Real Estate

Restaurants and Bars Finally Opening Around Nationals Park

Since the first opening day at Nationals Park in 2008, fans have been anxiously awaiting the opening of bars and restaurants around the stadium.  But with the market collapse, it seems it took a winning season to jumpstart the development again.  Gordon Biersch opened on opening day this year, with several additional beer-centered establishments scheduled to open soon, including Bluejacket Brewery and Willie’s Brew & ‘Que.  For those not looking to partake in the suds, Kruba Thai and Sushi opened late last year and Osteria Morini, by famed New York chef Michael White, will open later this year.  In addition, completed condominiums and apartments in The Yards, a five-block area of development east of Nationals Stadium, are nearing full capacity.  Forest City Enterprises is developing 1.8 million square feet of commercial space and parks in addition to the 3,000 condominium units and apartments it intends to construct.  With all of these great new places to try, “take me out to the ballgame” is going to take on a whole new meaning!

Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. The author has provided the links referenced above for information purposes only and by doing so, does not adopt or incorporate the contents.

Submitted by:  Melissa K. Nelson

Boat Slip Rentals Are Income from Real Property

In a ruling that is good news for owners of waterfront property, the IRS has privately ruled that rentals of boat slips in a marina attached to an apartment complex are considered real property rental income.  This means that the slip rental income is acceptable income for REITs and tax-exempt entities.  The fact that these two types of large players in the real estate area can invest in income/residential rental projects gives private owners of these developments additional possible buyers.  You can read more about the ruling at:  www.kpmg.com/US/en/IssuesAndInsights/ArticlesPublications/taxnewsflash/Pages/irs-letter-ruling-boat-slip-rental-income-rent-from-real-property.aspx

Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. The author has provided the links referenced above for information purposes only and by doing so, does not adopt or incorporate the contents.

Submitted by: Jeffrey A. Markowitz

Tax Court Case Sheds Light on Status of Construction Workers

Contractors and developers who classify workers as independent contractors should review the U.S. Tax Court memorandum decision of Mieczyslaw Kurek, T.C. Memo 2013-64 (a link to the case can be found at www.smbiz.com).  The Tax Court applied a seven-factor test and concluded that workers hired on a project-by-project basis who met that test were employees, making the contractor liable for unpaid employment taxes.

Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. The author has provided the links referenced above for information purposes only and by doing so, does not adopt or incorporate the contents.

Submitted by: Jeffrey A. Markowitz

D.C. Housing Market Returning?

After months of record low real estate listings due to the threats of the “fiscal cliff” and “sequestration,” the D.C. market is finally starting to show an uptick in home values and number of sellers.  Single-family detached homes seem to have shown the largest price increase as compared to condominium units and townhomes during the past twelve months, although condominium units were the most popular product to buy during that same period.  Further, only certain neighborhoods around D.C. and Virginia are seeing the average home prices return to peak levels – mainly in areas near public transportation and closest to areas with a significant number of jobs.  However, potential buyers are facing stricter underwriting standards than they faced during the bubble.  Will these factors ultimately result in a bidding war amongst qualified buyers or will supply in less desirable areas begin to outweigh demand and ability to purchase?  Either way, the next six months will certainly bring change to the local housing market.

Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. The author has provided the links referenced above for information purposes only and by doing so, does not adopt or incorporate the contents.

Submitted by: Melissa K. Nelson

Recent Limitation of EPA's Authority to Establish TMDLs for Stormwater

The Chesapeake Bay watershed is undergoing a comprehensive and dramatic regulatory shift through the establishment of pollutant limits in the form of "Total Maximum Daily Loads" or "TMDLs."  A TMDL limits the quantity of a particular pollutant that may be released within the watershed.  Collectively, the TMDLs form a "pollution diet" that is reportedly structured to cause the Bay to meet defined water quality and use objectives by 2025.  Several states in the Bay watershed are continuing efforts to establish comprehensive TMDL regimes.  The U.S. Environmental Protection Agency ("EPA") has authority to establish TMDLs for pollutants that are not, in the EPA's opinion, adequately regulated by a state.

The EPA established a TMDL for stormwater applicable to a tributary of the Potomac River in an attempt to regulate the amount of sediment discharged to a creek.  A recent decision by the U.S. District Court for the Eastern District of Virginia held that the EPA exceeded its authority in establishing a TMDL on "stormwater."  The Court explained that the Clean Water Act ("CWA") only authorizes the EPA (and the states that derive authority from it) to regulate "pollutants."  While the sediment carried by stormwater is defined as a pollutant by the CWA, stormwater itself is not a pollutant.  The Court noted that attempts to increase regulatory authority beyond the precise definitions and statutory scheme adopted by Congress must be examined closely.  Accordingly, the Court held that the CWA does not permit the establishment of a TMDL for the flow of a nonpollutant, even if it is intended as a surrogate or proxy for a pollutant that the EPA may regulate.  See Va. Dep’t of Transp. v. U.S. Envt. Prot. Agency, 2013 WL 53741 (E.D. Va. Jan. 3, 2013).

