Rhode Island Legal Blog

Monday, December 15, 2014

Are You Bound by the Terms of a Real Property Letter of Intent?

Complex commercial real estate transactions typically involve a back-and-forth negotiation of numerous terms of the agreement, a process which does not occur overnight. Accordingly, parties to a real estate purchase or lease transaction generally first execute a letter of intent (LOI), which documents the parties’ intent to proceed with the negotiation of a full contract. The LOI includes the essential terms of the agreement, such as closing date and purchase price, or lease term and rate. However, detailed terms and conditions are reserved for the final, formal lease agreement or purchase contract.

The LOI, with its brief description of only the most basic, essential terms, is not intended to be a binding contract.  However, if it is not properly drafted, the parties could find themselves locked into a binding LOI. For example, the existence of elements required in an enforceable contract, such as property description, price, closing date and payment terms, without expressly declaring parties’ intent that it be non-binding, could constitute it as a valid contract.

While parties who enter into an LOI generally intend to consummate the transaction, if the LOI is deemed enforceable as a stand-alone contract, both parties may be subject to undesirable consequences. For example, the LOI lacks essential contract terms such as indemnity clauses, warranties, financing arrangements, or any other detailed terms necessary to protect one or both parties. To ensure the LOI serves its intended purpose, it must contain a specific provision that states the LOI is intended to be non-binding until such time a final agreement is executed by the parties.

What if you want parts of the LOI to be binding, regardless of whether the deal is finalized? Perhaps buyers and tenants want an enforceable provision stating that the seller or landlord will not offer to sell or lease the property to others while the parties are in negotiations. A hybrid LOI can be drafted to ensure the negotiations and final terms are kept confidential until a final agreement is executed. Just as with the provisions stating the LOI is intended to be non-binding, the provisions that are intended to be binding must be carefully drafted to ensure they are enforceable and do not pose unintended consequences for other provisions within the document. A hybrid letter of intent can be a very effective tool in facilitating the purchase or lease of commercial real estate, but care must be taken to ensure it is drafted so that it serves its intended purpose.  

Monday, December 8, 2014

Do I need a bond for my business?

In many states, certain types of contractors or businesses are required to be bonded. In instances where the law doesn’t mandate bonds, a customer might require that your company be bonded before hiring you. If you are starting a business, it’s important that you understand the concept of bonding so you can determine whether your work need be bonded for legal compliance, or whether it just makes sense for your business model and customer base.

What is a bond?
A bond (often referred to a surety bond) is a guaranteed agreement that specific tasks outlined in a contract will be fulfilled as promised. Generally, surety bonds involved three different parties: the principal, the obligee and the surety. In this arrangement, the principal would be you as an individual contractor or your business as a whole; in this role you have the responsibility to perform the contractual obligation. The obligee, on the other hand, is the party who is the recipient of your service; this may be an individual whose house you are rewiring or a local municipality, if you are working on a big project. Finally, the surety is the insurance company that backs the bond, providing protection if the principal fails.

What are my options?
There are a number of different types of bonds. Business owners and professionals might consider License, Performance, Bid, Ancillary and Payment bonds.

A License Bond – In many states, government agencies will require commercial bonding of individuals in certain industries. In these cases, the purchase of bonds is necessary before an individual can be legally licensed. This is often the case with contractors, auto-dealerships and even auctioneers.

A Performance Bond – This insurance guarantees the satisfactory completion by a contractor. Many customers, big companies or even individuals, will require this.

A Bid Bond – If your company bids on projects, you may consider (or be required) to purchase a bid bond which essentially guarantees that if you are selected as the contractor, you will complete the project in accordance with the terms at which you bid.

A Payment Bond – This insurance guarantees that you will pay all subcontractors and material providers used during a contract project.

An Ancillary Bond – This bond ensures that requirements integral to the contract, but not necessarily performance related, are satisfied. This may include investigating and complying with special local laws during the completion of the project.

Do I need it?
While it may not always be legally required, obtaining surety bonds for your business may just be good practice. In determining whether it’s the right option for you, it’s important to consult a knowledgeable business law attorney who understands local requirements and will be able to help you effectively plan for the future.

