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  • A real estate development generally progresses through the following stages before construction can begin:

    1. Project planning;
    2. Forming an investment entity;
    3. Negotiating the development agreement;
    4. Negotiating the land acquisition and performing due diligence;
    5. Land use, zoning, and regulatory compliance;
    6. Retaining the contractor;
    7. Securing the financing; and
    8. Closing the acquisition and financing.

    A commercial real estate development project typically begins with a real estate developer who formulates and oversees a project from inception through completion. One consideration that a developer typically analyzes is the geographic area in which the development is located. To do so, the developer typically obtains a commercial real estate broker to assist in selecting the best location for the development. Commercial brokers often have access to large databases containing information about potential properties and development locations, including details on the demographics, price, recent sales, and much more.

    Once a developer identifies a potential development site, the due diligence phase begins. The preliminary due diligence phase determines the project’s feasibility prior to negotiating a letter of intent or term sheet to purchase the land.

    The negotiation aspect of the land acquisition usually coincides with the formation of the investment entity and any joint venture and development agreements, if applicable. If the developer has the financial means, then they may sign a purchase agreement or acquire the land before the investors are committed to development, if the project is to become a joint venture.

    What is a joint venture agreement? A joint venture agreement specifies the terms on which investors agree to provide capital for a development project, how that capital will be repaid, and how the various parties will each have a role in the conduct of the entity’s business and management of the project. When a joint venture agreement is drafted for a development project, it often contains financial arrangements between the developer and the investor. Many times, these arrangements involve a development fee and the promote payment structure. What is a development fee? A development fee represents the compensation paid to the developer throughout the construction period. What is the promote? The promote is the disproportionate share of profits paid to the developer following the repayment of capital plus a negotiated return to the investors.

    Now, what are purchase and sale agreements? Purchase and sale agreements encompass the many various deal points associated with the acquisition of the land underlying the development, which deal points may include:

    1. Seller’s representations regarding the property,
    2. Expiration of the due diligence period, and
    3. The purchaser’s closing contingencies.

    The representations regarding the property include representations that the seller has made about the property and the condition of the buildings on the property (if any) in addition to any known historical information about the property. As for due diligence periods, they are often included as points in purchase and sale agreements, as it is essential that the real estate developer has the opportunity to analyze the property and ensure it is fit for the intended development. Due diligence periods are also used to allow a developer to obtain zoning variances or other land approvals and potentially secure construction financing and engage contractors, architects, and other consultants.

    A development agreement is typically entered into between an affiliate of the developer and the property owning-entity. As the developer is often also a partner in the joint venture that owns the land on which the development is taking place, the developer must wear two different hats in the development process. The roles set forth in the development agreement set out the developer’s specific responsibilities as a contractor and building during the construction process and the development agreement also provides the limits on the developer’s authority during this construction period.

    One development aspect that often presents many unknowns, and that is time consuming and resource-intensive, is the zoning and land use compliance process. Developers must understand the federal, state, and local laws and regulations regarding zoning, environmental compliance, building and fire codes, and construction labor. This aspect of the due diligence process can take weeks, sometimes years, to complete.

    The last stage of the development process before breaking ground is the closing of the land acquisition, which may involve financing transactions. Considering all the fluctuating factors that occur during a real estate development deal, there is no “typical deal,” but rather just what is considered to be standard during a deal.

    As can be seen, it is crucial that you fully understand the various stages of development that take place before construction begins if you are involved, or want to be involved, in a commercial real estate development. KI Legal’s real estate attorneys are well versed in these matters and are prepared to help guide you through the process. For more information on commercial real estate developments, or for help with your particular real estate venture at hand, contact us at (212) 404-8644 or email info@kilegal.com to discuss.

    This information is the most up to date news available as of the date posted. Please be advised that any information posted on the KI Legal Blog or Social Channels is being supplied for informational purposes only and is subject to change at any time. For more information, and clarity surrounding your individual organization or current situation, contact a member of the KI Legal team.

    KI Legal focuses on guiding companies and businesses throughout the entire legal spectrum. KI Legal’s services generally fall under three broad-based practice group areas: Transactions, Litigation and General Counsel. Its extensive client base is primarily made up of real estate developers, managers, owners and operators, lending institutions, restaurant and hospitality groups, construction companies, investment funds, and asset management firms. KI Legal’s unwavering reputation for diligent and thoughtful representation has been established and sustained by its strong team of reputable attorneys and staff. For the latest updates, follow KI Legal on LinkedIn, Facebook, and Instagram. For more information, visit kilegal.com.

