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New York City Bans Mandatory Broker Fees with the FARE Act: What It Means for Renters and Landlords

December 18, 2024

On Saturday, New York City’s long-standing practice of forcing renters to pay hefty broker fees came to an end with the passage of the FARE Act. While Mayor Eric Adams, a former real estate broker himself, chose not to sign the bill, it passed with a veto-proof margin in the City Council. As a result, the law became effective 30 days after passage, marking a major shift in how rental transactions are conducted in the city.

What Is the FARE Act?

The FARE Act (Fair Access to Renting) prohibits landlords from requiring tenants to pay broker fees for apartments listed by real estate agents hired by the landlord. Under the previous system, tenants often had to pay a broker’s commission—sometimes as much as 15% of the annual rent—even if the agent was representing the landlord, not the tenant. In New York City, where rents are notoriously high, this could mean an upfront fee of $7,000 or more for the average apartment.

Now, tenants are no longer required to cover these costs. While renters can still hire their own brokers, they won’t be forced to pay for a broker who is only working on behalf of the landlord. The law aims to shift the financial burden away from tenants, who in many cases were left paying fees that made moving into a new apartment a financially prohibitive task.

The Rise of Tenant Backlash

The law has been widely supported by renters across the city, who have long voiced frustration over the broker fee system. With a high cost of living in New York City, the additional fees often made finding a new apartment seem like an insurmountable challenge.

The FARE Act has garnered significant public support, with many New Yorkers sharing stories of paying thousands of dollars for little more than a quick viewing or a broker unlocking a door. Agustina Velez, a house cleaner from Queens, testified at a City Council hearing that she was forced to pay $6,000 just to switch apartments, and expressed frustration with the system, saying, “Enough with these injustices. Landlords have to pay for the services they use.”

The legislation’s popularity also saw a surge on social media platforms, including TikTok, where renters voiced their support, with many celebrating a law that would relieve financial strain and offer greater freedom in their housing choices.

Broker and Industry Opposition

Despite the overwhelming support from tenants, the law has faced opposition from brokers and industry groups. Jordan Silver, a broker with Brown Harris Stevens, criticized the bill, warning that it could lead to a “top-down, government-controlled housing system.” Brokers also argue that they provide essential services, including conducting background checks, coordinating viewings, and acting as intermediaries between tenants and landlords in a city where many tenants never meet their landlords in person.

The Real Estate Board of New York (REBNY), which represents brokers and other real estate professionals, expressed concern that the law would drive up rent prices. They predict that landlords may simply pass on the costs of broker commissions by increasing rents, which could ultimately affect tenants who might feel that the system has just shifted the burden in a different direction.

In addition to their opposition, REBNY has now taken legal action, filing a lawsuit in federal district court in Manhattan on Monday, arguing that the FARE Act is unconstitutional. The lawsuit contends that the law infringes upon the rights of real estate brokers and landlords by mandating that brokers be paid by landlords, even when the landlord has hired them. The act also requires landlords to disclose broker fees paid by prospective tenants in all rental listings and agreements, further adding to the legal controversy.

Long-Term Impact: Will Renters Really Benefit?

While some fear the law will lead to higher rents, others believe that the elimination of up-front broker fees could have a positive long-term effect. Bradley Tusk, a tech investor and entrepreneur who supported the bill, argued that eliminating broker fees will make New York City more affordable for young professionals and entrepreneurs. “Anyone who has paid 15% of their annual rent in broker fees knows the practice is nothing more than legalized theft,” Tusk said.

From an economic perspective, the FARE Act might also lead to more fluid rental markets. Tenants will no longer face the financial barrier of broker fees when moving, potentially making them more willing to relocate and explore different apartments. This could increase rental turnover and boost housing inventory, which in turn could help to stabilize or lower rents over time. With more mobility, demand for specific apartments or neighborhoods may shift, providing renters with more options and potentially reducing overall housing costs.

Moreover, while renters may end up paying slightly higher rents to accommodate the upfront costs traditionally handled by brokers, the payments will be spread out over monthly rent payments rather than requiring large sums of money all at once.

Looking Ahead

The FARE Act will take effect in six months, giving landlords and brokers time to adjust to the new regulations. For tenants, it will mark the beginning of a new era in New York City’s rental market, where the high cost of moving into an apartment won’t be compounded by the burden of broker fees.

While the true impact remains to be seen, the FARE Act signals a significant shift toward more equitable housing practices in New York City. Whether it leads to lower rents or simply redistributes costs remains to be determined, but for now, it’s clear that renters have gained a significant victory in their fight against costly and unfair broker fees. The legal battle ahead, however, could reshape the law’s implementation depending on the outcome of REBNY’s lawsuit.

Understanding the Corporate Transparency Act: What Businesses Need to Know  (Updated)

December 9, 2024

In an era of increasing scrutiny over financial practices, the Corporate Transparency Act (CTA) stands out as a landmark piece of U.S. legislation. Passed in January 2021 as part of the Anti-Money Laundering Act of 2020, the CTA introduced new transparency requirements for businesses, targeting hidden ownership structures often used for money laundering, terrorist financing, and other illicit financial activities. This law is a significant step in making corporate ownership more transparent and aims to strengthen anti-money laundering (AML) practices in the United States.

However, recent legal developments have put the enforcement of the CTA on hold. In this article, we will explain the key provisions of the CTA, its current legal status, who needs to comply, and the law’s impact on businesses.

What Is the Corporate Transparency Act?

