Articles Posted in Outlook and Trends

Published on:

09 December 2022

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Last month Los Angeles voters approved Measure ULA, imposing a new tax on all real property sales or transfers over $5 million. This will affect all parties involved in a real property transaction, and it is important to understand the implications of the measure before negotiating on a new project. My colleague David Tabibian, partner in JMBM’s Real Estate Department and Global Hospitality Group®, explains the initiative and its potential impact below.

Measure ULA Approved: New Transfer Tax on All Real Property Sales Over $5 Million in the City of Los Angeles

by
David Tabibian

In an effort to combat the homelessness crisis, Measure ULA (aka the “Homelessness and Housing Solutions Tax”) was recently approved by voters in the City of Los Angeles on November 8, 2022. The measure imposes a very significant increase in transfer taxes on certain real property sales within the City of Los Angeles, which will have far-reaching impacts throughout the real estate market. It is anticipated that the new tax will generate approximately $600 million to $1.1 billion annually in order to fund affordable housing and tenant assistance programs administered by the Los Angeles Housing Department. Given the high cost of this new tax, it is important that buyers, sellers and developers fully understand its implications.

What Does Measure ULA Do?

Although commonly referred to as the “mansion tax,” it is actually much broader in scope since it applies to all real property asset classes, including residential and commercial properties as well as vacant land. In fact, many industry experts anticipate much of the revenue generated from Measure ULA will instead come from sales of apartment buildings and commercial properties as opposed to sales of mansions.

Currently, unless a specific tax exemption applies, all transfers of real property, regardless of value, are subject to a documentary transfer tax from both the City of Los Angeles and the County of Los Angeles at a combined rate of $5.60 per $1,000 of consideration. Simply put, it is a 0.56% tax on the consideration received and is collected at the time of closing.

Under the new measure, however, sales of residential and commercial real property valued at over $5 million but less than $10 million would be subject to an additional transfer tax at the rate of 4%, and sales of real property valued at $10 million or more would instead be subject to an additional tax at the rate of 5.5%. In contrast to the existing documentary transfer tax, the value of the property for purposes of the measure will include the value of any lien or encumbrance remaining on the property when it is sold so that the tax is on the gross value, not just the consideration received. Moreover, the tax would be due regardless of whether it is being sold at a gain or a loss. The thresholds under the measure will be adjusted each year for inflation. Although Measure ULA will become law on January 1, 2023, it applies to property sales occurring on or after April 1, 2023. CONTINUE READING →

Published on:

23 November 2022

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Effective January 1, 2024, companies will have to report their beneficial owners to the U.S. Department of the Treasury’s Financial Crimes Enforcement Network as part of the updated Corporate Transparency Act of 2021 (CTA) rules. Unless they are exempt under the CTA, businesses that fail to submit this information may be faced with steep civil or criminal penalties. Vince Farhat and Alan Azar of JMBM’s White Collar Defense and Investigations Group have written an article explaining CTA’s new reporting requirements and how to comply with them below.

FinCEN Issues Final Rule for CTA’s Beneficial Owners Reporting Requirements

by
Vince Farhat and Alan Azar
JMBM’s White Collar Defense & Investigations Group

Congress passed the Corporate Transparency Act of 2021 (CTA) as part of the Anti-Money Laundering Act of 2020 (AMLA) included in the National Defense Authorization Act (NDAA). The CTA created a beneficial ownership registry within the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN). On September 29, 2022, FinCEN issued a final rule implementing the beneficial ownership information (BOI) reporting requirement of the CTA, which will go into effect on January 1, 2024. Reporting companies created or registered before January 1, 2024 will have one year to file their initial reports, whereas reporting companies created or registered on or after January 1, 2024, will have 30 days after receiving notice of their creation or registration to file their initial reports.