The requirements and costs of compliance with TMDLs will increasingly impact local government budgets and land use and real estate development for the foreseeable future.

Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. The author has provided the links referenced above for information purposes only and by doing so, does not adopt or incorporate the contents.

Submitted by: Ryan D. Showalter

No Deduction for Costs on Foreclosed Property Held for Sale

The IRS just released a Field Attorney Advice (FAA) that a bank could not immediately deduct its out-of-pocket costs relating to foreclosed property that the bank held for sale.  The FAA’s holding would seem to apply to any lender who acquires property in a foreclosure (or a deed in lieu) where the lender immediately puts the property up for sale (as opposed to renting it).  The FAA states that the provisions of IRC Section 263A require that expenses such as real estate taxes, insurance, repairs, etc., must be capitalized and not deducted.  These expenses could be deducted, however, for foreclosed properties held for rental.  This FAA means that lenders acquiring properties that they immediately market will have to wait until the properties actually sell to recover their out-of-pocket costs of maintaining the properties.  The FAA in full can be found at:  www.irs.gov/pub.  On the site scroll to: irs-lafa and then scroll to 20123201F.

Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. The author has provided the links referenced above for information purposes only and by doing so, does not adopt or incorporate the contents.

Submitted by: Jeffrey A. Markowitz

Telecommuting – Yahoo Move Raises Interesting Questions on Office Space

There is an interesting article in Businessweek discussing the pros and cons of telecommuting following Yahoo’s new Executive V.P.’s revision of the company’s policy on working from home.  While technology makes telecommuting much easier, the article also highlights the benefits of in-person face time with co-workers.  In thinking about developing new office space, issues like office sharing, informal gathering areas and teleconferencing centers to allow remote face-to-face collaboration may be the wave of the future to meet both points of view. 
http://www.businessweek.com/articles/2013-02-25/why-wont-yahoo-let-employees-work-from-home

Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. The author has provided the links referenced above for information purposes only and by doing so, does not adopt or incorporate the contents.

Submitted by: Jeffrey A. Markowitz

Are pit bulls inherently dangerous animals? Maryland is not quite sure.

Legislation is pending in the Maryland General Assembly that would reverse an April 2012 ruling by the Maryland Court of Appeals which declared pit bull terriers an “inherently dangerous” breed of dog and held that if a pit bull is involved in an attack, then the owner is presumptively liable merely because of the breed of dog.   The Court also held the landlord liable because he had the right and opportunity to prohibit that breed of dog in the complex and the landlord knew, or should have known, about the presence of such a dog.  The Court created a situation in which it is no longer necessary that either the owner or the landlord have actual knowledge of the pit bull’s propensity towards being dangerous before being held liable.

The Maryland General Assembly is considering a bill that would reverse this designation, reinstating the state’s common-law rule which applies to all dogs that an owner must have actual knowledge of a dog's violent propensities prior to an attack to be held liable.  This would allow a pet owner to at least have a chance in court to prove that the dog was not known to be dangerous.  It remains to be seen whether this highly publicized case and legislation will cause developers, landlords or homeowners/condominium associations to implement rules that prohibit certain breeds of dogs in residential communities.

Tracey v. Solesky, 2012 WL 1432263 (Md. 2012).

Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. The author has provided the links referenced above for information purposes only and by doing so, does not adopt or incorporate the contents.

Submitted By: Melissa K. Nelson

Mosaic District – Redevelopment and Redesign

Anyone who has lived in Falls Church, Virginia is likely familiar with the previously run-down and severely outdated area formerly known as Merrifield, with its movie theater, which had become more known for violence than movies; fast food restaurants; and long since forgotten strip mall.  However, someone saw something in that area that others did not.  Potential.  Edens, a retail developer based in Columbia, South Carolina, has come in and completely revitalized the area with hip, new shops, many of which are one-of-a-kind in the Washington D.C./Northern Virginia area; a brand new Target; office space; residential apartments; and a hotel.  The result is an urban, mixed-use district which attracts the significant number of drivers who pass by it every day on Gallows Road and Lee Highway to actually stop in the restaurants, the boutique theater, and shops on their way home from work.  Some of them may even call the Mosaic District home one day.

Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. The author has provided the links referenced above for information purposes only and by doing so, does not adopt or incorporate the contents.