The Corporate Transparency Act requires many U.S. corporations, limited liability companies (LLCs), and similar entities to report information about their beneficial owners—those who own or control the company.

This information is collected by the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury, to identify and prevent financial crimes.

Before the CTA, U.S. law did not mandate companies to disclose their ultimate owners, which made it easier for criminals to hide behind shell companies and avoid detection. The CTA aims to make corporate ownership structures more transparent and traceable, thus reducing the risk of financial crimes.

Key Provisions of the CTA

The CTA has several essential components designed to bring more transparency and accountability to corporate ownership:

1. Beneficial Ownership Reporting

Under the CTA, U.S. corporations, LLCs, and similar business entities are required to disclose their

beneficial owners. This includes anyone who directly or indirectly owns or controls at least 25% of

the company or has significant influence over its operations. The required information includes:

o Full legal name

o Date of birth

o Current residential or business address

o A unique identification number (e.g., passport or driver’s license number)

2. Who Needs to Comply

The CTA’s reporting requirements apply to most businesses formed in the U.S. Some entities are exempt, such as publicly traded companies (which already report ownership information to the SEC) and heavily regulated entities like banks, insurance companies, and certain non-profits.

3. Reporting Deadlines

Reporting deadlines vary based on when a company is formed:

o New companies formed after January 1, 2024, must report beneficial ownership information at the time of formation.

o Existing companies (formed before January 1, 2024) have until January 1, 2025, to file their initial reports.

o If any beneficial ownership details change, companies must file an update within 30 days.

4. Privacy and Security

The information submitted under the CTA is not publicly accessible. It is stored in a secure, non-

public database managed by FinCEN, with access granted only to authorized users, such as federal

law enforcement agencies and financial institutions conducting due diligence.

5. Penalties for Non-Compliance

Companies that fail to report beneficial ownership information or provide false information could

face civil fines up to $500 per day for late filings and criminal fines up to $10,000, along with

potential imprisonment for intentional violations.

Legal Update: Court Blocks CTA Enforcement

As of recent developments, the U.S. District Court for the Eastern District of Texas has granted a preliminary injunction against the enforcement of the Corporate Transparency Act and its implementing regulations, the Reporting Rule. The court found that the plaintiffs demonstrated a substantial likelihood of success in showing that the CTA exceeds Congress's constitutional authority. Specifically, the court's key findings were:

1. Lack of Authority under the Commerce Clause: The CTA does not regulate existing commercial activity but compels new activity, which the court found cannot be justified under the Commerce Clause.

2. Unjustifiably Under the Necessary and Proper Clause: The CTA was also found not to be justifiable under Congress's taxing or foreign affairs powers.

3. Irreparable Harm: The court found that the plaintiffs would suffer irreparable harm without an injunction due to the compliance costs and potential constitutional violations.

4. Balance of Equities: The court concluded that the balance of equities favored an injunction, despite the government's interests in law enforcement and national security.

Scope and Duration of the Injunction

The court issued a nationwide preliminary injunction that halts the enforcement of the entire CTA (31 U.S.C.§ 5336) and the Reporting Rule (31 C.F.R. 1010.380). This injunction:

•  Stays the January 1, 2025, beneficial ownership reporting deadline.

•  Applies nationwide to all reporting companies, not just the plaintiffs.

•  Prevents FinCEN from enforcing any requirements under the CTA or Reporting Rule.

•  No penalties will be imposed for non-compliance during the injunction period.

The injunction remains in effect “pending further order of the Court” until either the court issues a final ruling, a higher court modifies or reverses the decision, or the court itself modifies the injunction.

Implications for Businesses

The court's ruling effectively delays the implementation of the CTA’s beneficial ownership reporting

requirements just weeks before the first reporting deadline was set to take effect. As a result, businesses are no longer required to comply with the January 1, 2025, deadline, and they cannot be penalized for non-compliance while the injunction is in effect.

How to Report Beneficial Ownership Information to FinCEN (If the Injunction Is Lifted)

For now, businesses are not required to file beneficial ownership reports. However, if the injunction is lifted or reversed, companies will need to report their beneficial owners through the FinCEN Portal, an online reporting platform, and adhere to the original filing deadlines.

Why the Corporate Transparency Act Matters

Despite the court's ruling, the CTA remains a key part of the U.S. government's effort to increase financial transparency and curb illegal activities such as money laundering, terrorist financing, and tax evasion. If ultimately upheld, the CTA would enhance law enforcement's ability to track down illicit financial flows and provide greater transparency to business ownership.

Conclusion: What Businesses Should Do Now

For the time being, businesses subject to the CTA do not need to take action on beneficial ownership reporting. However, businesses should continue to monitor legal developments, as the government may appeal the decision. In the event that the injunction is lifted or a final ruling is issued, companies will need to prepare for compliance with the CTA’s reporting requirements.

While the future of the Corporate Transparency Act remains uncertain, businesses should stay informed and consider updating their internal systems for tracking ownership information, especially if they are subject to the CTA once the injunction is lifted. Being proactive about understanding the CTA’s potential impact can help businesses avoid penalties if the law is eventually enforced.

Understanding the Corporate Transparency Act: What Businesses Need to Know

November 25, 2024

In an era of increasing scrutiny over financial practices, the Corporate Transparency Act (CTA) stands out as a landmark piece of U.S. legislation. Passed in January 2021 as part of the Anti-Money Laundering Act of 2020, the CTA introduces new transparency requirements for businesses, targeting hidden ownership structures often used for money laundering, terrorist financing, and other illicit financial activities. This law is a significant step in making corporate ownership more transparent and aims to strengthen anti-money laundering (AML) practices in the United States.

