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Who Is in the Chain of Liability for OFAC Noncompliance?

By Michael S. Strauss and Thomas Pomella

By now many of us have either heard or read several articles written about compliance with the Executive Order 13224, titled “Blocking Property and Prohibiting Transactions with Persons Who Commit, Threaten to Commit, or Support Terrorism” (the “Executive Order”). Although the probability of leasing or selling to any “Persons Who Commit, Threaten to Commit, or Support Terrorism,” is extremely low, the consensus among the real estate bar seems to be that it is better to comply with the Executive Order and protect yourself and your client rather than risk the stiff penalties and stigma that would follow by inadvertently violating it. It is apparent that the creation of a Landlord-Tenant relationship or a conveyance of a property interest would give rise to an obligation to comply with the Executive Order, thereby triggering all of the potential liability associated with violating it.

While the signing of the Executive Order has created many unanswered questions, two questions that this article addresses are: What responsibility does an overlandlord have in ensuring compliance with the Executive Order by any subtenants? Can liability be shifted to the broker for compliance?

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