For those who are not familiar with investing in the US market, it can turn into quite an event especially in the case of a purchase of a property.
For this reason, it is advisable, since the first negotiations, to request the support of a lawyer or an adviser with local experience in the real estate field who may assist the buyer appropriately.
In the United States, a lawyer has the task of assisting the buyer in negotiations with sellers who, sometimes, for local tradition, may be quite aggressive in their ways of action and confrontation, and who are often also backed by the real estate agent who represents the seller. In the aforementioned context, it often happens that the latter profits from the buyer’s lack of experience to impose at arm’s length prices or excessively onerous contractual clauses.
An experienced lawyer, instead, will need only one appointment to explain to the client how to conduct negotiations with American agents and how to find a trustworthy and qualified one, who knows the relevant area well and can verify reasonable prices. Above all, It is also important for the buyer purchasing for the first time in this country, to address himself to a professional in the field who could assist him in the negotiation of economic terms and could perform the additional assignments discussed below.
Each commercial real estate operation has characteristics linked to the type of property on sale. Furthermore, national and local laws and regulations are applied in several ways, including tax aspects regarding loans and transfer taxes, registrations, development plans, condominium regulations and environmental rules.
Other considerations must be made if, for example, you purchase a building for office use.In these cases, the buyer shall evaluate the income generated and in particular shall analyse the most important lease contracts to verify that the income and its continuity really correspond to what is described by the seller.
Should the building be intended for residential use, i.e. should it be made up of apartments leased by the owner of the building, it will be necessary to verify lease types, evaluating in particular whether there are property fractions whose lease fee is regulated by law.
If you then purchase a building area, it will be extremely important to verify the possibility to build as well as the feasibility of property subdivision, if any.
A lawyer who is familiar with real estate matter is able to list all unavoidable expenses and the most appropriate evaluation criteria to the buyer. He is also responsible for carrying out verifications on title, adequacy of condominium expenses and other similar aspects.
The real estate purchase usually takes placetwo separate times: 1) the signature of the sale contract or preliminary contract, which often includes further formalities (financing, insurance policy, solutions of problems with property title, if any, etc.), and 2) the “closing” or the notarial deed, i.e. when the property title is actually transferred to the buyer. The sale contract is usually made up of a standard and pre-printed form and of an addendum (the so-called “rider”) containing the most important contractual points. As is easy to understand, the most challenging part from a legal point of view consists of preparing riders, even if sometimes a particular standard clause may become the subject matter of extended negotiations and revisions, and finally may be cancelled and amended by a substitute clause that will be incorporated by the rider.
Escrow Account
Upon the signature of the contract the buyer must leave a 10% deposit of the building purchase price on a special fixed deposit account, the escrow account, managed by an escrow agent (the Title Company, the Broker or the buyer’s lawyer), who is not part of the sale contract and has a sole obligation to keep the money received.
For the purposes of the deposit, an escrow agreement is entered into, i.e. an agreement with which the seller and the buyer set out to deposit with the escrow agent some contractual amounts as a guarantee, that will then be released when the conditions expressly established by the parties are fulfilled.
The purpose of the deposit in the escrow account is to ensure the buyer of an easy and rapid money recovery should the purchase be not concluded for a cause attributable to the seller.
The amount is released in favour of the seller upon closing only.
Legal and Fiscal Aspects in the U.S.A.
Background
American economy competitiveness and solidity is partially attributable to the rapidness and flexibility of procedures directed to incorporate companies and other legal entities in the United States as well as to the relative simple administration of unlisted companies. The following notes examine the main US company forms and corresponding legal entities in Italian law:
The Most Common Company Forms
The most common company forms in the US system are:
- Corporations (also known as “Inc.” or “Corp.”)
- Limited Liability Companies (also known as “LLC”)
The characteristics of these two types of companies with share capital make them roughly similar, respectively, to Spa and Srl of Italian company law.
While there are remarkable differences between the Corporationand the LLC at a level of tax treatment, (see – The tax regime) the Corporation and the LLC are very similar, also as far as their intended uses are concerned. As a general rule, the LLC can be managed with less formalities and greater flexibility, and its bodies have generally a more streamlined structure than those of the Corporation, even ifcommon practice extends to the LLC many of the same institutions that are typical of the Corporation so that differences between the two company forms become, in such case, even less evident.
Incorporation Timeline
Generally, the incorporation of a company requires very few formalities and can be made in very short times (for example: 24-48 hours in the State of Delaware and in some other States). The company incorporation is made by a lawyer who draws up the deed of incorporation (the so-called “Certificate of Incorporation” in the case of Corporation) and often serves as “incorporator“, i.e. by the individual who incorporates the company and represents it until the first meeting of corporate bodies.
The US company system does not provide for the obligation to execute and deposit a minimum capital. Actually, the share capital of a company has an accounting function more than a legal function.
The Tax Regime
The tax regime in the United States is based on federal, state and local taxation. Federal taxes, therefore, are added to state taxes and those of some municipalities, such as the city of New York.
Generally, each individual or legal entity which produces and sells goods or services or is a member of a Limited Liability Company is subjected to US tax jurisdiction.
Although the “Corporation” and the “Limited Liability Company”, abbreviated “LLC”, are very similar as far as management and limitation of liability are concerned, they are substantially different from tax treatment.
A Corporation is directly taxed on corporate profits. Upon distribution to shareholders, American shareholders are required to pay taxes personally and foreign shareholders are subject to tax withholdings.
The LLC is assimilated to a Partnership, i.e. a società di persone; to one side, this avoids double taxation for shareholders.