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The Use of Receiverships for Managing Troubled Assets

By Samuel H. Levine, Partner

Receiverships are becoming a popular tool for creditors to manage distressed real estate and to realize upon their collateral. Lenders are looking at receiverships as a faster and more efficient and cost effective strategy than forcing a debtor into bankruptcy. They offer the lender flexibility as opposed to well established procedures under bankruptcy. The current economy is also resulting in increased use of receiverships to complete unfinished buildings.

There exists legal and practical differences among the various states regarding situations in which a receiver may be appointed, the standards for appointment, notice required to be given to adverse parties, the party who has the burden of proof in connection with the appointment of a receiver, the nature of evidence required for appointment of a re-ceiver, and the requirement of a bond. A federal district court also has the power to appoint a receiver in the event a party meets the require-ments for federal jurisdiction.

Receivers may be appointed in a multitude of settings and for multiple purposes. Circumstances in which a receiver may be appointed in Il-linois include:

1. The foreclosure of a mortgage in order to collect rents or profits from the mortgaged real estate, or manage, conserve or operate the mortgaged real estate.

2. Completion of unfinished buildings or other improvements;3. Remedying violations of municipal or state building codes;4. Winding up a fraudulent conveyance;5. Winding up a dissolved corporation or one that is insolvent;6. Winding up a dissolved partnership or limited liability com-

pany, and7. A court’s exercise of its own equitable powers.

A recently enacted statute allows a municipality to obtain court permis-RECEIVERSHIPS Continued on Page 4 GUIDELINES Continued on Page 5

FHA Condominium GuidelinesBy Allan Goldberg, Partner & Real Estate Group Co-Chair

On November 6, 2009, the Federal Housing Administration (FHA) issued two documents related to FHA mortgage insurance require-ments for condominium associations. These two documents: HUD Mortgagee Letter 2009-46A and Mortgagee Letter 2009-46B provide an overview of the FHA proposed transitional criteria and successor criteria for condominium association requirements for FHA mort-gage insurance.

What is FHA mortgage insurance? FHA mortgage insurance is a policy that protects lenders against some or most of the losses on a mortgage if the borrower defaults on the mortgage. FHA insurance is typically required on mortgages where there is less than a 20 percent down payment. The insurance is funded by a fee on the overall mortgage amount and a small annual levy on the loan amount.

FHA insurance is important, as it provides a mechanism to recover losses associated with default and ensures a continuing flow of money into the mortgage markets.

Why should a developer care about the FHA requirements? This is an issue of interest for developers of condominium and town-home associations as FHA insured mortgages are playing an increas-ingly important role as a financing mechanism for those seeking to purchase condominium units. While traditionally, FHA-insured mortgages played a small role in the housing markets (approximately 5 percent in 2007), that number increased to roughly 20 percent of mortgage originations in 2008, and more than 30 percent in 2009.

As lenders continue to reexamine and tighten lending criteria, quali-fying for FHA mortgage insurance provides potential buyers with an additional financing option and, thus, makes units in your condo-minium association marketable to a larger pool of potential buyers.

W W W . A R N S T E I N . C O M

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Bankruptcy Taxation

By Robert E. McKenzie, Partner

Creation of the Bankruptcy EstateA separate taxable bankruptcy estate is created when an indi-vidual debtor files either a Chapter 7 or Chapter 11 Petition. [IRC 1398(a)]. In all other bankruptcy proceedings, including Chapter 7 or Chapter 11 bankruptcy cases dismissed by the Bankruptcy Court, the debtor continues to file income tax returns as though there were no bankruptcy and there were no separate taxable bankruptcy estate. When a separate taxable bankruptcy estate is created, the estate inherits and takes into account the following income attributes of the debtor [IRC.1398(g)]:

1. Net operating loss carryovers determined under IRC.172.2. Charitable contribution carryover determined under IRC.170(d)

(1).3. Recovery of tax benefit items for any amount to which IRC.111

applies.4. Carryovers of any credit, and all other items that, except for the

commencement of the bankruptcy case, the debtor would be required to take into account with respect to any credit.

