Financial Covenants in Commercial Real Estate Loan Agreements (Video)

Christopher F. Robie, Senior Vice President of Citizens Bank, National Association, and Tom Guidi of Hemenway & Barnes LLP will lead a discussion on Financial Covenants in Commercial Real Estate Loan Agreements.  Such covenants appear in most commercial real estate loan agreements.  This program will provide some insights into a banker's underwriting considerations and thought process in establishing financial covenants such as Loan to Value Ratio (LTV) and Debt Service Coverage Ratio (DSCR).   How negotiable are these covenants?  How are the definitions of various key terms determined?  What particular types of deals are likely to cause a bank to require one or more such covenants? Come learn the answers to these and other questions, as well as what happens if a borrower fails to meet its financial covenants. 

Winterization Time

By Laura White Brandow

It’s the most wonderful time of the year. The Red Sox are in the World Series, the leaves are turning, and I can stop mowing my lawn. But, boy did it get colder

fast, forcing many of us to turn on our heat much earlier than usual. For condominiums and property managers, it is the time of year to remind all owners and occupants that heat should be kept at a minimum of 55 degrees during colder months and to identify those units that have been abandoned or may be vacant due to death, divorce or foreclosure.

For condominiums and property managers, it is the time of year to remind all owners and occupants that heat should be kept at a minimum of 55 degrees during colder months and to identify those units that have been abandoned or may be vacant due to death, divorce or foreclosure.

The Trust should first attempt to locate the owners and request that they either winterize or maintain heat in the unit. Should the owner not be located or refuse to take any action, then the Trust will need to step in. If possible, turn off water to vacant units. If a condominium has shared common water pipes, water should be turned off inside the unit and faucets opened to drain out as much water in the pipes as possible. Drain the water from any water heater tanks. If water cannot be turned off, then the Trust will need to have heat maintained in the unit and place the account in the name of the Trust. Vacant units should also be regularly inspected during the winter months to ensure heat is at no less than 55 degrees and that no other issues have arisen, such as wildlife seeking shelter. The condominium’s Master Insurance policy will dictate that the Trust undertake proactive action once it becomes aware of a hazardous condition on the premises. An unheated vacant unit qualifies as a hazard to both common areas and adjoining units. Failure to take action will give the insurance company a reason to deny coverage should a pipe freeze or burst.

Trustees often believe that the mortgage holder should take care of maintaining heat or winterization of vacant units. In some instances, the mortgage holder may have already winterized bank owned units. However, just because a bank may now own a unit, the Trust should still verify that the unit was in fact winterized. The bank should have placed a notice on the unit door acknowledging that it has undertaken winterization action. In instances where the bank has not foreclosed, be aware that while winterizing a vacant unit will certainly protect the bank’s collateral, there is no obligation for it to do so. It will help if the Trust notifies the bank of a unit’s occupancy status, but it may still be unable to service a particular unit before colder weather arrives. Should the bank take no action, then the Trust will need to do so. It is much better to pay a minimum amount or heat as opposed to having a claim for substantial water damage denied.

 Originally posted October 25, 2018 on tlawmtm.com.

https://www.lawmtm.com/winterization-time-condominiums.html

Should you have any questions regarding this article, please contact Laura Brandow at 781-817-4900 or via email at lbrandow@lawmtm.com.

Avoiding Ancillary Probate Issues

By Laura White Brandow

Though probate is not a subject people like to discuss, it is a subject to consider no matter what your age or health condition. For purposes of this article, our

concern is with secondary owned real estate – vacation homes and time-shares and especially those located in a state other than your state of residence. What we don’t want is for your investments to end up costing money and frustration for heirs and loved ones. The best way to accomplish this is to avoid probate altogether.

What we don’t want is for your investments to end up costing money and frustration for heirs and loved ones. The best way to accomplish this is to avoid probate altogether.

