Operating Agreement Provisions Information
Operating agreements for real estate LLCs address: capital contributions (how much each member invests and the procedure for additional capital calls), profit and loss allocation (how profits and losses are distributed among the members, which may differ from ownership percentages), management structure (member-managed or manager-managed; who has authority to make decisions), distribution waterfall (the priority and order of distributions: return of capital, preferred return, catch-up, and profit split), major decision provisions (what decisions require unanimous or supermajority consent: sale of property, refinancing, major leases, and budget approval), transfer restrictions (limitations on selling or transferring membership interests), and dispute resolution (mediation, arbitration, and buy-sell provisions).
Florida Legal Definition
LLC operating agreements in Florida are governed by Florida Statutes Chapter 605 (Florida Revised Limited Liability Company Act). Under §605.0105, the operating agreement governs: the relations among the members, the activities and affairs of the LLC, and the powers and duties of the managers. Under §605.0103, the operating agreement may modify most default provisions of Chapter 605 (giving the members significant flexibility to customize the agreement). Under §605.0106, the operating agreement may not: unreasonably restrict the right of a member to information (§605.0410), eliminate the duty of loyalty or duty of care (but may modify them if the modification is not manifestly unreasonable), and waive the covenant of good faith and fair dealing. Under §605.04074, a member may apply to the court for judicial dissolution if: the management is unable or unwilling to take action, or the members are deadlocked.
How It's Used in Practice
In practice, attorneys draft operating agreements for real estate LLCs with specific attention to the unique needs of real estate ventures. The attorney: structures the capital contribution provisions (specifying: initial contributions, additional capital call procedures, and consequences of failure to fund), designs the distribution waterfall (the priority and order of distributions, including preferred returns and promoted interests), defines management authority (who manages day-to-day operations, and what decisions require member consent), addresses financing provisions (who has authority to enter into and sign loan documents, and who provides personal guarantees), includes buy-sell provisions (triggered by: death, disability, bankruptcy, or deadlock), and addresses tax provisions (§704(b) allocations, tax elections, and reporting). Common issues include: capital call defaults (members who fail to fund their committed capital), distribution disputes (disagreements about how and when to distribute profits), and management disagreements (conflicts over property management, leasing, and disposition decisions).
Key Takeaways
- Operating agreement governs: capital, profits, management, and exit.
- Florida Ch. 605: most provisions are modifiable by agreement.
- Distribution waterfall: return of capital, preferred return, then profit split.
- Major decisions: sale, refinance, and large leases may require consent.
- Buy-sell provisions essential: triggered by death, disability, or deadlock.
Disclaimer: The information and opinions provided are for general educational, informational or entertainment purposes only and should not be construed as legal advice or a substitute for consultation with a qualified attorney. Any information that you read does not create an attorney–client relationship with Barnes Walker, Goethe, Perron, Shea & Johnson, PLLC, or any of its attorneys. Because laws, regulations, and court interpretations may change over time, the definitions and explanations provided here may not reflect the most current legal standards. The application of law varies depending on your particular facts and jurisdiction. For advice regarding your specific situation, please contact one of our Florida attorneys for personalized guidance.
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