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REAL ESTATE LAW DUMBED DOWN 2022 - Representing the Commercial Tenant

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Financial Poise
Financial Poise

A commercial tenant views a lease negotiation quite differently than does the landlord. As most leases tend to be drafted by the landlord, a tenant must begin an uphill battle to gain as many concessions as possible. This is an arduous task made easier by a full understanding of what are the most important issues for a tenant in a commercial lease transaction. How does the financial profile of the tenant enter into the picture? Where can a tenant get hurt the most by hidden costs or unforeseen expenses? Why is “leverage” the most important concept to consider in this process? This webinar will help one understand how the tenant, generally the underdog in lease transactions, can turn the tables and become the most powerful player in the leasing game. Part of the webinar series: REAL ESTATE LAW DUMBED DOWN 2022 See more at https://www.financialpoise.com/webinars/

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2 Practical and entertaining education for attorneys, accountants, business owners and executives, and investors.
3 Thank You To Our Sponsors:
Disclaimer The material in this webinar is for informational purposes only. It should not be considered legal, financial or other professional advice. You should consult with an attorney or other appropriate professional to determine what may be best for your individual needs. While Financial Poise™ takes reasonable steps to ensure that information it publishes is accurate, Financial Poise™ makes no guaranty in this regard. 4
Meet the Faculty MODERATOR: Eric Hampton – Rudolph Kaplan LLC PANELISTS: Howard Kline – The Law Offices of Howard F. Kline Scott A. Weinstein – Field and Goldberg, LLC 5
About This Webinar – Representing the Commercial Tenant A commercial tenant views a lease negotiation quite differently than does the landlord. As most leases tend to be drafted by the landlord, a tenant must begin an uphill battle to gain as many concessions as possible. This is an arduous task made easier by a full understanding of what are the most important issues for a tenant in a commercial lease transaction. How does the financial profile of the tenant enter into the picture? Where can a tenant get hurt the most by hidden costs or unforeseen expenses? Why is “leverage” the most important concept to consider in this process? This webinar will help one understand how the tenant, generally the underdog in lease transactions, can turn the tables and become the most powerful player in the leasing game. 6
About This Series – Real Estate Law Dumbed Down – 101 2022 Commercial real estate is one of the most understandable of investments. We live and work within real estate. It is tangible. One can see it. Yet, underneath this veneer of simplicity there are many legal and practical issues to consider. And these issues are impacted by the market and the leverage of the parties, both of which are moving targets. This webinar series is for the lawyer, broker, investor, syndicator, developer and others who seek a basic understanding of the essential elements of real estate law. This series spans purchase through sale and covers all of the high points in between. Purchasing real estate presents a number of threshold questions. Should a real estate investor use his or her own money, or seek investors? What type of investment legal structure makes the most sense and why? When one is in the process of acquiring a property, what are the most important items to inspect? What if the buyer finds a big problem? When one wishes to sell a real estate investment, how much is the right price? What is the value and how is it determined? At its base, commercial real estate is all about cash flow. What makes this possible is the commercial lease. Yet a lease creates a long-term relationship between a landlord and a tenant who have diametrically opposing goals. How does one navigate through the minefield of legal issues in a lease and end up with a contract that both sides can live with for years to come? Each Financial Poise Webinar is delivered in Plain English, understandable to investors, business owners, and executives without much background in these areas, yet is of primary value to attorneys, accountants, and other seasoned professionals. Each episode brings you into engaging, sometimes humorous, conversations designed to entertain as it teaches. Each episode in the series is designed to be viewed independently of the other episodes so that participants will enhance their knowledge of this area whether they attend one, some, or all episodes. 7
