Recently in Real Estate Category

April 1, 2014

DO I NEED TO FILE AN S ELECTION IN PENNSYLVANIA - LEGAL RESEARCH ON YOUR OWN: A FOOL AND HIS MONEY ARE SOON PARTED

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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February 11, 2014

Pennsylvania's New Tax Collection Power

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.

October 1, 2013

CLIENT REMINDER: OCTOBER 31, 2013 DEADLINE LOOMS FOR COMMERCIAL USE BUILDINGS IN PHILADELPHIA IN EXCESS OF 50,000 SQUARE FEET

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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August 13, 2013

PUBLIC BENEFIT CORPORATIONS ARE NOW AN OPTION IN DELAWARE

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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August 5, 2013

NEW JERSEY ANGEL INVESTOR TAX CREDIT PROGRAM RULES PUBLISHED TODAY (HOPEFULLY) IN NEW JERSEY REGISTER

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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July 31, 2013

PHILADELPHIA HAS NEW ENERGY AND WATER USE REPORTING REQUIREMENTS FOR OWNERS OF LARGE COMMERCIAL USE BUILDINGS

Owners of commercial buildings located in Philadelphia in excess of 50,000 square feet are now required to measure energy and water usage and report the results into the EPA's Energy Star Portfolio Manager annually. Bill No. 120428A titled "Energy Conservation" went into effect last month on June 13.

Under this new ordinance, the owner of a "covered building" must report the required information no later than June 30 of each year for the previous calendar year. For 2013 only, information must be entered into the EPA's system by October 31, 2013.

Required information will include the building's energy and water usage as well as the building's "characteristics". A building's characteristics are defined to include not only the street address and year the building was built, but also specific items such as the percent of the building heated or air conditioned and the number of computers and refrigeration/freezer units in the building. The ordinance requires that each building's characteristics must be updated annually. Failure to comply will result in the City assessing fines against the building owner.

What does this mean from a landlord and tenant perspective going forward? From the landlord's point of view, it means that you are going to have to immediately notify tenants of the new reporting requirements and the associated deadlines. Going forward landlords should consider default and penalty provision language as possible additions to new leases.

From the tenant perspective, a tenant should consider what impact this new legislation will have on a landlord. Will public access to the results contained in the Energy Star Manager force landlords to update their mechanical systems? If so, will such improvements be passed onto the tenant? Can carefully crafted representations and warranties in the lease protect the tenant from these types of improvements being passed onto the tenant?

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July 23, 2013

FAMILY OWNED BUSINESSES IN PENNSYLVANIA EXEMPT FROM INHERITANCE TAX

Pennsylvania has just passed legislation that allows, if certain conditions are met, the tax free transfer of a family owned business to a decedent's heirs. The idea behind this exemption is in these tight economic times to keep businesses in the family. This financial burden comes at a critical juncture as the business is now faced with not only a forced transfer of organizational control, but an inheritance tax bill when nothing has changed in the actual running of the fundamental core business. In some cases, the business is forced to sell assets to meets its inheritance tax obligations or in dire circumstances, has to shut down business operations altogether. While the local governments want to collect every penny they can, our elected officials also know this hurts the economy at the grass roots level because when an otherwise viable business shuts down only because it cannot afford to pay an inheritance tax, employees who were gainfully employed are now added to the unemployment line and this becomes another drain on the local economy.

With this as background, in order to be entitled to the family owned business inheritance tax exemption the following requirements must be met:

• Qualified Business - The business must be a "qualified business" which requires that the business must be operated by either a sole proprietor or through a business entity (LLC, partnership or corporation). The business must have fewer than 50 employees and a net book value of less than $5million dollars.

•Ownership of Qualified Business - The business must have been in existence for the past 5 years and must have been owned by the decedent and members of the decedent's family.

•Qualified Transferees
- The "qualified business" may only be transferred to "qualified transferees". Qualified transferees are, as you would expect, the decedent's immediate family - spouse, children, grandchildren, siblings, cousins, parents and grandparents.

