Tag: property

Using an LLC to Protect the Family Vacation Home

Vacation homes offer a retreat from daily life, providing a sanctuary to relax and create cherished family memories. Many owners envision passing down their vacation home for future generations to enjoy, but the lack of proper planning can often lead to intra-family disputes. Leaving a vacation home outright to children or other family members may be the easiest option, but the potential for discord over the control and usage of the property only increases as ownership is passed from one generation to the next. A limited liability company (LLC) can mitigate the risk of conflict and provide a tailored solution to the meet the specific needs of a family.

When a vacation home is owned by an LLC, the membership interests in the LLC are passed down to younger generations, which allows for the continued use and enjoyment of the property by the family. The structure also provides a framework for management through an operating agreement, which governs the LLC. An operating agreement allows the original owner to create a plan for how the property will be used and managed as additional owners are added. The agreement can determine who is responsible for property management, how expenses should be proportioned and paid, how decisions should be made and provide guidelines for scheduling family usage. By establishing clear rules and procedures, an LLC can reduce the likelihood of disputes and encourage fairness among different generations.

Another benefit of an LLC is the ability to prevent unwanted transfers of ownership thus ensuring that the property stays in the family. A well-drafted operating agreement can prohibit membership interests from being transferred to third parties, protecting the family as a whole from an individual’s divorce or creditor problems. The LLC can also hold additional assets, including rental income and deposits of other funds earmarked for property expenditures, which facilitates the proper management and use of resources to cover expenses.

An LLC offers an efficient structure to avoid intra-family turmoil and preserves the spirit of the family vacation home for generations to come.

© 2024 Chuhak & Tecson P.C.
For more news on Protecting Real Estate Ownership, visit the NLR Real Estate section.

Importance of Negotiating Assignment and Subletting Provisions in Health Care Leases

In our ongoing series of blog posts, we examine key negotiating points for tenants in triple net health care leases. We also offer suggestions for certain lease provisions that will protect tenants from overreaching and unfair expenses, overly burdensome obligations, and ambiguous terms with respect to the rights and responsibilities of the parties. These suggestions are intended to result in efficient lease negotiations and favorable lease terms from a tenant’s perspective. In our first two blog posts, we considered the importance of negotiating initial terms and renewal terms and operating expense provisions. This latest blog post in our series focuses on negotiating assignment and subletting provisions.

It is imperative for a commercial tenant, particularly a private equity-owned health care tenant, to include provisions in a lease which allow the tenant the flexibility to assign and sublease the commercial space without the necessity of having to obtain the landlord’s consent and/or to meet burdensome landlord conditions.

Most leases prohibit transfers by assignment and subletting or require landlord’s prior written consent subject to meeting certain burdensome conditions. In addition, landlords often include a “change of control” provision which provides that sale of a controlling interest is deemed a transfer requiring landlord consent. A health care tenant looking for flexibility for reorganization or internal transfer subject to private equity control will want to push back on change of control provisions and will want to ensure that their lease allows for certain permitted transfers that do not require landlord consent. Carving out “permitted transfers” customarily includes transfers to: (i) an affiliate of the named tenant under the lease (meaning, any entity, directly or indirectly, which controls, is controlled by or is under common control with tenant); (ii) a successor entity created by merger, consolidation or reorganization of tenant; or (iii) an entity which shall purchase all or substantially all of the assets or a controlling interest in the stock or membership of tenant. If the tenant is a management services organization (MSO), the lease should also include explicit landlord permission for a sublease between the MSO and the provider that will occupy the leased premises.

Landlords may accept the concept of permitted transfers but often seek to impose certain conditions to allowing such transfers. Certain conditions on permitted transfers are reasonable, such as requirements for advance notice, that the proposed permitted transferee assume all obligations under the lease, that the permitted transferee operate only for the permitted use set forth in the lease, and that a copy of the transfer document be provided to landlord. However, other conditions, such as requiring a net worth test for the assignee or financial reporting requirements, can be burdensome and serve to undermine the concept of permitted transfers without landlord consent. We advise our clients in these instances to push back or limit these conditions as much as possible.

