What is a CR2A Agreement?
A CR2A agreement is a legally binding contract containing a parent’s consent that is approved by a judge and entered as an order with the court. A CR2A agreement is typically used by parents who have not been married to each other but are both involved in their children’s lives. The agreement sets out the terms of the relationship between the parents and how it will work for them, including provisions about who will pay which expenses, such as childcare costs, how often each parent will be the primary caregiver for the child, which parent will assume the cost of the different types of medical insurance, requirements for the parents to give notice of material changes in income , and other issues important for their family.
While many people believe CR2A agreements are specific to North Carolina, they are not. North Carolina has a family law business court aimed at expedited handling of business law issues, and a judge who handles such cases will enter CR2A agreements. Further, North Carolina is not the only state that has the family law business court. South Carolina is one such state, as is Georgia. In Georgia, on a voluntary basis for the parties, a child custody statute permits parties to give recognition to certain agreements by requesting that they be ordered as a consent judgment.
Understanding the Legal Framework Behind CR2A Agreements
The legal framework for Child Relocation Agreements and the relocation of children under those agreements will be governed largely by the Children Act 1989 ("the CA1989"). The most significant parts of the CA1989 pertaining to these issues fall under section 1 and section 13.
Section 1(1) of the CA1989 sets out the parameters within which the welfare of a minor child is dealt with. It essentially lists the criteria under which a court is to determine what is in the best interests of a child when considering what is considered to be a "welfare issue". This includes standard criteria such as the child’s physical and emotional needs, the likely effects on the child of any change in their circumstances, and all other relevant factors in the case surrounding the welfare of the child. This is important in that it will provide the criteria – or at least the basic structure of them – under which any application for leave to relocate the child will be judged.
In order to relocate a minor child outside of the jurisdiction, one would either need to apply for a Specific Issue Order under s.8 of the CA1989 to do so, or alternatively, give notice under s13 of the CA1989 and have the other party fail to make an application under S 13(2) of the CA1989 to prevent the removal. Failure to do so may result in a charged under s.13(3) of the CA1989 which states that a party may be liable upon summary conviction to a fine or term of imprisonment if a child is taken to a country outside of the jurisdiction without consent.
The Children (Access to Treatment)(England) Act 1987 considers the necessity for consent to be obtained from one person only for the child to be able to access treatment. It applies only in relation to medical treatment and does not extend to dental treatment, surgical treatment, treatment involving anaesthesia, and the like. It will be necessary to obtain the consent of just one of the parties to obtain treatment in a situation such as this.
Elements of a CR2A Agreement
The essential components of a CR2A (Confidential Research Agreement) agreement generally focus on defining the scope of the collaboration while protecting the interests of both parties. The primary inclusions in these contracts address confidentiality, termination clauses, intellectual property rights, warranties, indemnification, governing law, and dispute resolution.
First and foremost, as denoted by its name, a CR2A must address the confidentiality and disclosure of information in connection with the study. One of the primary aims of a CR2A is to protect the information that your business may be disclosing. Therefore, in reviewing a proposed Agreement, this section should be your primary focus. The information this contract is intended to cover should be clearly defined, including:
These items can be further detailed by specifying the type of information (confidential research information), the subject matter of the confidential research, or the nature of the confidential research information (methods, results, reports, etc.).
Depending on the particular transaction and whether you are the "sponsor" or "researcher," the circumstances of your company possibly disclosing their information should be detailed. Companies tend to be more concerned about protecting their information than are researchers because a disclosure of important intellectual property can significantly harm a company’s market position. For sponsors, a well drafted CR2A can prevent a researcher from using the sponsor’s information, either for the researcher’s own purposes or disclosing them to a competing sponsor.
For this reason, even if a party to the CR2A is performing a study for a "sponsor," the CR2A may prevent the researcher from disclosing a "sponsor’s" proprietary research information to another third party "sponsor." A basic agreement that only deals with the disclosure and non-disclosure of information may not protect such a situation and caution should be taken before entering such an agreement. At a minimum, a contract that contains adequate intellectual property clauses will provide better coverage to both parties.
Another item commonly addressed in a CR2A is a termination clause, including notice and deliverables. Some basic CR2A agreements will have few or no clauses regarding completion of the study.
In general, termination clauses address what steps need to be taken if the project is terminated, so that all parties know their obligations and rights in the event of termination. Further, termination clauses address the deliverables required. These clauses should be expressly detailed in the agreement to avoid disputes regarding the study deliverables.
