Confused By Documentary Stamp Tax and Intangibles Tax? Everyone Else Is, Too!

DocstampLast week I attended a Continuing Legal Education (CLE) seminar on Florida’s documentary stamp tax and non-recurring intangibles tax and I left feeling as though I knew less about about them than when I walked in. Now, of course, that’s not entirely true – a lot of good information was conveyed and I did learn things I didn’t know before. However, it did leave me keenly aware that Florida’s documentary stamp tax and intangibles tax are confusing even to the experts who study them closely.

I don’t really know why they’re so confused. The general rules are pretty simple: (1) any instrument that conveys any interest in real property for consideration is subject to Florida’s documentary stamp tax; and (2) any obligation to pay money that is secured by Florida real property is subject to Florida’s non-recurring intangibles tax.

With regard to documentary stamp tax, deeds, easements and options are just a few of the instruments that convey real property interests that are subject to the doc stamp tax so the list of instruments subject to tax is probably broader than most people realize. But, other than figuring out if a conveyance of a real property interest is occurring it’s all pretty simple.

Well, except that some conveyances are made for no consideration, such as gifts of property, transfers between spouses for estate planning purposes, transfers due to divorce, and so on. And sometimes even if you don’t think there’s any consideration the State has defined certain situations where consideration is “deemed” to have been given even if no money changes hands, so the definition of “consideration” can be confusing. But, really, other than figuring out if a conveyance of a real property interest is occurring and whether consideration is being given or is deemed to have been given, it’s all pretty simple.

Well, except that there’s also a long list of specific exemptions – situations where you would think tax would be due but the State says it’s not. And some of the exemptions aren’t very clear. But, really, other than figuring out if a conveyance of a real property interest is occurring and whether consideration is being given or is deemed to have been given and whether any random exemptions apply, it’s all pretty simple.

Oh, I forgot. Documentary stamp tax is also due on obligations to pay money (such as a promissory note) executed or delivered in the State of Florida. Executed OR delivered. In state. So a borrower and lender can take one step over the state line, sign a note, and no tax is due? Or take a boat out into international waters? True! As long as it is signed AND delivered outside of the State of Florida. So let’s just always do that, right, because we’ll save money, right? Not so fast. The tax is capped at $2,450 if it’s not secured by real estate so travelling out of state is generally not worth the trouble and expense because the cap makes it cheaper to just pay the tax in most cases. Why $2,450? The State is smart enough to have calculated the average cost that a person is willing to tolerate paying before going to all the effort to travel out of state with their banker just to execute and deliver a note. Pretty clever, huh?

[Update Feb. 13, 2014 – Question posed to me: What about an out of state lender with an out of state borrower who wants to sign a note while he’s here on vacation? With no other connection to the State of Florida except that he’s vacationing here. Tax is due because the note was executed in-state. Crazy!]

 Ok, I lied. I understand exactly why everyone is so confused. It’s because, sometimes, Florida’s documentary stamp tax makes no sense whatsoever!

At least Florida’s intangibles tax is pretty easy to understand. If you have an obligation to pay money secured by Florida real property the intangibles tax is due. Period. End of story. I think.

And so it goes. Just call your trusted commercial real estate attorney (hey, maybe that’s me!) if you have questions about Florida’s documentary stamp tax or non-recurring intangibles tax. It’s confusing enough that occasionally he or she (or I) may not have the answer immediately and might have to do a little research to get you the right answer, we might even have to call the Department of Revenue to figure it out, but it will be worth it (a) to save tax where tax can be saved, and (b) to avoid a Florida Department of Revenue inquiry if tax should be paid, but isn’t.

As always, thanks for reading. Please send your questions and comments and SHARE this article with others!

BH

SHOW ME … I mean … WIRE ME THE MONEY!!

showmethemoney-Jerry-Maguire-1I exchanged emails today with another real estate attorney and was amused when I saw this statement as part of her email signature in bold, red letters:

DO NOT DELAY YOUR CLOSING: Due to recent changes in the real estate industry, we can only accept wire transfers. Cashier’s checks do not immediately clear and are not “COLLECTED” funds and will no longer be accepted at closing. Our wiring instructions will be provided.