Other common assignment and subletting provisions should expressly not apply to permitted transfers. These include recapture provisions which allow a landlord to terminate the lease and recapture the space, excess profit provisions which provide that any excess profits realized as the result of a transfer will be shared between landlord and tenant, and administrative fees and reimbursements to landlord which are often charged to tenants in connection with an assignment or subletting request. Restrictions on transfers should not apply to guarantor entities. Often with private equity, the guarantor is the parent entity and cannot be restricted by a landlord as to transfer, restructuring or reorganization at the top of its organization.

In the case of transfers that do not fall within the definition of “permitted transfers” and require landlord consent, a tenant will want to include language that landlord will not unreasonably withhold, condition, or delay such consent. Other tenant protections should also be considered, including a cap on administrative and review fees reimbursable by tenant to landlord, a reasonably short time period for landlord to approve or disapprove a request (i.e., 30 days) or be deemed to have approved, a reasonably short time period for landlord to exercise recapture rights or be deemed to have approved, and a provision that excess profits will be shared equally rather than all belonging to landlord.

Negotiation of assignment and subletting terms is critical for tenants, particularly with respect to private equity-owned health care tenants. The goal for tenants in negotiating these points is to provide flexibility for addressing future financial and operational needs. As with other highly negotiated lease terms, we recommend addressing assignment and subletting provisions in detail in advance in the letter of intent. This makes expectations of the parties clear, saves time and money by avoiding protracted negotiations, and results in an overall efficient lease negotiation process.

In our next post, we will cover the importance of negotiating maintenance and repair terms and will offer suggestions for limiting a tenant’s exposure.

©2024 Epstein Becker & Green, P.C. All rights reserved.
For more news on Health Care Leases, visit the NLR Health Law & Managed Care section.

The Top 10 Do’s and Don’ts of Selling a Cell Lease

When you sell a cell lease, in addition to assigning the lease and rents to the purchaser, you also sell the purchaser the right to put communications antennas on your property for 50 years or more. Done properly, this can be very advantageous, but if done improperly, the right, coupled with its lengthy term, can be harmful, especially for valuable properties.

While the intricacies of such sales should be left to professionals (the sale documents are often 15-20 pages long to protect the property owner), here is a short list of items unique to cell lease sales which property owners should keep in mind. This list is based on years of experience helping clients sell over 100 leases.

  1. Sell the cell lease first if you will be selling the property with the lease. Recently, leases have sold for around 20 times annual revenues. Done properly, a lease sale will add dollar for dollar to the sales price of the property it’s on.
  2. Don’t use the documents from the purchaser without extensively revising them (we often toss them out and use our own documents). They are usually so overreaching that using them “as is” can reduce or destroy the value of the property with the lease.
  3. Include provisions protecting the future use, development and value of the property with the lease.
  4. Have a relocation provision so you can require the leased area to be moved to another location on the property if needed for the maintenance, repair or redevelopment of the property.

The following items are particularly important for areas where the leased space is on a building rather than for a tower on open land. Buildings are generally much more valuable than open land (so the potential harm from bad terms is greater), there often are two or more parcels being leased (equipment on the ground, antennas on the roof, cables in between) and property owners need to be specific on the rights being sold and retained.

  • Clearly describe, with engineering drawings if needed, the areas of the building the purchaser can use.
  • Spell out the types of communications uses the purchaser can conduct and the equipment it may place in these areas.
  • Also spell out the rights the building owner and tenants retain to use these same areas (as well as other parts of the building) for their antennas, HVAC, elevators, etc.
  • Describe the types of communications uses and radios that the building owner, residents and tenants have retained and do not violate the sale.
  • Attach engineering drawings showing the equipment currently on the building.
  • Require landlord approval of changes to the preceding and the reasons the approval can be withheld.

