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Industry News Briefs

January 15, 2020

The Fine Print

Happy New Year! Did I Miss My Chance at Opportunity Zones?

By: Amanda Wilson

Opportunity zones were introduced in 2017 as part of President Trump’s tax reform bill. Taxpayers with capital gains can receive several tax benefits if the taxpayers take those capital gains and invest them in a qualified opportunity fund. These tax benefits include deferring recognition of the capital gains and potentially avoiding recognizing any gain on exiting the opportunity fund investment. Another benefit is that 15% of the deferred gains is excluded from recognition when the deferred gains are triggered on December 31, 2026 if the qualified opportunity fund investment has been held for at least 7 years. More simply, to receive the maximum tax benefit of an opportunity fund investment, taxpayers needed to have made the investment by December 31, 2019. This has resulted in a common misconception that an opportunity zone investment has to be made by December 31, 2019 to receive any tax benefit. I am happy to say that this is not the case. Investments made after 2019 will receive the tax benefits of qualified opportunity zones except that when the deferred capital gains are triggered on December 31, 2026, a taxpayer will exclude 10% (as compared to 15%) of the deferred gains if the investment has been held for at least 5 years (if less than 5 years, the capital gains will be deferred but no portion of the gains will be excluded from recognition). In other words, if you have capital gains in 2020 that you are looking to reinvest, it is not too late and qualified opportunity zones continue to be a powerful tax investment vehicle. 


New Year, New Insurance

By: Mike Gibbons

Transfer of risk through insurance has become an increasingly important and complex part of construction and development in Florida. The US. Courts have shown an increased willingness to find that contractors’ General Liability (GL) policies cover latent defects and warranty type claims that manifest as a construction defect causing resulting or ensuing property damage. As a result of a number of unfavorable court decisions expanding coverage on General Liability policies, insurers have become more aggressive about modifying and limiting coverage through Endorsements issued to General Liability policies. These Endorsements frequently refer to contract terms in the underlying construction contract. Essentially, under such Endorsements, if the underlying construction contract doesn’t have the “magic language” required in the Endorsement, then coverage will be lost or reduced from the optimum level expected by the Owner additional insured. 

By way of example, many GL Endorsements now provide that if the underlying contract does not contain a term stating that the additional insurance is primary and non-contributory, then the contractors’ GL insurance is considered excess and will not apply to provide a defense and indemnity for the additional insured until the additional insured’s own coverage is exhausted. This frequently operates to frustrate the coverage expectations of both Owners and General Contractors who require others to name them as an additional insured. There are other similar insurer mandated contract terms that pose significant traps for the unwary additional insured in the construction world. If you have not had your construction related insurance provisions reviewed recently, the New Year is a good time to have us make sure your contract language is properly aligned with your expectations for insurance. 


Medicare Will Affect Senior Housing Communities

By: John Ruffier

Since the 1970s, Medicare beneficiaries have had the ability to receive Medicare benefits through private health plans (mainly Health Maintenance Organizations) as an alternative to the traditional Medicare program administered by the federal government. The Medicare Modernization Act of 2003 updated the program’s name to its current moniker: “Medicare Advantage.” 

While the majority of people on Medicare remain in the traditional, government-run program, as of 2017 roughly 1/3 of those receiving Medicare (totaling 19 million people) were enrolled in Medicare Advantage plans. Further, Medicare Advantage plan enrollment is growing rapidly, with a tripling of Medicare Advantage participants in the 12 years between 2004 and 2017. 

In April 2018, the Centers for Medicare & Medicaid Services finalized a policy allowing Medicare Advantage plans to cover certain non-skilled in-home care as supplemental benefits, paving the way for Medicare Advantage to become a payer for senior living services. In the wake of this policy change, several insurers that offer Medicare Advantage plans expressed a willingness to work more closely with senior living providers — including Anthem and Humana. 

Ultimately, the benefit to senior housing owners and operators is still unclear as this new benefit rolls out, but a recent article in Senior Housing News suggests a surprising possible consequence: the entry of insurance companies into the senior housing sector in order to offer Medicare Advantage directly to customers. While only time will tell if such a tectonic change will occur, there is no doubt that the change to rules governing Medicare Advantage will affect senior housing communities.


The Multi-family Sector Ends With a Bang In 2019

By: Alex Dobrev

The multifamily sector had another very strong year in 2019, with approximately 300,000 new apartment units delivered nationwide, which puts the year at or near the top of the current cycle. While 2020 is expected to be comparable in terms of deliveries, the overall demand and some leading indicators (such as permits for new construction) are expected to taper off. There is some concern that multifamily valuations and rent growth are unsustainable at their current levels, as they have far outpaced income growth in the populations they serve. 