If you are a business owner, understanding the Corporate Transparency Act is essential for compliance. In this article, we will cover the key provisions of the CTA, who must comply, what is required, and the law’s impact on businesses.

What Is the Corporate Transparency Act?

The Corporate Transparency Act requires many U.S. corporations, limited liability companies (LLCs), and similar entities to report information about their beneficial owners—those who own or control the company. This information will be collected and stored by the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury, and used to identify and prevent financial crimes.

Prior to the CTA, U.S. law did not mandate companies to disclose their ultimate owners, which made it easy for criminals to hide behind shell companies and avoid detection. By requiring beneficial ownership reporting, the CTA helps make corporate ownership structures more transparent and traceable.

Key Provisions of the CTA

The CTA has several essential components, each designed to bring more transparency and accountability to corporate ownership:

Beneficial Ownership Reporting: Under the CTA, U.S. corporations, LLCs, and other similar business entities are required to disclose their beneficial owners. This includes anyone who either directly or indirectly owns or controls at least 25% of the company's equity or has significant influence over its operations. For each beneficial owner, companies must provide:

Full legal name

Date of birth

Current residential or business address

Unique identification number, such as from a passport or driver’s license

Who Needs to Comply: The CTA’s reporting requirements apply to most businesses formed in the U.S. However, there are some exemptions:

Publicly traded companies are exempt, as they already report ownership information to the Securities and Exchange Commission (SEC).

Other entities that are already heavily regulated, such as banks, insurance companies, registered investment advisors, and nonprofits also do not need to file under the CTA.

Despite these exemptions, a significant number of small businesses and privately held companies will need to comply with the CTA.

Reporting Deadlines: Reporting deadlines differ based on when a company is formed:

New companies formed after January 1, 2024, must report beneficial ownership information at the time of formation.

Existing companies (those created before January 1, 2024) have until January 1, 2025, to file their initial reports.

If any beneficial ownership details change, the company must file an update within 30 days of the change.

Privacy and Security: The information submitted under the CTA is not accessible to the general public. FinCEN will store it in a secure, non-public database accessible only to certain authorized users, such as federal law enforcement agencies, financial institutions conducting due diligence with permission, and regulatory agencies. This measure aims to balance the need for transparency with the protection of personal privacy.

Penalties for Non-Compliance: The CTA includes substantial penalties for non-compliance. Companies that fail to report beneficial ownership information or that provide false information could face civil fines up to $500 per day for late filings and criminal fines up to $10,000, as well as potential imprisonment for intentional violations.

How to Report Beneficial Ownership Information to FinCEN

To submit their beneficial ownership reports, businesses must create an account with FinCEN’s online reporting portal, called the FinCEN Portal, where the required information will be electronically submitted. Businesses can create an account by visiting the official FinCEN website at https://www.fincen.gov.

Once they have logged into the FinCEN Portal, they will be required to fill out a Beneficial Ownership Information Form. This form will ask for the following information about each beneficial owner:

Full legal name;

Date of birth;

Residential or business address;

A unique identification number (such as a passport, driver’s license, or other government-issued ID).

The form will also require details about the company itself, including its legal name, address, and other identifying information.

After completing and reviewing the information, the form must be electronically submitted through the FinCEN Portal. If the business is a new company, it will submit this information during the formation process (after January 1, 2024). Existing companies must submit their initial report no later than January 1, 2025.

Once the initial report is filed, the company must update the information within 30 days of any change to the beneficial ownership details. For example, if a new individual gains control of 25% or more of the company, or if any of the previously reported information changes (such as address or identification number), the company must file an update using the same FinCEN Portal.

Why the Corporate Transparency Act Matters

The CTA is a powerful tool in the U.S. government’s efforts to curb financial crime. Criminals often use anonymous companies to hide illegal activities, so by revealing the true owners behind these entities, the CTA makes it harder for them to operate unnoticed. Financial transparency plays a vital role in the fight against money laundering, terrorist financing, and tax evasion, and the CTA aligns the U.S. with international AML standards.

This level of transparency also helps foster trust in the business environment. When ownership structures are clear, businesses have greater confidence in their transactions, customers, and partnerships. Additionally, the CTA makes it easier for law enforcement agencies to track down the sources of illicit funds, a crucial aspect of combatting global financial crimes.

How the CTA Impacts Businesses

For most businesses, compliance with the CTA introduces a new layer of administrative responsibility. While the disclosure process may seem straightforward, the CTA's requirements mean that many companies will need to maintain careful records of their beneficial owners and be prepared to update information when changes occur. Compliance will likely require companies to set up internal systems for monitoring beneficial ownership, especially if they anticipate frequent changes in ownership or control.

Although the CTA imposes new reporting obligations, the law exempts many heavily regulated and publicly traded entities. However, small businesses and privately held companies, which previously had little to no reporting obligations in this area, will need to adjust to these requirements.

Conclusion: Preparing for CTA Compliance

The Corporate Transparency Act is expected to strengthen the United States’ financial system, promoting accountability and transparency while discouraging criminal activity. For businesses, this new law means adopting best practices for tracking and updating beneficial ownership information.

If your business is subject to the CTA, it’s essential to understand the reporting requirements, meet filing deadlines, and keep an eye out for any beneficial ownership changes that may require an update. Although navigating the CTA’s requirements may seem challenging, being proactive about compliance can help your business avoid penalties and build a stronger reputation.