Submitted By: Melissa K. Nelson

New wave of ATM-accessibility lawsuits

Businesses providing ATMs to consumers should be aware of recent lawsuits targeting ATM accessibility. Federal regulations under the Americans with Disabilities Act (ADA), which took effect in March 2012, establish more exacting requirements for ATMs, including speech output, key surfaces and screen visibility. The ADA regulations require at least one ATM at a location to be compliant; if ATMs are both indoor and outdoor, the regulations view this as two separate locations and require two ADA-compliant ATMs.

The lawsuits typically attempt to create class actions to bring in other, unidentified plaintiffs who have been affected by ATMs that are not compliant with the ADA standards. So far, one firm has been behind more than 100 of the lawsuits filed in Texas, Ohio, Pennsylvania, and Georgia. As is often the case, such lawsuits are likely to increase as additional law firms and plaintiffs attempt to bring similar claims.

Miles & Stockbridge P.C has defended financial institutions in litigation involving ATM accessibility and assisted with planning for compliance. Should you have questions about this issue please call Kathleen Pontone in the Labor, Employment and Workplace Safety Group.

Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. At Miles & Stockbridge, an attorney-client relationship can be formed only by personal contact with an individual attorney, not by email, and requires our agreement to act as your legal counsel together with your execution of a written engagement agreement with Miles & Stockbridge P.C.

Submitted By: Kathleen Pontone

Health Care Tax Hits Real Estate Sales

Compared to the discussions about the increase in the capital gains tax rate from 15% to 20% for high earning taxpayers, little public comment has occurred on the 3.8% health care tax that could apply to gains from real estate sales.  There were some internet rumors that the tax applied to all real estate sales.  This is not the case, but the 3.8% tax will apply to gain on many real estate sales (including gains from the sale of a primary residence if it exceeds the exemption amounts of $250,000/single taxpayer and $500,000/married taxpayers) if the taxpayer’s income exceeds $200,000 for a single taxpayer or $250,000 for married taxpayers.  A brief description of how this will work on a home sale can be found at:  http://www.sullivanteam.com/blog/115/reminder-3-8--health-care-tax-starts-jan-1-2013

Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. The author has provided the links referenced above for information purposes only and by doing so, does not adopt or incorporate the contents.

Submitted by: Jeffrey A. Markowitz

Relative Rental OK for 1031

An important issue in qualifying for a tax-free exchange is that both the transferred property and the replacement property must be held for business or investment.  Rental of the property to a family member always carries some risk of the property qualifying, especially if the rent is below market.  In the recent case of William Adams, TC Memo 2013-7, however, the Tax Court ruled in favor of a taxpayer whose son and his family rented the replacement property at below market rent, holding that the rent was fair because the son agreed to substantially renovate the property.  A short summary of the case is available at www.tjlcpas.com/Blog.

Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. The author has provided the links referenced above for information purposes only and by doing so, does not adopt or incorporate the contents.

Submitted by: Jeffrey A. Markowitz

Façade Easement: No Value = No Deduction

The U.S. Tax Court in the case of Scheidelman, TC Memo 2013-18 denied a charitable deduction for a façade easement on a New York City brownstone townhouse.  The Tax Court had initially denied the deduction on the grounds that the appraisal secured by the taxpayer was inadequate to prove the deduction.  The Second Circuit reversed and sent the case back to the Tax Court.  On remand the taxpayer still lost.  The Tax Court found that although the taxpayer’s appraisal used a discounted method approved in prior cases, the appraisal did not take into account data as to the specific property.  The IRS expert looked at the market conditions in the property’s actual neighborhood and determined the façade easement had no impact on the house’s value.  Based on this case, taxpayers looking to take charitable deductions for conservation or façade easements should make sure their appraisals address the specific property’s decrease in value.

Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. The author has provided the links referenced above for information purposes only and by doing so, does not adopt or incorporate the contents.

Submitted by: Jeffrey A. Markowitz

Fannie Mae/Freddie Mac Sued for Transfer Taxes

Montgomery County, on behalf of itself, the State of Maryland and the other Maryland counties, has sued Fannie Mae and Freddie Mac for failure to pay Maryland state and county transfer and recordation taxes. Fannie and Freddie have claimed exemption from these taxes on the basis that they are instrumentalities of the federal government. Montgomery County is asserting that they are in fact private entities not covered by the exemption.  Other states and counties have brought similar suits. The ultimate resolution of the case could have an impact on how quasi-governmental agencies are taxed.  A brief article can be found by clicking here.

Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. The author has provided the links referenced above for information purposes only and by doing so, does not adopt or incorporate the contents.