    Commercial Real Estate Developments 101
    Development and Finance,  Real Estate and Finance
  • As a law firm that represents small business entities in Labor and Employment disputes, we understand the importance of staying up to date on the latest regulations and laws governing the hospitality industry. This article will provide an overview of Part 146 Hospitality Wage Order, which sets forth minimum wage and other requirements for employers in the hospitality industry.

    What is the Hospitality Wage Order?

    The Hospitality Industry Wage Order (“Order”) is a set of regulations issued by the New York State Department of Labor (NYSDOL) that applies to employers in the hospitality industry. The Order outlines the minimum wage rates, overtime pay requirements, and other provisions that apply to workers in this industry.

    Which Employers are Covered by the Order?

    The Order applies to employers who operate in the hospitality industry in the state of New York. This includes employers who operate hotels, motels, restaurants, catering services, and other businesses that provide food or lodging services to the public.

    What are the Minimum Wage Requirements?

    The minimum wage requirements set forth in the Order vary based on the location of the employer and the size of the business. As of January 1, 2024, the minimum wage rates are generally as follows:

    • For New York City and the remainder of downstate (Nassau, Suffolk, and Westchester Counties): $16.00 per hour
    • For employers in the rest of New York State: $15.00 per hour

    Employers should note that these rates are subject to change, and they should check with the NYSDOL for updates.

    What are the Overtime Pay Requirements?

    Employers in the hospitality industry must pay overtime to employees who work more than 40 hours in a workweek. The overtime rate is 1.5 times the employee's regular rate of pay. So, for example, if an employee works forty-eight (48) hours in one workweek and his regular rate of pay is $15.00 per hour, the employee’s pay for that week should be calculated as follows: ($15.00 x 40) + ($22.50 [overtime rate] x 8 [overtime hours]) = $780.

    Other Requirements

    In addition to minimum wage and overtime pay requirements, the Order sets forth other provisions that apply to employers in the hospitality industry. For example, employers must provide employees with meal periods and rest breaks, and they must maintain accurate records of hours worked and wages paid. Another example is the spread of hours rule. Under this rule, employees who work a shift that spans ten or more hours must receive an additional hour of pay at the minimum wage rate in effect at the time the work was performed. This provision ensures that employees are compensated for the extra strain of working long shifts. Finally, employers should also be aware that the Order includes provisions related to tip credits, uniform maintenance, and other topics that are specific to the hospitality industry.

    Part 146 Hospitality Wage Order is an important regulation that employers in the hospitality industry must comply with. Understanding the minimum wage and other requirements set forth in the Order is essential for avoiding potential labor and employment disputes. KI Legal is here to help employers in the hospitality industry navigate New York’s complex labor & employment landscape. Our experienced attorneys can provide guidance and support at every stage of the process, from reviewing wage and hour policies to defending against claims of non-compliance. Contact us today to learn more about how we can help you achieve compliance with Part 146 Hospitality Wage Order and other labor and employment regulations. Call (212) 404-8644 or submit a contact form on our website at kilegal.com for a free consultation.

    This information is the most up to date news available as of the date posted. Please be advised that any information posted on the KI Legal Blog or Social Channels is being supplied for informational purposes only and is subject to change at any time. For more information, and clarity surrounding your individual organization or current situation, contact a member of the KI Legal team.

    ______________________________________________________________________________________________

    KI Legal focuses on guiding companies and businesses throughout the entire legal spectrum. KI Legal’s services generally fall under three broad-based practice group areas: Transactions, Litigation and General Counsel. Its extensive client base is primarily made up of real estate developers, managers, owners and operators, lending institutions, restaurant and hospitality groups, construction companies, investment funds, and asset management firms. KI Legal’s unwavering reputation for diligent and thoughtful representation has been established and sustained by its strong team of reputable attorneys and staff. For the latest updates, follow KI Legal on LinkedIn, Facebook, and Instagram. For more information, visit kilegal.com.
    What is the Hospitality Industry Wage Order?
    Wage & Hour Employment
  • In real estate joint ventures, the promote structure is a common mechanism used to incentivize and reward the efforts of the operating partner or sponsor. The promote, also known as the carried interest or profit share, is a share of the profits that the operating partner receives above a predetermined threshold. Here, we will explore the mechanics of a promote structure in joint ventures and discuss its benefits for all parties involved.

    The promote structure is typically structured as a waterfall distribution, where profits are distributed in a specific order and priority. The first step in the waterfall is often the return of the initial capital contributions to the partners. Once the capital is returned, the remaining profits are distributed according to the agreed-upon promote structure.

    The promote structure typically consists of two components: the hurdle rate and the promote percentage. The hurdle rate is a predetermined rate of return that the project must achieve before the promote kicks in. Therefore, the investor will need to receive all of their initial capital before the first promote occurs. It serves as a benchmark to ensure that the project generates sufficient profits to justify the promote. The promote percentage is the share of profits that the operating partner receives above the hurdle rate.