In sum, the Corporate Transparency Act is a significant step forward in fighting financial crime and establishing transparency in corporate structures. By taking compliance seriously, businesses can contribute to a safer, more transparent financial landscape.

Understanding the Consequences of Breaching Fiduciary Duties: A Deep Dive into Corporate Governance

October 9, 2024

In the world of corporate governance, fiduciary duties serve as the backbone of ethical and responsible business practices. When these duties are breached, the consequences can be severe—not just for the individuals involved, but for the entire organization. 

The Consequences of Breaching Fiduciary Duties

Fiduciary duties are the legal obligations that corporate directors and officers owe to the corporation and its shareholders. These duties primarily include the duty of care and the duty of loyalty. Breaching these duties can lead to a variety of consequences:

1. Legal Action: Shareholders may file lawsuits against directors or officers for breaching their fiduciary duties. These lawsuits can result in significant legal fees and damages if the court finds that a breach occurred.

2. Reputational Damage: A breach can tarnish the reputation of both the individual and the organization. This can affect relationships with stakeholders, including investors, customers, and employees.

3. Financial Penalties: Courts may impose fines or penalties on individuals who breach their fiduciary duties. Additionally, the company may suffer financial losses as a result of the breach, impacting its overall performance.

4. Loss of Trust: Breaches can erode trust among stakeholders, leading to diminished shareholder confidence and potential investor withdrawal.

5. Increased Regulation: Repeated breaches within a company can attract regulatory scrutiny, resulting in increased oversight and compliance requirements.

The Business Judgment Rule and Its Application

The business judgment rule (BJR) is a legal principle that provides directors and officers protection from liability for decisions made in good faith, with the belief that they are acting in the best interest of the company. Under the BJR, courts generally defer to the decisions of directors, provided they fulfill their fiduciary duties.

Key Aspects of the Business Judgment Rule:

1. Good Faith: Directors must act with honesty and integrity, ensuring their decisions are made without self-interest.

2. Informed Decision-Making: Directors must make decisions based on adequate information and due diligence, reflecting a thorough understanding of the circumstances.

3. Rational Basis: The decisions made must have a rational basis, demonstrating that directors were not acting arbitrarily.

When directors can demonstrate that they followed these principles, they may be shielded from liability even if the decisions do not yield favorable outcomes. However, the BJR does not protect against gross negligence or willful misconduct.

Conflict of Interest Policies and Disclosure

Conflict of interest (COI) policies are essential in preventing breaches of fiduciary duties. These policies help identify situations where personal interests may conflict with the interests of the corporation.

Importance of Conflict of Interest Policies:

1. Transparency: Clear COI policies promote transparency within the organization, ensuring that all potential conflicts are disclosed and addressed.

2. Prevention of Misconduct: By having well-defined procedures for handling conflicts, organizations can prevent unethical behavior and maintain trust among stakeholders.

3. Legal Protection: Properly implemented COI policies can provide legal protection for directors and officers, demonstrating that the organization takes fiduciary responsibilities seriously.

4. Enhancing Corporate Culture: A robust COI policy contributes to a culture of integrity, fostering an environment where ethical decision-making is prioritized.

Directors and Officers Insurance: A Safety Net

Directors and Officers (D&O) insurance is a vital tool for protecting corporate leaders from personal liability arising from their decisions and actions. This insurance can cover legal fees, settlements, and other costs associated with lawsuits.

Importance of D&O Insurance:

1. Risk Mitigation: D&O insurance mitigates financial risks for directors and officers, allowing them to make decisions without the fear of personal financial ruin.

2. Attracting Talent: Organizations that offer D&O insurance are more likely to attract experienced and qualified individuals to their boards, knowing that their personal assets are protected.

3. Peace of Mind: Having D&O insurance provides peace of mind for corporate leaders, allowing them to focus on strategic decision-making rather than potential legal repercussions.

4. Support During Investigations: In the event of a regulatory investigation, D&O insurance can cover defense costs, ensuring that leaders can navigate challenges without incurring significant financial burdens.

Conclusion

Understanding the potential consequences of breaching fiduciary duties is crucial for corporate directors and officers. By embracing the principles of the business judgment rule, implementing effective conflict of interest policies, and securing D&O insurance, organizations can create a robust governance framework that protects their leaders and promotes ethical decision-making. Ultimately, prioritizing fiduciary duties not only safeguards individual directors but also enhances the integrity and success of the entire organization.

Understanding Fiduciary Duty: A Guide for Board Members

October 2, 2024

A board member holds a position of trust and responsibility within an organization. Central to this role is the concept of fiduciary duty, which requires the board member to act in the best interest of the organization and its stakeholders. Understanding fiduciary duty is essential for effective governance and ethical decision-making. 

What is a Fiduciary Duty?

Fiduciary duty refers to the legal and ethical obligation of board members to act in the best interests of the organization they serve. This relationship is one of trust and confidence, requiring board members to prioritize the organization's welfare over their own personal interests. Breaching fiduciary duty can lead to legal consequences and damage to the organization’s reputation.

Who owes a Fiduciary Duty?

Fiduciary duties are typically owed by individuals or entities that have a responsibility to act in the best interest of another party. Common examples include:

1. Corporate Directors and Officers: They owe fiduciary duties to the shareholders, ensuring they act in the company's best interests and make decisions that benefit the shareholders.

