REITs: The Challenge of Parking Facilities
July 28, 2006
The careful negotiation of the rights and responsibilities involved with the operation of parking facilities associated with commercial properties is an often-overlooked component of the acquisition and leasing of those properties. It has been noted that the inadequate resolution of the competing interests between owners, lessors, and lessees of parking facilities can harm the interested parties' businesses and ultimately drive the parties into costly and time-consuming legal battles. Stacy E. Smith, Negotiating Parking Privileges in Commercial Leases: What Every Tenant Should Know. <i>Com. Leasing L. & Strategy</i>, July 2005, at 1. Unfortunately, the presence of a real estate investment trust ('REIT') among the concerned parties adds an additional layer of complexity to an already challenging situation.
Post-Petition Enforcement Against the Seller of Contracts for the Sale of Goods
July 28, 2006
Generally speaking, after a bankruptcy filing, executory contracts are not enforceable against a debtor that has not yet assumed the contract. <i>N.L.R.B. v. Bildisco and Bildisco</i>, 465 U.S. 513, 531 (1984). However, the reverse is not true. During the pre-assumption period the non-debtor party to the contract is presumed to be obligated to perform in accordance with a contract. Howard C. Buschman III, <i>Benefits and Burdens: Post-Petition Performance of Unassumed Executory Contracts</i>, 5 Bankr. Dev. J. 341, 346, 359 (1988); <i>Univ. Med. Ctr. v. Sullivan (In re Univ. Med. Ctr.)</i>, 973 F.2d 1065, 1075 (3d Cir. 1992); <i>McLean Indus., Inc. v. Med. Lab. Automation, Inc. (In re McLean Indus., Inc.)</i>, 96 B.R. 440, 449 (Bankr. S.D.N.Y. 1989). Of course, a debtor who elects to receive the benefits of a contract while deciding whether to assume or reject the contract is expected to pay for the value of the goods and services received in accordance with the contract. As the Supreme Court noted in <i>Bildisco</i>, 465 U.S. at 531, 'If the debtor-in-possession elects to continue to receive benefits from the other party to an executory contract pending a decision to reject or assume the contract, the debtor-in-possession is obligated to pay for the reasonable value of those services ... ' <i>See also Schokbeton Indus., Inc. v. Schokbeton Prods. Corp. (In re Schokbeton Indus., Inc.)</i>, 466 F.2d 171, 175 (5th Cir. 1972).
Forbearance Agreements: A Useful Tool for Lenders After Default
July 28, 2006
With a borrower in default and facing the threat of imminent litigation or bankruptcy, both lenders and borrower are increasingly looking to the appealing alternative of forbearance agreements. These are arrangements whereby lenders refrain from exercising their available default remedies in exchange for certain concessions from the borrower. Depending on the circumstances, forbearance agreements give lenders an alternative to the expenses and delays associated with litigation or bankruptcy. Forbearance agreements can also be used to take the place of a more long-term modification of the parties' arrangement. Accordingly, a forbearance usually gives up little on the part of the lender, but allows the lender to secure a number of benefits that will be very helpful in the event of a subsequent default by the borrower.
Dealer Protection Statutes Level the Playing Field for Heavy Equipment Dealers
July 28, 2006
Dealers who sell and lease expensive heavy equipment, and therefore those who finance them, are often at the mercy of the manufacturers whose products the dealers sell or lease. Disparities in bargaining power between a local equipment dealership and a national or international manufacturer can force the dealership to accept unfair or oppressive terms. And if the manufacturer arbitrarily terminates the dealership agreement, the thriving business that the equipment dealer built can be totally ruined, often with little or no legal recourse, thereby also putting those who finance the dealer at peril.
Revisiting Inquiry Notice
July 28, 2006
A recent Illinois Appellate Court decision should lead to increased underwriting and due diligence inquiries by purchasers (and title insurers) of shopping center outparcels (that is smaller parcels at the center's perimeter that the shopping center owner intends to sell or lease for high-traffic uses) and may redefine appropriate inquiry notice throughout the retail industry. In <i>Murray's Discount Auto Stores, Inc. v. USRP Texas, L.P. and First American Bank</i>, Case No. 1-02-3434, the Appellate Court of Illinois, First Judicial District, held that the purchaser of a shopping center outparcel had knowledge of facts sufficient to put it on inquiry notice as to the existence of a no-build restriction contained in an unrecorded lease at adjacent shopping center property. In so doing, the appellate court sent a loud and clear message that shopping center easement rights and restrictions will be exalted at the expense of buyers who fail to take additional due diligence inquires that may be warranted under the circumstances.
In the Spotlight: New Bankruptcy Law Is Not All Good for Landlords
July 28, 2006
On April 20, 2005, President Bush signed into law the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, which significantly changed the U.S. Bankruptcy Code. While various aspects of the new law give landlords greater rights in tenant bankruptcies, the law is not all good for landlords. The benefits of the new law for commercial landlords have been written about extensively, including an analysis of the new provisions setting definitive deadlines for a tenant to assume or reject a lease under the Bankruptcy Code. What has not been highlighted is that if a commercial tenant files a Chapter 7 bankruptcy case, a landlord's space could be tied up for 120 days or more, instead of 60 days or more under the old law. (This article does not address the special rules and protections for landlords of residential properties and is devoted to a discussion of the provisions regarding commercial properties.)
The Leasing Hotline
June 28, 2006
Highlights of the latest commercial leasing cases from around the country.
