Delaware Suit Brings Lessons For Externally Managed REITs

By Steven Haas and David Wright ( September 5, 2017, 11:18 AM EDT) -- A Delaware court recently denied a motion to dismiss a shareholder derivative suit brought against an externally managed real estate investment trust. The shareholder alleged that the board of directors breached its fiduciary duties by (1) renewing the REIT's management agreement with its external manager each year and (2) approving a transaction in which the REIT internalized its manager. The court held that the plaintiff had created a reasonable doubt as to whether the board of directors was adequately informed in making these decisions. As a result, the derivative demand requirement was excused. Although the decision was rendered on the pleadings without considering any evidence proffered by the defendants, the decision offers several takeaways for externally managed REITs and other investment advisers....

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