Commercial Leases: Risk Mitigation Strategies for Landlords and - - PowerPoint PPT Presentation

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Commercial Leases: Risk Mitigation Strategies for Landlords and - - PowerPoint PPT Presentation

Aug 11, 2023 334 likes •768 views

Presenting a live 90-minute webinar with interactive Q&A Commercial Leases: Risk Mitigation Strategies for Landlords and Tenants WEDNESDAY, OCTOBER 10, 2012 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Todays

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Commercial Leases: Risk Mitigation Strategies for Landlords and Tenants

Today’s faculty features:

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific

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WEDNESDAY, OCTOBER 10, 2012

Presenting a live 90-minute webinar with interactive Q&A

Iryna Lomaga Carey, Partner, Kurzman Eisenberg Corbin & Lever, White Plains, N.Y . Gregory G. Gosfield, Partner, Klehr Harrison Harvey Branzburg, Philadelphia Jeremiah Welch, Partner, Saxe Doernberger & Vita, Hamden, Conn.

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Commercial Leases: Risk Mitigation Strategies for Landlords and Tenants

Iryna Lomaga Carey, Esquire Kurzman Eisenberg Corbin & Lever, LLP (914) 286-6372 icarey@kelaw.com Gregory G. Gosfield, Esquire Klehr Harrison Harvey Branzburg, LLP 215.569.4164 ggosfield@klehr.com Jeremiah M. Welch, Esquire Saxe Doernberger & Vita, PC 203-287-2100 jmw@sdvlaw.com Strafford CLE Webinar Wednesday, October 10, 2012 1:00 pm – 2:30 pm

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10 Risks and Risk Allocation Vehicles

– Rent – Taxes – Insurance/Indemnity – Operating Expenses – Third Party Covenants

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10 Risks and Risk Allocation Vehicles

– Defaults – Dispute Resolution – Consensual Defraying Risk – Non-consensual Termination – Bankruptcy

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Rent

  • Lease Type Base on Rent

– “Gross Lease” – “Net Lease” – “Double Net Lease” – “Triple Net Lease” – “Bondable Lease”

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Additional Rent

  • Taxes

– Tenant Carve Outs – Distortions from Tenant’s Pro Rata Share

  • f Taxes

– Tax After Subdivision or Condominium – Distortions from Tax Disputes in Office

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Additional Rent

  • Insurance

– Property Insurance

  • Types of Property Coverages
  • Base Coverage
  • Landlord Portfolio Coverage
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Additional Rent

  • Insurance

– Property Insurance

  • Insured Property
  • Casualty: Lease Continuation
  • Casualty: Lease Termination
  • Tenant Leasehold Interest
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Additional Rent

  • Insurance

– Types of Liability Insurance – Types of Insurers – Evidence of Coverage – Deductibles, Reimbursement, Under- Insurance and Self-Insurance

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Additional Rent

  • Insurance

– Tenant Negligence – Exculpation, Exemption and Exclusion

  • Landlord Exculpatory Clauses
  • Tenant Exculpatory Clauses
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Additional Rent

  • Assumption of Risk – no fault
  • Conditions to Indemnity

– notice – no prejudice – co-operation – no settlement – mitigation

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Additional Rent

  • “Operating Costs”/”Common Area

Maintenance” - neither

– Capital Expenditures

  • Amortization Period for added rent
  • Exemption for beginning and end of lease
  • Interest Carry
  • Compliance with Law
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Additional Rent

  • “Operating Costs”/”Common Area

Maintenance”

– Capital Expenditures

  • Pass Through of Savings only
  • Exhausted Useful Life or repair
  • Cost Effective
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Additional Rent

  • “Operating Costs”/”Common Area

Maintenance”

– Administrative Costs – Controllable Costs – “Gross Up”

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Tenant Costs

  • Hidden Tenant Costs

– Landlord Contractor and Service Limitations

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Tenant Costs

  • Electricity
  • Tenant obtains separate independent service
  • Tenants pays its “share”
  • Submetering measured by landlord
  • Utility is included in gross rent
  • Tenant installs alternative energy generation

devices

  • Cost of after hours service
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Third Party Covenants