    For example – if an operating partner has a 10% equity interest and capital investment in the joint venture, then the operating partner may be entitled to receive about 20% of the distributions after the capital partner receives their applicable hurdle return.

    The promote structure provides several benefits for all parties involved in the joint venture. For the operating partner, it serves as a powerful incentive to maximize the project's profitability. By aligning the operating partner's interests with the success of the project, the promote structure encourages the operating partner to make strategic decisions, take calculated risks, and actively manage the project to achieve returns.

    The promote structure also benefits the passive partners or investors. By offering a promote to the operating partner, the joint venture can attract experienced and skilled partners who have a vested interest in the project's success. The operating partner's expertise and track record can significantly enhance the project's chances of success and generate higher returns for all partners.

    Furthermore, the promote structure can help mitigate conflicts of interest between the operating partner and the passive partners. Since the operating partner's compensation is tied to the project's performance, they have a strong incentive to act in the best interests of all partners and make decisions that maximize the project's profitability. This alignment of interests can foster trust, transparency, and collaboration among the partners, leading to a more productive working relationship.

    It is important to note that the mechanics of a promote structure can vary depending on the specific terms and agreements of the joint venture. The hurdle rate, promote percentage, and other factors can be negotiated and customized to suit the unique needs and goals of the partners.

    Overall the promote structure is a valuable mechanism in real estate joint ventures that incentivizes and rewards the efforts of the operating partner. By aligning the operating partner's interests with the success of the project, the promote structure encourages strategic decision-making, risk-taking, and active management. It also benefits the passive partners by attracting experienced partners and mitigating conflicts of interest. With careful negotiation and customization, the promote structure can create a win-win situation for all parties involved, driving the success and profitability of the joint venture.

    KI Legal’s Transactional attorneys are well versed in these matters and are prepared to help guide you through the process. For more information on promote structures, or for help with your particular real estate venture at hand, contact us at (212) 404-8644 or email info@kilegal.com to discuss.

    This information is the most up to date news available as of the date posted. Please be advised that any information posted on the KI Legal Blog or Social Channels is being supplied for informational purposes only and is subject to change at any time. For more information, and clarity surrounding your individual organization or current situation, contact a member of the KI Legal team.

    _____________________________________________________________________________________________

    KI Legal focuses on guiding companies and businesses throughout the entire legal spectrum. KI Legal’s services generally fall under three broad-based practice group areas: Transactions, Litigation and General Counsel. Its extensive client base is primarily made up of real estate developers, managers, owners and operators, lending institutions, restaurant and hospitality groups, construction companies, investment funds, and asset management firms. KI Legal’s unwavering reputation for diligent and thoughtful representation has been established and sustained by its strong team of reputable attorneys and staff. For the latest updates, follow KI Legal on LinkedIn, Facebook, and Instagram. For more information, visit kilegal.com
    Promote Mechanics in Real Estate Joint Ventures
    Real Estate Law
  • Defendants who face breach of contract damages claims can assert several defenses to mitigate, or altogether eliminate, a potential award of damages against them. It is up to counsel to assert these affirmative defenses at the time a defendant responds to the allegations asserted in the lawsuit's complaint.

    The first such defense is that of duplicative damages. The law is equitable in that it prohibits plaintiffs, even successful plaintiffs with strong cases, from recovering twice for a single breach or circumstance. Similarly, a defendant can assert double recovery as a defense which, if successful, would bar the plaintiff from recovering under two or more claims because such recovery would amount to an impermissible double recovery.

    Next, there is the concept of liquidated damages. Where parties can reasonably predict the amount of damages that either may incur if one party were to breach his or her obligations under a contract, the parties can draft a liquidated damages clause in the contract that sets forth the amount of damages. Defendants can assert a liquidated damages limitation as a defense to a claim for breach, asserting that plaintiff’s damages are limited to the amount agreed upon by the parties at the time of contracting. Courts generally uphold and enforce liquidated damages clauses, so long as they are reasonable and not contrary to public policy. A defendant who believes a liquidated damages clause is unenforceable may so assert as a defense to a claim for breach. In addition to a liquidated damages clause being contrary to public policy or unreasonable, such a provision may also amount to a penalty when the amount is grossly disproportionate to the amount of plaintiff’s actual damages. Such penalties are unenforceable, and courts will decline to allow a plaintiff to recover under such a liquidated damages provision.

    A contract may also limit the types of damages a non-breaching party may recover. It is important for a defendant to understand the terms of a contract to which they are bound, because such terms may outrightly prohibit plaintiff from recovering the damages they are now seeking. For example, a contract may prohibit recovery of incidental damages, such as reliance damages, and therefore plaintiff cannot now assert a claim for reliance damages in their complaint.