5. Capital loss carryovers determined under IRC.1212.6. The debtor’s basis, holding period, and character of any asset

acquired from the debtor (unless acquired by sale or exchange).7. The debtor’s accounting method.8. Other tax attributes of the debtor, to the extent provided by

regulation.

The estate comprises essentially all of the debtor’s property, unless property is exempt under USC.522. [11 USC.541]. Individual estates are allowed to opt out of the federal exemption scheme and determine what property is exempt for resident debtors. Most states have done so. Upon conclusion or dismissal of the bankruptcy pro-ceedings, the debtor takes over any remaining tax attributes including those that first arose during administration of the bankruptcy estates. [11 USC.346(i)(2)].

§ 1399. No separate taxable entities for partnerships, corporations, etc.

Except in any case to which section 1398 applies, no separate taxable entity shall result from the commencement of a case under title 11 of the United States Code.

Background and General Legal PrinciplesThe commencement of a bankruptcy case creates an estate, which generally includes all legal or equitable interests of the debtor in property as of the commencement of the case. 11 U.S.C. § 541(a)(1). Specific exclusions apply, however. See 11 U.S.C. § 541(b) (excluded property). See also 11 U.S.C. § 522 (exempt property); 11 U.S.C. § 554 (abandoned property). Exempt property and abandoned prop-erty are initially part of the bankruptcy estate, but are subsequently removed from the estate. By contrast, property excluded from the

estate is never included in the estate.

Chapter 11Confirmation of a Chapter 11 plan of reorganization generally vests all the property of the estate in the debtor, except as otherwise pro-vided in the plan or in the court order confirming the plan. 11 U.S.C. § 1141(b). If no plan is confirmed and a bankruptcy case is dismissed, the property of the estate generally revests in the debtor, unless the court orders otherwise. 11 U.S.C. § 349(b)(3). Notice 2006-83

Trustee or Debtor in PossessionWhen a trustee is appointed pursuant to section 1104 of the Bank-ruptcy Code, the debtor generally must turn over to the trustee con-trol over the assets of the bankruptcy estate. In most Chapter 11 cases, a trustee is not appointed and the debtor (referred to as the debtor in possession) remains in control of the property of the bankruptcy estate. Under section 1107(a) of the Bankruptcy Code, the debtor in possession must perform all the functions and duties of a trustee, except for the duties specified in Bankruptcy Code section 1106(a)(2), (3) and (4).

EINBecause the bankruptcy estate is a separate taxable entity, the trustee or debtor in possession must obtain an employer identification number (EIN) for the estate. I.R.C. § 6109. The trustee or debtor in possession uses the EIN on any tax returns filed for the estate.

Attribution of IncomeSection 1398(e)(1) of the Code provides that the gross income of the estate includes the gross income of the debtor to which the estate is entitled under the Bankruptcy Code. Section 1398(e)(2) provides that the gross income of the debtor does not include any item to the extent the item is included in the gross income of the bankruptcy estate.

Determination of Deduction or CreditIn general, the determination of whether or not any amount paid or incurred by the estate is allowable as a deduction or credit to the estate shall be made as if the amount were paid or incurred by the debtor and as if the debtor were still engaged in the trades and businesses, and in the activities, the debtor was engaged in before the commence-ment of the case. I.R.C. § 1398(e)(3)(A). The estate is, however,

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specifically allowed a deduction for administrative expenses allowed under section 503 of the Bankruptcy Code and for any fee or charge assessed against the estate under chapter 123 of title 28 of the United States Code. I.R.C. § 1398(h)(1).

1040’sThe individual debtor must continue to file his or her own individual tax returns during the bankruptcy proceedings. I.R.C. § 6012(a)(1).

Pre BAPCPAFor bankruptcy cases filed before October 17, 2005, the property of the estate does not generally include any post-petition property acquired by an individual Chapter 11 debtor. Nor in those cases does the property of the estate include the individual Chapter 11 debtor’s earnings from post-petition services, because section 541(a)(6) of the Bankruptcy Code specifically excluded those earnings from the estate. See, e.g., In re Fitzsimmons, 725 F.2d 1208 (9th Cir. 1984); In re Larson, 147 B.R. 39 (Bankr. D.N.D. 1992). Therefore, in these cases income from post-petition property and earnings from post-petition services are not generally includible in the estate’s gross income. Instead, such income and earnings are generally includible in the debtor’s gross income.