Episodes in this Series #1: Representing the Commercial Landlord Premiere date: 8/30/22 #2: Representing the Commercial Tenant Premiere date: 9/27/22 #3: Basics of Real Estate Syndication Premiere date: 10/25/22 #4: Due Diligence in Real Estate Deals Premiere date: 12/6/22 8
Episode #2 Representing the Commercial Tenant 9
Commercial Leasing Overview • General pillars for commercial tenants: a. Maximize profit/value of the business b. Reduce the cost of overhead c. Shifting burden of risk as much as possible d. Location, location 10
Commercial Leasing Overview (cont’d) • Important lease terms a. Use b. Base rent c. Additional rent d. Security deposits, letters of credit, and guarantees e. Repairs/Alterations f. Insurance g. Casualty h. Assignment/Subleasing i. Surrender of premises j. Bankruptcy/Insolvency 11
Commercial Leasing Overview (cont’d) • Drafting and Negotiating a. Ensure that your lease protects you from likely and unlikely situations (e.g., default, loss, recessions, even pandemics) b. The Landlord likely drafted the lease, so make sure the lease is as balanced as possible. c. Term length(s), exercisable options, and “out” provisions can be used a leverage by the tenant 12
Commercial Leasing Overview (cont’d) • Minimizing risk a. Who holds most of the risk in the lease? • Preserving your company a. Do not let the lease impact your business model – litigation, evictions, or judgments can impact the reputation and future of your business 13
Types of Leases/Tenants • Single tenant v. Multi-tenant • Single Net, Double Net, and Triple Net Lease • Gross lease • Modified Gross lease • Percentage Rent 14
Types of Leases/Tenants (cont’d) • Retail o Exclusivity, co-tenancy, percentage rent, going dark. Larger tenants often have leverage to impose on landlords. • Office o Relocation provisions are important to allow landlord flexibility; operating expenses, must be sure that all such expenses are covered and uniform. • Industrial o Permits and use are often necessary and must be addressed; hazardous materials and equipment must also be carefully considered. 15
Lease Specifics • Common Area Maintenance (CAM) Expenses o Usually includes operating expenses, such as taxes, insurance, maintenance o Should be proportional to the leased space ▪ Should not cover areas that are paid for by other tenants ▪ Review the landlord’s expenses to make sure everything is accounted for and not double billed 16
Lease Specifics (cont’d) • Assignment/subletting o Is the tenant considering subleasing a portion of the space? If so, make sure that is an option and negotiate it in the lease. ▪ Who remains liable to the landlord under the assignment/sublease? 17
Lease Specifics (cont’d) • Exclusivity, permitted uses & use clauses • Recapture rights o Allows the landlord to terminate a lease and retain possession of the property. • Insurance o All parties need coverage o Limits – can and should be specified in lease to ensure adequate protection o Named insured v. Additional insured 18
Lease Specifics (cont’d) • Relocation o In a larger building, the landlord may have the flexibility to move a tenant to another comparable space in the building to utilize the rentable space in as efficiently as possible. • Surrender o The terms of the surrender of possession after the lease term (e.g., condition of property, equipment to take/leave, return of security deposit, etc.) • Holdover o Penalties for a tenant remaining in possession after lease term if not otherwise agreed by both parties. 19
Subordination, Non-Disturbance and Attornment Agreement (SNDA) • Agreement between tenant and lender of landlord • 3 parts: o Subordination ▪ Tenant agrees to subordinate its interest in the property to the lender. o Non-Disturbance ▪ In the event the landlord defaults on a loan and the lender forecloses on the property, they will still be able to operate in the leased premises for the remainder of the lease term under the new landlord o Attornment ▪ In the event of foreclosure, the tenant agrees that the lender will be its new landlord. 20
Subordination, Non-Disturbance and Attornment Agreement (SNDA) (cont’d) • Negotiating an SNDA o Leverage typically shifts depending on if negotiated before or after lease execution. • Issues o 3 parties with competing interests in 1 asset o New landlords generally do not like being responsible for previous landlord’s obligations 21
Lease Default • Security Deposit o Factors to consider: the tenant’s financials and projections, historical track record, type of tenancy, length of lease, and type of guaranty • Letter of credit o Guaranteed payment to the landlord in the event the tenant does not make the lease payments 22
