Deadlock-Breaking Mechanisms in Real Estate LLCs: Avoiding Litigation When Members and Managers Fail to Agree

Buy-Sell Provisions, External and Internal Tie-Breakers, Put and Call Options, Partition or Sale Provisions, and More

A live 90-minute CLE webinar with interactive Q&A


Thursday, February 22, 2018 (Tomorrow)

1:00pm-2:30pm EST, 10:00am-11:30am PST

or call 1-800-926-7926
Program Materials

This CLE webinar will provide real estate counsel with a framework for adopting deadlock-breaking mechanisms in LLC operating agreements, and potential state law consequences when no such mechanisms are in place. The program will also discuss arbitration and mediation provisions as alternatives to litigation or judicial dissolution.

Description

Deadlocks typically arise when LLC members or managers fail to reach agreement or obtain the required voting approval for a particular course of action. The failure to provide deadlock-breaking mechanisms in the operating agreement can result in significant expense, loss of time, litigation or even dissolution. Where the LLC’s purpose is investing in and operating real estate, deadlocks can result in deterioration of the asset or a defaulted loan.

Counsel can employ various provisions in LLC agreements to break a deadlock, including buy-sell provisions, external or internal “tie-breakers,” rotating or alternating voting procedures, put or call options, and where appropriate, provisions for partition or sale of the company or its assets. These provisions may be critical for the continued operation of the business.

Absent such provisions, LLC statutes will typically provide for judicial remedies, including placing operational control in a custodian or dissolution of the entity. Operating agreements that do not provide mechanisms for breaking deadlock may nevertheless provide alternate methods of resolving disputes, such as mediation and arbitration. Counsel should understand the pros and cons of these alternatives for the LLC’s members.

Listen as our authoritative panel outlines and provides drafting tips with regard to various deadlock-breaking mechanisms in operating agreements. Counsel will also discuss arbitration vs. mediation, and why either option is likely preferable to litigation or judicial dissolution of the entity.

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Outline

  1. When deadlocks arise in LLC decisionmaking
  2. Provisions designed to resolve deadlocks
    1. Buy-sell
    2. External or internal “tie-breakers”
    3. “Rotating/alternating” or “casting” voting procedures
    4. Put or call options
    5. Partition or sale (is it a viable option with commercial property?)
  3. Provisions requiring alternative dispute resolution
    1. Mediation
    2. Arbitration
  4. Special issues with commercial real estate—managing and leasing the asset, avoiding mortgage loan defaults

Benefits

The panel will review these and other key issues:

  • What are the typical triggers of a deadlock between members or managers?
  • What are the key provisions that should be included in the LLC’s operating agreement to resolve the deadlock?
  • When is a partition or sale appropriate to resolve a deadlock?
  • What are the advantages and disadvantages of arbitration and mediation and what should the LLC provide?

Faculty

Kelley, Kathleen
Kathleen A. Kelley

Member
Protorae Law

Ms. Kelley practices general corporate and LLC law with a particular emphasis on formations, equity plans, mergers...  |  Read More

Stevenson, Pantea
Pantea F. Stevenson
General Counsel
Loci

Ms. Stevenson focuses her practice on corporate transactions, corporate law and intellectual property transactions. She...  |  Read More

Long, Craig
Craig Long, Esq.

Managing Attorney
Craig Long

Mr. Long focuses his practice on real estate law, corporate law and civil litigation. His real estate transactional...  |  Read More

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