Contractor Financial Difficulty

If a general contractor cannot pay its subs in full for their work on the buildout the tenant can be held hostage as the subcontractors will not want to give a lien waiver without full payment. A potential solution to this problem is to ask the contractor for a list of the subs and the amounts owed to such subs for the buildout. You then request that joint checks payable to the contractor and sub be issued to ensure that the contractactor and all subs are being paid in full for the work they are doing on the buildout. This is opposed to the situation where you pay the general contractor only and learn later that the general contractor decided to apply the payment to some project other than your buildout where they owe the same subcontractors. You may have a claim against the general contractor for doing this but you will be in line to get paid with the other creditors the struggling general contractor surely has.

As always your trusted resource for practical legal advice.
Justin Daniels

WHAT IS A PREFERENCE

When you receive the demand for repayment you are the recipient of a preference action. The bankruptcy trustee has authority under the law to recover certain payments made to creditors within 90 days of the filing for bankruptcy provided the payment meets certain criteria. In essence, a bankruptcy trustee can sue your company to recover payments made by the bankrupt customer in the 90 period prior to the filing of the bankruptcy petition.

WHAT CAN YOU DO TO DEFEND AGAINST A PREFERENCE ACTION

The bankruptcy code provides defenses against a preference action. They include the following:

1) Contemporaneous Exchange for New Value: This means that if you hear a customer is having financial trouble you may require that they pay you at the time they purchase the goods or very shortly thereafter. If this is not practical, then understand you may run the risk of possibly having a trustee recover an eventual payment to you later.

2) Ordinary Course of Business: This defense is available if you can prove the credit transaction is recurring and is in the ordinary course of your business. You must bear in mind that a Bankruptcy Court’s analysis of what is ordinary course will vary from industry to industry.

3) New Value: This defense is available when you provide additional products and services as a direct result of receiving payment for prior products and services.

Your business attorney can provide tremendous value to your business by helping you arrange your credit practices with customers so that you have defenses when that preference letter comes in the mail. That preparedness is far preferable to having to give back the payment you received and ultimately ending up with pennies on the dollar.

For more information, contact Justin Daniels

I recently encountered a court case the demonstrates this principle and its disastrous consequences. A landlord and tenant quickly entered into a lease where the tenant was leasing “premises” defined as approximately half the available office space. The parties further agreed that the tenant would have the right to purchase the property. The parties, however, in their haste, failed to define what property meant. The tenant later exercised its right to purchase the property, however, the landlord refused to honor the option. The parties predictably ended up in litigation over the word property.

Definitions of Property and Premises are not Identical

After both parties expended significant sums in legal fees, the court of appeals determined that the lease defined premises but the option to purchase was for the property. The term property, however, was not defined anywhere in the lease. The court concluded that the option failed and was not enforceable because it did not define the property subject to the purchase option.

Haste makes litigation waste. A competent commercial real estate attorney can save you thousands of dollars in litigation fees by properly drafting this lease by defining premises and separately defining the property by attaching the legal description of the property to the lease. You may also not be aware that it’s a good idea to file a memorandum of the lease in the county real estate records so any third party who wishes to purchase the property will have notice of the purchase option. Many people, unfortunately, belatedly realize the value of a good commercial real estate attorney only after feeling the pain of five or six figure litigation costs. Avoid these costly mistakes by employing a seasoned commercial real estate attorney.

As always your trusted resource for practical legal advice.

After many hard years of work and building, you decide it is time to sell your business. Before you uncork that champagne bottle and buy your yacht, you will need to think about issues and plan in advance of selling your business. You should carefully consider the following three things when you think about selling your business.

I can address all the issues of the business during the sales process, and they won’t affect the price or terms (also called “putting head in the sand” syndrome).

Business owners wishing to sell their business often neglect or ignore issues that the business has in the accounting, financial controls and legal areas that can significantly impact the ability to smoothly sell the business. Business owners who do not have an outside accounting firm review the financial statements prior to marketing the business can find a rude awakening when a prospective buyer does its due diligence on those financial statements and finds irregular accounting practices. Similarly, Sellers who wish to sell the real estate along with the business should not leave remediation of environmental issues or resolution of liens until the negotiation of the sale of the business. Dave Chambless, at Abraxis Business Services, smartly sums up the likely result of this problem: “It is very important that all significant business, accounting and legal issues get addressed before the sale of a business – not during the sale of a business. Many of the risks with which the seller has lived and is comfortable often become significant issues during the deal (as a buyer may not want to live with such issues or, if they must, they want a lower purchase price).”

I can time the sale of my business to maximize its price.