When you purchase real estate you need to specify how you will be holding title to the property. Married couples can elect two types of tenancy: tenants by the entirety or joint tenants. As tenants by the entirety both spouses own an indivisible whole interest in the property, and if one spouse were to pass away, the deceased spouse’s interest in real estate automatically passes to the surviving spouse with no necessity of probate. As joint tenants, each spouse owns a 50% interest in the property that they can individually sell or finance. However, if they still own the 50% interest at time of death, their interest automatically passes to the surviving spouse outside of probate. Unmarried couples can also obtain the benefits of joint tenancy. Whichever tenancy is chosen, it has to be stated on the face of the recorded deed in order to be effective.

What you want to see on the deed is: John W. Doe and Mary W. Doe, husband and wife as tenants by the entirety; or John W. Doe and Mary W. Doe as joint tenants. Failure to list a tenancy renders the owners as tenants in common – each would own their 50% interest, but the deceased owner’s interest passes to their heirs upon death and must go thru Probate for the interest to be conveyed.

As we baby boomers age, we are losing co-owners to death and divorce. When married owners divorce, the tenancy by the entirety is severed, so upon divorce their tenancy automatically changes to one of tenants in common. Usually one party receives the real estate in the divorce, but everyone, including divorce counsel, often forget to have both parties execute and record a deed into the retaining spouse for secondary property. This is an issue I often find with time-share owners. John and Mary Doe purchase a time-share as tenants by the entirety. John and Mary divorce severing the tenancy by the entirety and they are now tenants in common. Mary is granted the time-share in the divorce. No deed from John and Mary into Mary individually is recorded. John passes away. Mary now wants to sell the time-share. She is unable to as under John’s Will he left any and all real estate interests to his second wife. So now Mary must obtain cooperation and a signature from wife number 2. If John died without a Will, then Mary must obtain cooperation and pay to open a probate proceeding as well in order to have the time-share administered and John’s ½ interest conveyed to Mary.

For purposes of probate, real estate is governed by the state in which it is situated, not by the state in which the owner resided. If you reside in Massachusetts and own a time-share in Florida, the transfer of the Florida real estate to beneficiaries can only happen upon order of a Florida Probate Court. Thus your Estate files a probate proceeding here in Massachusetts and a second probate proceeding, called an ancillary probate, in Florida. A second probate means additional filing fees, attorney’s fees and accounting fees and a delay in beneficiaries receiving their inheritance.

Another common issue is when the surviving co-owner retains title individually and then passes away. The Personal Representative of the Estate needs to sell the secondary property. Sounds simple enough, but the problem arises when the deceased owner was a resident of a state other than the state in which the secondary property is located. In Massachusetts, a Probate Court order from another state is not accepted in Massachusetts. If the owner resided in Connecticut and the property was located in Massachusetts, the Personal Representative would need to file an ancillary probate here in Massachusetts in the county in which the property is located to have the property properly administered. Many Estate Representatives and heirs simply do not wish to undertake the expense of a second probate especially as the cost to do so may be greater than any sales price the secondary property would generate. In time-share situations, the Estate stops paying the yearly maintenance fees and lets the Resort conduct a “friendly” foreclosure, providing a death certificate and probate information to resort counsel so the time-share resort can send the required foreclosure sale notices to all heirs having an interest in the property.

So how to avoid these problems? Here are a few things to consider.

First, check the laws of both the state in which you reside and in which you own property. Will the secondary state accept a Will probated in your residence state, called a “foreign will”. Some states will accept a Probate Court order from your residence state.

Transfer title to family members. As I represent several time-share resorts in Massachusetts, I often receive phone calls from time-share owners who now own individually after death or divorce and wish to add family members (usually adult children) as owners so that they can either use the time-share or be able to transfer title upon the original owner’s death. In such an instance, title of the parties would be held as joint tenants in order to pass outside of probate.

Transfer on Death Deed or TOD. As of 2017, 27 states allow a property owner to record a TOD to allow real estate to pass outside of probate, and several more are considering adoption. The property owner records a TOD that complies with that particular state’s laws into the beneficiary in the state where the property is located, but the TOD specifically states that it doesn’t take effect until after the current owner’s death. The current owner continues to control the property, pay real estate taxes and can mortgage or sell it. The owner can revoke the TOD or record another TOD to name a different beneficiary. If the property was still owned at the time of death, a death certificate would need to be recorded and then the beneficiary named in the TOD would take title without the need of an ancillary probate. Unfortunately, Massachusetts is not a state that allows a TOD to convey real estate after death.

