Page 10 - The Suffolk Lawyer - December 2020 - Vol. 35, No. 8

10 THE SUFFOLK LAWYER - December 2020

TRANSACTIONAL

Is it Debt or Equity?

By Irwin Izen Without anything in writing, the Other than forming the LLC (and This determination rests with interpret-
transactional attorney is left to rec- acquiring the property), the broth- ing the intent of the parties from the begin-

No doubt we have all experienced that a reate the terms and the relationship ers have done nothing to memori- ning and the transactional attorney first asks
business deal between friends and or family between the parties. Determining alize their relationship by properly Brother B for any documentation. But what if
predicated on financing where one party puts whether it is debt or equity is Your drafting an Operating Agreement. there is no documentation?

up the majority, if not all, the money while Action in the TransAction. Not having an Operating Agree- The blank stare you receive from Brother B
the other party manages the transaction. Of- This month’s scenario finds ment is not fatal to the transaction is an indication that there may be a problem.

ten, in such a transaction, it is likely that the two brothers looking to devel- but outlining the roles of the mem- Despite this, you explore the facts while try-
parties never sat down and discussed the true op a tract of vacant land into irwin izen bers is always suggested. ing to bolster the client’s position and gain

terms or the eventual abandonment of the an eight lot residential subdivi- Their intent would be to finance his confidence. What are some of these facts

project, with visions of dollar signs dancing sion. Brother A is financing the project and the first two homes and then roll all proceeds and what is the recommended documentation

in their heads. Brother B is the developer and day to day into future construction until all lots are sold. you would normally expect to see in a trans-
But when those dollar signs do not trans- project manager (sweat equity). The proj- During construction Brother A is accruing in- action of this type?
late into realized profits, the transactional at- ect is larger than Brother B has undertak- terest to be paid when the lots close and mon- Is there an Operating Agreement (OP)? As

torney is often confronted with a client who en in the past and with municipal filings ey starts coming in. A favorable showing re- you recall, early on there was a lot of prelim-

in retrospect should have called an attorney and the need to file a new subdivision map, sults in two lots sold right away so it is full inary work to be done and no written agree-

in the first place. Piecing together a transac- construction will be delayed. steam ahead and interest starts being paid to ment was drafted. A properly drafted OP

tion after the fact is challenging, particularly Both brothers can see the potential dol- Brother A. would have spelled out the capital contribu-
when one party is the “money guy” and the lar signs down the road and are excited at A sudden downturn in the market and the tions of the brothers as well as their duties
party is the “sweat equity guy” and there is a the opportunity to work together. Brother project is stalled and interest payments are and responsibilities. Clearly capital contri-

difference in opinion as to whether the mon- B has identified a tract of land and a two stopped. Brother B comes to you and asks butions are usually memorialized in any OP
ey guy was truly a “creditor” or an “equity member LLC is formed to acquire the about ceasing to have interest accrue as both and it is not uncommon to see one party in-
partner” and whether the initial loan was debt property with brother A putting up the ini- he and his brother are partners. Was the ini-
or equity. tial acquisition funds. tial investment by Brother A, debt or equity ? (Continued on page 20)
SURROGATE

Judicial Accounting Procedures and Tips

By Kera Reed tor, testamentary trustee, guardian requesting additional relief with- the surety company for any outstanding bond
or an Attorney-In-Fact pursuant to out paying the requisite filing fees. posted by the accounting party; failure to list

A fiduciary has an absolute duty to account SCPA § 2402(8)(a) is $30.00. The Once the fiduciary files his or all Schedule C-1 or some Schedule D items

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to the beneficiaries of an estate or trust. A fee to compel the trustee of an in- her account, either due to being in the “wherefore clause” of the Petition;

successful account, informal or judicial, be- tervivos trust to account pursuant compelled or voluntarily, the pro- simply referring to items set forth in sched-
gins with diligent record and note keeping. to SCPA § 2402(8)(b) is $210.00. ceeding becomes one for the ju- ules without specific amounts or details; and

As the attorney for a fiduciary, at the outset of If the beneficiary seeking to com- dicial settlement of the account pleading does not establish prima facie proof

your representation you should obtain an un- pel an accounting seeks addition- of the fiduciary. For the account for the relief requested.