It’s a bit “in your face” but I understand it. During the real estate “bubble” of a few years ago claims against title insurance underwriters for fraudulent cashier’s checks and other fraudulent activities increased dramatically. That trend continues and, with new technologies, the risk of fraud has become even greater. For example, one M.O. that has been employed, now that checks can be deposited simply by sending a photo of the check to your bank, has been for a person receiving a check at closing to take the check from the closing, deposit it by phone, return and claim that they would actually prefer a wire instead of the check. When the closing agent takes the (now already deposited) check back and then sends the recipient a wire instead, he or she will then have paid twice! The potential scenarios can seem crazy, I know, but with the recent tightening of attorney trust accounting rules and the severe penalties for any discrepancies or errors, we (attorneys) simply can’t take any chances.

ASIDE: Coincidentally, as I was typing this I received an emailed “Fraud Alert” (common these days) from a title underwriter describing a new scheme that has been detected. In this one, the fraudster hacks into a realtor’s or other service provider’s email and directs the closing agent to wire money to the fraudster’s account instead of the person’s whose email they’ve hacked into. Another technique made possible by modern technology! In the alert they recommend that we actually call the recipient to confirm that the email containing their wire instructions was authentic – good grief, one more administrative hassle to deal with at closing!

With regard to cashier’s checks, specifically, many people don’t realize that even cashier’s checks may take a few days to “clear” our trust account and some even get offended if we don’t accept theirs or state that it might cause a delay. However, under no circumstances are we allowed to disburse funds that are not confirmed as being “collected,” that is, confirmed by our bank as being in our account. If you don’t want to risk delaying the closing until we confirm that the funds you are providing are actually “collected,” be prepared to wire the funds. If you absolutely must provide a cashier’s check, be prepared to provide it far enough in advance of closing (i.e. several days) so that the check will clear in time for closing. Personal check? Ummm, not happening.

Thanks for reading! Drop me a note and let me know what you think!

BH

Permit Me! Increased Construction Permits Send A Positive Signal!

constructionAs reported in Orlando Business Journal, Orlando-area construction permit values are up 47% over the prior year, which is a clear indicator that home builders and commercial developers are looking toward increased growth and a more robust economy in 2014. Advance planning and accurate forecasting are critical components for success in the commercial real estate market, so the professionals obviously expect the demand and the resources (financing, etc.) to be conducive to future sales activity.  I hope they’re right! In my own practice I’ve seen an uptick in activity from home builders, including, in some cases, purchases of raw land for future development. That’s a market that has been virtually dead for several years now as developers gobbled up previously developed (but sometimes dilapidated and abandoned) projects and vacant lots. By purchasing raw land they are telling me that (1) the inventory of available, suitable, ready-to-build lots is dwindling, and (2) they believe it is, once again, becoming economically feasible to purchase and develop raw land. If you have land or commercial property to sell or are interesting in buying commercial real estate, please engage an experienced commercial real estate attorney early in the process so he or she can guide you through the process as smoothly and efficiently as possible.  BH

Good News In The News

Thankfully, seeing significant positive movement both in the statistics (CoStar report) and the reporting of the statistics. Those are two distinct concepts and both are important to economic recovery! The Orlando real estate market, in particular, is looking very positive. Here’s wishing everyone a “2014” filled with whatever you hope it will be filled with, be it increased business and income, personal or spiritual growth, or just plain happiness, in general!  BH

WSJ

Happy Holidays from CommercialRealEstateOrlando.net!!

MERRYEVERYTHING

It’s the end of “the closing” as we know it, but it feels fine.

