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Course Details

Course Information
  • smart_display Format

    On-Demand

  • signal_cellular_alt Difficulty Level

    Intermediate

  • work Practice Area

    Real Property - Finance

Date & Time
  • event Date

    Tuesday, May 14, 2024

  • schedule Time

    1:00 p.m. ET./10:00 a.m. PT

  • timer Program Length

    90 minutes

Credit Information

  • This 90-minute webinar is eligible in most states for 1.5 CLE credits.

$347.00
CLE
ALL

This CLE course will examine casualty and condemnation provisions in real estate finance documents and how best to balance the interests of lenders, landlords, and tenants concerning disbursement of proceeds and the right or obligation to rebuild. The panel will discuss lease scenarios that can impact casualty and condemnation provisions and issues about the allocation of proceeds that can arise with ground leases.

Faculty

James C. O'Brien
Partner, Co-Chair Leasing Practice
Seyfarth Shaw LLP

Mr. O’Brien has more than 20 years of experience as a transactional attorney. He has handled matters throughout the country and internationally and has significant experience in California real estate transactions. Mr. O’Brien’s practice has included acquisitions, dispositions, leasing, financing, and joint venture formation. He represents both landlords and tenants in the leasing of office, retail, and industrial premises. He has experience with the entire life cycle of a lease, from negotiating letters of intent and leases themselves to dealing with construction and tenant improvement issues, expansion amendments, early terminations and lease disputes. Mr. O’Brien works closely with his clients’ brokers, construction managers, and other leasing professionals to complete lease negotiations as efficiently and as advantageously as possible.

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Jason T. Polevoy
Counsel
Patterson Belknap Webb & Tyler LLP

Mr. Polevoy has extensive experience in all aspects of complex commercial real estate, including office and retail leasing, development, sales and acquisitions, joint ventures, financing, restructurings and workouts. He also has significant experience in connection with hotel management agreements, architect agreements and construction agreements. Mr. Polevoy has represented owners, investors and developers of office, hotel, multi-family residential and industrial properties in connection with the acquisition, disposition and financing of commercial real property, and represented landlords and tenants in connection with office, retail and restaurant leases, in New York City and nationally. He is the current Chair of the Real Property Law Committee of the New York City Bar Association.

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Terry Carroll
Partner
Seyfarth Shaw LLP

Mr. Carroll’s practice is centered on representing lenders in real estate financing matters. His work includes the structuring, closing and servicing of mortgage and mezzanine loans, including permanent loans, CMBS loans, bridge loans and construction loans. Mr. Carroll has extensive experience in real estate finance transactions across the U.S., including multi-state, multi-borrower, cross-defaulted and cross-collateralized transactions. He also represents entrepreneurial and institutional investors in their acquisition, disposition and financing of real property. Mr. Carroll has drafted and negotiated purchase agreements for office, industrial, multifamily and retail properties across the U.S., negotiated loan documents on behalf of borrowers in connection with loans originated by small and large banks, and frequently serves as local counsel for both borrowers and lenders in connection with the origination of loans secured by real property.

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Description

Casualty and condemnation provisions in mortgage loan documents typically give the lender some degree of control over the proceeds and how to apply the proceeds toward repair or restoration of improvements. But such provisions require negotiation between the parties, and underlying leases or ground leases may contain conflicting rights to address in the loan documents or an accompanying subordination, non-disturbance, and attornment agreement (SNDA).

Existing leases often require the landlord to rebuild the leased premises within a specific time frame or tenants are entitled to terminate. Anchor or big-box leases may even give the tenant control of the proceeds and the rebuilding process. Counsel will need to balance the borrower's desire to comply with existing leases against the lender's preference to protect its collateral. A lender might share the borrower's interest in keeping such tenants in place but will likely want some level of control over a tenant rebuild and borrower's continued payment of the loan.

Materiality is also a primary concern. Documents typically include a percentage threshold below which the lender will permit the borrower to keep the proceeds so long as they are applied to rebuild the premises. Loan documents may also include a second threshold where the lender holds the proceeds but agrees to make them available for a rebuild of the premises and the third threshold above which the lender will accelerate the loan and apply the proceeds to pay down the loan. The appropriate limits may vary between portfolio and CMBS lenders.

Ground leases present the particular risk that a lease could be terminated and the loan wiped out in the event of condemnation and, in some instances, casualty. There are conflicting views as to what is "market" with ground lease financing when the parties attempt to address the relative rights of the mortgage lender and the ground lessor to casualty and condemnation proceeds. The ground lease may contain a formula for allocating proceeds with which the lender will need to abide.

Listen as our authoritative panel discusses the current thinking on casualty and condemnation provisions in commercial mortgages and how different lease and ground lease scenarios can impact these provisions.

Outline

  1. Casualty and condemnation generally
    1. Concerns of lender: protect security, control proceeds, continued performance of a loan
    2. Concerns of the borrower: ability to repair, rebuild improvements, keep tenants
  2. Materiality thresholds for making proceeds available, allowing/requiring a rebuild, accelerating the loan
  3. Treatment of casualty and condemnation in leases
    1. Borrower/landlord required to rebuild
    2. Tenant allowed to rebuild, given control over proceeds
    3. Other variations
  4. Addressing conflicting provisions in the SNDA
  5. Special issues with ground leases

Benefits

The panel will review these and other essential questions:

  • When might the interests of the lender and borrower be aligned when there is casualty or condemnation?
  • What is "market" for materiality thresholds, particularly concerning the lender's ability to accelerate the loan?
  • How do leases typically approach rebuild obligations when there is a casualty, and how might that conflict with loan provisions?
  • How do ground leases address allocation of condemnation proceeds, and what should leasehold loan documents say in response?