Month: November 2021

Commercial Real Estate Attorney | Bukowski Law Firm | Austin, TX

Prepare in Advance for Your Partnership Breakup

  • Regardless of the type of entity you are forming, you should always have an operating/partnership agreement.

  • The agreement will help dictate the rights and responsibilities of all the partners/members of the entity.

  • And when setting up the agreement, its essential to have some specific clauses that govern important parts of the entity.

A few weeks ago in this blog, I wrote about the importance of having written vendor agreements. And I wrote that there is so much important information to include in the agreements that I would have to re-visit the details in a later article. Well guess what? Is today that day? No. No it is not.

But I am writing about a similar topic. Once again I’m going to stress the importance of having a written agreement. But this time, instead of a vendor agreement, it’s the importance of having a written partnership agreement to govern the details of your relationship with your partners.

I don’t currently have any partners at Bukowski Law, but even without any partners, I still have a written operating agreement. Because when setting up a company or partnership*, we always think that that entity is going to last forever along with the good times. But unfortunately, that is not always reality. Things happen and partnerships break up. And when they do, you definitely want to know what everyone’s rights and responsibilities are. So its vital to have a written partnership agreement to spell those out.

Why is a Partnership Agreement Important

I have had lots of conversations with real estate investors about what is required in a partnership agreement and why it is important. Typically the most push back happens when the investor is just investing with one or two other people – especially when they are close friends or family. But this is often when it is most important to have a written partnership agreement.

When a client is investing in real estate, for slight tax benefits, we generally recommend setting up a limited partnership as the single purpose entity (SPE) to own the property. In a typical structure, we often then recommend a limited liability company as the general partner and/or investment entity for our client. And with all of those entities, we of course strongly recommend having an operating agreement.

The partnership/operating agreement is vital because if anything does go wrong, the terms of the agreement will dictate the rights and responsibilities of all of the partners. It will help resolve disputes, divide up the ownership, and hopefully avoid costly litigation. And while there are some rules under Texas statutes, owners generally have the flexibility to dictate the partnership terms when drafting the agreements.

Important Partnership Agreement Clauses

While you can generally include any clauses in a partnership agreement that you want, there are some important categories of clauses that all agreements should contain. Some of those are:

  • Rights and powers of the general partner – Its important to dictate what controls the GP has on a daily basis, what it needs approval to do, when the limited partners can step in and remove the GP if necessary, etc.

  • Limitations on the limited partners – Limited partners have limited liability precisely because they do not control the day to day activities of the partnership. But that should be spelled out clearly in the partnership agreement – along with any authority they have to vote for special powers, remove the GP, etc.

  • Tax issues – Its important to set out the tax implications of the cash flows from the deal. We often consult with a tax accountant on these issues.

  • Contribution/ownership – The agreement must contain the contributions from each partner and the resulting ownership of the entity that each partner has.

  • Distribution of proceeds – This may be the most important part of the partnership agreement – how does everyone get paid? When the deal is sold, what are the waterfall payments? That should be included in the agreement.

As you can see, the partnership agreement is essential to keeping an orderly and functioning entity. Even with just a couple of partners, its extremely important to have an agreement that dictates the rights and responsibilities of all parties. So if you are putting together an entity and need help with the operating agreement, give us a call and let us help.

*In this article, I’m writing about partnership agreements because that is the usual entity form we use when setting up a single purpose entity for investment purposes. But the same principles work for any other type of entity – LLC, corporation, etc. In these instances, you can just substitute operating agreement or company agreement for partnership agreement.

Commercial Real Estate Attorney | Bukowski Law Firm | Austin, TX

Is Urban Farming Right for Your Property?

  • Urban farms have repurposed some urban areas to grow and sell produce locally.

  • In Detroit, there are at least 21 urban farms that have helped revitalize and transform the City.

  • While urban farms may not be for everyone, it does help show how land can be used creatively to benefit local residents.

Well it is Thanksgiving week. As I get older, the years seem to fly by faster and faster. Anyway, as I was thinking about Thanksgiving and what I should write about, I thought about what Thanksgiving is all about. And, of course, its about being with family and being thankful – but mostly its about food.