Thursday, October 24, 2013

A Stitch in Time... Strategies to Prevent Business Litigation

A Stitch in Time … Strategies to Prevent Business Litigation

A lawsuit can damage more than just the bottom line of your business.  In addition to costing money that could be put to better use, a lawsuit is also an unwelcome distraction for the owner, managers and employees.  It can also do irreparable damage to business relationships and reputation.

It may not be possible to avoid any and all legal conflict during the life of your business, but by considering the following advice, you should be able to minimize the resources you have to devote to litigation – which means more time and money available for your business operations and investments.

  1. Don’t rely on a handshake.  Reduce all business agreements to writing, even if they are with your oldest and dearest friend.  Be clear about terms and expectations.
  2. Keep a written record of all communications.
  3. Keep the lines of communication open, especially when a business relationship starts to sour.  Aggressive communication may be able to cure the damage before a lawsuit becomes necessary.
  4. Don’t put your head in the sand.  If a threat appears that could lead to litigation, respond quickly, thoughtfully and thoroughly.
  5. Check your compliance with relevant government regulations.  Import/export? Check the laws.  Using hazardous materials? Check the regulations. Don’t allow shortcuts.
  6. Create a business culture that rewards employees for reporting violations of any laws or government regulations.  Your employees on the ground can be your best resource for uncovering potential hazards that could lead to litigation.
  7. Put cure provisions and mediation provisions into your contracts with vendors.
  8. Complete a business succession plan to minimize or eliminate disputes over exit strategies.
  9. Conduct regular safety checks of the physical premises, including vehicles used for company business.
  10. Conduct criminal background checks on prospective employees that comply with the law.
  11. Provide regular health and safety training for employees.
  12. Provide ongoing training for human resources personnel.
  13. Review whether your employees are properly classified as hourly or salaried workers to comply with the Fair Labor Standards Act.
  14. Review whether any independent contractors should be reclassified as employees to comply with the Fair Labor Standards Act.
  15. Respond promptly and thoroughly to complaints from employees, customers or vendors.
  16. Use email, the internet, your company website and social networking media with caution.  Assume that any information shared via these platforms will be publicly accessible until the end of time.
  17. Seek outside advice when necessary.  Don’t let your ego be your downfall.  If you don’t understand your legal obligations and rights in a particular circumstance, consult a qualified commercial law attorney.


Thursday, August 1, 2013

Limited Liability Company (LLC): An Overview

Limited Liability Company (LLC): An Overview

The limited liability company (LLC) is a hybrid type of business structure, offering business owners the best of both worlds: the simplicity of a sole proprietorship or partnership, with the liability protection of a corporation. A limited liability company consists of one or more owners (called “members”) who actively manage the company’s business affairs. LLCs are relatively simple to establish and operate, with minimal annual filing requirements in most jurisdictions.

The best form of business structure depends on many factors, and must be determined according to your particular business and overall goals:


  • LLC members enjoy a limited liability, similar to that of a shareholder in a corporation. In general, your risk is limited to the amount of your investment in the limited liability company. Since none of the members will have personal liability and may not necessarily be required to personally perform any tasks of management, it is easier to attract investors to the limited liability company form of business than to a general partnership.

  • LLC members share in the profits and in the tax deductions of the limited liability company while limiting the potential financial risks.

  • LLCs offer a relatively flexible management structure. The business may be managed either by members or by managers. Thus, depending on needs or desires, the limited liability company can be a hands-on, owner-managed company, or a relatively hands-off operation for its members where hired managers actually operate the company.

  • Because the IRS treats the limited liability company as a pass-through entity, the profits and losses of the company pass directly to each member and are taxed only at the individual level (which may or may not be an advantage to you, depending on the profitability of the LLC and your personal income tax bracket).

  • Members of an LLC have flexibility in dividing the profits and losses. In a corporation or partnership, profits must be divided according to percentage of ownership. However, with an LLC, special allocations are permitted, so long as they have a “substantial economic effect” (e.g. they must be based upon legitimate economic circumstances, and may not be used to simply reduce one member’s tax liability).


  • Limited liability companies are, generally, a more complex form of business operation than either the sole proprietorship or the general partnership. They are subject to more paperwork requirements than a simple partnership but less than a corporation. Annual filings typically include statement and nominal filing fee payable to the Secretary of State, informational returns to the IRS, and filing of a state tax return.