Business owners can no better time the market for a sale than you or I can time when the stock market will hit bottom. I have watched time and again as business owners wait to sell the business at a time they think the revenue of the business is at its maximum. This is typically a mistake as there is much more involved in the process. Dave furthers this sentiment as follows: “A common mistake that owners make is to try to sell their business based on their personal timing, and they do not take into account market activity (e.g. their business segment is experiencing heavy M&A activity), industry shifts, their commitment level to the business, or many of the other factors that can affect a business value. A good rule of thumb is to sell the business as it is increasing its revenues and cash flow. This is when it is the most attractive to others! When it has reached its peak, it is too late.”

A Bird in the Hand is better than an Earnout.

An earnout means that all or a portion of the purchase price will be paid to the seller at a point in the future provided that the business being sold meets certain post closing financial performance criteria. Many seller’s agree to an earnout in the hope of receiving additional money after closing assuming the business will perform well financially after the closing. What they fail to consider is that the buyer may wish to run the business differently post closing or may account for sales differently and that either may cause the business to miss the financial targets. Either situation results in an unhappy seller who did not receive the additional earnout revenue. A seller may be better off most times accepting the bird in hand in the form of a lump sum cash payment at closing as opposed to the earnout in the bush that may never come to pass.

Those who prepare for the sale of their businesses will be rewarded with higher prices for their businesses and smoother pathways to the closing tables, while those who do not address these three issues will find the process difficult, frustrating and expensive.

Many business owners do not realize their general liabililty insurance policies do not cover liability exposure created by employee benefit programs that their company offers. Bill Snellings, owner of the Snellings Walters Insurance Agency in Sandy Springs, explains the issue this way:

Mediation and arbitration are generally contractually agreed upon substitutes for resolving disputes as opposed to resorting to a court to resolve it. The purpose and goals of mediation and arbitration, however, are quite different and often misunderstood.

The purpose of mediation is to have the parties sit down with a neutral third party who tries to facilitate a monetary or other settlement to the dispute. Neither party has a legal obligation to settle the dispute, and any statements made during a mediation are not admissible evidence in the event no settlement is reached. Mediation can be a highly efficient, cost effective tool. It can conclude quickly or it can take several hours as the mediator conducts multiple rounds of shuttle diplomacy between the parties. My personal experience is that after many hours the parties feel personally invested in the process and neither wishes to leave without settling the dispute. It is important to remember, however, that because the mediator’s job is to get a settlement, regardless of its terms, it is up to you to determine if you can live with the settlement terms. In the event the mediation fails and an arbitration provision is not contained in the contract, you can enforce your rights in a court of law.

Binding arbitration provisions, on the other hand, are a substitute for the formal process of a court. Binding arbitration is typically conducted in front of one or three arbitrators and the arbitration is much like a mini trial with rules of evidence. Arbitration typically proceeds somewhat faster than a case in court, and typically at a somewhat lower cost in attorney time and expense. The result of the arbitration is final and the parties can rarely successfully appeal an arbitrators’ decision even if it appears to be completely unreasonable or unfair.

]]> http://maxsell.net/mediation-vs-arbitration-whats-the-difference/feed/ 4 http://maxsell.net/georgia-non-competes-do-the-risks-outweigh-the-benefits/ http://maxsell.net/georgia-non-competes-do-the-risks-outweigh-the-benefits/#comments Fri, 22 Aug 2008 01:28:34 +0000 Justin Daniels http://maxsell.net/?p=571

The most recent Atlanta Business Chronicle included an article that SunTrust was relieving certain of its corporate officers from their non compete agreements. The article further discussed the most important aspect of non competes when you hire a chief executive officer or a salesperson in Georgia.

In Georgia, non competes are very difficult to enforce, more importantly, a bad non compete also results in a court throwing out a perfectly enforceable non solicitation provision. What SunTrust and other companies are appreciating is that relationship driven businesses are usually better off leaving out a non compete rather than risk losing an enforceable non solicitation clause if a court finds a non compete unenforceable.

Remember restrictive covenants come in four basic types:

1) Non competes: Don’t open up down the street and compete with my business;

2) Non solicitation of customers: Don’t solicit my clients and customers;

3) Non solicitation of employees: Don’t solicit my employees;

4) Confidential information and trade secrets: Don’t disclose my salary list or don’t disclose my proprietary software.

As always, your trusted legal resource for practical advice.

Additional Real Estate Resources:

• Information for Buyers
• Information for Sellers
• Real Estate Homestead Idea

]]> http://maxsell.net/georgia-non-competes-do-the-risks-outweigh-the-benefits/feed/ 0 http://maxsell.net/georgia-general-contractors-need-a-license/ http://maxsell.net/georgia-general-contractors-need-a-license/#comments Sun, 10 Aug 2008 06:57:35 +0000 Justin Daniels http://maxsell.net/?p=559

As of July 1, 2008 residential and general contractors who do work in Georgia must obtain a license from the State Licensing Board for Residential and General Contractors.