But this is nominally a commercial real estate blog. So writing about my favorite deep fried turkey recipe probably isn’t what y’all are looking for. Then I remembered what I saw on a recent trip to Detroit – a marriage between real estate and food. Detroit has a number of urban agriculture spots throughout the city that I thought were incredibly fascinating. So that’s what I am writing about this week – urban farms.

What is Urban Farming?

Urban farming is exactly what it sounds like. It is using space in the middle of an urban area to produce agricultural products. The size can vary but generally the farms grow a variety of fruits and vegetables. Some people often confuse this with a community garden – but urban farming is different. The people who run urban farms do it for commercial means – they are generally growing the produce to sell it. As opposed to community gardens, where the residents grow for their own use.

Urban areas can sometimes become food deserts where local residents do not have access to high quality, fresh produce. Urban farms, therefore, are often used as a way to increase access to locally grown food as well as reintroduce the public to a food culture that may have been lost. And as technology advances, urban farmers have been able to move beyond traditional urban methods and expand their operations and growing seasons. These innovations include vertical farms, hydroponic greenhouses (e.g., soilless systems), and aquaponic facilities (e.g., growing fish and plants together in an integrated system).

As a result, some urban areas are experiencing a food renaissance with locally grown food being reintroduced into the community.

Detroit’s Urban Farming Culture

I have written previously in this blog that in 1950, Detroit had about 1.85 million residents. And, as of the last census, it has approximately 640,000 residents. While that is obviously not good for any city, one unintended benefit is that there is a lot of vacant land in Detroit that creative people can develop. And some of those creative people have used that land for urban farming.

One such farm on Detroit’s north side is run by the Michigan Urban Farming Initiative. It has a 3 acre tract that it founded in 2012 to reintroduce agriculture to help eliminate food insecurity in the area. According to the Initiative, this space is heavily themed by “adaptive reuse of the built-environment” in which it is hoping to demonstrate everything from best practices for sustainable urban agriculture, effective strategies for increasing food security, cost-competitive and scalable models for blight deconstruction, and innovation in blue and green infrastructure.

But that is not the only urban farming spot in Detroit. There are at least 21 such farms throughout the City. As mentioned above, these urban farms are reintroducing fresh, locally grown produce to areas that may have lacked access to that. That has an obvious health benefit for local residents. And the farms have become an attraction and a selling point for local property owners. Studies also suggest that urban farms may bring a community together, help improve local property values, as well as help residents eat healthier. The benefits, therefore, can be terrific for a community.

Look, I’m not saying that urban farms are appropriate for all cities. As I wrote above, Detroit is unique in that it has a lot of open space. But it does show what can be done when creative people think creatively. And maybe it will help give you a new idea with your next development.

Hire Those Maya Contractors

  • Last week, I was in Merida, Mexico and was lucky enough to visit the ruins of Uxmal.
  • That these buildings were built 1200 years ago is a great credit to Maya architecture and construction.
  • If you have the chance to visit them in the future, I recommend doing so.

In this blog, I usually write about either a topic of public interest in Texas or a real estate legal issue that I think is important. I try to mix up those two types of topics to provide some variety. And increase my millions of readers.

This week’s entry is going to be completely different from either of those traditional categories. But I hope you will enjoy reading about it.

Last week I went to a wedding in Mexico. And while there, I had the great opportunity to visit some Maya ruins. And I can tell you, if you have never done so, you should. Its quite an experience to see. So that’s what I am writing about this week – the amazing construction of buildings by the Maya that I was fortunate to visit.

The Uxmal Ruins

The wedding was in Merida, Yucatan. If you are not familiar, Merida is the capital and largest city in Yucatan. It has a population of about 1.16 million people. It’s a nice city with very good food and a solid nightlife. It is inland, but not too far from the Gulf.

While there is much to do in and around Merida, perhaps the best part of the trip was our time spent at the Uxmal Ruins.* Other than the wedding, of course. Which was terrific.

When you first get to the ruins, a giant pyramid is the first building to greet you. Its extremely impressive and makes you wonder how it was built. While the city was likely founded around 500 A.D., most of the construction likely took place between 850-925 A.D. And, again, looking at the pyramid, its hard to believe it was built 1200 years ago.**

Uxmal had Great Contractors

While the pyramid dominates the skyline, that is only the beginning of the Uxmal ruins. There is the Nunnery Quadrangle, the Governor’s Palace, and the House of Turtles. These are all huge buildings covering a total of about 150 acres.

