Tennessee Mortgage Tax (Tenn. Code Ann. § 67-4-409)

bgIndexContentThe Tennessee Recordation Tax (also referred to as the “Indebtedness Tax” or “Mortgage Tax”) is codified at Tennessee Code Annotated § 67-4-409.  This statute requires that “prior to public recordation of any instrument evidencing indebtedness” there shall be a state tax of 11.5¢ per $100 (the “Recordation Tax Formula”) of “the indebtedness so evidenced.”  Common instruments of indebtedness subject to this tax include, but are not limited, to mortgages, deeds of trust, and conditional sales contracts.

Documents that are exempt from this tax include, but are not limited to, the recordation of “judgment liens, contractors’ liens, subcontractors’ liens, furnishers’ liens, laborers’ liens, and mortgages or deeds of trust issued under the Home Equity Conversion Mortgage Act.” § 67-4-409(b)(1).

In Tennessee, for each instrument, the first two thousand ($2,000) dollars of total indebtedness is exempt from the Recordation Tax.  However, this exemption can only be taken once in relation to a particular financing statement.  Once $2,000 of the maximum principal indebtedness is excluded, the remainder is multiplied as shown in the Recordation Tax Formula above.  If the total amount of indebtedness on an instrument is less than $2,000, then no recording taxes are due.

Every instrument of indebtedness or amendment thereof must explicitly state the amount of the maximum principal indebtedness.  The following language is required on the face of each instrument or in an attached sworn affidavit:

Maximum Principal Indebtedness for Tennessee Recording Tax Purposes is $____________”

This number is the basis for determining the total recording tax imposed.  If the amount of indebtedness later increases, the holder must pay the tax on the increase within 60 days.

We routinely represent lenders of portfolio transactions where property securing the payment of indebtedness is split between Tennessee and another state or states.  In this instances, like many other states, the Recordation Tax is apportioned and paid based on the ratio of the value of Tennessee collateral over the value of the total collateral.  Collateral includes “any real property or personal property securing the indebtedness evidenced by the instrument to be filed or recorded.”  § 67-4-409(b)(7)(B)(i).

Nonpayment or underpayment of tax on an indebtedness, or failure timely to pay tax on an increase in indebtedness, shall not affect or impair the effectiveness, validity, priority, or enforceability of the security interest or lien created or evidenced by the instrument, it being declared the legislative intent that the effectiveness, validity, priority, and enforceability of security interest and liens are governed solely by law applicable to security interests and liens, and not by this title; however, nonpayment will result in the imposition of a tax lien, in the amount of any tax and penalties unpaid and owing in favor of the Tennessee department of revenue, and subject the holder to potential penalties.

There is authority in Tennessee indicating that the assumption of an indebtedness instrument is subject to taxation under § 67-4-409(b) if such instrument creates new indebtedness, even if no new money is advanced.  New indebtedness is created when a purchaser agrees to a new contract with the mortgagee and changes the terms of the mortgage, resulting in discharge of the seller’s obligation. However, there is not new indebtedness if a purchaser simply promises to pay the debt of the seller and the seller is still held liable.

This tax is paid to county registers, the secretary of state, and any other official that can receive instruments (other than motor vehicles) for recordation.

If you need assistance with calculation of your Recordation Tax or any other component of your commercial real estate transaction, please contact the commercial real estate finance attorneys at Thompson Burton PLLC.

Walt Burton appears at Community Hearing for Howe Garden Apartments

wztv-fox17-header-logoThompson Burton partner, Walt Burton, recently appeared at a community hearing on behalf of the owners of Howe Garden Apartments in East Nashville.  The news story from Nashville Fox 17 can be viewed here.

Walt Burton Interviewed by Dr. Jeff Cornwall and The Entrepreneurial Mind

DJC-header-phase-3Check out Thompson Burton partner, Walt Burton, talking about entrepreneurship withThe Entrepreneurial Mind – Dr. Jeff Cornwall. They cover a number of important topics like the psychology of risk and the importance of culture.  They also talk a little bit about the founding of Thompson Burton PLLC.

Walt Burton Speaks to Leadership Franklin Group about One Franklin Park

On December 9, 2015, Walt Burton spoke to members of Leadership Franklin about the Cool Springs real estate market and Thompson Burton’s decision to locate its offices at One Franklin Park.

Walt Burton Speaks at One Franklin Park from Thompson Burton on Vimeo.