Lease Default (cont’d) • Guaranty o Straight Guaranty ▪ Personal guaranty – typically a manager or director of the company will “guarantee” that it will pay the debts if the company cannot. ▪ Landlords will want to include in the guaranty that landlord has the option to sue or collect against either the tenant or guarantee upon a delinquent debt before pursuing the tenant first. o Good Guy Guaranty ▪ Allows one or more guarantors to be held personally responsible for timely rent and other payments to the landlord, as long as the tenant remains in possession of the property. 23
Remedies • In the event of a default under the lease: o Termination of the lease o Acceleration ▪ Require the full amount of rent remaining on the lease due and owing upon an event of default. o Possession • Eviction/Lawsuit o It is best practice to include a landlord friendly attorney fee recovery provision, or at the very least, a fee shifting provision in which the non-prevailing party has to pay the reasonable attorneys’ fees of the prevailing party. • Statutory remedies vary by state 24
Tenant Considerations • Tenant improvements o What can tenant modify about the premises? o Does landlord allow for an “allowance” for tenant to make improvements? • Tenant concessions o Usually identified in the LOI or term sheet • Third Parties o Lenders o Associations (shopping malls, mixed-use buildings) 25
Insolvency • Awareness o Bankruptcy is allows a possibility and one that frequently favors the tenant • Prepare o Where possible, negotiate protections before executing lease ▪ Is there Furniture, Fixtures, and Equipment (FF&E) for collateral? ▪ Does a lender already have a security interest in the tenant’s assets? • Predict o There is great value for the landlord to negotiate with the tenant if the tenant becomes insolvent – bankruptcy favors the tenant and the landlord likely does not want to be stuck in bankruptcy. 26
Intangible Considerations • Negotiate and act in good faith o The landlord may not be require to agree to a tenant’s lease renewal. o A tenant with an unfavorable reputation is not well received. • A lease is a symbiotic relationship – be aware of who you are working with. 27
Being the Tenant • Commercial tenants are currently dealing with unprecedented issues o Post-Covid-19 landlords, many of whom are low on cash o Remote/hybrid workforce ▪ Less foot traffic for retail o High inflation o Fluctuating economy 28
Being the Tenant (cont’d) • Check your state law – some states (like Texas) provide for a landlord favorable lien on property for unpaid rent. o In Texas, a commercial landlord has a preference lien during each lease year on the tenant’s property in the property for past and future rent due. o If the tenant does not pay, the landlord can foreclose on that lien. 29
Sale of the Property During Tenancy • The Agreement of Purchase and Sale must discuss the lease/tenant o Ensure the new owner will work with the tenant. o Ensure the tenant is not breaching its obligations under the lease while in this process. • Estoppel certificate: o A statement from tenant that a commercial lease exists, that specific facts of the agreement are valid, there are no current defaults, and that the tenant agrees to pay rent to the landlord. o In short, it outlines the nature of the relationship between the landlord and tenant and future assurances. 30
Bankruptcy Considerations and Situations • The nuclear option is for a tenant to file bankruptcy o Chapter 7 (liquidation) or Chapter 11 (restructuring) ▪ Recently Sub-Chapter V of Chapter 11 was passed into law that provides another restructuring option for smaller businesses o If the tenant cannot pay its debts (including rent) and negotiation is ineffective, bankruptcy can be an option. o As a prudent tenant, one should have, at a minimum, a basic understanding of the bankruptcy process. 31
The Power of Bankruptcy • Not only does the tenant have substantial leverage in bankruptcy, but it can assume the lease terms as part of its restructuring process. o Assume or reject the lease ▪ Once under the protection of the bankruptcy court, the tenant is given the option to reject or assume certain contracts, such as unexpired leases. ▪ If assumed, the lease remains effect, even if the tenant has defaulted under the lease, as long as the default is cured, or adequate assurances is provided. ▪ If rejected, the tenant can walk away and is relieved from future obligations under the lease. • If the tenant assumes the lease, the landlord should monitor the tenant’s compliance with the lease. If the tenant breaches the lease after filing for bankruptcy, the landlord may want to seek relief from the automatic stay to terminate the lease. • To avoid bankruptcy, out-of-court restructurings and work outs may be an alternative. 32
About the Faculty 33
