Articles Posted in Real Estate

President Obama recently signed into law The Fixing America’s Surface Transportation Act also known as the “FAST Act”. What people may be surprised to learn is that this new law also adds Section 7345 to the Internal Revenue Code which provides in part as follows:

“(a) In general.—If the Secretary (of State) receives certification by the Commissioner of Internal Revenue that any individual has a seriously delinquent tax debt in an amount in excess of $50,000, the Secretary shall transmit such certification to the Secretary of State for action with respect to denial, revocation, or limitation of a passport….”

Think about this for a second. Your passport will now be used against you as a collection tool. If notified by the IRS, the Secretary of State may pull your passport; refuse to renew it or even to issue you one in the first place. The monetary threshold for a “seriously delinquent tax debt” is only $50,000. Once you consider this includes interest and penalties, it is easy to see how quickly this threshold can be met.

As with every law there are exceptions. For example, the FAST Act does not apply if you have a tax debt over $50,000 but you are paying this down under an agreement known as an “offer and compromise”. Another situation where this law would not apply is if you are fighting the “seriously delinquent tax debt” under the “innocent spouse doctrine”.

The take away here is pay your taxes! If you have foreign travel plans, know where you stand with the IRS. Also, keep in mind that international travel sometimes has a way of sneaking up on you. By this I mean, boarding a cruise ship in Florida and island hopping is international travel. It will be interesting down the road to see how this plays out in the courts. I can easily imagine this being challenged on a constitutional basis. Does this unreasonably restrict our fundamental right to travel? If you have any questions, please feel free to contact Doug Leavitt at Danziger Shapiro & Leavitt, P.C.

This entry is presented for informational purposes only and does not constitute legal advice.

Over the past few weeks several landlord clients called and asked the same question, “My tenant bolted and left some of his junk behind. Can I throw it out?” The answer to each landlord was slightly different but came from the same source – 68 P.S. § 250.505a – better known as Pennsylvania’s “Disposition of Abandoned Personal Property Act.” This Act became effective a little more than a year ago in December 2014 and actually is the second attempt by the Pennsylvania legislature to provide guidance to both commercial and residential landlords on how to properly get rid of property that has been left behind.

The Act starts off by identifying five distinct circumstances when personal property remaining on leased premises may be deemed abandoned.

(1) The tenant has vacated the unit following the termination of a written lease.

(2) An eviction order or order for possession in favor of the landlord has been entered and the tenant has vacated the unit and removed substantially all personal property.

(3) An eviction order or order for possession in favor of the landlord has been executed.

(4) The tenant has provided the landlord with written notice of a forwarding address and has vacated the unit and removed substantially all personal property.

(5) The tenant has vacated the unit without communicating an intent to return, the rent is more than fifteen days past due and, subsequent to those events, the landlord has posted notice of the tenant’s rights regarding the property.

If any of the five (5) situations described above applies, the property will be deemed abandoned. Before a landlord may remove or dispose of abandoned property, the landlord must provide written notice of the tenant’s rights regarding the property. The written notice will look very similar to this:

“Personal property remaining at [address] is now considered to have been abandoned. Within 10 days of the postmark date of this notice, you must retrieve any items you wish to keep or contact [name of landlord] at [telephone number and address] to request that the property be retained or stored. If you request that we store your abandoned property, we will do so for up to 30 days from the postmark date of this notice at a place of our choosing, and you will be responsible for costs of storage.”

Under the Act, the landlord is required to exercise ordinary care in handling and securing the tenant’s property. In addition, the Act requires that landlords provide tenants with reasonable access to retrieve their property.

These are the basic rules of the game. If a landlord violates these rules, the Act provides that the tenant is entitled to treble damages and attorneys’ fees. Additionally, to the extent there is an inconsistency between the Act and the terms of a written lease, the terms of the written lease control. With any law, there are always exceptions and this Act is no different. For example, there is a different notice period if a protection from abuse order is in effect. If the tenant has died the Act does not apply at all and disposition of the personal property owned by the decedent will be governed by the laws and jurisdiction of the Orphans’ Court.