Submitted by: Jeffrey A. Markowitz

Atapco Howard Square I Business Trust, et al v. Howard County Department of Finance

Real estate practitioners in Maryland should read the decision of the Maryland Tax Court in Atapco Howard Square I Business Trust, et al. v. Howard County Department of Finance.  The court correctly held that a lender foreclosing on an indemnity deed of trust is not responsible for the payment of the recordation tax attributable to the original recording of the foreclosed indemnity deed of trust and that the applicable recording office cannot require the payment of such recordation tax as a condition to recording the trustee’s deed.

Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. The author has provided any links that might be referenced above for information purposes only and by doing so, does not adopt or incorporate the contents.

Submitted by: John R. Rutledge

MDE to Discuss Proposed Regulations

On December 4, 2012, the Maryland Department of the Environment (“MDE”) will be holding a stakeholders’ meeting to discuss proposed regulations requiring notification to MDE by a responsible party when that party possesses evidence regarding a) a release of a controlled hazardous substance above certain regulatory concentrations or federal reportable quantity limits,  b) detection of free (or nonaqueous) phase hazardous substances underground,  c) disposal of hazardous wastes or industrial wastes without a permit, or d) abandoned container, tank or structure containing more than trace amounts of hazardous substances. 

The law will trigger reporting on a retroactive basis, which would be required 30 days after the regulation becomes final.  While this notification obligation has been required by law since 2009, the proposed regulations have not yet been published in the Maryland Register and will not take effect until finalized.  During the interim period, MDE will be accepting voluntary notifications from responsible parties.

To view the draft regulations, click here.

Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. The author has provided any links that might be referenced above for information purposes only and by doing so, does not adopt or incorporate the contents.

Submitted by: Patricia B. Jefferson

IDOT Restructuring Planning

One of the recent changes in Maryland real estate financing is the repeal of the exemption from recordation taxes for Indemnity Deeds of Trust (“IDOT”).  The legal theory behind the original exemption was that the property owner was providing the IDOT as security for a guaranty of an obligation.  Therefore, there was no debt owed by the guarantor at the time the IDOT was recorded.  The tax would only be due if the guarantor ever became liable on the note.
 
With the repeal of the exemption, recording offices are looking carefully at IDOTs and if they are modified, the recordation tax will apply.  Mere extensions of time for existing IDOTs will generally not cause the imposition of the recordation tax.  However, often extensions are in connection with loans that have matured and may be in technical default.  If the loan is called and the guarantor of the loan becomes liable, the recordation tax is due at that time on the IDOT.  Therefore, lenders should be careful in treating a loan being worked out as being in default and especially careful if modifying an existing IDOT using language that suggests the loan secured by the IDOT is in default, called or is being reinstated. Use of such terms could indicate that the guarantor became primarily liable on the original loan and a recordation tax would therefore be required to be paid.  Once the default line is crossed to create direct liability to the guarantor, there is no putting the genie back into the bottle.

Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. The author has provided any links that might be referenced above for information purposes only and by doing so, does not adopt or incorporate the contents.

Submitted by: Jeffrey A. Markowitz

Significant Increase in National Association of Home Builders/Wells Fargo Housing Market Index

The National Association of Home Builders/Wells Fargo Housing Market Index has posted a 5-point gain in builder confidence for newly built, single family homes for the month of November. The Index is a monthly gauge of builder perception of demand and sales expectations. Notwithstanding this significant increase in builder confidence, the Index has yet to exceed 50, a number which indicates that optimism over the housing market outweighs pessimism. It is worth noting, however, that the Index has increased markedly since November of last year, from 19 to 46.

Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. The author has provided any links that might be referenced above for information purposes only and by doing so, does not adopt or incorporate the contents.

Submitted by: Patricia B. Jefferson

DC Enacts Emergency Bill Strengthening Protections Against Foreclosures

On October 25, the District of Columbia enacted an emergency bill extending protections to borrowers undergoing foreclosure of their residential mortgages.  The bill, among other things: (i) revises the definition of “residential mortgage” to strike the requirement that the property be the borrower’s principal place of abode; (ii) creates a Foreclosure Mediation Fund to collect proceeds from foreclosure mediations to be used for consumer protection enforcement, and (iii) expands the grounds upon which a foreclosure sale can be voided.  The bill is retroactive to September 13, 2012, and unless extended, will expire on January 24, 2013.

To read the entire bill click here.

Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. The author has provided any links that might be referenced above for information purposes only and by doing so, does not adopt or incorporate the contents.

