SUBLEASING CONSIDERATIONS FOR TENANTS AND LANDLORDS

May 8, 2018 | by

Some tenants think that subleasing office space is a more attractive alternative to signing a direct lease in an office building. For example, a tenant may find better space or a shorter lease term with a sublease versus direct lease. However, tenants should consider some potential challenges to subleasing before signing a letter of intent. Our motto is “every sublease is different.” Here are some things to think about.

  1. Time and Cost: Subtenant’s counsel will need to review the prime underlying lease as well as the sublease agreement. In many cases, counsel will also need to review and negotiate a landlord consent agreement as well. Therefore, the document review and negotiation for a sublease may wind up being as, or more, time consuming and costly versus negotiating a direct lease. If the lease provides that a separate approval process has to occur before the landlord will consent to the subtenant’s

HIDDEN CASH FLOW DISTRIBUTION RESTRICTIONS IN LOAN DOCUMENTS (COMPARATIVE ANALYSIS FOR BORROWERS AND LENDERS)

May 8, 2018 | by

When a borrower places a lien on a commercial real estate (“CRE”) asset as part of a lending transaction, part of the collateral granted includes an assignment of the rents generated by the asset (often defined broadly in the loan documents, “Rents”). Unless a CRE loan is made subject to some form of pre-default cash management/clearing or some other restriction on budget or cash flow, a borrower receives, manages and distributes Rents without lender oversight or restriction unless and until there is a loan default. Consistent with this status quo, the loan documents will often provide that the borrower has a license to collect, receive and enjoy Rents until there is a default under the loan, at which point the lender has the right to revoke such license. For purposes of this article, we will refer to a loan that is not subject to cash management/clearing as an “Ordinary CRE …

JR KASMAN, PLLC TRANSACTION TIP SERIES: CONSIDER ADVANCE PERMISSION FOR UTILITY EASEMENTS

February 12, 2018 | by

CONSIDER ADVANCE PERMISSION FOR UTILITY EASEMENTS: The grant of utility easements, even if within the ordinary course of business or beneficial to a property, may fall within a transfer restriction, or other restriction, in loan/financing documents. Consider whether the following language (or other language appropriate in your circumstances) might be a helpful addition to your borrower/owner client’s loan documents to avoid an unintentional default under a loan or recourse liability under a non-recourse carve-out guaranty. Often times, a non-recourse carve-out guaranty will provide for full recourse in the event of a prohibited Transfer (which may technically include the grant of a utility easement).

The granting of easements for public utilities or for other public purposes consistent with the intended use of the [Property/Common Elements] shall not be deemed a transfer within the meaning of this clause.

JR KASMAN, PLLC TRANSACTION TIP SERIES: REAL ESTATE TAX PRORATIONS

January 29, 2018 | by

Before our clients sign contracts for the purchase or sale of commercial real estate, we confirm with local counsel what the real estate tax adjustment or proration will consist of. Many parties will stick to a general boilerplate provision in a contract providing that real estate taxes will be adjusted as of the closing date. However, the standard boilerplate provision may not work well in certain jurisdictions depending on when taxes are assessed and what the local custom is. For example, we recently worked on a sales contract in the Midwest where it is customary for only taxes that become delinquent in the year of closing to be adjusted. Additionally, in some cases there may be special assessments or other unique local features of the real estate tax law you want to address specifically in the contract. If the parties desire, it may be helpful to include a “for example” …

Legal Information Does Not Equal Legal Advice. The information posted on our website does not create an attorney client relationship.