The take away here if you are a landlord is really quite simple. If you don’t like any of the definitions of abandoned property or the manner in which you are required to store it and how costs will be allocated-change it. The Act gives you this right so modify your lease to set forth how you want to deal with this issue. If you have any questions regarding this or any other aspect affecting your real estate portfolio, please feel free to contact Doug Leavitt at Danziger Shapiro & Leavitt.

This entry is presented for informational purposes only and does not constitute legal advice.

I was driving into work this morning and I heard on the radio a caller complaining that the secret service cancelled her wedding just 8 days short of the big day because of the Pope. So I started thinking, what happened to all the deposit money? Did she lose it all-the money-not her mind. What about the caterer or the photographer? Did she owe more than just the deposit money? And then I thought-is this the ultimate Act of God defense?

In contract law, when party fails to perform according to the terms of the agreement it is viewed as a breach of contract. However, sometimes there are justifiable reasons that will allow or excuse a party from performing according to the terms of their agreement. For example, when Hurricane Sandy destroyed most of the hotels along the Jersey Shore, these hotels were excused from liability based upon their failure to provide accommodations or being able to host wedding receptions. In essence, an act of God may be interpreted as a defense for failure to perform based upon impossibility or impracticality. So I ponder, is the Pope being in Philly the ultimate Act of God defense.

If you have any questions regarding your legal obligations under a contract you are a party to or any other issue affecting your business, please feel free to contact Doug Leavitt at Danziger Shapiro & Leavitt.

This entry is presented for informational purposes only and does not constitute legal advice.

On July 1, 2015, Pennsylvania’s new Entity Transaction Law went into effect and made it easier, faster, and cheaper for business entities to engage in “fundamental transactions” with another business entity. Examples of fundamental changes include a merger of one company into another, an amendment of a company’s articles of incorporation or converting your existing “corporate form” into another business entity. Previously, this took a lot of time and was costly. Now this can be done quickly and cheaply.

The new Entity Transaction Law sets forth five (5) fundamental business transactions that may now take place irrespective of the form of either business entity involved:

  • Merger of one entity with or into another business entity;
  • Conversion of one type of entity to another type of business entity (e.g. a business corporation converts to a limited liability company);
  • Interest exchange between two entities such that one business entity is controlled by the other without actually merging the two business entities;
  • Division of one existing entity into two or more resulting types of associations; and
  • Domestication into Pennsylvania of a foreign business entity originally organized in another state (i.e. converting your DE corporation into a PA corporation).

This is a great opportunity for early stage growth companies. Under the old law, if you wanted to change the form of your existing business entity to make it more attractive for potential investors, you had to wind down the business affairs of your existing company by satisfying all existing obligations, dissolve the company and then form a new company.

This long delay would hurt principals of the early stage companies who, for example, may have originally formed their venture as a LLC for tax reasons but now need to convert to a corporation to satisfy requirements of potential investors. As a result of this rigid approach, PA businesses would flee to Delaware where its statutory scheme afforded business entities the flexibility to change its form; be it through merger, conversion or any other manner set forth above without the need to dissolve. With the enactment of this new Entity Transaction Law, this is no longer the case and makes Pennsylvania a more attractive option.

It is important to note that this new law has no effect on how the transaction will be treated from a tax perspective. Some transactions may be tax free exchanges whereas other transactions may trigger immediate tax recognition. It is important to meet with tax counsel to structure these changes properly before you make any of these fundamental business changes. If you have any questions regarding this or any other aspect affecting your business, please feel free to contact Doug Leavitt at Danziger Shapiro & Leavitt.

This entry is presented for informational purposes only and does not constitute legal advice.