A warranty clause can define the quality and reliability of the research data or other deliverables provided by the researcher. Warranties can also encompass "efforts" that the researcher must use to produce the deliverables. For example, a warranty clause can require a researcher to use "reasonable efforts." Reasonable efforts are generally considered a standard of care that must be used. If the standard is not achieved, the researcher would be liable for breach of the warranty. However, it is difficult to measure or determine how efforts will move from one stage of a contract to another over the term of the contract. A warranty clause can address this problem by defining the standard of care more clearly, detailing the steps that will be required or setting out the tests or procedures that will be used for several critical stages of the study.
A CR2A should also list the parties covered by the agreement. Generally, the term "parties" includes the parties who signed the contract, but in practical use, the boundaries of a "party" could be expanded or contracted depending on the situation. For example, affiliates, contractors, agents, servants, and successors of a "party" can be included in the definition of a party, but this cannot be assumed a priori. Accordingly, it is important to pay attention to the definition of the term "party" because the outcome of any legal issues arising from the agreement may hinge on this definition.
A CR2A is an important document in a research transaction. Any missing or vague provisions can lead to disputes that may damage or delay the timely completion of the study. Failing to include certain items in a CR2A may limit the rights of a party where it should have been given broader protections. Further, broad or unclear terms in a CR2A could limit the rights of the parties when coverage may have been granted.
Differences Between CR2A Agreements and Other Agreements
CR2A agreements differ from other types of contracts in several ways. First, they are typically free standing agreements which the Court is asked to enforce, and are not part of an existing agreement, as is usually the case with CR2 agreements. Some other main differences are:
a. CR2A agreements are not subject to statutory legal advice requirement as is the case with a CR2 agreement
b. It is not necessary that the credit provider give a copy to the debtor
c. There is no requirement to file the agreement with the Court
d. There is no requirement to serve the agreement on the debtor before it can be enforced
f. The debtor cannot rely on any defence arising from a related agreement
g. The regulations are not identical to those that apply to CR2 agreements
h. There are no statutory limits to the charges or interest that can be imposed
i. The agreement does not include any of the prescribed terms found in a CR2 agreement
Pros and Cons of a CR2A Agreement
The first benefit to a party in entering into a CR2A is that an "effective date" is established. For example, if the parties have lettered a contract Ed Begley intends to enter into with the developer as the "effective date", then if either party defaults, the 180 days within which the parties have agreed to close the contract has begun to run.
Second, a party may enter into a CR2A with a Purpose Agreement with the purpose being to cure some existing defect in zoning or subdivision approval so that the conditional contract can be closed. In other words, the parties are closing the gap between what the developer has and what the owner has in order that the sale may close. This type of CR2A is especially useful in those situations in which a developer has fully improved the development but subsequently discovers that some defect in the earlier approvals will prevent the issuance of a certificate of occupancy for one or more of the residential buildings. In such a situation, the CR2A could take a form that does not specify a specific period of time for performance, but only that the period will expire once the defect is cured. Such a CR2A could also set out the developer’s obligation as well as the developer’s right to make the necessary changes.
Third, a CR2A can provide a mechanism to safely get from marker 1 to marker 2. For example, if the developer obtains a building permit on marker 1 and a final plat on marker 2, the parties may agree that the building permits for certain buildings and the final plat are a sufficient level of confidence to meet the 180 days. On the other hand , the developer may want to revert back to the broad based approval of a development plan. A CR2A might require the developer to keep an approved development plan in effect for the period of time. If the development plan expires before the end of the 180 day period, then the developer would need to apply for another development plan. A CR2A might also be used to confirm that the water service provider has adequate water service to meet the needs of the development. Of course, there are many other things that can be required under a CR2A.
This type of CR2A can also be used to limit a seller’s liability to its increased costs arising out of the breach of the agreement. Suppose the developer continues to close on marker 1 but in order to meet the 180 days, the developer must purchase raw land from some other owner that has a greater per acre expense. The developer’s added costs to meet the 180 days could be capped under a CR2A to protect it from the further claims of the owner whose building permit has expired or some similar situation in which a developer outlay increases because of the replacement cost of the improvement.
There are also disadvantages to using a CR2A particularly with respect to the developer. First, a CR2A may delay closing as the developer has no incentive to close as long as the replacement conditions exist. Second, the seller may lose its leverage in requiring the developer to comply with all of the development standards, unless the CR2A carefully limits the owner’s obligation.
