the battle between tenants and their phil1 712780-2 1.1. document review: lease, estoppel, snda,...

Download THE BATTLE BETWEEN TENANTS AND THEIR   PHIL1 712780-2 1.1. DOCUMENT REVIEW: LEASE, ESTOPPEL, SNDA, RENT ROLL, GUARANTY, LANDLORD LIEN WAIVER 1.1.1. Mortgagee – Lease Issue Analysis (a) Rent (i) Adequacy: base rent as gross, semi-net

Post on 09-Mar-2018

218 views

Category:

Documents

4 download

Embed Size (px)

TRANSCRIPT

  • PHIL1 712780-2 Copyright 2007, Gregory G. Gosfield. All Rights Reserved.

    THE BATTLE BETWEEN

    TENANTS

    AND

    THEIR LANDLORDS MORTGAGES Gregory G. Gosfield, Esq. Klehr, Harrison, Harvey, Branzburg & Ellers LLP 260 S. Broad Street Philadelphia, PA 19102-5003 Tel: 215.569.4164 Fax: 215.568.6603 GGosfield@klehr.com

  • 1 PHIL1 712780-2

  • 2 PHIL1 712780-2

  • 3 PHIL1 712780-2

    B. CAPITAL VALUATION:

  • 4 PHIL1 712780-2

  • 5 PHIL1 712780-2

  • 6 PHIL1 712780-2

  • 7 PHIL1 712780-2

    1.1. DOCUMENT REVIEW: LEASE, ESTOPPEL, SNDA, RENT ROLL, GUARANTY, LANDLORD LIEN WAIVER

    1.1.1. Mortgagee Lease Issue Analysis

    (a) Rent

    (i) Adequacy: base rent as gross, semi-net, fully net; bumps and step up formulas

    (ii) Pass-through: escalator, stops, caps, pro-rata share

    (iii) Percentage rent: break-point, inclusions, subrent

    (iv) Suspension: services, co-tenancy, revenue shortfall, parking

    (v) Reduction (purposes and amounts): free rent, set-off, deduction, advance rent, take-over rent, condemnation, casualty, revenue production, parking;

    (vi) Independent covenant or dependent for withholding rent.

    1.1.2. Termination (consistency among leases) substantial casualty, condemnation, buyout, kickout, failed completion, co-tenancy, failed SNDA, after mortgage term

    1.1.3. Uses conforming, permitted, exclusive, prohibited, radius, right to go dark; no violation of other leases exclusive uses or most favored nation

    1.1.4. Value preservation/repair (whose duty) , replacement (reserves), tenant improvements (who owns), options/right of first refusal, significant alterations, tenant negligence, lease, leaseback, concurrent (sandwich) lease

    1.1.5. Security Deposit cash, guaranty, letter of credit (transferability)

    1.1.6. Landlord Assignment by Landlord, acknowledgement of successor, no continuing liability

    1.1.7. Tenant Assignment Subletting, Transfer consent, criteria, cost of review, sharing premium rent

    1.1.8. No liens mechanics liens, priming liens

    1.1.9. Landlord Liabilities repair beyond proceeds, core building compliance (ADA), slow consent, changes for Capital Markets/Rating Agencies pre-existing liabilities from prior landlords, other property competes, other property serves, tenant allowance, pre-existing conditions and hazardous materials; reimbursement Tenant Improvements

    LOAN PROCEEDS

  • 8 PHIL1 712780-2

    1.1.10. Tenant-Mortgage Issue Analysis

    (a) Possession interesse termini

    (b) Covenants

    (c) Recovery of Tenant Improvement Values

    (d) Recovery of Curative Costs

    (e) Landlord (Successor Landlord) Lien Waiver or Subordination

    1.1.11. Documentation

    (f) Stated loan amount can create implicit limit

    (g) No blanks

    (h) Fully executed

    (i) Changes shown by initialed language or redline

    (j) Acknowledged for recording

    (k) Comply with state recording requirements: witnesses, tax identification number, address, seals and attestation, format, margins, recording fees, legal description

    1.1.12. Estoppel Completion

    (l) Runs to Mortgagees benefit

    (m) Matches Lease requirements

    1.1.13. Guaranty

    (n) Liable after modification

    (o) Liable for SNDA

    1.1.14. Rent Roll - Trues up with estoppel and SNDA

    1.1.15. Landlord Lien

    (p) Common law distress or distraint; statutory codification; UCC

    (q) Waiver as to Tenant and its current and future Lenders

    (r) Subordination as to Tenants current and future Lenders

  • 9 PHIL1 712780-2

    (i) During Tenants secured loan term

    (ii) Notice and right to cure Tenant defaults

    (iii) Right to entry, collect collateral, sell, and withdraw

    (iv) Duty to pay rent, insurance, liability for damage

    (v) No holdover liability or extension of term

    1.2. CAPITAL MARKETS ISSUES

    1.2.1. Before Foreclosure:

    (s) Rating Agency

    (i) Estoppels from all anchors, 5% or more of gross rents; and together 75% of gross leased area

    (ii) Comply with REMIC requirements (1.860G.2(b)(ii))