•Time Restriction - In order to retain this tax savings, the family business may not be transferred to another individual or entity for a period of 7 years from the date of the decedent's death. Yearly certifications to the taxing authority will be required. If the business is transferred within this 7 years period, all inheritance tax plus interest that would have been due will now become immediately due and payable.

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July 16, 2013

PENNSYLVANIA 2014 PROPERTY TAX APPEAL DEADLINE: AUGUST 1

The 2014 Pennsylvania property tax appeal deadline for Philadelphia and the surrounding four counties is fast approaching. The deadlines are as follows:

August 1: Buck, Chester, Delaware and Montgomery

October 7: Philadelphia

With the Pennsylvania State Tax Equalization Board releasing the new Common Level Ratio (CLR) on July 1, this leaves a very short time period to determine whether an appeal is necessary. (Please click to see my February 2013 post on how the CLR is used to determine your property tax)

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April 23, 2013

NEW JERSEY REVISES ITS LIMITED LIABILITY COMPANY ACT

The New Jersey Uniform Limited Liability Company Act (the Act) was enacted in 1994 and governs NJ limited liability companies (LLCs). The Revised Uniform Limited Liability Company Act (the Revised Act) is the first major revision to the Act since its inception. Only NJ LLC's formed after March 18, 2013 will currently be governed by the Revised Act. Effective March 1, 2014 however, all LLCs will fall under the authority of the Revised Act.

The amendments are designed to bring the Act more in line with the Model Revised Uniform Limited Liability Company Act. As of this posting, only seven states and the District of Columbia have adopted the RULLCA in some fashion. While it is beyond the scope of this post to identify all changes made by the amendment, I have listed some of the major changes below.

1. Perpetual Duration. Under the Revised Act LLCs will have perpetual duration while under the old Act duration was limited to 30 years.

2. Business Purpose. The Revised Act allows an LLC to be formed for any business purpose, including operating as a non-profit organization.

3. Oral Operating Agreements. Believe it or not, oral operating agreements are now allowed under the Revised Act. Under the old Act, oral agreements were not allowed. If the agreement was not in writing it did not exist. Under the amendments, a course of conduct or behavior can be used as evidence to support the terms of an "oral agreement."

4. Indemnification. The Revised act now requires that the LLC indemnify and hold harmless its members and managers. Under the old Act indemnification was discretionary.

5. Fiduciary Duties. Fiduciary duties are allowed to be altered if not "manifestly unreasonable" although the operating agreement cannot authorize or otherwise allow intentional misconduct/violation of laws.

Other issues affected by the amendments relate to charging liens, disassociation, oppression and limitations on a member's liability to another member - to name a few. While we always recommend that shareholder operating agreements are reviewed every few years, it is now critical that LLCs in existence prior to March 18, 2013 have their operating agreements updated to conform to the new rules.

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March 12, 2013

PHILADELPHIA HAS NEW LEAD PAINT LAW FOR RESIDENTIAL LANDLORDS

Late last year Philadelphia enacted a new lead paint disclosure law that changes the way residential landlords do business in Philadelphia. Under the Lead Paint Disclosure and Certification (LPDC) ordinance effective later this month, a tenant in targeted situations must be given a lead paint certificate when the lease is first signed. This certificate, prepared by a certified lead inspector, must state that the apartment is either "lead free" or "lead safe". With respect to a sale as opposed to renting, the seller of real property needs to be presented with either of the two lead designations specified above, or a lead based paint disclosure form prepared by the Philadelphia Department of Public Health.

As alluded to above, there are two types of lead based certificates. A lead free certificate mean just that, there is no lead contaminated dust, paint, or soil in the property. Lead free certificates have no termination date, but due to a change in the definition of lead free under the new LPDC, lead free certificates that were obtained prior to the effective date of the ordinance will not work. Alternatively, lead safe certificates are issued when there may be lead contaminated material in the property, but it's not currently a danger. Usually, this happens when it's suspected there may be lead paint on the walls, but it's been coated over with so much latex paint that it's effectively sealed off from causing a problem for the tenants. Lead safe certificates have a limited life span because, for example, top coats of paint that cover the underlying lead based paint can peel away, or lead contaminated soil that is buried or cover by "clean" soil can push up to the surface over time. As a result, the rules require that "lead safe" certificates be no more than 24 months old when the lease begins. In either event, the certificates need to be signed by the tenant and also filed with the Philadelphia Department of Public Health.