2. Trustees: Trustees have a fiduciary duty to manage a trust’s assets responsibly and act solely in the interests of the beneficiaries.

3. Agents: In agency relationships, agents must prioritize the interests of their principals, ensuring loyalty and good faith.

4. Co-op members: Co-op members must act in the best interests of the cooperative as a whole, make informed and prudent decisions on behalf of the co-op and disclose any potential conflicts of interest or relevant information that may affect the co-op or its decisions.

5. Attorneys: Lawyers owe a fiduciary duty to their clients, which includes maintaining confidentiality, providing competent representation, and avoiding conflicts of interest.

6. Financial Advisors: These professionals are often required to act in their clients' best interests, ensuring transparency and full disclosure of any potential conflicts.

7. Real Estate Brokers: Brokers have a fiduciary duty to their clients, requiring them to act loyally and disclose all relevant information during transactions.

The Three Main Fiduciary Duties.

1. Duty of Care

The duty of care requires board members to make informed and thoughtful decisions. This means actively participating in meetings, reviewing relevant materials, and asking questions when necessary. Board members should also stay informed about the organization’s operations, financial status, and industry trends.

Practically, this duty translates to:

• Attending meetings regularly and engaging in discussions.

• Preparing for meetings by reviewing agendas and supporting documents.

• Seeking expert advice when decisions involve complex issues.

By fulfilling the duty of care, board members can ensure that they make sound decisions that benefit the organization.

2. Duty of Loyalty.

The duty of loyalty mandates that board members prioritize the interests of the organization above their own or those of third parties. This duty prevents conflicts of interest and requires transparency in all dealings. Board members must disclose any potential conflicts and abstain from participating in decisions where their interests could interfere with the organization’s best interests.

Key aspects of the duty of loyalty include:

• Avoiding situations where personal interests conflict with those of the organization.

• Disclosing any potential conflicts of interest to fellow board members.

• Refraining from using confidential information for personal gain.

Upholding the duty of loyalty fosters trust and integrity within the board and strengthens the organization’s credibility.

3. Duty of Obedience

The duty of obedience requires board members to ensure that the organization adheres to its mission, values, and applicable laws and regulations. This duty underscores the importance of governance and accountability. Board members must ensure that their decisions align with the organization's mission and that they operate within legal and ethical boundaries.

To uphold the duty of obedience, board members should:

• Understand the organization’s mission, vision, and values.

• Ensure compliance with laws, regulations, and internal policies.

• Advocate for the organization’s mission in all decisions and actions.

By embracing the duty of obedience, board members can safeguard the organization’s integrity and public trust.

Conclusion

Fiduciary duty is a fundamental principle that guides board members in their roles. By adhering to the duties of care, loyalty, and obedience, board members not only protect the interests of the organization but also contribute to its long-term success and sustainability. Embracing these responsibilities is essential for effective governance and the fulfillment of the organization’s mission. As a board member, remember that your actions and decisions have a profound impact—strive to honor the trust placed in you by the organization and its stakeholders.

Why Your Real Estate or Commercial Lawyer's Generative AI Proficiency Matters: A Client's Guide

September 9, 2024

In the rapidly evolving landscape of legal practice, particularly in real estate and commercial litigation, Generative Artificial Intelligence (GAI) has emerged as a powerful tool. If you're seeking legal representation for real estate transactions, commercial litigation, or landlord-tenant matters, you might wonder why your lawyer's proficiency with GAI should matter to you. The answer lies in the significant impact GAI can have on the efficiency, cost-effectiveness, and quality of your legal representation in these complex areas of law.

Understanding Generative AI in Real Estate and Commercial Law

Generative AI, exemplified by tools like ChatGPT or Claude, can produce human-like text based on prompts. In real estate and commercial legal practice, GAI can assist with:

• Drafting initial versions of lease agreements or commercial contracts

• Generating ideas for legal arguments in property disputes or commercial litigation

• Summarizing lengthy property documents or case files

• Creating client communications about complex real estate transactions

• Explaining intricate landlord-tenant laws in simpler terms

It's crucial to understand that GAI is a tool to enhance, not replace, a lawyer's expertise in these specialized areas of law. The most effective use of GAI requires skillful prompting, critical evaluation of outputs, and integration with deep knowledge of the underlying law.

The Benefits of GAI-Savvy Real Estate and Commercial Lawyers

When used correctly, GAI can offer several benefits to clients in real estate and commercial matters:

1. Time and Cost Savings

GAI can help lawyers work more efficiently:

• A lawyer might use GAI to generate a first draft of a commercial lease agreement, which they then carefully review, modify, and refine based on specific property details and local regulations. This can be faster than starting from scratch, potentially reducing billable hours.

• In preparing for litigation, GAI can quickly summarize long case files or property records, allowing lawyers to grasp key points more quickly and focus their expertise on developing winning strategies.

2. Enhanced Creativity and Thoroughness

GAI can help lawyers consider a broader range of possibilities:

• When brainstorming legal arguments for a complex property dispute, a lawyer might use GAI to generate additional perspectives or issues they hadn't considered, or ask the GAI to identify flaws in his own arguments, leading to a more comprehensive litigation strategy.

• In drafting a complex commercial transaction agreement, GAI might suggest clauses or considerations specific to the property type or local regulations that a lawyer could overlook, prompting a more thorough review.

3. Improved Client Communication

GAI can assist in making legal concepts more accessible, without long and expensive billable meetings or phone calls with your lawyer:

• Lawyers can use GAI to help draft explanations of complex zoning laws or commercial real estate regulations in simpler terms, enhancing client understanding without taking up the attorney’s time to write out explanations.