The “new construction” condominium market in Florida has remained largely tepid during this cycle, with the exception of certain pockets popular with foreign cash buyers, as well as the super-luxury (millions of dollars per unit) type product. While in prior cycles condominium conversions have served as exit strategies for peak-valuation multifamily properties, it is unclear (and unlikely) that we will see much of that this cycle.

As we look towards 2020, all stakeholders should keep an eye on the Florida Legislature, which meets early (staring in January) due to the election, and is expected to take up a number of initiatives which may affect the multifamily and condo/HOA sectors. Stay tuned for more on this front from us as the legislative session gets into full gear. 


I Need Licenses?

By: Jon Gibbs

Businesses of all types make great efforts to enhance the consumer experience by providing entertainment in the nature of radio or television. What is generally intended to be a value-add for customers can actually be copyright infringement.

Music is generally protected by copyright. Composers of music also hold the right to the public performance of their works. Because it is difficult to individually monitor use of compositions, performing rights organizations (PROs) such as ASCAP, BMI, GMR, and SESAC, represent composers to police and license public use. While a composer may generally only be affiliated with one PRO, not all composers are signed to the same PRO, and some compositions require the license of more than one PRO. 

If a business is displaying a television or playing music (via radio, internet, or even TV) in its establishment — even if it is paying for the signal, stream, or other content — the general rule is that a license is required as it is often considered a public performance. Note that a PRO can only license the works contained in the music catalog that it manages and no PRO has rights to license ALL music. Accordingly, a license may be needed from each of the relevant PROs. 

There is some good news in that there are certain exceptions to the general rule requiring licensure, but the exceptions are very limited in application and require an analysis of the type of business, the square footage, the number of speakers and/or TVs being used. Sometimes a quick call to an attorney with knowledge in music licensing is all that is needed to determine whether there may be an exception. 

If approached by a PRO seeking a license, the PRO should not be ignored. Avoiding a PRO could lead to legal action and adverse consequences could result. Statutory damages as well as attorney’s fees and costs for the PRO are all a real danger.


This article is informational only. You should consult an attorney before acting or failing to act. The law may change rapidly and no warranty is given. LOWNDES DISCLAIMS ALL IMPLIED WARRANTIES AND WITHOUT LIMITATION, ANY WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE. ALL ARTICLES ARE PROVIDED AS IS AND WITH ALL FAULTS. Consult a Lowndes attorney if you wish to establish an attorney/client relationship.
Alexander

Alex Dobrev is a shareholder and chairs the firm’s Multifamily & Condominium Group. He also serves as the vice-chair of the Condominium & Planned Development Committee of the Florida Bar, as well as its legislative chair.


Since the recession, Alex has focused a substantial portion of his practice on distressed properties acquisitions, operations and dispositions. In the context of “broken” or “fractured” condominium projects in particular, he often works with lenders, bulk investors, and receivers, in order to evaluate and implement exit strategies, including possible unwinding of the condominium regime, while identifying and minimizing potential successor developer liabilities and related risks.

In addition, Alex counsels clients regarding Interstate Land Sales Full Disclosure Act (ILSA) compliance matters, including full and partial exemptions from the Act and overall offering structure.

Amanda

A member of the firm’s tax practice, Amanda Wilson concentrates on federal tax planning and structuring. She represents clients in a wide variety of complex federal tax matters with a particular emphasis on pass-through entities such as partnerships, S corporations and real estate investment trusts.


Specifically, Amanda focuses on advising clients on the formation, operation, acquisition and restructuring of such pass-through entities. In addition, she regularly advises clients on the structuring and operation of private equity funds, real estate funds and timber funds. Amanda is the author of the Bloomberg Tax Management Portfolio 718-3rd Edition, Partnerships- Disposition of Partnership Interests or Partnership Business; Partnership Termination.

Amanda regularly works in structuring deals to benefit from tax advantaged structures, including like-kind exchanges, new market tax credits, low income housing tax credits, and qualified opportunity zones. Amanda also has extensive experience in corporate planning and international tax matters, as well as federal tax controversy. Her practice before the Internal Revenue Service (IRS) includes providing advice on audits and appeals, drafting protests and ruling requests, and negotiating settlements.