Post BAPCPASection 321 of BAPCPA made several changes to Chapter 11, effective for bankruptcy cases filed by individuals on or after October 17, 2005. Although many of the provisions that apply to individual Chapter 11 cases now operate in a manner similar to the provisions that apply in Chapter 13 cases, section 1398 of the Internal Revenue Code has not been amended and continues to apply to individual Chapter 11 cases, but not to Chapter 13 cases. Based on section 1115 of the Bankruptcy Code, read in conjunction with section 1398(e)(1) of the Internal Revenue Code, the debtor’s gross earnings from post-petition services and gross income from post-petition property are, in general, includ-ible in the bankruptcy estate’s gross income, rather than in the debtor’s

TAXATION Continued from Page 2 gross income. This rule is subject to the exceptions noted below in sections 2.10, 2.11, 2.12, and 2.13.

Conversion to Chapter 13If a chapter 11 case is converted to a Chapter 13 case, the Chapter 13 estate is not a separate taxable entity and earnings from post-conver-sion services and income from property of the estate realized after the conversion to Chapter 13 are taxed to the debtor. I.R.C. § 1399.

Conversion to Chater 7If the Chapter 11 case is converted to a Chapter 7 case, section 1115 will not apply after conversion and earnings from post-conversion services will be taxed to the debtor, rather than the estate. 11 U.S.C. § 541(a)(6). In such a case, the property of the Chapter 11 estate will become property of the Chapter 7 estate. Any income on this prop-erty will be taxed to the estate even if the income is realized after the conversion to Chapter 7.

DismissalIf a Chapter 11 case is dismissed, the debtor is treated as if the bank-ruptcy case had never been filed and as if no bankruptcy estate had been created. I.R.C. § 1398(b)(1).

Taxation of Income From Property Excluded From the EstateFor Chapter 11 cases filed by individuals on or after October 17, 2005, the estate’s gross income includes gross income from property held by the debtor when the case commenced (pre-petition property), as was the case under pre-BAPCPA law. There are certain excep-tions to this general rule, however. The gross income on pre-petition property is included in the gross income of the debtor, rather than the estate, if the pre-petition property is excluded from the estate and the gross income is subject to taxation. Also, the gross income on pre-petition property is included in the gross income of the debtor, rather than the estate, after the pre-petition property is removed from the estate by exemption or abandonment.

Downsizing and Rent Abatement: The Landlord and Lender get squeezedBy Joel M. Hurwitz, Partner & Real Estate Group Co-Chair

It is the call that Commercial Landlords dread. But, it is the call received frequently in the current economy. A Tenant is downsizing, experiencing cash flow problems or both. The Tenant needs a reduc-tion in space or a current or permanent rent reduction in order to stay afloat. Each Tenant in such position carries the implicit (or some-times explicit) threat to the Landlord that it will go out of business or move elsewhere. Space is now plentiful and relatively inexpensive. In many instances, the Landlord does not stand alone to deal with the Tenant. Often, standing behind the Landlord is a Lender which has financed the Landlord’s building in reliance upon cash flow to be generated by the Tenant and others. The Tenant and particularly, the Landlord, must be cognizant of the Landlord’s loan covenants. A potential breach of such covenants caused by any relief granted to Tenant, will in all likelihood compel the Lender’s active participa-tion in negotiations.

As a preliminary step and essential tool for negotiations, a well pre-pared Tenant must be ready to present detailed financial statements, cash flow projections and other documentation to make its case to the Landlord. Such documents should include reliable data showing a specific hardship and a business plan for returning to profitability. An astute Lender and Landlord will accept nothing less. The Land-lord and Lender should scrutinize such material presented by the Tenant to determine the type of rental abatement or space reduction the Tenant might realistically need to continue conducting its busi-ness. If the statements indicate that the Tenant is spiraling toward bankruptcy, then the Landlord and Lender may wish for the Tenant to vacate its space, and the negotiations will shift to lease termina-tion.