• GAI can assist in generating clear, easy to read responses to routine client queries, when the GAI is provided with the underlying documents, written in legalese, thereby improving communication efficiency while driving down costs.

The Risks of GAI Misuse by Lawyers

However, if your lawyer doesn't understand how to use GAI correctly, it can lead to serious issues:

1. Inaccuracies and Errors

GAI can produce convincing-sounding but incorrect information:

• If a lawyer relies on GAI-generated analysis of local property laws, hoping the GAI has access and knowledge of the most up to date local codes, without thorough verification, it could lead to flawed legal strategies or advice in a real estate transaction.

• GAI might generate plausible-sounding but outdated or jurisdiction-specific information about tenant rights that doesn't apply to your specific landlord-tenant case.

• GAI can ‘hallucinate’ legal citations, leading a lawyer down a completely incorrect path and to an utter catastrophe in the courtroom.

2. Confidentiality Concerns

Misuse of GAI could potentially compromise client confidentiality:

• If a lawyer inputs sensitive details about a high-stakes commercial property negotiation into a public GAI platform without proper safeguards, it could expose confidential business information.

3. Over-reliance on GAI

Lawyers who don't understand GAI's limitations might rely too heavily on its outputs:

• Overuse of GAI in drafting property contracts without proper customization could result in generic documents that don't adequately address specific property features or local regulations.

• Relying on GAI for legal research in a complex commercial litigation case without understanding its limitations could lead to incomplete or inaccurate legal analysis.

The Importance of Verification and Human Expertise

A crucial aspect of GAI proficiency in real estate and commercial legal practice is understanding the necessity of verifying and refining GAI outputs. Competent lawyers always:

1. Review and refine GAI-generated content: Any text produced by GAI, whether it's a draft lease agreement or a summary of local zoning laws, should be thoroughly reviewed, fact-checked, and refined by the lawyer.

2. Apply legal expertise: Lawyers must apply their knowledge of current real estate laws, local regulations, and case-specific details to any GAI-generated content.

3. Use GAI as a starting point: GAI outputs should be treated as initial drafts or idea generators, not final products. For instance, a GAI-generated outline of potential arguments in a commercial dispute should be thoroughly developed and customized by the lawyer.

4. Maintain ethical standards: Lawyers must ensure that their use of GAI complies with all ethical obligations, including maintaining client confidentiality in sensitive real estate transactions and providing competent representation in complex commercial litigation.

What to Look for in a GAI-Proficient Lawyer

When selecting legal representation for your real estate or commercial matter, consider these factors:

1. Understanding of GAI: Can the lawyer explain how they use GAI in their real estate or commercial law practice and its limitations?

2. Ethical use: Are they aware of and do they follow ethical guidelines for GAI use, particularly regarding confidentiality in sensitive matters?

3. Verification process: Do they have a robust process for verifying and refining GAI outputs, especially for jurisdiction-specific real estate regulations?

4. Balanced approach: Do they view GAI as a tool to enhance, not replace, their expertise in real estate and commercial law?

5. Continuous learning: Are they committed to staying updated on GAI developments specifically in the fields of real estate and commercial law?

Conclusion

As GAI continues to evolve as a tool in the legal industry, your real estate or commercial lawyer's proficiency with this technology can significantly impact your case or transaction. However, it's crucial to understand that GAI is a tool to enhance, not replace, legal expertise in these complex areas of law. The most effective lawyers are those who can skillfully use GAI to streamline certain tasks, allowing them to focus more of their time and expertise on critical thinking, strategy development, and the nuanced aspects of your real estate or commercial matter that require human judgment and deep legal knowledge.

When selecting legal counsel for your real estate transaction, commercial litigation, or landlord-tenant issue, look for lawyers who not only use GAI tools but do so judiciously, always coupling GAI usage with rigorous verification and their own expert analysis of relevant property laws and regulations. The goal is to find representation that leverages technology to provide you with more efficient, thorough, and strategic legal services in your real estate or commercial matters.

In this evolving legal landscape, informed clients who understand the role and limitations of GAI in real estate and commercial law are better positioned to receive high-quality, cost-effective legal services. As you seek legal representation, make GAI proficiency - including the understanding of its proper use and limitations in real estate and commercial contexts - a key factor in your decision-making process. Your property transaction or commercial dispute deserves the powerful combination of cutting-edge tools and seasoned legal expertise in real estate and commercial law.

Resolving Resident vs. Board Disputes Amicably

April 23, 2024

Conflicts between residents and the board of directors are, unfortunately, quite common in co-ops and condos. Disagreements over rules, noise, renovations, fees, and more can quickly escalate into heated feuds if not handled properly.

While boards have authority and enforcement powers, an overly heavy-handed approach often backfires. It's better for both sides to make every effort to resolve disputes through respectful dialogue and compromise when possible. Here are some tips:

Have a Clear Process for Hearing Grievances

Boards should establish an official system for residents to log complaints and request hearings on issues like rule violations, fines, rejection of renovation plans, etc. Having defined procedures helps lend legitimacy and demonstrates willingness to listen.  

Investigate Claims Thoroughly 

Don't just dismiss complaints out of hand. Take time to gather facts through interviews, examining evidence, and reviewing relevant bylaws and policies. Allegations shouldn't simply be accepted as truth, but shouldn't be rejected without justification either.

