The court held that there is no such authority.

The City of Richmond sought to impose real property taxes (both prospectively and retroactively) on two properties that SunTrust Bank, a tax paying entity, and Richmond Redevelopment and Housing Authority (“RRHA”), a tax exempt entity, owned as tenants-in-common.  As a tax exempt entity, RHHA did not pay real property taxes on its interests in the properties.  Agreements between SunTrust and RHHA allowed SunTrust to use the entirety of the properties without paying rent to RHHA for use of its undivided interests in the properties.  The City contended that it had the authority to tax SunTrust for RHHA’s ownership interest because:

                i.  pursuant to the operating agreements, SunTrust had the exclusive right to use and possess the properties as if it were the fee simple owner;

                ii.  SunTrust did not use the properties for a "public purpose”; and 

                iii.  leasehold interests exempt from taxation of the owner are assessed to the lessee and the practical effect of the agreements between SunTrust and RRHA was to create a leasehold interest in RHHA’s undivided property interest.

The court held, however, that, as a tenant in common, SunTrust has the right to use and possess the properties without any agreement with RRHA; no Virginia law imposes a “public purpose” requirement to maintain RHHA’s exempt status; and the arrangement between SunTrust and RHHA do not constitute a leasehold because the parties are tenants-in-common.  Consequently, the City’s arguments did not prevail.  Throughout its opinion, the court indicated that holding title to the properties as tenants-in-common, rather than as joint venturers, was a significant factor in its decision. 

Virginia Supreme Court Issues Decision Changing Law Regarding Employee Non-Competes

Posted by Joe Wilson on December 09, 2011

Recently, the Virginia Supreme Court issued a decision in Home Paramount Pest Control Companies, Inc. v. Justin Shaffer, et al., Record No. 101837, --- S.E.2d ----, 2011 WL 5248212 (Nov. 4, 2011), that changes Virginia law regarding the enforceability of employee covenants not to compete, or at least formally recognizes changes to the law in this area that have occurred over the past several years. Summed up, Home Paramount is significant because it has established a narrower scope for what such a covenant (commonly known as a "non-compete") can prohibit an employee from doing for a future employer and still remain enforceable under Virginia law. As a general matter, non-competes that are overly broad as to what they prohibit an employee from doing for a future employer risk not being enforceable under Virginia law, if challenged. The Home Paramount decision should be of particular importance to entities that employ persons in Virginia, most notably those entities who have non-competes with their employees or are looking to hire persons who have non-competes with other employers.

Click here to read the Kelley Drye client advisory on the Home Paramount decision for additional details.

Virginia Supreme Court Takes On Non-Competition Agreements

Posted by Aaron Rosenfeld on September 15, 2011

Virginia businesses and employees are eagerly awaiting rulings from the Virginia Supreme Court on two cases that it has heard or is preparing to hear concerning the enforceability of non-competition agreements between employers and employees.  The results of these cases should provide businesses and employees in Virginia with greater clarity on the scope of enforceable non-competition agreements.  The Virginia Supreme Court heard the first case, Home Paramount Pest Control Cos. Inc. v. Justin Shaffer, et. al., earlier this week.  That case addresses restrictions in an employment agreement which prohibit a former employee from engaging in certain specific competitive activities, including soliciting customers of the former employer, within a defined geographic area.  The second case, BB&T Insurance Services, Inc. v. Thomas Rutherfoord, Inc., et. al., for which a hearing date has not yet been scheduled, also involves the solicitation of the former employer’s customers.  Unlike Home Paramount, this case addresses the fact that the post-employment non-competition covenants were provided as a condition precedent to the employer’s purchasing the employee’s business.  We will keep you posted on the decisions in these cases and their impact on non-competition agreements in Virginia.

Value of Employer Provided Cell Phone Not Income to Employee

Posted by Allan Weiner on September 14, 2011

IRS has today issued guidance (IRS Notice 2011-72) regarding an employer's provision of a cell phone to an employee. Earlier law changes ended any obligation to provide substantiation for the use of a cell phone for business purposes. But, a question remained whether an employee nonetheless had income from the provision of a cell phone. The guidance states that a cell phone provided for noncompensatory reasons is not taxable to an employee. The IRS gives these examples of noncompensatory reasons: the employee needs a cell phone at all times for work-related emergencies; the employer requires that an employee be available to speak with a client at all times when away from the office; and the employee's need to speak to clients in other time zones from locations out of the office. The IRS points out that the provision of a cell phone to enhance employee morale and goodwill is not a noncompensatory reason. The charges for use of a qualified cell phone, as well as the value for limited personal usage, will be excluded from an employee's income.

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.

Supreme Court Rules on Medical Students Employee Status

Posted by Allan Weiner on January 11, 2011

The Supreme Court ruled unanimously this morning that medical students training to be residents are employees, and not students, and therefore are subject to Federal Insurance Contributions Act taxes (Mayo Foundation for Medical Education and Research v. United States, U.S., No. 09-837, 1/11/11).  Local medical schools and hospitals should take notice and consider whether amended payroll tax returns are required and what effect this decision will have on their resident programs.

Click here (and then click on Mayo) to read a full copy of the opinion.

Maryland Benefit Corporations

Posted by Danielle Fisher on December 15, 2010

The State of Maryland became the first state to recognize a new type of corporation, the “Maryland Benefit Corporation,” that can be formed to pursue both public benefits and company profits. The Maryland Benefit Corporation combines the characteristics of both for-profit and non-profit corporations. Benefit corporation status is important for companies that want to carry on their business activities to provide both social benefits for the public good and profits for their shareholders. Electing to become a benefit corporation may also help a company attract customers and investors who favor businesses that will look beyond their own profits to pursue a social good.

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