If the Tenant can make a compelling case for continuing the Lease with amended terms, there are provisions the Tenant may offer and the Landlord should consider demanding which make the overall

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Recent Changes to FHA Approvals and Recertifications for Condominium Properties

By Allan Goldberg, Partner

These are unprecedented times for financing in the residential condo-minium marketplace. Over the past recent months, the Federal Hous-ing Administration (FHA) issued major changes to its guidelines on mortgage insurance requirements for condominium associations. Since FHA insured mortgages are playing an increasingly important role as a financing mechanism for those seeking to purchase or refinance con-dominium units, buyers need to be aware of the newest guideline revi-sions for obtaining FHA mortgage insurance for condominiums.

While traditionally, FHA-insured mortgages played a small role in the housing markets (approximately 5 percent in 2007), that number in-creased to roughly 20 percent of mortgage originations in 2008. As lenders continue to re-examine and tighten lending criteria, qualifying properties for FHA mortgage insurance provides potential buyers with an additional financing option and, thus, makes units in your condo-minium association marketable to a larger pool of potential buyers.

As of February 1, 2010, the newest guidelines have eliminated “spot loan” approval which previously enabled a buyer of a unit in a condo-minium building that was not an FHA approved condominium build-ing to obtain FHA financing by meeting certain FHA criteria. Now, existing condominium buildings as a whole will need to meet FHA guidelines and be “FHA approved” in order for a buyer to obtain FHA financing. If an existing condominium building is not on the FHA ap-proved list, the condominium association will need to go through the FHA certification process if it desires to have FHA certification.

Condominium buildings that were FHA approved between October 1, 2008, and December 7, 2009, must now be recertified. Recertified condominium buildings will expire within two years from the date of placement on the list of approved condominiums. Further participa-tion in the program after this two-year period has expired will require recertification to determine that the project is still in compliance with the HUD’s owner-occupancy requirement and that no conditions cur-rently exist which would present an unacceptable risk to FHA.

RECEIVERSHIPS Continued from Page 1sion to reclaim uncompleted condominium projects that are a danger to the community. The properties can be turned over to a receiver for management, completion, sale or dissolution of the condominium.

Receivers are most typically sought in actions to foreclose mortgages. Although the appointment of a receiver is usually considered a drastic remedy, the appointment of a receiver ancillary to the foreclosure of a mortgage is not viewed as an extraordinary remedy. Illinois permits the appointment of a receiver for non-residential real estate without

much more than a showing of the mortgagor’s default and a provision in the mortgage entitling the mortgagee to a receiver upon default. The burden then shifts to the mortgagor to show the absence of a default or good cause why a receiver should not be appointed.

Two recent cases demonstrate the difficulty in defending against a receiver and in particular in meeting the burden of good cause. In Centerpoint Properties Trust v. Olde Prairie Block Owner, LLC, No. 1-09-1481 (February 10, 2010), the court found that good cause may exist in circumstances where the mortgagor has a commitment from a lender to refinance a loan or from an investor to provide additional funding needed to complete the project and that appointing a receiver would likely impede the completion of that transaction. However, it is likely that a court would also find that the transaction must be imminent and not at some unknown time in the future. In Bank of America, N.A. v. 108 N. State Retail, LLC, No. 1-09-3523 (March 31, 2010), the court found that the mortgagor’s argument that it is in a better position to complete the unfinished project itself is in it self not good cause in light of the statutory presumption in favor or grant-ing possession to a mortgagee of commercial property.

A receiver under the Illinois Mortgage Foreclosure Law is an officer of the court. It acts for the benefit of all parties. It has possession of the mortgaged real estate and the full power and authority to operate, manage and conserve such property. It has the power and authority to secure tenants and execute leases for the real estate based on a duration and terms which are reasonable and customary for the type and use involved. It even has the power to accept and reject leases.

On the other hand, it has a duty to manage the mortgaged real estate as would a prudent person taking in to account the receiver-ship’s management on the interest of the mortgagor. To the extent it receives sufficient receipts from the mortgaged real estate it is required to maintain existing casualty and liability insurance, use reasonable efforts to maintain the mortgaged real estate and make repairs and im-provements necessary to comply with the building and housing codes.