    A plaintiff bears a duty to mitigate the damages they incur. A failure to mitigate damages, such as when plaintiff fails to locate additional buyers for the goods that defendant was contractually bound to purchase, causing the value of the goods to decline, is limited in their recovery due to their failure to mitigate their damages.

    Finally, it is important to understand that in New York, plaintiffs cannot recover damages that are too speculative or remote to be compensable. A plaintiff bears the burden of proving the damages they assert against the breaching party with evidence and statistical analysis supporting the amount of damages they seek.

    If you have questions about defenses for breach of contract damages, or need help with your particular commercial dispute matter, KI Legal’s knowledgeable litigation attorneys are here to help. Schedule a free consultation by calling (212) 404-8644 or emailing info@kilegal.com.

    This information is the most up to date news available as of the date posted. Please be advised that any information posted on the KI Legal Blog or Social Channels is being supplied for informational purposes only and is subject to change at any time. For more information, and clarity surrounding your individual organization or current situation, contact a member of the KI Legal team.

    _____________________________________________________________________________________________

    KI Legal focuses on guiding companies and businesses throughout the entire legal spectrum. KI Legal’s services generally fall under three broad-based practice group areas: Transactions, Litigation and General Counsel. Its extensive client base is primarily made up of real estate developers, managers, owners and operators, lending institutions, restaurant and hospitality groups, construction companies, investment funds, and asset management firms. KI Legal’s unwavering reputation for diligent and thoughtful representation has been established and sustained by its strong team of reputable attorneys and staff. For the latest updates, follow KI Legal on LinkedIn, Facebook, and Instagram. For more information, visit kilegal.com.
    Defenses to Contract Damages in New York
    Contractual Disputes
  • An important beginning step in developing a construction project is selecting a project delivery system for the project. When a project delivery system is selected, the party performing the physical construction work is determined. The party doing the physical construction work can be either the general contractor, construction manager at risk, or design-builder. Even though pricing mechanisms are more commonly paired with specific delivery systems, an owner has the ability to choose how it pays for the construction being done.

    The most common construction pricing methods used are:

    1. fixed price or lump sum (stipulated sum);
    2. unit prices;
    3. cost of the work plus a fee (often known as cost-plus); and
    4. cost of the work with a guaranteed maximum price (also referred to as “GMP”).

    A property owner should choose a construction pricing structure based on factors like:

    1. the nature and complexity of the project;
    2. market conditions;
    3. the status of the design;
    4. the duration of the project;
    5. the need for a fixed price before beginning construction; and
    6. the owner’s development expertise.

    Under a fixed price contract, a contractor is retained to perform the work. The contractor gives the owner the total price for the construction including the contractor’s overhead costs and profit. The fixed price contract is usually used in a “design-bid-build” project delivery system and less commonly, but still frequently, used in a construction manager at risk or design-build project delivery systems. Many property owners choose to utilize a fixed price contract because of the budget certainty provided in knowing the total cost of construction, assuming there are no scope changes.

    Public works, engineering projects, and horizontal constructions, such as roads, often are built pursuant to unit price contracts. Unite price contracts are best used on projects that consist of repetitive tasks that are easily measured. Some unit price contracts include clauses that allow for equitable adjustments to the unit prices when the quantity of the line item performed is materially different than the estimated bid amount. Unit prices help to reduce bid inflation but require the owner to more strictly oversee construction. Under a cost-plus contract, the payment clauses require the property owner to pay the builder the actual cost of performing the work (payment on a time material basis) and an additional fee that compensates the builder for its overhead costs and includes profit. The cost-plus pricing structure is usually used when the owner wants to start construction before the design is finalized and in situations when the builder has a better bargaining position that enables it to place the risk of market price fluctuations in materials or increases in labor costs during the project. The contractor’s fee can be calculated: (1) as a percentage of the cost of work, payable with each payment requisition; (2) as a fixed amount payable in monthly installments; or (3 )as reimbursement for the actual cost of the fee components.

    A GMP contract is a cost-reimbursable contract with a named price that dictates the price for the total construction. These contracts are most commonly used when there is a construction manager at risk. However, a GMP contract can be used in a design-build scenario when the design and construction are done by a single entity. A GMP contract should include the construction manager’s responsibilities during the pre-construction phase and the construction phase. The construction manager is then paid on a cost-reimbursable basis after setting up the GMP. Despite the conceptual budget certainty that accompanies a GMP contract, it is important to be aware of inflation of the GMP by the construction manager or design-builder.

