Commercial lease covers it all – right?

Gavel to Gavel appears in The Journal Record. This column was originally published in The Journal Record on April 20, 2017.

Jennifer Ivester Berry is a member of the firm’s Transactional Practice Group as an Of Counsel attorney. Jennifer represents individuals, privately-held and public companies in connection with a wide range of commercial real property matters.

By Phillips Murrah Of Counsel Attorney Jennifer Ivester Berry

For those involved in leasing commercial real estate – whether new to leasing or a seasoned industry pro – signing a lease can be a daunting endeavor.

The devil is in the details, and, more often than not, many standard forms omit critical considerations. Accordingly, a close examination of the terms is essential for a quality commercial lease.

Below are five important points to consider when leasing commercial property. These items are not intended to be exhaustive, but rather a starting point for the purposes of evaluation.

• Experience – Knowing the background and temperament of the other party is important. Is leasing commercial property the landlord’s primary business? Will a management company operate the property? Is the tenant established or just starting out? A knowledgeable, cooperative working relationship is imperative for a successful commercial lease.

• Type of lease – Details of what costs are covered and how they are apportioned should be carefully reviewed. For example, leases often described as triple net, meaning that the tenant is responsible for all costs associated with the leased premises other than structural repairs, can actually be a blend of two types of leases, triple net and gross. A gross lease splits the structural repairs and operation expenses between the landlord and tenant.

• Identification of leased premises – Often the outline of the space and delineation of its parameters is an attachment that does not make it into the lease until the end of the negotiations. It is important to verify up front that what is provided meets both parties’ expectations.

• Costs – Payments under a commercial lease can be categorized in several different ways, including rent, common area maintenance, assessments and dues. Awareness that a lower rental rate might be counterbalanced by a monthly fee for maintenance of the property, which is set to automatically increase each year, is essential. The ultimate focus should be on the full monthly cost, regardless of what it is called under the lease.

• Insurance – Insurance coverage requirements will vary based on lease type. It is important to identify two things: what the lease requires and whether such coverage is available, and whether the cost associated therewith is factored into the overall lease costs.

Jennifer Ivester Berry is an attorney at Phillips Murrah who specializes in commercial real estate property and energy-related matters.

Doing business in multiple states

Gavel to Gavel appears in The Journal Record. This column was originally published in The Journal Record on March 9, 2017.

Kendra M. Norman represents individuals and businesses in a broad range of transactional matters.

By Phillips Murrah Attorney Kendra M. Norman

One of the first considerations in forming a business entity is where to organize or incorporate. However, there is another important and frequently overlooked inquiry, which is where else to qualify that entity to do business.

If a business entity functions outside of the state in which it was formed, it may need to qualify to do business in that foreign state. Each state has different requirements for what constitutes doing business for this purpose. For many states, certain activities within that state, without more, do not require qualification. These activities usually include maintaining bank accounts, carrying on activities concerning internal corporate affairs, acquiring indebtedness, owning real or personal property, or conducting isolated transactions completed in 30 days.

Thus, the threshold for requiring businesses to qualify is relatively high. While these acts may not constitute doing business for qualification purposes by themselves, the general standard for qualification is based on the cumulative effect of all of the activities performed in the state in question. Generally, to be required to qualify, the foreign entity must transact a substantial part of its ordinary business within the state. To constitute ordinary business, activities must be indispensable to the business rather than simply incidental.

Failure to qualify can result in many penalties. Entities can be barred from access to the courts in states where they are unqualified, including Oklahoma. This can mean they are unable to enforce contracts entered into in these states. Unqualified entities, and individuals acting on their behalf, can be fined by foreign states in which they do business, including Oklahoma, where there is a statutory provision imposing fines. These fines can include backward-looking fees and franchise taxes to the state for the period in which the entity has operated while unqualified in the state, as well as a fine per transaction while unqualified.

The best course of action when faced with these issues is to determine where a business entity will transact substantial business and examine the specific statutory and case law of that state to determine if qualification is required.

Practitioners should keep in mind that what constitutes doing business for qualification purposes may not be the same threshold for what constitutes doing business for taxation and service of process purposes in some states, including Oklahoma.

Kendra M. Norman is an attorney at Phillips Murrah, where she represents individuals and businesses in a broad range of transactional matters.

Medical bankruptcies likely to rise

Gavel to Gavel appears in The Journal Record. This column was originally published in The Journal Record on Jan. 26, 2017.