Electronic Signatures in Commercial Real Estate–Sign of the Times

SCTI’ve posted in the past here and here regarding acceptance of electronic signatures in commercial real estate transactions, so I was very pleased to be contacted by Beth Matson-Teig regarding her new article for the Shopping Center Times titled “Sign of the Times–Electronic Signatures are Just as Legal as a Pen and Paper, and they Make Deals Happen a Lot Faster Too,” Pages 52-55, November 2014.  In the article, Beth highlights a switch that Weingarten Realty Investors has recently made to promoting e-signatures as well as other changes across the real estate industry.  “Weingarten expects to realize considerable efficiencies and savings by eliminating the printing and sending of originals documents by mail or special delivery.  Those savings add up.  Weingarten completes some 1,200 renewals per year, and the firm estimates that that the electronic distribution of documents saves roughly 1.5 and 4 hours per renewal among leasing agents, lawyers, and assistants.”  My role in the article was to discuss with Beth the legal underpinnings of use of e-signatures.

Tennessee Statute of Frauds

TN Statute of FraudsMost sophisticated business people are aware that all contracts do not have to be in writing. It is possible to have a verbal contract without any written terms at all. However, certain types of contracts are required to be in writing in order to be enforceable.  There are numerous reasons for this requirement, but the primary reason is to make sure that there is reliable evidence of the terms and conditions of contracts that are traditionally important or complex.  Tennessee, like most states, has a statute of frauds that stipulates which contracts must meet this writing requirement to be enforceable in Tennessee courts.  Tennessee’s statute of frauds is actually codified in two separate statutes, Tennessee Code Annotated Sections 29-2-101 and 47-2-201,which require that the following types of contracts be in writing and “signed by the party to be charged therewith:”

  1. Contracts of executors and administrators of estates;
  2. Contracts promising to answer for the debt of another person (i.e., guaranty or surety);
  3. Contracts in consideration of marriage;
  4. Contracts transferring an interest in real estate or a lease for a term longer than one year;
  5. Contracts that cannot be performed within one year by their terms;
  6. Contracts for the sale of goods for $500 or more; and
  7. Contracts to lend money or extend credit.

In the commercial real estate context, numbers 2, 4, and 7 above are particularly significant. Most commercial real estate professionals are aware of the signed writing requirement for the transfer of an interest in real estate and for a lease with a term longer than one year. Regarding number 7, the statute of frauds provides that “[n]o action shall be brought against a lender or creditor upon any promise or commitment to lend money or to extend credit, or upon any promise or commitment to alter, amend, renew, extend or otherwise modify or supplement any written promise, agreement or commitment to lend money or extend credit” without a writing signed by the lender or creditor. However, the writing does not have to be signed by the lender or creditor if it is in the form of a promissory note “or other writing that describes the credit or loan” and that is intended to be signed by the debtor but not the lender, has been signed by the debtor, and which the lender has accepted. It is worth noting that this requirement applies to loan modifications as well as loan originations.

When negotiating and documenting commercial real estate transactions in Tennessee, it is vital to be aware of the documentation requirements mandated by the statute of frauds. In some circumstances, a contract will not be enforceable unless it is appropriately documented.  As I’ve written before, all parties should keep in mind that the Tennessee Supreme Court has ruled that certain types of electronic communication may satisfy the statute of frauds.

Thompson Burton is experienced in documenting all types of commercial real estate transactions in Tennessee and is available to assist with all of your commercial real estate needs.

Commercial Real Estate: What increased e-commerce means for brick-and-mortar stores

Retail Real EstateNo topic has been the subject of greater debate in commercial real estate in recent years than how increasing e-commerce is adversely impacting brick-and-mortar retail. The trends are undeniable. A long-term change in consumer behavior has dramatically reduced store traffic, as consumers are electing to shop and browse merchandise from home or their mobile devices rather than entering the retail store. As evidence, the average number of stores visited per shopping trip to the mall has dropped from 5 stores in 2007 to 3 stores today, according to Shoppertrak.

The result of decreasing traffic at shopping malls and other retail outlets has been a dramatic increase in store closings by some of America’s most storied retail brands, including Sears and J.C. Penney. Sbarro is the most recent casualty, filing for bankruptcy protection and announcing that it will close 155 of its remaining 400 locations nationwide.
There are also rumors that American Eagle and Aeropostle are contemplating store closings. I expect this trend to continue and potentially accelerate, as some smaller tenants who rely on foot traffic generated by anchor tenants start to see the effect of the closings. One issue that has been under-reported is the very common practice by national tenants, like Gap, to demand co-tenancy requirements in retail leases. These lease provisions may provide for reduced rent or even lease termination rights if anchor stores “go dark.”
It’s not all doom and gloom. Some retailers are actually thriving in the new reality. Those retailers are evolving by focusing on enhancing the in-store experience and embracing the demands of today’s consumer.

