structuring financeable ground leases and leasehold...
TRANSCRIPT
Presenting a live 90-minute webinar with interactive Q&A
Structuring Financeable GroundLeases and Leasehold MortgagesBalancing Competing Interests Among Owners, Lessees and Lenders
1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific
THURSDAY, JULY 7, 2016
The audio portion of the conference may be accessed via the telephone or by using your computer'sspeakers. Please refer to the instructions emailed to registrants for additional information. If youhave any questions, please contact Customer Service at 1-800-926-7926 ext. 10.
Today’s faculty features:
1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific
Mitchell Cohen, Partner, Chernett Wasserman, Cleveland
Stephen E. Friedberg, Member, Mintz Levin Cohn Ferris Glovsky and Popeo, New York
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FOR LIVE EVENT ONLY
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FOR LIVE EVENT ONLY
If you have not printed the conference materials for this program, pleasecomplete the following steps:
• Click on the ^ symbol next to “Conference Materials” in the middle of the left-hand column on your screen.
• Click on the tab labeled “Handouts” that appears, and there you will see aPDF of the slides for today's program.
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I. Uses of Financeable Ground LeasesII. Terms of Financeable Ground LeasesIII. Rating Agency Concerns in Leasehold
Mortgage FinancingIV. Title InsuranceV. Questions and Answers
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I. Uses of Financeable Ground LeasesII. Terms of Financeable Ground LeasesIII. Rating Agency Concerns in Leasehold
Mortgage FinancingIV. Title InsuranceV. Questions and Answers
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Control over Construction Control over Property and its
Maintenance Financial Status and Ability to Construct
at a Cheaper Cost Impact on Rent Ownership of Improvements and Ability
to Finance Them
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Control over Construction Control over Property and its
Maintenance Financial Status and Ability to Construct
at a Cheaper Cost Impact on Rent Ownership of Improvements and Ability
to Finance Them
Decreased Risk of Construction Issues(e.g. cost overruns, issues meetingtenant criteria) No need to expend resources or obtain
financing Triple Net Lease (no maintenance
obligations) Ability to finance the fee (reversionary)
estate
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Decreased Risk of Construction Issues(e.g. cost overruns, issues meetingtenant criteria) No need to expend resources or obtain
financing Triple Net Lease (no maintenance
obligations) Ability to finance the fee (reversionary)
estate
General (Credit Tenants) Chain Stores Department or Big Box Stores Banks Fast Food and Other Chain Restaurants
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General (Credit Tenants) Chain Stores Department or Big Box Stores Banks Fast Food and Other Chain Restaurants
Essential to Negotiate a Letter of Intent("LOI") or Term Sheet The LOI or Term Sheet should have both
business and other essential terms of theproposed transaction Terms should include rights of
assignment, leasehold financing, use andother rating agency requirements
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Essential to Negotiate a Letter of Intent("LOI") or Term Sheet The LOI or Term Sheet should have both
business and other essential terms of theproposed transaction Terms should include rights of
assignment, leasehold financing, use andother rating agency requirements
Frees up Landlord’s Capital Provides Tenant with Control over
Construction and its Cost Provided ability of both the Landlord and
Tenant to Finance their RespectiveEstates Less Control for Landlords Financing is more Limited due to
Tenant's Ownership of Improvements
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Frees up Landlord’s Capital Provides Tenant with Control over
Construction and its Cost Provided ability of both the Landlord and
Tenant to Finance their RespectiveEstates Less Control for Landlords Financing is more Limited due to
Tenant's Ownership of Improvements
Pure Ground Leases Pad Leases Lease of a Condominium Unit
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Pure Ground Leases Pad Leases Lease of a Condominium Unit
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Reversionary Estate (definition anddifference from traditional fee estate) Leasehold Estate
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Reversionary Estate (definition anddifference from traditional fee estate) Leasehold Estate
Minimum Term Relation to Term of Leasehold Mortgage Initial Term Option Terms (Failsafe) Transfer Tax Concerns Right of Leasehold Mortgagee to Exercise
Term
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Minimum Term Relation to Term of Leasehold Mortgage Initial Term Option Terms (Failsafe) Transfer Tax Concerns Right of Leasehold Mortgagee to Exercise
Term
Tenant Finances Construction Obligation to Construct Nature and Limitation on Improvements Time Limitations on Construction
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Tenant Finances Construction Obligation to Construct Nature and Limitation on Improvements Time Limitations on Construction
Due Diligence and Inspection Period Obligations of Parties to Address
Environmental, Title or other Conditions Site Plan, Zoning, Permitting Approvals
and Time Periods and Responsibility
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Due Diligence and Inspection Period Obligations of Parties to Address
Environmental, Title or other Conditions Site Plan, Zoning, Permitting Approvals
and Time Periods and Responsibility
Leases are Always True Triple Net Obligation to Repair and Replace Exterior
and Parking Areas Common Area Maintenance Contribution
in a Building Complex or ShoppingCenter Setting
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Leases are Always True Triple Net Obligation to Repair and Replace Exterior
and Parking Areas Common Area Maintenance Contribution
in a Building Complex or ShoppingCenter Setting
Must have a broad use clause (affectsfinanceability and Rating AgencyApproval) Rights to Change Use Shopping Center Restrictions (Interface
with Exclusive Uses, etc.)
