Friday, November 6, 2015

Tenants in common vs. joint tenants

Dear Alex:

A partner and I are buying an investment property together, and the title company has asked how we want to hold title together. They have told us that we can hold title as tenants in common or as joint tenants, but the differences are unclear. What should we do?

For non-married co-owners, joint tenancy and tenancy in common are the two preferred means of holding title. Although I frequently recommend co-owners hold rental properties within an LLC that holds title to the property, holding title in an LLC is not always the best option — for example, when the rental income does not justify the $800 annual franchise tax that LLCs must pay. Married couples, on the other hand, usually hold real estate as community property with right of survivorship.
In this instance, as unmarried co-owners who have elected not to hold your property with an LLC, whether you should hold the property as joint tenants or as tenants in common depends on your long-term ownership objectives.
The most basic element of a joint tenancy is that if you own a piece of property as a joint tenant, then you and the other joint tenants own the property equally, each with equal ownership interests to the entire property. When one joint tenant dies, the deceased person’s interest does not pass to his or her heirs; instead, the surviving joint tenants automatically receive the deceased person’s property interest.
This is called the “right of survivorship.” A joint tenancy also avoids probate on the death of a joint tenant, because the deceased person’s interests automatically transfer to the remaining joint tenants. Joint tenancies are slightly more difficult to create and maintain than tenancies in common; to create a joint tenancy the co-owners must obtain title at the same time, in equal proportions, with equal co-ownership rights.
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With a tenancy in common, on the other hand, the tenants can own different shares of the property, equal or unequal, and each party is free to transfer, sell or dispose of their share of the property as they choose. Unlike a joint tenancy, the rights of the owners of a tenancy in common can vary, depending upon how much monetary claim was made by each tenant.
For example, with three brothers, one brother can own a 50 percent interest in the property, and the other two brothers each have a 25 percent ownership interest in the property. Each brother can put his share of the property in his estate plan and pass the interest on to his spouse, children, or whomever he chooses.
Also, one brother may choose to sell his property interest to a third party, and can do so without the consent of the other two brothers. Since there is no right of survivorship in a tenancy in common, when one tenant in common passes, their ownership interest goes to their own heirs or devisees, not to the remaining surviving tenants in common.

Alex Myers is a business attorney with Myers & Associates in Napa. Reach him at alex@myers-associates.com or 707-257-1185. The information provided in this column is not intended as legal advice, nor does it create an attorney-client relationship. The information is not a comprehensive analysis of the law — if you need legal advice, contact an attorney.



This column originally ran in the Napa Valley Register on October 27th, 2015. You can read it on the Register's website here:
 "Tenants in common vs. joint tenants"

Letters of intent — what’s the point?

Dear Alex:

I am selling my business and am in the process of negotiating a “Nonbinding Letter of Intent,” which I have to pay my lawyer to do.What’s the point of going through the time and trouble to negotiate this, if it’s not binding on the parties and we still have to negotiate the final contracts down the road? It seems like a pointless expense.

Letters of Intent, or LOIs, also sometimes take the form of a Memorandum of Understanding, or MOU.
Both LOIs and MOUs have the same basic purpose. These documents outline the fundamental terms of a prospective deal, including the price, specific descriptions of what is being bought or sold and the timeline to close the deal.
Sometimes, these documents are binding and have the effect of a contract, obligating the parties to perform according to the terms of the LOI. Other times, they are nonbinding and have the effect of an agreement-to-agree.
In some circumstances, if the parties aren’t careful with how the documents are drafted and presented, an LOI that was initially believed to be nonbinding can be construed as a binding contract.
Particularly with nonbinding letters of intent, clients sometimes feel like they are paying to do the same thing twice — to negotiate the deal for the purposes of the LOI, and to negotiate the deal again later when they are preparing the actual contracts.
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While the terms of an LOI are intended to overlap with many of the terms of the final execution-ready contracts, there are significant benefits to the parties’ agreeing upon a nonbinding letter of intent at the initiation of a deal.
Primarily, the LOI serves as a relatively low-cost method of filtering out the “tire-kickers” from serious prospective buyers or sellers. This can save considerable time and expenses.
Additionally, if the most important terms of a deal aren’t laid out explicitly from the start, assumptions are often made as to the other parties’ expectations or intentions, and those assumptions are very often wrong, which can blow up a deal. The very process of drafting and negotiating an LOI helps to cement the parties’ obligations to the deal, reducing the risk of one party walking away from the negotiation table down the line.
Additionally, one party may need to present a prospective deal to lenders, boards of directors, or other third parties whose review and consent to a potential transaction is required before the transaction can be finalized.
With an LOI, these interested third parties are able to get a sound understanding of the terms before the time and expense of negotiating every element of the transaction has been completed. In this way, if those parties are going to reject the deal entirely, or object to specific terms that have been proposed, they are able to do so early in the process.