Successful retailers are investing in their brands and focusing on offering value that can’t be replicated outside the store. They’re displaying art and improving music playlists and lighting at stores. They’re offering product demonstrations and other in-store training options that consumers cannot experience at home.

Another trend is the integration of technology at the store to assist consumers in identifying and locating store merchandise (which they may have already researched and identified at home). Some stores have even added mobile apps to engage shoppers in-store, offer contextual deals and promotions and help consumers find products. The key is personalizing the experience.

The result of recent trends will be less overall retail space and smaller malls. The stores that remain will be higher end stores focused on adding value that can’t be replicated online.

This post was first published by the Nashville Business Journal on April 1, 2014.  To read more commercial real estate articles by Walt Burton at the Nashville Business Journal, click here>

6 Critical Diligence Items when Purchasing Multi-Family Commercial Real Estate

Multi-Family

recently represented a client in connection with the purchase of 925 apartment units located in East Tennessee. As part of the transaction, I updated my multi-family commercial real estate closing checklist. In reviewing my checklist, it reminded me of the below 6 items that buyers sometimes forget when purchasing multi-family commercial real estate properties.

1. Purchasers should always review police reports for the last 2 years related to the property (particularly if the property is in a low-income area). A purchaser may not necessarily want to purchase an asset that was the scene of a homicide or known for drug activity;

2. It’s important to identify any units that are not currently available for rental due to needed repairs and discount the purchase price appropriately. A well-drafted contract will include a formula to adjust the purchase price based on any “non-rentable” units as discovered during the due diligence period.

3. Obtaining a current rent roll at closing is always important when purchasing an operating asset. When purchasing a portfolio of multi-family units, typically the individual leases are not reviewed (unlike other transactions like Shopping Centers or Office Buildings) because of the volume and uniformity of leases. Accordingly, it is critically important to include all relevant information in the rent roll to be certified by the seller at Closing, as that document represents the best summary of exactly what leasehold rights are being purchased.

4. A broker opinion regarding market rents can give the prospective purchaser an idea of whether value can be created by raising rents. This is particularly important if the purchaser is from out of state.

5. Review the service contracts to ensure the Seller hasn’t contracted to become a “preferred provider” of telecom services in exchange for a one-time lump sum fee. Usually, these contracts include on-going obligations that would affect the purchaser. If such a contract has been previously executed, Purchaser should negotiate to pro-rate the fee previously received by Seller based on however long the remainder of the term is under the contract may be.

6. Section 8 evaluation. Is the property currently enrolled? Can additional value be created by including Section 8 tenants? What percentage of tenants are section 8? Is the property required to provide low income housing per a previous development agreement with the local municipality or county.

If you’re purchasing or selling multi-family properties and need assistance reviewing your options, please contact the Thompson Burton PLLC real estate team.

The shopping truck trend: Commercial Real Estate on Wheels

screen-shot-2013-10-23-at-124907-pm-304Undoubtedly, you have noticed the ubiquitous food trucks that have seemingly taken over parts of Nashville. There is even a food truck park, Wanderland Urban Food Park, where the food trucks can gather around the city.

This trend is certainly not unique to Nashville. Food trucks and food truck parks have been popping up at a surprising rate around the country. Food trucks provide a variety of food options for business or entertainment districts that otherwise would only be served by the restaurants located in brick-and-mortar buildings in that area.

What you may not have noticed around Nashville just yet are the fashion trucks that have started making their debuts around town. Fashion trucks, like food trucks, are simply trucks that bring their merchandise to their customers at their customers’ chosen location or at a designated location that is convenient for customers. The backs of these trucks have been renovated so that they are comparable to boutiques located in traditional shopping center centers. However, the fashion trucks are substantially less expensive than traditional real estate and have the ability to change location at any time to accommodate customers.

A truck called The Trunk claims to be Nashville’s first fashion truck. Other fashion trucks currently operating in Nashville include the K. McCarthy Fashion Truck, which just began operating last month, and the Little White Fashion Truck, which also has operations in Baltimore/Annapolis, Washington, D.C., Delaware, Eastern Pennsylvania, and Virginia. So far, the fashion trucks seem primarily focused on women’s fashions (special thank you to my wife for making me aware of this trend), but it seems likely that other retail areas may follow suit if the fashion trucks have success similar to the food trucks’ success. (For more on fashion trucks, check out this Business Journal article from October 2012.)

