What do Motorcycles and Real Estate Investing Have in Common?
What do motorcycles and real estate have in common? Nothing, but when it comes to buying and selling – everything. I used to watch a “reality show” called American Choppers. For those of you unfamiliar with the show it involves a custom designed motorcycle shop and the daily tensions that arise between the father, the founder, and his son, the primary builder and designer of the bikes. It turns out that the corporation that owns the shop was established with the son as a 20% owner with the father.
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A few years back the tension on the show became too much for the father-son bond to endure and the father fired his son on the air. The network that owned the contractual rights to the production was upset and threatened to shut down production i.e., the father and son were about to lose a lot of money, so to keep the show on the air, father and son signed a letter agreement giving the father an option to purchase all of [the son’s]shares in [the corporation] for fair market value as determined by a procedure to be agreed to by the parties as soon as practicable.
Within a few months, the father attempted to exercise the option. In its recent opinion in Teutul v. Teutul, 2010 NY Slip Op 09248 (2d Dept Dec. 14, 2010) the NY Court of Appeals held that the fair market value of the corporation was sufficiently definite and hence, threw out the agreement as an agreement to agree.
So how does this relate to real estate?
When drafting a contract for the sale of anything, draftsmanship is important if you want an enforceable agreement. When new investors contact me about asset protection a fair percentage are using a form document they found on the internet or received from a seminar. These documents are typically sufficient until one party decides they want to change the deal and that is where the fun begins. Lawsuits as everyone knows are time consuming and expensive. You are far better off spending several hundred dollars before you begin investing to have an attorney draft you some agreements that will stand up to scrutiny rather than spending many thousands to find out what you have done wrong.