  • In certain jurisdictions, single member LLCs may not be afforded the same level of limited liability protection as that of an incorporated entity.

Also note that in many states, an LLC is prohibited from rendering “professional services” which can include companies providing services that require a license, registration or certification.   Such professionals typically have to establish a Professional LLC which does not offer limited liability for professional malpractice.

Wednesday, July 24, 2013

Coordinating Property Ownership and Your Estate Plan

Coordinating Property Ownership and Your Estate Plan

When planning your estate, you must consider how you hold title to your real and personal property. The title and your designated beneficiaries will control how your real estate, bank accounts, retirement accounts, vehicles and investments are distributed upon your death, regardless of whether there is a will or trust in place and potentially with a result that you never intended.

One of the most important steps in establishing your estate plan is transferring title to your assets. If you have created a living trust, it is absolutely useless if you fail to transfer the title on your accounts, real estate or other property into the trust. Unless the assets are formally transferred into your living trust, they will not be subject to the terms of the trust and will be subject to probate.

Even if you don’t have a living trust, how you hold title to your property can still help your heirs avoid probate altogether. This ensures that your assets can be quickly transferred to the beneficiaries, and saves them the time and expense of a probate proceeding. Listed below are three of the most common ways to hold title to property; each has its advantages and drawbacks, depending on your personal situation.

Tenants in Common: When two or more individuals each own an undivided share of the property, it is known as a tenancy in common. Each co-tenant can transfer or sell his or her interest in the property without the consent of the co-tenants. In a tenancy in common, a deceased owner’s interest in the property continues after death and is distributed to the decedent’s heirs. Property titled in this manner is subject to probate, unless it is held in a living trust, but it enables you to leave your interest in the property to your own heirs rather than the property’s co-owners.

Joint Tenants:  In joint tenancy, two or more owners share a whole, undivided interest with right of survivorship. Upon the death of a joint tenant, the surviving joint tenants immediately become the owners of the entire property. The decedent’s interest in the property does not pass to his or her beneficiaries, regardless of any provisions in a living trust or will. A major advantage of joint tenancy is that a deceased joint tenant’s interest in the property passes to the surviving joint tenants without the asset going through probate. Joint tenancy has its disadvantages, too. Property owned in this manner can be attached by the creditors of any joint tenant, which could result in significant losses to the other joint tenants. Additionally, a joint tenant’s interest in the property cannot be sold or transferred without the consent of the other joint tenants.

Community Property with Right of Survivorship: Some states allow married couples to take title in this manner. When property is held this way, a surviving spouse automatically inherits the decedent’s interest in the property, without probate.

Make sure your estate planning attorney has a list of all of your property and exactly how you hold title to each asset, as this will directly affect how your property is distributed after you pass on. Automatic rules governing survivorship will control how property is distributed, regardless of what is stated in your will or living trust.

Wednesday, July 17, 2013

Overview of the Ways to Hold Title to Property

Overview of the Ways to Hold Title to Property

You are purchasing a home, and the escrow officer asks, “How do you want to hold title to the property?” In the context of your overall home purchase, this may seem like a small, inconsequential detail; however nothing could be further from the truth. A property can be owned by the same people, yet the manner in which title is held can drastically affect each owner’s rights during their lifetime and upon their death. Below is an overview of the common ways to hold title to real estate:

Tenancy in Common
Tenants in common are two or more owners, who may own equal or unequal percentages of the property as specified on the deed. Any co-owner may transfer his or her interest in the property to another individual. Upon a co-owner’s death, his or her interest in the property passes to the heirs or beneficiaries of that co-owner; the remaining co-owners retain their same percentage of ownership. Transferring property upon the death of a co-tenant requires a probate proceeding.

Tenancy in common is generally appropriate when the co-owners want to leave their share of the property to someone other than the other co-tenants, or want to own the property in unequal shares.

Joint Tenancy
Joint tenants are two or more owners who must own equal shares of the property. Upon a co-owner’s death, the decedent’s share of the property transfers to the surviving joint tenants, not his or her heirs or beneficiaries. Transferring property upon the death of a joint tenant does not require a probate proceeding, but will require certain forms to be filed and a new deed to be recorded.