 

The buildings represent the height of Puuc architecture and are generally made of limestone with smooth wall surfaces. These ruins are still apparently studied by modern archaeologists to discover how the Maya people adapted to changing threats from enemies and the natural environment.

It is estimated that the Governor’s Palace, for example, took 33 years to build with 1200 workers. 

As far as I know, its not quite known what happened to Uxmal, why it died out, and why there was nothing else built after about year 1000. Or, at least, its not agreed upon by historians. But that is about the time when the city stopped being a central hub in the Maya empire.

The bottom line is the ruins are just very cool. Its amazing to think that the Maya built them 1200-1300 years ago. And that they have withstood the test of time and continue to stand. Its difficult to imagine we have buildings now that will still be standing in 120 years, much less 1200. And to think they built them with rudimentary tools – well its just amazing.

So the next time you are in the Yucatan, I highly recommend checking out the Uxmal ruins. It will be worth your time. And maybe you can pick up some pointers for your next commercial real estate development.

* The Chichen itza ruins are also close to Merida and probably more famous. But we did not have time to visit those also.

** And I realize that the pyramids in Egypt are older. But I wasn’t in Egypt last week. I was in Mexico.

contractors negotiations - Commercial Real Estate Attorney | Bukowski Law Firm | Austin, TX

Get Those Contract(ors) in Writing

  • With the rapid growth of Texas, we have seen a lot more property owner/contractor disputes lately.

  • It is EXTREMELY important, therefore, to make sure your contractor agreements are in writing.

  • The definition of a written agreement can be very broad and encompass a lot of different types of writings.

Lately, we have been seeing a lot more disputes between property owners and contractors than we normally do. I have some theories about why this is true. Texas is basically a tinderbox for contractor/property owner disputes because –

  • Texas is growing at a rapid pace and, as a result, developers and property owners are working hard to try to meet the increasing demand for housing, office space, retail, etc.;

  • That increased demand has allowed unqualified general contractors to get hired for bigger jobs; and

  • The overall labor shortage has hurt contractors looking for subs.

As a result, people are calling our office on a weekly basis to ask us to help resolve their contractor disputes. Now don’t get me wrong – I always appreciate the work. Its why we are here, after all. (On a work basis – not an existential one).

But if we can help you avoid some of the frustration of fighting with contractors, we certainly would like to do so. And then you can get back to hiring us to help you buy more properties.

So that’s what this week’s blog entry is about – contractor agreements and what is important to help avoid disputes. Now, we are not going to cover everything – there’s just too much. So we will have to circle back to this issue in a few weeks to finish our discussion.

Write that Stuff Down

I have lived in Texas all but two years since 2001. So I get it. I understand how a lot of people like to do business here. A handshake was good enough for your grandfather and its good enough for you. Except its not.

I cannot stress this enough – please make sure all of your agreements are in writing. PLEASE MAKE SURE ALL OF YOUR AGREEMENTS IN WRITING.

First, its quite possible that your contractor agreements are not enforceable unless they are in writing. If you are not familiar, most states (including Texas) have a Statute of Frauds (“SoF”). Under the SoF, certain agreements HAVE to be in writing and signed by the person against whom they are to be enforced. There are two specific contracts that are covered that may affect property owners –

  • Contracts that will not be completed within one year; and

  • Sales of real estate (though not contracts that are just incidental to real estate).

So its entirely possible that your vendor agreement is not even enforceable unless it is in writing.

But, of course, even if a verbal agreement is enforceable, its still a terrible idea. Its way too easy for two sides to disagree on what is required from the contractor if the agreement is verbal. And there is no very difficult to determine a) if there was a breach of the agreement and b) if there was a breach, what is the remedy?

So once again, please make sure your contractor agreements are in writing.

But What is a Writing?

If you do not have a ten page explicit agreement with your contractor, do not panic. You may have more of a contract that you think.

Texas has adopted the Uniform Electronic Transactions Act. That means that electronic signatures are valid and enforceable. I’m sure you already knew that – you probably use something like Docusign all the time.

