The best disinfectant is sunlight, as the saying goes. That was certainly the reasoning behind the creation of state Sunshine Laws, which were put into place to ensure transparency in government. The laws require that government meetings and records be publicly disclosed and open to the public. The state of Utah enacted the first of these kinds of laws as far back as 1898. Florida adopted similar laws several years later, and all states eventually passed Sunshine Laws in the 1960s and 1970s. But the legislation truly took the spotlight after the Watergate scandal, a saga that played out in front of the country and led to a new focus on government accountability and transparency. In 1976, Congress passed a federal mandate, the Government in the Sunshine Act.
These laws affected the property industry in several ways with additional scrutiny as the government became involved from the very start of a real estate development project, whether it’s a public-private project or not. Plans must be submitted to the city, permits applied for and granted, and in some cases, public hearings and approval from governing bodies are part of the process. In New York City, new development projects can take several years from start to finish, with some projects required to go through what’s known as ULURP, Uniform Land Use Review Procedure, a months-long process that can make or break a development. It’s during these phases in the development process when real estate firms must engage with public officials that firms must exercise the utmost caution to avoid inadvertently disclosing sensitive information.
Better safe than sorry
City officials’ communications are considered public and can be requested at any time. City filings, like project plans and permits, are also public record and can usually be easily viewed through databases. “A lot of communities go above and beyond what they are required to do so people can see what’s going on in government,” said Scott Ziance, a partner at law firm Vorys, Sater, Seymour and Pease LLP. Ziance works with real estate clients who often have projects with highly confidential aspects.
Most of the time, in-house lawyers at commercial real estate firms or services firms will have basic knowledge of the general principles of Sunshine Laws, and the same goes for outside legal representation. The most important thing for commercial real estate professionals to know is what they have in the public domain that their competitors or their tenants’ competitors can use to their disadvantage, and to think about how to minimize what they put in the public domain. “Where I find people get surprised is by how broad public records laws are,” said Ziance. “Unless it’s a trade secret—and that’s a very high standard to meet—almost everything is public.”
Even choosing a project name can be a giveaway to competitors. It should go without saying, but don’t give away the name of your business in the project’s name in any filings or emails unless you absolutely have to do so. Ziance said he’d seen his fair share of techniques by companies to conceal their identity, everything from using college and high school nicknames to simply putting two random words together. However, some companies don’t do themselves any favors. “I have seen my fair share of things like ‘Golden Arches’ where people aren’t that creative,” Ziance said.
Sword and shield
Commercial real estate firms should worry, but not just about competitors getting an advantage. Reputation and public trust are hugely important when it comes to development projects. One developer recently found that out the hard way while trying to get a project approved by the local government. Development firm Provident Land Services had been trying to build an 80-acre mixed-use development in the Charlotte, N.C. suburb of Weddington. The proposed project was met with a lot of concern from area residents, who turned up in force at town council meetings and formed groups opposing the development. The project garnered so much backlash that one town meeting had to relocate to the local high school to accommodate crowds.
Through public records requests, one of the groups discovered emails between the developer and city leaders. The group claimed that the correspondence showed “a lack of transparency” about how the project timeline was presented to the public. The questioning of the communications between the developer and government officials played out in local media. Some of the groups eventually filed complaints with federal and state agencies about the development, and the town council ultimately rejected the project. A similar story played out earlier this year in Alexandria, Va., when activists opposing the overhaul of an art center obtained emails between developers and city leaders through public records requests and alleged collusion between developers and city officials.
Another important step real estate firms can take to protect information is communicating through service providers. That could mean accountants, lawyers, or even civil engineering firms, which often can get out ahead of permitting. Using a third-party as a contact and choosing a project name that doesn’t give away the company and its plans can further delay any word of a project getting out. “Being able to see what your competitors are doing is the way that public records law can be used as a sword,” he said, adding that by getting creative and using caution with filings and communication, the laws can also be used as a shield.
The idea is similar to using LLCs in commercial and residential real estate transactions, a common tactic among real estate firms, celebrities, and other high-profile individuals and companies. The federal government took aim at anonymous LLCs last year when it passed the Corporate Transparency Act (CTA) as part of the 2021 National Defense Authorization Act. The law was created to crack down on money laundering and the financing of terrorism by requiring the disclosure of information from corporations, LLCs, and similar entities. Rules in the act were due to go into effect earlier this year but have been pushed back.
Sunshine Laws haven’t changed much since they were enacted, except in the aftermath of the 9/11 terrorist attacks. Several states added exemptions for records relating to a building’s critical infrastructure and computer systems for publicly or privately-owned companies. “Basically, they didn’t want to make it easy for terrorists to know about computer systems or infrastructure,” Ziance said. As an expert in the field, Ziance has participated in several seminars on best practices for Sunshine Laws. He often polls attendees on whether they think non-disclosure agreements signed by the highest-ranking executive or official in the community would protect a project from the public. Most people answer yes, which is wrong. “There is a misconception that a signed NDA would have control over public records laws,” he said. “I’ve seen a lot of mayors and EDC officials sign NDAs that are not going to be binding against them. You can’t agree by private contract to something contrary to the law.”
Ziance’s advice for developers looking to start on a project is to get started early by pinpointing what information will be available to the public. Identifying which documents will need to be handed over to the government should be a part of your checklist. The documents could be sensitive from any standpoint, primarily from the perspective of a competitor’s or tenant’s competitor. “Come up with a strategy with in-house or external lawyers for minimizing disclosure of info and minimizing what at all possible for a public records request,” Ziance advised. Developments don’t stay a secret forever, but if you plan ahead, you have the opportunity to get creative and form a clear strategy. Doing so gives you better control over what information is revealed and when. And when communicating with city officials, always remember the front page test: how would this look if it were on the front page of a newspaper?