Alex Myers is a business attorney with Myers & Associates in Napa. Reach him at alex@myers-associates.com or 707-257-1185. The information provided in this column is not intended as legal advice, nor does it create an attorney-client relationship. The information is not a comprehensive analysis of the law — if you need legal advice, contact an attorney.



This column originally ran in the Napa Valley Register on October 13th, 2015. You can read it on the Register's website here:
 "Letters of intent — what’s the point?"

Is your business a dog or a cat?

I have a cat and a dog at home. The cat, he could not care less about me as long as he’s got food and water and someplace to nap. The dog, on the other hand, needs constant attention, affection and care.
Sure, they’re both domesticated house pets with four legs and fur, but they are totally different creatures. The differences between cats and dogs are a lot like the differences between some of the most common business entities that people choose.
I think that LLCs are like cats, and corporations are like dogs.
You might get a cat or a dog for largely the same purpose – comfort, cuteness, companionship, love and affection – but they are very different creatures, and although their functions are similar, they demand very different treatment.
Similarly, LLCs and corporations are formed for many of the same purposes – personal asset protection, tax structure, increased legitimacy to customers or investors – but although the purposes of these entities are similar, their management, operation, and regular maintenance obligations are very different.
Cats are pretty independent; they might ignore you and expect to be ignored for hours or days on end, and they don’t really care. That’s one of the benefits of having a cat.
LLCs are a lot like that. LLCs don’t usually require a lot of annual formalities, approvals or maintenance. Beyond the basic care needed to keep them in good standing, LLCs can afford some neglect and it’s not a big deal. That’s one of the benefits of an LLC.
Dogs, on the other hand, are needy. Dogs wait for you by the front door to greet you when you get home; dogs need constant affection, exercise, and care. Without all this, your dog will become sad and unhealthy.
If you neglect your dog, the benefits of having a dog will go away and instead you will have a sad dog and a stack of veterinary bills.
Corporations are dog-like in that way. Corporations require regular maintenance, and operate under a formal structure to which the business’s activities need to adhere.
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With a corporation, any business decision outside of the ordinary course of business needs to pass approval of the board of directors; every single year, there needs to be a meeting of the shareholders and a meeting of the board of directors, with advance written notice, and accurate minutes of those meetings need to be kept in the corporate minute book.
Corporations need attention and maintenance, and without that care, the benefits of a corporation can go away. The corporation’s liability protection will be vulnerable to piercing, and the personal assets of the shareholders could become subject to the liabilities of the corporation.
So which is better? Corporations or LLCs? Dogs or cats?
When comparing corporations to LLCs, there are benefits and drawbacks to each, and it depends on what your needs are, and what your business activities are like.
To be sure, maintenance obligations are an important consideration to be taken into account when selecting a business entity (or pet).

Alex Myers is a business attorney with Myers & Associates in Napa. Reach him at alex@myers-associates.com or 707-257-1185. The information provided in this column is not intended as legal advice, nor does it create an attorney-client relationship. The information is not a comprehensive analysis of the law — if you need legal advice, contact an attorney.



This column originally ran in the Napa Valley Register on September 29th, 2015. You can read it on the Register's website here:
 "Is your business a dog or a cat?"

A tree between neighbors

Dear Alex:

My neighbors have a tree with branches hanging over my yard, and I’m afraid the tree might fall on my property. What rights do I have, and what can I do about it?

