Real Estate & Construction Blog

Property Tax

Truth-in-Taxation Forms—The Other Shoe Drops on Minnesota Commercial Property Owners

Minnesota commercial property owners have been waiting months for the other shoe to drop. The first shoe fell back in March when assessors told owners their estimated market values. The other shoe will drop in the next few weeks when local governments send out their truth-in-taxation forms, informing property owners of their proposed tax rates. Property tax liability is calculated by multiplying the estimated market value by the tax rate, so this will be the first look at what property owners will owe in 2026. Although the taxes you owe next year may seem a long time away, if you think your taxes are too high, now is the time to have someone look at them. While you can’t challenge the tax rate, you may be able to lower the assessed value. Here is a checklist of common indicators that your assessed value is too high: Your estimated market value spiked dramatically compared to the previous year. Your property experienced significant depreciation. Properties similar to yours recently sold for less than the estimated market value listed on your form. You have a recent appraisal report that is less than the value on your truth-in-taxation form. A unique feature of your property makes it less marketable. The property was specially built for your business’s particular use. To raise capital, your business executed a sale-leaseback, and the new value mirrors the sale price. You completed a 1031-exchange, and the new value tracks the 1031 sale price. Unfortunately, the meetings provided on the truth-in-taxation form are not opportunities to change your property’s estimated market value. Although your local assessor may be available to talk at these meetings, by statute, they are unable to make any changes to the value. Instead, you must file a tax petition in court. The deadline to file a petition for the taxes payable in 2026 is April 30, 2026. You should seek advice from a property tax attorney to determine whether you have a potential appeal.

November 18, 2025

Property Tax

Commercial Landlords Gain Confidentiality of Leases in Minnesota Property Tax Appeals

The Minnesota Tax Court rarely sits en banc, which is when all three judges of the Tax Court decide a matter instead of just one. When they do, it’s to address an issue that is particularly complex or important. The commercial landlord of a downtown Minneapolis office tower, 250 Nicollet Office LLC, filed a property tax appeal. To help value the property, the Hennepin County assessor asked for all the tenant leases. A landlord’s most confidential information are its leases. If competitors know when tenants need to renew their leases and the current terms, they will try to poach those tenants with better terms. In this case, 250 Nicollet Office LLC was willing to provide the leases to the assessor, but it was understandably hesitant to do so without confidentiality. The County refused. To address whether the landlord could produce the leases under a protective order, the judges sat en banc. The Commercial Landlord’s Conundrum—Pursue Tax Relief, but Risk Exposing Confidential Leases to Competitors Commercial landlords in Minnesota face a predicament when bringing a property tax appeal. They want tax relief, but to get it, they potentially expose their leases to their competitors. The source of this risk is a statute unique to Minnesota. The statute requires all income-producing property owners to provide assessors with certain information from their rent rolls. This includes tenant names, base rent, start/end dates and square footage. Failure to produce this information by August 1 results in an automatic dismissal of the case. When the owner provides this information, it is protected under the Minnesota Government Data Practice Act as nonpublic assessor’s data. Although this information is protected from the public, the assessor’s office can use it as part of their official functions, including in appraisal reports for similar properties. That means the assessor could use an owner’s rent roll information as a comparison in an appraisal report to value a competitor’s property, thus exposing the information. But what about when the assessor requests the actual leases? Minnesota statute further provides that assessors can request the actual leases if they believe it is necessary to properly evaluate the property. The landlord then has 60 days to produce them. Unlike the rent roll information where failure to produce the information results in an automatic dismissal, the Minnesota Rules of Civil Procedure address any failure to produce the leases. In other words, the remedy for failure to produce the leases is left to the court’s discretion, creating several questions. Must Leases Be Produced? The first issue was whether a commercial landlord has to provide the leases when requested. If failure to provide the leases didn’t result in an automatic dismissal like the rent roll information, was it really mandatory? Here, the Tax Court had conflicting rulings. One opinion held that it was mandatory, while another reasoned it wasn’t. Resolving this discrepancy was one of the reasons the court sat en banc. The Tax Court ruled that the plain language of the statute stated that the landlord “must” provide them, thereby making it mandatory. The Tax Court therefore overruled the previous contrary decision on this point. Are Leases Protected? The second issue was whether the leases were subject to the Minnesota Government Data Practices Act as nonpublic assessor’s data like the rent roll information, or if the court could issue its own protective order. If the leases were subject to the Data Practices Act, then the Tax Court had already ruled that it could not issue a protective order because the statute already provided the relevant protection. But the section of the statute governing the leases made enforcement subject to the Rules of Civil Procedure. The Tax Court reasoned that this allowed the court to issue its own protective order. What is the Protective Order’s Scope? The third issue was the scope of the protective order over the leases. The County argued that because leases were part of the same statute requiring landlords to provide certain rent roll information that was protected by the Data Practices Act, the court’s order should provide the same protection and allow assessors to use the leases as part of their normal office functions. 250 Nicollet Office LLC argued that its leases should be limited to this case only. The Tax Court ruled that the leases should receive this-case-only protection, assuring landlords that their leases will not fall into the hands of competitors. Steps Landlords Can Take to Keep Leases Confidential Going forward, if assessors request leases from commercial landlords, landlords should seek an appropriate protective order that limits the use of those leases to the particular case. The times that a commercial landlord has to worry about their leases being exposed to competitors should be as rare as the Tax Court sitting en banc.

October 14, 2025

Land Use

Minnesota’s First Recreational Cannabis Dispensaries are Navigating Nuances in Licensure, Real Estate and Land Use

The state of Minnesota has completed its cannabis licensing lottery and issued preliminary licenses to a pool of selected entrepreneurs. Those licensees now have 18 months to get their businesses up and running, or they face the prospect of losing their licenses. That means it’s “go time” for cities, counties and cannabis entrepreneurs to work together to make these businesses come to life. In recent talks with attendees of the Midwest CannaCon conference, I found entrepreneurs who were focused and ready to execute their plans. Those conversations, combined with issues we’ve been navigating on behalf of clients, have revealed a few common themes. Here are factors that entrepreneurs should keep in mind to help their next steps run smoothly: Understanding Nuances of Zoning Avoid the mistake of homing in on a location for a retail store and starting down the road of lease negotiations before confirming with the city or county that your location is zoned correctly and outside of any mandated buffer zones. For example, some entrepreneurs have made the mistake of assuming that an otherwise properly zoned space is clear to proceed with, without realizing that a planned unit development, proximity to schools or other “sensitive” uses, or some other zoning restriction would disqualify that space. This situation can sometimes be navigated by requesting a special zoning amendment from the city, but costs for these amendments can be in the thousands. Don’t be afraid to contact city or county officials to ask questions, and be specific with your plans. For example, “I have a microbusiness license and I want to open a retail store. Is this address zoned correctly?” Additionally, know that many city maps that illustrate buffer zones around schools, churches, etc. are showing estimations, and you will need to confirm distances precisely to determine if a space is fully outside of a buffer zone. We have worked with clients who had a prospective space disqualified over a matter of a few feet. Don’t Wait to Engage with Inspectors It’s also a good idea for entrepreneurs to engage early with the fire inspector or building inspector to understand their requirements. Ultimately you may need to hire an architect or engineer to create the final drawings for the inspector, but in the early stages even a rough drawing can help you start the conversations and avoid wasted time. If you do hire an architect or engineer, it’s a good idea to find one who has worked in that city previously and understands how their inspections operate. As any tradesperson will tell you, standards can vary widely, even between neighboring towns. Find Out Your Place in Line Another thing to ascertain from the city or county early on is whether the area has a limit on licenses, and if so, how many applications have already been submitted. If your application would be far down in the queue for a limited number of licenses, your time will be better spent looking elsewhere. Be Transparent with Landlords Cannabis businesses are not just new for cities; they’re new for landlords too. Tactics landlords have used in the past with other tenants may not work in this new situation. Some landlords may try to insist on an “open by” date for your business, but the number of variables in the state’s current cannabis landscape makes it very difficult to be specific about opening dates. Be wary of promising a timeline. If you’re seeking a growing space, the power supply is another major issue to determine with the landlord. You may find a large space with cheap rent, but if the power needs to be upgraded, determine who will be taking on that cost before signing a lease. The Clock is Ticking As mentioned, those who have received their license approval have 18 months to complete the rest of the steps in the state’s process and open their doors. With the clock ticking, it’s important for entrepreneurs to work efficiently and prevent lost time. Our team at Larkin Hoffman is ready to help businesses navigate this new landscape, and can help advise on licensure, site selection and more.

September 16, 2025

New Legislation for Data Centers in Minnesota Clarifies the Path Forward

Data centers and data center regulation were recurring topics in the Minnesota legislature’s 2025 session. As data centers flock to Minnesota, there was a concerted effort to create a clearer framework for data center developments. In its June special session, the state legislature passed several new requirements for data centers in Minnesota that will shape their construction, finances and regulatory permitting processes. The legislation, judged a bipartisan compromise by the Star Tribune, maintains or extends some tax breaks for data centers while imposing new rules aimed at protecting the environment and helping individual energy consumers. Here is an overview of the key provisions of this legislation: Tax exemptions While lawmakers eliminated the electricity sales tax exemption for data centers, they also extended a sales tax exemption for software and IT equipment for large-scale data centers to 35 years. Previously, the exemption had been set to expire in 2042. Water use and green building standards The legislature established a new category of water appropriation permits for over 100 million gallons per year. Projects using over this amount of water must undergo pre-application evaluations and meet new permitting conditions. Additionally, new green building standards state that data centers must qualify under one of several sustainable design standards. Centralized permitting & regulatory support The new rules require all state agencies to refer data center inquires to the Minnesota Business First Stop program. This change is intended to improve permitting timelines and interagency coordination. Electricity regulations The law added ratepayer protection language to stipulate that large-scale energy users cover their own costs. The goal is to ensure that utilities and/or ratepayers are not subject to increased costs due to the large energy needs of data centers. Legislators also established an optional clean energy tariff to segregate clean energy costs to clean energy users. Additionally, they removed data center power from the calculation used for public utilities’ minimum solar generation requirements. Megawatt usage fees to fund conservation programs Data centers are subject to a new annual fee based on their peak demand megawatt (MW) usage, as outlined in the table below. This fee will be used to fund energy conservation programs for low-income households. MW Usage Fee 100- 250 MW $2,000,000 251- 499 MW $3,000,000 500 – 749 MW $4,000,000 750+ MW $5,000,000 Wage standards for workers The new law defines prevailing wage requirements for construction laborers and mechanics working on data centers. What these changes mean for data centers in Minnesota going forward If you’re planning to build or expand a data center in Minnesota, the new legislation brings some clarity to the process. With these changes, developers can more confidently move ahead with data center projects designed to leverage Minnesota’s advantageous climate, location and workforce. As always, early engagement with legal, engineering and utility partners will be critical to clear the path ahead.

July 28, 2025

Real Estate

Three Biggest Tips for Realtors Facing Tricky Transactions

Real estate professionals oftentimes find themselves fielding a variety of difficult questions and facing some tricky transactions. Having partnered with realtors for decades, our team compiled our top three tips for realtors to reduce their potential liability and better serve their clients. 1. Put It in Writing Documentation is key for any transaction, but it does not only apply to agreements and contracts. Document all communications throughout the buying and selling process – including emails and texts. By putting everything in writing, realtors can increase clarity and help protect themselves and their clients should an issue arise. Advice for Implementation: Save your emails. Keep a dedicated folder for each client. Develop the habit of summarizing verbal discussions in a follow-up email or text message. This not only provides a record but gives all parties an opportunity to confirm they are on the same page. 2. Stay in Your Lane Real estate professionals are oftentimes asked to do a variety of tasks that do not fall under their job description. This can potentially open them up to liability down the line. Avoid providing services and advice outside your scope. For example, never perform electrical work, provide legal advice or give opinions regarding a property survey. Instead, act as a referral source to professionals who can provide these services. Advice for Implementation: It is important to build a network of trusted professionals, such as attorneys, licensed contractors, professional surveyors and lenders. This not only helps protect you from liability but enhances your credibility and your client’s overall experience. 3. Acknowledge, Don’t Admit Handling complaints is an inevitable part of the real estate business. While it is important to acknowledge concerns, agents should be cautious not to admit wrongdoing. This approach allows you to address perceived issues while protecting yourself from potential legal repercussions. Advice for Implementation: If representing a buyer who later complains about a possible property defect, acknowledge receipt of the correspondence but try to avoid apologizing or saying anything that could be construed as an admission of fault or liability. Serious complaints should be sent to your broker to decide if an attorney or the broker’s insurance carrier should be notified. Implementing these tips can help you reduce your risk of legal issues as a real estate professional. They can also elevate the standard of service you offer your clients.