Submitted by: Patricia B. Jefferson

Fannie Mae and Freddie Mac Offer Relief to Hurricane Sandy Victims

After Hurricane Sandy devastated much of the East Coast, Fannie Mae and Freddie Mac have announced that they will extend their disaster relief policies to borrowers whose homes were damaged.  Freddie Mac has authorized its mortgage services to provide a number of relief options, including forbearance on mortgage payments for up to one year, waiving penalties and late fees, and agreeing not to report delinquencies caused by the hurricane to credit bureaus.  Fannie Mae has authorized its servicers to enter into up to 90-day forbearance agreements.  Fannie Mae has also adjusted its guidelines for insurance proceed disbursement, to expedite the repair of damaged homes.

Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. The author has provided any links that might be referenced above for information purposes only and by doing so, does not adopt or incorporate the contents.

Submitted by: Patricia B. Jefferson

Hotel Unit and Residential Unit Treated as a Single Building

In a recent Private Letter Ruling, the IRS ruled that a developer could treat a project consisting of an hotel unit and an apartment unit as one building for depreciation purposes (under Internal Revenue Code Sections 168(e)(2) and 1250), even though the apartment unit and hotel unit were separately owned in order to meet requirements set by the Department of Housing and Urban Development. Under current law, residential real property is generally required to be depreciated over 27.5 years, while non-residential real property must be depreciated over 39 years.  As a result, this ruling could allow property owners to simplify and streamline depreciation calculations or obtain more favorable depreciation rates when their project is considered as a whole.

In Private Letter Ruling 201243003, the IRS examined a planned mixed-use development project consisting of a hotel condominium and a residential apartment condominium, separated into units to meet HUD financing requirements for the apartments.  Each condominium was owned by a separate limited liability company taxed as a partnership, but both were part of a single building project and shared numerous common elements.  Specifically, the two condominiums were: built on a single tract of land as a unified project; owned by entities that are related partnerships; had interrelated commitments with respect to financing; had a common integrated operating budget; and had unified operations management and leasing targets.  The IRS ruled the two condominium units may be treated as a single building for purposes of determining whether the building and its structural components are residential rental property or nonresidential real property for depreciation purposes.

Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. The author has provided any links that might be referenced above for information purposes only and by doing so, does not adopt or incorporate the contents.

Submitted by: Jeffrey A. Markowitz

IRS Permits Two Concurrent Reverse Like-Kind Exchanges by Related Parties Using Same Exchange Accommodation Titleholder

The Internal Revenue Service has released a new private letter ruling providing increased flexibility in structuring reverse like-kind exchanges, which may allow parties to adapt to rapidly changing market conditions within the strict statutory framework of the reverse deferred like-kind exchange.

To defer recognition of taxable gain on the sale of real estate, many taxpayers engage in like-kind exchanges under Section 1031(a) of the Internal Revenue Code (a “like-kind exchange”).  In a properly structured like-kind exchange, no gain or loss is recognized on the exchange of property held for use in a trade or business or for investment (the “relinquished property”) if such property is exchanged solely for property of like-kind that is to be held either for use in a trade or business or for investment (the “replacement property”).  In a reverse exchange, the replacement property is acquired before the sale of the relinquished property. The Internal Revenue Service provides a safe harbor for reverse exchanges that allows a taxpayer to treat an exchange accommodation titleholder (“EAT”) as the temporary owner of property for federal income tax purposes, thereby enabling the taxpayer to accomplish a reverse exchange.

In Private Letter Ruling 201242003, the taxpayer (“Party A”) and a related party (“Party B”) each owned separate multifamily residential apartment properties, and each was interested in acquiring a certain property as a replacement property through transactions separately structured as like-kind exchanges.  Because both parties identified the replacement property before they had sold the required relinquished property, each initiated a reverse like-kind exchange under the safe harbor provisions established by the Internal Revenue Service. Each entered into an agreement with the same EAT to consummate the transaction, with the agreement that if either party sold its identified relinquished property, the EAT’s agreement would terminate as to the other party.  Within the required time period, one of Party A’s identified properties was sold, and the reverse like-kind exchange was consummated with respect to Party A.  The EAT’s agreement was terminated with respect to Party B. The Internal Revenue Service ruled that each party’s separate agreement with the EAT would be respected, and the fact that Party B’s attempted exchange failed did not disqualify the entire transaction.

Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. The author has provided any links that might be referenced above for information purposes only and by doing so, does not adopt or incorporate the contents.

Submitted by: Jeffrey A. Markowitz

Accounting For Growth’ Regulations to Present Challenges for Development and Opportunities

The Maryland Department of the Environment (“MDE”) is promulgating new regulations designated as “Accounting for Growth” (abbreviated as “AfG”) that will require developers to offset the nitrogen pollution projected to result from development and redevelopment activities that disturb one or more acres of earth.  The proposed regulations will implement a strategy of Maryland’s Chesapeake Bay Watershed Implementation Plan (“WIP”), which is structured to reduce the “load” or amount of pollutants entering the Chesapeake Bay to the maximum amount of pollutants that the Bay can receive while maintaining healthy water quality.  The defined quantity of a particular pollutant is referred to as the Total Maximum Daily Load or “TMDL”.  The WIP and TMDLs account for pollutant loads from a variety of sources, including automobiles, wastewater treatment plants, and existing land uses.  Regulation of nitrogen loads under AfG is expected to also result in reductions of phosphorus and sediment loads. 