All applicants will have to pass a two part examination and pay a licensing fee. The law provides an exemption for homeowners who wish to make their own home improvements.

You can learn more by using the following link. http://sos.georgia.gov/plb/faqs/49%20faqs.htm

Check out:  Georgia General Contractor Directory

Partners

1. Confirm all financial and legal terms from lease LOI and properly reflected in the lease document.
   
2. CAM Charges:
   a) Did landlord included capital expenses in CAM.
   b) Are CAM charges capped on an annual basis and is this CAM cap a cumulative one?
   c) Is there an audit right, what are terms for an approved audit firm, under what circumstances is the landlord responsible for tenants fees if there is a CAM overcharge.
   
3. Repairs
   a) Does the lease clearly explain what repairs the landlord or tenant is responsible for especially as applied to HVAC.
   b) Does lease require that the landlord repair the roof only to pass such repair through as a CAM charge.
   
4. Indemnification: Does the lease include a corresponding provision that Landlord indemnify tenant for landlord’s negligence although many landlords will use the higher standard of gross negligence when a tenant requests this provision.
   
5. Personal Guaranty: Does the personal guaranty permit its termination prior to the end of the lease term. Does the personal guaranty cover just the “guarantor” or “guarantor and its assigns”.
   
6. Assignment:
   a) Does the lease require Landlord’s consent in Landlord’s sole discretion (it need not justify its reason for giving or withholding consent) or that it won’t be unreasonably withheld (a justifiable reason must be given for withholding approval).
   b) If lease is assigned does it also permit the termination of the guaranty and if so such termination language must also be in the guaranty.
   
7. Tenant Buildout:
   a) Make sure buildout is paid for by landlord and not a loan to tenant that must be repaid.
   b) If landlord does not timely complete the buildout there should be liquidated damages such as free rent for each day of delay.
   c) If landlord’s failure continues beyond a certain time period the tenant has the right to terminate the lease.
   
8. Use of the Premises: general office versus a medical office. This distinction is important if a tenant wishes to sublease space. Medical office is a far narrower use than general office and therefore, far more restrictive when looking for prospective sublease tenants.
   
9. Option To Renew:
   a) Lease should spell out time period required for notice, (i.e 120 or 90 days prior to lease term ending.
   b) Lease must include some basis for calculating the new rent for the option period, it cannot say fair market rent at the time of the option.
   c) The tenant should be aware that the option period may allow landlord to bring current the CAM charges if they had been capped prior to the renewal term.
   
10. Right to Relocate Tenant: Many leases allow the landlord to relocate tenant under certain circumstances. The lease should be clear that if this happens landlord will pay for the entire move and the new space is substantially the same or higher in quality than the existing space.

If you have questions, please contact Justin.

JUSTIN S. DANIELS
WAGNER JOHNSTON & ROSENTHAL, P.C.
5855 SANDY SPRINGS CIRCLE, SUITE 300
ATLANTA, GEORGIA 30328
PHONE 404-261-0500
EMAIL: JSD@WJRLAW.COM

]]> http://maxsell.net/commercial-lease-legal-issues-checklist/feed/ 1 http://maxsell.net/dealing-with-deliquent-customers/ http://maxsell.net/dealing-with-deliquent-customers/#comments Fri, 20 Jun 2008 15:05:19 +0000 Justin Daniels http://maxsell.net/?p=483 Another Guest Post by local Commercial Attorney, Justin Daniels:

I have received several phone calls from upset clients lately who want to sue a delinquent customer back to the stone age over a $5,0000 or $10,000 account. The problem is that after you have hired an attorney and set aside time and effort on this matter, most people walk away feeling very unhappy with the result as most times they will not recover the full amount plus their attorney’s fees.

A practical approach to this problem is the following:

1) Spend additional time doing due diligence (run a credit check) with new accounts to avoid companies with bad payment histories. You may also consider requiring a full or partial retainer upfront for your products or services.

2) Track your A/R more closely and discuss potential issues with companies that are behind in their payments immediately to possibly structure a payment plan as some payment is better than no payment.

This is also a good time to review your contracts/engagement letters to make sure you have the following:

A) a clause that specifically says that if there is a dispute the winner collects its attorney fees. Please understand this is not a panacea as its in the court’s discretion to award what it thinks are reasonable attorney fees and their view can differ from your view. Also, don’t ever sue someone based solely on your conviction the other side’s behavior demands that attorney fees be awarded. After its over, many times you will find yourself disappointed.

B) When you contract with companies from other states include a provision that says that the parties consent to Georgia courts for jurisdiction for any dispute. This helps you overcome the other party’s objection that you should have filed the suit in their state and not Georgia. If this happens to you, after you untangle this legal mess, your attorney’s fees may exceed the amount of the claim and you have no assurance you will collect those fees in total.

As always your trusted resource for practical legal advice. Have a great weekend.