April 15, 2025

You Are Here: Navigating Big News in Cannabis & What Comes Next

While the rollout of Minnesota’s cannabis industry has been a winding road of twists, turns and plenty of detours, this week marked a major green light. An administrative law judge approved the Office of Cannabis Management’s rules governing the industry in our state. The judge approved the rules without changes, and those rules will go into effect later this month. With the rules approved, the first wave of cannabis applications will soon be handed out. Meaning qualified applicants in uncapped license categories are now eligible for preliminary approval once they complete all of the application requirements such as a background check and securing local government approvals. So what comes next? Get Out Your Map! These folks need to start contacting cities to find a location. Cities have each established their own (and sometimes very different) rules around cannabis. It is important to understand how a city handles zoning – everything from their distance requirements to how they measure those distances – what environmental, parking and signage rules the city has established and how the city handles permits and licensing. Given that many cities also have caps on the number of cannabis businesses, it is vital that potential business owners start scouting out locations now to avoid competing traffic. Make sure you know the city’s rules and who to contact when questions arise. The Winding Road of Cannabis While the first cannabis licenses in Minnesota are not likely to be issued for a few months, potential businesses should be finding their properties now to start this leg of an already tedious road trip. Here is how the cannabis timeline has played out so far – with all of the pit stops and detours along the way. May 30, 2023 – Minnesota Governor Tim Walz signs the adult-use cannabis bill into law August 1, 2023 – Recreational use of cannabis becomes legal in Minnesota Summer of 2024 – Office of Cannabis Management (OCM) shares its initial draft of proposed cannabis rules January 13, 2025 – OCM posts its official draft of rules for public comment January 13 to February 12, 2025 -- Public comment period for OCM’s proposed rules March 14, 2025 -- Application window for cannabis businesses in Minnesota closes March 25, 2025 -- OCM submits proposed rules to the administrative law judge for review April 2, 2025 -- The administrative law judge approves the proposed rules Late April 2025 – Rules will be published in the State Register and take effect, meaning social equity license applicants will be able to receive licenses once application requirements are met Summer 2025 – Qualified applicants in the four license types whose numbers are capped in state statute (cultivator, mezzobusiness, manufacturer and retailer) will be subject to a series of lottery drawings for the distribution of these licenses There are plenty of potential potholes to avoid when it comes to starting any business, particularly one involving highly regulated products like cannabis. If you are looking to establish a cannabis business in Minnesota, reach out to our team at Larking Hoffman to help guide you.

April 8, 2025

Property Tax

I Just Got My Property Tax Assessment—Is the Assessor Out to Get Me?

Assessors have submitted their values and will be sending assessments to property owners in the coming weeks, if they haven’t already. Some property owners may look at their values and wonder, “How can my property possibly be valued this high? Is the assessor out to get me?” The good news is that assessors aren’t out to get you. As a whole, they genuinely want to find the right value. But that doesn’t mean your property was valued correctly. So how could they get it wrong? Mass Appraisal Techniques Can Lead to Over-Assessments There are far too many properties for assessors to inspect individually each year. They must therefore rely on mass appraisal techniques. These techniques are designed to value many properties based on certain, common characteristics. The values that are generated based on those common characteristics are then evaluated by statistical methods. Single-family residential homes offer a good example for how mass appraisal techniques are used. The common characteristics that an assessor might use are the number of bedrooms, number of bathrooms, size of the home, and the home’s location. Using only these common characteristics, assessors arrive at an estimate of the property’s value to calculate property taxes. Because there are a lot of single-family residential homes, the greater volume of data allows for a stronger statistical analysis to arrive at the right value. But what about the other characteristics of your property that aren’t included in the assessor’s model? Or what if your home has unique features? None of these are considered. In general, the more your property differs from the common characteristics used by the assessor, the further off the assessed value will be. Commercial, Multi-Family, and Industrial Properties Are More Prone to Over-Assessments When assessors apply mass appraisal techniques to other property types—such as commercial, multifamily, or industrial properties—there is a greater probability for over-assessments. First, these property types are less uniform, so it becomes more difficult to identify a common set of characteristics that assessors can use to value them as a group. Second, there are fewer of these property types, particularly compared to single-family residential properties, so the statistical analysis is not as robust. With less reliable data, there is a greater chance for over-assessments. An Imprecise Art and Inexact Science Assessing the value of a piece of real estate is a subjective task. There is a popular saying: “Beauty is in the eye of the beholder.” So too is the value of a property. A recent opinion from the Minnesota Tax Court observed that the appraisal of real estate is both an art and a science. It then quipped that appraisal is “at best an imprecise art” and an “inexact” science. How to Challenge an Over-Assessed Property So if appraising real estate is an imprecise art and inexact science, where does that leave the property taxpayer when faced with an assessed value based on mass appraisal techniques that feels too high? Even though taxpayers will not know what common factors the assessors used for the mass appraisal techniques, they should focus on the individual characteristics of their property. Identify all the characteristics that impact value, and present the data to the assessor. This could include everything from the condition of the heating and cooling systems, conditions of the interior, or any other added features. Additionally, being able to compare your property to a similar property that recently sold can be persuasive. But because valuation is an imprecise art and inexact science, each property will be different. Property taxpayers should watch their values closely each year, and March and April are the ideal times to do so. The deadline to file an appeal to challenge the taxes due in the current year is April 30. At the same time, assessors are sending valuation notices for the taxes payable the following year, and taxpayers have a small window of time to negotiate with assessors before budgets are finalized. You can see the full timeline for a property tax appeal here. Although the assessors are not out to get you, there will always be outliers when mass appraisal techniques are used. Make sure you’re not an outlier paying too much in property taxes.

March 10, 2025

Legislative and Judicial Updates

Public Comment Period Open for Office of Cannabis Management Proposed Rules

The Minnesota Office of Cannabis Management (OCM) has published their draft rules for review and public comment. The rules outline the requirements for all aspects of a cannabis business operation including record keeping, security, labeling, storage, etc. For those looking to apply for a license, you should review and become familiar with the rules as you begin to prepare your operation and security plans. The public comment period starts Monday, Jan. 13, 2025 and runs through 4:30 p.m. on February 12, 2025. For those considering applying for a cannabis business license, you may want to engage in this public comment period. Draft rules can be found here: https://mn.gov/ocm/assets/RD4844-11295180100844890568-011325_tcm1202-664935.pdf Public comment must be entered here: https://minnesotaoah.granicusideas.com/discussions/40360-minnesota-office-of-cannabis-management-notice-of-intent-to-adopt-expedited-rules-without-a-hearing Where Does Minnesota Stands with Cannabis? Following Minnesota’s legalization of adult-use cannabis in May 2023, the state has tried to ensure a thoughtful and equitable rollout of cannabis laws and business licenses. This process includes addressing consumer health and safety, ensuring safe products and creating opportunities for communities disproportionately impacted by past cannabis laws. Throughout the process, the OCM has engaged with stakeholders to gather input and refine its approach. In October 2023, the OCM conducted surveys and meetings with partners to identify considerations for rulemaking. An earlier draft of the rules was shared for public feedback in 2024; this current version incorporates much of the 2024 public input. What Happens Next? Once the public comment period closes, the OCM will review and incorporate feedback into the draft rules. The revised rules will then undergo judicial review and approvals by Secretary of State Steve Simon and Governor Tim Walz. The final rules are expected to be released by the end of March 2025. Larkin Hoffman will continue to follow developments as they unfold. Stay tuned for further updates and contact our team if you have questions regarding cannabis licensing.

January 13, 2025

Planning and Development

Golf Course Redevelopment Continues to Spur Litigation

This blog has previously observed how golf course redevelopment commonly leads to land use disputes between, on one hand, those seeking to redevelop the former course, and on the other hand, neighboring landowners benefiting from the status quo.[1] These disputes may find their way to court even when every government regulator has approved the redevelopment. This was true in recent litigation concerning proposed residential redevelopment of the former Mississippi Dunes golf course in the City of Cottage Grove. This case is instructive that even though securing all necessary approvals is no guarantee against litigation, attentiveness and thoroughness in the approval process can prove decisive in court. The proposed housing development, known as Mississippi Landing, received full approvals from local, state, and federal regulators. As part of project due diligence, the development team, in coordination with federal regulators, analyzed what impact, if any, the project would have on numerous protected plant and animal species, including the Rusty Patched Bumble Bee (“RPBB”). Incorporated into the project were several efforts to preserve the limited area containing suitable habitat for the RPBB; for example, the developer conveyed land to the Minnesota Department of Natural Resources and agreed to seed roughly eight acres with native seed mixes. During the city review process, a vigorous opposition formed arguing, among other things, that the project would have deleterious effects on natural resources. The developer argued that it had complied with all applicable state and federal regulatory criteria. The City Council unanimously approved a preliminary plat and planned unit development. The opponents then organized a fundraising campaign to challenge the approvals in court. Under the banner of a nonprofit named “Friends of Grey Cloud,” the opposition filed suit against the developer and the City of Cottage Grove asserting state environmental protection claims and requesting injunctive relief to stop the project. The initial court filing was done in coordination with the news media, which gave the filing prominent coverage. A district court judge administratively denied the opponents’ request for “ex parte” emergency relief (viz., the opposition sought an injunction without the developer or the city first being heard). A hearing was later scheduled on the opponents’ request for a court order stopping all site work pending trial. A stay of construction would have had severe economic consequences—the developer presented evidence that an injunction would cause over $3 million in damages. The opponents argued that injunctive relief was appropriate under the Minnesota Environmental Rights Act, also known as “MERA.” The opponents suggested that the project would harm protected plant and biological species, including the RPBB. The opponents emphasized that the project area is considered highly probable for RPBB. The developer argued in response that the golf course had, during its operation, extensively damaged the native habitat; that federal regulators had determined the project was not likely to harm the RPBB; that a habitat study showed that most of the Mississippi Landing site was not suitable for RPBB—except for the land being conveyed to DNR; and that any claim of harm to the RPBB was speculative, unsubstantiated, and contrary to the record. The district court agreed with the developer, opining that the opponents had failed to prove the presence of protected species on the project site, and furthermore, had failed to show how the protective measures the developer had implemented were inadequate. As the district court observed: “‘[A]most every human activity has some kind of adverse impact on a natural resource,’ but MERA is not construed as ‘prohibiting virtually all human enterprise.’” The district court ruled that the opponents had not shown entitlement to injunctive relief. The district court’s ruling had an immediate, powerful impact. Two weeks later, the opponents dismissed their case with prejudice. What ultimately carried the day for the developer? Perhaps most important was the substantial work of the development team during due diligence to study the property and consult with regulators. The developer argued to the district court that the opponents were asking the court to second guess professional regulators, an argument the court adopted in concluding that public policy did not support an injunction. Furthermore, that the developer had carved out certain land from the development to protect natural resources placed a difficult burden on the opponents to show inadequacy of those measures. Finally, the developer successfully argued that, in contrast to the speculative environmental harms argued by the opponents, an injunction would cause considerable economic damage. Larkin Hoffman attorneys Peter Coyle, Bryan Huntington, and Rob Stefonowicz represented the Mississippi Landing developer in connection with its land use application and related litigation. [1] https://www.larkinhoffman.com/real-estate-construction-blog/hollydale-golf-course-the-complex-road-to-redevelopment-approval.

