The question of which party to a contract writes the first draft is generally understood among attorneys, but can sometimes be a mystery to clients. This article will present a brief overview of which side usually drafts, the reasons for doing so, the exceptions to the rule, and some discussion about the consequences for not following tradition.

Who Drafts?

The general rule is that the party that most needs to be protected in a transaction is the party that does the first draft. For example, a landlord needs to be able to control how tenants use the leased property. Lenders want to impose covenants to better ensure their loans will be repaid. A buyer of a business wants assurances as to the assets he is acquiring so as to minimize risk of post-closing liabilities for pre-closing activities. A software licensor wants to make sure that its code is not reverse engineered or used beyond the scope of the license. Employers want to clearly set forth an employee’s duties, the employee’s “at will” status (or, if applicable, a description of the grounds for termination), and post-termination obligations.

The party that doesn’t need the protection would normally draft the shortest document possible. A tenant would prefer a lease that does little more than describe the leased property, the start and end dates of the lease, and the amount of the rent. The tenant isn’t interested in language detailing how it can or can’t use the property, restricting renovations, or prohibiting assignments. A borrower’s ideal loan document would state the amount of the loan, the interest rate and the repayment terms. It’s the lender that wants affirmative and negative covenants, financial covenants, and events of default. Similarly, a seller of a business would be happy to sign a one page bill of sale listing the assets sold, their purchase price, and stating that the sale is as is. The buyer, on the other hand, wants the protection gained by a long list of representations and warranties about the business and the assets it’s purchasing, along with indemnification provisions to address any breach of those representations and from certain pre-closing activities of the seller.

Accordingly, it’s the party that needs the protection of a more fulsome document that is the party that normally does the first draft of the document.

Common Exceptions

There are however, times where the general rule described above does not apply.

First, when real estate is being sold, the common practice is that the seller drafts the purchase and sale agreement. The reason for this custom is that the buyer is not looking to the contract for its protection when purchasing a property (normally all liability of the seller terminates at the closing of the sale);  instead, the buyer obtains title insurance as the source of its protection if there’s an issue with the title to the property. In some transactions, the sale of real property is being made concurrently with the sale of an operating business, in which case, contrary to the rule stated above, the seller’s attorney may also draft the asset purchase agreement. This is more common if the purchase price for the business is a relatively small part of the overall purchase price – if the value of the business is a substantial part of the overall transaction, then the seller may draft the real estate contract and the buyer the asset purchase contract.

Second, a seller of a business may sometimes have a number of interested buyers. In this situation, the seller may elect to send out its version of the purchase agreement in order to be able to gauge the potential buyers’ attitudes on issues such as escrow, scope of representations and warranties, survival of representations and warranties, and indemnification deductibles, baskets and caps. A seller may be willing to sacrifice some purchase price for a reduction in its post-closing exposure, and having potential buyers mark-up a seller prepared purchase agreement is an efficient way of accomplishing this.

Third, while it would be consistent with the general rule for non-disclosure agreements to be drafted by the party making the disclosure, as a matter of practice the rule is not followed here as regularly as it is with the other contracts described above. For one thing, in many deals both parties are making disclosure, in which case both parties are presumably aligned in having  a reasonable agreement, such that it doesn’t matter who does the drafting. While this may appear to be the case, other than in a transaction such as a merger or joint venture, disclosure is not equal in terms of the sensitivity or scope of the information being disclosed, so that even a mutual non-disclosure agreement can be revised to provide some better protection for one side or the other. In addition, because non-disclosure agreements are used so often, and usually do not require significant modification, most larger companies have standard forms, meaning that the party who does the first draft is simply the first one that hits the send button on the email sending out the document.

When Not to Make an Exception

Clients sometimes believe that having the other side do the first draft, in a situation where this is not normally done, can result in reduced legal fees. After all, doesn’t it take less time to read a 20 page agreement than to write one? As such clients generally find out, this is a misguided belief.

As discussed above, the party to be protected by a contract is the party the benefits from a lengthier agreement. When the “wrong” side drafts, counsel for the party that should have done the drafting is faced with a twofold concern. First, what provisions of the contract need to be revised? And second, and equally if not more so important, what isn’t in the contract that should be there? This second issue is particularly challenging for attorneys who are less experienced with the subject matter of the contract – it’s hard to know what’s missing if you don’t already know what should be there.

When drafting contracts, attorneys almost always start from an existing contract. They know from experience that the contract contains the terms that are needed to protect their client, and when a new deal comes along, the existing template just needs to be revised to conform to the deal terms. However, when the “wrong” side drafts, the attorney who receives that contact not only needs to review every word of it (even boilerplate provisions can be problematic), he or she also needs to compare that contact against the template in order to determine what the drafting attorney did not include.

One of the issues that we often see arise in this situation is that the revising attorney is accused of going overboard on their revisions – that she or he is looking to cause problems with the deal, or is “over lawyering” the contract – and tries to use this as leverage to keep the number of changes to a minimum. Clients sometimes don’t understand that making changes to proposed text that is not market, or adding text that should have been there to begin with, is not over lawyering but merely an attempt to put the parties in the position they would have been had the “correct” party drafted the agreement in the first place.

Letting the “wrong” side do the first draft rarely saves money and can often put the non-drafting party in a worse negotiating position, and should be avoided whenever possible.