In general, new or increased nitrogen loads from expanded point sources and post-development nonpoint source loads must be offset through the reduction of nitrogen loads from other sources.  The regulations will establish differing offset requirements based on the nature, intensity and location of the development activity and the method of wastewater treatment.  The load offsets will be required prior to commencement of construction, and can be generated through actions completed by a developer or purchased, in the form of nitrogen offset credits, through a trading market.  The costs of offsets will be market-influenced and will increase the cost of development activities.  The anticipated evolution of a large-scale Maryland nitrogen offset market presents opportunities for landowners and investors.  

MDE’s AFG website includes links to the draft regulations, past public presentations regarding AfG, and a spreadsheet that estimates offset requirements for varying types of residential and commercial development.  Final regulations are expected to be proposed in December 2012. 

Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. The author has provided any links that might be referenced above for information purposes only and by doing so, does not adopt or incorporate the contents.

Submitted by: Ryan D. Showalter

Important Tax Court Case on Residential Development Looming

A major U.S. Tax Court case, which could have significant effect to residential home developers, will be tried on November 5, 2012.  Many residential developers use a completed contract method of accounting to defer taxable gain on the sale of residential lots until the development is near completion.  In a case against Howard Hughes Corp. involving the Summerlin development near Las Vegas, however, the IRS is contending that the developer is required to use the percentage of completion method, which requires gain to be recognized throughout the project.

If the IRS prevails, it could mean a greater tax burden for many residential developers during construction and development, having a significant inpact on their cash flow.  If taxes are owed during the course of development, cash that could otherwise be used to pay down construction debt or deal with other development costs would be diminished.

For more information, click here.

Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. The author has provided any links that might be referenced above for information purposes only and by doing so, does not adopt or incorporate the contents.

Submitted by:  Jeffrey A. Markowitz

Conditions to Development Approvals as Unconstitutional Takings?

Has your developer client been required, as a condition to receiving a necessary development approval, to contribute money or take any other action he or she considers unrelated to any potential impact from his or her proposed development activities?   More importantly, has your client ever been denied a development permit after refusing to accept such a condition imposed by a governmental authority?  If so, you should watch for the U.S. Supreme Court's decision in Koontz v. St. Johns River Management District, case number 11-1447, to see if the Court will expand the "unconstitutional conditions doctrine." 

In the Koontz case, the St. Johns River Management District (the "District") refused to issue approvals required to allow Mr. Koontz to develop a portion of his property unless he agreed to contribute money and labor to improve government-owned property located between 4-½ and 7 miles away.   Mr. Koontz would not agree to the District's requirement that he perform and pay for the off-site improvements, and the District denied his permit application.

Mr. Koontz sued the District, alleging that the District's condition related to the off-site improvements constituted an unconstitutional taking of his property.  His argument relied heavily on the principles established by the U.S. Supreme Court in Nollan v. California Coastal Commission, 483 U.S. 825 (1987) and Dolan v. City of Tigard, 512 U.S. 374 (1994).

Although he prevailed at the trial court and the initial appellate court, the Florida Supreme Court ultimately ruled in favor of the District.  See St. Johns River Management District v. Koontz, 77 So. 3d 1220 (Fla. 2011).  The Florida Supreme Court based its decision on a narrow reading of the Nollan and Dolan cases, holding that the decisions in those cases applied only where the condition sought to be imposed by the governmental authority requires a dedication by the owner of an interest in real property in exchange for the requested approval.

In the Koontz case, we will learn if the U.S. Supreme Court will extend the unconstitutional conditions doctrine to include conditions imposed by governmental authorities that go beyond the granting of an interest in real property.  The Koontz case may represent an important development in the law applicable to inverse-condemnation cases.

Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. The author has provided any links that might be referenced above for information purposes only and by doing so, does not adopt or incorporate the contents.

