The Fee Not in the OA

If a fee is in your PPM but not in your Operating Agreement, an investor's attorney reads that one of two ways. You don't want either. Every way you get compensated as a sponsor needs to be disclosed in the PPM— the acquisition fee, the asset management fee, the disposition fee, construction management fees, any fee. And for each of those fees to be legitimate, it has to be authorized in the Operating Agreement. A syndicator's operating agreement discloses an asset management fee of 2% annually. The PPM, which was drafted from a template, maybe used from a prior deal, doesn't mention asset management fees, or it lists them at a different rate. It defines the calculation differently. Interpretation 1: the sponsor has been collecting fees that were never legally authorized to collect underneath the governing documents. Interpretation 2: The documents are inconsistent and the sponsor doesn't know what's in their own files. The fix: Have both documents reviewed, or better yet, drafted as a set by experienced corporate securities counsel specifically to confirm that every term in the PPM appears in the Operating Agreement at the same rate and with the same calculation logic. The long form: Walks you through the full review and the other 2 mismatches that come up first. Link in the bio.