This is a common issue among adjoining properties, when the roots and branches of one neighbor’s trees extend beyond their property line and into the other neighbor’s property. The ownership of a tree is usually based on the location of the trunk, not by the location of the branches.
Even if most of the branch leaves encroach onto your property, if the tree trunk is entirely in your neighbor’s yard, the tree, its roots, and its branches are all owned by your neighbor.
There are countless problems that an encroaching tree can create, including damage from tree roots, the safety risks of a diseased or unhealthy tree and damage from fallen branches, and the litter of leaves and twigs can be a real nuisance.
An owner who fails to properly maintain a tree on their property may be liable for damages caused to the owner of the adjoining property when the branch falls onto their house. However, if you are aware of the risk of damage ahead of time, it’s a good idea to take a proactive approach and try to prevent future damage or problems.
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If a neighbor’s tree is encroaching onto your property, causing damage from roots or branches, or causing a hazardous condition, the very first step should be to talk to your neighbor and try to reach a resolution or come up with an agreement for trimming the tree. Most neighbors are willing to take responsibility for their property, and this will help maintain a healthy neighborly relationship.
In the event that a neighbor refuses to accommodate a request to cure an encroaching tree, property owners do have the right to trim back the overhanging branches or the roots of a tree at the property line without the tree owner’s consent, as long as it is reasonable to do so. However, if it is not found to have been a reasonable action, the neighbor who cut the tree could face liability for damage caused to the tree.
Cutting the roots and branches of a neighbor’s tree that encroach into an adjoining property owner’s yard may only be done up to the property line, and may not damage the tree’s structural integrity. Generally, this sort of self-help is discouraged without the neighbor’s prior consent. There have been cases where tree owners have sued neighbors for cutting off branches of trees, and the tree owners were awarded thousands of dollars in damages.
Tree branches and roots that encroach on your land and may threaten damage to your property may be a nuisance. If it is a nuisance, you have the right to file an injunction against your adjoining neighbor. When a court grants an injunction, they may require the removal of the tree, and may award money damages for injuries or damage to property suffered as a result of the encroachment. However, to make a nuisance claim you would have to first prove that the encroaching tree interferes with your use or enjoyment of the property.

Alex Myers is a business attorney with Myers & Associates in Napa. Reach him at alex@myers-associates.com or 707-257-1185. The information provided in this column is not intended as legal advice, nor does it create an attorney-client relationship. The information is not a comprehensive analysis of the law — if you need legal advice, contact an attorney.



This column originally ran in the Napa Valley Register on September 15th, 2015. You can read it on the Register's website here: 
"A tree between neighbors"

Could contract employees become a thing of the past?

Companies often hire other companies to provide labor services. As an example, a distribution warehouse may hire a staffing company to provide additional workforce during the busy holiday season. In this arrangement, the workers are employees of a different company from the company for whom the work is being performed.
In another example, while McDonald’s, at the corporate level as franchisor, benefits from the activities of its franchised restaurants, the individual franchisee restaurants are the companies that hire staff to perform the work in the restaurant.
Last week, the National Labor Relations Board (NLRB) made a cornerstone decision that could upend the way in which the law views employer-employee relationship, between companies, contractor companies, and contracted employees.
For the past three decades, the standard used by the NLRB to determine whether an employer-employee relationship existed was whether the company for which work was performed had direct and immediate control over the persons working on the job.
If the company for which work was performed was found to have direct and immediate control over the workers, even if those workers were hired, paid and managed by a separate contractor, both the contractor company and the company for whom work was being performed would be considered joint-employers.
If the company for which work was being performed did not exercise direct and immediate control over the workers, the contracting company was the sole employer over those companies, and the sole entity responsible to ensure that employment practice standards were being maintained.
Under the new “Browning-Ferris” decision of the NLRB, it was determined that the standard test for whether an employer-employee relationship existed should instead be whether or not the company had the potential to control wages and working conditions, regardless of whether the company does indeed exercise that potential control.
An effect of this ruling is that the company who hires a labor contractor to provide personnel to conduct work, may more easily be determined to be a joint employer of those personnel, along with the labor contractor, but may in fact have no interaction or control over the subject employees, but only the potential to exercise control.
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This decision is employee-friendly, and is intended to increase protections afforded to employees. This decision’s interpretation of the law is made with the intention of preventing certain situations in which workplace standards are not adequately maintained, and adherence to labor law standards are not complied with. Businesses who use contract labor, or franchisors whose franchisees hire employees, may face greater employment liability exposure.
The National Labor Relations Act, for which the NLRB is the quasi-judicial body, does not cover government employees, independent contractors or most supervisors.
While the NLRB is not a court of law, it interprets and enforces the National Labor Relations Act; this decision does not change the law, but it reflects a change in the NLRB’s interpretation of the law and their corresponding change in application to employers.

Alex Myers is a business attorney with Myers & Associates in Napa. Reach him at alex@myers-associates.com or 707-257-1185. The information provided in this column is not intended as legal advice, nor does it create an attorney-client relationship. The information is not a comprehensive analysis of the law — if you need legal advice, contact an attorney.



