We are often asked to help a business through a transition involving a sale, acquisition or a succession within a family, with co-owners or with key employees. Given that these transitions may evolve over a long period of time, it is important for owners to plan “exit strategies” to maximize their business value and achieve their exit goals. Although the terms of each deal are unique, the following issues often come up and require negotiation among the parties:
1. Buy/Sell Agreement (aka Business Continuity Agreement): These provisions are important for business continuation because they specify the conditions for transferring the partners’ interests in a business, with the goal of identifying who can (and who can not) acquire the interests; the triggering events for the transfer (e.g., resignation, death, disability, bankruptcy, divorce, business disputes, etc.); and, the method to value the interests at the time of transfer.
In essence, the remaining owner(s) agree to purchase the interest of the departing owner pursuant to the terms of the agreement. Without such an agreement, a business could falter if there were problems with the withdrawing owner, an ex-spouse or heirs. An important component of a buy/sell agreement is the funding mechanism to buy out the interest and pay any estate taxes, to accomplish the transfer, such as “key person” life and disability insurance.
2. Earn Out Provision: The acquirer may want to pay part of the acquisition price over time, through an earn-out provision. Thus, some amount is paid when the deal closes and the balance is contingent on the company’s future performance. Certain target goals are set for several years in the future for such metrics as gross revenue, earnings, net income, new customers, etc. Of course, care must be taken to ensure that the targets are not made difficult to achieve or manipulated (e.g., reducing the marketing budget, increasing or inflating overhead expenses, making unexpected capital expenditures, poorly operating the business, customers preferring to deal with the prior owner, change to the company’s operations, etc.)
The seller can monitor the company’s future business if it negotiates a new role as an employee or consultant, with limitations on the buyer’s ability to replace the seller. Monitoring may also be achieved by retaining rights to audit the company’s books. A dispute resolution provision can be helpful so the parties know in advance how disputes will be settled.
3. Non-compete provision: A covenant not to compete may prevent the seller from competing with or diverting business away from the company. A non-compete provision may not trouble a retiring owner but it may concern a younger seller who is prepared for the next business venture. Non-compete agreements are enforceable in Massachusetts, especially those contained in an agreement to purchase a business. (However, new legislation has been discussed in Massachusetts in recent years to regulate non-compete agreements in the employment context.)
Although non-compete agreements are judged on a case-by-case basis, enforceability often turns on whether the agreement is supported by “consideration” at the time it was signed (such consideration is typically found in the purchase of a business); is tailored to protect a legitimate business interest, such as prohibiting the individual from soliciting the company’s customers, protecting trade secrets, and protecting good will; and, is reasonably limited in terms of its duration, geography, and scope.
Business succession raises additional issues concerning future management, business valuation, tax liabilities, legal structures, and the like. A proactive owner should consider these issues with trusted advisors (e.g., accountant, financial planner, insurance agent, attorney, etc.) in order to plan a rewarding exit.
Please contact me if you or a colleague has a question on business succession issues or this post..
Thursday, August 9, 2012
Great News for Real Estate Owners: Your Permits are Extended!
Property owners and real estate developers will be pleased to know that their land use and environmental permits may be extended for four years under the “Jobs Bill” signed by the Governor on August 7, 2012. Thus, permitted projects that have been stalled due to the recession may remain viable.
The Massachusetts Legislature recently passed the “Economic Development Bill”, or “Jobs Bill”, which the Governor signed on August 7. Two sections of that Bill amended the original 2010 “Permit Extension Act,” to extend it by two years. The Permit Extension Act itself had granted an automatic 2-year extension to qualifying State and local permits that had been in effect between August 15, 2008 and August 15, 2010. Pursuant to the new Jobs Bill, a permit that was in existence between August 15, 2008 and August 15, 2012, would be extended for a total of four years.
Here is how the 2010 Permit Extension Act works in conjunction with the 2012 Jobs Bill:
The Act as amended states that, “Notwithstanding any general or special law to the contrary, an approval in effect or existence during the tolling period shall be extended for a period of 4 years, in addition to the lawful term of the approval.” The “tolling period” in which the permit needs to have been in effect is defined as “the period beginning August 15, 2008, and continuing through August 15, 2012.”
For instance, if a qualifying permit was in effect on January 1, 2009, the permit would be extended for four years beyond the original term of the permit. Similarly, if a permit existed as of the date of this post (August 9th, which is before the August 15, 2012 cut-off date), the permit would be extended for four years beyond its original expiration date.
Of course, there are limitations and conditions in the 2010 Permit Extension Act, and the Commonwealth issued a “Frequently Asked Questions” guidance document on the Act in 2010, both of which should be consulted to evaluate the specific workings of the statute. It will also be important to see if the Commonwealth issues new guidance in the future pertaining to the 2012 amendments.
