Casualty and Condemnation Provisions: Balancing Conflicting Interests of Lenders, Borrowers, and Tenants

Using SNDAs to Address Lease Requirements, Special Issues With Ground Leases

A live 90-minute premium CLE webinar with interactive Q&A


Thursday, March 5, 2020

1:00pm-2:30pm EST, 10:00am-11:30am PST

Early Registration Discount Deadline, Friday, February 7, 2020

or call 1-800-926-7926

This CLE webinar 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 which can arise with ground leases.

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 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.

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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 the "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?

Faculty

Hayhurst, Ren
Ren R. Hayhurst

Founder
Ren RH Legal Consultants

Mr. Hayhurst’s professional life has focused for over 30 years on all aspects of lender and borrower...  |  Read More

Palazzo, Anthony
Anthony Palazzo

General Counsel
Cali Kader

Mr. Palazzo has over 25 years of experience in real estate finance. He began his career as lender's counsel for a...  |  Read More

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