September 11, 2024

Property Tax

30 Frequently Asked Questions for Minnesota Property Tax Appeals

Do you feel you are paying more than your fair share in property taxes? If so, you may be able to reduce your taxes or obtain a refund. Here are answers to some of the most common questions we receive about filing a property tax appeal in Minnesota. Property Tax Appeal Essentials What am I appealing when I file a petition? The most common basis for filing an appeal is that the assessed value is higher than the property’s actual market value. A petition to appeal seeks to reduce the assessed value of your property, also known as the estimated market value (“EMV”), to reflect the current market. Are there additional bases for an appeal? Yes, you can also appeal whether your property was misclassified (i.e., residential, agricultural, commercial), whether your property should be exempt from property taxes, or whether it was unequally assessed when compared with similarly situated properties in the applicable area. Can I appeal my property tax rate? No, the tax rate is set by the legislature and local government. How much money can I save with a property tax appeal? Residential property is generally taxed at about 1.0–1.5% of value, and commercial/industrial property is taxed at about 3.0–3.5% of value. That means for every $100,000 in reduced assessed value, a residential property taxpayer saves $1,000–$1,500 in taxes and a commercial/industrial property taxpayer saves $3,000–$3,500. Could the property value go up after filing a petition? Yes, the value can increase, but only if a petition is taken all the way to trial and the judge determines that the property was under-assessed. If the taxpayer does not want to take the risk that the value may increase, the petition can be dismissed at any time before trial and end the case. Initiating an Appeal When is the property value determined? All property is valued as of January 2 for taxes payable the following year. When must a petition be filed? The deadline to file an appeal is April 30 of the year the tax is due. Because property tax appeals are determined by statute, failure to meet this deadline is strictly enforced. Even if you’re a day late, the petition will be dismissed. What if the April 30 deadline falls on a weekend? If the appeal deadline falls on a weekend, you may file the petition on the next business day. Who can file a petition? Anyone who has an interest in the property can bring an appeal. For properties that are leased, appeals are most often filed by the property owner, although tenants can also bring an appeal. But the lease or contract may limit or direct who can bring an appeal. Can I include more than one tax year on a petition? No, the petition can only have one tax year. You must file a separate petition for each new assessment date. Can I include more than one parcel on a petition? Yes, you can include more than one parcel on a petition so long as the owner is the same for each parcel and all the parcels are in the same county. Do I have to take any steps before filing with the Tax Court? No, there are no requirements that a taxpayer must take before filing a petition with the Tax Court. Unlike other jurisdictions, there is no requirement that a taxpayer first appear before the local or county board of appeal and equalization or exhaust any other administrative remedies. Do I need an attorney to file an appeal? It depends. All corporations and limited liability companies with more than one member must be represented by an attorney. Individuals, corporations, or limited liability companies with only one member and partnerships in which the individual is a general partner can represent themselves, but it is recommended that they consult with an attorney. Proving Your Case After I file the petition, does the County have to prove that the value is correct? No, the assessed value is presumed to be correct. It is the petitioner’s burden to overcome the presumption of correctness. How do I overcome the presumption of correctness? The petitioner overcomes the presumption of correctness by presenting evidence that the value is incorrect. Although an owner or other fact witness can offer testimony to overcome this presumption, an appraisal report from an expert is almost always sufficient to overcome the presumption. What happens after the petitioner overcomes the presumption of correctness? After the petitioner overcomes the presumption of correctness, the Tax Court conducts a de novo review of value. In other words, the Tax Court does not give the assessed value any credit, and instead determines the value for itself based on all the evidence in the record. How is the market value determined? The Minnesota courts use the three traditional approaches to value. The sales comparison approach compares your property to similarly situated properties that recently sold in an arm’s length transaction. The cost approach values your property by how much it would cost to replace your property. The income approach values your property by how much income you could generate by renting or leasing the property. After the value from each approach is determined, the three approaches are reconciled against each other to find the EMV. Do I need an expert to determine the EMV? If going to trial, generally yes, an expert is needed. While the value of the property can be determined by the property owner or non-expert witness, they must present evidence that allows the Tax Court to conduct the three approaches to value. Because this is a complex and technical analysis, an expert appraisal report is typically required to present the three approaches to value. What Happens at Trial How likely is it that I will go to trial? Almost all cases settle. Generally, the Tax Court receives several thousand property tax petitions per year, and only a handful of cases go to trial. Who testifies at trial? Typically, the only witnesses in a valuation case are the expert appraisers. How do experts present their opinions at trial? During trial, the appraisal report serves as the expert’s direct testimony at trial regarding their opinions. The expert is not allowed to provide testimony on direct examination unless approved by the Court. Because the expert’s report serves as their direct testimony, depositions of the experts are not typically conducted. Who decides my case? All property tax appeals are decided by the Minnesota Tax Court, which is an executive-branch court. Your case will be decided by one of the three Tax Court Judges appointed by the Governor. There are no jury trials in Tax Court. Timeframe of an Appeal How long does it take to resolve an appeal? The process usually takes 1.5–2 years, but the process can take longer if subsequent tax years are consolidated. After a petition is filed, the Tax Court issues a scheduling order with a trial date typically set for about 1.5 years after filing. You can see the full timeline of the process here. Can I reduce my property taxes without filing a petition? There is a small window of time to reduce your assessed value without filing a petition. Taxpayers receive their valuation notices in March for the taxes payable the following year. But taxpayers only have until the end of June before the counties finalize their budgets and lock in the assessed values. After this roughly 3-month window closes, the only way to reduce your assessed value is by filing a petition. This 3-month window is different for every county, so you must look at your valuation notice for the meeting date of your local board of equalization and appeal. Pitfalls to Property Tax Appeals in Minnesota If I filed an appeal, do I still need to pay the property taxes while the appeal is pending? Yes, all property taxes must be paid as they come due, otherwise it results in an automatic dismissal of your appeal. If a payment is missed, an appeal can be maintained with prompt payment. If I pay my property taxes and obtain a reduction, what happens? If you have paid your property taxes and obtain a reduction, the county will issue a refund of the overpayment with interest. Who is required to make mandatory disclosures? Taxpayers challenging the assessed value of their property who are income producing must provide certain information by August 1 of the year the taxes are due. Although the statute does not define “income producing,” courts have determined that where the owner and occupier are different entities and valuable consideration flows between them, the property is income producing. Classic examples are apartment buildings or office buildings with multiple tenants. But the courts have applied an expansive definition of what constitutes “income producing,” so a taxpayer should err on the side of disclosure. If a property is owner-occupied and does not generate income, then no disclosures are required. What must be provided to the assessor as part of the mandatory disclosures? The statute requires the taxpayer to provide financial statements, rent roll, identification of all lease agreements, net rentable square footage, and a budget. The actual leases must be provided only if requested by the assessor. What if the taxpayer does not provide all the information by August 1? The statute does not provide any opportunity to cure a deficiency in the mandatory disclosures, so failure to make full disclosures results in an automatic dismissal. The Tax Court and Minnesota Supreme Court strictly enforce this deadline, no matter how small the deficiency and regardless of whether the county was prejudiced. Can the information from the mandatory disclosures be kept confidential? The Minnesota Government Data Practices Act classifies documents provided to the assessor through the mandatory disclosures as non-public assessor’s data, which means that the documents are not subject to a request under the Freedom of Information Act. But the assessors can use the information they received for other assessment duties. If the taxpayer is concerned about maintaining other information as confidential, the Tax Court will enter an appropriate protective order.

August 13, 2024

Real Estate

Bill Griffith and Adam Pabarcus Moderate at Bisnow's Twin Cities State of the Market Event

Larkin Hoffman's attorneys Bill Griffith and Adam Pabarcus recently moderated panel discussions during Bisnow’s Twin Cities State of the Market outlook event. Held earlier this month, the event featured insightful conversations with leaders in the Twin Cities real estate and development markets. The first panel, moderated by Bill Griffith, included Pat Barrett, COO of Oppidan Investment Company; Tim Elam, Managing Director at Scannell Properties; and Barry Stoffel, Partner and Integrator at Gardner Builders. The four covered a range of topics including strategies for navigating the current market and some of the challenges to various asset classes including industrial space, data centers, and senior housing. Pat Barrett remarked optimistically, "Winds are shifting, and we're headed in the right direction," when discussing emerging trends in the Twin Cities. Adam Pabarcus moderated the event's final panel which included Josh Brandsted, President of Greco Properties; Jay Bhakta, Managing Partner at JR Hospitality; and Angela Ledding, Head of Underwriting at PACE Sloan Group. The panel focused on the future prospects for the Twin Cities real estate market. "We're witnessing significant economic volatility, impacting every facet of property development and management," noted Adam. Discussions centered on the resurgence of office space demand as the city adapts post-COVID-19 lockdown, as well as identified avenues for future growth. Bill Griffith and Adam Pabarcus are both part of Larkin Hoffman's real estate team. Recently, Bill sat down with Adam and another attorney on the team, Tim Rye to discuss property taxes. If you would like to learn more about property taxes in how today's market may be affecting your value, please visit the Larkin Hoffman Real Estate Podcast and listen to our latest episode. Bill Griffith advises local and national clients on legal and policy issues affecting land use, zoning, real estate, environmental review, municipal law, regulatory matters and government relations. He has been legal counsel to Mall of America in all its phases, and serves as city attorney for the city of Columbus. He is a trusted advisor on real estate development and public funding for both private clients and municipalities. Adam Pabarcus is a litigator and trial attorney who focuses his practice on complex real estate litigation and property tax appeals. Adam represents clients in state and federal courts across the country to resolve disputes and advance their business goals on a broad range of issues. Tim Rye is a litigator who advises clients on real estate valuation and property tax appeals. He advises on all aspects of the property tax appeal process, including: reviewing properties for potential success on appeal, filing appeals and all statutory disclosures, researching market data, preparing analyses for negotiations, negotiating resolutions, and litigating appeals if necessary. Tim represents a broad range of clients, including real estate investors, owners, developers, property and asset managers, corporations, and individuals with real estate holdings.

May 13, 2024

Property Tax

Property Taxes High? Your Property Could Be Over Valued. Find Out More on The Larkin Hoffman Real Estate Podcast.

There is a simple formula that is used to determine how much you owe in property taxes, however if your property is valued incorrectly, you could be overpaying. Tim Rye and Adam Pabarcus from our property tax appeals team recently sat down with Bill Griffith to discuss the property tax appeals process and to highlight the benefit of a quick periodic review to determine if your tax assessment is fair. In this episode of The Larkin Hoffman Real Estate Podcast, Tim also shares insights regarding his team’s recent victory in the Minnesota Supreme Court and its decision to require tax assessors to exclude the airport’s concession fees from rent-based valuations for property tax purposes. The case offers a flight plan to lower taxes at many of the nation’s transportation hubs and underscores the importance for all taxpayers to exclude business value from taxable property value. In this episode, Tim details the magnitude of the Minnesota Supreme Court’s decision regarding concession fees and how it could influence the results of future property tax appeals. The deadline to file a petition for the upcoming tax season is quickly approaching and taking charge of your tax rate can be as easy as a quick complementary annual checkup. Contact our property tax appeals team to schedule your review. Bill Griffith advises local and national clients on legal and policy issues affecting land use, zoning, real estate, environmental review, municipal law, regulatory matters and government relations. He has been local counsel to Mall of America in all its phases and serves as city attorney for the city of Columbus. He is a trusted advisor on real estate development and public funding for both private clients and municipalities. Contact Bill Griffith at wgriffith@larkinhoffman.com. Tim Rye is a litigator who advises clients on real estate valuation and property tax appeals. He advises on all aspects of the property tax appeal process, including reviewing properties for potential success on appeal, filing appeals and all statutory disclosures, researching market data, preparing analyses for negotiations, negotiating resolutions, and litigating appeals if necessary. Tim represents a broad range of clients, including real estate investors, owners, developers, property and asset managers, corporations, and individuals with real estate holdings. Contact Tim Rye at trye@larkinhoffman.com. Adam Pabarcus is a litigator and trial attorney who focuses his practice on complex real estate litigation and property tax appeals. Adam represents clients in state and federal courts across the country to resolve disputes and advance their business goals on a broad range of issues. Contact Adam Pabarcus at apabarcus@larkinhoffman.com. Our real estate and construction law team covers every facet of real estate and its development phases. With the aim of offering distinctive perspectives on emerging topics, trends, and matters within our industry, we launched The Larkin Hoffman Real Estate Podcast to complement The Larkin Hoffman Real Estate and Construction blog. We stay on top of developing issues and legislation and collaborate with industry leaders to ensure our readers and listeners stay abreast of pivotal issues.