There has been much debate in commercial real estate circles over the past few years about the effects of Internet commerce on traditional brick-and-mortar retail locations, but relatively little about trucks at this point. How much impact will retail trucks have, and what does the entrance of retail trucks on the shopping scene say about the continued evolution of the retail experience?

My bet is the impact will not be great, but will simply provide another alternative for shopping. Indeed, it seems likely that the truck trend may work as an effective complement to traditional, brick-and-mortar retail locations and that we may see boutiques with traditional retail locations adding a mobile boutique to their sales arsenal. Without a doubt, having the ability to go to one’s customers or to change location would make shopping more convenient and potentially broaden the scope of one’s marketing and customer base. It will be interesting to see how the public and the city reacts to this trend if it continues.

This post was first published by the Nashville Business Journal on October 23, 2013.  To read more commercial real estate articles by Walt Burton at the Nashville Business Journal, click here>

Updated November 3, 2013:

After the above post was published in the Nashville Business Journal, Abby Franklin, the owner of The Trunk, reached out to me with the following e-mail:

Hi Walt,

Thanks for writing the great article about the shopping truck trend.

If you decide to follow up I would love to give you more information for your article.

Fashion trucks often give the owners the opportunity to build a brand and the capital they need to start a brick and mortar. I have done this as well as many other trucks around the country.

Two brick and mortars in Nashville, Blush and Two Old Hippies, have opened trucks this year.

When I started my truck two years ago there was one other mobile retail business in the area, The Honeybean wagon. Now there are at least eight trucks and campers added to the list. I am the first fashion truck, not the first mobile boutique in Nashville.

One last note. My truck sells mens clothes as does Moto Moda.

Thanks for helping spread the mobile retail word.

Abby

Abigail L. Franklin

www.TheTrunkNashville.com

From a commercial real estate standpoint, Abby’s note confirms my suspicions that fashion trucks are a compliment to brick and mortar retail more than a replacement.  Retail will continue to evolve as creative entrepreneurs like Abby continue to dream of new ways to connect with consumers.

Adaptive reuse: Repurposing Nashville commercial real estate

Bridge BuildingAlthough the concept of adaptive reuse has been around for centuries, its popularity has increased over the past few years. Adaptive reuse refers to the reuse of an older site or building for a different purpose than the one for which it was built or designed.

Historically, buildings that were durable and structurally sound often changed purposes many times before being torn down in favor of new construction. In the past, new construction was primarily driven by economic reasons or reasons of efficiency. More recently, an increased interest in adaptive reuse has emerged as the movement to preserve historical buildings, neighborhoods and structures has become more prevalent.

As new development and reuse occurs, the owners of the city’s older, and sometimes historic, buildings are faced with tough decisions regarding new investment. Older buildings often do not provide the return on capital and predictability that newer, more efficient buildings may provide. Additionally, the area around an older building may have changed from what was envisioned decades ago. However, the historical, aesthetic value of an older or historic structure often cannot be quantified.

When faced with this dilemma, an owner of such a building must consider the structure of the building and the building’s ability to adapt to modern needs, such as the ability to wire the building for modern technology. Often, regulatory or zoning requirements may dictate the owner’s ability to change or tear down an existing or historical structure. Further, market analysis is crucial. If one’s potential tenants, buyers, or customers would value a restored historical building over a modern building, then, a decision about how to proceed becomes much more clear.

Economics drive these decisions. Every building cannot always be restored. Some older buildings may be deemed functionally obsolete, like the state-owned Cordell Hull office building in downtown Nashville.

Because of the appeal of historical or older structures, adaptive reuse is thriving in Nashville. Perhaps one of the most visible and best examples of adaptive reuse downtown is the Union Station Hotel. The former 19th century railroad station has been beautifully restored and now serves as one of Nashville’s most popular and recognizable hotels.Vanderbilt University has numerous examples on its campus, including many of its residence halls, the Library Archives, Buttrick Hall. The redevelopment of One Hundred Oaks from a dying shopping mall into a hybrid retail/medical mixed-use facility is a fabulous example of how adaptive reuse can potentially reshape an entire area of town. Another terrific example of adaptive reuse is The Bridge Building, located next to the Shelby Street Pedestrian Bridge. Originally constructed in 1908, this property was once the headquarters of the Nashville Bridge Company. After completing its recent modernization, the facility now serves as a private event venue that affords patrons a fabulous view of the river and the downtown skyline.

As Nashville continues to grow, it will be interesting to see how adaptive reuse plays a role in the changing face of Nashville’s commercial real estate.

This post was first published by the Nashville Business Journal on September 4, 2013.  To read more commercial real estate articles by Walt Burton at the Nashville Business Journal, click here>