A receiver likely does not have a right to sell the real estate which is the subject of the receivership estate. Under the Illinois Mortgage Foreclosure Law its duties and responsibilities are to operate, conserve and manage the receivership estate. However, under appropriate circumstances, a receiver may be able to convince a court to sell the re-ceivership estate if the parties agree or if the real estate is in imminent danger. Courts in Cook County, Illinois have permitted receivers to sell units of an unfinished condominium with the proceeds applied to the mortgage indebtedness. However, it is unclear whether in these instances the mortgagor agreed to the sale or did not object to the sale. Also, either the receiver or the mortgagee would be required to procure title insurance for the purchaser.

Receiverships are something that all lenders should consider in manag-ing distressed real estate. Lenders should also consider creative ways for receivers to manage distressed assets to meet the needs of a particu-lar situation.


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How does the FHA approval process work? Typically, a lender processes the paperwork associated with meeting FHA requirements. Condominium associations may also be able to work directly with the FHA to qualify for financing. For new devel-opments, developers may also work with FHA to have their project pre-qualified for FHA financing.

In processing the paperwork to qualify for FHA approval, lenders will seek information required by the FHA from a condominium associa-tion. Once a project qualifies for FHA mortgage insurance, FHA may insure mortgages for buyers in a condominium up to a certain percentage of units.

What FHA criteria apply to condominium associations? The FHA mortgagee letters outline criteria that lenders or FHA will examine to determine whether a condominium association qualifies for mortgages insured by FHA. For existing condominium associa-tions, these criteria include:

Eligible Projects. Eligible projects are declared condominium projects that exist in full compliance with appropriate state law. Condominium hotels, timeshares, houseboat projects, multi-dwelling unit condo-miniums and projects not deemed to be residential are not eligible for FHA insurance under the regulations.

Eligibility Requirements. All condominium project approvals must meet the following requirements:

• Projects must consist of two or more units. • Projects must be covered by hazard and liability insur-

ance and flood and fidelity insurance where applicable. • Right of first refusal is permitted, provided it does not

violate the Fair Housing Act regulations found in 24 CFR Part 100.

• No more than 25 percent of the total floor area can be used for commercial purposes. The commercial portion must also be of a “nature that is homogenous with residential use.” The Fannie Mae standard for a mixed use building is not more than 20% of the project can be devoted to commercial use.

• No more than 10 percent of the units may be owned by one investor. This limitation also applies to developers/builders that subsequently rent out vacant and unsold units. For projects with 10 or fewer units, no single entity can own more than one unit. Fannie Mae also limits the number of units to one investor at 10% of the units, and delinquencies to 15% of the total units cannot be in arrears more than 30 days.

• Delinquent Homeowners Association Dues [Assess-ments]: No more than 15 percent of the total units can be in arrears (more than 30 days past due) of their condominium association fee payments.

• At least 30 percent of the total units must be sold prior to endorsement of a mortgage on any unit. After De-cember 31, 2010, the pre-sale requirement increased to

50 percent. (See Presale section below) • At least 50 percent of the units of a project must be

owner-occupied or sold to owners who intend to oc-cupy the units. (Note: The Fannie Mae standard of 50% occupancy is limited to purchase of investment units). For proposed, under construction or projects in their initial marketing phase, FHA will allow a mini-mum owner occupancy amount equal to 50 percent of the number of presold units. (Through December 31, 2010, or as otherwise provided by FHA, bank-owned properties, vacant, or tenant-occupied real estate-owned properties are excluded from this calculation.)

Budget Review. Mortgagees must review all homeowner’s association budgets (actual budgets for existing projects and projected budgets for new projects) for all project approvals.

The review must determine that the budget is adequate and:

• Includes allocations/line items to ensure sufficient fund-ing for upkeep of amenities and features unique to the project.

• Provides for the funding of replacement reserves for capital expenditures and deferred maintenance amount-ing to at least 10 percent of the budget.

