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Private Property – Keep Out!

An interesting article titled “Private Property – Keep Out!” appeared in Private Wealth magazine that discussed the challenges the ultra-wealthy have in maintaining their private lives when they purchase real estate.  Many of those on the “Forbes Richest” or Land Report 100 really would prefer not to be included on these lists.  In fact, many of my clients who have a high public profile cite it is hard to find down time if their private retreat becomes common knowledge.  While the bragging rights and gossip of a “big deal” may feed a broker’s self-worth and be an interesting story for the media only a small segment of high profile buyers thrive on this type of notoriety, most look at it as unwanted attention.  It is therefore important, for those who deal in high value real estate geared to private buyers, to be attuned to privacy and security concerns of clients and to communicate the importance priority that privacy plays in their practice.

Private Property – Keep Out!

December 24, 2014 • Jim Carolan and Amber Melville-Brown

“I know where you live….” Those words may send a chill down your spine when uttered by the sinister stranger in the blockbuster thriller at your local theatre. But when spoken directly to you, they may imply an intimidating familiarity with your private life––even your habits, interests and secrets.

Since humans first cozied up by the fire at the mouth of his cave, our home has been our castle. And psychologists tell us that having a place to call ours, where we feel safe from the ravages of life and the prying eyes of others, is essential to maintaining a sense of self and balance. Our right to have respect for our private life on the one hand, and the ability of others to invade that privacy on the other, converge when we shop for a home.

The ways in which your clients look for a house, find one, purchase it, turn it into a home and then maintain that home, all raise opportunities for prying eyes to spy into their lives. If they have a public profile––notwithstanding that they also, quite properly, want to maintain a private life––the problems can be even more real, from mere annoyance at having gawkers at their door to worrying issues of safety and security and risk of kidnap.

Last month, the British tabloids reported rumors that Angelina Jolie had been seen house hunting in London’s Marylebone area. She and hubby Brad Pitt may have bags of cash to splash on a posh London pad, but they both also have flanks of fans who would be only too happy to turn up at their door, if they knew where that door was. Any of your clients with any public profile may have a hard time of finding any down time, if the whereabouts of their own private Idaho becomes common knowledge.

Whether your clients are public figures or private families, they need and desire some degree of privacy when it comes to their home; and there are a number of sensible ways to limit unwanted attention.

On their quest for a house, your clients should be equally circumspect when it comes to choosing their brokers and property agents. Reputable professionals should readily agree to sign confidentiality agreements before they are engaged to give clients peace of mind, and to protect the private and confidential information of vital importance to your clients. Those who won’t, and who prefer to trade in information as well as property, who revel in gossip and bragging rights as their main means of survival, should be ditched as quick as the home with the flooded basement.

Any broker may enjoy the glory of closing a big deal. But any worth their salt won’t trade that momentary fix for their own reputation as a result of selling out their client. A well-drafted confidentiality agreement should provide that they, and their employees, stagers and other agents, will not disclose matters related to the deal, to your clients or their family and specifically, for example, will not distribute your clients’ phone numbers or email addresses, without your express consent.

When with the guidance and assistance of professional advisers your clients have found the house that they want to make into a home, how do they protect this fact, from the public gaze and the media spotlight?

Records of ownership in real property are widely available in public electronic databases in the U.S. So you should advise your clients to consider taking title to the property in the name of a nominee, trust, company or another vehicle, rather than their own name. Care should be taken not to use a name for the vehicle which corresponds to the address: the deal may crater, and then the company name, even if changed, will leave a public trail of hints about where your client thought of buying. They won’t want gossip or worse still headlines, exposing their failure to snap up that bargain basement property or being pipped to the purchasing post by a business rival.

And you’d be well advised to remind your clients not to get too cute or personal with the company name either.  It should point away, not toward them. The name of their first pet ––or their pet name for their spouse for that matter––is not advisable as it may catch their identity like a dream-catcher snaps up dreams. Better names that hint at nothing such as Mr. Nobody LLC, The Nowhere Company, Anonymous Holdings Inc., which disclose little personal information and will keep your client’s identity safe and secure.