Common Issues with CR2A Agreements
Despite their relative flexibility, CR2A agreements are not without their challenges. Common issues include disputes regarding distribution of tax credits, allocation of costs for environmental testing and remediation, and parcel assembly for redevelopment. In terms of tax credits, the CR2A offers only a general allocation of such. While some CR2A agreements may include specific parameters, the majority leave this process to be determined by the CR2A process itself, or fail to address this issue at all. While generally accepted that the CR2A is a performance-based agreement (meaning credits only can be obtained if the applicant constructs the improvements provided for in the CR2A), some applicants have suggested that the CR2A agreement should be entered into prior to making those improvements. They suggest assistance for any costs, regardless of whether those improvements are undertaken and whether the applicant obtaining assistance is the same as the applicant receiving the credits. Such an interpretation is inconsistent with the performance-based nature of the CR2A. With regard to environmental testing and remediation, in situations where an applicant is seeking incentives on multiple sites, it is common for the site to undergo environmental or geotechnical testing. The purpose is to determine feasibility for redevelopment. For example, the applicant may wish to do a Phase 1 Environmental Site Assessment, to determine if the conditions on the property are generally suitable for redevelopment. In other cases, the applicant may wish to do a Phase II or even Phase III Environmental Site Assessment, to determine the extent to which the property may need to be remediated to meet cleanup objectives. Often, these assessments are conducted at the applicant’s expense; however, the application often has no access to the properties without the assistance (which may be necessary to conduct the assessment). It is important to specifically address if the town will reimburse the applicant if the town does not approve the CR2A and address timing. Petitioners frequently have issues regarding assembling of parcels. This is especially true where a petition includes multiple parcels. Often, the applicant will apply for incentives only on a portion of the parcels. The issue arises when a portion of the designation is needed for access or parking. In such a case, the town can own the property in fee, but subject to a permanent easement for access and parking. This allows for the applicant and town to have control over the properties. However, practical difficulties arise when determining borders among the adjacent properties.
How to Draft a CR2A Agreement
This section should discuss tips for drafting an effective CR2A agreement. The section should provide guidance to counsel on how to ensure the resulting agreement is clear, enforceable, and in compliance with all applicable laws, and on what a client can expect in terms of the negotiating process, industry quirks, and timing issues.
Like any other business contract, good CR2A agreements result from careful drafting and attention to detail. Failure to observe best practices can result in unintended consequences, disputes, and liability. Counsel should take steps to ensure that CR2A agreements meet a number of litigation- and business-related criteria, including:
- Clarity and Certainty: The terms of a CR2A agreements should be clear so that an investor understands what it can and cannot do, and when. This involves not only discussing the activities prohibited by the agreement, but the situations that may fall into a gray area. Discussing a particular circumstance in detail may also help to indicate the intent of the parties. Provisions may also be needed where the terms permit certain actions to be taken in selected industries but not others.
- Enforceability: Provisions of a CR2A agreement must be enforceable under law. Non-compliance with applicable statutory disclosure requirements, such as the federal securities laws and various state blue sky laws, may render a CR2A agreement unenforceable. CR2A agreements should also avoid provisions that are not enforceable under the common law of an applicable jurisdiction, such as anti-boycott provisions that are really illegal tying arrangements or price-fixing agreements.
- Compliance With Applicable Statutory Notice Requirements: Certain statutes, such as the Food Drug & Cosmetics Act, the Consumer Product Safety Act, the Comprehensive Environmental Response Compensation and Liability Act, and the Occupational & Safety Health Act, impose notice requirements on both primary and secondary employers in certain situations (such as the occurrence of a reportable illness). Similar requirements are triggered when directors of not-for-profit corporations receive notice of events that might potentially give rise to liability. In-house counsel should familiarize themselves with these notice provisions in order to draft CR2A agreements that abide by them. Publicly-held companies are also subject to unique disclosure requirements that are outside the scope of the model CR2A provisions.
- Compliance With State Incorporation Choice Issues: Some states have special rules governing the formation of agreements that contemplate a buy-out of one or more parties. Counsel should be familiar with the applicable legal requirements for obtaining shareholder or member approval of these types of agreements, and should draft CR2A agreements accordingly.
- Inclusion of Exchangeable Investment Provisions: Some investors prefer investments that allow them to comply with the requirements of the Internal Revenue Service to qualify as "qualified small business stock." To comply with these requirements, CR2A agreements may include provisions to allow the investor to exchange its investment for preferred or common stock that will qualify as such. Complex tax issues may arise under these circumstances, and counsel should be familiar with the provisions that best satisfy these requirements.