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David Paseltiner is chair of the firm’s corporate and commercial transactions practice group and a member of its banking and financial services practice group. He represents businesses in a wide variety of industries, ranging in size from small start-ups to well established firms with national and international operations. He also represents individuals in connection with employment agreements, shareholders agreements and operating agreements. David can be reached at 516-393-8223 or dpaseltiner@jaspanllp.com.

Over the last several years, there has been growing concern within the financial and trade regulatory communities about the use of shell companies to evade anti-money laundering laws, economic sanctions, and other laws.  Congress has found that malign actors have “exploited State formation procedures to conceal their identities” when forming these companies in the United States, in turn using the entities to “commit crimes affecting interstate and international commerce.” In response to this concern, Congress enacted the Corporate Transparency Act (the “Act”), requiring businesses to file information about their beneficial ownership with the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN). The stated purposes of the Act include the collection of beneficial ownership interest information for corporations, limited liability companies and similar entities “to (A) set a clear, Federal standard for incorporation practices; (B) protect vital United States national security interests; (C) protect interstate and foreign commerce; (D) better enable critical national security, intelligence and law enforcement efforts to counter money laundering, the financing of terrorism and other illicit activity; and (E) bring the United States into compliance with international anti-money laundering and countering the financing of terrorism standards.”

FinCEN has until January 1, 2022 to adopt regulations and establish a private national database for information collected under the Act. The following is a summary of  the basic provisions of the Act.

What entities are affected by the Act?

Under the Act, a “reporting company” is defined as a corporation, limited liability company or other similar entity that is created by filing documents with a secretary of state. This definition includes foreign businesses that transact business within the United States.

The Act exempts most financial services institutions, including investment and accounting firms, securities trading firms, banks, and credit unions that report to and are regulated by government agencies such as the Securities and Exchange Commission, the Office of the Comptroller of the Currency, or the FDIC, as well as non-profit organizations and certain inactive entities. Additionally, an entity that (i) employs more than 20 full-time employees; (ii) filed in the previous year Federal income tax returns demonstrating more than $5,000,000 in gross receipts or sales in the aggregate; and (iii) has an operating presence at a physical office within the United States is exempt from reporting. Exemption is not automatic – in order to become exempt, entities will have to apply for exemption.

While partnerships and most business trusts are not specifically referred to in the definition of “reporting company”, it is likely they will be considered “other similar entities” as they are not included among the exempt business entities. Presumably this will be clarified in the forthcoming regulations.

Who constitutes a “beneficial owner” under the Act?

A “beneficial owner” is defined as “an individual who, directly or indirectly, through a contract, arrangement, understanding, relationship, or otherwise– (i) exercises substantial control over the entity; or (ii) owns or controls not less than 25 percent of the ownership interests of the entity.” The term “indirectly” means that a reporting company will need to trace its ownership back through any entities in the ownership chain to identify the individual or individuals who own, ultimately own, or control the company.

However, a “beneficial owner” does not include (i) a minor, if the minor’s parent or guardian provides the required information; (ii) an individual acting as a nominee, intermediary, custodian, or agent on behalf of another individual; (iii) an employee of the company and whose control over or economic benefits are derived solely from his or her employment; (iv) an individual whose only interest is through a right of inheritance; or (v) a creditor (only in their capacity as such).

What constitutes “required information” under the Act?

The Act requires that the report to be filed by the reporting company identify each beneficial owner and each applicant (the individual who files the application to register the entity with a secretary of state or similar office)  by (i) full legal name; (ii) date of birth; (iii) current residential or business street address, and (iv) a unique identifying number from an acceptable identification document or an identifier issued by FinCEN. Acceptable identification documents include a non-expired passport issued by the United States or a foreign government, and a non-expired identification document issued by a State, local government or Indian Tribe.

If an exempt entity is a beneficial owner, then the beneficial owner report must give the name of the exempt entity, but does not have to provide any other required information.

When must the information be filed with FinCEN under the Act?

Entities in existence on the date FinCEN adopts the implementing rules will have to file beneficial ownership information or an exemption application within two years after such date. Entities formed after this date will be required to file the beneficial ownership information at the time of formation.

All entities must file updated beneficial ownership information or an exemption application within one year of any change in beneficial ownership.

What are the penalties for failing to comply with the Act?

The Act establishes criminal and civil penalties for willful noncompliance. Persons who knowingly provide false or fraudulent information or willfully fail to report complete or updated information may be fined $10,000 and/or imprisoned for up to two years. Additionally, a civil penalty of $500 for each day that the violation continues will be owed to the United States.

A person who negligently provides false information or fails to provide complete or updated beneficial ownership information will not be subject to civil or criminal penalties. The Act does contain a safe harbor provision, protecting a person who provided inaccurate information if that person voluntarily and promptly corrects the report within 90 days of its initial filing.

Who can access the national database?

The information collected by FinCen will not be made available to the public, and is not subject to disclosure under a Freedom of Information Act request. Under the Act, collected information may only be released to:

  • A federal, state, local, or tribal law enforcement agency conducting an active
    investigation;
  • A federal agency making the request on behalf of a foreign law enforcement agency under mutual legal assistance protocols; and
  • A financial institution conducting due diligence under the Banking Secrecy Act or USA PATRIOT Act – with customer consent.

What should companies do to comply with the Act?

Prior to January 1, 2022, companies should check to see if FinCEN has issued regulations for compliance with the Act. Once the rules have been issued, entities should review the regulations to confirm whether they must file a beneficial owner report or are eligible to file for an exemption. Additionally, companies should keep updated records of the required information for each owner and enhance their compliance processes to ensure that the required information is being collected and reported to FinCEN in accordance with the Act.