Joint tenancy is generally favored when owners want the property to transfer automatically to the remaining co-owners upon death, and want to own the property in equal shares.

Living Trusts
The above methods of taking title apply to properties with multiple owners. However, even sole owners, for whom the above methods are inapplicable, face an important choice when purchasing property. Whether a sole owner, or multiple co-owners, everyone has the option of holding title through a living trust, which avoids probate upon the property owner’s death. Once your living trust is established, the property can be transferred to you, as trustee of the living trust. The trust document names the successor trustee, who will manage your affairs upon your death, and beneficiaries who will receive the property. With a living trust, the property can be transferred to your beneficiaries quickly and economically, by avoiding the probate courts altogether. Because you remain as trustee of your living trust during your lifetime, you retain sole control of your property.

How you hold title has lasting ramifications on you, your family and the co-owners of the property. Title transfers can affect property taxes, capital gains taxes and estate taxes. If the property is not titled in such a way that probate can be avoided, your heirs will be subject to a lengthy, costly, and very public probate court proceeding. By consulting an experienced real estate attorney, you can ensure your rights – and those of your loved ones – are fully protected.

Wednesday, July 10, 2013

Which Business Structure is Right for You?

Which Business Structure is Right for You?

Which entity is best for your business depends on many factors, and the decision can have a significant impact on both profitability and asset protection afforded to its owners. Below is an overview of the most common business structures.

Sole Proprietorship
The sole proprietorship is the simplest and least regulated of all business structures. For legal and tax purposes, the sole proprietorship’s owner and the business are one and the same. The liabilities of the business are personal to the owner, and the business terminates when the owner dies. On the other hand, all of the profits are also personal to the owner and the sole owner has full control of the business.

General Partnership
A partnership consists of two or more persons who agree to share profits and losses. It is simple to establish and maintain; no formal, written document is required in order to create a partnership. If no formal agreement is signed, the partnership will be subject to state laws governing partnerships. However, to clarify the rights and responsibilities of each partner, and to be certain of the tax status of the partnership, it is important to have a written partnership agreement.

Each partner’s personal assets are at risk. Any partner may obligate the partnership, and each individual partner is liable for all of the debts of the partnership. General partners also face potential personal legal liability for the negligence of another partner.

Limited Partnership
A limited partnership is similar to a general partnership, but has two types of partners: general partners and limited partners. General partners have broad powers to obligate the partnership (as in a general partnership), and are personally liable for the debts of the partnership. If there is more than one general partner, each of them is liable for the acts of the remaining general partners. Limited partners, however, are “limited” to their contribution of capital to the business, and must not become actively involved in running the company. As with a general partnership, limited partnerships are flow-through tax entities.

Limited Liability Company (LLC)
The LLC is a hybrid type of business structure. An LLC consists of one or more owners (“members”) who actively manage the company’s business affairs. The LLC contains elements of both a traditional partnership and a corporation, offering the liability protection of a corporation, with the tax structure of a sole proprietorship (if it has only one member), or a partnership (if the LLC has two or more members). Its important to note that in certain states, single-member LLCs are not afforded limited liability protection.

Corporations are more complex than either a sole proprietorship or partnership and are subject to more state regulations regarding their formation and operation. There are two basic types of corporations:  C-corporations and S-corporations. There are significant differences in the tax treatment of these two types of corporations, however, they are both generally organized and operated in a similar manner.

Technical formalities must be strictly observed in order to reap the benefits of corporate existence. For this reason, there is an additional burden of detailed recordkeeping. Corporate decisions must be documented in writing. Corporate meetings, both at the shareholder and director levels, must be formally documented.

Corporations limit the owners’ personal liability for company debts. Depending on your situation, there may be significant tax advantages to incorporating.

Wednesday, May 1, 2013

What's Really Covered By Your Homeowners Insurance Policy?


What’s really covered on your homeowners insurance policy?

A solid homeowners insurance policy can provide peace of mind about securing one of your most valuable assets. Unfortunately, many homeowners don’t fully grasp what exactly is covered under that policy, and most importantly, what isn’t.