April 15, 2024

Property Tax

Hot Topics in Commercial Property Tax for 2024

As we start the new year, it is important to reflect on what happened in 2023 so that we know where commercial property taxes are going in 2024. While it was a busy year, three trends stand out. They indicate that property values should decrease in 2024 and that the market is going through a realignment. Property owners should watch assessments carefully to make sure they are being fairly valued and to look for opportunities to gain tax savings and possible refunds. Cap rates are increasing, which lead to values decreasing. In 2023, cap rates increased across all sectors. Higher risk property types, such as office buildings, saw greater increases than lower risk categories such as industrial and multi-family. But even industrial and multi-family buildings saw upward cap rate pressure. In 2021 and 2022, many industrial and multi-family properties traded with cap rates in the 5.5% range, indicating a relatively safe investment. In 2023, the cap rates rose to a range of 6.5–7.5% or higher, reflecting increased volatility and risk for investors. As a result of the increased risk, property values in 2024 should decrease. Office landlords should factor higher lease-up costs to fill vacancies, which negatively impacts value. New and renewing tenants typically receive some level of tenant improvements. If the tenant wants more expensive improvements, landlords frequently accommodate them and spread the expenses over the lease's duration, leading to an increase in the base rental rate. However, office space is broadly available and competition for new tenants is intense. As a result, some landlords are offering more tenant improvements without passing on the additional costs, while at the same time absorbing rising construction costs. This suggests that in 2024, as lease-up costs to fill office vacancies increase, property values will decrease. Fewer sales in 2024 could potentially lead to more over-valuations. The volume of commercial real estate transactions is down across all sectors. One reason for this is that buyers and sellers may have different pricing expectations. To illustrate, consider a scenario where a seller bought an industrial property in 2021 for $10 million and has a $7 million mortgage. The seller may want at least $10 million to cover the debt and not lose equity. But a buyer today may offer only $8.5 million because mortgage rates are much higher and the property would not cash flow appropriately at a $10 million sale price. The $1.5 million gap will likely result in no sale. We anticipate that 2024 will see a lower volume of sales until the market adjusts to realign the expectations of buyers and sellers. From a valuation perspective, this is significant. One of the primary ways that assessors determine value is comparing property to similar properties that recently sold. With fewer sales, assessors may lack reliable comparisons. Property owners will want to work closely with their counsel to make sure that their properties are being fairly assessed. Final Takeaway Property taxes are based on valuations. As we anticipate lower values in 2024, property owners should diligently review their assessments to make sure they are paying only their fair share and watch for opportunities to obtain tax savings and potential refunds.

January 17, 2024

Property Tax

Fair Property Taxes to Avoid Overpaying

Businesses face any number of headwinds. High interest rates, inflation, work shortages, and supply chain problems are just a few. Don’t let this list include overpaying on your property taxes. As the saying goes, the only certain things in life are death and taxes. But that doesn’t mean you have to accept your property taxes blindly. The amount of property taxes you pay is based on a percentage of your property’s estimated market value. If the property is overvalued, then you are paying unnecessary tax on that extra value. Factors Leading to Overvaluations: Mass Appraisal Techniques and the Effects of the COVID-19 Pandemic Assessors set a property’s estimated market value using a system referred to as mass appraisal. At its essence, mass appraisal uses statistical analysis to compare your property to similarly situated properties. Mass appraisal is most effective when there are large sets of properties that have highly similar characteristics, such as single-family residential. But it is less accurate when there are fewer similar property types in the surrounding area, your property has unique features, or it is built-to-suit. Properties that are generally more difficult to value include retail, industrial, and commercial properties. For taxes payable in 2024, there are additional factors leading to overvaluations. As we emerge from the COVID-19 pandemic, changes in the economy and the way businesses will continue to operate are coming into focus. The shift to remote and hybrid work schedules is causing a much higher vacancy rate in office space, yet assessors seem to be valuing office buildings the same as they did pre-pandemic. Should You Appeal Your Property Taxes? How do you know if your property taxes are too high? Indicators that you might be paying too much in property tax include: You know similar properties to yours recently sold for less than the estimated market value (“EMV”) listed on your property tax notice. You have a recent appraisal report that is less than the EMV on your property tax notice. The EMV of your property increased dramatically from the previous year. A unique feature of your property makes it less marketable. The property was specially built for your business’s particular use. To raise capital, your business executed a sale-leaseback and the new EMV mirrors the sale price. You completed a 1031-exchange and the new EMV tracks the 1031 sale price. Your property has experienced significant depreciation. To know whether your property is overvalued, you should consult a local property tax appeal attorney. In Minnesota, property is valued as of January 2 for taxes payable the following year. The deadline to file an appeal is April 30 of the year the taxes are due. Failure to meet this deadline is an absolute bar to challenge that particular year’s taxes. To lessen any headwinds your business may be facing, consult with an attorney to make sure your property taxes are fair.

October 12, 2023

The Larkin Hoffman Real Estate Podcast

Black Women in Real Estate: Redefining the Landscape

In the most recent episodes of The Larkin Hoffman Real Estate Podcast, I had the privilege of sitting down with three trailblazing Black women working for the City of Bloomington, Minnesota. Women, and Black women in particular, have historically been excluded from the real estate profession causing their representation in the industry to be notably low. However, in Bloomington, MN things are changing. In recent years the city added three women of color to its leadership team: Karla Henderson, Community Development Director; Aarica Coleman, Housing and Redevelopment Authority Administrator; and Faith Jackson, Chief Equity and Inclusion Officer. I was honored to have the opportunity to talk with them. As our conversation unfolded, it quickly became clear that the three women had a lot to share and our conversation evolved into the three-part mini series below. Part One | Lifting Each Other Up: The Power of Mutual Support Part Two|Breaking Ground: The Roots of Racism in Real Estate Part Three| Reforming Real Estate: From Racial Covenants to Just Deeds Pictured below are Bill Griffith, Aarica Coleman, Karla Henderson, Faith Jackson and Bill Gaier from Finance & Commerce at our recent podcast series celebration. The celebration included a panel discussion moderated by Bill Gaier from Finance & Commerce. The real estate and construction law team at Larkin Hoffman covers every facet of real estate and its development phases. With the aim of offering distinctive perspectives on emerging topics, trends, and matters within our industry, we launched The Larkin Hoffman Real Estate Podcast to complement The Larkin Hoffman Real Estate and Construction blog. We stay on top of developing issues and legislation and collaborate with industry leaders to ensure our readers and listeners stay abreast of pivotal issues. Bill Griffith advises local and national clients on legal and policy issues affecting land use, zoning, real estate, environmental review, municipal law, regulatory matters and government relations. He has been local counsel to Mall of America in all its phases and serves as city attorney for the city of Columbus. He is a trusted advisor on real estate development and public funding for both private clients and municipalities. Contact Bill Griffith at wgriffith@larkinhoffman.com.

September 28, 2023

Legislative and Judicial Updates

Navigating the Legalization of Marijuana: Updating Drug and Alcohol Policies – Part Two

Last week, we posted a blog addressing how the recent legalization of recreational cannabis in Minnesota may affect employee drug-testing policies. We now direct our attention to employers with questions about their general drug and alcohol policies. Here are some things to consider when changing an existing drug and alcohol policy. Understanding the Law As discussed in the prior blog, the Minnesota Drug and Alcohol Testing in the Workplace Act (“the Act”) has always prohibited impairment in the workplace, and that has not changed. Under the new law, an employer is not required to permit or accommodate cannabis use, possession, impairment, sale, or transfer while an employee is working or while an employee is on the employer’s premises, or operating the employer’s vehicle, machinery, or equipment. Therefore, even though another Minnesota law, the Consumable Products Act (the “CPA”), prohibits an employer from restricting an employee’s lawful off-duty use of cannabis, nothing in the law requires employers to accommodate or permit an employee’s on-the-job possession or use. Review Your Drug and Alcohol Policy When looking to an existing drug and alcohol policy, employers should pay attention to ensure that the policy does not restrict an employee’s off-duty rights. For instance, we often see policies that broadly prohibit an employee’s use of “controlled substances” unless prescribed by a physician for treatment. Marijuana and cannabis products are no longer considered “controlled substances” as they were prior to August 1st of this year, so that prohibition is problematic under the law. In light of this definitional shift, and because pursuant to the CPA an employer may not discipline or discharge an employee because he or she engages in the lawful use of cannabis products off-premises during nonworking hours, employers should consider an impairment-based policy instead. By shifting the focus to what is prohibited while at work, the employer eliminates the risk of restricting what the employee is legally free to do during their off time. Train Supervisors Minnesota law continues to permit an employer to discipline, discharge or take other adverse personnel action against an employee for using, possessing, selling or being impaired while an employee is working, on the employer’s premises, or operating the employer’s vehicle machinery, or equipment. The Act allows an employer to take adverse action against an employee if, as the result of consuming cannabis, the employee “does not possess that clearness of intellect and control of self that the employee otherwise would have.” The person most likely to identify an employee who meets this standard is the employee’s supervisor. Employers should provide employers with training on the symptoms of impairment that can result from use of cannabis products so that supervisors can recognize an impaired employee. Supervisors should be made aware of their critical role in evaluating whether an employee is impaired as a result of using cannabis. Considerations for Job Applicants Employers should be mindful of how the legalization of cannabis alters the rights of not only existing employees but applicants as well. The CPA also protects an applicant’s use of lawful consumable products off the employer’s premises during nonworking hours. Therefore, regardless of whether an employer actually conducts pre-employment testing, the law now makes it unlawful to withdraw an offer of employment based on the candidate’s off-duty, off-premises use of marijuana and cannabis products. Conclusion With the passage of Minnesota’s recreational cannabis law, employers will need to revisit their drug and alcohol policies, as well as any hiring policies and practices affected by the law, to ensure they are legally compliant. Employers need to work with supervisors to assist in recognizing an employee who, as the result of consuming cannabis products, does not possess the clearness of intellect and control that the employee usually has. Employers who have questions about any of this new legislation should contact a Larkin Hoffman attorney.