Not only are owner names available on public records, but often the address where tax bills are sent and even floor plans of homes can be easily obtained online or by making a visit to local government offices. This information, together with that which the secretaries of state make available on entities, may provide altogether too much information for peace of mind.

But with careful planning, you and your clients can limit some of this data profligacy.  For instance, some agencies are allowed to limit the public disclosure of data where the occupant can demonstrate that he or she is a public figure and such disclosure would be reputationally sensitive. Also you remind your clients that any structure that holds a property must be maintained, with good records, and that major undertakings for the property should be done in the name of the entity not their individual name.

When talking with their advisors, your clients should ask what kind of information will be included in all the public filings on the entity. For instance, will stamp duty filings be accessible and contain a principal residence address, allowing reporters or others to track down the ultimate owner of the property? Some jurisdictions, like New York City, now require the single member of an LLC to be disclosed on such forms, so clients may want to consider having two members, to include a company formed for this purpose, if this disclosure isn’t acceptable to them.

And neither you nor your client should forget that the tax man and the government may be entitled to know who owns property. This complex area is very site- and deal-structure specific, but even if your clients are not annexing an equine facility to their property, remember the phrase ‘Don’t bolt the stable door after the horse has bolted.’ It is far better to understand the level of exposure going in, than for your clients to discover they have allowed themselves to be exposed in the family home, perhaps inadvertently, later.

For instance, a foreign person must disclose to the U.S. Bureau of Economic Analysis, his or her beneficial interest (no matter how remote) in any property held for investment, including for example, as a home that is rented from time to time; a home held solely for personal use is exempt, even if held through a company or other vehicle.  Income from investment properties must be reported to federal, and often state and local, tax authorities.

Advise your clients to be mindful of whether the disclosures include any personal identifying information. This is largely driven by the structure of the vehicle holding the property. Some buyers select structures, such as corporations, which are less favorable from a tax standpoint, to avoid filing their individual name on tax returns. Ask your clients, which is more important to them.

But remember also that the best planning to avoid disclosure may be subject to frustration if the government asserts a public safety need to know the true owner’s identity, such as in emergencies or criminal proceedings.

So, your happy clients have found their house, have bought the property and are about to turn it into a wonderful family home. There are still potentials out there for exposure of their private life. And there are better ways of protecting what goes on inside the home than simply drawing the curtains or pulling down the blinds.

When retaining help in and around the home, clients should have contractors sign a confidentiality agreement––supported by adequate consideration (i.e., payment) to be enforceable––to require that their private life stays private. There have been too many examples of former, and indeed, disgruntled employees telling tales to the tabloids once they had been dismissed.

And if the perfect home isn’t quite perfect enough and needs a little work around the edges, clients should carefully review contracts with architects, interior designers and contractors and be sure, similarly, to limit their rights of publicity.  The last thing they will want to see is a picture of their newly acquired property or themselves in a property or celebrity magazine, an architect’s brochure or online.

For additional security for the future, there is nothing like looking to the past. When selecting advisors, contractors and employees, your clients should look to their record of confidentiality; advise them to ask to see evidence of adequate insurance to cover reputational damages; to consider, where possible, getting bank, criminal background or credit agency references to be sure the person they are dealing with is not motivated to trade on their personal secrets. They rightly trust and respect you––your clients should be equally confident in any other advisors they may seek to employ.

Your client’s home is their castle. By taking some simple, sensible steps, you can ensure that the privacy drawbridge is down, that the portcullis is secure, and that they are not, metaphorically speaking, naked in the window with the lights on and the shutters open. That way, you can help them to enjoy the serenity of having a private place to call their own and the knowledge that no one will be able to utter the words with sinister intent, “I know where you live.”

 

Jim Carolan is a partner at Withers Bergman, where he leads the U.S. Real Estate practice. He works in the firm’s New York and New Haven offices. Amber Melville-Brown is a London-based partner at Withers Bergman. She is a media specialist and heads the firm’s Media and Reputation Management practice. Withers Bergman is a global law firm that has served individuals, families and institutions for more than 100 years.

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