Sneaky Deals

by Steve Zablocki, Underwriting Counsel

We’ve seen them: sneaky deals. Deals that contemplate getting around or avoiding an interest in real property.

How do we feel about them? We don’t like them.

Unless law and ethics are on our side, we may likely deny the transaction. Other than wanting to avoid a claim, we also want to encourage an industry where the standards of practice are aboveboard, straightforward, and honest. We often mirror that with our decisions to insure.

Take for example land subject to a recorded right of first refusal. The land is owned by an LLC and the land cannot be sold without first offering the property to another. What if the owner of that LLC simply decides to sell the LLC interest to another to avoid triggering the right of first refusal? We really would need to look at all parts of the deal.

Does the LLC own other land? Is there a legitimate purchase of an ongoing business? Would this transfer of ownership constitute a sale or transfer under the right of first refusal? Is it a sneaky deal or a subterfuge designed to evade the right of first refusal? What do we know about the interest holder? Would they sign a release or waiver to permit the deal to go forward? Is there bad blood between the parties? Whatever the case, this is one of those transactions that may or not be wholly legitimate.

There’s a good chance anyone looking at the LLC purchase will see this as an attempt to avoid the recorded right of another. As such, whenever you see something that might look like a sneaky deal, call your underwriter. It may be something that is appropriate. It may be something we have to decline insurance. Whatever the case, don’t let a sneaky deal sneak past you without talking to us.