WAIVERS OF OWNERSHIP LIMITATION PROVISIONS IN REIT CHARTERS 46 light of all available facts and circumstances, as above. The fact that the board determined to grant or not grant a waiver in a previous instance, even on similar facts, is not dispositive or even informative on whether the board should grant or withhold a waiver in any other instance.25 If the board determines to grant a waiver to an investor, there are a series of decisions to be made (and/or negotiated) with respect to the scope and terms of the waiver, including: • Scope. Who is covered by the waiver and how long does it last? Is it strictly the investment management company or does it extend to any or all of its client funds? Are affiliates included and how are affiliates defined? The typical formulation is for the waiver to extend to the investment management company and all its client funds as a group, but not to any one of them individually. Waivers are typically strictly nontransferable and provide that the waiver will automatically terminate with respect to any shares transferred by the waiver recipient.26 • Excepted Holder Limit. Up to what percentage threshold should the investor or investor group be permitted to own (generally referred to as the “Excepted Holder Limit”)? It is not uncommon in today’s world of supersized mutual funds to receive requests for waivers up to 15%, 18% and even 20% of the total outstanding stock of a REIT. As indicated above, the board of directors must carefully weigh all relevant facts and circumstances in determining how high an Excepted Holder Limit might be appropriate in any given situation. • “Use It or Lose It.” Should the waiver be given on a “use it or lose it” basis, so that if the recipient subsequently sells any shares owned in excess of the standard ownership limit in reliance on the waiver then the waiver is permanently reduced by that same number of shares? Alternatively, the waiver can provide the recipient with the flexibility to freely sell and reacquire shares in excess of the standard ownership limit and below the Excepted Holder Limit, but if total holdings ever fall below the standard ownership limit, the recipient may not again acquire shares beyond the standard ownership limit without applying for and receiving another waiver. Or, even if the waiver remains intact, is there a lower percentage threshold, say 5.0%, below which the waiver automatically terminates or should the waiver continue indefinitely irrespective of then-current ownership? As an alternative to automatic termination, perhaps the waiver should provide the board with the flexibility to notify the recipient of a “use it or lose it” ratcheting down of the Excepted Holder Limit? • Scope of Representations. Most waivers are given by the board of directors on the basis of representations made to it by the investor group/recipient (often referred to as an “Excepted Holder”) and the waiver is typically conditioned on the continued accuracy of these representations. If a representation lapses or otherwise becomes inaccurate, the waiver automatically terminates. Representations a board might want to require include, as applicable: • that the collective ownership of the Excepted Holder group is not and will not be in excess of the Excepted Holder Limit; • that no single member of the Excepted Holder group owns or will own shares in excess of the standard ownership limit; • that ownership of shares by any member of the Excepted Holder group does not and will not cause any “individual” (as defined under Section 542(a) of the Internal Revenue Code) to be the beneficial owner of shares in excess of the standard ownership limit or a specified lower percentage; • if the Excepted Holder group includes an investment management company, that such company itself does not and will not own shares for its own account in excess of, say, 1.0% of the outstanding REIT shares; • if applicable, that all members of the Excepted Holder group are eligible to report their beneficial ownership of REIT shares (whether or not required) as a Schedule 13G filer and not as a Schedule 13D 25 Section 2-405.1 of the Maryland General Corporation Law provides that a director’s standard duty of care (i.e, to act in good faith, in the best interests of the corporation and with the care of an ordinarily prudent person in similar circumstances) applies to all acts and decisions the director makes in his/her capacity as a director and that acts or decisions by a director with respect to extraordinary transactions “may not be subject to a higher duty or greater scrutiny than is applied to any other act of a director.” Moreover, the General Assembly of Maryland recently adopted amendments to Section 2-405.1 to further clarify that Maryland does not impose a heightened duty of care in any “transaction or potential transaction involving the corporation.” See Venable LLP Client Memo, “Maryland Legislature Amends the Maryland General Corporation Law and the Maryland REIT Law to Clarify Director and Trustee Duties,” April 27, 2016 (available at https://www.venable.com/nep/ publications/NewslettersList.aspx). 26 In the real estate private equity sector, where a real estate investment fund might invest a significant amount of equity capital in a public REIT in connection with an initial public offering or otherwise, the waiver may contain limited transferability rights.