Law.com Subscribers SAVE 30%

Call 855-808-4530 or email [email protected] to receive your discount on a new subscription.

Revisiting Credit Support in Early Sale Transactions

By James H. Marshall
March 27, 2007
The first two installments of this article discussed credit support transactions in general and income support. The conclusion focuses on co-tenancy support.

In early sale transactions, particularly those involving lifestyle shopping centers, the seller may be faced with the prospect of closing the transaction prior to the date on which each of the tenants' opening co-tenancy conditions have been satisfied. To the extent that a tenant's opening co-tenancy conditions have not been satisfied, such tenant, if open, is likely paying a reduced rental, whether tied to a percentage of minimum rent or a percentage of gross sales. Sometimes the reduced rental applies only to minimum rent; other times it includes common area charges, insurance, and taxes. As a result, the project is not generating its maximum level of income, thereby resulting in a lower income stream for the purchaser at closing. To avoid a reduction in the purchase price as a result of such opening co-tenancy rental relief, the seller can make post-closing payments to close this income gap.

Mechanics

Similar to the income support mechanics, the parties will need to establish a number of procedures to address the seller's opening co-tenancy support obligations. First, the parties should identify those tenants which, as of the closing date, are not required to open or are entitled to pay a reduced rental as a result of the failure of an opening co-tenancy condition. The seller's objective in this regard is to designate the specific tenants with respect to which the seller will be required to make opening co-tenancy support payments. By establishing the seller's opening co-tenancy support obligations with a defined universe of tenants, the seller can more easily quantify the cost and extent of its post-closing opening co-tenancy support obligations. Moreover, it eliminates the possibility that the seller becomes responsible for opening co-tenancy support payments for additional tenants for unforeseen reasons. For example, at closing one or more leases may be signed but not income producing. The opening co-tenancy requirements may be satisfied with respect to such leases at the time of closing, but prior to such time as the tenant under such lease opens for business, one or more tenants cease operating at the project. As a result of such closure, the tenant under such lease may then be allowed to pay a reduced opening co-tenancy rental. Inasmuch as the seller would not bear the risk of post-closing tenant closures if the project were sold when fully income producing, the seller should not bear such risk in the early sale transaction.

This premium content is locked for Entertainment Law & Finance subscribers only

  • Stay current on the latest information, rulings, regulations, and trends
  • Includes practical, must-have information on copyrights, royalties, AI, and more
  • Tap into expert guidance from top entertainment lawyers and experts

For enterprise-wide or corporate acess, please contact Customer Service at [email protected] or 877-256-2473

Read These Next
Major Differences In UK, U.S. Copyright Laws Image

This article highlights how copyright law in the United Kingdom differs from U.S. copyright law, and points out differences that may be crucial to entertainment and media businesses familiar with U.S law that are interested in operating in the United Kingdom or under UK law. The article also briefly addresses contrasts in UK and U.S. trademark law.

Strategy vs. Tactics: Two Sides of a Difficult Coin Image

With each successive large-scale cyber attack, it is slowly becoming clear that ransomware attacks are targeting the critical infrastructure of the most powerful country on the planet. Understanding the strategy, and tactics of our opponents, as well as the strategy and the tactics we implement as a response are vital to victory.

The Article 8 Opt In Image

The Article 8 opt-in election adds an additional layer of complexity to the already labyrinthine rules governing perfection of security interests under the UCC. A lender that is unaware of the nuances created by the opt in (may find its security interest vulnerable to being primed by another party that has taken steps to perfect in a superior manner under the circumstances.

Removing Restrictive Covenants In New York Image

In Rockwell v. Despart, the New York Supreme Court, Third Department, recently revisited a recurring question: When may a landowner seek judicial removal of a covenant restricting use of her land?

Fresh Filings Image

Notable recent court filings in entertainment law.