About The Faculty Eric Hampton – ehampton@rudolphkaplan.com Eric Hampton is an associate attorney with Rudolph Kaplan, LLC and focuses his practice on commercial and residential real estate litigation and related transactional matters. Eric has experience representing a variety of entities and individuals in all stages of commercial litigation and construction law cases. Eric received his Bachelor of Arts degree from Kansas State University. Eric earned his Juris Doctorate degree from The University of Iowa College of Law in 2018, where he was a writer on the Journal of Corporation Law and worked in the Clinical Law Program. During the summer following his second year of law school, Eric worked as a summer associate at a boutique corporate restructuring law firm in Chicago. Eric is admitted to practice law in the State of Illinois and the Northern District of Illinois. 34
About The Faculty Howard Kline - howard@hfklaw.com Howard has been involved in commercial real estate for over 39 years now as both an attorney, broker, arbitrator and now radio show host and founder of CRE Radio & TV, since December 2010. Over the years, I have worked in-house as General Counsel and Director of Real Estate for a national user of office, R &D and retail space, utilizing both my legal and brokerage licenses, General Counsel for a major regional supermarket chain that owned its own shopping centers. As an attorney, I have also practiced law as outside counsel to many major commercial landlords doing lease transactional work and lease litigation, including unlawful detainers and rent collections. As a real estate salesperson, I have served as a tenant rep in New York City and as a broker for numerous lease transactions throughout the United States. While I continue to practice law on behalf of commercial landlord’s and tenants, my passion has become the radio show. It is incredibly fulfilling to inspire others to improve themselves and reach for the stars. 35
About The Faculty Scott A. Weinstein - sweinstein@fieldandgoldberg.com Scott A. Weinstein comes to the Field and Goldberg, LLC having developed a broad-based background in commercial real estate. Mr. Weinstein’s experience includes working with a fortune 500 company where he handled transaction financing and deal structures. Having served as president, counsel and co-owner of a successful real estate title company, Mr. Weinstein brings a unique perspective and understanding of the daily and ongoing business issues clients face and is able to provide practical and proactive counsel. Mr. Weinstein regularly represents commercial real estate clients in all aspects of commercial transactions including lease negotiations for landlords and tenants (including franchisees) nationwide on retail, office and industrial leases; acquisitions and sales of office, industrial and multi-family apartment buildings, and shopping centers; financing; and condominium deconversions. Admitted to practice in the State of Illinois and the U.S. District, Northern District of Illinois, Florida and New York, Mr. Weinstein received his Juris Doctor degree from Temple University Beasley School of Law and his Bachelor’s degree from the University of Maryland at College Park. 36
Questions or Comments? If you have any questions about this webinar that you did not get to ask during the live premiere, or if you are watching this webinar On Demand, please do not hesitate to email us at info@financialpoise.com with any questions or comments you may have. Please include the name of the webinar in your email and we will do our best to provide a timely response. IMPORTANT NOTE: The material in this presentation is for general educational purposes only. It has been prepared primarily for attorneys and accountants for use in the pursuit of their continuing legal education and continuing professional education. 37
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39
About Financial Poise 40 DailyDAC LLC, d/b/a Financial Poise™ provides continuing education to attorneys, accountants, business owners and executives, and investors. It’s websites, webinars, and books provide Plain English, entertaining, explanations about legal, financial, and other subjects of interest to these audiences. Visit us at www.financialpoise.com Our free weekly newsletter, Financial Poise Weekly, updates you on new articles published on our website and Upcoming Webinars you may be interested in. To join our email list, please visit: https://www.financialpoise.com/subscribe/

More Related Content

REAL ESTATE LAW DUMBED DOWN 2022 - Representing the Commercial Tenant

  • 1. 1
  • 2. 2 Practical and entertaining education for attorneys, accountants, business owners and executives, and investors.