Clayton D. Ketter is a Director and a litigator whose practice involves a wide range of business litigation in both federal and state court, including extensive experience in financial restructurings and bankruptcy matters.

By Phillips Murrah Director Clayton D. Ketter

One of the central promises of Donald Trump’s candidacy was that, once elected, the Affordable Care Act (also known as Obamacare) would be repealed. Now, with President Trump in office, and aided by a Republican Congress, the ACA’s remaining days are likely numbered.

According to the U.S. Department of Health and Human Services, the ACA has resulted in an estimated 20 million people who previously lacked health insurance becoming insured. Along with the many other effects resulting from a large number of Americans becoming insured, one less discussed consequence was a drop in medical-related bankruptcy filings.

Research by Daniel A. Austen, an associate professor at the Northeastern University School of Law, found that medical costs were a predominant cause of between 18 to 25 percent of all bankruptcies. Since the ACA was passed, one study by the National Bureau of Economic Research found that medical debt had been significantly reduced for those covered by the act.

These findings are intuitive, as hospital visits are often unexpected and typically result in large bills. Without insurance, most individuals lack the financial flexibility to absorb those medical debts. Bankruptcy can be an effective tool in those situations, as it can either allow a person to repay the debt over time or, in some cases, wipe it out altogether.

Problems can arise, however, for those facing ongoing health issues. A bankruptcy filing will only eliminate past debt. It does nothing for liabilities incurred after the bankruptcy is filed. Further, there are certain time restrictions to how often a person can receive a bankruptcy discharge. Depending on the type of bankruptcy at issue, those time limitations can be up to eight years. Thus, if an uninsured person is faced with a health issue that forces them to seek bankruptcy, his or her financial options may be seriously constrained if health issues return before the time limitations have run.

Such scenarios are all too familiar to bankruptcy practitioners, especially given insurance companies’ distaste to insuring people who have histories of health issues. Although there has been a temporary decline in those types of cases, they are likely to make a comeback should Congress choose to repeal the ACA without enacting a replacement or stopgap.

Clayton D. Ketter is a litigator at Phillips Murrah with experience in financial restructurings and bankruptcy matters.

The tax audits are coming!

Gavel to Gavel appears in The Journal Record. This column was originally published in The Journal Record on Oct. 27, 2016.

Chase H. Schnebel is a member of the Tax and Private Wealth Practice Group and assists clients in a variety of tax, business, and asset management issues.

By Phillips Murrah Attorney Chase H. Schnebel

The state of Oklahoma has ramped up efforts to collect tax revenue from those that may not be paying their fair share. Senate Bill 1579, signed into law in May, directs the Oklahoma Tax Commission “to enhance agency efforts to discover and reduce fraud and abuse of sales and use tax exemptions provided pursuant to the Sales and Use Tax Codes and the nonfiling and underreporting of sales and use taxes due and owing.”

The fiscal impact statement for SB 1579 has an estimated cost of approximately $4 million, but estimates increased revenues in excess of $50 million, with $26 million from increased sales tax collections. The law also directs the OTC to increase its audit staff to detect “through the use of enhanced technology” those who may owe the state money. With an estimated addition of 50 auditors, there is no doubt that the number of audits will increase.

An audit will typically start with the OTC requesting access to substantial business records. During the process, a taxpayer can expect to receive ongoing requests for documentation and explanations. The audit process involves close scrutiny of accounting records, tax returns, transactional documents, banking records and other relevant business records. If the audit results in a determination that the taxpayer owes tax, the OTC will issue a proposed assessment that may also include penalty and interest assessments.

A tax audit can be an invasive process and, upon receipt of an audit notification, individuals and businesses often feel vulnerable. A strategic approach to organizing and producing business records can substantially reduce exposure to assessments and the amount of time and resources necessary to complete the audit. Experienced tax professionals have knowledge of OTC audit procedures, statutes and regulations, which can be helpful in closing the audit process. If the OTC issues a proposed assessment, there are administrative procedures available that allow taxpayers to protest the assessment, request a waiver of penalty and interest assessments, and request an installment agreement to ensure a one-time assessment does not result in closure of the business.

The prospect of a state tax audit can be frightening and the process can be disruptive. To achieve the most desired possible outcome, it is important to involve tax professionals at the very beginning of the audit.

Chase H. Schnebel is an attorney at Phillips Murrah PC who specializes in tax issues.

