1. Circling the Wagons: General Partner Replacements

2. A Partnership is like a Marriage…
They are built & thrive on trust that both partners will honor their commitments and communicate honestly, openly, and often.

3. Yet some still end in Divorce…

4. Divorce can be messy and should be avoided if possible…
The Preferred Strategy: Don’t form a marriage with a partner likely to default.
Underwrite your partners thoroughly including:
Lien and Judgement Searches
Pending Litigation
Bankruptcy Searches
UCC Violations
Background Checks (including criminal)
Credit Checks
Financial Review
Reference Checks
Google Search
Review all parties including GP, Developer, Sponsor, Guarantors, Affiliates, etc. .

5. The Prenuptial Agreement – Partnership Agreement
Make sure to include partners’ respective expectations and establish grounds, mechanics, and consequences of and for default and removal.
Know and understand your agreement:
Which items are defaults
Which defaults are grounds for removal
What are the notice requirements
What are the cure periods for various types of defaults

6. The Prenuptial Agreement – Partnership Agreement
Common Removable Offenses Include:
Fraud, Gross Negligence, Willful Misconduct
Breach of Fiduciary Duty
Material Breach of Partnership Agreement, Guaranty, or Development Agreement
Breach of “Project Documents” (Loan Documents, Regulatory Agreement, etc.)
Actions by GP that cause loss of Partnership limited liability protections
Bankruptcy of GP or Guarantors
Material Mismanagement of the Project
Predefined Material Reduction in Tax Credits
It is recommended to include as a removable offense failure of GP to fund operating deficits even after the ODG has expired. If GP is not willing to support the project, should they really still be entitled to fees and residual value of the project?

7. Filing the Paperwork
Is this a voluntary or involuntary separation?
Removal for cause:
Strictly follow notice provisions
Take note of cure periods
None for things like fraud
Generally 10 days for monetary items
Generally 30 days for non-monetary items
Is it something that can even be cured?
What other consents or notices may be necessary?
Lender consent
State Agency consent or notice

8. Partner Response – What Happens Next
Removal notice may elicit some or all of the following responses:
Request for release from liability
Demand for payment of fees and/or value of interest
Dispute of the facts
Litigation
General Partner should not be rewarded for defaulting on its obligations by being permitted to simply walk away while the Limited Partner has millions of dollars at risk and faces potential recapture of tax credits and/or ongoing financial needs of the project.

9. Dividing the Assets – Financial Matters
*Always consult your financial and legal advisors*
Typical fees/amounts payable to the GP or affiliates may include:
Developer Fee
Partnership Management Fee
Incentive Management Fee
Property Management Fee
Operating Deficit or Support Loans
Treatment of various fees may depend if they have been earned or services were provided, if they are accrued, if they are part of basis, etc.
What does the LPA say? Hopefully you included these things in your prenuptial agreement.

10. What About the Kids?
Identify what other parties are involved or impacted:
Lenders
Soft Debt Providers
Service Providers
Management Agent
State Agency
State/Local Municipalities
How are they involved?
Are they related parties?
Are they willing to help?
Might they make things worse?

11. Finding a New Partner – The 2nd Marriage
The LP must be prepared to move on quickly!
Must designate a new GP immediately
A Partnership without a GP may be dissolved as a matter of law within 90 days
Will the replacement GP be an affiliate of the LP, the SLP, or an unrelated 3rd party?
If the answer is a 3rd party, what’s in it for them?
What are the economics of the deal?
What are the ongoing needs?
This should have been identified early in the process!