Does it seem as if your life revolves around emails, texts, computers, tablets, the internet, the “cloud” and other electronic forms of communication? Well, the practice of real estate law really isn’t any different and it has changed the way real estate closings are typically conducted. In my commercial real estate practice, it is actually more unusual to have a traditional “sit down” closing, with all parties physically present at the same time, than for the closing to be handled electronically or by “mail away.” While residential closings are still often conducted in the traditional manner, although they are changing also, in my commercial practice it is more often the case that communications between myself and opposing counsel are by phone, email and overnight courier such as Fed Ex or UPS.

Typically, documents are drafted by the closing attorney, transmitted by email for review by the various parties and comments are received back via email or phone. The documents are then finalized and sent out for execution by email or overnight courier, executed and returned by overnight courier. Funds are wired in and wired out. In many cases I never meet opposing counsel or their client face to face and, in fact, I would say that has become the norm in more sophisticated transactions.

Personal checks? Unless you feel like waiting a couple of days until that check clears my trust account, forget it. Attorney trust accounting rules are so strict now that delivery of funds by check, even by certified check, just slows down the process. With my license to practice law riding on it, I’m not disbursing a dime until all funds are confirmed by my bank as being in my trust account and available for disbursement, so don’t try to talk me into cutting any corners!

That being said, I kind of like this new style of closing because, if done right, I think it makes the whole process less stressful for the parties involved. True, it can be impersonal, but it is more systematic, there’s more certainty and there is less opportunity for a last-minute dispute to arise at the closing table. However, it takes a lot of planning, attention to detail and good execution to make this all go smoothly.

To make sure your closing go smoothly, engage an attorney who is willing to put in the work early on to make the day of closing a “non-event.” Documents and closing statements should be prepared and provided for review in advance of the closing date. Comments should be provided and changes to the documents should be made quickly. Money should be wired into the closing attorney’s trust account in advance, perhaps a day or two before the closing date, if possible. If the closing attorney has all the executed documents in-hand and all the funds in his or her trust account no later than the morning of closing, the so-called “closing” becomes as simple as issuing notice to all parties that “we’re closed.” In other words, closing becomes a simple, stress-free non-event. That, in my book, is a successful closing.

An experienced commercial real estate attorney will work with you and guide you through the process in order to make your closing as uneventful as possible!

As always, thanks for reading.

BH

Winter Park Office Building Completed

CNL Commercial Real Estate completed construction of Heritage Park, a three-story, 86,000-square-foot office building in the center of Winter Park, FL.

What is Agriculture Law?

I’m often asked “What is Agriculture Law?” As I explained in this article for the Florida Law Journal a while back, there is no particular definition of Agriculture Law because Agriculture Law isn’t focused on any particular legal practice area. It is instead focused on the widely varying needs of a particular type of client, be it an agriculture lender, producer, supplier, service provider or any other agriculturally oriented business. Therefore, the practice of Agriculture Law may encompass any number of practice areas, such as commercial real estate, residential real estate, commercial lending, estate planning, regulatory matters, employment law, commercial litigation, you name it. While my practice is focused primarily on commercial real estate and commercial lending, I do assist my clients with a wide variety of matters to the extent I am capable and comfortable doing so. As the lawyer for a large agricultural lender and a number of private agri-businesses, my role is, therefore, somewhat like an individual’s primary care physician or “general practitioner.” I handle everything I can to the best of my ability, but if a specific legal matter – say, for example, an environmental law issue – comes up that requires specialized attention, I don’t hesitate to consult with or refer the matter to an attorney more experienced in that particular area. I prefer and often do remain involved, however, acting as the facilitator or center of communication between the client, the attorney engaged to provide specialized expertise and any other parties involved. I believe many clients, especially small business owners, can benefit from having an experienced “general practitioner” who can act as their general corporate counsel, guide them through a wide variety of legal issues and, when needed, connect them with other attorneys having the specific legal knowledge necessary for any given issue. I would encourage any small business owner, agricultural or otherwise, to consider the benefits of establishing an ongoing relationship with a trusted attorney so that he or she is readily available when and if needed as legal matters requiring attention arise.

As always, thanks for reading!

