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The Brewers Association, the trade association representing small and independent American craft brewers, recently released 2016 data on U.S. craft brewing. Small and independent craft brewers represent 12.3 percent market share by volume of the overall beer industry, with more than 5,300 breweries operating during the year.

In 2016, craft brewers produced 24.6 million barrels. Retail dollar value was estimated at $23.5 billion, representing 21.9 percent market share. By adding 1.4 million barrels, craft brewer growth outpaced the 1.2 million barrels lost from the craft segment due to acquisitions by large brewing companies. Small and independent brewers continue to show steady growth. Microbreweries and brewpubs delivered 90 percent of the craft brewer growth.

Continue Reading Small and Independent Brewers Saw Growth in 2016

A Subordination Non-Disturbance and Attornment Agreement (an “SNDA”) is a document that is typically required by a lender for a landlord. Sometimes the lender will leave off the non-disturbance portion of the agreement, as the lender is only interested in the subordination and attornment. The subordination is the agreement of the tenant to subordinate its rights to the lender’s rights in the lender’s mortgage such that the tenant’s rights under the lease will be subject to any and all rights of the lender pursuant to the mortgage. The attornment is the agreement of the tenant to accept a purchaser at a foreclosure as the landlord. The purpose of the subordination and attornment agreement is to protect the lender in the event of a default under the mortgage and/or foreclosure of the mortgage so that the lender has the ability to collect rents (typically through a rent receiver), and if foreclosed, permit the lender or purchaser at the foreclosure to take possession of the property and step into the shoes of the landlord under the lease.

A wise tenant will negotiate into a lease that the tenant’s agreement to subordinate to the lender’s mortgage shall be conditioned on obtaining a non-disturbance agreement. The non-disturbance portion of the SNDA provides that so long as the tenant is not in default under the lease, the lender will not disturb the tenant’s use, possession and enjoyment of the leased premises, nor will the tenant’s rights be impaired. In addition, many subordination agreements will provide that a tenant’s right of first refusal option to purchase is not binding on the lender. A tenant should limit such restriction to only where the mortgage is not being paid off as part of the sale to the tenant. A well drafted SNDA can actually provide comfort to a tenant where it properly preserves the Tenant’s rights under the Lease by requiring the lender to honor the terms of the lease upon a foreclosure and allow the tenant to continue to occupy the space. It is important that a tenant be proactive about SNDA negotiations by properly preserving its rights in the lease.

If you are a tenant negotiating a lease, speak with an attorney about preserving your rights in SNDA negotiations with the Landlord’s lender to ensure your tenancy is not disturbed after a foreclosure.

On April 15, 2013, the Farmland Assessment Act of 1964, N.J.S.A. 54:4-23.1 (the “Act”) was amended imposing new requirements for farmland assessment beginning in tax year 2015 The Act provides for property tax exemptions up to 98% for a landowner that uses the property for farming and meets the eligibility requirements of the Act.   In order to be eligible for farmland assessment, the land in question must be “actively devoted to agricultural or horticultural use” and not less than five acres of the land must be devoted to 1) the production of crops; 2) livestock or their products; and/or 3) forest products under a woodlot management plan.  N.J.S.A. 54:4-23.2.  The Act also requires a minimum income imputed from the farming activities in order for the property to be eligible for farmland assessment.  Id. 

The Amendment increased the threshold income generated from farming activities for the first five acres of land farmland from an average of $500 per year during the two year period immediately preceding the tax year in question to $1000 per year for such period in order for land to be eligible for farmland assessment.  In addition, the Amendment requires the State Board of Agriculture and the Department of Agriculture to develop guidelines based on generally accepted Agricultural and Horticultural practices for use by tax assessors in determining whether a use is considered Agricultural or Horticultural under the Act. Once those guidelines are developed, they will be submitted to the Division of Taxation for review, approval and adoption of regulations consistent with the approved guidelines.  The Farmland Evaluation Committee established by the Amendment is required to review the minimum income threshold and may make any increases it deems appropriate at least every three years.  The Amendment also requires on-site inspections to be conducted at least every three years by the tax assessors and heightened continuing education standards for tax assessors, including a specific course related to farmland assessment.  The Amendment also requires a narrative and sketch to be provided with any application related to less than 7 acres of farmland. Lastly, the Amendment imposes a penalty of up to $5,000 for any gross and intentional misrepresentations made by a landowner on any application for farmland assessment. 

A Shareholder Agreement, sometimes referred to as a Buy-Sell Agreement, can be a helpful tool in the structuring and governance of a closely held corporation.  Unlike publicly traded and large corporations, closely held corporations have only a few shareholders, which in some cases are friends or members of the same family.  Although in an ideal world shareholders of a closely held business get along, especially when friends and family, it is important for the Shareholders to execute a Shareholder Agreement.  The Shareholder Agreement can protect the individual interests of the shareholders, which may not always be aligned, and prevent an unnecessary dissolution of the Corporation over a shareholder dispute.