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Must have a broad use clause (affectsfinanceability and Rating AgencyApproval) Rights to Change Use Shopping Center Restrictions (Interface
with Exclusive Uses, etc.)
No Continuous Operations Go Dark (only with extensive predicate
dark and re-opening periods - may notbe financeable)
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Must have free and unfettered right toassign or sublet without landlord'sconsent Relationship to the use clause No recapture rights
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Must have free and unfettered right toassign or sublet without landlord'sconsent Relationship to the use clause No recapture rights
Rights to Curea) Monetaryb) Non-Monetaryc) Non-Curabled) Additional Cure Rights
Right to a New Lease Coordination of Rights of Fee and Leasehold
Mortgagees
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Rights to Curea) Monetaryb) Non-Monetaryc) Non-Curabled) Additional Cure Rights
Right to a New Lease Coordination of Rights of Fee and Leasehold
Mortgagees
Tenant to own improvements Right to Depreciate Landlord’s Rights to Improvements at the
end of the Term Maintenance of Improvements Impact on other terms of the Lease
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Tenant to own improvements Right to Depreciate Landlord’s Rights to Improvements at the
end of the Term Maintenance of Improvements Impact on other terms of the Lease
Alteration Rightsa) Interiorb) Exteriorc) Free Rights or Parameters
Demolition Rights/ Obligation to Rebuild Signage
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Alteration Rightsa) Interiorb) Exteriorc) Free Rights or Parameters
Demolition Rights/ Obligation to Rebuild Signage
Obligation to Leave Improvements Condition of Improvements Obligation/Option to Demolish
Improvements Deed or Bill of Sale for Improvements
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Obligation to Leave Improvements Condition of Improvements Obligation/Option to Demolish
Improvements Deed or Bill of Sale for Improvements
Obligation to Rebuild or to Demolish andRaze
Time Period before end of Term in whichTenant does not have to restore
Tenant’s (and Leasehold Mortgagee’s) Rightsto Insurance Proceeds
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Obligation to Rebuild or to Demolish andRaze
Time Period before end of Term in whichTenant does not have to restore
Tenant’s (and Leasehold Mortgagee’s) Rightsto Insurance Proceeds
Tenant’s Right to Proceeds for Improvementsand Leasehold Estate
Landlord’s Right to Award for the Land Tenant’s Rights to Terminate for Partial
Condemnation Tenant’s Rights to Terminate for Taking of
Parking Areas, Roadways or Curbcuts
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Tenant’s Right to Proceeds for Improvementsand Leasehold Estate
Landlord’s Right to Award for the Land Tenant’s Rights to Terminate for Partial
Condemnation Tenant’s Rights to Terminate for Taking of
Parking Areas, Roadways or Curbcuts
Differences between Standard Tenant SNDAbecause of Tenant’s Ownership of theImprovements (and Leasehold Mortgagee’s Rights)◦ Tenant’s absolute Right to Insurance Proceeds◦ Tenant’s Right to Condemnation Awards
Fee Mortgage SNDA and the more Limited Rights ofthe Fee Mortgagee
Underlying Lease Recognition Agreements
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Differences between Standard Tenant SNDAbecause of Tenant’s Ownership of theImprovements (and Leasehold Mortgagee’s Rights)◦ Tenant’s absolute Right to Insurance Proceeds◦ Tenant’s Right to Condemnation Awards
Fee Mortgage SNDA and the more Limited Rights ofthe Fee Mortgagee
Underlying Lease Recognition Agreements
Monetary Defaults Non-Monetary Defaults Non-Curable Defaults Additional Time for Leasehold Mortgagee
to Cure Rights to cure in Sale/Leasebacks
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Monetary Defaults Non-Monetary Defaults Non-Curable Defaults Additional Time for Leasehold Mortgagee
to Cure Rights to cure in Sale/Leasebacks
Limitation on Acceleration Remedies Self-Help
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Leasehold Mortgagees insist on beingExculpated Application to an Entity that owns the
Leasehold Estate after Foreclosure
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Leasehold Mortgagees insist on beingExculpated Application to an Entity that owns the
Leasehold Estate after Foreclosure
Obligation for a Memorandum of theLease to be Recorded Landlord Estoppel Obligations Tenant Estoppel Obligations
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Obligation for a Memorandum of theLease to be Recorded Landlord Estoppel Obligations Tenant Estoppel Obligations