Companies should also include language in their shareholders, partnership, or operating agreement or similar document that requires owners of the company to regularly provide any information required to comply with the Act and any relevant regulations, and may want to consider indemnification provisions if an owner fails to timely provide required information or provides false or incomplete information. If such agreement contains a confidentiality provision, it should include an exception to permit the company to report the required information to FinCen.

For further information or guidance on revising your policies, procedures, and operating agreement, please contact David Paseltiner.

On December 28, 2020, New York Governor Andrew Cuomo signed into law the COVID-19 Emergency Eviction and Foreclosure Prevention Act of 2020 (the “Act”), which, among other things, implements certain requirements and restrictions on residential foreclosures in New York.  The Act does not apply to certain commercial foreclosures or to vacant and abandoned properties that were listed on the statewide vacant and abandoned property electronic registry before March 7, 2020, and remain on the registry.

The Act applies in “any action to foreclose a mortgage relating to residential real property, provided the owner or mortgagor of such property is a natural person, regardless of how title is held, and owns ten or fewer dwelling units whether directly or indirectly.”  The units may be in more than one building, but must include the primary residence of the mortgagor/owner and the remaining units must be currently occupied by a tenant or available for rent.

The Act immediately stayed all pending residential foreclosure actions for a period of sixty days (through February 27, 2021), and allows for the submission of a hardship declaration by a mortgagor/owner attesting to hardship due to the Covid-19 pandemic. If a mortgagor/owner submits a hardship declaration, any pending foreclosure proceeding or the initiation of a new foreclosure proceeding, will be stayed until May 1, 2021.

The Act contains the form of the hardship declaration that is to be used and requires that the Office of Court Administration translate the hardship declaration into Spanish and the six most common languages in the city of New York, after Spanish.  The Act directs the courts to mail copies of the hardship declaration to mortgagors in all pending residential foreclosure matters.  The Act also directs that a hardship declaration form be sent by the mortgagee with every notice sent pursuant to New York Real Property Actions and Proceedings Law Sections 1303 (Help for Homeowners in Foreclosure) and 1304 (90-Day Pre-Foreclosure Notice) in the mortgagor/owner’s primary language.

When a new residential foreclosure proceeding is initiated, the court will require both an affidavit of service of a hardship declaration and an affidavit from the foreclosing party or agent of the foreclosing party stating that no hardship declaration has been received from the mortgagor/owner.  Further, the Act requires that upon the commencement of a new action, the court must seek confirmation, on the record or in writing, that the mortgagor/owner has received the blank hardship declaration and has not submitted a completed hardship declaration.

On December 31, 2020, New York State Chief Administrative Judge Lawrence Marks issued a memorandum regarding the requirements of the Act and the implementation of the Act by the courts.

The Unified Court System has published the hardship declaration in English, Spanish, Arabic, Bengali, Chinese (simplified and traditional), Haitian-Creole, Polish and Russian on its website.  The website also states that the Unified Court System is in the process of updating various web pages to reflect the requirements of the Act.

As previously discussed here, LIBOR (the London Inter-Bank Offered Rate) is an interest rate benchmark that is used as a reference rate for a wide range of financial transactions. It is typically offered as a floating rate interest option for corporate borrowers in the US loan market. Corporate borrowers may pay interest on their loans based on LIBOR (typically, LIBOR plus a spread, or applicable margin).

ICE Benchmark Administration (IBA), the administrator of LIBOR, announced on November 30, 2020 that it expects to consult on its intention to cease publication of one-week and two-month LIBOR on December 31, 2021, and the remaining USD LIBOR settings on June 30, 2023 (IBA later clarified that this was not an announcement that IBA will cease the publication of LIBOR). See our blog article here for a discussion of the potential effects of the COVID-19 pandemic on cessation of the LIBOR publication. As the likely end of the most commonly used LIBOR periods remains approximately two and a half years away, most existing agreements utilizing USD LIBOR will mature prior to the expected end date.

Notwithstanding the future termination of LIBOR, several United States regulatory authorities, including the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency, issued a joint statement supporting a transition away from using LIBOR “without delay” regardless of the unclear end date. These authorities further advised that successor language be included in financial agreements to preemptively provide an alternate interest rate after discontinuance of the existing reference rate.

Attorneys drafting new loan agreements and amendments to existing loan agreements utilizing LIBOR have taken two approaches to establish a successor interest rate following the cessation of LIBOR, namely the “amendment approach” and the “hardwired fallback language approach.” Under the amendment approach, the loan document provides the parties will cooperate to amend the applicable interest rate provisions to incorporate a new interest rate. This approach requires the parties to reach agreement on the terms of the new rate and to execute amendments to reflect this agreement. Under the hardwired fallback language approach, the fallback language provides for the successor rate within the original agreement and generally removes the need for a future amendment.

Both approaches provide for several triggers to transition from LIBOR to the successor reference rate including notice of the cessation of LIBOR, agreement among the parties to transition to the successor rate, or both. For the LIBOR cessation notice language, the agreement may provide that successor rate provisions will become effective if certain sources announce the termination of publication of LIBOR, regardless of whether those provisions provide for the amendment approach or the hardwired fallback language approach. For the election language, certain specified parties to the agreement (whether that be one, some or all of the parties) can elect to transition to the successor rate as provided for in the agreement.