A Shareholder Agreement typically provides for, among other things, restrictions on the transfer of stock in the corporation.  This is especially important in a closely-held business because the owners of the business want to make sure that any new owner buying into the business is approved by the existing owners.  The Shareholder Agreement can also provide for a right of first refusal, which will give the existing owners the option to purchase an owner’s stock in the event of a sale.  In addition, if the corporation becomes marketable to another entity or person, but the purchaser wants all or none of the stock of the corporation, what is known as a “drag-along” provision will require minority owners to sell their stock along with the majority owners.  Similarly, a “tag-along” provision will protect the minority owners from the sale of the majority of the stock, requiring the minority stock to be sold along with the majority as a package.  

In addition to restricting transfers of stock, the Shareholder Agreement can provide for certain shareholders to be designated as directors to manage the corporation and methods for resolution of shareholder disputes, such as arbitration or buyout provisions.  Without these provisions, a dispute between the owners of the corporation could require expensive litigation and even result in the dissolution of the corporation. 

Perhaps most importantly, the Shareholder Agreement can implement non-competition, non-solicitation and confidentiality provisions to prevent a disloyal owner from competing with the corporation, pilfering intellectual property and poaching customers, employees or suppliers.  These provisions, when carefully drafted, can protect the profitability of the corporation, even after the disloyal shareholder sells his interests in the corporation.

The above provisions are just a few examples of the issues that can be addressed in a Shareholder Agreement.  It is important for all closely-held corporations to have a Shareholder Agreement drafted to address the particular needs of the shareholders and the corporation. If your corporation needs a Shareholder Agreement, speak with an attorney to discuss drafting a Shareholder Agreement that can protect not only the interests of the shareholders, but also the future success of the corporation. 

Dolores Kelley is a Member of Stark & Stark’s Business & Corporate Group in the firm’s Lawrenceville, New Jersey Office. For questions, or additional information, please contact Ms. Kelley.

Before you agree to take the plunge to expand your solely owned limited liability company into a multi-member limited liability company, you should consider important issues that should be discussed with your new partner(s) prior to any transaction taking place.  Many solely owned limited liability companies do not have an operating agreement in place, and if they do, it probably is not sufficient to address the complexities involved in a multi-member LLC.  An operating agreement is a document that sets forth the requirements for administration and management of the LLC.  A solely owned LLC operating agreement is drafted much differently than a multi-member LLC operating agreement.  If you are considering adding a partner to your LLC, there are some things that should be considered and reflected in an operating agreement or an amendment to the existing operating agreement.  
 
Most importantly, the operating agreement should set forth the ownership interests of the members and the management duties.  For example, will all of the members be entitled to oversee the day-to-day management of the company, or will one member be designated as the “manager” and trusted with the daily management duties?  In addition, what will the new members be required to contribute to the company to become owners? This is especially important if you have spent years of blood, sweat, tears, and investment to establish your success.  Of course, contributions may be offset, to a degree, by the price the member is paying you to acquire a portion of your ownership.  
 
Another issue to consider is what type of major decisions will require a vote of the members, and what percentage will be needed for approval.  The operating agreement should dictate the percentage of votes required in order for the LLC to borrow money, lend money, sell a substantial portion of the business assets, file bankruptcy and dissolve.  In addition, how will distributions be determined and shared amongst the members?  If the members are investing in the business, they will want to know when and how they will receive a return on the investment, and of course, how much of the pie they can expect to receive.  You will also want to make sure you have secured your return on your investment in writing.  
 
Without a properly drafted multi-member operating agreement, the New Jersey Limited Liability Act governs the management and operations of the company.  If you agree to transfer some of your ownership without a multi-member operating agreement containing the necessary provisions, the other members could potentially take over management, bind the LLC to contracts and agreements with third parties, incur liabilities and debt, lend money, transfer their membership interests to another party and, under some circumstances, file bankruptcy.  It is important to properly protect your business that you’ve worked hard to develop, so before you start selling your ownership interests, speak with an attorney about drafting an operating agreement that will provide you with the security needed for continued future success.  
 
Dolores Kelley is a Member of Stark & Stark’s Business & Corporate Group in the firm’s Lawrenceville, New Jersey Office. For questions, or additional information, please contact Ms. Kelley.

When an organization is referred to as exempt from income tax by the Internal Revenue Service, it is typically assumed that the organization is a 501(c)(3) charitable organization.  Organizations that are exempt pursuant to Section 501(c)(3) are charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, and preventing cruelty to children or animals.  Some examples of charitable organizations are those organizations that provide relief to the poor, distressed or underprivileged; defend human and civil rights; and seek to combat community deterioration or juvenile delinquency.