Revocable Trusts – transferring title of real estate to a trust prior to death achieves a transfer of title upon death outside of probate court not only in your state of residence but also in the state the secondary property is located. To be effective a deed must be recorded transferring the secondary property into the trust, which will include language as to whom will be the successor trustee. Upon your death, the named successor can sell or transfer the property to the beneficiaries by recording a deed into them. Leaving the property to a trust established in your Will however, will still require your Executor to probate the Will and then record a deed from the Estate to the named beneficiaries.

No matter which way you decide to proceed, remember to always discuss transfer of title to secondary property with your beneficiaries (make sure they actually want it!). Spend the time and expense now to speak to an estate planning attorney who can best assess your overall financial portfolio and family dynamics to decide which method is the best for you. The goal is to ensure that your secondary real estate smoothly passes to your heirs outside of any probate process.

Should you have any questions regarding this article, please contact Laura Brandow at 781-817-4900 or via email at lbrandow@lawmtm.com.

Originally posted October 25, 2018 on tlawmtm.com.

https://www.lawmtm.com/avoiding-ancillary-probate-issues.html

Should you have any questions regarding this article, please contact Laura Brandow at 781-817-4900 or via email at lbrandow@lawmtm.com.

The New Opportunity Zone Program (Video)

  

Our guest speakers, Miriam Sheehan, a partner at Nolan Sheehan Patten LLP, and Nicholas Ratti, a Principal at CohnReznick, will discuss the new Opportunity Zone Program. 

The Opportunity Zone Program, created as part of the 2017 Tax Cuts and Jobs Act, allows investors to reinvest proceeds from a capital transaction in specially designated Opportunity Zones proposed by each state, which are generally low-income census tracts, and delay and ultimately avoid tax recognition of these gains.  In addition, the U.S. Treasury can certify Opportunity Funds which will be created to pool and deploy investment capital in Opportunity Zones for eligible purposes (e.g., stock, partnership interest, and business property).  This program therefore has the potential to increase investors' (including tax credit investors) returns on various community development projects. 

Columbia Gas Explosions and Other Disasters: How Should Landlords React? (Video)

The Columbia Gas explosions in Lawrence, Andover and North Andover raise numerous questions for landlords. Tenants are going for weeks or months without gas and had some time without electricity. Should landlords offer rent abatements and if so, how much and for how long? Should they reimburse tenants for out of pocket expenses? Should they refuse to do either of these things and tell tenants to put claims in with Columbia Gas and with their renter's insurance? Should they serve notices to quit when tenants don't pay their rent? Co-chairs of the Residential Landlord/Tenant Section, Ken Krems and Emil Ward, will lead an open discussion of these and related issues.

National Trends in the Age of Social Media (Video)

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Redefining Short-Term-Rentals

By Ted Papadopoulos

The carbon-copy industry must have cursed Xerox in the mid-1900s when it introduced photocopying, resulting in a significant dent in their industry’s

bottom-line. Dubbed as the “founder” of photocopying for the masses, the term “Xerox” became synonymous with photocopying; so much so, that the company spent significant marketing capital to preserve its mark and stressed that “…you cannot 'xerox' a document, but you can copy it on a Xerox Brand copying machine". Similarly, “Airbnb” has become synonymous with short-term rental (STR), and the hotel industry is understandably upset with its popularity. Since its founding just a decade ago, Airbnb has facilitated over three hundred million check-ins worldwide; however, this feat has not come without a hefty price, via lawsuits and lobbying efforts. Nonetheless, despite significant opposition from hotel companies, municipalities, and rental housing providers (to name a few…), STR platforms continue to flaunt billions in revenue, and the STR industry only seems to be gaining momentum. Accordingly, governments and critics (primarily the hotel industry) throughout the country are negotiating with STR proponents to enact laws that address the concerns of each side.