Homeowners insurance policies generally cover your home itself and other physical structures on the property. Your personal belongings also fall under most policies, along with property damage and bodily injury sustained by you or others on your property. You, your spouse and children, and any guests, tenants, or employees in your home can all be covered under this policy, just be sure to check when you purchase the policy.

Sounds like they’ve got you covered, right? Not so fast; there are a number of possible perils that are often not covered under basic homeowners insurance. Knowing what falls into this category can save you a lot of time and trauma if you ever experience one of these situations in the future.

The two main exceptions are earthquake and flood damage. The impacts of these natural disasters would not be covered by your standard policy. Earthquake insurance and coverage for some types of water damage can often be purchased as an addendum, but flood insurance must be purchased on its own as a separate policy.

Further, standard policies don’t cover damages to your building as a result of your failure to perform regular maintenance on your property. Insect, bird, or rodent damage, rust, mold, and any kind of wear and tear on your property is typically not covered. Neither are hidden defects, mechanical breakdowns, or food spoilage in the event of a power outage. Though there is no current concern for this, damage caused by war or nuclear exposure is also not covered.

Some things have minimal coverage built into your standard policy, for which you can purchase additional coverage as an addendum. Valuable property, including firearms, jewelry, silverware, etc., is usually covered by a standard $1,000. Insurance for replacement value of lost or damaged property is usually determined on an itemized basis that takes depreciation into account. You can expand this coverage by paying to remove depreciation from consideration.  Liability coverage can be increased if desired as well.

These should serve as general guidelines for your homeowners insurance, but be sure to consider the details on your specific policy.  It’s important to consider exactly what you have covered in order to determine what additional types of insurance you may want to purchase.


Tuesday, October 2, 2012

Adverse Possession in Rhode Island

Adverse possession is the process by which a non-record land owner can gain title to another record owner’s real property without compensation by holding the property in a manner that is hostile to the record owner’s rights for a period of ten years or more.  The transfer of ownership occurs after the adverse possessor has met all of the statutory requirements of adverse possession for a period of at least ten years.  A court action is often necessary to establish record ownership on behalf of the adverse possessor.

In accordance with Rhode Island General Law Adverse Possession is defined as follows: “§ 34-7-1 Conclusive title by peaceful possession under claim of title. – Where any person or persons, or others from whom he, she, or they derive their title, either by themselves, tenants or lessees, shall have been for the space of ten (10) years in the uninterrupted, quiet, peaceful and actual seisin and possession of any lands, tenements or hereditaments for and during that time, claiming the same as his, her or their proper, sole and rightful estate in fee simple, the actual seisin and possession shall be allowed to give and make a good and rightful title to the person or persons, their heirs and assigns forever; and any plaintiff suing for the recovery of any such lands may rely upon the possession as conclusive title thereto, and this chapter being pleaded in bar to any action that shall be brought for the lands, tenements or hereditaments, and the actual seisin and possession being duly proved, shall be allowed to be good, valid and effectual in law for barring the action.”

The following example illustrates how adverse possession works in the state of Rhode Island:

The Monties purchased their property in 1990.  At the time of the Monties purchase there was a fence that ran the entire depth of their land.  From the time of the purchase through 2012 the Monties maintained the fence and the land under and around the fence.  The fence was in place and a barn along the boundary line had existed prior to the purchase.  The Monties made repairs to the barn including new shingles, windows, and a new roof.  The Monties have therefore made effective use of the property in question for the last 22 years.  Where any person was in the uninterrupted, quiet, peaceful and actual seisin and possession of any lands claiming the land as his for the space of ten years may establish conclusive title.  R.I. G.L. 34-7-1.  The Supreme Court has long held that the elements to establish adverse possession are that it must be actual, open, notorious, hostile, under claim of right, continuous, and exclusive for at least ten years.  Sherman v. Goloskie, 188 A.2d 79, 83 (R.I. 1963).