Unless they are exempt under the CTA, companies will be required to submit information to FinCEN on their beneficial owners or face the prospect of civil and criminal penalties if they fail to comply. FinCEN estimates that most of the 32 million companies anticipated to be subject to the Final Rule will be small businesses, single-owner LLCs, or other types of business entities with four or fewer beneficial owners. The overall compliance costs could reach $22.8 billion for the first year and $5.65 billion annually after that.[1]

AMLA Background

The NDAA took center-stage when former President Trump vetoed the bill in 2021, taking issue with the bill’s failure to repeal Section 230 of the Communications Decency Act. Following a veto override, however, the NDAA became law, marking the 59th consecutive year in which some form of the NDAA has been passed. This Section 230 scuffle diverted attention away from the AMLA, a separately named Act within the NDAA. The AMLA represented the most significant reform to anti-money laundering laws in two decades, since the 2001 USA PATRIOT Act. CONTINUE READING →

Published on:

09 September 2022

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GHG Partner David Sudeck Recognized as a Real Estate/Construction Law Trailblazer

Jeffer Mangels Butler & Mitchell LLP (JMBM) is pleased to announce that Real Estate Partner David Sudeck has been recognized in the National Law Journal’s 2022 list of Real Estate/Construction Law Trailblazers.

This list honors legal professionals who have made significant marks on the practice, policy and technological advancements in their sector.

“David’s legal expertise and excellent client service have been essential to the success of the Global Hospitality Group and to the Firm as a whole,” said Jim Butler. “We are pleased that he has received this recognition as a Trailblazer.”

Sudeck is a seasoned dealmaker with an international reputation as an expert in hospitality projects. He provides critical business and legal advice to owners and lenders in the purchase, sale, development, construction, financing, leasing, and sale-leaseback of hotel, resort and mixed-use properties, including structuring complex hotel management and branding agreements.

In 2021, David and his team at JMBM’s Global Hospitality Group® closed more than $210 million in Commercial Property Assessed Clean Energy (C-PACE) loans and in 2022 assisted in structuring the largest ever C-PACE transaction in the United States. His trailblazing work in this area has led to him representing the top lenders in the space. As David told the National Law Journal, “[C-PACE financing] has been a critical part of the capital stack…Borrowers have embraced the fact that it is non-recourse financing at a low cost.”

To read David’s profile, click here.

CONTINUE READING →

Published on:

10 June 2022

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Deadline nears. More than 56,000 business and 1 million servers are affected. Of the million servers, only 33,000 are certified now.

Is your California alcoholic beverage outlet ready for
new August 1, 2022 ABC certification
of all alcoholic beverage servers and managers?

by
Jim Butler, Chairman of JMBM’s Global Hospitality Group®

 

Responsible Beverage Service Training Act of 2017 (the “RBSTA”)

A new law that many of the affected people have never heard about becomes effective July 1, 2022. It all involves liquor licenses from the California Department of Alcoholic Beverage Control (“ABC”) and persons employed by such licensees to serve alcohol to patrons.

The new law is known as the “Responsible Beverage Service Training Act of 2017” or “RBSTA.” Many are now using the acronym of “RBS” to refer to matters involving the RBSTA such as certification, training and related matters. It is embodied in the California Business & Professions Code (Div. 9, Ch. 16, Art. 4, Section 25680 et seq.).

Who is affected? How many are affected? How many comply today?

The ABC estimates that the law affects 56,000 businesses that hold on premise liquor licenses from the ABC and approximately 1 million servers of alcohol and their managers at such locations. Of the million servers and managers, only 33,000 have been certified to date!

Such licensees include all California restaurants, bars, cafes, clubs, wineries, breweries, stadiums, event centers and virtually any other outlet that sells alcoholic beverages and permits customers to drink on site. CONTINUE READING →

Published on:

06 June 2022

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GHG Partners Guy Maisnik and David Sudeck Recognized by the Los Angeles Business Journal and the Los Angeles Times

Jeffer Mangels Butler & Mitchell LLP (JMBM) is pleased to announce that two senior Global Hospitality Group® members were honored last month for their legal accomplishments.

Guy Maisnik, Vice Chair of JMBM’s Global Hospitality Group®, has been included in the Los Angeles Business Journal’s list of “Top 100 Lawyers.” This list honors the top lawyers in Los Angeles for their legal achievements, professional impact and community involvement.

Guy advises clients on hospitality transactions, representing buyers, sellers, lenders, opportunity funds, special servicers, REITs, and developers in hotel transactions, joint ventures, hotel management agreements and franchise agreements, buying, selling and ground leasing of hotels, complex mixed-used development, and fractional and timeshare structuring.

