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Stuck
Above Prime? Try Taxable Notes
By Sean
W. Vollman, Esq.
 Below-prime
financing may be available to you through
the issuance of taxable notes. Taxable notes
are backed by a letter of credit and sold
to investors in the public market. Access
to the public markets, along with the fact
that taxable notes are secured by a bank letter
of credit, allows a borrower to obtain a lower
rate of interest than would normally be available.
Unlike tax-exempt financings, proceeds from
taxable notes may be used for any purpose
approved by the bank.
Taxable notes have a variable rate of interest
and are subject to prepayment at any time.
The interest rate is reset on a weekly basis.
The notes bear interest at a rate approximating
the monthly LIBOR rate (as published daily
in the Wall Street Journal). Although the
rate is variable, interest rate swaps may
be used to fix the rate and hedge the interest
rate risk.
Before it issues a letter of credit, a bank
uses the same credit analysis for taxable
notes as for a conventional loan. If the bank
would not make the loan on a conventional
basis, it won’t issue a letter of credit to
back the taxable notes. The bank charges an
annual fee for the letter of credit. The
actual fee depends upon the credit-worthiness
of the borrower.
Due to the higher costs of issuance for a
taxable note financing, this procedure will
likely make financial sense only for borrowings
of at least $2 million and a term of at least
seven years. These numbers are rough estimates.
The actual economic benefit of a potential
note issue must be determined on a case-by-case
basis.
Borrowers who that otherwise have access
to below-prime financing will probably not
benefit from the issuance of taxable notes.
If that is not the case, however, taxable
notes may be a very attractive financing option.
Sean
Vollman is an associate
and member of the Finance & Public Law
Section of the Business Law Practice Group.
He can be reached at svollman@bdblaw.com
or 330.258.6515. As an additional
resource, Stephen
Hammersmith can be reached at shammersmith@bdblaw.com
or 330.258.6417.
New
Law Opens Opportunities to Ohio Real Estate
Salespeople
By David
W. Woodburn, Esq.
 The
state of Ohio has changed the rules! A new
Ohio law – House Bill 272 – will lead to significant
differences in the way that many real estate
agents and brokers do business. This law,
which went into effect on April 5, 2002, offers
major tax and business advantages to Ohio
real estate brokers and salespeople.
Under H.B. 272:
Real estate brokers and salespeople who
are licensed in another state but not in Ohio
can now transact business on commercial property,
working in cooperation with someone with an
appropriate Ohio license.
Real estate brokers are now permitted to
pay commissions to various types of business
entities, not just to individual salespersons
as was previously the case.
The owner of non-Ohio property can receive
a referral fee for referring a prospective
buyer to the person who sold the owner that
property.
The Ohio Real Estate Commission must adopt
rules implementing a three-year license renewal
system before January 1, 2004.
Tax and Business Advantages
Of all these provisions, the most significant
is the change in how brokers may pay commissions.
The new rules lead to business opportunities
because real estate salespeople can now operate
under multiple business structures.
Under the traditional system, a salesperson
worked with a broker as an independent contractor.
After a sale, the broker received the commission
and paid the appropriate share of that commission
to the salesperson. Prior to implementation
of H.B. 272, this commission could be paid
to the salesperson only, not to any other
person or entity.
Under the new law, a salesperson can form
his or her own business, operating as a corporation,
partnership, association, limited liability
partnership, or limited liability company.
Subject to certain restrictions on the structure
of the business, now the salespeople can tell
the broker, “Please pay my commission to my
company.” The company receives the payment,
not the individual.
Why is this provision so advantageous?
Previously, a very high producer might
employ an assistant. Payments to the assistant
came directly out of the salesperson’s after-tax
dollars. Any employee benefits such as life
insurance would have been a direct out-of-pocket
cost to the employing salesperson.
Under H.B. 272, a salesperson can establish
a company and receive the same tax advantages
that have been available to other businesses:
For example, the salesperson can provide insurance
or health care related benefits to the assistant
and treat them as legitimate business expenses.
These same benefits may be tax-free to the
employee and do not have to be treated as
employee income.
Economies of Scale
Further opportunities under H.B. 272 can
benefit both established salespeople and those
just entering the field. An established agent
may well have more business than he or she
can handle, while a new agent probably does
not have enough work. Setting up a company
allows the established agent to hire an agent
who is just starting out. The two agents can
then share the workload, enabling the established
agent to increase his or her total sales.
The resulting commissions are paid into the
company, and the employee is compensated with
a salary or by whatever other payment system
the company owner chooses.
Setting up a company could also benefit a
group of part-time agents. Some salespeople
work part-time but would still benefit from
the assistance of a staff support person.
It would be prohibitively expensive for one
part-time individual to pay a full-time assistant.
Through a company, however, a group of part-time
salespeople could share the expense and the
services of a full-time staffer, thereby taking
advantage of certain economies of scale.
While the potential benefits are great, certain
caveats apply: H.B. 272 does not allow these
companies to be set up simply to avoid creditors.