From a user’s prospective there is a huge benefit in: a guest being able to rent another’s residence on a short term basis while visiting a particular area/city; and a host’s ability to offset their overhead/expenses by renting their home when they are not using same. However, who is responsible when there is a disturbance or damage caused by one of the guest’s (or by the guest’s guest); and are the users thoroughly screened (i.e. identity, criminal history, etc.) by the STR company (Airbnb, Homeaway, VRBO, FlipKey, etc.)? Also, who should the guest contact or complain to if/when there is a problem with the dwelling, and it is located in an apartment building or condominium association? Finally, is the rent collected by the host considered income/taxable? These are just a few of the questions for hosts, guests, neighbors, politicians, and enforcement officers to consider.

In Massachusetts, it is imperative for landlords and HOAs to be cognizant of their tenants’/unit owners’ expectations. Often times, transients are not what tenants or unit owners expect to have as their neighbors in their residential developments. Furthermore, most tenants expect a higher level of security in large(r) apartment communities whereby their landlord (or its managing agent) is reviewing and monitoring everyone that comes onto the property grounds (i.e. common area pool, fitness gym, community rooms, etc.). Tenants also typically assume that their neighbors will remain as such for at least one year. As all practitioners in the landlord/tenant realm know, nearly every lease contains rules and regulations that are meant to limit a tenant’s (and their guest(s)’s) conduct that could interfere with other residents’ rights to quiet enjoyment. In the HOA setting, constituent documents often restrict and regulate an owner’s ability to rent out their unit; and FHA financing for condominiums requires a percentage of the units to be owner-occupied. Accordingly, practitioners must consider the effects of STRs when advising their clients about permitting/prohibiting same.

Last July,  after several months of conferencing, a joint committee of state legislators came to a compromise between the Senate’s and House’s proposed bills for the regulation of STRs; however, the compromise (House, No. 4841) was short lived when, on August 1, 2018, Governor Baker refused to sign off, and returned the bill with various proposed amendments.

Some of the governor’s noteworthy changes include: an outright exemption for homeowners that rent out their units for fewer than fourteen (14) days in a year; the definition of a short term rental (specifically, the minimum number of days in a year that would classify/warrant designation as a “short term rental”); as well as a limitation on the amount of information to be made available in the legislature’s proposed public registry. Currently, the status of the state’s STR bill remains in limbo as we enter the informal session.

Regardless of the state’s present inability to pass a bill dealing with the taxation, regulation, and insuring of STRs, most municipalities have enacted ordinances to limit STRs in some fashion. For example, the City of Boston’s Ordinance Allowing Short-Term Residential Rentals defines a STR as the rental of a residential unit for a period fewer than 28 consecutive calendar days, limits the definition of an operator to a “natural person who is the owner of the Residential Unit” (a tenant cannot engage in the short term rental of their apartment), and requires the operator to certify that offering their dwelling for STR does not violate applicable condominium documents, bylaws, or other governing documents. Owners are also required to (this is not a complete list of requirements): register their units; ensure compliance with building, sanitary, zoning, fire code(s), as well as any other requirements, laws, or regulations; provide notice to abutters of their residential unit being registered as a STR; pay an annual registration fee (varies by type of STR); and retain records for three (3) years, evidencing the number of month’s the operator has resided or will reside in the unit, as well as the number of days the unit was offered as a STR. In Cambridge, STRs are defined as the rental of a residential unit for a period up to thirty (30) days but, contrastingly to Boston, allows a tenant/leaseholder to offer their units for STR. Registration is required, as well as compliance with building sanitary, zoning, fire code(s), as well as any other requirements, laws, or regulations – and constituent documents (if applicable). In Lynnfield, following a murder at a mansion that was rented on a short term basis for a large party, the town passed an ordinance prohibiting STRs altogether.

As practitioners and counselors, we need to be aware of local ordinances (and updates in the state’s efforts) when advising our clients about the risks and rewards of STRs. While change is certainly in the air…landlords and HOAs should carefully consider allowing, prohibiting, and/or monitoring “airbnbs”.

Ted Papadopoulos is a partner at Ashton Law, P.C and focuses his practice in the representation of management companies and property owners in various landlord-tenant, as well as general real estate related matters. Ted can be contacted by email at esp@ashton-law.com.