The Alternative Reference Rates Committee (ARRC), a committee created by the Federal Reserve, released recommended USD LIBOR fallback contract language for syndicated loans to deal with the transition, in which it recommended either approach. For the hardwired option, the successor rate proposed by ARRC was Term SOFR plus a spread adjustment, or if that does not exist Compounded SOFR plus a spread adjustment, if neither exist, the hardwired approach reverts to an amendment approach, giving due consideration to relevant governmental body recommendations or evolving or then prevailing market conventions. The Secured Overnight Financing Rate (SOFR) is a broad measure of the cost of borrowing cash overnight collateralized by Treasury securities.

In 2019, the International Swaps and Derivatives Association (ISDA®) determined that the fallback for LIBOR in their documentation would be Compounded SOFR in arrears together with a spread adjustment based on a historical median approach.

In June 2020, ARRC revisited and revised its position regarding LIBOR transition. Consistent with the ISDA® documentation, only the hardwired approach is now recommended, with the amendment approach being deleted. In addition, contrary to both its prior position and the ISDA documentation, rather than using Compounded SOFR in the second level of the waterfall of alternative benchmark replacements, ARRC now recommends Daily Simple SOFR.

Initially, the amendment approach was more commonly used; however, in light of the ARRC and ISDA® documentation and recommendations, the hardwired fallback language approach has become more prevalent in recent months.

David Paseltiner is chair of the firm’s corporate and commercial transactions practice group and a member of its banking and financial services practice group. He represents businesses in a wide variety of industries, ranging in size from small start-ups to well established firms with national and international operations. He also represents individuals in connection with employment agreements, shareholders agreements and operating agreements. David can be reached at 516-393-8223 or dpaseltiner@jaspanllp.com. Rose C. Egan, an associate in the corporate and commercial transactions practice group, assisted in the drafting of this article.

Parties regularly enter into contracts for the purpose of achieving a desired result. Sometimes there is an absolute requirement to achieve the result; sometimes merely an agreement to try to achieve the result. Included in this spectrum of commitment is a trio of phrases that are commonly used but not so commonly understood: “best efforts”, “reasonable efforts”, and “commercially reasonable efforts.” What do these terms require of a party that agrees to use such efforts? Does one of them require something more than the others?  In this article, we will explain why and when such terms are used, look at how New York courts interpret them, and offer some advice on how to reduce the uncertainties that accompany their use.

When Are These Terms Used?

Efforts clauses are most likely to be used where a party is unable to control an outcome, the parties are unable to predict if an outcome can be achieved, or a party simply is unwilling to guarantee an outcome. For example, a party selling its business may require a third party’s consent to an assignment of a contract between the selling party and the third party. The purchase agreement could require the seller to obtain the consent, failing which it would be in breach of the agreement, or provide for one of the “efforts” standards. So long as the seller used the required efforts, it would not be in breach of the contract if the third party refused to consent to the assignment of its contract.

What Are Efforts Clauses?

An efforts clause requires a party to take some level of effort to achieve the desired result. Failure to use such efforts would be a breach of the clause; failure to achieve the desired result would not be a breach, so long as the required effort was used.

The three most common used efforts clauses are “best efforts”, “reasonable efforts”, and “commercially reasonable efforts.” Attorneys and contracting parties generally view best efforts as the most demanding of the efforts clauses, commercially reasonable efforts as the least, and reasonable efforts as a middle ground. As discussed below, what attorneys and parties believe is not necessarily what the case law dictates.

Does Best (or Any Other) Efforts Require a Party to Do Anything Necessary?

The obligation to use reasonable efforts, commercially reasonable efforts, or even best efforts does not generally mean that the promising party must be successful or take exhaustive measures to fulfill the obligation. Under New York law, these efforts terms do not require a party to act against its own business interests.  Courts in other states have frequently held that even “best efforts” does not require a party to take every conceivable effort, take unreasonable actions, or incur substantial losses to perform an obligation. By agreeing to use best efforts, a party is not agreeing to take every possible action, to incur unlimited costs, or take unlimited time to achieve the desired result.

What’s the Difference Among the Efforts Clauses? Is There Even a Difference?

Parties rarely bother to define what they mean by “best”, “commercially reasonable” or “reasonable” efforts, meaning that in a dispute they are leaving it to a court to determine not only whether the effort has been made but what the effort required in the first place. Courts have wide latitude in determining what the parties may have intended to be required, and attempting to reconcile the efforts clause with other provisions of the contract so that the provisions of the contract work in harmony. Judges will often look to the contract’s surrounding facts and circumstances, if such facts and circumstances will enable them to determine the meaning of the efforts clause with a reasonable degree of certainty.

“Best Efforts” and “Reasonable Efforts”

New York courts have taken inconsistent positions with regard to the interpretation of efforts clauses. Some courts view “best efforts” and “reasonable efforts” as equivalent and interchangeable, while other courts find a distinction between them. One decision interpreted “commercially reasonable efforts” as requiring at the very least some conscious exertion to accomplish the agreed goal, but something less than a degree of efforts that jeopardizes a party’s business interests. As one federal court noted, New York has been “anything but a model of clarity” when it comes to interpreting efforts clauses[1].

In particular, there is a series of cases holding that both best efforts and reasonable efforts (the two more stringent standards in the view of most attorneys) impose an obligation on the promising party to act with good faith in light of its own capabilities; allow such parties the right to give reasonable consideration to their own interests; and permit such parties to rely on their good faith business judgment.