David Sudeck, senior member of JMBM’s Real Estate department, has been recognized as a 2022 “Commercial Real Estate Visionary: Professional Service Advisor” by the Los Angeles Times. This list spotlights the top commercial real estate professionals in the region who have helped businesses reach the next level of growth.

David is a seasoned deal maker with an international reputation as an expert in hospitality projects. He provides critical business and legal advice to owners and lenders in the purchase, sale, development, construction, financing, leasing, and sale-leaseback of hotel, resort and mixed-use properties, including structuring complex hotel management and branding agreements.

These awards are a result of their excellent legal work and dedication to client service. To read Guy Maisnik’s profile in the Los Angeles Business Journal click here and to read David Sudeck’s profile in the Los Angeles Times click here. CONTINUE READING →

Published on:

22 February 2022
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If you are planning to make a large gift as part of your estate plan, you should consider taking advantage of the current tax exemption in effect until the end of 2025. After this time, the exemption will revert back to approximately one-half of its current value. This has potentially huge implications for hospitality executives and other high-net-worth individuals. Gordon Schaller, managing partner of JMBM’s Orange County office, explains below.

The Cost of Waiting to Make a Large Gift: Compounding Your Tax Savings

by Gordon Schaller

The Tax Cut and Jobs Act of 2017 doubled the lifetime gift and estate tax exemption, effective for gifts made from 2018 through the end of 2025. In 2026, the exemption will revert to the 2017 exemption, adjusted for inflation (approximately one-half of the 2025 exemption). There was great concern during the last part of 2020 and most of 2021 about the possible reduction of the lifetime gift and estate tax exemption prior to the scheduled reversion. However, Congress did not enact any change to the exemption, and it seems unlikely to do so for the foreseeable future. The current exemption is $12,060,000 per person, or $24,120,000 per married couple.

What should clients do now? For those who can afford to do so, they should utilize the exemption now. The cost of waiting, or the benefit of acting now, can be illustrated by the following table. The first example demonstrates the effect of a $12 million gift now, compounded at 6% over many years, compared to a $6 million gift when the exemption reverts in 2026, compounded over the remaining years. By 2050, the difference is $37 million in the first example. The second example shows an even greater disparity in outcomes ($57 million) when the assets gifted consist of an interest in a partnership, LLC, corporation or real estate that qualifies for valuation discounts for lack of control and lack of marketability. CONTINUE READING →

Published on:

27 December 2021

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Click here for the latest on labor and employment guidance.

Labor & Employment New Year Round-Up
What to Expect in 2022

Several new pieces of California legislation have either recently gone into effect or will take effect in 2022, impacting nearly all employers and how they handle employment agreements, disability related to COVID, training, rehiring and retention, and a range of other practices. A new presidential administration also means a shift in the political landscape and the role played by the NLRB, OSHA and other regulatory bodies.

Our round-up will help you determine which key issues may impact you in 2022; contact us to be sure you’re ready for all these upcoming changes. Click the “read more” link for each topic to see a comprehensive summary.

Expansions to the California Family Rights Act

Effective January 1, 2022, AB 1033 adds “parent-in-law” to the list of persons that an employee may take time off to care for, pursuant to the California Family Rights Act (CFRA). It also recasts the notice provisions of the small employer family leave mediation pilot program to require the DFEH to notify an employee of the requirement for mediation prior to filing a civil action, and requires the employee to contact the DFEH’s dispute resolution division prior to filing an action.

What this means for employers: Employers should review family leave policies to ensure they are compliant with AB 1033. Although the law adds a new category of person an employee may take time off to care for, it does not expand the total amount of leave an employee is entitled to take per 12 month period. Small employers should be aware of their ability to request mediation, and should consult with labor and employment counsel immediately upon receiving notice by a plaintiff or the DFEH that a plaintiff is seeking a civil lawsuit—the deadline to request a mediation is only 30 days from receipt of notice.

Read the full article.

Changes to the Fair Employment and Housing Act

Effective January 1, 2022, SB 807 amends various statutes concerning the Department of Fair Employment and Housing (DFEH) procedures when enforcing California’s civil rights law—notably, the FEHA. These changes include tolling the deadline for the DFEH to file a civil action under the FEHA while a dispute resolution is pending, increasing the amount of time employers must keep certain records, and authorizing the DFEH to appeal court decisions.

