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