In order to meet the open and notorious requirement, the Monties must show that their use of the land would “put a reasonable property owner on notice of their hostile claim.”  Gammons v. Caswell, 447 A.2d 361, 367 (R.I. 1982).  The court found that it is sufficient for the claimant to go upon the disputed land and use it adversely to the true owner and the owner then becomes chargeable with knowledge of whatever occurs on the land in an open manner.  Lee v. Raymond, 456 A.2d 1179, 1183 (R.I. 1983).  The court held that the owner was still chargeable with knowing whatever was done openly on the land he owned even though it could not be observed from the road or from the boundary of the property.  Tavares v. Beck, 814 A.2d 346, 352 (R.I. 2003).  The Monties kept goats they purchased in 1990 in the barn and maintained the property in dispute.  As set forth in Gammons, as a reasonable property owner, the abutting land owner, the Cappues were put on notice by the placement of the fence and the Monties’ open and notorious use of the land.  Many neighbors believed that the Monties owned the property as well.

The Monties’ use of the land was hostile and under a claim of right because permission was not given and the Monties treated it as their property.  To establish hostile use, the claimant must only establish a use “inconsistent with the right of the owner, without permission asked or given” such as would entitle the owner to a cause of action against the intruder for trespass.  Tavares, 814 A.2d at 351 (citing 16 Powell on Real Property, § 91.05[1] at 91-23 (2000).  The court held that where the claimant mistook his boundary, but continuously asserted dominion over the property for the statutory period, he was a hostile occupant of the land.  Taffinder v. Thomas, 381 A.2d 519, 523 (R.I. 1977).  A claim of right is established “through evidence of open, visible acts or declarations, accompanied by use of the property in an objectively observable manner that is inconsistent with the rights of the record owner.”  Tavares, 814 A.2d at 351.

The Monties’ use was continuous and exclusive as well since they maintained the property and kept their goats in the barn from the time they purchased the property through the present.  They have owned the property for 22 years and thus meet the statutory period of ten years.  As articulated above, the facts of this matter fully support all of the elements of adverse possession.  The Monties’ use was actual, open, notorious, hostile, under claim of right, continuous, and exclusive for over ten years. 

Richard E. Palumbo's practice focuses on Real Estate and Business Law including the following; Residential and Commercial Real Estate Closings (Purchases, Sales and Refinancing); Title Searches; Title Insurance; Title Defense Litigation; Quiet Title Actions; Purchase and Sales Agreement Litigation; Adverse Possession Litigation; Boundary Line Disputes and Easement Litigation; Foreclosure of Right of Redemption of Tax Liens; Partition in Kind and Sale Litigation; Mortgage Foreclosures; Condominium Law (New Projects, Conversions, Drafting and Re-Drafting of Condominium Documents; Developer – Declarant Representation, Association Representation, Assessment Collections and Condominium Lien Foreclosures, Dispute Resolution and Litigation); Residential, Commercial, Industrial, Telecommunication and Ground Lease Negotiation and Drafting; Residential and Commercial Landlord Tenant Law (Evictions for Non-Payment of Rent, Termination of Tenancies, Eviction for other than Non-Payment of Rent); Real Property Insurance Loss Assessments, Settlements and Litigation for Insured Owner’s of Residential and Commercial Property; Business Representation and Formations and  Real Estate and Business Litigation; Purchases and Sales of Business and Business Assets; Commercial and Business Litigation; Receivership Law; and Probate Law. 


Tuesday, September 11, 2012

The Condominium Basics: Formation, Conversion, Components, Governance, Sale and Resale

In Rhode Island, what is a Condominum?  How is a Condominium formed?  What is the Declaration and the Bylaws?  What is a Condominium Purchase and Sales Agreement?  What is a Public Offering Statement?  What is a Resale Certificate?

Read more . . .

Wednesday, August 22, 2012

Tax Lien Sales in Rhode Island

Buying real estate at municipal tax lien sales in the state of Rhode Island can be an exciting way to invest in Rhode Island real estate.  Like all investments, it of course does not come without risk.  The Law Offices of Richard Palumbo regularly represents the buyers of real estate at tax lien sales.

Read more . . .

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The Law Offices of Richard Palumbo, LLC assists clients with Real Estate Law, Business Law, Probate, Evictions for Landlords and Property Damage matters in Rhode Island including Cranston, Warwick, Coventry, Johnston, Providence, Pawtucket, Central Falls and all areas throughout RI.

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