  • 3. 3 Thank You To Our Sponsors:
  • 4. Disclaimer The material in this webinar is for informational purposes only. It should not be considered legal, financial or other professional advice. You should consult with an attorney or other appropriate professional to determine what may be best for your individual needs. While Financial Poise™ takes reasonable steps to ensure that information it publishes is accurate, Financial Poise™ makes no guaranty in this regard. 4
  • 5. Meet the Faculty MODERATOR: Eric Hampton – Rudolph Kaplan LLC PANELISTS: Howard Kline – The Law Offices of Howard F. Kline Scott A. Weinstein – Field and Goldberg, LLC 5
  • 6. About This Webinar – Representing the Commercial Tenant A commercial tenant views a lease negotiation quite differently than does the landlord. As most leases tend to be drafted by the landlord, a tenant must begin an uphill battle to gain as many concessions as possible. This is an arduous task made easier by a full understanding of what are the most important issues for a tenant in a commercial lease transaction. How does the financial profile of the tenant enter into the picture? Where can a tenant get hurt the most by hidden costs or unforeseen expenses? Why is “leverage” the most important concept to consider in this process? This webinar will help one understand how the tenant, generally the underdog in lease transactions, can turn the tables and become the most powerful player in the leasing game. 6
  • 7. About This Series – Real Estate Law Dumbed Down – 101 2022 Commercial real estate is one of the most understandable of investments. We live and work within real estate. It is tangible. One can see it. Yet, underneath this veneer of simplicity there are many legal and practical issues to consider. And these issues are impacted by the market and the leverage of the parties, both of which are moving targets. This webinar series is for the lawyer, broker, investor, syndicator, developer and others who seek a basic understanding of the essential elements of real estate law. This series spans purchase through sale and covers all of the high points in between. Purchasing real estate presents a number of threshold questions. Should a real estate investor use his or her own money, or seek investors? What type of investment legal structure makes the most sense and why? When one is in the process of acquiring a property, what are the most important items to inspect? What if the buyer finds a big problem? When one wishes to sell a real estate investment, how much is the right price? What is the value and how is it determined? At its base, commercial real estate is all about cash flow. What makes this possible is the commercial lease. Yet a lease creates a long-term relationship between a landlord and a tenant who have diametrically opposing goals. How does one navigate through the minefield of legal issues in a lease and end up with a contract that both sides can live with for years to come? Each Financial Poise Webinar is delivered in Plain English, understandable to investors, business owners, and executives without much background in these areas, yet is of primary value to attorneys, accountants, and other seasoned professionals. Each episode brings you into engaging, sometimes humorous, conversations designed to entertain as it teaches. Each episode in the series is designed to be viewed independently of the other episodes so that participants will enhance their knowledge of this area whether they attend one, some, or all episodes. 7
  • 8. Episodes in this Series #1: Representing the Commercial Landlord Premiere date: 8/30/22 #2: Representing the Commercial Tenant Premiere date: 9/27/22 #3: Basics of Real Estate Syndication Premiere date: 10/25/22 #4: Due Diligence in Real Estate Deals Premiere date: 12/6/22 8
  • 9. Episode #2 Representing the Commercial Tenant 9
  • 10. Commercial Leasing Overview • General pillars for commercial tenants: a. Maximize profit/value of the business b. Reduce the cost of overhead c. Shifting burden of risk as much as possible d. Location, location 10
  • 11. Commercial Leasing Overview (cont’d) • Important lease terms a. Use b. Base rent c. Additional rent d. Security deposits, letters of credit, and guarantees e. Repairs/Alterations f. Insurance g. Casualty h. Assignment/Subleasing i. Surrender of premises j. Bankruptcy/Insolvency 11