For those of us that actually read the bottom of their lawyer‘s email you probably noticed the arcane “IRS Circular 230 Disclosure” that stated the advice contained in this email is not intended and cannot be used for tax avoidance purposes etc… You then probably thought to yourself, but I was just confirming lunch, what the heck does this have to do with tax advice anyway? Perhaps a little perspective is in order.

Circular 230 was the IRS’s compilation of regulations regarding tax services provided by lawyers and other tax professionals with respect to the tax shelter abuses of the 1990s. Circular 230 set the minimum standard with respect to written tax advice and therefore wound up being placed on everything.

Thankfully the IRS issued new rules on June 12 (click here for PDF of rule) which included the following statement; “Treasury and the IRS expect these amendments will eliminate the use of a Circular 230 disclaimer in email and other writing.” Good riddance and where are we meeting for lunch again?
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These are dangerous times to be starting your new business. The economy is tight, money is not readily available and your legal budget is next to nil. You’ve heard that you need to incorporate to protect your family assets and you keep hearing on the radio that you don’t need a lawyer. In fact, you do some quick internet research and feel you can do it yourself. Having practiced for over 20 years now I am confident in stating that yes you can do this on your own but you might make a critical mistake. Doing legal research online without the appropriate background is dangerous. The first answer you get may not be the correct answer and you really are not in a position to recognize whether what you found on the web is just what you “wanted” to find or really the legally correct answer.

For example, after you incorporate you need to decide whether you want to be a C corporation or an S corporation. Usually the S election is preferable for smaller entities because it eliminates taxation at the shareholder level whereas a C corporation is taxed at both the corporate level and the shareholder level. Seems straightforward enough, right? You google S election and click on a link to the Department of Revenue website (click here) where it clearly states that any federal S election is automatically a S election unless you opt out. However, right under the Department of Revenue’s link is Pennsylvania’s Open for Business website link (click here) that clearly states you must file for S-corporation status within 75 days of incorporation. This is a website that was created for the purpose of assisting new business owners and has the Governor’s name on the top yet its advice is 180⁰ opposite the Pennsylvania Department of Revenue.
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Just last week a new law went into effect in Pennsylvania with very little fanfare but it’s likely to have a major impact on anyone who buys, sells, or owns real estate in the Commonwealth.

Act 93 changed the tax lien law, making real estate tax judgments personal. What does this mean? Before this new law took effect, when a property owner failed to pay their tax bill the municipality would obtain a lien against the property. But because of the way liens worked, this was not a judgment against the owner, only against that one property. This procedure led to a situation in which many property owners simply did not pay their real estate taxes. In cities like Philadelphia, where a lot of rental properties are owned by small investors or passed down between family members, this has created tax collection issues. Since the municipal lien didn’t affect the owner’s personally, many owners found it advantageous to simply not pay. If a property owner owed more than the property was worth, they could just kept collecting rent until the Sheriff Sale, if it ever happened. The municipality never got paid what was owed, and personal liability never attached.

Under the new law, the idea is that the lien will also be against the owner, not just the property. This means you will not be able to finance or sell a different property until the lien on the tax delinquent property is paid. Additionally, your own home may be at risk, and you can no longer just walk away from a property without ever paying the tax due. This makes perfect sense; it’s finally giving local municipalities the ability to collect outstanding taxes which is something cities like Philadelphia have spent years clamoring for.

Unfortunately, Act 93 creates as many issues as it solves, something frequently seen in real estate legislation coming from Harrisburg. This new law will clearly mean more work for title insurance companies and Realtors, many of whom didn’t see this coming. There are also open questions with regard to how this will affect large entities and REO properties. Clearly, the banks have foreclosed on numerous properties with tax delinquencies. Having those taxes paid will be a boon to local government, but a nightmare for searchers. Additionally, it’s easy to imagine the situation where a homeowner lacks the equity to both sell a property and clear the lien arising from another investment. I fear in many parts of the Commonwealth this could really hurt the ability of sellers to get out of low equity or distressed properties.

