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” …

JR KASMAN, PLLC TRANSACTION TIP SERIES: UTILITY EASEMENTS

October 26, 2017 | by

Picture it — your client is in a rush to complete diligence on a potential acquisition and hates to pay for the cost of an ALTA survey in the event they decide not to move forward. I know many acquisition lawyers have experienced this at least once (particularly on mid-market deals). Some may assume that what appear to be standard utility easements are innocuous. However, utility easements must be reviewed carefully to assess risk. It is always best to review utility easements with a current ALTA survey in hand. Here are a few things your lawyer may look for:

1. Improvement Restriction: One of the most common provisions an attorney will review is whether the easement prohibits improvements from being located within a designated area. Although it may be rare to hear of a utility company suing to force removal of all or part of any improvements located in a …

JR KASMAN, PLLC TRANSACTION TIP SERIES: SUBSIDIARY TRANSFERS AND TITLE INSURANCE

June 26, 2017 | by

In this installment of our Transaction Tip series, we offer a reminder about owner’s title insurance policies. When you (or your client) plans to transfer real estate to a wholly owned subsidiary, remember to read your ALTA title insurance jacket to confirm coverage will continue. Section 1(d) of the 2016 ALTA Title Insurance Jacket defines “Insured” to include “a grantee of an Insured under a deed delivered without payment of actual valuable consideration conveying the Title:

(1) if the stock, shares, memberships, or other equity interests
of the grantee are wholly-owned by the named Insured,

(2) if the grantee wholly owns the named Insured,

(3) if the grantee is wholly-owned by an affiliated Entity of the
named Insured, provided the affiliated Entity and the
named Insured are both wholly-owned by the same person
or Entity, or

(4) if the grantee is a trustee or beneficiary of a trust created
by …

JR KASMAN, PLLC TRANSACTION TIP SERIES: NOTICE PROVISION CHECKLIST

April 8, 2017 | by

In this installment of our Transaction Tip series, we share a list of some questions to consider when drafting and revising notice provisions in contracts.

  1. Are the maximum number of delivery options included? Overnight courier (without naming a specific courier), hand delivery, certified mail, fax and/or email are commonly included. In all cases, it is always best to make sure hand delivery is an option for possible emergency situations.
  2. Have all parties included an address where overnight courier and certified mail can actually be delivered? For example, Federal Express may not deliver to a P.O. Box address. Some institutions have extremely long addresses including a mailstop – which may create problems for overnight courier. To be sure, it is wise to run addresses through a hypothetical Federal Express label process before signing a contract.
  3. Does the notice provision provide that notices are effective when received or delivered? If receipt or

JR KASMAN, PLLC TRANSACTION TIP SERIES: HEREIN LIES A PROBLEM

January 19, 2017 | by

The word “herein” is ubiquitous in contracts. When time permits, and your client allows, it is best practice to search for the term before executing a draft of any form of contract — loan documents, joint venture agreements etc. Often times, the word “herein” is contained in an enumerated section, paragraph or sub-section. Without using the term “this Agreement” or this “section” (as applicable) in lieu of “herein”, it may be unclear whether herein is referring only to the specific section or sub-section it appears in or the entire contract. As lawyers, we know that not every client permits time or cost flexibility for us to vet every ounce of boilerplate in a contract. However, it may be worth reminding clients that courts are not hesitant to interpret even simple terms in a contract. Recently, we read an article by Kelli Hinson of Carrington Coleman describing an instance where the …

JR KASMAN, PLLC TRANSACTION TIP SERIES: REPS, WARRANTIES, DEFAULTS & “RECORDABLE DOCUMENTS”

September 14, 2016 | by

We are pleased to announce that our Trending Report will include a series of “transaction tips” for drafting and reviewing commercial real estate and business contracts. Our first transaction tip in this series concerns representations and warranties in recorded documents. A variety of documents may be recorded in the land records where a property is located in connection with commercial real estate transactions. For example, a lender will record a mortgage or deed of trust (and sometimes a separate assignment of leases and rents) at the closing of a loan transaction. Often times, when a commercial loan is made, an unrecorded loan agreement contains a host of representations and warranties made by a borrower to the lender in connection with the subject loan. However, if a loan agreement is not required (or if the forms used in a transaction happen to do so) the representations and warranties may be contained …

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