Judge orders plaintiff to produce Facebook file

Gavel to Gavel appears in The Journal Record. This column was originally published in The Journal Record on June 23, 2016.

Cody J. Cooper is an attorney whose practice is concentrated in commercial litigation, product liability, and intellectual property.

By Phillips Murrah Attorney Cody J. Cooper

The prevalence of social media continues to change litigation practices. As the availability of data about individuals related to social media continues to increase, so do the requests by opposing parties for this information. This necessarily requires analysis by the courts.

In an April order, the U.S. District Court for the Eastern District of Missouri wrestled with this very issue when it ordered a plaintiff to provide the defendant with her “Download Your Info” report from Facebook. See Rhone v. Schneider Nat’l Carriers, Inc., et al., No. 15-cv-01096 (E.D. Mo. 2015).

That lawsuit arose from a car accident and the plaintiff claimed severe, permanent and progressive physical and mental injuries that affected her lifestyle and ability to work.

During discovery, the defendant requested all of the plaintiff’s social media posts made since the date of the accident. The plaintiff simply responded “none.” The defendant then conducted an independent investigation and discovered substantial activity on the plaintiff’s Facebook profile, including posts about dancing and socializing. The defendant contended this was directly relevant to the plaintiff’s injuries.

The parties failed to reach an agreement on production of the information, so the defendant filed a motion to compel plaintiff to produce her Facebook data file. The court found that the plaintiff had failed to comply with her discovery obligations and ordered the plaintiff to download and produce to the defendant the Facebook data file, which includes all active posts, photos, videos and check-ins. The defendant claimed information had already been deleted and requested sanctions against the plaintiff, but the court decided to wait to determine whether the data file would show the alleged deleted information.

The case is still active, and it demonstrates the continued developing trend on treatment of social media. Particularly in case of personal injuries, but even in purely business disputes, postings by either party can become relevant and will likely be subject to discovery; efforts to delete or hide this information will typically result in severe penalties.

If you want to download your Facebook data file, go to settings, then the general tab, and click the link on the bottom – “Download a copy of your Facebook data” – and follow the instructions.

What effect does bankruptcy have on oil and gas leases?

Gavel to Gavel appears in The Journal Record. This column was originally published in The Journal Record on Mar. 31, 2016.

Melissa R. Gardner is a Director who represents both privately-owned and public companies in a wide variety of oil and gas matters, with a strong emphasis on oil and gas title examination.

By Phillips Murrah Director Melissa R. Gardner

It is an understatement to say these are trying times in the oil and gas industry.

There are multiple reports in the news that predict we have not hit bottom and that our state will be uniquely affected. While oil and gas companies, contractors and service companies have industry insiders to rely on, many individual mineral owners might find themselves without resources or direction, wondering what effect these proceedings will have on the benefits they’ve come to expect under oil and gas leases.

Here’s some helpful information for those who have executed these leases, who are faced with persistent negative news about the companies holding the leases.

It is important to note that, if a company is considering bankruptcy, it could take various forms. Chapter 7 and Chapter 11 are the two most common types of business bankruptcy.

In the first, business typically ceases and a trustee takes control of all assets, including the business’s oil and gas leases, with any eye toward liquidation. However, in Chapter 11 bankruptcy proceedings, the company generally remains in control of its assets and develops a plan of reorganization, often with the goal of remaining in business after its debts are restructured. While Chapter 11 may be ultimately more favorable to the mineral owners, one can take comfort that current payments and leases are not necessarily in jeopardy in either case.

In a bankruptcy proceeding, the bankruptcy trustee or Chapter 11 debtor in possession is only ultimately entitled to property of the bankruptcy debtor, which generally would not include royalties payable to mineral owners. Likewise, in Oklahoma, oil and gas leases typically survive the bankruptcy. This means royalty payments frequently continue, virtually uninterrupted, after a bankruptcy case has been filed and the leases may continue to be developed for the benefit of all notwithstanding the bankruptcy.

Obviously, this downturn has been difficult for many in our state. Hopefully, these facts will provide a mineral owner with some comfort that, even in these times, the payments they have come to rely on under existing oil and gas leases will not automatically be affected adversely by a leaseholder’s bankruptcy. It’s certainly worth investigating more before you assume these benefits will disappear.

Bankruptcy as a backdrop

Clay Ketter’s guest column, Gavel to Gavel, originally published in The Journal Record on February 18, 2016.
View Clay Ketter’s attorney profile here.