Finally, we are already seeing the impact of this legislation in lease-purchase and rent-to-own deals. The threat of personal judgments being transferred from out of the county to attach to the seller’s property creates the need for a whole new level of due diligence.

Of course, we’ve always recommended to our clients that investment properties should rarely, if ever, be held in their personal name. Using LLC’s, LP’s or corporations as an entity to own your investment property can provide numerous benefits and protection from this new law is only one of them.

If you would like to discuss how this new law may affect you, or how to best structure your portfolio in light of these ongoing changes, please feel free to contact H. Adam Shapiro of Danziger Shapiro & Leavitt and we will be happy to review and discuss your situation with you.

The October 31, 2013 compliance deadline under Philadelphia’s Energy Conservation Act is fast approaching. As previously detailed in my earlier blog entry (click here), commercial landlords have only until the end of October 2013 to comply and register their building’s electrical and water usage rates as well as other building characteristics. Fines will be levied for noncompliance.
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Delaware recently joined the fast growing Benefit Corporation “club”. Effective August 1, 2013, Delaware became the 20th state to adopt its own version of the Benefit Corporation. The provisions governing this new business entity can be found under new Subchapter XV of the Delaware General Corporation Law. Earlier this year you may recall (click here) I discussed how Pennsylvania became the 12th state to adopt its version of the Benefit Corporation.

The Delaware Benefit Corporation is almost identical to the Pennsylvania Benefit Corporation. Both acts are designed to allow “social” entrepreneurs to focus not only on the bottom line but to also consider other non economic societal factors (community, environment, employees etc…). Both acts have provisions governing allowed purposes, accountability and transparency requirements (although Delaware has an every 2 year reporting requirement as opposed to Pennsylvania’s every year).

One interesting difference between the two states relates to derivative litigation (click here for link to derivative information on Danziger Shapiro & Leavitt website). While Pennsylvania is silent with respect to minimum share ownership requirements for shareholders to bring derivative actions, Delaware decided to establish minimum share ownership requirements. Most likely, this is a reflection of Delaware recognizing the practical consequences that will follow by allowing officers and directors to consider subjective societal concerns when making business decisions. Namely; not everyone shares the same political, religious and social concerns. By placing a minimum share ownership requirement in order to bring a derivative action, Delaware is just trying to reduce the strain on an already overburdened court system.
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An angel investor who invests in a “qualifying” New Jersey emerging technology business in tax year 2012 and beyond is now eligible to receive a tax credit of up to 10% of the total amount invested. This law is designed to stimulate investment in emerging New Jersey technology companies by allowing the investor to use the 10% tax credit as a direct offset against an investor’s New Jersey business or gross income tax. While Governor Christie signed this act, known as the New Jersey Angel Investor Tax Credit Act, into law on January 31st of this year, the underlying rules do not come out until today, August 5, 2013, in the New Jersey Register.

The act defines both “qualified investment” and “New Jersey emerging technology business” and I will not bore you with every detail here. However, in brief; in order for an investment to be a “qualified investment,” the investment must be a non-refundable transfer of cash to a “New Jersey emerging technology business” in exchange for rights to participate in the upside of the business or to use or market the technology.

To be considered a “New Jersey emerging technology business,” the act specifies the physical connection the company must have to New Jersey as well as the technological areas the business must be involved with. For example, the New Jersey business must have fewer than 225 employees, of whom at least 75 percent work in New Jersey. The company must also transact business, own property, or maintain an office in New Jersey. Finally, the company is required to operate in one of the following industries: advanced computing, advanced materials, biotechnology, electronic device technology, information technology, life sciences, medical device technology, mobile communications technology or renewable energy technology.

For investments made on or before July 1, 2013, an investor must submit a completed application before July 1, 2014. For all other investments, an investor must submit a completed application within one year of the date of the qualified investment. There are application fees not to exceed $1000 and approval fees that will be offset against the tax credit.
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