    For more information on construction pricing, or for help on your next real estate deal, reach out to the knowledgeable real estate attorneys at KI Legal by calling (212) 404-8644 or emailing info@kilegal.com

    This information is the most up to date news available as of the date posted. Please be advised that any information posted on the KI Legal Blog or Social Channels is being supplied for informational purposes only and is subject to change at any time. For more information, and clarity surrounding your individual organization or current situation, contact a member of the KI Legal team.

    ___________________________________________________________________________________

    KI Legal focuses on guiding companies and businesses throughout the entire legal spectrum. KI Legal’s services generally fall under three broad-based practice group areas: Transactions, Litigation and General Counsel. Its extensive client base is primarily made up of real estate developers, managers, owners and operators, lending institutions, restaurant and hospitality groups, construction companies, investment funds, and asset management firms. KI Legal’s unwavering reputation for diligent and thoughtful representation has been established and sustained by its strong team of reputable attorneys and staff. For the latest updates, follow KI Legal on LinkedIn, Facebook, and Instagram. For more information, visit kilegal.com.

    Construction Pricing: Understanding Pricing Structures
    Construction,  Real Estate and Finance
  • While the Fair Labor Standards Act (FLSA) sets minimum wage payment requirements at the federal level, states are free to enact their own minimum wage requirements. A state may not, however, set its minimum wage below the federal standard. In New York, for example, the minimum wage rate is higher than the federal minimum wage rate.

    Pursuant to the New York Minimum Wage Act, the minimum wage in New York differs depending on the employer’s location and industry, as well as the employee’s duties. However, in all locations, the New York State minimum wage is higher than that of the FLSA and is among the highest in the country. In New York City and Nassau, Suffolk, and Westchester Counties the minimum wage is $15.00 per hour. In the rest of the state the minimum wage is $14.20 per hour but is scheduled for annual increases until it reaches $15.00 per hour.

    New York law generally incorporates the FLSA overtime pay requirements for calculating overtime payments for nonexempt—i.e., hourly—employees. A nonexempt employee who does not live in his or her employer’s facilities must receive overtime if he or she works more than forty (40) hours in any workweek.[1] New York law generally defines a workday as eight (8) hours and a workweek as Sunday to Saturday. Overtime pay is calculated at one and a half (1.5) times the employee’s regular rate of pay per hour. So, for example, if a nonexempt employee works forty-eight (48) hours in one workweek and his regular rate of pay is $15.00 per hour, the employee’s pay for that week should be calculated as follows: ($15.00 x 40) + ($22.50 [overtime rate] x 8 [overtime hours]) = $780.

    Certain categories of employees are exempt from New York’s overtime requirements. In other words, certain employees are not eligible for overtime pay even if they work more than forty (40) hours in one workweek. The primary exemption categories are the Executive and Administrative exemption categories (also known as “white-collar” exemptions). In order to qualify for the executive or administrative exemptions, employees must meet a minimum salary threshold, which in NYC and Nassau, Suffolk, and Westchester Counties is $1,125 per week, and in all other counties is $1,064.25 per week.[2] The following are examples of other employment categories exempt from the New York Minimum Wage Act’s overtime requirements: government employees; part-time babysitters; taxicab drivers; volunteers, learners, or apprentices for non-profit institutions; counselors in a children’s camp; newspaper deliverers; and students doing non-profit work in a college or university fraternity, sorority, student association, or faculty association.

    Failure to comply with the New York State Minimum Wage Act can lead to serious consequences for employers. First, violating the Act’s minimum wage and/or overtime requirements can lead to an employee, or group of employees, filing a civil lawsuit against the employer. As a result of such a lawsuit, an employer may be held liable for all unpaid wages, liquidated damages of up to 100% of the unpaid wages, interest on the unpaid wages at a 9% annual rate, and attorneys’ fees and costs. On top that, wage and hour litigation can be timely, expensive, and detrimental to the employer’s reputation.

    Secondly, the New York State Department of Labor may bring an administrative action on behalf of employees – a/k/a “NYS Department of Labor audit”. The potential consequences of an administrative action by the NYDOL are identical to those of a civil lawsuit brought by an employee, except for the annual interest requirement on unpaid wages.

    Thirdly, the NYDOL can also issue a compliance order, which directs employers to make various payments within a certain time period. The compliance order can direct the employer to make the following payments: (1) all unpaid wages; (2) liquidated damages equal to 100% of the unpaid wages; (3) interest on the unpaid wages at a 16% annual rate; (4) at the discretion of the NYDOL, an additional 15% in damages if the employer does not comply with the compliance order within ninety (90) days; and (5) a civil penalty of up to 200% of the unpaid wages, if the employer previously violated minimum wage or overtime laws, or willfully or egregiously fails to pay wages.