While many organizations do fall under the requirements of Internal Revenue Code (“IRC”) section 501(c)(3), there are twenty-eight additional subsections of section 501(c) describing other types of organizations and entities that are tax exempt.  For example, Section 501(c)(4) exempts qualifying social welfare organizations, which are operated primarily to further the common good and general welfare of the community. Certain agricultural/horticultural organizations and labor organizations are exempt pursuant to section 501(c)(5).  Also, many business leagues and trade organizations are exempt under section 501(c)(6).

Entities organized pursuant to section 501(c)(3) have a limited ability to attempt to influence legislation through lobbying activities and may not contribute or participate, directly or indirectly, in any political campaigns.  However, the other 501(c) organizations mentioned above may engage in unlimited lobbying that it is germane to the organization’s exempt purpose and may contribute or participate in political campaigns, provided such contribution or participation is not the primary activity of the organization. 

In order to be exempt, all organizations established pursuant to section 501(c)(3) through 501(c)(6) must be organized as a non-profit.  Furthermore, no earnings of the exempt organization may inure to the benefit of any private shareholder or individual. Engaging in activities that do not fall within the scope of section 501(c) could result in a loss of the exemption or a tax on the unrelated business income from such activity.  A qualifying organization can obtain exempt status by filing an application with the IRS and supplying the relevant documentation and information required.

If you would like assistance with forming your 501(c) organization or applying to the IRS for exempt status, please contact me to set up an appointment in my firm’s Lawrenceville, New Jersey office. 

 

Dee Kelley is a Member of Stark & Stark’s Business & Corporate Group in the firm’s Lawrenceville, New Jersey Office. For questions, or additional information, please contact Ms. Kelley.

A renewal option contained in a lease agreement can be a vital provision for the success of a business owner. When negotiating a commercial lease, it is essential that a tenant take into consideration various factors when determining the term of the lease such as the nature of the business, the rent amount and the length of time the business has been operating.

 

Perhaps the most important factor to consider is the location of the leased premises, which will invariably dictate whether the lease is long term or short term. If the location is favorable for a particular type of business, a business owner may still be hesitant to enter into a long term lease. As an alternative, the tenant can negotiate a renewal option, which would give the tenant the option to renew the lease agreement for a specific term by providing notice to the landlord of the intent to exercise the option prior to the end of the initial lease term.

 

A renewal option may provide a tenant with leverage upon the renewal that is not otherwise available during the initial negotiation of a lease, particularly if the tenant has proven that it is a viable operation that will be a good long term tenant. Landlords are going to be more willing to make concessions for a good tenant.

 

The terms of the renewal may be laid out in advance in the initial lease, and the renewal may call for an increase in rental based on the Consumer Price Index, a percentage of the rent, or fair market value of the premises. If the parties use the fair market value, or a percentage thereof, then the method of determining the fair market value should be drafted into the initial lease. This will avoid an unnecessary dispute at the time of renewal. In addition, the timing, who hires the appraiser, and who pays for the appraiser should be specified in the initial lease. It is also advisable to include what factors may be considered in the appraisal. For example, a tenant should seek to exclude its installations and fixtures that are to be removed at the end of the lease term from being considered in the appraisal.

 

When carefully drafted, a renewal option can provide a tenant with flexibility, rather than putting the tenant in a position where the business is incurring the financial risk of a long term lease during uncertain economic times. Moreover, landlords are typically willing to include a renewal option in a lease, and the renewal may provide the tenant with a method to renegotiate more favorable lease terms.

A renewal option contained in a lease agreement can be a vital provision for the success of a business owner.   When negotiating a commercial lease, it is essential that a tenant take into consideration various factors when determining the term of the lease such as the nature of the business, the rent amount and the length of time the business has been operating.  Perhaps the most important factor to consider is the location of the leased premises, which will invariably dictate whether the lease is long term or short term.  If the location is favorable for a particular type of business, a business owner may still be hesitant to enter into a long term lease.  As an alternative, the tenant can negotiate a renewal option, which would give the tenant the option to renew the lease agreement for a specific term by providing notice to the landlord of the intent to exercise the option prior to the end of the initial lease term. 
   

A renewal option may provide a tenant with leverage upon the renewal that is not otherwise available during the initial negotiation of a lease, particularly if the tenant has proven that it is a viable operation that will be a good long term tenant.  Landlords are going to be more willing to make concessions for a good tenant.   The terms of the renewal may be laid out in advance in the initial lease, and the renewal may call for an increase in rental based on the Consumer Price Index, a percentage of the rent, or fair market value of the premises.   If the parties use the fair market value, or a percentage thereof, then the method of determining the fair market value should be drafted into the initial lease.  This will avoid an unnecessary dispute at the time of renewal.  In addition, the timing, who hires the appraiser, and who pays for the appraiser should be specified in the initial lease.   It is also advisable to include what factors may be considered in the appraisal.  For example, a tenant should seek to exclude its installations and fixtures that are to be removed at the end of the lease term from being considered in the appraisal.