Clayton D. Ketter is a litigator whose practice involves a wide range of business litigation in both federal and state court, including extensive experience in financial restructurings and bankruptcy matters.

Clayton D. Ketter is a litigator whose practice involves a wide range of business litigation in both federal and state court, including extensive experience in financial restructurings and bankruptcy matters.

Chesapeake Energy’s stock price took a hit last week after news outlets reported that it retained Kirkland & Ellis, widely recognized as one of the nation’s top corporate bankruptcy law firms. Chesapeake was quick to issue a press release stating that it has no plans to pursue bankruptcy, which led to a small rebound in its stock price.

People may wonder why a company with no plans to file bankruptcy would hire an experienced bankruptcy law firm. The answer is likely prudence; the company wants to be fully informed about available options.

When companies detect potential financial trouble, it is not unusual for them to retain a law firm’s restructuring specialists to assist in assessing the situation and weighing alternatives for resolving the issue in the best possible way. That may not include filing for bankruptcy protection, but, rather, simply help in restructuring debt obligations.

When a company experiences financial stress, there is value in thoroughly preparing a well-thought-out plan to address the problem, which often involves developing a bankruptcy strategy as a point of reference and being prepared to file, if appropriate. With a bankruptcy scenario as a backdrop, a company and its restructuring advisers typically attempt to work with the company’s creditors to restructure their agreements in a manner more favorable to the creditor than they might receive in bankruptcy. Ideally, this would allow the company to get back on the right financial track and, ultimately, to make things right with its creditors without a bankruptcy filing.

Creditors of large corporations, usually sophisticated financial institutions, will be aware that restructuring specialists are prepared to put the company into bankruptcy for its protection should an alternative agreement not be reached. However, bankruptcy can be a disruptive, risky process that does not always yield the best outcome for either side. Risks on one side include company ownership being transferred to the creditors, and on the other, the creditors’ recoveries being less than what they might have recovered in the absence of a bankruptcy.

Thus, bankruptcy considerations often educate and motivate both sides to work together to find an out-of-court solution to their debt issues and, thereby, avoid bankruptcy altogether.

However, in situations where parties are unable to come to terms, the due diligence done by the company and its restructuring advisers can be used to take appropriate action to protect the company and its interests.

2015 tax extenders – a PATH forward

Gavel to Gavel appears in The Journal Record. This column was originally published in The Journal Record on Jan. 7, 2016.

Robert O. O’Bannon is a Director who represents business clients in a variety of transactional matters with an emphasis on taxation and wealth planning issues for both businesses and individuals.

By Phillips Murrah Director Robert O. O’Bannon

On Dec. 18, President Obama signed into law a package of tax extenders called “The Protecting Americans from Tax Hikes Act of 2015,” or PATH.

Tax extenders are nothing new. Historically, as tax provisions expire, extenders are put forward to temporarily keep them active. This helped extend the provisions, but it did nothing to develop the kind of certainty that many in the business community want when planning for the future. The real breakthrough for PATH is that some of the tax extenders are made permanent, including those that benefit individuals as well as businesses.

For example, for businesses, there are enhancements and permanent extensions to the Research and Development Tax Credit; the Code Sec. 179 expensing limitation of $500,000, and the $2 million phase-out limit, are retroactively and permanently extended, and both are indexed for inflation for tax years beginning this year; and Bonus Depreciation, which allows retailers and restaurants to initially depreciate half of remodeling and improvement fees. For individuals, the Child Tax Credit, American Opportunity Tax Credit and the Earned Income Tax Credit are all strengthened and made permanent.

Another breakthrough for the PATH Act is in the bipartisanship it achieved. Republicans achieved supply-side expansion that favors business and growth and Democrats enhanced and made permanent tax laws that more directly favor individuals. On both sides of the aisle, PATH turned out to be a nice Christmas present.

Moving forward into 2016, here are some other items to keep in mind about the PATH Act:

  • A deduction for state and local general sales tax in lieu of state income tax is retroactively extended and made permanent.
  • Individuals at least 70 1/2 years of age may now exclude from gross income qualified charitable distributions from IRAs of up to $100,000 per year.
  • The New Markets tax credit is extended through 2019 and the carryover period for unused new markets tax credits is extended for an additional five years, to 2024.
  • The tax credit for new, energy-efficient homes built by a contractor and acquired for a residence in the tax year is retroactively extended for two years to 2017.