    Finally, an employer who fails to pay minimum wage or overtime may also be subject to criminal penalties. For an initial failure to pay, employers can be charged with a misdemeanor and sentenced to imprisonment for up to one year and a fine between $500 and $20,000. For a subsequent failure to pay within six (6) years of a prior failure, employers can be charged with a felony and sentenced to imprisonment up to one year and one day as well as a fine between $500 and $20,000.

    At KI Legal, our experienced Labor and Employment Division is dedicated to helping businesses comply with the complex wage and hour laws in New York State. It is crucial for employers to ensure they are compliant to avoid potential legal, financial, and reputational consequences. Our team of legal experts is here to provide guidance and support to help your business avoid costly litigation and maintain a positive reputation. Don't risk the consequences of non-compliance, contact KI Legal today to ensure your business is meeting all its obligations. Call (212) 404-8644 or email info@kilegal.com for a free consultation today.

    This information is the most up to date news available as of the date posted. Please be advised that any information posted on the KI Legal Blog or Social Channels is being supplied for informational purposes only and is subject to change at any time. For more information, and clarity surrounding your individual organization or current situation, contact a member of the KI Legal team.

    ____________________________________________________________________________________

    KI Legal focuses on guiding companies and businesses throughout the entire legal spectrum. KI Legal’s services generally fall under three broad-based practice group areas: Transactions, Litigation and General Counsel. Its extensive client base is primarily made up of real estate developers, managers, owners and operators, lending institutions, restaurant and hospitality groups, construction companies, investment funds, and asset management firms. KI Legal’s unwavering reputation for diligent and thoughtful representation has been established and sustained by its strong team of reputable attorneys and staff. For the latest updates, follow KI Legal on LinkedIn, Facebook, and Instagram. For more information, visit kilegal.com.

     

    [1] A nonexempt employee who lives on his or her employer’s premises must receive overtime if he or she works more than forty-four (44) hours in any workweek. Furthermore, farm laborers must be paid at an overtime rate for hours worked over sixty (60) in one calendar week and is entitled to at least twenty-four (24) consecutive hours of rest each calendar week. If, however, the farm laborer chooses to work during this rest period, he or she is entitled to paid at the overtime rate.

    [2] Federal law also has a Professional exemption, which has a minimum weekly salary threshold of $684. Since New York law does not have this exemption, employers must ensure they meet this federal threshold for exempt “professional” employees.

    Minimum Wage and Overtime Requirements under the NY Minimum Wage Act, Exceptions, and Enforcement
    Wage & Hour Employment
  • Real estate joint ventures are a popular investment vehicle for individuals and entities looking to pool their resources and expertise to undertake real estate projects. These joint ventures involve multiple parties contributing capital and sharing in the profits and losses of the venture. To ensure a smooth operation and fair distribution of returns, it is essential to establish clear capital contribution and distribution provisions. In this article, we will explore the importance of these provisions and some key considerations when structuring them in real estate joint ventures.

    Capital Contributions:

    What are capital contributions? Capital contributions are the funds or assets that each party brings into the joint venture. These contributions are crucial for financing the acquisition, development, or operation of the real estate project. When structuring capital contribution provisions, it is important to consider the following:

    1. Initial Contributions

    Clearly define the initial capital contributions required from each party. This can be in the form of cash, property, or other assets. The contributions should be proportionate to each party's ownership interest in the joint venture.

    2. Additional Contributions

    Determine whether additional capital contributions may be required during the course of the joint venture. This could be necessary for unforeseen expenses, capital improvements, or to meet certain financial milestones. Establish the process for requesting and approving additional contributions to ensure transparency and fairness.

    3. Default Provisions

    In the event that a party fails to make a required capital contribution, establish default provisions that outline the consequences. This may include dilution of ownership, penalties, or the ability for other parties to make the contribution on behalf of the defaulting party.

    Distribution Provisions:

    What are distribution provisions? Distribution provisions determine how profits and losses are allocated among the joint venture partners. These provisions play a crucial role in determining the financial benefits and risks associated with the venture. Consider the following when structuring distribution provisions:

    1. Preferred Returns

    Determine if any party is entitled to a preferred return on their capital contributions. A preferred return ensures that certain partners receive a specified rate of return before other distributions are made. This can be particularly relevant when one party has contributed a significant amount of capital or has taken on additional risks.

    2. Profit Sharing

    Establish the method for sharing profits among the partners. This can be based on ownership percentages or other agreed-upon formulas. Consider whether profits will be distributed on a periodic basis or upon the occurrence of certain events, such as the sale or refinancing of the property.

    3. Loss Allocation

    Determine how losses will be allocated among the partners. This can be based on ownership percentages or other agreed-upon formulas. Consider whether losses will be allocated in the same manner as profits or if there will be any special provisions for sharing losses.