Submitted by: John R. Rutledge

Tax Court Outlines Important Conservation Easement Tests

In the case of RP Golf, LLC v. Commissioner (found at T.C. Memo 2012-282), the U.S. Tax Court, in a summary judgment matter, discussed certain key points in determining whether a conservation easement met the federal statutory requirements.  Conservation easements are an exception to the general tax rule that a taxpayer must give away all interests in property to claim a charitable deduction.  However, to promote conservation of land, Congress has enacted a special rule for conservation easements (a partial interest in land), but has also imposed strict guidelines for such deductions.  In order for a conservation easement to be deductible, it must be for a “clearly delineated federal, state or local governmental conservation policy,” and meet specific substantiation requirements.  In the RP Golf, LLC case, the Tax Court found that the substantiation requirements were met and also determined that the issue of a conservation purpose was a factual issue which could not be determined at the summary judgment stage. 

More information can by clicking here and here.

Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. The author has provided any links that might be referenced above for information purposes only and by doing so, does not adopt or incorporate the contents.

Submitted by: Jeffrey A. Markowitz

ConsensusDOCS Gaining Momentum

New users subscribing to ConsensusDocs (as an alternative project delivery vehicle to the AIA form contracts for construction) set record high numbers as the standard contract document coalition completed its first five years of operation recently. The coalition, first established in 2007, expects to see continued growth in sales as construction activity begins to increase after a years-long decline.

In their five years of existence, ConsensusDocs has become a leader in providing standard contract documents that allocate risk in a fair manner. Additionally, an entirely new technology platform that is Word-compatible and document management version control was recently released.  The ConsensusDOCS’ allure is a return to a project-first philosophy mission with contracts that are written in plain English, incorporate best practices, and address emerging trends.

ConsensusDocs now has over 4,700 unique subscribers, an increase of more than 95 percent compared to five years ago. Of equal importance, the coalition which produces these form construction documents now includes 38 leading design and construction industry associations, a more than 80 percent increase since 2007.

For more information, click here.

Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. The author has provided any links that might be referenced above for information purposes only and by doing so, does not adopt or incorporate the contents.

Submitted By: Michael J. Pappas

Slots Come to Western Maryland Blog

Evitts Resort, LLC, a subsidiary of Lakes Entertainment, Inc. (NASDAQ: LACO) of Minnetonka, Minnesota, recently completed the purchase of the Rocky Gap Lodge and Golf Resort from the Maryland Economic Development Corporation for approximately $6.8 million.  Pending development of a separate gaming facility, approximately 20,000 square feet of Lodge’s meeting space will be converted into a slots parlor featuring at least 500 slot machines, a bar, and a food outlet.  Opening of the parlor is anticipated in summer/fall 2013.

Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. The author has provided any links that might be referenced above for information purposes only and by doing so, does not adopt or incorporate the contents.

Submitted By: John R. Devine

What You Missed at The Frederick Breakfast Series

Miles & Stockbridge’s Frederick Office held its annual Breakfast Briefing Series on September 19, 2012. The dynamic panel of speakers at this event included Richard Griffin, Director of Economic Development, The City of Frederick; Steven O’Farrell, Certified General Appraiser, William G. Bowen, Inc.; Steve Seawright, President, Frederick County Building Industry Association; and Blaine Young, President, Frederick County Board of County Commissioners.  The panel was moderated by Noel Manalo an Associate in our Frederick office.  The speakers discussed real estate trends and opportunities in Western Maryland and concerns of the development and real estate community.  While the National market background reports are still dreary, there were some positive comments from the panel.  One of the building industry trends acknowledged by the panel is multi-family housing, the popularity of the product among consumers and ability to secure financing to develop this type project.  Frederick County continues to plan for its future through developer rights and responsibility agreements as it stays “Open for Business.”  One of the next noted opportunities for growth in the County will be the part of the County running from Urbana to New Market.  The City of Frederick is currently seeking out a location for a hotel/conference center, which will be an exciting new draw to the area.  However, panelist indicated you should watch out for some of the impacts from recent legislation such as the nutrient trading program being developed in conjunction with the stormwater management laws and the implementation of the Sustainable Growth & Agricultural Preservation Act of 2012 in Western Maryland.

Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. The author has provided any links that might be referenced above for information purposes only and by doing so, does not adopt or incorporate the contents.

Submitted By: Casey L. Cirner

Maryland Tax Court Decision on Deferred IDOT Recordation Tax Should Create More Predictability in Foreclosures.

In past Maryland real estate financing transactions, borrowers have commonly set up a related entity to own real estate, and to pledge that real estate under an indemnity deed of trust (“IDOT”) as security in exchange for the entity’s guaranty.  This structure was beneficial to borrowers because a guarantor’s liability is not deemed actually incurred until the borrower defaults under the primary debt.  In other words, the debt secured by the IDOT was not incurred at the time the IDOT was recorded.  Accordingly, until July 1, 2012 (as of July 1, 2012 recordation taxes must be paid on IDOTs securing loans of $1 Million or more) Maryland counties could not collect recordation tax on IDOTs unless and until the borrower defaulted.