Communicate Rules and Rationale Clearly

In many cases, tensions arise because residents don't fully understand the reasoning behind board decisions or establishment of certain rules. Make an effort to explain the logic, get resident input, and see if compromises can be reached.

Consider Using Neutral Mediation

When parties become extremely entrenched in their positions, it can be valuable to retain an unbiased third-party mediator. These trained professionals can facilitate more productive dialogue in a neutral setting and help negotiate compromises.

Allow Appeals and Be Willing to Revisit

If a dispute can't initially be resolved through informal means, provide residents with an official appeals process to have their case heard again. Boards shouldn't view reversing an earlier decision as defeat, but as reasoned governance.

Enforce Rules Consistently and Judiciously

While rules must be enforced, boards have discretion on violations and shouldn't always resort to harsh penalties like fines or legal action right away. Start with polite requests and warnings, and only escalate enforcement if the behavior continues.

The key for both sides is maintaining open lines of communication, considering all perspectives, and working toward mutually agreeable solutions when disagreements arise. An adversarial, zero-sum mindset rarely ends well for co-op and condo communities.

7 Key Steps for Running Legitimate Co-op and Condo Board Elections 

April 16, 2024

Regular elections are a critical part of co-op and condo governance. They give unit owners/shareholders a voice in selecting those who will represent their interests on the board of directors.

However, board elections can sometimes become contentious affairs with accusations of impropriety or voter suppression. It's vital that the election process adheres to all legal requirements and governing documents to ensure legitimacy and trust in the results.

Here are some key areas boards need to get right when running their elections:

Understand Voting Eligibility Rules

The first step is knowing who is actually eligible to vote based on the bylaws and state laws. There may be requirements related to residency status, outstanding fees owed, percentage ownership interests, and more. Maintain accurate and up-to-date lists of eligible voters.

Give Proper Notice and Candidate Info

Most laws and bylaws mandate providing sufficient advance notice to all residents about elections - typically 30-60 days. Include clear instructions on how to get on the ballot as a candidate and list all candidates' background information to be shared with voters.

Allow for Proxy Voting 

Many co-op and condo residents are absentee owners or unavailable on election day. Laws generally require allowing these individuals to vote by proxy - submitting their ballot to a representative who can vote on their behalf. Have clear policies and procedures for proxy voting.

Follow Proper Ballot Handling Procedures

Take all measures to ensure ballot integrity and security. This includes oversight of ballot printing/distribution, secure ballot boxes, voter verification at polls, procedures for handling defective ballots, and more. Consider having non-board members or 3rd parties manage this process.

Ensure Transparent Tallying and Oversight 

The ballot counting process needs to be fully transparent with appropriate oversight - likely by a neutral third party election agency or committee of disinterested residents. Publish full voting results showing ballot counts for each candidate.   

Avoid Campaigning Misconduct

While campaigning is allowed (and expected!), set clear rules limiting certain tactics like aggressive solicitation, distributing false or misleading info, harassing residents, destroying other campaigns' materials, and more. 

Give Losing Parties an Appeal Process

Finally, have an process allowing any losing candidate or resident to formally contest the election results if improprieties are suspected. This could involve 3rd party review, hearings, or even new elections in some cases.

By meticulously following legal requirements and principles of fairness, co-op and condo boards can promote active participation, earn residents' trust, and avoid costly disputes over election procedures. Transparency and oversight from start to finish are key.

New York's Consumer Protection Law: A Powerful Tool for Cooperative and Condominium Boards 

April 7, 2024

New York State's General Business Law Section 349 (GBL § 349) provides a potent weapon for cooperative and condominium boards to combat deceptive business practices by unscrupulous vendors. This far-reaching consumer protection statute can help these entities protect themselves from misrepresentation, get out of unfavorable contracts, and recover damages, including attorney's fees.

The Broad Reach of GBL 349

One of the key strengths of GBL § 349 is its expansive definition of "consumer." As the New York Court of Appeals recently clarified in Himmelstein, McConnell, Gribben, Donoghue & Joseph, LLP v. Matthew Bender & Company, Inc., 37 N.Y.3d 169 (2021), the law's protections extend far beyond individuals making purchases for personal or household use. Businesses and professionals, including law firms, are also considered consumers under the statute.

This means that co-op and condo boards, as well as other corporate entities, can utilize GBL § 349 when they fall victim to deceptive business practices. The law applies to a wide range of economic activity, making it a versatile tool in many situations.

Importantly, GBL § 349 can be used against out-of-state defendants, as long as they solicit business within New York. This is crucial in today's interconnected economy, where vendors often operate across state lines.

Elements of a GBL § 349 Claim

To bring a successful claim under GBL § 349, a plaintiff must allege three elements:

1. The defendant engaged in consumer-oriented conduct;

2. The conduct was materially misleading; and

3. The plaintiff suffered injury as a result.

The Himmelstein case provides guidance on what constitutes "consumer-oriented conduct." The court held that this requirement is met when the alleged misrepresentations are contained in a product that is marketed to and available for purchase by consumers, and the defendant's marketing and sale of the product is not limited to a single transaction or a particular buyer. 

Remedies Available Under GBL 349

GBL § 349 provides a range of remedies for plaintiffs who successfully bring a claim. These include:

• Injunctive relief: The court can order the defendant to stop the deceptive practices.

• Actual damages or statutory damages of $50, whichever is greater.

• Discretionary treble damages up to $1,000, if the court finds the defendant willfully or knowingly violated the statute.

• Reasonable attorney's fees to a prevailing plaintiff.