  • 12. Commercial Leasing Overview (cont’d) • Drafting and Negotiating a. Ensure that your lease protects you from likely and unlikely situations (e.g., default, loss, recessions, even pandemics) b. The Landlord likely drafted the lease, so make sure the lease is as balanced as possible. c. Term length(s), exercisable options, and “out” provisions can be used a leverage by the tenant 12
  • 13. Commercial Leasing Overview (cont’d) • Minimizing risk a. Who holds most of the risk in the lease? • Preserving your company a. Do not let the lease impact your business model – litigation, evictions, or judgments can impact the reputation and future of your business 13
  • 14. Types of Leases/Tenants • Single tenant v. Multi-tenant • Single Net, Double Net, and Triple Net Lease • Gross lease • Modified Gross lease • Percentage Rent 14
  • 15. Types of Leases/Tenants (cont’d) • Retail o Exclusivity, co-tenancy, percentage rent, going dark. Larger tenants often have leverage to impose on landlords. • Office o Relocation provisions are important to allow landlord flexibility; operating expenses, must be sure that all such expenses are covered and uniform. • Industrial o Permits and use are often necessary and must be addressed; hazardous materials and equipment must also be carefully considered. 15
  • 16. Lease Specifics • Common Area Maintenance (CAM) Expenses o Usually includes operating expenses, such as taxes, insurance, maintenance o Should be proportional to the leased space ▪ Should not cover areas that are paid for by other tenants ▪ Review the landlord’s expenses to make sure everything is accounted for and not double billed 16
  • 17. Lease Specifics (cont’d) • Assignment/subletting o Is the tenant considering subleasing a portion of the space? If so, make sure that is an option and negotiate it in the lease. ▪ Who remains liable to the landlord under the assignment/sublease? 17
  • 18. Lease Specifics (cont’d) • Exclusivity, permitted uses & use clauses • Recapture rights o Allows the landlord to terminate a lease and retain possession of the property. • Insurance o All parties need coverage o Limits – can and should be specified in lease to ensure adequate protection o Named insured v. Additional insured 18
  • 19. Lease Specifics (cont’d) • Relocation o In a larger building, the landlord may have the flexibility to move a tenant to another comparable space in the building to utilize the rentable space in as efficiently as possible. • Surrender o The terms of the surrender of possession after the lease term (e.g., condition of property, equipment to take/leave, return of security deposit, etc.) • Holdover o Penalties for a tenant remaining in possession after lease term if not otherwise agreed by both parties. 19
  • 20. Subordination, Non-Disturbance and Attornment Agreement (SNDA) • Agreement between tenant and lender of landlord • 3 parts: o Subordination ▪ Tenant agrees to subordinate its interest in the property to the lender. o Non-Disturbance ▪ In the event the landlord defaults on a loan and the lender forecloses on the property, they will still be able to operate in the leased premises for the remainder of the lease term under the new landlord o Attornment ▪ In the event of foreclosure, the tenant agrees that the lender will be its new landlord. 20
  • 21. Subordination, Non-Disturbance and Attornment Agreement (SNDA) (cont’d) • Negotiating an SNDA o Leverage typically shifts depending on if negotiated before or after lease execution. • Issues o 3 parties with competing interests in 1 asset o New landlords generally do not like being responsible for previous landlord’s obligations 21
  • 22. Lease Default • Security Deposit o Factors to consider: the tenant’s financials and projections, historical track record, type of tenancy, length of lease, and type of guaranty • Letter of credit o Guaranteed payment to the landlord in the event the tenant does not make the lease payments 22
  • 23. Lease Default (cont’d) • Guaranty o Straight Guaranty ▪ Personal guaranty – typically a manager or director of the company will “guarantee” that it will pay the debts if the company cannot. ▪ Landlords will want to include in the guaranty that landlord has the option to sue or collect against either the tenant or guarantee upon a delinquent debt before pursuing the tenant first. o Good Guy Guaranty ▪ Allows one or more guarantors to be held personally responsible for timely rent and other payments to the landlord, as long as the tenant remains in possession of the property. 23