August 24, 2023

Legislative and Judicial Updates

Navigating the Legalization of Marijuana: Update Your Drug and Alcohol Testing Policies – Part One

On August 1, 2023, recreational marijuana and cannabis products became legal in the state of Minnesota. Employers are now asking how this new law affects their employment policies and procedures. In the first of a two-part series of blog posts on how the legalization of marijuana affects drug and alcohol polices, we address whether employers need to modify their drug and alcohol testing policies in light of this significant change in the law. Here are some things to consider in changing existing testing policies and procedures. Understanding the Law Employers are concerned that employees are now allowed to come to work stoned. In fact, the opposite is true. The Minnesota Drug and Alcohol Testing in the Workplace Act (“the Act”) has always prohibited impairment in the workplace, and that has not changed. Under the law, an employer is not required to permit or accommodate cannabis use, possession, impairment, sale, or transfer while an employee is working or while an employee is on the employer’s premises or operating the employer’s vehicle, machinery, or equipment. Although an employer is not permitted to restrict an employee’s lawful off-duty use of cannabis, Minnesota law does not require that employers accommodate or permit an employee’s on-the-job possession or use. Consequently, drug and alcohol policies should include a provision explicitly prohibiting the use of cannabis, drugs and alcohol while working, operating company vehicles or on company premises. Review Your Drug and Alcohol Testing Policy The first step in modifying an existing drug and alcohol testing policy is to review the portion of the policy which prohibits the use of drugs (and alcohol) while working. With certain exceptions, which will be discussed below, the Act removes marijuana and cannabis products from the definition of “drug” for purposes of drug testing, and the substance is now considered separate from drugs and alcohol. Therefore, the definition of “drug” in the policy should no longer include cannabis; nor should it be so broad that it encompasses personal use of the substance off-premises during nonworking hours. Drug and alcohol testing policies should add cannabis to the provision prohibiting the use of drugs and alcohol while working, operating company vehicles or on company premises (e.g. “The Employer prohibits the use, possession, impairment, sale, or transfer of cannabis, drugs, and alcohol…”). When is Drug Testing Allowed? It is permissible to test for cannabis under the new law under certain scenarios, most of which will be familiar to employers with existing drug and alcohol testing policies. Employees may be subject to random testing for cannabis while working in safety-sensitive positions. Employees may also be tested when there is reasonable suspicion that they: Are under the influence of cannabis or other drugs; have violated the employer’s written work rules prohibiting the use, possession, sale, or transfer of cannabis, drugs, or alcohol; have sustained (or caused another to sustain) a personal injury; or have caused a work-related accident or were operating or helping to operate machinery, equipment, or vehicles involved in a work-related accident. Employees may also be tested during the post-treatment period (up to two years, depending upon the employer’s policy). Despite the fact that employers may still test under these circumstances, many drug and alcohol testing policies will nevertheless need to be amended because they have defined prohibited drugs to be those governed by the federal Controlled Substances Act, and while cannabis is a prohibited controlled substance under federal law, it is not a prohibited substance under Minnesota law. Under most circumstances, testing applicants for cannabis is no longer permissible, and the detection of marijuana in a drug test cannot be used as a reason for rescinding a job offer. However, for the following specific positions, applicants may continue to be tested for cannabis: Safety sensitive positions (jobs where impairment caused by cannabis usage would threaten the health and safety of any individual) Peace officers and firefighters Positions requiring face-to-face care, training, education, supervision, counseling, consultation, or medical assistance to children, vulnerable adults, or patients receiving medical, psychiatric, or mental health care services Positions requiring a commercial driver’s license or operating a motor vehicle for which state or federal law mandates drug or alcohol testing Employment funded by a federal grant or any other position for which state or federal law requires testing a job applicant or employee for cannabis Additionally, the employee protections for the use of marijuana as described above do not apply to all employees. There are exclusions when the specific work being performed requires that employees and job applicants undergo drug and alcohol testing or cannabis testing where: Federal regulations preempt state regulations regarding drug and alcohol testing or cannabis testing for specific employees and job applicants; Federal regulations or requirements are necessary for operating facilities under federal regulation; Drug and alcohol testing or cannabis testing is conducted pursuant to federal contracts for security, safety, or protection of sensitive or proprietary data; or State agency rules adopt federal regulations applicable to the interstate component of a federally regulated industry and the adoption of those rules is for the purpose of conforming the non-federally regulated intrastate component of the industry. Conclusion Considering marijuana’s lingering presence in the bloodstream, some employers might forgo testing altogether. However, those employing workers in safety-sensitive positions are likely to have a different perspective, since an employee coming to work under the influence could cause serious accidents, injury and even death to themselves or others. One thing is certain—all employers must reconsider their drug and alcohol testing policies to account for the legalization of recreational marijuana and cannabis products.

August 24, 2023

The Larkin Hoffman Real Estate Podcast

Celebrating the Women Leading Commercial Real Estate: Megan Rogers’ Fireside Chat with Ra’eesa Motala

In this episode of The Larkin Hoffman Real Estate Podcast, Megan Rogers shares her experience sitting down with ⁠Ra’eesa Motala⁠, Vice President of Rokos Advisors, at a special event honoring the women who are breaking down barriers in the traditionally male-dominated field of commercial real estate. Megan had the opportunity to engage in a fireside chat with Ra’eesa, who was the keynote honoree at the annual Bisnow’s Minneapolis Women Leading Real Estate event. Ra’eesa discussed her journey in the real estate brokerage industry and emphasized the invaluable support she received from mentors along the way. She encouraged other women aspiring to build their careers in commercial real estate to seek out strong mentors and embrace the community of women in the field who are ready to assist and uplift each other. Ra’eesa dedicates a significant amount of her time to volunteering. She serves as a Co-Chair of the Real Estate Diversity Initiative (REDI) program, which focuses on empowering Black, Indigenous, and People of Color (BIPOC) professionals and women in various real estate sectors through a 12-part curriculum and cohort experience. Additionally, Ra’eesa mentors young women who have experienced harassment and sexual assault in the workplace, helping them navigate towards safer environments. During the event, Ra’eesa also highlighted the impact of her greatest mentor, Helen Brooks, a trailblazer in commercial real estate. Helen was the sole woman involved in the Minneapolis Area Association of Realtors during the 1960s and 1970s, and she paved the way for other women in the industry. The conversation concluded and the event moved to recognize a group of local women trailblazers in commercial real estate. The 12 women recognized were Ra’eesa Motala, Kara Frank (Owner, Twin Realty Investment Co), Anne Olson (COO, Centerspace Homes), Jaclyn May, (Executive Director, Cushman & Wakefield), Sheri Brezinka (Regional Director, U.S. Green Building Council), Angela Ledding (Head of Underwriting, PACE Loan Group), Sonja Dusil (Senior Vice President Commercial Development, United Properties), Shannon Rusk (SVP, Development, Oppidan), Emily Nicoll (SVP, CBRE), Jessica Welk (General Counsel, Schafer Richardson), Amanda Leathers (Investment Sales Associate, Upland), and Maureen Michallski (Vice President of Real Estate Development, Ryan Companies). _____________________________ Megan Rogers advises and represents businesses, developers, and property owners seeking favorable government approvals including licensing, zoning, and other regulatory matters. She also provides guidance on bond financing for multifamily projects and real estate transactions including residential and commercial sales and leases, easement agreements, title registrations, and lot splits. Megan advises clients and industry groups seeking favorable determinations from state agencies and licensing boards. Contact Megan Rogers at mrogers@larkinhoffman.com.

June 21, 2023

The Larkin Hoffman Real Estate Podcast

Bisnow Twin Cities Outlook Recap with Megan Rogers

In this episode of The Larkin Hoffman Real Estate Podcast, ⁠Megan Rogers⁠ takes the opportunity to recap a panel discussion she moderated at Bisnow’s Twin Cities Market outlook recorded late last year. It was an engaging conversation with insight from a range of leaders in the Twin Cities Real Estate and Development Market. The panel discussed commercial real estate conditions, obstacles and and where Minneapolis sits in comparison to its competition. Megan was joined on the panel by Rob Bader, President, Bader Development; Harrison Wagenseil, Managing Director, Investment Sales/Capital Markets, Transwestern; Erin Fitzgerald, Senior Director, JLL; Tom Shaver, Partner, Inland Development Partners; and Anna Maria Kowalik, Sr VP – Director of Business Development, Inland Green Capital. _____________________________ Megan Rogers advises and represents businesses, developers, and property owners seeking favorable government approvals including licensing, zoning, and other regulatory matters. She also provides guidance on bond financing for multifamily projects and real estate transactions including residential and commercial sales and leases, easement agreements, title registrations, and lot splits. Megan advises clients and industry groups seeking favorable determinations from state agencies and licensing boards. Contact Megan Rogers at mrogers@larkinhoffman.com.

June 15, 2023

Property Tax

Airport Concession Fees Are Not Rent in Property Taxation

In a groundbreaking ruling, the Minnesota Supreme Court affirmed a tax court decision requiring tax assessors to exclude the airport’s concession fees from rent-based valuations for property tax purposes. The case offers a flight plan to lower taxes at many of the nation’s transportation hubs and underscores the importance for all taxpayers to exclude business value from taxable property value. Larkin Hoffman’s property tax appeals team, led by shareholder Tim Rye with the assistance of shareholder Bryan Huntington, represented the concessionaires Enterprise and Avis in the historic case. Reprinted with permission of Heartland Real Estate Business, a France Media publication. Every major airfield collects fees from food-and-beverage providers, retailers, banks and other businesses that provide goods or services on airport property. Concessionaires, or those who pay the concession fees to the property owner, commonly pay these charges in addition to rent owed for the real estate where they operate. Many of these businesses are also responsible for property tax that passes through to tenants in a commercial lease. The cases leading up to the March 29 state Supreme Court decision involved two car rental companies that challenged their 2019 tax assessments, claiming the assessor’s office had overstated their property values by including concession fees in its income-based valuation. High-flying fees Both Enterprise Leasing Co. of Minnesota and Avis Budget Car Rental pay a concession fee equal to 10 percent of gross revenues in addition to real estate rent for their operations at Minneapolis-St. Paul International Airport. The tax assessor for Hennepin County had historically valued the auto rental providers for property tax purposes by Including concession fees in its income-based approach to valuation. The auto rental companies challenged the valuations on their 2019 taxes in the Minnesota Tax Court. Law firm Larkin Hoffman, which represented both taxpayers, argued that concession fees are not rent and thus should not be included in the income approach for property tax purposes. The rental agencies prevailed in tax court. The court found that concession fees are not real estate rent and that the county substantially overstated market values by including the fees in its calculations. Correcting the assessor’s calculation reduced Enterprise’s value from about $34.9 million to $21.1 million, or 39 percent less than the initial assessment. Avis’ property value dropped 39 percent as well, from approximately $20.6 million to $12.5 million. The county appealed the tax court’s decision to the Minnesota Supreme Court, arguing that concession fees are rent that must be used in the income approach. The court affirmed the lower court’s decision, however, holding that “the concession fee is not rent for purposes of the income approach.” Fee-simple principles The rental agencies’ case stood on fundamental precepts of fee-simple valuation. Minnesota is a fee-simple property tax state, meaning valuations for property tax purposes must value all property rights as though they are unencumbered. Additionally, the leased-fee interest, or landlord’s rights subject to contractual terms, should not be used for property tax valuations. Per the state Supreme Court, rents attributable to specific leases are disregarded except to the extent they represent market rent. It follows that business income should not be included in valuations for property tax purposes. Taxpayers doing business at airports across the country often pay concession fees or other charges based on their revenues or business performance. Many states, like Minnesota, require those same properties to be valued on a fee-simple basis, which should neutralize any impact of business value. In representing the rental car agencies at all stages of their appeal, Larkin Hoffman stressed the importance of these valuation concepts and how the very definition of a concession requires its exclusion from calculations of taxable property value. A concession is a “franchise for the right to conduct a business, granted by a governmental body or other authority,” according to the Dictionary of Real Estate. Accordingly, if a concession fee is a payment for the right to conduct business and not for the right of occupancy, then it is a business revenue. The county argued that because the rental agencies’ concession agreements included the phrase for “use of the premises,” then the concession must only be for the real estate. However, the tax court found that the concession fees was consideration for access to the airport car rental market rather than the real estate. The tax court reasoned — and the Supreme Court affirmed — that the concession fee was not for the real estate because: Concession fees were also paid by off-airport rental car companies, indicating that the fee is a business revenue rather than rent; Inclusion of the concession fee in the income approach would inflate the value to 10 times greater than the cost approach, which would be clearly unreasonable; and Inclusion of concession fees in the county’s income approach distorted other inputs. It is well-established that a fee-simple property tax valuation should exclude business value. Now, Minnesota courts have also acknowledged that when a concession fee is for the privilege of accessing the airport market rather than for the real estate, that fee represents business value. To prevent erroneous inclusion of business value, and since airports are special-purpose properties, the court gave primary weight to the cost approach. With this decision, Minnesota’s highest court has confirmed that concession fees are not rent for real estate and instead represent business value that should be excluded from the income approach. For taxpayers in any jurisdiction that taxes property based on its fee-simple value, the recent decision is a reminder to ensure that assessors are excluding business value when calculating taxable property value. For businesses that also pay concession fees in addition to rent, the Minnesota case may provide an impetus to learn how those fees affect their own property values. And if those inquiries spur taxpayers to appeal their assessments, then the Minnesota case law may provide a valuable example and support for their arguments. Given the precedent this case has set, Larkin Hoffman’s property tax assessment team is strongly committed to making sure other vendors at the Minneapolis airport and airports around the country are being assessed fairly. Please reach out or fill in our property tax intake form to find out if we can help you. Tim Rye is a litigator who advises clients on real estate valuation and property tax appeals. He advises on all aspects of the property tax appeal process, including reviewing properties for potential success on appeal, filing appeals and all statutory disclosures, researching market data, preparing analyses for negotiations, negotiating resolutions, and litigating appeals if necessary. Tim represents a broad range of clients, including real estate investors, owners, developers, property and asset managers, corporations, and individuals with real estate holdings. Bryan Huntington represents his clients in the enforcement of their property rights. His clients include developers, landowners, contractors, builders, surety companies, condominium owners, landlords and tenants. Bryan represents landowners and contractors in litigation and negotiation adversarial to governmental subdivisions (counties, cities, townships, etc.) and government agencies, including matters involving eminent domain, inverse condemnation, zoning, administrative law and payment disputes. He litigates contract disputes and is passionate about obtaining justice when misrepresentations are made during a real estate transaction about the conditions of real property. Bryan is also a Rule 114 qualified neutral (mediator) in Minnesota.

