Thursday, August 22, 2013

Manhattan Office Leasing

Here at Shenwick & Associates, we are seeing a significant uptick in reviewing and negotiating commercial leases. For those who have never leased commercial office space in Manhattan, you need to be aware that the market and leasing terms are unlike any other commercial real estate market in America. Here are seven provisions that all commercial tenants should request when negotiating an office lease in Manhattan. Failing to consider these points can cost a tenant a significant amount of money and aggravation.

1. Request free freight elevator usage for move in and move out of the space.

2. Make as few alterations to the space as possible. Let the landlord do as much work as possible and request that the landlord not charge the tenant for plan review of the initial alterations for the space. Remember that the sage advice "construction is never on time or on budget" also applies to leased spaces. Tenants also should have the right to make non–structural alterations to the premises without the consent of the landlord.

3. If the tenant alters the space with the landlord's consent, the tenant shouldn't be obligated to restore the space to its original use when the space is vacated.

4. Assignment\Sublet. The standard for landlord approval should be "not unreasonably withheld," and the tenant should request the automatic right to assign or sublet the space if it sells the business, goes public, transfers its assets to a related entity or merges with another entity.

5. Electricity. There are three ways that landlords charge for electricity in NYC–direct meter, sub-meter and rent inclusion. The cheapest and best option for the tenant is direct meter.

6. Security deposit. The tenant should ask if a Letter of Credit can be substituted for a cash security deposit. If the tenant is required to provide a cash security deposit, the landlord should represent in the lease how many days after the lease expires the security deposit will be returned to the tenant (e.g. 20 days). If the Landlord is asking for more than two months of security, then the tenant should request that if there are no monetary defaults under the lease, the security deposit is reduced to two months of fixed rent after the first year of the lease (this is known as "burn down.")

7. The tenant should request the following representations from the landlord; (a) the electrical capacity for the space; (b) that the premises do not contain asbestos or hazardous materials; and (3) that the HVAC, plumbing, bathrooms, electrical and fire panels and sprinkler be in good working order at the commencement of the lease.

The above are just a few points or provisions to consider when leasing commercial space, and tenants should always retain an experienced commercial real estate attorney before entering into a commercial lease. Please contact me with any questions.


Tuesday, August 13, 2013

WSJ: Creditor-Proof Trusts Replacing Offshore Accounts


    As offshore accounts draw greater scrutiny, some financial advisers are having their clients use a special trust as an alternative strategy to shield their assets from potential lawsuits.

    So far, 15 states allow the creation of domestic asset protection trusts, which safeguard securities or other assets of the owner. In the past, they weren't widely used and few states allowed them.

    One big driver of the trend is that offshore accounts--commonly used to ward off creditors--have grown less popular amid an ongoing Internal Revenue Service crackdown. The tax agency, which also contends the accounts help wealthy Americans evade taxes, has beefed up reporting requirements as well as penalties for violators.
    Increasingly, some advisers are having more discussions about domestic asset protection trusts as a matter of course with any client who owns a business, works in a high-risk profession like medicine, or worries that a child may wind up in a divorce.

    "We have been seeing a lot more of them," said Edward J. Mooney, managing director of BNY Mellon Wealth Management.

    Recently, Mr. Mooney raised the matter with a client who owns a shipping construction business in the energy sector. A boom in the fracking business, which carries the risk of liability over environmental damage, has prompted more use of the trusts, the adviser said.

    Anyone who wants to set up a domestic asset protection trust has to be prepared to work with a trustee in the state where the irrevocable trust is established. A client in Illinois, for example, can't set one up in his home state. So an adviser can help find the best state, and work to find a good trustee--usually a corporate trustee--to manage the trust there.

    Alaska, Delaware, Nevada, and South Dakota were early adopters of the trusts, and have been the most popular locations to site them.

    Illinois adviser Michael C. Foltz has been working with a client who is thinking about selling his electronic parts manufacturing business, but wants to keep his estate from having to pay state estate taxes on the proceeds. Mr. Foltz suggested a trust in a state with no state estate or income tax. He also broached the idea of setting up the trust to protect its contents from future creditors.

    "First and foremost, the estate planner is trying to find ways to reduce or eliminate estate tax, and if they can layer creditor protection on top of that, so much the better," said Mr. Foltz, a wealth manager at Balasa Dinverno Foltz LLC in Itasca, Ill., with about $2.1 billion under management.

    Robert J. Robes, an estate attorney with Greenberg Traurig in Boca Raton, Fla., said a domestic asset protection trust won't work for someone who sets it up in the face of an impending lawsuit. Instead, it must be in place well in advance of any litigation.

    "Be as proactive as you can," Mr. Robes said. "Oftentimes clients react to potential liability when something is starting to bubble up, which is too late."

    And don't put assets into the trust that are needed for the family to live on. Instead, think of it as a way to protect a nest egg, he said.

    Copyright 2013 Dow Jones & Company, Inc.  All rights reserved.