  • 24. Remedies • In the event of a default under the lease: o Termination of the lease o Acceleration ▪ Require the full amount of rent remaining on the lease due and owing upon an event of default. o Possession • Eviction/Lawsuit o It is best practice to include a landlord friendly attorney fee recovery provision, or at the very least, a fee shifting provision in which the non-prevailing party has to pay the reasonable attorneys’ fees of the prevailing party. • Statutory remedies vary by state 24
  • 25. Tenant Considerations • Tenant improvements o What can tenant modify about the premises? o Does landlord allow for an “allowance” for tenant to make improvements? • Tenant concessions o Usually identified in the LOI or term sheet • Third Parties o Lenders o Associations (shopping malls, mixed-use buildings) 25
  • 26. Insolvency • Awareness o Bankruptcy is allows a possibility and one that frequently favors the tenant • Prepare o Where possible, negotiate protections before executing lease ▪ Is there Furniture, Fixtures, and Equipment (FF&E) for collateral? ▪ Does a lender already have a security interest in the tenant’s assets? • Predict o There is great value for the landlord to negotiate with the tenant if the tenant becomes insolvent – bankruptcy favors the tenant and the landlord likely does not want to be stuck in bankruptcy. 26
  • 27. Intangible Considerations • Negotiate and act in good faith o The landlord may not be require to agree to a tenant’s lease renewal. o A tenant with an unfavorable reputation is not well received. • A lease is a symbiotic relationship – be aware of who you are working with. 27
  • 28. Being the Tenant • Commercial tenants are currently dealing with unprecedented issues o Post-Covid-19 landlords, many of whom are low on cash o Remote/hybrid workforce ▪ Less foot traffic for retail o High inflation o Fluctuating economy 28
  • 29. Being the Tenant (cont’d) • Check your state law – some states (like Texas) provide for a landlord favorable lien on property for unpaid rent. o In Texas, a commercial landlord has a preference lien during each lease year on the tenant’s property in the property for past and future rent due. o If the tenant does not pay, the landlord can foreclose on that lien. 29
  • 30. Sale of the Property During Tenancy • The Agreement of Purchase and Sale must discuss the lease/tenant o Ensure the new owner will work with the tenant. o Ensure the tenant is not breaching its obligations under the lease while in this process. • Estoppel certificate: o A statement from tenant that a commercial lease exists, that specific facts of the agreement are valid, there are no current defaults, and that the tenant agrees to pay rent to the landlord. o In short, it outlines the nature of the relationship between the landlord and tenant and future assurances. 30
  • 31. Bankruptcy Considerations and Situations • The nuclear option is for a tenant to file bankruptcy o Chapter 7 (liquidation) or Chapter 11 (restructuring) ▪ Recently Sub-Chapter V of Chapter 11 was passed into law that provides another restructuring option for smaller businesses o If the tenant cannot pay its debts (including rent) and negotiation is ineffective, bankruptcy can be an option. o As a prudent tenant, one should have, at a minimum, a basic understanding of the bankruptcy process. 31
  • 32. The Power of Bankruptcy • Not only does the tenant have substantial leverage in bankruptcy, but it can assume the lease terms as part of its restructuring process. o Assume or reject the lease ▪ Once under the protection of the bankruptcy court, the tenant is given the option to reject or assume certain contracts, such as unexpired leases. ▪ If assumed, the lease remains effect, even if the tenant has defaulted under the lease, as long as the default is cured, or adequate assurances is provided. ▪ If rejected, the tenant can walk away and is relieved from future obligations under the lease. • If the tenant assumes the lease, the landlord should monitor the tenant’s compliance with the lease. If the tenant breaches the lease after filing for bankruptcy, the landlord may want to seek relief from the automatic stay to terminate the lease. • To avoid bankruptcy, out-of-court restructurings and work outs may be an alternative. 32