Article By John W. Pestle and Peter A. Schmidt of Varnum LLP

For more communications, media, and internet legal news, click here to visit the National Law Review.

© 2022 Varnum LLP

An Investment Worth Making: How Structural Changes to the EB-5 Program Can Ensure Real Estate Developers Build a Good Foundation for Their Capital Projects

The United States has made major changes to the rules governing its EB-5 program through the enactment of the EB-5 Reform and Integrity Act of 2022 (RIA). The RIA was a component of H.R. 2471—the Consolidated Appropriations Act, 2022—which President Biden signed into law on March 15, 2022. And while the RIA made many sweeping changes to the EB-5 landscape, including establishing an EB-5 Integrity Fund comprised of annual funds collected from regional centers to support auditing and fraud detection operations, two changes in particular are pertinent to developers funding capital investments. First, the RIA altered how developers calculate EB-5 job creation. Second, the RIA prioritizes the processing and adjudication of EB-5 investment in rural area projects, and it tweaked the incentives for high unemployment area and infrastructure projects. Paying careful attention to each of these two areas will enable developers to maximize the benefits afforded to it through the changes enacted by the RIA.

THE RIA MODIFIES JOB CREATION CALCULATIONS

New commercial enterprises under the EB-5 program must create full-time employment for no fewer than 10 United States citizens, United States nationals, or foreign nationals who are either permanent residents or otherwise lawfully authorized for employment in the United States. The RIA made three major changes to how regional centers measure job creation to meet this 10-employee threshold:

  • First, the RIA permits indirect job creation to account for only up to 90% of the initial job creation requirement. For example, if a developer invests in a small retail-residential complex that will eventually create 30 new jobs with the retail stores that will move into the shopping spaces, the developer could count only nine of those jobs toward the 10-employee threshold.
  • Second, the RIA permits jobs created by construction activity lasting less than two years to account for only up to 75% of the initial job creation requirement. The RIA does allow for these jobs to count for direct job creation, however, by multiplying the total number of jobs estimated to be created by the fraction of the two-year period the construction activity will last. For example, if construction on the small retail-residential complex will last only one year and create 100 new jobs, then the RIA would calculate 50 new jobs (100 total jobs multiplied by one-half (one year of a two-year period)) but the developer could count only 7.5 of those 50 jobs toward the 10-employee threshold.
  • Third, while prospective tenants occupying commercial real estate created or improved by the capital investments can count toward the job creation requirement, jobs that are already in existence but have been relocated do not. Therefore, if a restaurant is opening a new location in the small retail-residential complex, the developer could count toward those new jobs toward the job creation requirement. If the restaurant is just moving out of its current location into a space in the retail-residential complex, however, the developer could not count those jobs toward the job creation requirement.

THE RIA CREATES NEW EB-5 VISAS RESERVED FOR TARGETED EMPLOYMENT AREAS AND INFRASTRUCTURE PROJECTS

Under the previous regime, the U.S. government would set aside a minimum of 3,000 EB-5 visas for qualified immigrants who invested in targeted employment areas, which encompassed both rural areas and areas that experienced high unemployment. Now, the RIA requires the U.S. government to set aside 20% of the total number of available visas for qualified immigrants who invest in rural areas, another 10% for qualified immigrants who invest in high unemployment areas, and 2% for qualified immigrants who invest in infrastructure projects. Therefore, at a minimum, the RIA reserves nearly a third of all total EB-5 visas issued by the U.S. government for rural projects, high unemployment area projects, and infrastructure projects. Furthermore, and most significantly, the RIA provides that any of these reserved visas that are unused in the fiscal year will remain available in these categories for the next fiscal year.
The changes to the reserved visa structure create significant incentives for qualified immigrants to invest in rural, high unemployment area, and infrastructure projects. If, for example, the United States government calculates that it should issue 10,000 visas in Fiscal Year 1, then the RIA mandates reserving 2,000 visas for rural projects (20% of total), 1,000 for high unemployment area projects (10% of total), and 200 for infrastructure projects (2% of total). These numbers are significant when considering the RIA’s roll-over provision because it pushes projects in these categories to the front of the line for the green card process. If only 500 of the 20,000 visas for rural projects are used in Fiscal Year 1, then the 1,500 unused visas set aside for rural projects roll over to the next fiscal year. Therefore, if the United States government issues 10,000 new visas in Fiscal Year 2, then 3,500 visas will be reserved for rural projects in the new fiscal year (the 1,500 rollover visas from the previous year plus a new 20% of the total number of visas per the RIA), and the high unemployment area and infrastructure project reserved visas would have a new 1,000 (10% of total) and 200 (2% of total) visas in reserve, respectively.