    4. Tax Considerations

    Take into account the tax implications of the distribution provisions. Different distribution structures can have varying tax consequences for the partners. Consult with tax professionals to ensure that the distribution provisions are structured in a tax-efficient manner.

    5. Waterfall Provisions

    Consider implementing waterfall provisions to outline the order in which distributions will be made. This can help prioritize the repayment of capital contributions, preferred returns, and profit sharing.

    It is important to note that capital contribution and distribution provisions should be clearly documented in a joint venture agreement. This agreement should be drafted with the assistance of legal professionals experienced in real estate transactions to ensure compliance with applicable laws and to protect the interests of all parties involved.

    Capital contribution and distribution provisions help establish the financial framework for the venture and ensure a fair and transparent allocation of profits and losses. By carefully structuring these provisions and seeking professional advice, joint venture partners can mitigate potential disputes and maximize the financial benefits of their real estate investments. KI Legal’s Transactional attorneys are well versed in these matters and are prepared to help guide you through the process. For more information on commercial real estate ventures, or for help with your particular real estate venture at hand, contact us at (212) 404-8644 or email info@kilegal.com to discuss.

    This information is the most up to date news available as of the date posted. Please be advised that any information posted on the KI Legal Blog or Social Channels is being supplied for informational purposes only and is subject to change at any time. For more information, and clarity surrounding your individual organization or current situation, contact a member of the KI Legal team.

    ___________________________________________________________________________________

    KI Legal focuses on guiding companies and businesses throughout the entire legal spectrum. KI Legal’s services generally fall under three broad-based practice group areas: Transactions, Litigation and General Counsel. Its extensive client base is primarily made up of real estate developers, managers, owners and operators, lending institutions, restaurant and hospitality groups, construction companies, investment funds, and asset management firms. KI Legal’s unwavering reputation for diligent and thoughtful representation has been established and sustained by its strong team of reputable attorneys and staff. For the latest updates, follow KI Legal on LinkedIn, Facebook, and Instagram. For more information, visit kilegal.com.

    Capital Contributions and Distribution Provisions in Real Estate Joint Ventures
    Joint Ventures,  Real Estate and Finance
  • New York City has a long history and well-developed body of law in the world of business torts. Among the most common of these torts is fraud. Throughout the course of business, fraud may come about via contract disputes, the purchase and sale of goods, securities transactions, and other business dealings and transactions.[1] Claims of fraud may take several forms, but in this article, we will discuss fraudulent concealment. What is fraudulent concealment? Fraudulent concealment is defined as when a one party deliberately hides information that is critical to the other’s decision to invest, buy, sell, or contract with another party.[2]

    The elements of fraudulent concealment are similar to that of common law fraud in New York. In New York the elements of fraudulent concealment are:

    1. “a relationship between… parties that create a duty to disclose,
    2. knowledge of the material facts by the party bound to disclose,
    3. scienter,
    4. [justifiable] reliance, and
    5. damage.”[3]

    Generally speaking, a relationship between parties is created when there is some sort of contractual, confidential, or fiduciary duty that exists between the two. However, there are some cases in New York where such contractual relationships do not exist, but disclosure of some material facts is required under the law. This is known as the “special facts” doctrine, and in New York it is relevant “where one party's superior knowledge of essential facts renders a transaction without disclosure inherently unfair.”[4] For example, in the aforementioned cited case, P.T. Bank Cent. Asia v. ABN AMRO Bank N.V, the plaintiffs attempted to show that although the defendant was not a party to a transaction, they had information and knowledge that a party to the transaction had overstated an appraisal value that was necessary to the transaction.[5] If it could be proven before the court that the concealment of this information was material information that would have significantly altered the transaction, then a plaintiff may have a claim against the defendant for fraudulent concealment under the “special facts” doctrine.

    Despite there being a duty to disclose in many cases, the element of justifiable reliance must be met even if a party chooses to conceal material information or facts from a plaintiff. This means that in order to recover damages in a case for fraudulent concealment, a plaintiff must have been justified in relying on the omission of information. A plaintiff could not be found to have justifiably relied on this lack of information if he failed to find this information, if it was a matter of public record, or could have been found by exercising a standard care of due diligence.[6] For example, if a plaintiff could have easily researched a stock price of a company it is looking to invest in, but for some reason a company/defendant is exaggerating such price during a meeting, then the defendant should not be held liable for fraudulent concealment, as such facts are easily verifiable.

    It is important that you are aware of the legal hurdles and dangers that may await your business. For help navigating business torts, contracts, and prospective dealings, contact KI Legal by calling (212) 404-8644 or emailing info@kilegal.com so our experienced team of attorneys can help protect your business and their interests.