On the other hand, there is also case law in New York supporting the proposition that a best efforts standard is more onerous than a reasonable-efforts standard. Following this line of cases, courts often define the standard by using the implied covenant of good faith and fair dealing (as the base standard expected in all New York contracts) to explain that a best-efforts clause requires (i) a higher standard than mere good faith and (ii) a party to pursue all reasonable methods to achieve the result in question.

Finally, some courts analogize a best-efforts provision to a contractual obligation to perform promptly or diligently.

Most New York courts agree on one issue (not that it is helpful to litigants): the determination of whether a party used best efforts or reasonable efforts is a fact-intensive inquiry. Unfortunately, due to the lack of a decision by the New York Court of Appeals, New York case law is divided as to whether (a) there must be objective criteria or clear guidelines against which a party’s efforts to meet the required standard can be measured to be enforceable, or (b) best efforts is an enforceable obligation, even when objective criteria are unavailable if external standards or circumstances impart a reasonable degree of certainty to the meaning of the phrase.

“Commercially Reasonable Efforts”

Until recently, few New York courts had dealt with interpreting and applying a commercially-reasonable-efforts standard. The developing consensus is that the standard for satisfying commercial reasonability under New York is fairly lenient, with a balance between some conscious exertion to accomplish the agreed goal and something less than a degree of effort that jeopardizes the party’s business interests, as judged objectively based on industry standards.

With regard to “commercially reasonable efforts”, New York courts generally evaluate a party’s performance in light of an objective standard of reasonableness as opposed to a party’s subjective belief of what the contract requires.

What Can Be Done to Reduce Uncertainty?

There are some actions that can be considered if a party desires to reduce, to the extent possible, the uncertainty of a judicial interpretation of an efforts clause.

First, if at all possible, simply avoid using an efforts clause — make the desired result an express obligation of the other party. In this case, the inquiry is simply whether the result was achieved, not whether a party used sufficient efforts to try to achieve the result.

Second, define what is meant by “best”, “reasonable” or “commercially reasonable” efforts. This gives the court an ascertainable standard to determine whether the required effort was made, with the less subjectivity the better in this regard. For example, efforts could include sending a notice, incurring up to a certain amount of expense, engaging a specialist with expertise in the given subject matter,  appealing an adverse administrative decision, and so on, tailored, of course, to the applicable result being sought. An efforts clause can also be defined to state what efforts are not required, such as commencing litigation, incurring excess costs, taking actions that are illegal, or taking action that would reasonably be likely to expose the party to liability.

Third, use objective criteria. For example, if a party is required to give a notice or take other action as part of an efforts clause, state the date by which the notice must be given or the action taken, and avoid phrases such as “within a reasonable period of time.”

In Summary

While there is much ambiguity in the use of efforts clauses, with some (best/reasonable/commercially reasonable) effort, the following conclusions can be drawn:

  • unless specifically agreed to, none of the “efforts” clauses requires a party to do everything possible (such as bankrupting itself or take other unreasonable actions) to achieve the desired result;
  • depending on what court you end up in, “best” and “reasonable” efforts may, despite what may appear from the respective terms, mean the same level of effort; and
  • if achieving a desired result is important, and the counterparty is unwilling to commit to an absolute obligation to accomplish it, then consider including objective details as to what that party is expected to do as part of its efforts so that a court can more readily determine whether that effort has been made if the result is not achieved.

[1] Holland Loader Co. v. FLSmidth A/S, 313 F. Supp. 3d 447 (S.D.N.Y. 2018)

Governor Cuomo recently announced the creation of New York’s Green Energy Program aimed at building New York’s green economy. Urging that the program will combat global climate change while stimulating New York’s COVID-19 stressed economy, the Governor’s proposal includes the development of the largest offshore wind program in the nation, upgrades to five dedicated port facilities (in Albany, Coeymans, South Brooklyn, Port Jefferson and Port of Montauk Harbor), and the construction of a “green energy transmission superhighway” to transport clean energy generated upstate to under-serviced downstate areas (with projects in Western New York, Mid-Hudson and the Capital Region). He estimates that the green energy program will “… create a total 12,400 megawatts of green energy to power 6 million homes, directly create more than 50,000 jobs, and spur $29 billion in private investment all across the state.”

The cornerstone of the Governor’s proposal is his call for the acceleration of renewable energy development programs.  Indeed, the New York State Legislature recently enacted the Accelerated Renewable Energy Growth and Community Benefit Act (the Act) to facilitate siting and construction of clean energy projects. The Act establishes a new Office of Renewable Energy Siting (the “ORES”) to review siting applications for renewable energy facilities whose capacities exceed 25 megawatts, and those between 20-25 megawatts who opt into the new process. According to ORES’ website, it will “… implement the timely consolidated review and permitting of major renewable energy facilities in a single forum that takes into consideration local laws, public health and safety, environmental, social and economic factors pertinent to the decision to permit such facilities.” Notably, under certain circumstances, the Act permits ORES to disregard local laws and regulations when approving siting applications. ORES issued draft regulations, and uniform standards and conditions for public comment on September 16, 2020.

It remains to be seen how (or whether) ORES will balance the State’s interests in developing New York’s wind program against impacted municipalities’ interests, in particular, those articulated  in local land use and zoning regulations, as well as siting and permitting processes. Even if ORES does manage to streamline the process for certain projects, it is unlikely that local municipalities will simply go quietly into the night when a project hits home. After all, isn’t that precisely why municipalities maintain local siting control over land use and zoning matters?

