PROGRAM SUMMARY

March Program – The Top Ten Legal Issues in Acquisition and Leasing Transactions

Ruth Jansson, Associate at Gensler moderated the panel, which included: Janis Schiff, Esq; Anne Planning, Esq; and Wendelin White, Esq., all partners at Shaw Pittman, LLP.

The legal issues surrounding a Real Estate lease agreement, whether Retail or Office, boil down to issues of control and money between the Landlord and Tenant.

“Assignment and Subletting:” issues relate to who uses the space. Janis Schiff noted that this is critical for Retail transactions in the mixed use and suburban development markets. The Landlord's focus is finding an anchor tenant, usually a grocery store that is attractive to the lender. The anchor tenant on the other hand wants control over which other retail tenants will be allowed in the building to protect their sales and investment.

In negotiations between the Landlord and Tenant defining the parameters for sub-leases, the landlord wants control by stating that they must give consent. In addition, the landlord usually limits the percentage of square footage allowed for sub-leases.

In some circumstances, in the case of bankruptcy, the Landlord will agree to a Financial Release of Liability.

Anne Planning stated that in the Office market, a release of initial obligation is never done. The Landlord is most concerned about the sub-tenant. The Bonus Rent clause, gives the Landlord all or 50% of the net profit in a sublet or assignment. This can be amortized on the life of the lease. The landlord is also concerned about their ability to recapture space in order to accommodate another tenant's growth.

“Default Remedies” is an issue, which is, concerned about whom the tenant is and their financial credibility.

It is critical to make sure that the financial information is actually for the tenant in the lease. Leasing deals require a deposit. This may be cash, credit, leans, etc. However, the Letter of Credit is the best protection for the Landlord if the Tenant defaults on the lease. If the Landlord defaults, their percentage of equity in the building is their credit. Janis Schiff stated that the Letter of Credit is often more important than the lease itself.

“Purchase and Sales” involves two issues. Before the lease is signed, the purchaser is interested in the ability to get the deposit back. For the seller, the issue is how much loss is incurred in time spend on the deal.

Once there is a lease, the tenant is concerned about repairs. They want the ability to fix deficiencies if the Landlord doesn't respond the their requests. The Landlord limits his liability for the costs of repairs by giving the tenant the right to make repairs themselves only if they are in imminent danger.

The Landlord also wants protection should the Tenant leave. State Law mitigates damages by making the Landlord responsible for making reasonable efforts to rent the space.

“Reps and Warranties” involve written guarantees. Knowledge Rep, Entity Authority Rep, Entity Ownership Rep and Litigation Rep are stated guarantees that the buyer or seller is whom he says he is and has no knowledge of or is not involved in current or threatened litigation. Financial Reps involve the buyers rent stream (list of tenants and contracts). How long do reps and warranties survive after closing? Generally the contract extends the reps and warranties for 6 months after closing. The contract will usually limit the post liability to one million.

“Use and Exclusivity” is primarily a Retail issue. A broad interpretation allows any lawful retail use. Use restrictions in the lease may limit the specific type of retail. The Landlord needs to be careful with the wording of this clause to avoid being accused of discrimination. The Tenant is concerned about exclusivity, especially the anchor, to protect their business interests. There often exist side agreements between retailers that limit who will co-locate. The Landlord's prime concern is tenant mix, whereas the tenant doesn't want to limit their ability to change and expand their business.

“Continuous Operation – Go Dark” concerns both Landlord and Tenant. The Landlord wants the right to take back space that is not being used. The Tenant is concerned about being paid the amortized value of the space.

Some leases contain a Non-Disturbance Agreement clause where the Landlord agrees to let the sub-tenant stay when the prime tenant leaves because they like them.

Ruth Jansson - Moderator	Janis B. Schiff, Esq.	Anne Planning, Esq.	Wendy White, Esq.

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