I previously wrote about the original Permit Extension Act in August and November 2010. I have included that 2010 information below in case you are interested. Keep in mind that information from 2010 has been superseded by the 2012 Jobs Bill and amendments discussed above.
On August 5, 2010, the governor signed the "Permit Extension Act". This law is important for economic development because it will prevent (at least for two years) the expiration of real estate development permits that had already been granted for commercial, industrial and residential projects. This will provide relief for projects that have not been able to move forward due to poor financing and market conditions during the recession and therefore faced the expiration of hard earned permits.
In essence, any State or local permit “concerning the use or development of real property” in existence between August 15, 2008 and continuing through August 15, 2010 (the so-called “tolling period”) shall be extended for two years in addition to the lawful term of the approval. Approvals that are extended include those issued under the Zoning Act, Subdivision Control Law, Wetlands Protection Act, MEPA, and Chapter 91. Also included are approvals issued under “any local bylaw or ordinance”.
Permits that are not extended by the Act include “comprehensive permits” issued by a local zoning board of appeals under Chapter 40B, Federal permits and certain other approvals. There are certain other limitations in the Act.
Back in August 2010, I alerted clients and colleagues to the new “Permit Extension Act”, which provides a very valuable two-year extension to qualifying real estate development permits that were in effect or existence between August 15, 2008 and August 15, 2010. Last week, the Executive Office of Housing and Economic Development (EOHED) issued helpful guidance in the form of “Frequently Asked Questions” to assist regulatory agencies, property owners and consultants in implementing the Act.
The 2010 FAQ clarifies and confirms many aspects of the Act, such as:
a. The Act automatically extends the permit by operation of law, so that a permit holder and issuing agency are not required to take action to activate the extension. However, an issuing agency may issue an extension form to a permit holder who requests such a document.
b. The Act is not limited to state-issued permits; the two-year extension applies to all qualifying permits issued by any town, city, regional or state entity.
c. Permits related to pre-development activities, such as the clean-up of oil or hazardous materials, are not affected by the Act. Such pre-development activities are considered to be independent undertakings outside the context of a larger development project and, therefore, are not covered by the Act.
d. The Act extends building permits that were issued or in effect between August 15, 2008 and August 15, 2010.
e. MEPA certificates, decisions, and waivers are covered, so that qualifying certificates will have two additional years before a “lapse of time” will have occurred that would otherwise have triggered a Notice of Project Change or a new Environmental Notification Form.
f. Importantly, the Act revives and extends any permit or approval that may have expired during the qualifying period of August 15, 2008 through August 15, 2010. Thus, for instance, “a permit that expired on July 1, 2009, is now revived and set to expire on July 1, 2011.” Also, a permit is revived even if an extension had been previously denied by the agency.
g. The Act provides an additional two years to the original term of the permit even if it was not due to expire until after the qualifying period of August 15, 2008 through August 15, 2010. Thus, “if a permit or approval was due to expire on September 1, 2011, it will now automatically expire on September 1, 2013.”
h. However, a permit that had been revoked during the qualifying period is not extended, because the Act specifically preserves the issuing agency’s authority to suspend or revoke a permit. However, the agency must have an independent reason authorized by the terms of the permit in order to revoke or suspend the permit. The agency cannot attempt to avoid the two year extension by revoking or suspending the permit.
i. The Act does not protect a permit holder from enforcement actions to address noncompliance. The issuing agency’s enforcement authority is retained.
j. The Act does not extend mitigation that was required as a condition of the original permit. All conditions that applied to the permit continue to apply, so that the permit is subject to the same substantive terms as when it was originally issued. However, any interim deadlines established by the permit are extended for two years, according to the FAQ.
k. The FAQ indicates that a permit that was pending “adjudicatory appeal” during the qualifying period is not extended. In contrast, a permit pending “judicial appeal” would qualify for an extension if the court were to ultimately uphold the permit.
Of course, the complete text of the FAQ and the Act should be reviewed to evaluate the specific workings of the statute.
The Massachusetts Legislature recently passed the “Economic Development Bill”, or “Jobs Bill”, which the Governor signed on August 7. Two sections of that Bill amended the original 2010 “Permit Extension Act,” to extend it by two years. The Permit Extension Act itself had granted an automatic 2-year extension to qualifying State and local permits that had been in effect between August 15, 2008 and August 15, 2010. Pursuant to the new Jobs Bill, a permit that was in existence between August 15, 2008 and August 15, 2012, would be extended for a total of four years.
Here is how the 2010 Permit Extension Act works in conjunction with the 2012 Jobs Bill:
The Act as amended states that, “Notwithstanding any general or special law to the contrary, an approval in effect or existence during the tolling period shall be extended for a period of 4 years, in addition to the lawful term of the approval.” The “tolling period” in which the permit needs to have been in effect is defined as “the period beginning August 15, 2008, and continuing through August 15, 2012.”