The RIA changed the structures for investing in both targeted employment areas and non-targeted employment areas, however. The RIA raised the minimum investment amount for a targeted employment area by over 50%, increasing the sum from its previous level of US$500,000 to its new level of US$800,000. The RIA similarly raised the non-TEA, standard minimum investment amount from its previous level of US$1 million to now be US$1.05 million.  Additionally, the RIA modified the process for the creation of targeted employment areas: While under the previous regime, the state in which the targeted employment area would be located could send a letter in support of efforts to designate a targeted employment area, the post-RIA EB-5 regime now permits only U.S. Citizenship and Immigration Services to designate targeted employment areas.

IMPLICATIONS AND RECOMMENDATIONS

The new developments resulting from the RIA will have tangible effects on developers seeking to fund new capital investments. The percentages caps imposed on indirect job creation, relocated jobs, and other categories toward the job creation requirement will likely lengthen the amount of time spent on project creation and completion. These changes also likely should incentivize developers to focus their job creation metrics toward directly created jobs rather than through indirectly created ones. While these changes might increase the length of projects, the broadening of visa reserves through both the percentage caps and the creation of the rollover provisions will likely increase the number of projects in rural areas and high unemployment areas. Developers should carefully consider the composition of their job creation goals and calculate workforce sizes in line with these new requirements. Additionally, developers seeking to ensure they are able to succeed in obtaining visas for their desired employees by avoiding the typical backlog of visa applicants through the EB-5 program should consider investing in rural and high unemployment area projects to take advantage of the broadened application pool.

Article By Brian Graham, Adriana Reyes, and Gregory T. Lewis of K&L Gates

For more immigration legal news, click here to visit the National Law Review.

Copyright 2022 K & L Gates

Retaining a Cell Tower Lease When Selling Property

When selling property with a cell tower lease, keeping the lease is a good option. Done properly, you get the best of both worlds: full value for the property and ongoing lease payments, with the option to sell the lease in the future should you desire.

Selling a property and cell lease together will rarely yield the full value for the lease; however, selling the lease in advance of selling the property may also not be attractive. You may not have other places to invest the proceeds where you will get the same return, for example, and taxes can take a big bite. Additional options, such as 1031 like-kind exchanges, are complicated with short deadlines.

Increasingly, real estate investors are opting to sell property — commercial, residential, land for development and, in a unique case, an office condo — but keeping the cell leases and future leasing rights.

To do this successfully, you should aim to establish balance with purchasers by retaining sufficient future rights to (1) renew the lease, (2) expand it some, and (3) satisfy their requirements for paying full value of the lease, should you decide to sell it in the future. You do not want to grant yourself so many rights that it interferes with a purchaser’s ordinary use and development of the property in question, thus decreasing its selling price.

Essentially, you are trying to attain the balance that would occur in a well-drafted cell lease sale to a third party, whereby keeping the lease is the equivalent of “selling” to yourself!

