A Corporate Veil Lifted - 27 East

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A Corporate Veil Lifted

authorStaff Writer on Aug 12, 2019

The use of limited liability companies to veil ownership of a Hamptons home has increasingly been a way for property owners to shield themselves from tax complications, potential lawsuits and gossipy neighbors.

While privacy may not be the only goal of employing an LLC, it can be an important one for captains of industry, celebrities and controversial figures (Donald Trump Jr. recently purchased a Bridgehampton home under an LLC created by a Trump organization attorney) who would rather not attract protesters or Page Six.

But policies in some East End municipalities may shatter that cloak, in the interests of vetting the potential for conflicts of interest by officials ruling on a variety of land-use requests.

In the villages of Sagaponack, Southampton and East Hampton the municipality requires that the managing partner or owner of an LLC be disclosed when an application is made to the village’s planning, architectural or zoning appeals boards.

An LLC would typically be created by an attorney and, sometimes, that attorney and his or her office address is all that is listed in the LLC’s formative documents. Not all LLCs are arranged as such and often the true owner is listed directly in the documents. But if individuals wish to remain anonymous, they can do so through a deliberately arranged LLC.

The concern therein, of course, is that municipal officials may not be able to tell when the true owner of a property seeking some sort of permission from the village or town is someone with a familial or financial connection to one of those who will sit in judgment of that request. If they are, the official with a connection would be expected to remove themselves from considering the application, in accordance with public policy ethics guidelines intended to remove conflicts of interest.

In Sagaponack, where the purchase of properties under the cover of an LLC has become so much the norm that residents have taken to calling someone “an LLC” when they encounter a person who strikes them as an entitled Johnny-come-lately to the tiny affluent village, the disclosure requirement is new this spring.

“Looking at real estate transactions I would say the majority in the village now are LLCs — because we have so many very important people,” Sagaponack Mayor Donald Louchheim said, tongue in cheek. “We are not trying to out people or publicize that somebody is buying in Sagaponack, but we have to do our due diligence as far as ensuring ethical dealings.”

Attorneys say the policy is not one that has been typically applied to municipal applications in the past. Rather, a duly authorized representative of the LLC may simply make the application on the owner’s behalf. Southampton Town had once pressed the issue of disclosing corporate details when LLCs made applications years ago, though the issue of conflicts of interest was not at the heart of it and the town has backed away from the practice in recent years.

Some wondered how the new policy in Sagaponack, where LLCs abound, will go over when some more privacy-seeking owners also come seeking permissions. One attorney saw a potential workaround.

“The goal to avoid conflicts is a worthy goal and there’s probably some way to resolve that without necessarily identifying the principals,” said Water Mill attorney David Gilmartin. “A statement from counsel that there is no conflict with the principal could be incorporated. They would have to investigate whether there is any type of conflict and give an opinion that the village could rely on.”

To date, just one applicant to the Sagaponack Village Board, which also handles the town’s planning applications, has been asked to disclose the background of its corporate ownership.

The mayor said the managing member’s name was disclosed — without objection.

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