ACA compliance deadline near

Gavel to Gavel appears in The Journal Record. This column was originally published in The Journal Record on Nov. 19, 2015.

Catherine L. Campbell is a versatile and experienced appellate attorney whose practice is focused on commercial litigation and labor and employment matters.

By Phillips Murrah Director Catherine Campbell

The time is upon us when certain business employers must comply with the Affordable Care Act, or ACA. Starting on Jan. 1, along with businesses with 100 or more employees, companies with 50 to 99 employees are required to offer affordable insurance to qualified employees and their dependents.

But that is not all. The ACA requires applicable large employers, or ALEs, to provide employees, by Jan. 31, a summary of the health care they offer (Internal Revenue Service form 1095-C), and, later, to provide that summary to the IRS (IRS form 1094-C). Together these forms tell the IRS information it will use to determine whether ALEs are affording ACA-mandated coverage, employees are eligible for health care exchange subsidies, and the coverage offered satisfies the ACA individual mandate.

Consider the following as the deadline approaches:

• Are you an applicable large employer?

Applicable large employer companies are employers with 50 or more full-time employees. Determining the number of full-time-equivalent employees can be tricky. For instance, if a company that employs less than 50 full-time employees is a subsidiary of a larger organization, the subsidiary could fall into the ALE category.

• Who are full-time employees?

The ACA defines a full-time employee as one who averages 30 or more hours per week, or at least 130 hours in a month including hours worked, and paid off-time (vacation, sick leave, and paid holiday hours).

• Payroll: If an employee is responsible for a portion of the cost of health care, companies must submit information sufficient to allow a determination that the provided health care is affordable to the employee. To avoid penalties, an employer must insure that premium payments by employees do not exceed a certain percentage of their wages.

The good news? After implementing procedures to capture and report the required information, future compliance should be less burdensome. The process will be similar to submitting W-2 forms.

As with other IRS requirements, there are many complex extenuating considerations. To ensure proper compliance, check with your adviser to make sure you are aware of all the details that apply to your specific circumstances.

Taxing behavior

Gavel to Gavel appears in The Journal Record. This column was originally published in The Journal Record on Oct. 8, 2015.

Dawn M. Rahme represents individuals and businesses in an array of transactional matters. The focus of her practice is assisting corporations, partnerships and individuals in general tax planning.

Dawn M. Rahme represents individuals and businesses in an array of transactional matters. The focus of her practice is assisting corporations, partnerships and individuals in general tax planning.

By Phillips Murrah Director Dawn Rahme

Generally, people think of taxes as money that governments charge citizens in order to facilitate infrastructure. However, in many cases, governments also use the tax system to modify behavior by using the power of the purse.

Behavior is undoubtedly affected by the tax code. For example, when Congress increases the expense deduction for businesses, it encourages businesses to spend money through equipment purchases or other qualifying expenditures. When they allow for charitable deductions, it encourages giving to qualified organizations.

Oklahoma also offers a variety of tax incentives, including the Quality Jobs Program and the Oklahoma Film Act, which offer credits and rebates to make Oklahoma more attractive to those deciding where to do business.

On the flip side, behavior can also be discouraged by the tax code. Some excise taxes are imposed on items deemed unhealthy, commonly referred to as sin taxes. For example, Oklahoma levies an additional tax on tobacco products, including cigarettes. The intent is to discourage tobacco use with the implication of having an overall effect on health care. Additionally, according to Bloomberg, Oklahoma sin tax revenue has risen about 200 percent in the past decade.

Some argue that sin taxes are regressive, or that they have a disproportionately higher burden on the poor because they spend a larger share of their income on consumption. However, in the case of luxury taxes, or taxes on products or services that are deemed to be unnecessary or nonessential, it can be difficult to make the argument regressive taxes affect only lower tax brackets.

There are some rather notorious examples of efforts to influence behavior, including a poorly conceived idea in Dallas to place a 5-cent fee on disposable plastic grocery store bags. The tax passed, only to be repealed six months later. And who can forget New York City’s failed effort to ban sugary drinks from being sold in containers larger than 16 ounces? Although their efforts failed, the city of Berkley, California, was able to pass a 1-cent-per-ounce tax on soft drinks.

The next time you are making a purchase, it may be an interesting exercise to ask yourself how much of an influence taxes have on your decision.