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Corporate and Business Transactions attorney Kathleen Kelley will participate as a panelist at the upcoming Strafford webinar, Deadlock-Breaking Mechanisms in Real Estate LLCs: Avoiding Litigation When Members and Managers Fail to Agree, on  Thursday, February 22nd.Deadlocks typically arise when LLC members or managers fail to reach agreement or obtain the required voting approval for a particular course of action. The failure to provide deadlock-breaking mechanisms in the operating agreement can result in significant expense, loss of time, litigation or even dissolution. Where the LLC’s purpose is investing in and operating real estate, deadlocks can result in deterioration of the asset or a defaulted loan.

Counsel can employ various provisions in LLC agreements to break a deadlock, including buy-sell provisions, external or internal “tie-breakers,” rotating or alternating voting procedures, put or call options, and where appropriate, provisions for partition or sale of the company or its assets. These provisions may be critical for the continued operation of the business.

Absent such provisions, LLC statutes will typically provide for judicial remedies, including placing operational control in a custodian or dissolution of the entity. Operating agreements that do not provide mechanisms for breaking deadlock may nevertheless provide alternate methods of resolving disputes, such as mediation and arbitration. Counsel should understand the pros and cons of these alternatives for the LLC’s members.

Listen as our authoritative panel outlines and provides drafting tips with regard to various deadlock-breaking mechanisms in operating agreements. Counsel will also discuss arbitration vs. mediation, and why either option is likely preferable to litigation or judicial dissolution of the entity.

The panel will review these and other key issues:

  • What are the typical triggers of a deadlock between members or managers?
  • What are the key provisions that should be included in the LLC’s operating agreement to resolve the deadlock?
  • When is a partition or sale appropriate to resolve a deadlock?
  • What are the advantages and disadvantages of arbitration and mediation and what should the LLC provide?