  • 34. About The Faculty Eric Hampton – ehampton@rudolphkaplan.com Eric Hampton is an associate attorney with Rudolph Kaplan, LLC and focuses his practice on commercial and residential real estate litigation and related transactional matters. Eric has experience representing a variety of entities and individuals in all stages of commercial litigation and construction law cases. Eric received his Bachelor of Arts degree from Kansas State University. Eric earned his Juris Doctorate degree from The University of Iowa College of Law in 2018, where he was a writer on the Journal of Corporation Law and worked in the Clinical Law Program. During the summer following his second year of law school, Eric worked as a summer associate at a boutique corporate restructuring law firm in Chicago. Eric is admitted to practice law in the State of Illinois and the Northern District of Illinois. 34
  • 35. About The Faculty Howard Kline - howard@hfklaw.com Howard has been involved in commercial real estate for over 39 years now as both an attorney, broker, arbitrator and now radio show host and founder of CRE Radio & TV, since December 2010. Over the years, I have worked in-house as General Counsel and Director of Real Estate for a national user of office, R &D and retail space, utilizing both my legal and brokerage licenses, General Counsel for a major regional supermarket chain that owned its own shopping centers. As an attorney, I have also practiced law as outside counsel to many major commercial landlords doing lease transactional work and lease litigation, including unlawful detainers and rent collections. As a real estate salesperson, I have served as a tenant rep in New York City and as a broker for numerous lease transactions throughout the United States. While I continue to practice law on behalf of commercial landlord’s and tenants, my passion has become the radio show. It is incredibly fulfilling to inspire others to improve themselves and reach for the stars. 35
  • 36. About The Faculty Scott A. Weinstein - sweinstein@fieldandgoldberg.com Scott A. Weinstein comes to the Field and Goldberg, LLC having developed a broad-based background in commercial real estate. Mr. Weinstein’s experience includes working with a fortune 500 company where he handled transaction financing and deal structures. Having served as president, counsel and co-owner of a successful real estate title company, Mr. Weinstein brings a unique perspective and understanding of the daily and ongoing business issues clients face and is able to provide practical and proactive counsel. Mr. Weinstein regularly represents commercial real estate clients in all aspects of commercial transactions including lease negotiations for landlords and tenants (including franchisees) nationwide on retail, office and industrial leases; acquisitions and sales of office, industrial and multi-family apartment buildings, and shopping centers; financing; and condominium deconversions. Admitted to practice in the State of Illinois and the U.S. District, Northern District of Illinois, Florida and New York, Mr. Weinstein received his Juris Doctor degree from Temple University Beasley School of Law and his Bachelor’s degree from the University of Maryland at College Park. 36
  • 37. Questions or Comments? If you have any questions about this webinar that you did not get to ask during the live premiere, or if you are watching this webinar On Demand, please do not hesitate to email us at info@financialpoise.com with any questions or comments you may have. Please include the name of the webinar in your email and we will do our best to provide a timely response. IMPORTANT NOTE: The material in this presentation is for general educational purposes only. It has been prepared primarily for attorneys and accountants for use in the pursuit of their continuing legal education and continuing professional education. 37
  • 38. 38
  • 39. 39
  • 40. About Financial Poise 40 DailyDAC LLC, d/b/a Financial Poise™ provides continuing education to attorneys, accountants, business owners and executives, and investors. It’s websites, webinars, and books provide Plain English, entertaining, explanations about legal, financial, and other subjects of interest to these audiences. Visit us at www.financialpoise.com Our free weekly newsletter, Financial Poise Weekly, updates you on new articles published on our website and Upcoming Webinars you may be interested in. To join our email list, please visit: https://www.financialpoise.com/subscribe/