Specific subject areas where rights must be balanced include:

  • Permitted and restricted uses by both parties within the leased area;
  • Restrictions on uses or devices allowed on portions of the property outside the leased area, such as Wi-Fi using radio frequencies, which cell companies and lease purchasers alike desire;
  • Access rights and rights-of-way for tenants and utilities, as well as who pays for same;
  • Height and building envelope restrictions on new construction outside the leased area;
  • Property owner approval rights of changes in the leased area, and;
  • Relocation.
© 2022 Varnum LLP
For more articles about telecommunications, visit the NLR Cybersecurity, Media & FCC section.

COVID-19 Update: NY Governor Cuomo Extends Tenant Protections, Including Eviction and Foreclosure Moratorium

On August 5, 2020, New York State Governor Andrew Cuomo issued Executive Order 202.551 (the “New Order”) to provide additional relief to renters impacted by the COVID-19 pandemic and extended the time periods for certain other protections that had been previously granted to renters and property owners pursuant to Executive Order 202.82, as extended by Executive Order 202.283 and Executive Order 202.484 (the “Prior Orders”).

The Prior Orders provided for (i) a moratorium on evictions of commercial tenants through August 5, 2020, and residential tenants through July 5, 2020, and (ii) a moratorium on eviction and foreclosure of any residential or commercial tenant or owner through August 20, 2020, if the basis of the eviction or foreclosure is the nonpayment of rent or the mortgage, as applicable, and the tenant or owner, as applicable, is eligible for unemployment insurance or benefits under state or federal law or is otherwise facing financial hardship due to the COVID-19 pandemic.

Executive Order 202.48 previously had removed the restrictions on residential foreclosures and residential evictions, as those has been superseded by legislative action.  The Laws of New York 2020, Chapter 112 provides for 180 days of mortgage forbearance for individuals, which period may be extended by the mortgagor for an additional 180 days.5  The Laws of New York 2020, Chapter 127 prohibits evictions of residential tenants that have suffered financial hardship during the COVID-19 pandemic for the non-payment of rent.  In each case, the relief granted extends through the period commencing on March 7, 2020, until the date on which “none of the provisions that closed or otherwise restricted public or private businesses or places of public accommodation, or required postponement or cancellation of all non-essential gatherings of individuals of any size” continue to apply.

The New Order extends a number of existing Executive Orders, including the Prior Orders for an additional 30 days, to September 5, 2020, effectively continuing the moratoria on commercial and residential evictions and foreclosures – whether instituted by executive order or passed into law by the legislature – until such date.

1       Executive Order 202.55, available here.

2       Executive Order 202.8, available here.

3       Executive Order 202.28, available here.

4       Executive Order 202.48, available here.

5       The Laws of New York 2020, Chapters 112 and 127.

© Copyright 2020 Cadwalader, Wickersham & Taft LLP

For more on COVID-19 related rental relief, see the National Law Review Coronavirus News section.

Review of McGirt v. Oklahoma – How the Supreme Court and Justice Gorsuch’s Revolutionary Textualism Brought America’s “Trail of Tears” Promise to the Creek Nation Back From the Dead

How does a child sex offender’s appeal of his criminal conviction result in half the State of Oklahoma – 113 years after it was admitted as the 46th State in the Union – being declared “Indian Lands” and given back to the Creek Nation Native Americans? That is the crazy plot not of a Best-Selling novel, but of the United States Supreme Court case McGirt v. Oklahoma, No. 18-9526, decided 5-4 late this term on July 9, 2020 in a ground-breaking majority opinion written by Justice Neil Gorsuch.

To understand McGirt’s impact we must start with its historical context. Roughly 180 years ago, a group of indigenous Native Americans known as the Five Civilized Tribes – the Cherokee, Chickasaw, Choctaw, Creek and Seminole – lived as autonomous nations throughout the American Deep South, as they had for hundreds of years before. As our new United States nation grew, however, European Americans were growing in number and had designs on the land for expansion of the young country. Not surprisingly, these designs didn’t include a place for Native Americans.

