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 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.

Maryland Bar Business Law Section Proposes Revisions to MD LLC Act

Posted by Aaron Rosenfeld on January 12, 2011

On January 6, 2011 a business law committee of the Maryland State Bar Association released a report  detailing its proposed revisions to the Maryland Limited Liability Company Act (the “LLC Act”).  The proposed revisions are intended to strengthen the LLC Act to ensure that "the maximum effect [is given] to the principle of freedom to contract and to the enforceability of operating agreements."  (See § 4A-102 of the Maryland Limited Liability Company Revision Act of 2011).  Additionally, the proposed revisions provide clarification of certain default rules governing the operation of a limited liability company when the members have not adopted an operating agreement.

The committee has not yet set a timeframe to submit a bill covering the proposed revisions for consideration by the Maryland General Assembly.  Moreover, before adoption of any revisions to the LLC Act, we expect additional modifications and refinements to address input from other interested parties.