BH

Commercial lull: Orlando builders slow down in October

From Orlando Business Journal – Nov 25, 2013

Central Florida commercial construction values fell in October, but residential values were up significantly.Jim Carchidi

Central Florida commercial construction values fell in October, but residential values were up significantly.

, Senior Staff Writer- Orlando Business Journal

After several strong months, metro Orlando’s commercial construction values were down 32 percent in October when compared to the previous year, according to a new report by McGraw-Hill Construction.

Builders in the Orlando region pulled $29.8 million worth of permits for commercial construction projects last month, down from $43.5 million in October 2012. But homebuilders’ residential construction permits were 68 percent higher last month, from $205.5 million in October 2012 to $344.4 million last month.

In all, total building permit values were up 50 percent last month, from $249.1 million last year to $374.2 million this year.

Increased construction activity signals continued job growth and recovery among construction companies, which make up one of Central Florida’s most dominant industries and are making a comeback from being one of the hardest hit during the Great Recession.

For the first 10 months of this year, residential and commercial permit values hit the $4 billion mark, a 53 percent jump from $2.6 billion in January-October 2012. Commercial construction values were 40 percent higher, from $876.6 million last year to $1.2 billion this year, while residential values grew 60 percent, from $1.7 billion last year to $2.8 billion this year.

Construction values were up 52 percent year-to-date in September.

Here’s some more future construction activity coming down the pike:

Exclusive: Expedia inks lease for Orlando welcome center

3 quick facts about AV Homes’ new Kissimmee project

Exclusive: 10 new projects in Orlando’s construction pipeline

Make sure to read Orlando Business Journal’s Nov. 29-Dec. 5 weekly edition for a closer look.

SNDA Basics for Commercial Lenders … Why sign one?

For two consecutive days I’ve advised different clients, both commercial lenders, on exactly the same issue:  An existing lender holds a mortgage on commercial property and a new tenant requests that the lender execute a Subordination and Non-Disturbance Agreement (an “SNDA”).  Here’s my basic answer to each of them:
 
SNDAs are used to modify or confirm the relative priority of a lender’s mortgage lien on real property and a tenant’s rights under its leasehold interest in that property. Typically, SNDAs are required by a lender when the lender makes a loan and records a mortgage as security for the loan and there is an existing tenant with a lease already in place. The lender would want the SNDA from the tenant because the tenant would be agreeing to subordinate its leasehold interest in the property to the lender’s mortgage and because the tenant would be also be agreeing to make its lease payments direclty to the lender if the borrower goes into default (i.e. to “attorn” to the lender.) So, the SNDA in that situation protects the lender.
 
In this case, since the lender’s mortgage was recorded before the lease was executed, the tenant’s leasehold interest is already subordinate to the mortgage by virtue of having arisen later in time, so the lender is really gaining nothing from executing the SNDA.  In fact, in the absence of the SNDA, if the lender foreclosed on the property, it could wipe out the lease entirely if it wanted to get rid of this tenant for any reason (i.e. the rent is lower than market rent, it’s a troublesome tenant, the property is more valuable or more marketable without the tenant, etc.) Therefore, in this case, the tenant wants the SNDA because it wants to know that, if the lender forecloses and takes ownership of the property, the tenant won’t be evicted by the lender as long as it keeps making its rent payments directly to the lender. So, the SNDA in this situation protects the tenant.
 
Unless it has agreed to do so in its prior loan documents, the lender is under no obligation to execute this SNDA, although it may decide to do so as an accommodation to its borrower and its borrower’s tenant.  A possible benefit to the lender of signing it is that the lender would be obtaining the tenant’s written agreement to attorn to the lender if the the borrower defaults and the lender steps in as landlord and that the lease will remain in full force and effect even if the lender becomes landlord, so it might be worth signing for that purpose from the lender’s perspective. However, even if the lender decides to execute the SNDA the lender should be aware that in this situation the SNDA primarily benefits the tenant because the effect of it is that the lender is giving up its right to wipe out their lease in the event of a foreclosure.
 
As always, thanks for reading. BH