The availability of attorney's fees is particularly noteworthy, as it helps level the playing field for plaintiffs who might otherwise be deterred by the cost of litigation. The potential for treble damages also serves as a strong deterrent against bad actors.

Using GBL § 349 to Get Out of Bad Contracts

In addition to recovering damages, GBL § 349 can be used to void contracts that were entered into based on deceptive practices. If a co-op or condo board can show that it was misled into signing an agreement with a vendor, it may be able to have the contract rescinded and recover any money paid.

Conclusion

New York's GBL § 349 is a powerful tool that cooperative and condominium boards, as well as other corporations, should be aware of. By understanding the broad scope of the law and the remedies it provides, these entities can better protect themselves from deceptive business practices and hold bad actors accountable. When faced with vendor misconduct, boards should consider whether a GBL § 349 claim may be appropriate to recover damages and deter future wrongdoing.

Protecting Your Condominium: What to Do When Board Members Breach Their Fiduciary Duties 

March 24, 2024

As a condominium unit owner in New York City, you trust your board members to act in the best interest of the community.  However, there may be instances where board members breach their fiduciary duties, such as mishandling funds, making decisions that benefit themselves rather than the condominium, or failing to maintain common areas properly.  These breaches can have severe consequences for the condominium and its owners. If you are a board member who observes such misconduct, it is crucial to take action to protect the interests of the condominium and its residents.

When a single board member observes the rest of the condominium board in New York City breaching their fiduciary duties, they have several options to address the situation, even if they are consistently outvoted:

1. Document the issues: Keep detailed records of the observed breaches, including dates, times, and the specific nature of the problem. This documentation may be useful if legal action becomes necessary.

2. Seek legal advice: Consult with an attorney specializing in New York condominium law to understand the board member's rights, obligations, and potential courses of action.  New York has specific laws governing condominiums, such as the New York Condominium Act.

3. Communicate with homeowners: Inform the condominium owners about the issues and the attempts to rectify them.  This can be done through newsletters, emails, or by requesting a special meeting of the owners, as permitted by the condominium's bylaws and the New York Condominium Act.

4. Call for a vote of no confidence: If the breaches are severe enough, the dissenting board member may call for a vote of no confidence to remove the offending board members.  This process typically requires the support of a majority of homeowners and must follow the procedures outlined in the condominium's bylaws.

5. Resign in protest: If the board member feels that their continued presence on the board is ineffective or could make them liable for the actions of the other members, they may choose to resign.  They should document their reasons for resigning and share them with the homeowners.  In the end, even if they resign, they do not become absolved of the duty to the unit owners, for the time they were on the board.  In other words, simply resigning quietly, without bringing the misconduct to the attention of the unit owners, is not an ethical option.

6. Report to relevant authorities: If the breaches are illegal or violate New York state or New York City regulations, the board member may need to report the issues to the appropriate authorities, such as the New York Attorney General's Office or the New York City Department of Housing Preservation and Development.

7. File a lawsuit: As a last resort, the board member may need to file a lawsuit against the other board members for breach of fiduciary duty in New York courts.  This option can be costly and time-consuming, but may be necessary to protect the interests of the homeowners.

It's essential for the dissenting board member to act in the best interest of the condominium owners and to carefully consider the potential consequences of each course of action while adhering to the specific laws and regulations applicable to condominiums in New York City.  By taking appropriate action, a single board member can help protect the condominium and its owners from the harmful effects of breaches of fiduciary duty and other misconduct.

Resolving Resident vs. Board Disputes Amicably

Conflicts between residents and the board of directors are, unfortunately, quite common in co-ops and condos. Disagreements over rules, noise, renovations, fees, and more can quickly escalate into heated feuds if not handled properly.

While boards have authority and enforcement powers, an overly heavy-handed approach often backfires. It's better for both sides to make every effort to resolve disputes through respectful dialogue and compromise when possible. Here are some tips:

Have a Clear Process for Hearing Grievances

Boards should establish an official system for residents to log complaints and request hearings on issues like rule violations, fines, rejection of renovation plans, etc. Having defined procedures helps lend legitimacy and demonstrates willingness to listen.  

Investigate Claims Thoroughly 

Don't just dismiss complaints out of hand. Take time to gather facts through interviews, examining evidence, and reviewing relevant bylaws and policies. Allegations shouldn't simply be accepted as truth, but shouldn't be rejected without justification either.

Communicate Rules and Rationale Clearly

In many cases, tensions arise because residents don't fully understand the reasoning behind board decisions or establishment of certain rules. Make an effort to explain the logic, get resident input, and see if compromises can be reached.

Consider Using Neutral Mediation

When parties become extremely entrenched in their positions, it can be valuable to retain an unbiased third-party mediator. These trained professionals can facilitate more productive dialogue in a neutral setting and help negotiate compromises.

Allow Appeals and Be Willing to Revisit

If a dispute can't initially be resolved through informal means, provide residents with an official appeals process to have their case heard again. Boards shouldn't view reversing an earlier decision as defeat, but as reasoned governance.

Enforce Rules Consistently and Judiciously

While rules must be enforced, boards have discretion on violations and shouldn't always resort to harsh penalties like fines or legal action right away. Start with polite requests and warnings, and only escalate enforcement if the behavior continues.

The key for both sides is maintaining open lines of communication, considering all perspectives, and working toward mutually agreeable solutions when disagreements arise. An adversarial, zero-sum mindset rarely ends well for co-op and condo communities.