• Provides adequate funding for insurance coverage and deductibles (as required under the insurance require-ments section).

If the documents do not meet these standards, the mort-gagee may request a reserve study to assess the stability of the project. The reserve study cannot be more than 12 months old. In reviewing the reserve study, consideration must be given to items that have been replaced after the time that the reserve study was completed.

Insurance Requirements. Condominium projects must be covered by hazard, flood, liability, and other insurance as required by state or local laws, or acceptable to FHA under the following criteria:

• Hazard Insurance: The Condo Association is required to maintain a master or blanket property insurance equal to 100 percent of current replacement costs exclusive of land, foundation, excavation, or other normal exclusions. If the association does not maintain 100 percent coverage, unit owner gap coverage does not satisfy meeting this requirement.

• HO-6 Coverage: In cases in which the master policy does not include interior unit coverage, the borrower must obtain a “walls in” coverage policy (H0-6).

• Liability Insurance: The association is required to main-tain comprehensive general liability insurance covering all common elements, commercial space owned and leased by the owner’s association, and public ways of the condominium project.

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• Fidelity Bond/Fidelity Insurance: New or established projects with more than 20 units are required to carry fidelity bonds/insurance for all officers, directors, and employees of the association, and all other persons han-dling or responsible for funds administered by the as-sociation in an amount equal to three months aggregate assessments on all units plus reserve funds.

• Flood Insurance: Insurance coverage equal to the replacement cost of the project less land costs or up to the National Flood Insurance Program standard of $250,000 per unit, whichever is less. If insuring a residential building, the maximum building coverage is $250,000 times the number of units in the building. The association, not the borrower, is responsible for maintaining adequate flood insurance under the NFIP when the building is located in a Special Flood Hazard Area.

• Determining Need for Flood Insurance: If the property is located in a 100-year flood plain, flood insurance is required. If the project is not located in a 100-year flood plain, it is not subject to the flood insurance requirement if documentation is provided (documenta-tion that includes either a final Letter of Map Amend-ment or a final Letter of Map Revision).

If my condo association is already FHA approved, do we need to take any additional action? Projects that received FHA approval prior to October 1, 2008, must have been recertified on or before December 7, 2009.

Projects now must follow the recertification requirements defined below:

Recertification: Condominium projects will expire within two years from the date of placement on the list of approved condominiums. Further participation in the program after this two-year period has expired will require recertification to determine that the project is still in compliance with the HUD’s Owner-Occupancy requirement and that no conditions currently exist which would present an unaccept-able risk to FHA. Items that must be given consideration are:

• Pending special assessments. • Pending legal action against the condominium associa-

tion or its officers or directors. • Adequate hazard, liability insurance, and when ap-

plicable, flood insurance coverage.

For qualified associations, how many units will FHA provide financing for? Concentration Limits (Temporary). During the transition period of December 7, 2009, to December 31, 2010, FHA increased its temporary concentration limits (the percentage of units that it will insure in a project) to 50 percent.

FHA will also consider increasing concentrations up to 100 per-cent if a condominium project meets additional criteria that include:

• The project is 100 percent complete and construction has been completed for at least one year.

• One hundred percent of the units have been sold and no entity owns more than 10 percent of the units in the project.

• The projects budget provides for the funding of replacement reserves for capital expenditures and de-ferred maintenance in an account representing at least 10 percent for the budget.

• Control of the association has been transferred to the owners.

• The owner-occupancy ratio is at least 50 percent. (Bank-owned properties, vacant, or tenant-occupied real estate-owned properties are excluded from this calculation.)

Concentration Limits (Successor). Beginning on January 1, 2011, or earlier by FHA action, FHA concentrations will revert to the follow-ing:

• In projects of 3 or fewer units, FHA will insure no more than 1 unit.

• In projects consisting of 4 or more units, FHA will have no more than 30 percent of the total units encumbered with FHA insurance.

Calculating the level of FHA concentration in a project declared with legal phases will follow the same methodology as the owner-occupancy requirements.