  • Exclusive use/Prohibited Use
  • Tenant wants enforcement rights
  • Tenant remedies for non-enforcement
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Consensual Exits: Assignment or Sublease

  • Extinguish options: extension, scale up,

scale down

  • Extinguish or soften exclusives
  • Fee/Profit-Sharing
  • Tighten covenants: “kick-out” for

financial ratio or performance

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Consensual Exits: Assignment or Sublease

  • Consent and stipulation for eviction
  • Tenant further investment in

improvements

  • No further tenant transfer
  • Landlord relocation right
  • Landlord redevelopment and

termination rights

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Consensual Exits: Assignment

  • Assignor

– like guarantor, unreleased – No right to mitigate – No further ownership liability – No duty to assignor

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Consensual Exits: Sublease

  • Sublandlord

– Remains in title – Right to mitigate and terminate sublease

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Consensual Exits: Sublease

  • Subtenant

– Sublandlord bankruptcy/default risk – No privity with prime landlord or its mortgagee – Non-disturbance

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Defaults

  • Remedies

– Tenant Default

  • Rent Acceleration
  • Re-entry
  • Duty of Mitigation
  • Self-Help
  • judgment in advance
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Defaults

  • Remedies

– Landlord Default

  • Lease Termination
  • Setoff
  • Windfall Claims
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Dispute Resolution Alternatives

  • Mediation

– Benefits – Detriments

  • Arbitration

– Benefits – Detriments

  • Litigation
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Consensual Exits: Termination Agreements

  • Landlord Advantages

– Eliminate chronic drama – Stop hemorrhaging (legal) expenses – Prevent fear of bankruptcy – Reposition space – Speedy repossession for redployment

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Consensual Exits: Termination Agreements

  • Tenant Advantages

– Skip continuing expense – Secure strategic shedding of location – Avoid imminent call for upgrades – Eliminate festering disputes

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Consensual Exits: Termination Agreements

  • Posture and Protocol – Pre negotiation

Agreement

– Single representation – No change of position – Confidentiality of settlement negotiations – Admission/no admission of default – Come current/escrow rent

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Consensual Exits: Termination Agreements

  • Consideration – who pays whom
  • Diligence – what claims by contract,

statute or tort

  • Inspection – condition of surrendered

space, improvements, equipment (who gets it)

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Consensual Exits: Termination Agreements

  • Covenants– pay; turnover; cooperate
  • Representations and Warranties
  • no undisclosed liabilities;
  • power and validity;
  • no third party claims;
  • no violations of law
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Consensual Exits: Termination Agreements

  • Release of Claims /Snapback for

conditions subsequent

  • mutual;
  • floor/ceiling;
  • pre-transfer/post-transfer
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Consensual Exits: Termination Agreements

  • Indemnity, hold harmless, protect and

defend against third party claim - collectibility;

  • Waiver of defenses
  • Releases
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Consensual Exits: Termination Agreements

  • Transfer of Property and form of

Transfer

  • Surrender
  • Assign
  • Consents
  • Survival of Obligations or Releases -

known or unknown conditions

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Consensual Exits: Termination Agreements

  • Holdover – consent to judgment and

eviction

  • penalty rent
  • extinguish releases
  • reinstate guaranties
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Consensual Exits: Termination Agreements

  • Conditions to Surrender –
  • date certain;
  • material conditions;
  • third party (lender, co-tenancy)

approval;

  • substitute tenants.
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Bankruptcy Issues

  • Background
  • Tenant Bankruptcy

– Assumption Generally – Assumption of a Shopping Center Lease – Rejection Generally

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Bankruptcy Issues

  • Letters of Credit as Security Deposits

– Landlord Collateral – Letter of Credit

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Bankruptcy Issues

  • Landlord Bankruptcy

– No further obligation to tenant – Landlord breach of lease