In addition to the certificates, the LPDC also requires certain informational brochures and statements be provided in a Philadelphia residential lease. Many of these rules apply in the case of lease renewals as well, so you do not avoid the costs merely by keeping the same tenants in place.

Not surprisingly, there are significant penalties if a landlord fails to comply with the LPDC. Penalties include exemplary damages up to $2,000 per day, attorneys' fees, punitive damages, and injunctions to enforce. In addition (and this is the kicker) if rent was already paid by the tenant, the tenant will be entitled to a refund of the paid rent for the entire period of time the landlord was not in compliance with the LPDC.

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February 26, 2013

PHILADELPHIA REAL PROPERTY OWNERS MAY BE ENTITLED TO A REALTY TRANSFER TAX REFUND

If you recently transferred real property in Philadelphia between July 1, 2012 and January 5, 2013, you may be entitled to a refund in the amount of transfer tax paid. For clear cut real estate transaction where property is being conveyed by a deed at fair market value, the transfer tax is based upon the purchase price of the property. However, when the purchase price is not fair market value, or the deed recorded relates to a long term lease, for example, the common level ratio (CLR) comes into play.

Typically the CLR is updated each year, but due to Philadelphia's tax assessment issues, the State Tax Equalization Board (STEB) did not establish for Philadelphia County a CLR for the period July 1, 2012 to June 30, 2013. Since the ratio in effect for this period remained "to be determined", the CLR from the previous period remained in effect. This amount, 3.97, was used to determine a property's computed value until the updated CLR was published.

Recently, the CLR for July 1, 2012 through June 30, 2013 was determined to be 3.27. Since the new CLR is lower than the previous CLR (3.97), taxpayers are entitled to refunds for transfer taxes paid relating to real property transfers made after June 30, 2012 from both the Pennsylvania and Philadelphia revenue departments (if they used the 3.97 CLR).

This has the potential to amount to a significant refund. For example, if a property has an assessed value of $1,000,000, the computed value with the old CLR would be $3,970,000. The resulting realty transfer tax would then be $158,800. With the new CLR the realty transfer tax would $130,800, with a difference and refund of $28,000.

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February 5, 2013

WORKPLACE NOTICE REQUIREMENTS - NEW JERSEY

Earlier this year (January 22) I blogged about workplace notices that are required by a business that maintains an office in Pennsylvania. Our New Jersey clients have spoken and I apologize. Set forth below is a list of the posting requirements for New Jersey businesses. These posters are in addition to the federal posting requirements and must be displayed in a conspicuous area. Hard copies are available through the New Jersey Department of Labor and printable copies may be found at
http://lwd.dol.state.nj.us/labor/employer/content/employerpacketforms.html

- Wage and Hour Law Abstract
- Child Labor Laws
- Reporting and Recordkeeping Requirements Under State Wage, Benefit, and Tax Laws
- Payment of Wages
- Schedule of Minors' Hours (if applicable)
- Family Leave Insurance
- Unemployment Insurance and Disability Insurance Laws
- Conscientious Employee Protection Act ( also known as the "Whistleblower" Act)

In addition, the New Jersey Office of the Attorney General requires that businesses that provide services to the public (i.e. doctor's offices and movie theaters) post a Public Accommodation poster.

The OAG also requires employers to post a Notice regarding Discrimination in Employment and post the required Notice regarding the Family Leave Act. In addition, businesses associated with the sale, rental and or lease of real estate are required to post a Discrimination in Housing poster. These materials are available at http://www.nj.gov/oag/dcr/posters.html.

Please remember that these Notices are in addition to the federal notices discussed earlier.

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January 15, 2013

PENNSYLVANIA CREATES NEW CORPORATION KNOWN AS A "BENEFIT CORPORATION"

On January 23, 2013, Pennsylvania will become one of twelve states to have created a new type of corporation known as the "benefit corporation." Titled the "Pennsylvania Benefit Corporation Act", the act allows "social" entrepreneurs to focus not only on the bottom line but to also consider other non economic societal factors (community, environment, employees etc...). While the Benefit Corporation is based upon the familiar corporate form, it has three additional requirements - purpose, accountability and transparency.