Should you have questions or inquiries regarding renewable energy siting and procurement processes, please contact Simone M. Freeman in our Zoning and Land Use and Municipal Law Groups at 516-746-8000 or sfreeman@jaspanllp.com.

On December 15, 2020, Governor Andrew Cuomo signed into law sweeping changes to New York’s General Obligations Law governing powers of attorney (“POA”). The new law is effective on June 14, 2021.

The new law is intended to: 1) simplify the current POA form, which is prone to improper execution; 2) allow for the execution of a POA containing language that substantially conforms to the law, because the current law’s exact wording requirement is unduly burdensome and may be a trap for the unwary; 3) provide safe-harbor provisions for those who, in good faith, accept an acknowledged POA without actual knowledge that the signature is not genuine; 4) allow damages to be recovered from those who unreasonably refuse to accept a valid POA.

The adoption of the bill does not affect the validity of any existing valid statutory short form POA, gift riders, or revocation of a POA that was delivered to an agent before the law’s effective date.

What Constitutes a Valid POA

The old law contained a statutory short form POA which had to be strictly completed in order to be accepted by a third party, such as a bank or credit union.  Under the new law any POA which “substantially conforms” to the statutory form must be accepted by third parties located or doing business in New York State unless such third party has reasonable cause not to honor it. Reasonable cause includes a belief that the POA was not  properly executed in accordance with the laws in effect at the time it was signed.

A POA will now be valid even if it contains: (a) an insignificant mistake in wording, spelling, punctuation or formatting; (b) bold or italic type; or (c) language that is not  identical  to the statutory form so long as it substantially conforms with the form. There may be “substantial conformity”  even if some clauses that appear in the statutory form are missing or if there is insubstantial variation in the wording of the “Caution to the Principal” and “Important Information for the Agent” provisions.

The new law also modifies the signature requirement for executing a POA. The POA no longer needs to be signed by the principal. A designee may sign the document at the principal’s direction while in his or her presence.

Procedure For Rejecting a POA

The new law prescribes a mechanism for rejecting a statutory short form POA.  Not later than the tenth business day after presentation of an original or attorney-certified copy of  a  statutory  short  form  POA that is properly executed, the recipient shall either: (a) honor the statutory short form  POA,  or (b) reject the statutory short form POA in a writing that sets forth the reasons for such rejection, or (c) request that  the  agent  execute  an  acknowledged affidavit stating that the POA  is  in  full  force and effect.

Reasons for rejection may include non-conforming form, missing or incorrect signature, invalid notarization, or unacceptable identification. In the event that the statutory  short form POA presented is not an original or attorney-certified copy, as part of the initial rejection, the third  party must also identify the other provisions of the short form POA, if any, which would otherwise constitute cause for rejection.  If the third party initially rejects the statutory short form POA in a writing that sets forth the reasons for such rejection, the third party shall within seven business days after receipt of a writing in response to the reasons for such rejection: (a) honor the  statutory  short  form  POA, or (b) finally reject the statutory short form POA in a writing which  sets forth the reasons for such rejection. If the third party requests the agent to execute an acknowledged affidavit, the third party must honor the statutory  short  form  POA  within seven business days after receipt by the third party of an acknowledged affidavit stating that the POA is in full force  and effect unless reasonable cause exists to decline to accept the POA.

The new law contains notice provisions which detail how and to whom the foregoing notices must be sent.

Damages For Rejecting a Valid POA

While the new law is intended to make it easier for a POA to be accepted, it may also create issues of fact which will have to be decided by a court in a special proceeding. Specifially, the new law provides that a court can award damages, including reasonable attorneys’ fees and costs, if it finds that the refusal to accept a properly executed POA was unreasonable.

Protections For Accepting POAs

The new law offers additional protection for third parties who in good faith act on an acknowledged POA. Unless the third party had “actual knowledge” that a signature was not genuine, it may rely on the presumption that an acknowledged signature (verified before a notary public) is genuine. Third parties are also protected against void, invalid, or terminated POAs unless they had actual knowledge of same.

A person who is asked to accept an acknowledged POA may request, and rely upon, without further investigation:

(1) an agent’s certification under penalty of perjury of any factual matter concerning the principal, agent or POA; and

(2) an opinion of counsel as to any matter of law concerning the POA if the person making the request provides in writing or other record the reason for the request. An opinion of counsel  must be provided at the principal’s expense unless the request is made more than ten business days after the POA is presented for acceptance. It should be noted that this new “safe harbor” provision is not included in the new section of the law which establishes the procedure for rejection of a POA.

A person who conducts activities through employees is without actual knowledge of a fact relating to a POA, a principal, or an agent if the employee conducting the transaction involving the POA is without actual knowledge of the fact after making reasonable inquiry with respect thereto.

If a third party conducts a transaction in reliance on a properly executed statutory short form POA, the third party shall be held harmless from liability for the transaction.

Elimination of Statutory Gift Rider

The new law eliminates the Statutory Gift Rider to the POA. This rider was needed in the past to, among other things, open, modify or terminate a joint account or an “in trust for” account.  Now, the principal can authorize transactions on these types of accounts by expressly stating the agent’s authority in the Modifications section of the POA.

Other Technical Amendments

The new law also contains several technical amendments which expand an agent’s power to make aggregate gifts in a calendar year from the current $500 limit to $5,000 without requiring a modification to the form; clarify an agent’s obligation to keep records or keep receipts; and clarify the agent’s authority with regard to financial matters related to health care.