Furthermore, brokers retain their obligation
to supervise the salespeople and their new
companies. The creation of the new companies
does not render brokers or affiliated licensees
exempt from disciplinary sanctions or immune
from personal liability in a civil action.
Nevertheless, operating under this new structure
should bring significant business and tax
advantages to many Ohio real estate brokers
and agents.
David
Woodburn is an associate
and member of the Real Estate & Construction
and Trusts & Estates Practice Groups.
He can be reached at dwoodburn@bdblaw.com
or 330.258.6506.
This article was also published in the May
issue of “Properties Magazine.”
Properties Magazine Inc. "
For almost 60 years dedicated to real estate
and building progress!" For subscription
and advertising information see www.PropertiesMag.com
or call 216.251.0035.
Practice
Group Profile Featuring James W. Fisher, Esq.
 Jim
Fisher is a member of the Real Estate
and Construction Practice Group in the Buckingham
Akron office. He focuses his practice on zoning,
planning, land subdivision, purchase and sale,
brokerage, leasing, and other aspects of real
estate. Or as Jim summarizes the legal work
he does for clients, “I’m a mechanic. I fix
things that are broken. I solve problems.”
An Ohio Registered Professional Engineer,
Jim had planned a career designing highways
and bridges. After he took a co-op job in
the City of Akron’s Planning Department, though,
he found to his surprise that he had an aptitude
for zoning, so he decided to go to law school.
While working for the City, Jim wrote the
draft of the zoning code presently in use.
He explains, “I parlayed that co-op job into
a career. Many of the people I worked with
then are now in positions of authority. I
am often on a first-name basis with someone
who can solve a client’s problem. I do a
lot of local government liaison. People are
always stopping in my office and asking how
to get a pothole fixed or what to do about
a property tax problem.”
Jim stands out in his real estate practice
because “I try to be more empathetic. I get
to the heart of the client’s problems. I find
out what the client does and create a solution
tailored to that client, whether it’s a homeowner,
manufacturer or retailer. I try to give practical
advice, which often is as valuable as legal
advice.” For example, a homeowner with a
wet basement may not need to sue a neighbor
or builder over a storm run-off problem. Jim
advises taking the practical approach first:
Running a hose down the downspout may clear
the blockage and dry up the basement without
further problems.
In solving client problems, Jim not only
draws on his extensive network of friends
and acquaintances throughout local government
and professional organizations, but also the
expertise of other lawyers at Buckingham.
He adds, “If someone were expanding a factory,
he or she should talk to others at the Firm,
like Steve Hammersmith and Tom Trotter, regarding
a bond deal or economic development incentives.”
A member of the Ohio and American Bar Associations,
Jim also belongs to the local and national
home builders associations. He was vice-chairman
of the Akron Bar Association Real Property
Law Section and is a member of the Ohio Planning
Conference and the American Planning Association.
He has served as Secretary-Treasurer of the
Summit County Planning Commission and on the
Copley Township Zoning Commission and the
Copley Trustees Zoning Advisory Committee.
Jim lives in Bath with his wife, Nancy, and
is active in a number of community organizations,
including the Copley Lions Club and Fairlawn-West
United Church of Christ. Jim says that his
“only discernible vice” is Ohio State football;
he has attended more than 350 games since
1967.
He also enjoys what he describes as “experimental
gardening.” Jim claims that once he retires
he plans to go to Ohio State to earn a degree
in agronomy so that he can continue his pursuit
of the perfect sweet corn.
Jim
Fisher is a shareholder
and member of the Real Estate & Construction
and School Law Section of the Business Law
Practice Groups. He can be reached at jfisher@bdblaw.com
or 330.258.6461.
Save
The Date for these Presentations:
On September 5, 2002, Donald
B. Leach will present “Design Build
Construction: Contracting and Insurance Issues,”
in Columbus, Ohio for Lorman Education
Services. Please reference www.lorman.com
for registration and additional information.
On August 8, 2002, Alan
P. DiGirolamo, Robert
A. Hager, Frederick
M. Lombardi, and John
P. Slagter will be presenters at “Using
Ohio Construction Laws To Your Advantage”
sponsored by Lorman Education Services. They
will present on “Legal Aspects of Construction
Contracts and Ohio Construction Law.” Please
reference www.lorman.com for additional
information.
Out
and About – Recent Presentations:
Robert
A. Hager and John
P. Slagter presented “Legal Aspects
of Construction Contracts” to the Associated
Builders and Contractors in March.
Donald
B. Leach, Jr. presented “Ohio Mechanics’
Lien Law: The How’s and Why’s of the Paperwork,”
for the Builders Exchange of Central Ohio
on June 6, 2002.
If you are interested in obtaining information
on upcoming seminars or would be interested
in having speakers from Buckingham, Doolittle
& Burroughs make a presentation to your
organization, please contact: Cheryl Warren,
Director of Client Relations and Marketing
at cwarren@bdblaw.com
or 800.686.2825 ext. 546.
At BDB we are always improving our processes
so that we operate efficiently and effectively.
Please let us know how you like our new broadcast
format. E-mail: bdb@bdblaw.com
Phone: 330.258.6473 Fax: 330.252.5473.
Thank you.
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