The “Indian Problem”

To remedy this so-called “Indian Problem,” the federal government imposed a forced relocation plan to remove the Native Americans from the Deep South. This plan, first championed by George Washington, evolved and was codified in American law and history by President Andrew Jackson, when he successfully pushed the Indian Removal Act of 1830 through Congress (over pioneer Davy Crockett’s fervent, raccoon-capped objection!). It was the Indian Removal Act of 1830 that authorized the federal government to extinguish all Indian title to Deep South lands, and to fully and finally remove the Native Americans by any means necessary.

To peacefully execute this plan, the federal government made a promise to the Five Civilized Tribes that if they agreed to remove themselves voluntarily, they would forever be granted replacement land out in the frontier American West. Had they not agreed, of course, the federal government was more than ready to remove them by force. Realizing they’d been given a Godfather-like “offer you can’t refuse,” the Tribes agreed that they would remove West, in reliance on this promise. One of the Five Civilized Tribes who accepted the government’s offer was the Creek Nation (who, while not a party to McGirt, became the biggest beneficiary of its ultimate holding). That almost 200-year-old promise is where the story of McGirt v. Oklahoma begins.

In what is known in American history as the “Trail of Tears,” beginning in the 1820s and into the 1830s, approximately 60,000 Native American men, women and children were uprooted from their ancestral homes and forced as refugees to pick up and walk hundreds of miles West on faith that the federal government’s promise would be honored. The “Trail of Tears” is a traumatic part of Native American history, as more than 4,000 Native Americans died from exposure, disease and starvation before ever reaching their promised lands. A promise that was made, but never fully fulfilled.

As Justice Gorsuch summarized in his majority opinion:

On the far end of the Trail of Tears was a promise. Forced to leave their ancestral lands in Georgia and Alabama, the Creek Nation received assurances that their new lands in the West would be secure forever. In exchange for ceding “all their land, East of the Mississippi river,” the U.S. government agreed by treaty that ‘[t]he Creek country west of the Mississippi shall be solemnly guarantied to the Creek Indians.” Treaty with the Creeks, Arts. I, XIV, Mar. 24, 1832, 7 Stat. 366, 368 (1832 Treaty).

It was against this great historical backdrop that the otherwise unremarkable criminal appeal of McGirt v. Oklahoma arose.

An Otherwise Unremarkable Appeal

By all accounts, Jimcy McGirt, a Native American, was an unsavory character and is by no means a hero of this story. In 1997, the State of Oklahoma convicted him of molesting, raping and forcibly sodomizing a four-year-old girl, his wife’s granddaughter. His other appellate grounds apparently unconvincing, and the individual circumstances of his case so horrific, his appellate lawyers – as good lawyers do – instead focused elsewhere, on an issue that had been simmering under the surface of Oklahoma state law for years. Perhaps, the lawyers argued, regardless of Mr. McGirt’s heinous conduct, his conviction is null and void for reasons other than the facts of the underlying case all together? Perhaps Oklahoma did not even have jurisdiction – the power – to criminally prosecute and/or to convict him in the first place, because the crime, as heinous as it was – was committed not on state land, but instead on federal “Indian Lands.” Land that Oklahoma has owned and controlled for over 100 years, but that the Creek Nation had been promised, pursuant to treaty, long ago.

Great headwinds worked against McGirt and his appellate counsel, not the least of which was that all of the main parties involved – the United States, the State of Oklahoma – and even the Creek Nation itself – had acquiesced to Oklahoma’s criminal jurisdiction and control over the land for the past 100 years.

As Justice Gorsuch succinctly put it, the question presented in McGirt was “did [McGirt] commit his crimes in Indian Territory?” Or was the crime committed on lands, as everyone seemed to assume for the past century, owned and controlled by State of Oklahoma?