While these amendments strive to simplify New York’s power of attorney law, the law remains complex and legal counsel should be consulted to assist in drafting, interpreting, accepting and rejecting powers of attorney.

I. Competitive Bidding – The Basics

The purpose of competitive bidding is to create an open and fair environment that encourages transparency and accountability, as well as competition.  Local Government Management Guide Seeking Competition in Procurement, NYS Office of the Comptroller, Division of Local Government and School Accountability (July 2014) at: Seeking Competition. Under General Municipal Law § 103, when a procurement meets certain monetary thresholds, local municipalities and school districts (collectively, hereinafter “municipalities”) are required to advertise for competitive bids.  For example, purchase contracts involving expenditures in excess of $20,000 and contracts for public work involving expenditures of $35,000 or higher are subject to public bidding under General Municipal Law § 103.  An exception to this rule are emergency procurements under General Municipal Law § 103(4) (discussed supra).

General Municipal Law § 103(2) further requires that “[A]ll bids received shall be publicly opened and read at the time and place so specified and the identity of all offerers shall be publicly disclosed at the time and place so specified.” However, the COVID-19 pandemic has forced municipalities to consider whether it is smart, safe and/or permissible to hold in-person public bid openings. Particularly since Executive Order (“EO”) 202.10, as extended and amended by EOs 202.38, 202.42, 202.45, and 202.89 (“EO 202.10”) limits and/or prohibits certain non-essential gatherings. Therefore, municipalities are effectually prohibited from holding non-essential in-person bid openings where the number of persons in attendance (inclusive of on-site staff) exceeds the number permitted by EO 202.10.

II. Suspension of the Requirement to hold In-Person Bid Openings

In light of the foregoing concerns, on March 27, 2020 Governor Cuomo issued EO 202.11, which suspends the requirement that municipalities hold public (in-person) bid openings.  Instead, EO 202.11 permits municipalities, where practical, to hold non-public bid openings so long as the municipalities provide the public with a meaningful opportunity to view such bid openings by recording or live streaming them. On December 30, 2020, Governor Cuomo extended EO 202.11 until January 29, 2021 under EO 202.87.

Additionally, in order to ensure that the bidding process is fair and transparent, municipalities are encouraged to create a record of the bid opening, document each action taken during the process, and have one municipal official or employee present to witness the bid opening. See, New York State Conference of Mayors’ Coronavirus COVID-19: Resources For Local Government Officials – Public Bidding Openings at:  Resources for Local Government Officials.

III. Remember to Follow All the Other Rules!

All other requirements of General Municipal Law § 103 remain unchanged. Therefore, municipalities must continue to “… publish an advertisement for bids and offers in an official newspaper, if any, or otherwise, in a newspaper designated for such purpose.” General Municipal Law 103(2).  Pursuant to General Municipal Law § 103(2), the advertisement must provide (i) the time and place where the bids received will be “publically” opened and read, and (ii) identify where all bidders/offerors will be publically identified and disclosed. In addition, where the municipality has authorized the receipt of bids and offers in an electronic format, the designation of the receiving device must be provided. Id.

In the event that municipalities elect to hold a non-public bid opening pursuant to EO 202.11, it is important that the notice of advertisement include: (i) the date and time when all bids must be received, opened and read; (ii) that the bid opening will be held in accordance with EO 202.11; (iii) that in-person attendance will not be permitted; and (iv) the website address, public television broadcast channel, videoconference link or similar system, where the public may view or participate in a recording or live stream of the bid opening.

Municipalities should also post these notices on their websites.

IV. COVID-19 – It’s an Emergency, Right?

COVID-19 may be a declared state of emergency, but that does not mean that COVID-19 (in and of itself) automatically qualifies as an “emergency” for emergency procurement purposes under General Municipal Law § 103(4). Under General Municipal Law § 103(4), contracts for public work or the purchase of supplies, material or equipment may be let by the appropriate officer, board or agency of the political subdivision or district without the issuance of an advertisement for sealed bids where: (i) there is an accident, unforeseen occurrence or condition; (ii) that affects public buildings/property or the life, health, safety or property of residents; and (iii) the resulting situation requires immediate action which cannot wait for competitive bidding/offering.  As such, General Municipal Law § 103(4)’s application is strictly limited to procurements necessitated by an emergency that is designated by current and immediate circumstances.

Notwithstanding the forgoing, EO 202 permits school districts, to the extent necessary, to procure and use cleaning maintenance products without first advertising for bids and offers or complying with existing procurement policies and procedures as required under General Municipal Law §§ 103 and 104-b. Beware, however, that EO 202 is limited to procurements necessitated by the declared emergency (i.e. COVID-19). Therefore, a school district could not, for example, purchase a snow plow because of COVID-19. Further, it must be noted that EO 202 does not apply to local governments (i.e. cities, villages, Towns, Counties or other political subdivisions). Therefore, local governments should continue to evaluate all emergency contracts under the criteria set forth in General Municipal Law § 103(4).

V. Procurement Policy Updates

In light of the COVID-19 pandemic, and the transition to virtual government platforms, municipalities should review their procurement policies and consider changes that accommodate electronic and virtual competitive bidding platforms in accordance with EO 202.11 and General Municipal Law § 103(1).

