structuring financeable ground leases and leasehold...
TRANSCRIPT
The audio portion of the conference may be accessed via the telephone or by using your computer's
speakers. Please refer to the instructions emailed to registrants for additional information. If you
have any questions, please contact Customer Service at 1-800-926-7926 ext. 10.
Presenting an encore presentation featuring live Q&A
Structuring Financeable Ground
Leases and Leasehold Mortgages Balancing Competing Interests Among Owners, Lessees and Lenders
Today’s faculty features:
1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific
THURSDAY, NOVEMBER 30, 2017
David M. Alin, Member, Mintz Levin Cohn Ferris Glovsky and Popeo, New York
Stephen E. Friedberg, Member, Mintz Levin Cohn Ferris Glovsky and Popeo, New York
Tips for Optimal Quality
Sound Quality
If you are listening via your computer speakers, please note that the quality
of your sound will vary depending on the speed and quality of your internet
connection.
If the sound quality is not satisfactory, you may listen via the phone: dial
1-866-871-8924 and enter your PIN when prompted. Otherwise, please
send us a chat or e-mail [email protected] immediately so we can
address the problem.
If you dialed in and have any difficulties during the call, press *0 for assistance.
Viewing Quality
To maximize your screen, press the F11 key on your keyboard. To exit full screen,
press the F11 key again.
FOR LIVE EVENT ONLY
Continuing Education Credits
In order for us to process your continuing education credit, you must confirm your
participation in this webinar by completing and submitting the Attendance
Affirmation/Evaluation after the webinar.
A link to the Attendance Affirmation/Evaluation will be in the thank you email
that you will receive immediately following the program.
For additional information about continuing education, call us at 1-800-926-7926
ext. 35.
FOR LIVE EVENT ONLY
Program Materials
If you have not printed the conference materials for this program, please
complete 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 a
PDF of the slides for today's program.
• Double click on the PDF and a separate page will open.
• Print the slides by clicking on the printer icon.
FOR LIVE EVENT ONLY
5
I. Uses of Financeable Ground Leases
II. Terms of Financeable Ground Leases
III. Rating Agency Concerns in Leasehold Mortgage Financing
IV. Questions and Answers
6
7
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
8
Decreased Risk of Construction Issues (e.g. cost overruns, issues meeting tenant criteria)
No need to expend resources or obtain financing
Triple Net Lease (no maintenance obligations)
Ability to finance the fee (reversionary) estate
9
General (Credit Tenants)
Chain Stores
Department or Big Box Stores
Banks
Fast Food and Other Chain Restaurants
10
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 the proposed transaction
Terms should include rights of assignment, leasehold financing, use and other rating agency requirements
11
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 Respective Estates
Less Control for Landlords Financing is more Limited due to
Tenant's Ownership of Improvements
12
Pure Ground Leases
Pad Leases
Lease of a Condominium Unit
13
14
Reversionary Estate (definition and difference from traditional fee estate)
Leasehold Estate
15
Minimum Term
Relation to Term of Leasehold Mortgage
Initial Term
Option Terms (Failsafe)
Transfer Tax Concerns
Right of Leasehold Mortgagee to Exercise Term
16
Tenant Finances Construction
Obligation to Construct
Nature and Limitation on Improvements
Time Limitations on Construction
17
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
18
Leases are Always True Triple Net
Obligation to Repair and Replace Exterior and Parking Areas
Common Area Maintenance Contribution in a Building Complex or Shopping Center Setting
19
Must have a broad use clause (affects financeability and Rating Agency Approval)
Rights to Change Use
Shopping Center Restrictions (Interface with Exclusive Uses, etc.)
20
No Continuous Operations
Go Dark (only with extensive predicate dark and re-opening periods - may not be financeable)
21
Must have free and unfettered right to assign or sublet without landlord's consent
Relationship to the use clause
No recapture rights
22
Rights to Cure
a) Monetary
b) Non-Monetary
c) Non-Curable
d) Additional Cure Rights
Right to a New Lease
Coordination of Rights of Fee and Leasehold Mortgagees
23
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
24
Alteration Rights
a) Interior
b) Exterior
c) Free Rights or Parameters
Demolition Rights/ Obligation to Rebuild
Signage
25
Obligation to Leave Improvements
Condition of Improvements
Obligation/Option to Demolish Improvements
Deed or Bill of Sale for Improvements
26
Obligation to Rebuild or to Demolish and Raze
Time Period before end of Term in which Tenant does not have to restore
Tenant’s (and Leasehold Mortgagee’s) Rights to Insurance Proceeds
27
Tenant’s Right to Proceeds for Improvements and 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
28
Differences between Standard Tenant SNDA because of Tenant’s Ownership of the Improvements (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 of the Fee Mortgagee
Underlying Lease Recognition Agreements
29
Monetary Defaults
Non-Monetary Defaults
Non-Curable Defaults
Additional Time for Leasehold Mortgagee to Cure
Rights to cure in Sale/Leasebacks
30
Limitation on Acceleration Remedies
Self-Help
31
Leasehold Mortgagees insist on being Exculpated
Application to an Entity that owns the Leasehold Estate after Foreclosure
32
Obligation for a Memorandum of the Lease to be Recorded
Landlord Estoppel Obligations
Tenant Estoppel Obligations
33
Language to Insure that Landlord’s and Tenant’s estates will never merge
Protection of the Lender
34
Rights of First Refusal (Landlord’s, Tenant’s and Leasehold Mortgagee’s Perspectives)
Rights of First Offer (Landlord’s, Tenant’s and Leasehold Mortgagee’s Perspectives)
35
36
Ground Lease Recording – ground lease or memorandum of leases must be of record
Financeability – must permit tenant's leasehold interest to be mortgaged by tenant
Term of Lease – must be sufficiently in excess of the term of leasehold mortgage facility
Ground Lease Assignable – must permit assignments of tenant's interest without consent of landlord
Estoppel – confirms ground lease is in full force and effect, has not been modified and there are no defaults under lease
37
Notice and Opportunity to Cure – affords leasehold
mortgagee opportunity to cure defaults and keep collateral in place
New Lease – ground lease must provide leasehold mortgagee with right to new lease in event mortgaged lease is terminated (including by virtue of rejection in bankruptcy case)
Insurance/Condemnation Proceeds – lease must call for proceeds applied to property restoration or to pay down leasehold mortgage indebtedness
Liens – ground lease must be free of superior liens and encumbrances
38
David M. Alin
Mintz Levin Cohn Ferris Glovsky and Popeo
Stephen E. Friedberg
Mintz Levin Cohn Ferris Glovsky and Popeo