derstanding of the relationship between the al related relief pursuant to § 2206, kera reeD of an executor, administrator, tes- Common errors made by practitioners in
parties and assess the likelihood of a contest- there is an additional filing fee of tamentary trustee, guardian or At- the preparation of the accounting sched-

ed accounting at the end. Financial records $120.00. torney-in-Fact, the filing fee is set in SCPA§ ules include: errors on dates listed for the

should be kept in anticipation of the prepara- Common errors made by practitioners 2402(7) and is based on the total value of period of account, or submitting a “stale”
tion of a judicial accounting, even if the mat- when filing the Petition for Compulsory Ac- Schedules A, A-1 & A-2. For the account of a account; summary statement fails to bal-

ter is settled informally. counting and Related Relief include: leaving lifetime trustee, pursuant to SCPA § 2402(8) ance; a misunderstanding of “principal re-

If you represent a beneficiary of an estate questions blank; setting forth too much infor- (b), the fee is fixed at $210.00 no matter the ceived” to be set forth in Schedule A con-
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or trust and you have been unable to get a fi- mation about why petitioner wishes respon- value of the trust. cerning refunds. incorrectly listing unsold

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duciary to account, there is a procedure in the dent to account; failing to include all co-fi- Common errors made by practitioners real property in Schedule A when it should

Surrogate’s Court to compel the accounting. duciaries as necessary parties; compelling when filing the Petition for Judicial Settle- be listed in Schedule J; failing to show

The procedure is a Compulsory Accounting an accounting of a co-fiduciary without first ment of Account include: leaving questions the net proceeds of sold real property on

and is governed by SCPA § 2205 and § 2206. filing petitioner’s own account as a co-fidu- blank; listing incorrect/incomplete informa-

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The fee to compel an executor, administra- ciary; confusion regarding paragraph 6; and tion for interested parties; failure to include (Continued on page 20)
REAL ESTATE DEVELOPMENT
Recent Land Use, Zoning and Environmental Real Estate Decisions
By Jason A. Stern Discontinuance granted despite violated the State Environmental “spot zoning” claims are based solely on
developer’s claim of improper Quality Review Act (“SEQRA”) the Amendments, which are unaffected by
As shown in our previous columns, cli- lawsuit “piggybacking” in connection with prior approv- the SEIS, and to allow the discontinuance
ents can face a variety of real estate de- In Shapiro v. Town of Ramapo, als for the same project and di- and eventual reinstitution of such claims
velopment issues, the answers to which 185 A.D.3d 747 (2d Dep’t 2020), rected the preparation of a Sup- would improperly allow “piggybacking” of
depend on land use, zoning, environmen- plaintiffs/petitioners (“Plain- plemental Environmental Impact lawsuits and cause “extreme delay.” The
tal, and municipal laws, rules, and regu- tiffs”) commenced a hybrid Ar- Statement (“SEIS”). Based on Second Department rejected Scenic Devel-
lations, which vary among the counties, ticle 78/declaratory judgment such decisions, Plaintiffs moved opment’s arguments and affi rmed the Su-
towns, villages, and cities across Long Is- action in the Supreme Court, jaSon a. Stern the Supreme Court to voluntari- preme Court on the ground that Plaintiffs’
land and New York state. However, there Rockland County, seeking to in- ly discontinue this action, with- spot zoning claims “center upon viewing”
validate a series of local law amendments out prejudice, pursuant to CPLR 3217(b), the Amendments “in context with other ac-
are certain overarching legal principles (“Amendments”) adopted by the Town on the ground that the “spot zoning” claims tions by the Town.” Thus, any “further ac-
that guide these answers and this column Board (“Town Board”) of the Town of Ra- would have to be re-evaluated in the con- tions by the Town in response to” the Sec-
reviews recent court decisions on such mapo (“Town”), permitting Scenic Devel- text of the SEIS and any new related Town ond Department’s decisions to require an
principles to give practitioners a frame- opment, LLC (“Scenic Development”) to Board approvals. The Supreme Court SEIS “may impact the plaintiffs’ claims.”
work for understanding the issues and develop a 206-acre parcel into 470-plus granted Plaintiffs’ motion and discontin- Accordingly, the action was discontinued
how the courts address them, with an em- housing units, based on allegations of ued the instant action. Scenic Develop- without prejudice.
phasis on decisions from the Appellate “spot zoning.” In related proceedings, the ment appealed such decision to the Second
Division, Second Department: Second Department found the Town Board Department on the ground that Plaintiffs’ (Continued on page 21)