- Timing issues: It may not always be possible to reduce a CR2A agreement to writing before a closing. In these circumstances, counsel should attempt to draft an interim agreement that takes the interests of all parties into account. Consider whether the effect of the primary transaction on the investor should be analyzed under securities laws, or under state corporate law.
- Circling the wagons: The contents of both binders are controlled by the non-disclosure agreement until the parties reach agreement on a CR2A agreement. Once the CR2A agreement terms have been agreed to, revise the binders to reflect the terms of the CR2A.
Case Studies of CR2A Agreements
The first notable case involving a CR2A agreement was Board of Managers of City Point Condominium v. Mount Triumph LLC, 158 A.D.3d 523 (N.Y. App. Div. 2018). This case involved Mount Triumph LLC’s action to recover approximately $1,600,000 in unpaid common charges from each of City Point Lot A, City Point Lot B, City Point Lot C and City Point Lot D, respectively. The 26-story mixed use condominium was constructed in the vicinity of Flatbush Avenue, Albee Square West and Fulton Street with the subject Lots comprising the retail component of the project. The CR2A agreement at issue provided that City Point Lot A, Lot B, Lot C and Lot D were not responsible for common charges at any time before certain events occurred. Moreover, it was the obligation of the owner of Lot A or Lot B to designate an event by which the lot would become responsible for common charges (assuming an event occurred). Notably, however, the CR2A agreement did not provide a mechanism to resolve a dispute between the owners of Lot A and Lot B as to which party was obligated to designate the event. In 2017, after finding that no party had designated an event, the executor of the estate of David Chipperfield resigned as executor and sued for a judgment declaring that Lot A triggered responsibility for paying common charges. Lot A became responsible, Lot B did not, and Lot A sought security for its contribution. The trial court disregarded Mt. Triumph’s suggestion that a mold of the retail condominium be used to apportion charges to Lots A and B, and refused to adopt Lot A’s objection that a 50-50 apportionment was unreasonable and unfair. The court of appeals affirmed after stating that: "In the absence of a provision in the CR-2A requiring the parties’ agreement to be governed by alternative dispute resolution procedures, the trial court gave no proper basis to suggest that the parties, having failed to agree during the six-month grace period, are now required to engage in the alternative dispute resolution."
Another case involving CR2A agreements is City Point Lot B LLC v New Schweitzer, LP, 153 AD3d 409 (1st Dep’t 2017). In City Point, Lot B , L.L.C. sought summary judgment dismissing defendants’ counterclaim in an action for a judgment declaring that Lot B is financially responsible for all common charges for the condominium complex pursuant to a Common Interest and Operating Agreement (CR2A agreement). Defendants moved for summary judgment dismissing the complaint as against 240 Third Street Associates, LP and Schaffer Global Group, LLC, seeking a declaration that Lot B is required to apportion the common charges to defendants in accordance with the terms of the operating agreement for the complex covering the subject condominium/lot. In an opinion joining the majority of recent cases, the appellate division found that the CR2A agreement at issue does not specify a mechanism to address a stalemate, which specifically states that no charge will be assessed if no owner designates its lot to be responsible for the payment of common charges, thus vacating the judgment of the lower court.
Most recently, a New York State Supreme Court, Appellate Division, First Department decision, City Point Lot A LLC v 240 Third St Assoc., LP (160 A.D.3d 532 [1st Dept 2018), further adds to the growing list of cases addressing CR2A agreements. Facts are similar to Mt. Triumph. In 240 Third St Assoc the CR2A agreement provides that Lot A is not required to pay to the Declarant [the developer] any common charges, until such time as two separate lots become designated lots upon an election by one of the owners. Subsequent to no owner making an election under the agreement, Lot A commenced the action. Defendants moved to dismiss on the ground that it was Lot B which was obligated to pay common charges.
In City Point Lot A, the trial court granted summary judgment to Lot A, finding that once an election is made by either lot, the owner is obligated to pay common charges. Defendants argued that a stalemate resulted in an obligation for Lot B to make an election. The Appellate Division affirmed the Supreme Court’s decision, finding that an adopted usage of "either" requires an election by both parties. Even though the agreements are silent regarding a stalemate, the courts will not interject a provision requiring the assertion of a right where the language does not require it. These cases require the owners to negotiate the provisions of the agreement with specificity.