What this means for employers: Employers should review their current record retention policies and amend them as necessary. This also provides an opportunity to ensure that employers are retaining all the necessary records so that they do not face unnecessary penalties or subject themselves to avoidable liability. SB 807’s tolling of the statute of limitations deadline provides additional leeway to employees who are seeking redress, and the authorization for the DFEH to appeal decisions grants it additional flexibility when pursing actions against employers.

Read the full article. CONTINUE READING →

Published on:

16 April 2021

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The recent ruling in Google v. Oracle has altered the definition of “fair use” when it comes to functional works such as code. While the use of existing creative works must still be transformative in order to avoid violating copyright laws, it will now be much easier to claim fair use when building on existing functional creations. JMBM’s Entertainment Litigation Chair Jeff Goldman explains the case below and discusses its potential impact on the hotel industry.

How does the Supreme Court’s Google v. Oracle case
impact the hotel industry (beyond software)?

by
Jeff Goldman, Chair, JMBM’s Entertainment Litigation Group

It was hyped as the “copyright case of the century.” Justice Clarence Thomas, in his dissent, frets that the majority “transforms the definition of ‘transformative’” use into nothing more than “a use that will help others ‘create new products’” — a “new definition” that “eviscerates copyright.” Google LLC v. Oracle America, Inc., dissent at 16-17. As an example of what might now be considered a “fair use,” Justice Thomas cites a “movie studio that converts a book into a film without permission[.]” Id. at 17.

Justice Thomas’s concern may be an overstatement. Whatever the repercussions of Google v. Oracle for the software industry, read in context, any attempt to apply its fair use analysis to works that are more creative than functional — like movies, books, and music — ought to fall flat. Nevertheless, various types of copyrighted works important to hotel operators may well be affected by the Court’s fair use analysis.

Copyright law basics

First, briefly, some background. Copyright law protects original “expression” that is fixed in some tangible medium (e.g., paper, film) but not “the ‘ideas’ that lay behind” that expression. Google at 13. The difference between an “idea,” and the “expression” of that idea, is often a difficult line to draw. One concept used to distinguish between idea and expression is that works, or parts of them, that are largely functional or utilitarian are closer to mere “ideas” than to protectable “expression.” Works — including computer code — that are purely functional or utilitarian are considered noncopyrightable ideas, rather than copyrightable expression. See RJ Control Consultants, Inc. v. Multiject, LLC, 981 F.3d 446, 457-58 (6th Cir. 2020). On the other hand, the threshold for copyrighrability is low; to be copyrightable, a work need only “possess some creative spark, ‘no matter how crude, humble or obvious’ it might be.” Feist Publications, Inc. v. Rural Telephone Service Co., Inc., 499 U.S. 340, 345 (1991) (quoting Professor Nimmer).

A copyright owner’s exclusive power over a copyrighted work is also subject to various limitations, including that “a copyright holder cannot prevent another person from making a ‘fair use’ of copyrighted material.” Google at 13, citing 17 U.S.C. § 107. Among the factors courts consider in the fair use analysis is how much the new work “transforms” the original work — a concept that courts have had trouble applying with any degree of consistency and predictability.

The Google case

The Google case centered on the protectability, and Google’s use, of a type of largely functional computer code called “declaring code.” The easy way for the Supreme Court to decide the case would have been to simply rule that Oracle’s “declaring code” was not copyrightable — as Google argued, and the district judge agreed (a ruling the Federal Circuit reversed). But it was clear from oral argument that the Court was having none of that. CONTINUE READING →

Published on:

08 April 2021

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The Treasury Department’s Financial Crimes Enforcement Network (FinCEN) is currently accepting public comments on a provision in the recently enacted Corporate Transparency Act (CTA) which requires some privately-held business entities to disclose ownership information directly to a law enforcement agency. Interested parties should consider commenting before the May 5th deadline, and companies who may be impacted should take this opportunity to review their anti-money laundering compliance programs. Vince Farhat and Samuel Buchman of JMBM’s White Collar Defense and Investigations Group have written an article detailing this legislation below.

