Asset Protection for Property Owners and Real Estate Professionals2/6/19 | By: Asher Rubinstein, Esq.| GDB 2019 Winter Newsletter
Owners and developers of real estate are already well-aware of the threats of litigation from tenants, guests, workers and even passers-by. Sources of potential liability include construction and renovation sites, lead paint, mold and other environmental risks, personal injuries and the “scaffold law.” Under New York’s scaffold law, a property owner is held liable for injuries even though the work was performed by an independent contractor over which the property owner exercised no control. For example, if a managing agent hires a painting contractor as part of a renovation project and the painter’s employee falls from a ladder and is injured, the injured worker can seek recovery from the property owner, irrespective of the owner’s lack of wrongdoing.
Considering the litigation risks, our real estate clients continually ask us about protecting their assets from potential lawsuits. The first point is that asset protection works best when the asset protection plan is implemented well before the lawsuit arises. Getting sued and transferring assets shortly thereafter will not be looked upon favorably by a court. The best asset protection is prophylactic and pre-emptive, not defensive.
There are two paths to asset protection: domestic and offshore. Domestic asset protection utilizes legal entities including limited liability companies, family limited partnerships and certain trusts. We also chose favorable jurisdictions whose laws make it difficult to penetrate these entities in order to reach assets. When a potential plaintiff learns that his target’s assets are not attachable, he may be incentivized to drop the suit and agree to an insurance settlement. This process brings insurance back to doing what it is supposed to do - cover the property owner rather than invite a lawsuit.
Offshore trusts offer additional asset protection by removing assets from U.S. jurisdiction to a jurisdiction that is safe and beyond the reach of U.S. creditors. A litigant will be more inclined to settle upon terms favorable to the property owner, rather than pursue litigation in a foreign country, without contingency fees, where the burden of proof and statute of limitations will be against the litigant.
The increasing risks and liabilities facing property owners and real estate professionals are clear and compelling, including lawsuits based upon injuries which they are powerless to prevent. Proper asset protection strategies offer property owners, developers and other real estate professionals a viable safety net for their property when faced with inevitable litigation.