For instance, if a qualifying permit was in effect on January 1, 2009, the permit would be extended for four years beyond the original term of the permit. Similarly, if a permit existed as of the date of this post (August 9th, which is before the August 15, 2012 cut-off date), the permit would be extended for four years beyond its original expiration date.
Of course, there are limitations and conditions in the 2010 Permit Extension Act, and the Commonwealth issued a “Frequently Asked Questions” guidance document on the Act in 2010, both of which should be consulted to evaluate the specific workings of the statute. It will also be important to see if the Commonwealth issues new guidance in the future pertaining to the 2012 amendments.
I previously wrote about the original Permit Extension Act in August and November 2010. I have included that 2010 information below in case you are interested. Keep in mind that information from 2010 has been superseded by the 2012 Jobs Bill and amendments discussed above.
TEXT FROM AUGUST 2010
On August 5, 2010, the governor signed the "Permit Extension Act". This law is important for economic development because it will prevent (at least for two years) the expiration of real estate development permits that had already been granted for commercial, industrial and residential projects. This will provide relief for projects that have not been able to move forward due to poor financing and market conditions during the recession and therefore faced the expiration of hard earned permits.
In essence, any State or local permit “concerning the use or development of real property” in existence between August 15, 2008 and continuing through August 15, 2010 (the so-called “tolling period”) shall be extended for two years in addition to the lawful term of the approval. Approvals that are extended include those issued under the Zoning Act, Subdivision Control Law, Wetlands Protection Act, MEPA, and Chapter 91. Also included are approvals issued under “any local bylaw or ordinance”.
Permits that are not extended by the Act include “comprehensive permits” issued by a local zoning board of appeals under Chapter 40B, Federal permits and certain other approvals. There are certain other limitations in the Act.
TEXT FROM NOVEMBER 2010
Back in August 2010, I alerted clients and colleagues to the new “Permit Extension Act”, which provides a very valuable two-year extension to qualifying real estate development permits that were in effect or existence between August 15, 2008 and August 15, 2010. Last week, the Executive Office of Housing and Economic Development (EOHED) issued helpful guidance in the form of “Frequently Asked Questions” to assist regulatory agencies, property owners and consultants in implementing the Act.
The 2010 FAQ clarifies and confirms many aspects of the Act, such as:
a. The Act automatically extends the permit by operation of law, so that a permit holder and issuing agency are not required to take action to activate the extension. However, an issuing agency may issue an extension form to a permit holder who requests such a document.
b. The Act is not limited to state-issued permits; the two-year extension applies to all qualifying permits issued by any town, city, regional or state entity.
c. Permits related to pre-development activities, such as the clean-up of oil or hazardous materials, are not affected by the Act. Such pre-development activities are considered to be independent undertakings outside the context of a larger development project and, therefore, are not covered by the Act.
d. The Act extends building permits that were issued or in effect between August 15, 2008 and August 15, 2010.
e. MEPA certificates, decisions, and waivers are covered, so that qualifying certificates will have two additional years before a “lapse of time” will have occurred that would otherwise have triggered a Notice of Project Change or a new Environmental Notification Form.
f. Importantly, the Act revives and extends any permit or approval that may have expired during the qualifying period of August 15, 2008 through August 15, 2010. Thus, for instance, “a permit that expired on July 1, 2009, is now revived and set to expire on July 1, 2011.” Also, a permit is revived even if an extension had been previously denied by the agency.
g. The Act provides an additional two years to the original term of the permit even if it was not due to expire until after the qualifying period of August 15, 2008 through August 15, 2010. Thus, “if a permit or approval was due to expire on September 1, 2011, it will now automatically expire on September 1, 2013.”
h. However, a permit that had been revoked during the qualifying period is not extended, because the Act specifically preserves the issuing agency’s authority to suspend or revoke a permit. However, the agency must have an independent reason authorized by the terms of the permit in order to revoke or suspend the permit. The agency cannot attempt to avoid the two year extension by revoking or suspending the permit.
i. The Act does not protect a permit holder from enforcement actions to address noncompliance. The issuing agency’s enforcement authority is retained.
j. The Act does not extend mitigation that was required as a condition of the original permit. All conditions that applied to the permit continue to apply, so that the permit is subject to the same substantive terms as when it was originally issued. However, any interim deadlines established by the permit are extended for two years, according to the FAQ.
k. The FAQ indicates that a permit that was pending “adjudicatory appeal” during the qualifying period is not extended. In contrast, a permit pending “judicial appeal” would qualify for an extension if the court were to ultimately uphold the permit.
Of course, the complete text of the FAQ and the Act should be reviewed to evaluate the specific workings of the statute.
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