FinCEN Seeks Comments on Ownership Disclosure Requirements in New Federal Anti-Money Laundering Law

by
Vince Farhat, Chair and Samuel Buchman, Associate
JMBM’s White Collar Defense & Investigations Group

On April 1, 2021, the Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”) published an advance notice of proposed rulemaking giving companies and individuals the chance to comment on the new beneficial ownership disclosure requirements contained in the recently-enacted Corporate Transparency Act (“CTA”), which is part of the Anti-Money Laundering Act of 2020 (“AMLA”) included in the National Defense Authorization Act (“NDAA”). Under the CTA, some privately-held business entities will be required, for the first time, to disclose ownership information directly to a law enforcement agency. FinCEN is accepting public comments on the CTA disclosure requirements through May 5, 2021, and companies and other interested parties should consider commenting by this deadline to help shape the anticipated rulemaking process at this early stage. This article focuses on two specific legislative changes which could lead to an uptick in federal anti-money laundering enforcement: (1) the CTA beneficial ownership disclosure requirements; and (2) enhanced whistleblower incentives and protections under the AMLA. It is critical for companies to stay abreast of regulatory developments in order to maintain proper compliance with these changing enforcement rules.

Background

Congress enacted the NDAA on January 1, 2021. This year’s iteration of the NDAA gained notoriety when former President Trump vetoed the bill, taking issue with the bill’s failure to repeal Section 230 of the Communications Decency Act. However, following a veto override, the NDAA became law, marking the 59th consecutive year in which some form of the NDAA has been passed. This Section 230 scuffle diverted attention away from the AMLA, a separately named Act within the NDAA. The AMLA represents the most significant reform to anti-money laundering laws in two decades since the 2001 USA PATRIOT Act.

Among the AMLA’s sweeping reforms are efforts to strengthen FinCEN, extend the reach of the Bank Secrecy Act (“BSA”), and expand the Department of Justice and Treasury Department’s ability to subpoena foreign financial institutions.

In its advance notice of proposed rulemaking (“ANPR”), FinCEN requested comments on the new CTA beneficial ownership disclosure requirements. The comment period will last until May 5. The ANPR solicits comments on a variety of topics, including: definitions of the various ambiguous terms in the law; the disclosure procedure; determining the scope and content of the disclosures; the means by which entities will seek an exemption from the reporting requirements; and how the disclosures will be shared with state and local law enforcement and financial institutions. CONTINUE READING →

Published on:

20 February 2021

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Click here for the latest articles on C-PACE Financing.

Hotel finance lawyer: C-PACE Financing is now mainstream

About five years ago, my partner David Sudeck, a senior member of JMBM’s Global Hospitality Group®, spoke at a hotel industry conference about the attractive features of Commercial PACE (or C-PACE) financing as an innovative financing technique. David has extensive experience with virtually all kinds of real estate financing from senior debt to joint ventures. At the time, he had just finished working on a hotel financing that included components of a senior construction loan from a private lender, Mello Roos community facilities district financing, EB-5 financing, and C-PACE Financing. Few people in the audience at the conference had heard about Commercial PACE financing, and there were a lot of questions about its characteristics.

Over the past five years, C-PACE financing has gained wider acceptance, and moved from a novel or creative technique to a widely-accepted practical solution to financings. It has gained traction with both lenders and borrowers. But its gradual increasing use was accelerated by the COVID pandemic and resulting lockdowns, and near collapse in many segments of the hospitality industry. The accompanying deficiency of construction and other financing since March 2020, supercharged the importance and use of C-PACE Financing. Over the past few months alone, David Sudeck and his team have worked, on the lender and borrower-side of transactions, on more than a dozen Commercial PACE financing transactions. The largest that we have worked on, more than $40 million of C-PACE financing, closed just a few weeks ago.

At this point, most owners and developers are considering C-PACE financing as part of their capital stack for development, for renovation, and for rescue capital (more on this below). And more and more lenders have been approving C-PACE as a part of the capital stack. Why, you ask?

Why C-PACE financing can be attractive:

C-PACE financing takes the form of a voluntary tax assessment on real property, having the same features and priority as an ad valorem real property tax (typically paid only twice per year, when real property taxes are paid). Here are some of the features that may be negotiated which can make it attractive financing: CONTINUE READING →

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