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Maryland Amends Laws Affecting REITs

Maryland Amends Laws Affecting REITs

According to statistics compiled by the National Association of Real Estate Investment Trusts, there are more than 200 publicly traded REITs, with a market capitalization of over $1 trillion. Most publicly held REITs are organized in Maryland—either as corporations formed under the Maryland General Corporation Law (GCL)—or trusts formed under the Maryland REIT law. Many privately held REITs are Maryland domestics as well. In fact, it has been said that Maryland is to REITs what Delaware is to non-REIT corporations.

Maryland recently enacted amendments to its GCL and REIT laws. Below are three changes that may be of particular interest to the managers, investors, and legal advisors of Maryland REITs. All amendments are effective October 1.

1. Fee Shifting Prohibited

House Bill 744 amended Maryland law as follows:

  • A new Sec. 2-113 was added to the GCL providing that the charter or bylaws of a corporation may not impose liability on a stockholder who is a party to any internal corporate claim for the attorney’s fees or expenses of the corporation or any other party in connection with an internal corporate claim. 
     
  • Sec. 1-101 of the GCL was amended to define an “internal corporate claim” as a claim based on an alleged breach by a director, officer, or stockholder of a duty owed to the corporation or the stockholders or a standard of conduct applicable to directors arising under the corporation law or arising under the charter or bylaws of the corporation. 
     
  • Sec. 8-601.1 of the REIT law was amended to provide that the fee-shifting prohibition of Sec. 2-113 is applicable to trusts formed under the Maryland REIT law.

2. Exclusive Forum Provisions Permitted

New section 2-113 of the GCL also provides as follows:

  • That a corporation may provide in its charter or bylaws that an internal corporate claim may only be brought in courts sitting in one or more specified jurisdictions. 
     
  • That the charter or bylaws may not prohibit bringing an internal corporate claim in a state or federal court sitting in Maryland. 
     
  • A charter or bylaw adopted before October 1, 2017 that specifies only a jurisdiction other than Maryland will be effective unless or until altered or repealed by amendment. 
     
  • The exclusive forum provisions of Sec. 2-113 apply to trusts formed under the REIT law, pursuant to the amendment to Sec. 8-601.1.

3. Formation of Holding Company by Merger

Senate Bill 398/House Bill 759 enacts a new section 3-106.2 to the GCL which provides the following:

  • A Maryland corporation may merge with or into a direct or indirect subsidiary, without shareholder approval, unless the charter expressly provides otherwise, to form a holding company. 
     
  • Certain conditions must be met including that the parent and holding company are Maryland corporations, that a majority of the board of directors of the parent corporation approves the merger, and that the stockholder rights, charter, and bylaws of the parent corporation and holding company will be identical.
     
  • Sec. 8-501.1 of the REIT law was amended to provide that the holding company merger procedure of Sec. 3-106.2 is available to trusts formed under the REIT law.

 

Managers of Maryland’s REITs and their legal advisers may wish to review their governing documents to see if any amendments are desired or required and to consider whether to use the new holding company merger procedure. For assistance with filing these documents contact your CT representative.

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