In the past, as long as the underlying debt was timely paid, recordation taxes would never be collected. However, the past few years have seen a significant increase in Maryland foreclosures.  Several Maryland counties began asserting that, when a secured party foreclosed on an IDOT, the county could refuse to record the resulting trustee’s deed unless and until the deferred recordation tax on the underlying IDOT and the recordation and transfer taxes on the trustee’s deed were paid. Although these counties have been making demands upon the guarantor in addition to the secured party, the burden falls squarely upon the secured party, who is prevented from conveying its collateral to a third party or taking title to the collateral as a credit bidder until the taxes are paid.  In many instances, those taxes are significant.

In a matter that arose on appeal from a request for refund from Howard County Department of Finance, the Maryland Tax Court ruled that only the guarantor is obligated to pay the deferred recordation tax in IDOTS and that, accordingly, the county may not refuse to record a trustee’s deed post-foreclosure, so long as the purchaser pays the applicable taxes on that deed.

If this decision stands, it will lend greater predictability to the costs of foreclosures on IDOTs, which, up to now, have necessarily included an analysis of the potential deferred recordation taxes on the IDOT.  Howard County has until September 27, 2012 to file a petition for judicial review to a Maryland Circuit Court.  If the decision is not appealed, it may lead secured parties who have recently foreclosed and paid the IDOT recordation tax to seek refunds from the applicable county.  The Tax Court decision required that Howard County repay the deferred recordation tax with interest at 6% per annum from the date the taxes were paid.

Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. The author has provided any links that might be referenced above for information purposes only and by doing so, does not adopt or incorporate the contents.

Submitted By: Patricia B. Jefferson

Homestead Tax Credit

A law enacted by the General Assembly in 2007 requires all Maryland homeowners to submit a one-time application to continue their eligibility for the Homestead Tax Credit, even if the credit was applied to the personal residence in the past.  Failure to timely file this application will result in loss of the tax credit. The application form was mailed to homeowners with the reassessment notice for their property during the regular reassessment cycle occurring between December 2007 and December 2011.  The application can be submitted electronically or by mail and is available at all local offices of the State Department of Assessments and Taxation or on-line.  Homeowners can confirm whether they satisfied this requirement by searching for their tax account using the SDAT website.  The bottom line (“Homestead Application Status”) of the webpage for each tax account indicates whether the required application has been submitted and approved.

Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. The author has provided any links that might be referenced above for information purposes only and by doing so, does not adopt or incorporate the contents.

Submitted by: Ryan D. Showalter

Homestead Tax Credit

Maryland law provides a “Homestead Tax Credit” to reduce the impact of significant assessment increases on principal residences.  This real property tax credit limits the annual increase in taxable assessed value to a percentage fixed by local law, which ranges from 0% in Mt. Airy, Salisbury and Talbot County to a maximum of 10% in Montgomery County and several other jurisdictions. Credits for State and local taxes are provided in an amount to offset any property taxes associated with increased assessed values that exceed this percentage. 

Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. The author has provided the links referenced above for information purposes only and by doing so, does not adopt or incorporate the contents.

Submitted by: Ryan D. Showalter

Murphy v. Fishman: Constructive Notice, Lender Is Not Bona Fide Purchaser

Until now, the Maryland appellate courts have not directly addressed the question of whether a lender is considered a bona fide purchaser when it is charged with constructive notice of the filing of a complaint affecting the title to property under the doctrine of lis pendens. The Maryland Court of Special Appeals recently ruled in Murphy v. Fishman, No. 786 September Term (Ct. Spec. Appeals, September 4, 2011) that the filing of a complaint provides constructive notice at the time the mortgage is acquired of the existing interest in property, thereby precluding the lender from protection as a bona fide purchaser. To read the full summary, click here.

Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. The author has provided any links that might be referenced above for information purposes only and by doing so, does not adopt or incorporate the contents.

Submitted by: Jessica A. duHoffmann

Maryland Tax Court Finds Recordation Tax Applicable to State Law Merger

In Super-Concrete Corporation v. State Department of Assessments and Taxation (Md. Tax Ct., Dkt. No. 12-TR-OO-128, 08/29/2012), the Maryland Tax Court expanded the application of Maryland’s state and local recordation and transfer taxes, which are imposed on most transfers of real property located in Maryland. This decision has been criticized by many Maryland practitioners and is highly controversial. At this time it is unknown whether the taxpayer will appeal the decision. Click here to read the full summary or click here to read the opinion on the Maryland Tax Court website.

Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. The author has provided any links that might be referenced above for information purposes only and by doing so, does not adopt or incorporate the contents.

Submitted by: Christopher A. Davis