May 10, 2023

The Larkin Hoffman Real Estate Podcast

Building Affordable Housing: Interview with Johnny Opara, President and CEO of JO Cos

Megan Rogers recently had the opportunity to talk with developer Johnny Opara, President and CEO of JO Cos., a real estate development company in the Twin Cities that specializes in developing high-quality, affordable multifamily housing. Johnny took an unusual path to starting JO Cos and his career as a developer but as a first-time developer, he was able to get the St. Paul Housing and Redevelopment Authority to unanimously approved bond financing for construction of The Hollows in the Payne-Phalen area of St Paul. Today, the 62-unit workforce housing development is complete with affordable units for low-income renters. For this episode of The Larkin Hoffman Real Estate Podcast, Johnny and Megan talk about his decision to move from corporate America into the real estate development world; what he’s building now; and what he wants to build in the future. _____________________________ Megan Rogers advises and represents businesses, developers, and property owners seeking favorable government approvals including licensing, zoning, and other regulatory matters. She also provides guidance on bond financing for multifamily projects and real estate transactions including residential and commercial sales and leases, easement agreements, title registrations, and lot splits. Megan advises clients and industry groups seeking favorable determinations from state agencies and licensing boards. Contact Megan Rogers at mrogers@larkinhoffman.com.

March 1, 2023

Real Estate

Bisnow’s Twin Cities Multifamily Market Overview with Bill Griffith

On February 1st, the Federal Reserve raised interest rates by another quarter-point. This first rate hike of 2023 follows seven interest rate hikes in 2022. With the rising interest rates in mind, Bill Griffith sat down with a panel of real estate and construction industry leaders last fall at Bisnow’s Twin Cities Multifamily Market Overview to discuss the effect of rising interest rates on their business. In this episode of The Larkin Hoffman Real Estate Podcast, Bill takes the opportunity to review the discussion he moderated and highlight some of the trends, opportunities and forecasts for the Twin Cities construction and real estate markets. Bill discussed the market with Traci Thomas, COO of Doran Companies; Sargent Johnson, Managing Director at Hines; Brady Pollard, Vice President – Preconstruction Services Director at JE Dunn Construction; and Johnny Opara, President and CEO of JO Companies. Bill Griffith advises local and national clients on legal and policy issues affecting land use, zoning, real estate, environmental review, municipal law, regulatory matters and government relations. He has been legal counsel to Mall of America in all its phases and serves as city attorney for the city of Columbus. He is a trusted advisor on real estate development and public funding for both private clients and municipalities. Contact Bill Griffith at wgriffith@larkinhoffman.com

February 14, 2023

Real Estate

Listen to Bisnow’s Twin Cities State of the Market Recap With Jake Steen on The Larkin Hoffman Real Estate Podcast

In the second episode of the Larkin Hoffman Real Estate Podcast series, I had an opportunity to wrap up a recent Bisnow panel I moderated at Bisnow’s Twin Cities State of the Market event held in Minneapolis in late August. The panel covered the trends, opportunities and forecasted growth of the Twin Cities construction and real estate markets including predictions about where capital investments are going; the effect of rising interest rates on new development projects; the impact of rent control policies; how developers are pushing new projects forward; what a return to the office is looking like; and the future of redevelopment in downtown Minneapolis and St. Paul. I was joined on the panel by Jackie Knight, COO, Ackerberg; Ericka Miller, Senior Development Manager, Alatus; Phil Cattanach, VP & General Manager, The Opus Group; Josh Budish, Principal, Endeavor Development; Brent Webb, Development Executive, Mortenson; and Alex Cole, Senior Manager, Nuveen Green Capital. _________ Jake Steen advises and represents businesses, developers, and property owners seeking favorable government approvals including licensing, zoning, environmental review, and other ‎regulatory matters. Contact Jake Steen at jsteen@larkinhoffman.com

October 10, 2022

The Larkin Hoffman Real Estate Podcast

Introducing The Larkin Hoffman Real Estate Podcast

Interested in hearing from real estate and construction industry leaders in the Minnesota market? Looking for insight and commentary on the state of local real estate projects and planning? Larkin Hoffman is pleased to announce a new Larkin Hoffman Real Estate Podcast series where we will share insights and commentary from industry leaders in our region. As a go-to law firm for real estate and construction law in Minnesota and throughout the region, our team deals with all aspects of real estate and every phase of real estate development. This podcast series is intended to dive a little deeper into local projects and offer insight into our regional real estate and construction markets. For the first podcast of the new series, Larkin Hoffman’s attorney, Bill Griffith, sat down with Bill Katter, President and Development Chief Investment Officer of United Properties Development, to discuss the building of the new RBC Gateway tower in downtown Minneapolis. If you have an idea for a future podcast or would like further information regarding one of our podcasts, please reach out to Greg Wolsky at gwolsky@larkinhoffman.com. Print: Email this postTweet this postLike this postShare this post on LinkedIn

August 15, 2022

Real Estate

Building the RBC Gateway: Interview with Bill Katter, President of United Properties Development

I recently had the opportunity to sit down with Bill Katter, President of United Properties Development, in the firm’s new offices located in the RBC Gateway, a building he developed. The 37-story tower sits on a key block linking the downtown Minneapolis core with the bustling North Loop neighborhood and providing tenants with commanding views of the Mississippi River, just a few blocks away. Bill Katter didn’t plan to be a developer when he was recruited to join United Properties almost 20 years ago. He was working for Lutheran Brotherhood underwriting equity investment when Boyd Stofer offered him a job underwriting acquisitions for United Properties. Soon after, Stofer asked him to take on development of the C.H. Robinson Headquarters in Eden Prairie. “It started with Boyd saying ‘you have the qualities of a developer. Why don’t we just make you a developer and see where it goes’,” said Katter. Asked what those qualities were, he responded, “I would think drive is the most important thing, wanting to wake up and get something done, and the desire to compete and win business.” Katter talked about what it took to develop RBC Gateway, the largest mixed-use project to open in downtown Minneapolis in many years. “First of all, organizationally we never built something taller than 10 stories in our a hundred plus years history. For us, it was the fortitude and the organizational depth and breadth to pull something like this off. The second thing we learned is how important Minneapolis was to the Pohlad family. The project was a chance to reunite, under one roof, with our owner and contribute meaningfully to Minneapolis.” RBC Gateway Landing the Four Seasons Hotel was the special sauce of the project, according to Katter, but it wasn’t clear it would pencil out. “We felt great about the condos, we felt great about the office, but the hotel, we were not sure it would underwrite fully. We all kind of locked arms and said, let’s take a shot at this.” Katter said the office component is doing extremely well. “We’re about to sign a lease that puts us at 99% leased.” Still, he credits the other components of the projects with driving the success of office leasing. “The Four Seasons Hotel offers a level of amenities with meeting space and dining, and valet parking was important to RBC’s wealth management business. It could also be there is a shift towards the North Loop and out of the core.” We talked about what it will take to make development viable in downtown Minneapolis for the long-term and it didn’t take Katter long to come up with his answer. “The most important thing is getting people back to the office and most of the major employers downtown have not fully commanded a return to office policy.” He said, “until office fully returns, the core of downtown will continue to just feel like it’s missing something.” Katter contrasts the downtown core with the success of the North Loop. “The North Loop is primarily a residential submarket with office in it. It has many more people living there and so it’s felt much more vibrant throughout the pandemic and even today.” Shifting gears, we discussed some of the challenges in the marketplace with supply chain problems, interest rate hikes and fear of recession. Katter wouldn’t say the real estate market is in recession, preferring to call it a “cooling off period.” “Our business is completely driven by access to capital and lenders have definitely pulled back on the amount of financing available for projects.” Katter said that’s a natural function of the economy slowing down. “Then the double whammy for us is there’s also less buyers available.” With volatility in financing markets and supply chain, buyers, underwriters and lenders are having trouble pricing assets right now, according to Katter. “Our business is driven by long term debt rates but volatility has led investors to conclude it’s hard to price an asset right now. Our pencils are down until things stabilize a bit and they probably won’t stabilize, in my judgment, until the Fed decides it’s done with a very aggressive raising of near-term interest rates and the campaign against inflation.” Katter predicts the market will find a new place and get to a new norm. “Then buyers will start pricing assets in that arena, lenders will see the new pricing and developers will see what their exit pricing looks like.” Supply chain also affects pricing, according to Katter. “We do measure that and the volatility of the supply chain.” Compared to the ordinary level of supply and time of deliveries, the current market is four times off the standard deviation, said Katter. “That’s unprecedented, and that can be good and bad. It can be bad if you need materials that are coming from a place that’s not close to your construction site. It can be good in the sense that it’s driven a repatriation of supply chains.” Katter sees industrial development as the one bright spot in the market as businesses see more local demand and the need to control inventory. “We developed 11 industrial buildings a year ago and we’ve since filled and sold most of them. We’re about to break ground on our next 14 here and in Denver and Austin.” He believes the demand for industrial development will taper a bit as companies assess inventory and consumer demand in light of rising interest rates. As we wrapped up the interview, we circled back to the RBC Gateway project. It is clear that the Pohlad family and United Properties intended to create a lasting impact on downtown by building Class A office at time when others have pulled back, anchored by the Four Seasons Hotel and topped with high end condos. As a result, downtown Minneapolis now has a landmark building connecting the central core to the successful North Loop neighborhood and the Mississippi River. Bill Griffith practices real estate and municipal law at Larkin Hoffman and is a regular contributor to the firm’s Real Estate and Construction Blog. Listen here for his interview with Bill Katter.