But it also means that there are other electronic documents that can constitute a written agreement. For example, Texas Courts have interpreted the UETA to mean that emails are sufficient to constitute an agreement. And it is certainly possible that text messages could form the basis of a written agreement. And for both emails and text messages, they do not have to be in a single place. Multiple emails or texts could theoretically make up a written agreement.

A contract only needs three things –

  • Offer by one party;

  • Acceptance by the other; and

  • Consideration (which is an entire separate topic that I will cover at some point).

And because electronic signatures are accepted in Texas, we can look to a lot of different areas to determine whether there was an offer, acceptance, and consideration.

Well we didn’t get very far into the details of what is important in a contractor agreement. But I hope its clear now that – at the least – they should be in writing.

Commercial Real Estate Attorney | Bukowski Law Firm | Austin, TX

Can 3D Printing Solve Homelessness?

  • ICON announced this week that it will be building an entire community made up of 3D printed homes.

  • While the technology is not there yet to provide fast, inexpensive housing, the hope is it someday will be.

  • With all new technology – including 3D printing – a new host of legal issues always arise.

This week ICON, an Austin based company, announced a new round of printing 3D houses. According to the release, they plan to build a 3D printed house community somewhere in Austin.

I have heard a lot about 3D printing and it always sounded cool. But I really do not understand how it works or what the future of 3D printing holds for builders. So when I saw the announcement, I decided to try to dig in a little and find out what is going on.

Well, after that research I still do not really understand how you can build a house from a 3D printer. But it still seems cool. And the future possibilities do seem promising. So that is what we will talk about in this week’s blog entry.

What was the Announcement This Week?

As I wrote above, the announcement that once again got me interested in 3-D printing for housing came from ICON. If you are not familiar, it is an Austin based building technology company. It has been at the forefront of using 3D printing for building. Indeed, it is the first company to sell a 3D printed home.

Last week it announced that it will team with Lennar to build a 100 home community consisting solely of 3D printed homes. ICON currently has the capability to print up to 3000 square foot residences. It did not yet announce where in Central Texas it will put the community but it hopes to break ground in 2022. When completed, it will be the largest 3D printer home community in the country.

I wrote above that I still don’t quite understand how it works to 3D print a home. That’s true. But apparently ICON sets up a large 3D printer that effectively places a giant frame around the home’s footprint and supports the printing head as it completes the setup. The concrete is apparently squeezed out like soft-serve ice cream and the resulting walls have lots of thin layers. I have yet to see a demonstration, but I sure would like to. Because it sounds pretty cool.

What Will this Mean for the Future of Housing?

The claim by the 3D printing companies like ICON is that 3D is the future of housing. It should lower costs and the time required for building houses. Currently, however, we are not there yet.

As of yet, 3D printing does not help with either the construction or labor costs. Part of this is because not everything can be 3D printed. Windows, for example, still have to be bought and installed. And thus, ICON has to pay the same price as any homebuilder for that.

But Lennar believes that the future technology will greatly reduce both of these costs. It believes as the technology improves, it will be much faster and much cheaper to complete a 3D house.

This has led some people to believe that 3D printing could help greatly alleviate affordable housing problems that exist throughout the country. Indeed, one official even claims this could “cure homelessness” because the houses will eventually be so repeatable and inexpensive to build. That is certainly a noble goal and we hope it gets there one day.

Legal Issues Surrounding 3D Printing Housing

Of course, with all new technology comes a host of legal issues to solve also. It seems like the most important will be the intellectual property issues. Now we are not IP lawyers, so I can only give a rudimentary overview of these issues. But IP issues dominate all of 3D printing – not just housing. 3D printing technology makes it easy to copy and reproduce products – even if they are protected by a patent, trademark, or copyright.

In addition, a common problem with new technology is determining who is liable when things go wrong. In this situation, you have the designer, the printer, the builder, etc. All could potentially have liability.

And finally, because there is potential liability, insurance must follow. As a result, insurance companies are going to have to figure out new products to provide as the technology develops.

All of these issues are, of course, solvable. And if 3D printing is as promising as some people claim, then it will all be worth it. Lets hope it is.