Prior to joining the firm, Amanda worked for Sutherland Asbill & Brennan LLP (now Eversheds Sutherland), an Am Law 100 firm in the Atlanta office, where she was part of Sutherland’s Tax Practice Group. Amanda has also served as an adjunct professor at Emory University School of Law where she taught Partnership Taxation.

Amanda regularly contributes to the firm’s Taxing Times blog and is a regular panelist on tax webinars hosted by Strafford Publications.

John

John Ruffier concentrates his legal practice on commercial real estate, representing clients within Florida and across the nation. As the firm's Senior Housing Group chair, he also helps companies build their senior living portfolios from the ground up. 


Whether representing companies that are developing, acquiring or selling commercial real estate, or lenders who are making or modifying commercial loans, John’s skills garnered from his championship rowing days serve him well. After all, rowing is a lot like business: both require a clear vision and goal, a well-developed plan, manageable milestones and a laser-like focus – with the flexibility to adjust when necessary.

Restaurants, big box retail stores, office buildings, golf courses, and senior living facilities are among the real estate transactions in John’s dossier, both in Florida and across the United States. Clients appreciate John’s holistic approach to deals – like in his rowing days, John ignores distractions and always keeps his focus on the goal line of getting the deal done. With senior housing, John and his team work on such diverse issues such as land use, licensing, financing, labor and employment, management and operations, all to provide clients with advice that carefully looks at both immediate needs and the long-term prospects for potential transactions.

When he is not practicing law, John is heavily involved in The Human Rights Campaign, the nation’s largest civil rights organization working to achieve lesbian, gay, bisexual and transgender equality. He founded Orlando’s HRC Steering Committee which has received numerous national awards since its inception. Although still involved on a local level, John now focuses his service as a member of the organization’s national Board of Directors and will take over as Board Chair next year.  John is also the past President of the Hope and Help Center of Central Florida, an AIDS service organization in Orlando. The organization has awarded him the “Chuck Hummer II Visionary Award” in recognition of his leadership in the LGBT community.

Michael

A LEED-certified attorney, Michael Gibbons represents owners, developers, contractors, design professionals and subcontractors asserting a variety of construction claims (and defenses to such claims), including actions for breach of contract, delay, latent defects, water intrusion and mold, differing site conditions, extra work, indemnity and warranty.


Michael also counsels clients on issues related to construction claims of lien and surety bond claims and regularly represents clients in litigation and arbitration over construction claims of lien and payment and performance bond claims. 

Formerly an Assistant State Attorney, Michael tried over 65 cases through verdict ranging from battery and DUI to Armed Robbery and Felony Murder. He has tried a variety of civil cases as well, and has substantial experience litigating ADA (Americans with Disabilities Act) cases in Federal Court under Title III of the ADA where accessibility to public accommodations is at issue.

In addition to litigating design and construction related claims, Michael often represents owners, developers, design professionals, general contractors, and sub-contractors in the preparation and negotiation of design and construction contracts. His experience litigating construction claims helps Michael identify problematic and unfavorable contract language. Conversely, his experience drafting and negotiating complex construction contracts makes Michael a more informed and knowledgeable litigator when a client needs a forceful advocate on a construction contract issue. A reasonable and clearly expressed allocation of commercial risks, rights and liabilities is essential to a good design or construction contract and critical for reducing the risk of later claims.

Accredited by the Green Building Certification Institute as a LEED (Leadership in Energy and Environmental Design) Green Associate, Michael is a frequent speaker and author on the subject of managing risks in sustainable design and construction contracts. He has significant experience drafting and negotiating design and construction contracts incorporating sustainability principles including LEED standards.

Jon

Jon Gibbs is the chair of Lowndes’ Intellectual Property Services Group and represents clients in a broad spectrum of intellectual property matters, including intellectual property protection, licensing, litigation, auditing and due diligence.


Jon counsels clients on brand management strategies, selection and clearance of trademarks and service marks, policing and enforcement issues and securing rights in proprietary discoveries and works through patent, copyright and trade secret protection.

He conducts due diligence investigations in connection with intellectual property transactions, negotiates and drafts intellectual property transfer and license agreements, and documents co-existence agreements.

Jon has litigated and defended matters involving claims of trademark infringement, trademark dilution, unfair competition, trade dress infringement, false advertising, copyright infringement, cybersquatting, patent infringement and trade secret misappropriation. He has handled numerous matters before the Trademark Trial and Appeal Board in addition to litigating domain name disputes under the Uniform Domain-Name Dispute-Resolution Policy (UDRP).

He is also a general aviation pilot and a United States Coast Guard licensed Captain.

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