    This information is the most up to date news available as of the date posted. Please be advised that any information posted on the KI Legal Blog or Social Channels is being supplied for informational purposes only and is subject to change at any time. For more information, and clarity surrounding your individual organization or current situation, contact a member of the KI Legal team.

    _____________________________________________________________________________________

    KI Legal focuses on guiding companies and businesses throughout the entire legal spectrum. KI Legal’s services generally fall under three broad-based practice group areas: Transactions, Litigation and General Counsel. Its extensive client base is primarily made up of real estate developers, managers, owners and operators, lending institutions, restaurant and hospitality groups, construction companies, investment funds, and asset management firms. KI Legal’s unwavering reputation for diligent and thoughtful representation has been established and sustained by its strong team of reputable attorneys and staff. For the latest updates, follow KI Legal on LinkedIn, Facebook, and Instagram. For more information, visit kilegal.com.

     

    [1] Omid H. Nasab, 2022 in New York Business Litigation 469–489, 469 (2022).

    [2] Id.

    [3] Aetna Cas. & Sur. Co. v. Aniero Concrete Co., 404 F.3d 566, 582 (2d Cir. 2005).

    [4] P.T. Bank Cent. Asia v. ABN AMRO Bank N.V., 301 A.D.2d 373, 378, 754 N.Y.S.2d 245, 252 (2003).

    [5] See id.

    [6] See Nat'l Union Fire Ins. Co. of Pittsburgh, P.A. v. Red Apple Grp., Inc., 273 A.D.2d 140, 141, 710 N.Y.S.2d 48, 49 (2000).

    Business Fraud in NY: Fraudulent Concealment
    Business Fraud
  • Opening a business, or moving your business location, can be an extremely expensive endeavor. Aside from the cost of employees, inventory, and supplies, rent often is a business’ largest monthly expense. Luckily, many landlords understand this and are willing to work out “free rent periods” upon the signing of a new lease or after lease renewal negotiations.

    What is a “free rent” period? A free rent period is a period of time when the tenant can use and occupy the leased space without needing to make its monthly rent payment. The length of the lease term, the size of the tenant’s business and negotiating power, the related issues of which party (between landlord and tenant) is responsible for the nature of the work needed to prepare the space for the tenant’s occupancy will often impact the free rent period negotiations between a landlord and a tenant. For example, a landlord will likely grant a generous free rent period to a large institutional tenant that is performing its own renovations to the leased space. Additionally, when a tenant signs a long-term lease at a landlord-friendly price, a landlord will provide a longer free rent period because landlords often see the value in having this tenant and the security this tenant can provide. The landlord will therefore forego a portion of rent at the onset of the lease to solidify a deal that will generate profit for many years to come. On the other hand, a small tenant that occupies a small amount of space at a low rent, is not likely to receive more than 1 or 2 months of free rent from a landlord. It is simply not worth it for the landlord.

    There are numerous ways to structure free rent periods in a lease. A tenant may want all the free rent at the beginning of a lease term to allow its business to develop while keeping costs as low as possible. Alternatively, a tenant may want to structure its free rent to apply at various points during the lease term. The selected periods usually depend on the tenant’s business structure and projections. Not every landlord will grant a tenant the ability to exercise its free rent periods at random points throughout the lease term. As mentioned above, it will depend on the specific situation.

    It is important to note, free rent, does not mean that the tenant will never be responsible for the rent that the landlord is foregoing. More often than not, if a tenant defaults under the terms of the lease, one of the landlord’s remedies will be to collect the rent that was waived during the free rent period.

    When negotiating a lease every party should be represented by an attorney who understands the different factors that impact free rent period negotiations and how the best outcome can be obtained. For more information on free rent, or for help on your next lease agreement, reach out to the knowledgeable real estate attorneys at KI Legal by calling (212) 404-8644 or emailing info@kilegal.com

    This information is the most up to date news available as of the date posted. Please be advised that any information posted on the KI Legal Blog or Social Channels is being supplied for informational purposes only and is subject to change at any time. For more information, and clarity surrounding your individual organization or current situation, contact a member of the KI Legal team.

    ___________________________________________________________________________________

    KI Legal focuses on guiding companies and businesses throughout the entire legal spectrum. KI Legal’s services generally fall under three broad-based practice group areas: Transactions, Litigation and General Counsel. Its extensive client base is primarily made up of real estate developers, managers, owners and operators, lending institutions, restaurant and hospitality groups, construction companies, investment funds, and asset management firms. KI Legal’s unwavering reputation for diligent and thoughtful representation has been established and sustained by its strong team of reputable attorneys and staff. For the latest updates, follow KI Legal on LinkedIn, Facebook, and Instagram. For more information, visit kilegal.com.

    Free Rent
    Real Estate and Finance
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