Real Estate Tip – Uniform Statutory Trust Entity Act: Citizenship vs. State

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Trusts can be a good choice for real estate ownership. Delaware, Connecticut and states that have adopted the Uniform Statutory Trust Entity Act allow “statutory trusts” and some “business trusts” to own real estate in their own names, as opposed to only in the trustee’s name. Maine real estate practice generally treats these trusts as corporations when the trust is a legal entity under its state law. However, the 2010 case Mecklenburg County v. Time Warner Entertainment, et als (2010 WL 391279 W.D.N.C), determined the citizenship of a Delaware statutory trust based on the citizenship of its beneficiaries and trustees, rather than treating the trust simply as Delaware “entity.”

For landlords, tenants and developers this distinction can change what state and federal courts may or may not be available to enforce or hear challenges to a lease or contract provision. Consider expanding the typical one-sentence “choice of law” clause in leases and contracts with statutory and business trusts to address the possibility of an unexpected state becoming part of your transaction.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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