Language to Insure that Landlord’s andTenant’s estates will never merge Protection of the Lender
33
Rights of First Refusal (Landlord’s,Tenant’s and Leasehold Mortgagee’sPerspectives) Rights of First Offer (Landlord’s, Tenant’sand Leasehold Mortgagee’s Perspectives)
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Rights of First Refusal (Landlord’s,Tenant’s and Leasehold Mortgagee’sPerspectives) Rights of First Offer (Landlord’s, Tenant’sand Leasehold Mortgagee’s Perspectives)
35
Ground Lease Recording – ground lease ormemorandum of leases must be of record
Financeability – must permit tenant's leaseholdinterest to be mortgaged by tenant
Term of Lease – must be sufficiently in excess ofthe term of leasehold mortgage facility
Ground Lease Assignable – must permitassignments of tenant's interest without consent oflandlord
Estoppel – confirms ground lease is in full forceand effect, has not been modified and there are nodefaults under lease
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Ground Lease Recording – ground lease ormemorandum of leases must be of record
Financeability – must permit tenant's leaseholdinterest to be mortgaged by tenant
Term of Lease – must be sufficiently in excess ofthe term of leasehold mortgage facility
Ground Lease Assignable – must permitassignments of tenant's interest without consent oflandlord
Estoppel – confirms ground lease is in full forceand effect, has not been modified and there are nodefaults under lease
Notice and Opportunity to Cure – affords leaseholdmortgagee opportunity to cure defaults and keepcollateral in place
New Lease – ground lease must provide leaseholdmortgagee with right to new lease in eventmortgaged lease is terminated (including by virtueof rejection in bankruptcy case)
Insurance/Condemnation Proceeds – lease mustcall for proceeds applied to property restoration orto pay down leasehold mortgage indebtedness
Liens – ground lease must be free of superior liensand encumbrances
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Notice and Opportunity to Cure – affords leaseholdmortgagee opportunity to cure defaults and keepcollateral in place
New Lease – ground lease must provide leaseholdmortgagee with right to new lease in eventmortgaged lease is terminated (including by virtueof rejection in bankruptcy case)
Insurance/Condemnation Proceeds – lease mustcall for proceeds applied to property restoration orto pay down leasehold mortgage indebtedness
Liens – ground lease must be free of superior liensand encumbrances
I. Introduction to Title Insurance for Leasehold Interests◦ When you should consider getting coverage◦ Lender’s Requirements
II. Reviewing the Title Exam and Issue Spotting◦ Is the Owner of the Land the same entity as the landlord named in the lease?◦ Are there Covenants or Restrictions of record that prohibit or limit the tenant's
intended use ?◦ Who are necessary parties to nondisturbance agreements?
III. Leasehold Policy Endorsements◦ ALTA 13 Endorsement Forms (Adopted 2001). Appendix I –(Owner’ s Form 13-
06) and Appendix II (Lenders Form 13.1-06)◦ New Definitions: Leasehold Estate, Lease, Eviction, Personal Property, Lease
Term, Remaining Lease Term, and Tenant Leasehold Improvements◦ Valuation of Estate◦ Covered Losses
IV. Determining the Amount of Insurance
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I. Introduction to Title Insurance for Leasehold Interests◦ When you should consider getting coverage◦ Lender’s Requirements
II. Reviewing the Title Exam and Issue Spotting◦ Is the Owner of the Land the same entity as the landlord named in the lease?◦ Are there Covenants or Restrictions of record that prohibit or limit the tenant's
intended use ?◦ Who are necessary parties to nondisturbance agreements?
III. Leasehold Policy Endorsements◦ ALTA 13 Endorsement Forms (Adopted 2001). Appendix I –(Owner’ s Form 13-
06) and Appendix II (Lenders Form 13.1-06)◦ New Definitions: Leasehold Estate, Lease, Eviction, Personal Property, Lease
Term, Remaining Lease Term, and Tenant Leasehold Improvements◦ Valuation of Estate◦ Covered Losses
IV. Determining the Amount of Insurance
Stephen E. FriedbergMintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.666 3rd Ave,New York, NY [email protected]
Mitchell CohenChernett Wasserman ,LLC1301 East 9th StreetCleveland, OH [email protected]
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Stephen E. FriedbergMintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.666 3rd Ave,New York, NY [email protected]
Mitchell CohenChernett Wasserman ,LLC1301 East 9th StreetCleveland, OH [email protected]