This column originally ran in the Napa Valley Register on September 1st, 2015. You can read it on the Register's website here:
 "Could contract employees become a thing of the past?"

Your business: The next generation

Dear Alex: 

My husband and I are anticipating retirement from our business within the next five to 10 years. We have adult children who work for us and run most of the day-to-day operations, who we anticipate will take over the business when we retire. What do we need to do in order to be ready for this change?

The process you are describing is called business succession planning, and as the baby boomer generation reaches retirement age, it has become a very important field of law. The succession planning process involves elements of estate planning, tax law and business law, each working in conjunction with one another. While there are countless considerations and variable factors that each business needs to independently account for, here are a few of the basic issues to keep in mind.
Frequently, the current business owner (the first generation), is relying on the continued operation and success of the business for both the source of their retirement income, and the future financial security of their children, grandchildren and long-term employees. Furthermore, in the unlikely event of a worst-case-scenario such as the death of an owner, the continued survival of the business remains critical for most of the same financial reasons as with a planned succession of ownership.
The first element of a successful succession plan is called a “buy-sell agreement,” or sometimes an “agreement among shareholders.” This is a contract between the current business owners that delineates how to proceed when one of the owners dies, gets a divorce, or wants to dissociate from the business for other reasons.
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Alex Myers is a business attorney with Myers & Associates in Napa. Reach him at alex@myers-associates.com or 707-257-1185. The information provided in this column is not intended as legal advice, nor does it create an attorney-client relationship. The information is not a comprehensive analysis of the law — if you need legal advice, contact an attorney.



This column originally ran in the Napa Valley Register on August 18th, 2015. You can read it on the Register's website here:
 "Your business: The next generation"

What to do about unpaid rent?

Dear Alex: 

We own rental property, and are having problems with a tenant who is not paying rent in full or on time. Two months ago, we agreed to new rent payment terms to try to accommodate our tenant, but the tenant is not performing under the new agreement either. What do we do next?

It can be emotionally challenging to enforce rent payment provisions against a tenant who is having money trouble. My advice to landlord clients is to remain strict, but fair, in the enforcement of the terms of their leases, and to treat their tenants with respect and dignity during the process.
In doing so, the landlord’s rights remain protected and the tenants usually understand the situation and appreciate the straightforward, respectful approach taken by the landlord.
When a tenant is late with a rent payment, the first step for the landlord should be to review the terms of the lease. The lease may contain special instructions for how to proceed when rent is unpaid. Many leases contain a five-day grace period before the tenant is in default, and before late penalties or other consequences begin to accrue.
In the strict-but-fair approach, if rent remains unpaid after expiration of that grace period, the landlord should usually serve a “3-Day Notice to Pay Rent or Quit” to the tenant, although some leases may require notice periods longer than three days. The law requires very specific language that a Notice to Pay Rent or Quit must contain for the notice to be enforceable, so this form should be obtained from a reliable source such as an attorney.
During the notice period, the landlord should continue to have open and honest discussions with the tenant about the tenant’s ability and intention to pay the rent. If rent is not paid within the notice period, the notice has the effect of terminating the tenant’s right to remain in possession of the property, creating the basis for further action in the event rent remains unpaid. It does not automatically entitle the landlord to take possession of the property.
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Most of the time, after the notice has been posted, rent will be paid. If rent remains unpaid after the notice has expired, it may be time to engage an attorney and begin the unlawful detainer (eviction) process. An unlawful detainer is a lawsuit in which the landlord sues the tenant for legal recovery of the property, for past due rent, and for other costs that the landlord may have incurred.
The process can be expensive, and generally takes at least six to eight weeks to complete, if not longer. The court must enter judgment in favor of the landlord before the landlord can request that the sheriff’s department assist in recovering possession of the property. Most of the time, the parties can avoid going to trial by reaching an out-of-court agreement in the form of a settlement or stipulation. Coming to an agreement out of court is generally better for all parties involved.

Alex Myers is a business attorney with Myers & Associates in Napa. Reach him at alex@myers-associates.com or 707-257-1185. The information provided in this column is not intended as legal advice, nor does it create an attorney-client relationship. The information is not a comprehensive analysis of the law — if you need legal advice, contact an attorney.



This column originally ran in the Napa Valley Register on August 4th, 2015. You can read it on the Register's website here:
 "What to do about unpaid rent?"