Limited Partner’s Capital Account Balance Found Not Relevant to the Purchase Price

MINNEAPOLIS – April 10, 2020 – Winthrop & Weinstine, P.A., along with co-counsel from the law firm of Byrd Campbell, P.A., has helped another general partner in the Low Income Housing Tax Credit (LIHTC) industry secure another important victory in a Year-15 Exit dispute.

In 2002, the general partner of Berkshire Club Partners, Ltd. developed a 288-unit affordable housing complex in the Orlando area.  The development was financed with a tax credit investment from Key Investment Fund Limited Partnership XII as limited partner but, after several years and various limited partner transfers, the limited partner interests were eventually owned by CTCW-Berkshire Club, LLC, which is controlled by Hunt Capital Partners, LLC.  In February, 2018, the general partner exercised its option to purchase the limited partner interests in the LIHTC partnership pursuant to a contractually mandated process and option price.  However, the limited partner refused to accept the tendered proceeds, claimed that a positive capital account balance of more than $5.3 million needed to be included in the purchase price, and later declared alleged defaults under the partnership agreement to support an initiative to remove the general partner from the partnership in order to prevent the acquisition of the limited partner interests.  Prior to exercising its option, the general partner had never been accused to be in default of its obligations, never had any performance issues raised, and had diligently served as general partner for more than 15 years, delivering the anticipated tax and other benefits to the preceding limited partner.

On April 8, 2020, following motions for summary judgment and an order denying the limited partner’s motion to appoint a receiver to take over control of the LIHTC partnership from the general partner, a court in Florida’s 9th Judicial Circuit ruled decisively in the general partner’s favor.  The court held, among other things, that there were no grounds to remove the general partner from the partnership and that the option purchase price is determined “as if there were a hypothetical sale of the Project, not as if the Partnership were being dissolved or liquidated” as the limited partner argued.  As a result, the court rejected the limited partner’s arguments that the price “must also include credit for Defendant’s capital account balance” because, in part, there is “no need to consider capital account balances in the hypothetical sale used to determine the Purchase Price” since the exercise of the option “does not involve a liquidation or dissolution of the Partnership.”  Concerning the limited partner’s alleged defaults lodged to remove the general partner and prevent the option, the court found they were “baseless and intended to deprive” the general partner of its rights.  Lastly, the court ordered the immediate transfer of the limited partner interests to the general partner, and reserved jurisdiction to enter a damages order and an award of attorney’s fees following a bench trial scheduled for September.

This significant outcome is similar to several other cases where Winthrop has been able to help its clients over the last six years to obtain equally important case law impacting the LIHTC industry and protecting general partner rights at year-15.  For instance, earlier this year, in the case of Centerline/Fleet Housing Partnership, L.P. et. al v. Hopkins Court Apartments, L.L.C. et. al, where the limited partners are affiliated with Alden Torch Financial, Winthrop helped Hopkins Court Apartments secure a summary judgment decision in Buffalo, New York.  The decision provides that the exercise of a general partner’s option to acquire a limited partner’s interests in a LIHTC partnership does not trigger a liquidation or dissolution of the partnership, and thus does not require consideration of positive capital account balances in the hypothetical sale used to determine the option price.  And, in the matter of Centennial Partners, LLC v. ORC Tax Credit Fund 10, LLC and SCDC, LLC, where the defendants were affiliated with Wentwood Capital Advisors, Winthrop helped Centennial Partners secure a summary judgment decision in Milwaukee, Wisconsin.  The decision confirmed that the purchase of the investor limited member’s interests in the LIHTC company was not a capital transaction and thus did not require consideration of a positive capital account balance.  Following this and the subsequent trial, Centennial Partners was awarded damages and ultimately acquired the limited member interests for less than $6,000, rather than the more than $1.7 million sought by Wentwood.

“We are thrilled with these recent results for our clients, and for our other clients impacted by these signficiant decisions,” said David Davenport, a shareholder at Winthrop & Weinstine representing the general partners and managing member in each of these important cases.  “We know that our clients are not alone in facing these challenges because the LIHTC industry continues to change and preservation challenges exist around the country.  As we continue our representation of LIHTC developers and learn of more disputes like these, especially where our clients find themselves in LIHTC partnerships with parties often referred to in the industry as Aggregators, we hope to continue doing our part for the preservation of affordable housing and protection of general partner rights.”

Year-15 Exit disputes are hyper-specialized and often involve parties whose objectives have changed due to changes in ownership structures since inception of the LIHTC partnerships. Adding to these complex issues is the fact that, because it is still a relatively young industry, there is very little case law involving LIHTC partnerships to cite when resolving these disputes. Since 2013, Davenport has led litigation and other efforts for general and managing partners in disputes in more than 15 states in more than 36 cases and other matters that have involved approximately 100 LIHTC developments.

To learn more about Winthrop & Weinstine’s work with affordable housing and Year-15 issues, visit and access David Davenport’s experience through