Purpose. In short, the Benefit Corporation must have a purpose designed to create a positive impact on society and the environment which will be judged against a third-party standard. Examples could include companies focused on protecting the environment, educating inner city children or promoting awareness on health issues. The Act itself sets forth a non-exclusive list of appropriate purposes.

Accountability. Fiduciary duties of officers and directors have been broadened to require consideration of not only the traditional bottom line analysis, but how a decision impacts non-financial interests such as the environment or the company's employees. For example, if a company is going to be acquired in a merger, the officers and directors are no longer required to solely maximize shareholder value. A Benefit Corporation's Board of Directors are able to accept a lower price per share if going this route will result in no employees being terminated.

Transparency. Benefit Corporations are required to deliver to their shareholders an annual "benefit report" describing how the company met its stated public benefit goals as set forth in its articles of incorporation and if not, what transpired that prevented this from happening. The benefit report must filed with the Department of State and be posted on the company website. If there is no website, then the company must provide a copy to any person who requests a copy.

So, why would you want to form a Benefit Corporation or possibly switch your current entity to a Benefit Corporation? First and foremost, you may be socially conscious and believe a corporation has a responsibility to focus on more than just the bottom line. Second, there are tax advantages and incentive programs aimed at Benefit Corporations that are not available to other companies. Finally, marketing surveys have seen a push amongst consumers to direct their purchasing dollars towards businesses which are aligned with their priorities. Especially in this age of social media, where the effects of corporate behavior have fast implications, this can be a great way to distinguish your business from the competition.

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May 10, 2011

Pennsylvania Property Owners Not Always Liable for Contractor's Injuries

The Pennsylvania Supreme Court in a recent decision stated that residential and commercial property owners who hire contractors are not responsible for personal injuries happening during construction on their property. Previously, plaintiffs had argued for a "retained control" exception where property owners could be held responsible for injuries to workers if the owner was present at the job site and exercised control over the construction project. The theory was if the owner was present at the job site, then the owner bore a responsibility to recognize any unsafe condition and do something about it. This recent decision by the court ends this avenue of attack created by the plaintiff's bar, which had put owners in the uncomfortable position of weighing liability burdens against the need to supervise their own projects. Now the law is clear that property owners are not liable for the injuries to the contractors and their subs so long as the owners did not control the "means and methods" of how the work was performed. In other words, did the owner actually tell the injured party how to ply his trade?
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The impact of this decision is clear. With a little proper drafting, both residential and commercial property owners can greatly reduce their risks from personal injury claims of workers injured on their property. Commercial property owners should seek legal advice to have their contracts reviewed to insure they have language in place that require a safe and organized work site. From the contractor and subcontractor perspective, the gun has clearly been leveled in your direction and care needs to be taken to make sure you have the proper insurance in place in light of your increased singular exposure; as well as to make sure your contracts have the appropriate contractual protections as well. Contractor's agreements also now need to be especially careful not to take on unnecessary liability in those situations where the owner is dictating the work or acting as their own GC.

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January 19, 2011

Could Your Business Lose Its Name in Pennsylvania?

Many corporations, LLC's, LP's, and other businesses registered to operate in Pennsylvania must take action this year to avoid losing the ownership of their name. Pennsylvania law requires something called a "Decennial Report" to be filed every 10 years with the Department of State. The report is filed in every year ending with the number "1", so you've got until December 31, 2011 to get this year's report in. A similar law also applies to registered marks and insignias so be sure to act to protect your logos as well.

Any business that fails to file a required decennial report loses the exclusive right to the ownership of its corporate name. In the case of a registered mark, when a business fails to file the mark becomes unregistered. Every January of a year ending in "2" we see poachers trying to appropriate the names of ongoing businesses to sell them as back. Make sure your business is not one of the unlucky ones by acting early and getting your filing done soon this year.

There are exemptions to this law, the biggest of which applies to businesses who have filed new or amended registrations with the Department of State since January 1, 2002.


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