Should you have questions or inquiries regarding General Municipal Law § 103 or procurement, please contact Simone M. Freeman in our Municipal Law Group at 516-746-8000 or sfreeman@jaspanllp.com.

 

With an existing budget shortfall worsened by the pandemic, lawmakers are again pressing to allow mobile sports betting as a means of generating State revenue.

As of today, sports betting is only legal in New York as long as the bettor is physically present on the grounds of certain in-state casinos. By contrast, a mobile sports bet would be placed on a website via an electronic device, such as a computer or cell phone. New Jersey has already passed legislation legalizing this form of betting and, as a result, New Yorkers have been crossing state lines to place bets via their smartphones (geolocation software is utilized to determine whether a mobile bet was placed in-state).

While the idea was proposed in years past, it was always met with staunch opposition from Governor Andrew Cuomo, who cited to the many social ills associated with gambling. The concept also met opposition from casinos, some of which expressed concern that online sports betting would detract from in-person business at brick-and-mortar casinos.

In light of the massive deficit brought on in part by the COVID-19 pandemic, Governor Cuomo appears to have changed his tune. However, under his proposed structure, the casinos are unlikely to sing along. By way of explanation, most states that permit mobile sports betting, including New Jersey, essentially allow casinos to run the operations. By contrast, Governor Cuomo has proposed that the State lottery would be responsible for mobile sports betting.

Even with the backing of Governor Cuomo, mobile sports betting still faces an uphill battle. For one, there is existing gaming compact giving tribal casinos the exclusive right to certain types of gaming in exchange for a percentage of revenues. Moreover, there is a provision of the State Constitution prescribing that sports gambling take place “at no more than seven” casinos, and whether a mobile sports bet takes place “at” a casino has been the subject of debate.

It remains to be seen whether the Governor’s support will provide mobile sports betting the momentum it needs this time around. If so, proponents suggest it may prove a valuable revenue source for the State at a time when a multi-billion-dollar budget gap has the State and its businesses facing tough roads ahead.

 

 

 

 

Purchasing a new home is often one of the biggest moments of a person’s life, whether it is a first home or a “forever home.” Over the past year, restrictions imposed by virtue of the COVID-19 pandemic have interfered with this dream of many. Initially, stay-at-home orders prohibited home showings and in-person closings. Later, low home inventory resulted in weaker purchaser negotiating power given the low supply and great demand triggered by the pandemic.

Despite these uncertain times, governmental restrictions loosened; home viewings resumed; parties negotiated transactions and entered into contracts (with the help of attorneys, of course). And due to these uncertain times, purchasers/borrowers went through the mortgage approval process and found lenders altering their closing requirements based on conditions which arose as a result of the pandemic.  Title companies required sellers to execute additional affidavits and provide indemnities with respect to the lag in county office land departments’ ability to process documents and the title company’s ability to review and retrieve land and court records given reductions in office hours and of in-person staff.

Outside of New York, a closing in New York is generally referred to as a “New York style closing”, meaning a sit-down closing where all parties to the transaction are in a room to sign all documents and deliver all monies associated with completing a closing in accordance with the contract terms.  Given the necessity of social distancing and minimizing in-person contact, it would make sense for the parties to be able to close in a manner which would limit such contact.  However, not all parties to closings have been willing to embrace this concept.

Commercial transactions and out-of-state closings have long embraced the “escrow closing concept.”  The process is easy, reliable, cost-effective and much safer these days by virtue of avoiding physical contact.  There are several ways to conduct such closings but the general process is that required closing documents are signed by all parties and deposited with a trusted escrow agent, such as the title company, funds are wired and once all parties are satisfied, escrow is broken and documents are released to be recorded. There are many variations on this. Parties can be located in different locations and documents can be scanned, reviewed and approved with agreements (called undertakings) and requirements that original documents are delivered or all bets are off.  It is important to note that while electronic signatures can be viewed and approved by parties to the transaction, electronic filings are still not yet permitted or processed in all county offices, so it is imperative that the original documents are sent and make it to their ultimate destination.

Many lenders, attorneys and even individuals have insisted on sit-down closings during the past year, even with the extraordinary health concerns raised by such sit-down closings. Some lenders have insisted their borrowers need to be seen in person to alleviate forgery concerns; some practitioners have insisted that a sit-down closing is necessary because “that’s the way it’s always been done”; some clients have stated they must attend a closing to get the money.

But things are different today. Facetime and Zoom make it easy to physically interact in a socially distant manner which comports with all legal requirements. Wiring of funds alleviates the need for presentation of physical checks (and often results in faster fund availability). Governor Cuomo’s implementation and continuing extension of virtual notarization of documents is further validation that compliance with legal requirements can be completed in a safe manner which effectuates the same end result.  A key component at a closing is that parties present valid, non-expired photo identification, such as a driver’s license or passport. Given all the delays that have resulted in processing and receiving documents during the pandemic, Governor Cuomo’s Executive Order extends the expiration date of all NYS drivers’ licenses and permits so that any license which expired on or after March 1, 2020 remains valid at least through January 1, 2021.

Selling or purchasing any property is a huge endeavor under normal circumstances. It is important to have a trusted advisor who is familiar with current trends available to assist during such an important time. For assistance with your commercial and residential real estate transactions, please contact Leslie Feifer. Leslie is a member of the firm’s real estate practice group, representing individuals and businesses in a wide variety of commercial and residential real estate matters. Leslie can be reached at 516-393-8229 or lfeifer@jaspanllp.com.