February 2015

Partnership Disputes "Commercial Real Estate" (FARE)

After spending decades in partnerships, both as a general partner and limited partner, there seems to be a pattern where disputes occur. The most common issue is that the partnership may be formed by a handshake and nothing is written between the parties with the exception of the deeds.

My acronym for disputes is FARE! This acronym describes where the parties may go wrong and not to be confused with the word "fair".

The letter "F" stands for financial. Each partner must be able to meet his or her financial obligations and percentages in the partnership. In good times, this may not be a problem, but with construction costs overruns and with extended vacancies, each partner must have the deep pockets to carry on the operations.

The letter "A" stands for age. I have been in multiple partnerships when I was a younger man and my partners were always older. For example; a 21-year-old will have different goals than a 70-year-old investor.  It is critical in my opinion to have partners that are around the same age as you; so you do not find yourself later dealing with your partners heirs. Of course this may be a difficult situation even if the partner is of the same age. Caution is that your former partner may have different goals than their heirs.  

The letter "R" stands for responsibilities. Even with a carefully written partnership contract, responsibilities must be clearly stated. Who handles the money, construction, City involvement, banking needs, leasing and sales, design, tenants and property management. I recognize that the responsibilities may change over a period of time and that is when your partnership contract needs to be revised. You cannot be lazy about amending your partnership agreement because it may save you thousands of dollars in litigation expenses down the line.

The letter "E" stands for experience. A real estate partnership is a serious piece of business. You must make sure that each partner has the experience in ownership and development. For a successful partnership to sustain and make long term profits, your partner must have years of experience in dealing with the complexities of ownership.

In conclusion, all of four letters are critical basis for a partnership to be on solid grounds. An imbalance in any one of these letters may get you into trouble. The best recommendation is that to find a good lawyer with vast real estate partnership experience who can navigate you to a sound partnership foundation.

“Lee Segal is an excellent witness in the area of commercial real estate leasing and development. He did an excellent job for us testifying at trial, was very credible, and came across as authoritative in his areas of expertise. He is very polished in his appearance, demeanor and testimony.”  
Robert D. Mitchell, Mitchell & Associates, P.C.