    (t) Real Estate Mortgage Investment Conduit (REMIC) Requirements

    (i) Significant modification for performing loans

    (ii) Significant modification occurs by adding, subtracting or altering collateral (Treas. Reg. 1.1001-3(e)(4)(iv));

    (iii) Expansion by additional buildings on same parcel are not significant modification (Treas. Reg. 1.1001-3(g)(Ex 9));

    (u) Servicer Standards: Service and administer in the best interests of and for the benefit of the Certificateholders with the same care, skills and diligence as is normal and usual in its general mortgage servicing and REO property management activities on behalf of third parties or on behalf of itself, whichever is higher, with respect to mortgage loans and REO properties that are comparable to those for which it is responsible

    1.2.2. Upon default: no substantial modification merely by default or imminent default (Treas. Reg. 1.860G-2(b)(3))

    1.2.3. After Foreclosure:

    (v) Special Servicer same Servicer standard

    (i) REMIC Requirements: IRC 860G(a)(8) points to REIT rules for foreclosure property under 856(e)

    (ii) Real Estate Investment Trust (REIT) Standards: [ ] 856(e)(4)(B): foreclosure property (and the REMIC holding foreclosure

  • 10 PHIL1 712780-2

    property) ceases to be qualified when any construction takes place on such property (other than completion of a building, or completion of any other improvement, where more than 10 percent of the construction of such building or other improvement was completed before default became imminent)

    1.3. TITLE, LIEN, AND INTERMEDIATE THEORIES

    1.3.1. TITLE STATE:

    (w) Mortgage is conveyance, mortgagor has right of possession and redemption

    (x) In a title state, the mortgagee is entitled to rents from a pre-existing lease upon possession of the real property or the rents. The mortgagee is generally not entitled to possession until a default occurs. The mortgagee is not entitled to rents from subsequent leases.

    1.3.2. LIEN STATE:

    (y) Mortgage is security interest

    (z) In a lien state, the mortgagee is generally not entitled to rents from a pre-existing lease until possession by foreclosure. The mortgagee is not entitled to rents from subsequent leases.

    1.3.3. INTERMEDIATE STATE

    (aa) Mortgage is conveyance treated like security interest

    (bb) In an intermediate state, the mortgagee is generally entitled to rents from a pre-existing lease upon possession of the real property or the rents. Sometimes that is after default, sometimes that is after an affirmative act of possession is performed. The mortgagee is not entitled to rents from subsequent leases.

    1.4. ASSIGNMENT OF LEASES AND RENTS ISSUES

    (cc) Rent is a real estate interest like land, not an intangible like a receivable

    (dd) Assignment of Leases and Rents is a separate security interest from Mortgage lien on land

    (ee) Mere lienholder status: no right to rent or possession prior to foreclosure; only from prior tenants after foreclosure

    (ff) Confirms direct relationship between Mortgagee and Tenant, at Mortgagees election

  • 11 PHIL1 712780-2

    (gg) Authorizes direct payment of rent to Mortgagee upon notice or obligation

    (hh) Permits receipt of rent by Mortgagee, without possession

    (ii) Precedes Mortgagees dispossession remedies

    (jj) Absolute transfer to Mortgagee, license back to Mortgagor: mimics Title Theory fiction for Bankruptcy

    (i) Mortgagee rights to proceeds, rents, or profits (Bankruptcy Code Section 552(b)) prior to possession or foreclosure

    (ii) Preserves Mortgagees right to cash collateral (First Fidelity Bank v. Jason Realty L.P., 59 F.3d 423 (3rd Cir. 1995))

    (iii) Perfection, effectiveness and enforcement of lien against rent by possession, receiver, notice to tenant, or by recording (analogous to recording mortgage or filing UCC) to overcome Debtors 544(a) avoidance power

    1.5. ESTOPPEL ISSUES

    1.5.1. Estoppel: commonly misnamed

    (kk) A bar to stop a change in position: stoppeth or closeth up his mouth

    (ll) Stipulation agreed upon facts even if wrong

    (mm) Representation facts asserted to be right; defense of no reasonable reliance

    (nn) Warranty facts guaranteed to be right, no defense of no reasonable reliance

    1.5.2. Mortgage Rights Rights to an Estoppel

    (oo) In Lease

    (pp) By Mortgagor if Tenant refuses - very weak

    (qq) Representations, warranties, covenants, indemnities

    1.5.3. Conditions to enforce Estoppel

    (rr) Lack of separate knowledge

    (ss) Lack of separate means to obtain knowledge

  • 12 PHIL1 712780-2

    (tt) Reliance on words or acts of estopped party

    (uu) Reliance was reasonable and in good faith

    (vv) Action by Mortgagee, based on reliance, was to Mortgagees detriment

    1.5.4. Remedies for a bad estoppel

    (ww) Limited case law

    (xx) Based on equity or contract

    (yy) May act as a lease modification

    (zz) Injunction against contrary position to avoid inequity

    (aaa) Damages for breach of contract

    (bbb) Sometimes construed against drafter, sometimes against certifying party

    1.5.5. Tenant Estoppel (Representations) for Mortgagee

    (ccc) Unique and comprehensive description of premises (square feet and location)

    (ddd) Initial and renewal terms commencement and expiration

    (e

Recommended

View more >