 

When carefully drafted, a renewal option can provide a tenant with flexibility, rather than putting the tenant in a position where the business is incurring the financial risk of a long term lease during uncertain economic times.  Moreover, landlords are typically willing to include a renewal option in a lease, and the renewal may provide the tenant with a method to renegotiate more favorable lease terms.

If you are denied the issuance of a permit on the basis that the proposal violates the zoning ordinance, you may wish to seek an appeal of the zoning officer’s decision.  An appeal of any order, requirement, decision or refusal made by an administrative officer based on the zoning ordinance is brought by an appellant to the zoning board of adjustment. N.J.S. 40:55D-70a.  The review of the decision by the board is to determine whether there was an error under the provisions of the zoning ordinance and applicable statutes.  For example, a zoning officer may refuse to issue a zoning permit because the applicant’s proposal does not conform to a particular bulk standard required by the zoning ordinance.  The zoning board has the power to reverse the decision of the zoning officer and require the officer to issue a permit if the evidence presented to the board supports such result. Nevertheless, if the zoning officer is correct in the decision, then the board must affirm the zoning officer’s action.

 

When appealing the decision of an administrative officer, an applicant can make a simultaneous application seeking in the alternative variance relief if the board should affirm the officer’s determination.  If the board denies the appeal, then an appeal may be made to Superior Court.  The general rule is that all administrative remedies must be exhausted before seeking relief in Superior Court.  In the context of the decision of an administrative officer, an appellant must first seek relief from the zoning board, before filing an action in Superior Court.  21st Century v. D’Allessandro, 257 N.J.Super. 320 (App. Div. 1992). 
   

Appeals to the zoning board of adjustment from the decision of an administrative officer must be taken within 20 days by filing a notice of appeal with the officer from whom the appeal is taken specifying the grounds of such appeal.  N.J.S. 40:55D-72a.   Failure to adhere to the time for appeal will result in the zoning board not having jurisdiction to consider the appeal.  See Sitowski v. Zoning Bd. Of Adj., 238 N.J. Super. 255 (App. Div. 1990)(the Law Division set aside the board’s consideration of an untimely appeal framed as an interpretation and the Appellate Division affirmed).  All proceedings in furtherance of the matter being appealed are stayed when an appeal of an administrative officer is taken to the zoning board.  N.J.S. 40:55D-75.  However, the officer whose decision is appealed may certify to the board after the notice of appeal is filed with him that a stay would in his opinion cause imminent peril to life and property by reason of the facts stated in the certification, and in such case the proceedings are not stayed.  For example, an appeal by a neighboring property owner of the issuance of a zoning permit would stay the right to build until the zoning board rules on the zoning officer’s decision. 

On Monday, January 18, 2010, as one of his last acts before leaving office, former Governor Corzine signed an Amendment to the Permit Extension Act (A4347) (the “PEA Amendment”) further extending the validity of most land use and construction approvals and permits (hereinafter “Approvals”), which would otherwise expire, until at least December 31, 2012.  Due to the recession, the Permit Extension Act of 2008, N.J.S  40:55D-136.1, et seq., (the “PEA”) was initially adopted in 2008  to provide for a tolling of expiration for specified Approvals through at least July 1, 2010 (together with additional extensions thereafter that might apply).  In order for the validity of an Approval to be extended under the PEA, it must have been valid or issued on or after January 1, 2007.

 

The time period for validity of Approvals is now further extended by the PEA Amendment until at least December 31, 2012 before the time begins to run on the validity of an Approval.   Subsequent to December 31, 2012, permits and approvals have a phased expiration whereby any unexpired portion of the term of the Approval further extends the Approval, limited to up to six (6) months from December 31, 2012, i.e., no later than June 30, 2013. In addition to the foregoing, a developer may exercise any unexercised extension applicable to such Approval. For example, if a developer were issued a permit on November 30, 2010 that was valid for two (2) years with the right to an additional one (1) year extension, the PEA Amendment would stop the clock on the expiration of this permit that would otherwise expire on November 30, 2012 and extend the expiration of the permit from November 30, 2012 to June 30, 2013. Should the developer be timely granted the one (1) year extension applicable under this scenario, the June 30, 2013 expiration would thereby be extended until June 30, 2014.

 

The Amendment is applicable to most municipal, county, regional and state development permits and approvals, but sets forth specific exceptions and limitations.  Property owners and developers with permits and approvals that are effective on or after January 1, 2007 should seek legal advice to determine the effect the PEA and the PEA Amendment may have on their development rights.