Impact of Resale Disclosures Under the Illinois Condominium Property ActIllinois condominium associations along with their attorneys and managing agents, should be careful when distributing Section 22.1 disclosures under the Illinois Condominium Property Act. Section 22.1 provides that in the event of any resale of a condominium unit by a unit owner other than the developer such owner shall obtain from the Board of Managers, and shall make available for inspection to the prospective purchaser, upon demand, copies of certain docu-ments and the disclosure of certain information. Among the informa-tion to be disclosed is (i) statement of the status and amount of any

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reserve for replacement fund, and any portion of such fund earmarked for any specified project by the Board of Managers, (ii) a copy of the statement of financial condition of the unit owner’s association for the last fiscal year for which such statement is available, and (iii) a statement of any capital expenditures anticipated by the unit owner’s association within the current or succeeding two fiscal years. These fiscal disclosure items will of course have an impact upon a prospec-tive buyer’s ability to obtain an FHA loan, or a loan from a lender who intends to assign the mortgage for sale in the secondary mortgage market place (i.e. Fannie Mae or Freddie Mac). Section 22.1 also re-quires disclosure of any pending litigation in which the association is a party. These disclosures may be given prior to the granting of a loan to the prospective buyer, and may very well be taken into consider-ation by the buyer’s mortgage lender.

It should also be noted that recently enacted Section 22.2 of the Il-linois Condominium Property Act provides that in the event of a sale of a condominium unit by a unit owner, no condominium associa-tion shall exercise any right of refusal, option to purchase, or right to disapprove the sale, on the basis that the purchaser’s financing is guaranteed by the FHA.

Arnstein & Lehr LLP recognizes that to successfully navigate the current economic climate, we must draw on resources through-out the firm that, when employed in a multi-disciplinary fashion, can serve to shield our clients from financial distress. The Com-mercial Solutions Service Group serves as such a shield for our clients.

Attorneys within this group provide a wealth of services to clients facing either side of a distressed situation. Be it through asset protection, foreclosure and other remedies, restructuring and bankruptcy expertise, labor and employment advice, tax coun-sel, business transactions or litigation support, the Commercial Solutions Service Group stands ready to advise and protect clients in the real estate, banking, condominium, retail, manufac-turing and construction industries.

Commercial Solutions Service Group AttorneysChicagoKonstantinos Armiros, Co-ChairSamuel H. Levine, Co-ChairWilliam J. AnayaGeorge P. ApostolidesBarry A. ChatzJames A. ChatzMichael L. GesasAllan GoldbergDavid A. GolinJoel M. Hurwitz

Barry R. KatzRobert E. McKenzieHal R. MorrisDaniel I. SchladeMark SpognardiWalter J. StarckPaul E. StarkmanMiriam R. SteinDavid SugarRobert J. Taylor

Fort LauderdaleDale S. BergmanAlan G. Kipnis

MiamiPhillip M. Hudson, III

TampaWilliam P. AyersRonald B. Cohn

transaction more palatable to the Landlord and its Lender. These terms include the following:

• a guaranty from a financially reliable source;• waivers of rights of first refusal or options to expand;• an extension of the lease term coupled with a forfeiture of

early termination rights;• waiver of co-tenancy clauses;• waiver of exclusive-use clauses or other provisions which

limit the Landlord from leasing to certain tenants;• insertion of relocation clauses;• transfer of responsibility for certain maintenance from

Landlord to Tenant;• with respect to retail leases, (i) waiver or elimination of the

“kick-out” clause, or (ii) increase in potential percentage rent to offset a reduction in fixed rent;

• waiver of existing Landlord defaults;• backend or escalating payments of abated rents; or• in exchange for requested reductions in CAM charges in

leases which have escalation provisions, a new lower base year.

The Landlord may have relief, other than rent reduction which can be offered to the Tenant. Such relief includes:

• in the case of a triple net lease, a credit toward operating expenses, an offer to contest the real estate taxes or a tem-porary abatement of common area charges;

• a reduction or deferral of CAM charges;• an easing of the lease terms with respect to subletting.

By creative, thoughtful and flexible negotiation, the Landlord, Lend-er and Tenant can work together to navigate the current economic downturn. A well negotiated lease modification can position all par-ties to benefit when the economy improves.

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