August 15, 2022

Finding the Future Podcast Series

Finding the Future: “Getting to Yes” Interview with Karla Henderson

Last year, the City of Bloomington Minnesota hired Karla Henderson to help steer the city’s redevelopment as Director of Community Development. She is well qualified for the job since she served in Detroit Mayor Dave Bing’s inner circle and brings a wealth of experience turning around neighborhoods to her new job in Minnesota. Early in her career, Henderson made a critical decision to move from Ann Arbor back to her hometown of Detroit. “I really felt like my hometown was going through a crisis with the former mayor being convicted and going to jail. I remember hearing about Dave Bing running for mayor and got kind of excited about that. I did not know him, I’d never met him, but really felt like this was a fresh start for the city.” Henderson reached out to his team and landed an interview and the top job in the City’s building department. “I used a joke that was every gal’s dream job to be over the building department. But I got there and I understood quickly that we touched everything.” Henderson oversaw a large team of 300 staff members and a hundred inspectors covering everything from zoning and inspections to property maintenance and demolition. About six months later, Mayor Bing approached her to take on the role of Group Executive over planning and facilities. In that role, she tapped into HUD dollars and expertise from the Obama administration to begin the work of reinvesting in Detroit’s neighborhoods. In a move that some might see as a step down from her leadership roles in Detroit, Henderson decided to move to Minnesota during the Covid pandemic to be near family. “I always believed that a job either pulls you away or pushes you away. This job pulled me here. You’ve got the Mall of America, you have the equivalent of the University of Michigan for Ann Arbor, this is an economic engine, not to mention a Triple A bond rating.” Still, Henderson recognizes that there is much work to do. “I feel just like I did in Detroit, I can use this position to reduce some of the disparities and do things a little bit differently and focus on small businesses and our commercial neighborhoods, commercial corridors that have been somewhat ignored.” Those who get to know Henderson over coffee or over decades, are struck by the way her personality engages people and pulls them into her vision, or how quickly she affirms the vision of others, empowering them to take risks. “My whole career I’ve been fortunate, like when I talked about Mayor Bing, I’ve worked for organizations that have let me take risks – it’s okay to fail and learn from it. If we’re doing the same thing, we’re not growing.” In a recent example, a staff member suggested that they do something to connect with Muslim residents during the month of Ramadan. “I had an employee that came in my office and he said, what if we pick a day and we fast, and then we go and we break our fast at the mosque at Dar Al Farooq Dar. I said, ‘I love that idea’.” Henderson consulted the City Attorney on how to accept a meal from the mosque in light of the state’s gift law. “So, we got creative in finding a way to ‘get to yes’ and 20 employees went, including our fire chief and public works director; one of our employees brought her daughter. That’s what I want, somebody to say, ‘I have an idea. What do you think about this?’ And then we just go off and we make it happen.” In a move that really defines Henderson’s first year in Bloomington, she set out to reuse an abandoned fire station for a small business center providing space and expertise for local startups. Henderson toured the City one day with the senior planner. She recalled, “Everybody loved to show me the new fire station and I did a tour there and it is absolutely beautiful. And I said, where is the old one? So, we drove by it and I said, ‘there’s nothing wrong with this building.’ I would hope they wouldn’t tear it down.” Since then, the City set aside $500 thousand from pandemic relief funds for the small business center and the McKnight Foundation awarded the project a grant of $250 thousand. Henderson is still waiting to hear from the Federal Economic Development Agency on a grant request of $1.5 million. “The City Council had to make a 20-year commitment to operate the project. I love that I work for an organization whose leadership says ‘we’re in now’ – that is all-in. It really sends the message that we mean what we say. We are partnering with you.” Henderson has already flipped the traditional model for economic development on its head. Instead of tearing down a 60-year-old shopping center serving an existing neighborhood, Henderson would prefer to find resources to improve the building while keeping tenants in place. “We are working on a facade improvement program. There’s a smart team of planners and Port Authority members putting together the criteria.” According to Henderson, “When you start to do these incremental little things, people notice.” On the other hand, notes Henderson, sometimes tearing down a vacant building is just the thing that is needed to turn a neighborhood around. The City is using a grant to demolish an old gas station at Penn Avenue and 90thStreet. Working with the owner of Gyropolis, a Greek restaurant next to the gas station, the corner will be redeveloped replacing a building that sat vacant for 15 years. In closing, I asked Henderson for the best kept secret in a city known for its proximity to the airport and Mall of America. “I would say the best kept secret in Bloomington are the youth. The Chamber had this round table where you go and talk about your job. I met 70 young people and I was blown away by how in touch they are with issues.” On the spot, Henderson offered five students jobs at the City for the summer. Now the City is working on a program for workforce development helping businesses hire local youth. Henderson is following a model called “BrookLynk” that provides internships to young people in Brooklyn Park and Brooklyn Center. I don’t know if we’ve done a good enough job of taking that talent and growing it.” Henderson explained how changing demographics in the city is creating an opportunity to welcome and attract new talent by making sure people feel valued in what they do. According to Henderson, not only does it help the City recruit and retain people, but they have a better chance of success in their jobs and in their careers. Bloomington is like many aging suburbs in the country, full of opportunity and challenge. Sometimes, all that is needed is a strong leader who can unlock talent, ideas and initiative by making people feel heard. Bill Griffith practices real estate and municipal law and is the host of Finding the Future, a podcast that explores innovation in land use and sustainability. Listenherefor the interview with Karla Henderson. If you have a story about innovation in land use and sustainability, please reach out to Bill.

July 11, 2022

Finding the Future Podcast Series

Learning Lessons From Permaculture: Interview With Rony Lec, Founder of IMAP

On a trip to Guatemala, a friend introduced me to a unique outdoor classroom, a learning lab of sorts, for those interested in sustainable agriculture. It’s located on the shores of Lake Atitlan, a beautiful volcanic lake in the central highlands. IMAP https://imapermaculture.org/ is short for the Mesoamerican Permaculture Institute and was founded by local people to showcase the ancestral knowledge of food production in the area, which is known for its rich diversity of seeds and plants. Since the lake is situated between the tropical lowlands and the cloud forests, it is an area filled with exotic plants. Rony Lec is one of the founders of IMAP, which started over 20 years ago. He explained that much diversity in plants and seeds has been lost to monoculture farming practices. IMAP is hoping to stem the loss by educating local farmers of the value of the biodiversity which is unique to this lakeshore region. Lec explained that Meso America had 5,000 varieties of corn at one time but today they have less than half of that. “That’s because your gene pool becomes poor and the strength of life is diversity, without biodiversity, there is no life.” As the region loses biodiversity, they lose the key to growing sustainable crops on small plots and family farms. Photo Credit: The Mesoamerican Permaculture Institute (Instituto Mesoamericano de Permacultura – IMAP) Meso America is still considered a mega center for biodiversity. Lec points to a map on the wall showing all the mega centers of diversity. “Meso America is only one percent of the surface of the planet, but we have 14 percent of the biodiversity in the world.” IMAP is a two-acre compound on an undeveloped shore of Lake Atitlan, one of the last natural areas that hasn’t been developed as vacation homes for wealthy families of Guatemala and visitors from other parts of the world. Along the shoreland, local farmers plant native vegetables in small patches. Surprisingly, the seeds can be more valuable than the plants and vegetables they produce. A short walk uphill is an outdoor learning lab, lush with gardens where visitors and students learn sustainable practices like building an herb spiral or planting a tree farm. Inside the IMAP office, there is a small room with sparse furniture and plenty of shelves. The room does double duty as a small market where local farmers and producers showcase a variety of products, all rich in nutritional value and some qualifying as ancient superfoods. Networks or cooperatives of 70 nearby farmers, many of the women, produce the products on display in the market. IMAP promotes the production of superfoods that have grown naturally in the region for centuries. One of these is known as Amaranth which is rich in nutrition and easily digested. It can be eaten as a raw seed or ground down into flour or meal. Lec said, “So you have a cereal and if you grind this cereal you have flour which you can use as a nutritional supplement or you can mix it with chocolate in a traditional drink.” Next to the office is the heart of the compound where a wooden shed serves as the seed bank or the “seed house”, as Lec calls it. Inside the seed house, metal cans are stacked on shelves and labeled with a wide array of seeds from locally grown plants. The seed bank is like a micro-economy. Local farmers buy seeds on credit and return two to three times the amount of seeds in repayment. So, people can get access to seeds for free or at very low cost. “That’s our currency here. We exchange it with other seeds and can trade it for other products as well, or we can give it as a loan and in credit, and then they return it when they make their harvest,” explained Lec. Seed bank with native seeds from IMAP. Photo credit: IMAP IMAP has been working to commercialize some of its core products by creating standards around labeling. The idea is to make native foods accessible to the people who live here. At the same time, they promote local farming cooperatives that produce these superfoods. The seed bank has been replicated in at least five other locations in Guatemala, as a way to promote food sovereignty on a national scale. Lec said, “Each family and each farmer used to have their own seed bank of sorts as they grew plants and crops for both produce and seeds. As farming became commercialized, farmers here began to rely on big seed companies and stopped banking their own seeds each season.” IMAP hopes to reverse that trend and promote biodiversity at the same time. The last stop on our tour of IMAP was an outdoor learning lab protected from the heat with large shady trees and plants. The area looks overgrown but is really designed as a vertical garden. At the heart of permaculture is efficiency and reduction of waste in a closed-loop system. Everything serves a purpose, including weeds which hold moisture in the ground for the benefit of other plants. “Here you can see this little example of what we do, it’s called an herb spiral,” Lec explained, “By designing this spiral like this, we can achieve many things. If you uncoil this spiral, you will see your surface for planting will be very long. So, you’re maximizing the use of space, by using your aerial space, instead of just horizontal.” In addition to maximizing the use of space, the spiral is planted from bottom to top based on the amount of water different plants use. “The upper part of the spiral is dry and wet on the bottom. You are creating microclimates, little special niches that would not be obtained in a linear way,” said Lec. “So, that means that you can put more diversity in a smaller space – in one of these herb spirals you can plant up to 32 medicinal plants and culinary herbs.” Another concept taking hold is tree farms, which is planting crops that grow vertically rather than horizontally. A corn tree is an example. According to Lec, one corn tree will produce the same amount of food as two acres of corn. “Once that tree is established, you don’t have to do anything and it can last for a hundred years. We call it the food forest and some people call it agroforestry systems.” I asked how the programs at IMAP are funded. Lec said the seed program is self-sustaining through sales, credits and trades with local farmers. Other programs, on the educational side of IMAP, rely on tuition and donations. They are always open to new ideas and partnerships with folks near and far. Recently, IMAP was invited to support a growing family garden project in San Juan La Laguna, a village on the far side of the lake. When the pandemic stopped the flow of food to the small village, another program, called Ecolibri https://www.ecolibri.org/, encouraged families there to begin growing their own vegetables in small plots next to their homes. As travel bans are lifted, IMAP will teach sustainable practices to these families to help them get the most out of family and community gardens. Special thanks to Josh Zenner of Josh Zenner Productions who recorded the interview with Rony Lec at IMAP.https://joshzennerproductions.com/ Bill Griffith practices real estate and municipal law and is the host of Finding the Future, a podcast that explores innovation in land use and sustainability. Listen here for the interview with Rony Lec of IMAP. If you have a story about innovation in land use and sustainability, please reach out to Bill.

February 21, 2022

Construction

Project Labor Agreements are Now Required for Large Federal Construction Projects

Last week, I wrote a blog post predicting that President Biden may be requiring project labor agreements (PLAs) on projects funded by the Infrastructure Investment and Jobs Acts, effective November 15, 2021 (link here). That prediction has now become reality. On Friday, February 4, 2022, President Joe Biden signed Executive Order 14063 (EO 14063). EO 14063 requires PLAs on federal large-scale construction projects. A “large-scale construction project” means a federal construction project for which the total estimated cost of the construction contract is $35 million or more. Federal agencies, awarding any contract in connection with a large-scale construction project, must require every contractor or subcontractor engaged in construction on the project to agree, to negotiate or become a party to a project labor agreement with one or more appropriate labor organizations. Any project labor agreement reached pursuant to EO 14063 must: Bind all contractors and subcontractors on the construction project through the inclusion of appropriate specifications in all relevant solicitation provisions and contract documents; Allow all contractors and subcontractors on the construction project to compete for contracts and subcontracts without regard to whether they are otherwise parties to collective bargaining agreements; Contain guarantees against strikes, lockouts and similar job disruptions; Set forth effective, prompt and mutually binding procedures for resolving labor disputes arising during the term of the project labor agreement; Provide other mechanisms for labor management cooperation on matters of mutual interest and concern, including productivity, quality of work, safety and health; and Fully conform to all statutes, regulations, Executive Orders and Presidential Memoranda. EO 14063 contains some exceptions to the PLA requirement. A senior official within an agency can grant an exception by providing a specific written explanation of why as least one of the circumstances described in EO 14063 exist: Requiring a PLA would not advance the federal government’s interests in achieving economy and efficiency in federal procurement. Such a finding must be based on the following factors: The project is of short duration and lacks operational complexity; The project will involve only one craft or trade; The project will involve specialized construction work that is available from only a limited number of contractors or subcontractors; The agency’s need for the project is of such an unusual and compelling urgency that a PLA would be impracticable; or The project implicates other similar factors deemed appropriate in regulations or guidance which may be issued pursuant to EO 14063. Based on inclusive market analysis, requiring a PLA on the project would substantially reduce the number of potential bidders so as to frustrate full and open competition. Requiring a PLA on a project would otherwise be inconsistent with statutes, regulations, Executive Orders, or Presidential Memoranda. President Biden stated that nothing in the Executive Order prohibits an agency from voluntarily requiring a PLA even though they are not required to do so by EO 14063. EO 14063 is effective immediately and will apply to all solicitations for contracts issued on or after regulations are issued by the Federal Acquisition Regulatory Council (FAR Council). The Order states that the FAR Council must propose implementation regulations within 120 days of, February 4, 2022. Both union and non-union contractors should be alert to this significant new requirement for large-scale federal construction projects. Union contractors should be aware that a PLA could apply certain working conditions to the project which are not contained in the contractor’s existing collective bargaining agreement(s). EO 14063 is a dramatic shift from the Executive Order President George H.W. Bush issued in 1992, which was rescinded by President Bill Clinton in 1993, and the Executive Order President George W. Bush signed in 2001, which was rescinded by President Barack Obama in 2009, both prohibiting the use of PLAs for federal construction projects. Please see Phyllis Karasov’s explanation of what a PLA is here.

February 8, 2022

Construction

Project Labor Agreements and Government Funded Infrastructure Projects: What You Need to Know Now

Update: On February 4, 2022, President Joe Biden signed an Executive Order requiring the use of PLAs on federal construction projects for which the total estimated cost is $35 million or more. As many construction contractors are aware, the new Infrastructure Investment and Jobs Act, effective on November 15, 2021, includes significant monies for transportation, roads, bridges, rail, and other infrastructure construction. President Biden has encouraged public governmental agencies to use project labor agreements (PLAs) on these government-funded infrastructure projects. What is a PLA? A PLA requires that all contractors and subcontractors working on the project, whether union or non-union, sign and be bound by a PLA with the local building and construction trade council for work performed on the project. Members of a building and construction trades council include most labor unions in the construction industry including the operating engineers union, the carpenters union, and the laborers union. PLAs are intended to cover the period during which the public project is under construction and ends when the project ends. PLAs result from a public agency including a requirement for a PLA in a construction project’s bid specifications. For projects which require a PLA, the contractor must sign the PLA and agree to be subject to specified provisions in the collective bargaining agreement of the union(s) which traditionally represent the classification of employees employed by the contractor. For example, the operating engineers’ local union would traditionally represent heavy equipment operators and in this case, an excavating subcontractor would be subject to the wage and benefit provisions of the local operating engineers’ collective bargaining agreement. Many public agencies have been requiring PLAs for years, but we can expect to see an increase in the number of projects that will require a PLA in light of the current political environment. One advantage to public agencies is that a PLA promises that none of the union members of the local building and construction trades council will engage in a strike during the project. Obviously, this commitment from the unions avoids the delays and disruption that a strike can cause to a project. Today, nearly 87% of the construction industry is non-union. A PLA, which covers both union and non-union contractors, subjects the non-union contractors to many of the requirements of an applicable union collective bargaining agreement. The contractor or subcontractor is not required to sign the actual collective bargaining agreement; however, the PLA makes the contractor/subcontractor subject to certain provisions of a collective bargaining agreement, such as wages and benefits. Why Should a Contractor or Subcontractor Care? Although many non-union contractors believe that a PLA is not something they need to be concerned about, the fact is that if a non-union contractor wants to work on a public project, they should expect that they may be required to sign a PLA. Contractors who bid and are awarded work on a public job may not always be aware that the job is going to be governed by a PLA. Among other things, a PLA requires the contractor to agree to pay the applicable union wages, to contribute to union fringe funds, to use a union hiring hall, and to comply with both governmental and union rules on payroll and recordkeeping. Employees of a non-union contractor cannot be required to pay full union dues and become union members, but they can be required to pay a monthly agency fee to the union in lieu of union dues. Union hiring halls are prohibited from discriminating between union and non-union members when referring employees to projects but, obviously, it is not always easy to identify when discrimination occurs. Minority and women affirmative action goals, as well as requirements that a percentage of subcontractors be Disadvantaged Business Enterprises (DBEs), can conflict with a contractor’s obligation to hire from a union hiring hall. For many contractors and subcontractors, the requirement that they hire employees from a union hall makes it difficult to meet affirmative action and DBE goals. We have worked with many non-union contractors’ signatories to a PLA and have seen how the application of a PLA can discourage the subcontractors a construction company normally works from agreeing to work on a PLA project. In that case, contractors have to find different subcontractors, with whom they have little or no familiarity, but who are willing to sign a PLA. Further, the PLA typically allows union business agents to enter a project and talk to employees, and many non-union contractors do not want to expose their employees to continuous visits from union representatives. Contractors often view a PLA as an open door to a union petition for representation of their employees. Construction contractors can expect a significant flow of public work as a result of the Infrastructure Investment and Jobs Act but should be aware that many of these jobs will be governed by a PLA.

February 2, 2022

Protecting Payment Series

Mind the Gaps Redux

Some time ago I posted about minding the gaps that can happen where the world of common law contracts meets Article 2 of the Uniform Commercial Code (“UCC”). I see the same issues repeating in my work recently so it is time to revisit this topic. The interface between common law contracts and Article 2 “Sale of Goods” contracts under the UCC continues to surprise the unsuspecting. Sometimes at great expense. This is particularly important in the construction industry where hundreds of UCC transactions happen every day as contractors and subcontractors buy the materials and equipment they need. Building construction requires thousands of physical parts and pieces and each component is “movable” when the contractor buys it. Because they are moveable these parts and pieces are legally defined as “goods,” which puts them in the ambit of Article 2 of the UCC. Article 2 of the UCC is a set of contract rules designed to expedite the sale of goods. Article 2, UCC contracts can be formed in any manner sufficient to show agreement on a few essential terms which often means minimal or no formal documentation. This minimally documented contract formation is in contrast to the common law “mirror image” rules, where forming a contract requires a “mirror image” agreement on all the material terms. When a contractor and a supplier communicate over the sale of a product, they often have conflicting terms in mind but fail to express them either in writing, verbally, or in email. The parties still want to buy and sell the product and have usually done enough to show they intended to make a deal. The UCC treats that “deal” as an enforceable contract even though it is in many respects “incomplete.” This incomplete language in a contract can lead to trouble. What happens if there is a dispute about the goods later? Occasionally, the express terms of a “deal” do not line up with expectations. These “gaps” are points along a fault line where, for example, the “deal” does not include terms from the general contract on important issues such as time of delivery or a product warranty. Even though there is a “gap” between the two sets of expectations, the UCC recognizes the skeletal deal as the enforceable contract. This can obviously happen a hundred times a day over purchases large and small. To deal with the missing pieces, the UCC provides a set of standardized default terms called “gap fillers” which provide an answer for many of the inconsistencies in the buy/sell contract for goods. However, the gap filler provided by the UCC may not be what either side originally thought they had agreed to and may force a seller or buyer to assume some major and costly risks. Similarly, the UCC permits disclaimers of warranty and limitations of remedy that differ from most common law contracts. My original post identified three gap examples: time for delivery; who bears the risk of loss or damage in transit; and limitations and disclaimers of warranty. There are more but sometimes a real-world example is the best way to make the point about the potential impact of the UCC. Consider the 2003 Texas case of Wade and Sons, Inc v American Standard d/b/a The Trane Company, 127 S.W.3d 814 (Tex. App. 2003). In that case, the project ran six months late. The general contractor fired the mechanical subcontractor. The mechanical subcontractor sued The Trane Company claiming damages for breach of contract and late delivery of air conditioning equipment plus the subcontractor’s cost to fabricate and install certain piping which was supposed to come on the units. The subcontractor became frustrated with Trane’s efforts to address the problem as the subcontractor perceived it. The subcontractor resorted to self-help and took it upon itself to fabricate and install the piping packages on more than 150 units already in finished space. It then back charged Trane $74,000 claiming that Trane had breached its contract. The facts raised a number of UCC issues which point out the importance of being aware of how common law and UCC contracts differ. One “gap” issue was the time of delivery. Was the delivery late? Trane had submitted its proposal form for the equipment in March. The subcontractor submitted its purchase order at the end of Aprilexpecting delivery in June. However, the Trane terms of sale on the proposal said that the order would not be accepted until Trane approved the subcontractor’s credit. Credit was not approved until the end ofJuly. The Trane units were manufactured and ready to ship in August, but without the piping packages. Trane tried to expedite by shipping the units without the piping packages and hiring a third party to fabricate and install the packages in the field. The subcontractor decided this was not fast enough and prepared the piping on its own. The subcontractor then withheld payment to Trane and Trane filed a mechanic lien. When the subcontractor asserted its back charge, Trane responded that it had included its standard terms of sale with its March proposal according to its standard practice. The terms of sale required approved credit before the order was accepted. When the subcontractor placed its purchase order, it said it was ordering units “as specifically detailed in the proposal dated 3/10/98 and in accordance with the plans, specifications and all other related documents. . .” By using the magic words “plans and specifications” the subcontractor may have felt it was binding Trane to the subcontractor’s terms. The Court disagreed. By incorporating the proposal into the purchase order the subcontractor had instead bound itself to the terms in the first form; the Trane proposal. This is where the requirement for approved credit came from. Credit approval took until July and cost the subcontractor critical months of production and delivery time. Trane’s terms of sale made full use of the opportunities provided by the UCC. The Court did not find the delivery to be late. The units were delivered within a reasonable time under the circumstances since Trane had not actually accepted the order until July. Further, the Court focused on the disclaimer language in Trane’s terms disclaiming any warranty until the units were paid for. In any event, the court found Trane had disclaimed any liability for consequential damages for the cost of installing the piping. The disclaimer term was another UCC provision in operation to the surprise of the subcontractor. In the end, the attempt at self-help by back charging Trane backfired. Instead of sticking Trane with the subcontractor’s costs of $74,000, the subcontractor back charge was not allowed and ended up paying Trane the lien balance of $58,000 for the units plus additional damages of $10,000, plus $30,000 for Trane’s attorney fees. What you don’t know about the UCC can bite you. Resorting to self-help in the form of back charges to suppliers can be legally unsound and expensive. Pay careful attention to those UCC Article 2 contracts for construction materials. The smooth operation of most sale of goods transactions proves that Article 2 is highly functional, nevertheless, it may not align with a contractor’s expectations, so it pays to mind the gaps.

January 26, 2022

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