If Eastern Oklahoma (including the large city of Tulsa) was in fact “Indian territory,” i.e. a reservation granted by the United States after the “Trail of Tears” promise, then it would be federal land and pursuant to the Major Crimes Act (MCA), McGirt could not be prosecuted by the State of Oklahoma, but could only be prosecuted by the federal government in federal court. And if that were the case, then McGirt’s conviction would be void, as Oklahoma had no more power to prosecute and convict McGirt of his crimes than you or I do sitting in our comfiest chair.

On its face, the question sounds almost ridiculous. Oklahoma has been a State prosecuting and convicting criminals, including in the areas of Eastern Oklahoma, for over 100 years. Land that McGirt now argues were never under Oklahoma’s power to control, but instead were always part of the Creek Reservation. Oklahoma countered, of course, with what seems like the more logical and pragmatic answer to that question – that through subsequent legislation, Oklahoma’s statehood in 1907, and the passage of generations without recognizing the Creek Nation’s sovereignty over these lands – that even if the land had been the Creek Nation’s at one point, that ended long ago. Oklahoma presented its argument as if it were a “no brainer.”

Justice Gorsuch’s “Textualist” Approach

Justice Gorsuch saw it differently. Siding with the 4 more liberal Supreme Court Justices, Justice Gorsuch wrote for the majority of the Court finding that the land did belong to the Creek Nation, that it was not a part of Oklahoma, and that therefore McGirt’s conviction must be vacated.

Most compelling, however, was how Justice Gorsuch boldly advanced his “textualist” approach in this opinion, regardless of whether it led to a “liberal” or “conservative” outcome.

Justice Gorsuch was President Donald J. Trump’s first Supreme Court appointee. He was championed as a staunch political conservative who would push the Supreme Court to the right. While no one can doubt Justice Gorsuch’s conservative bona fides, what was less understood by the talking heads in the media was that his true convictions are not to political ideology – but to his own brand of “textualist” legal philosophy.

Through this “textualist” lens, Justice Gorsuch ignored all of the numerous arguments over whether the argued outcomes would be best, most reasonable, or most fair and just. Instead, he focused squarely on the words used by Congress when it made and carried out its “Trail of Tears” promise to the Creek Nation. To that end, Justice Gorsuch posited the premise that once a reservation is established by Congress, the only question is whether Congress ever took that reservation away. You can’t look to the States. The law is clear that the States do not have any power to declare or negate a federally granted Indian Reservation. You also can’t look to the Courts. The Courts cannot judicially legislate a reservation into, or out of, existence. Therefore, what must be focused on exclusively is whether Congress ever expressly broke its “Trail of Tears” promise and ended the Creek Nation’s reservation. For that “[t]here is only one place we may look:” Justice Gorsuch said matter-of-factly, “the Acts of Congress.”

In applying this purely “textualist” approach, Justice Gorsuch was unyielding:

History shows that Congress knows how to withdraw a reservation when it can muster the will. Sometimes, legislation has provided an “explicit reference to cessation” or an “unconditional commitment … to compensate the Indian tribe for its opened land.” Ibid. Other times, Congress has directed that tribal lands shall be “restored to the public domain.” Hagen v. Utah, 510 U.S. 399, 412 (1994)(emphasis deleted). Likewise, Congress might speak of a reservation as being “discontinued”, “abolished”, or “vacated.” Mattz v. Arnett, 412 U.S. 481, 504, n. 22 (1973). Disestablishment has “never required any particular form of words,” Hagen, 510 U.S., at 411. But it does require that Congress clearly express its intent to do so, “commonly with an explicit reference to cessation or other language evidencing the present and total surrender of all tribal interests.” Nebraska v. Parker, 577 U.S. 481 (2016).

Oklahoma attempted to argue that either a reservation was never established, or the text of the subsequent Acts of Congress, if not expressly, at least effectively terminated any reservation that may have ever existed. But in Justice Gorsuch’s deft hands, this argument was doomed to fail. As Justice Gorsuch famously and efficiently proclaimed in his now famous Bostock v. Clayton County Title VII opinion earlier this term: “(o)nly the written word is law, and all persons are entitled to its benefit.” This is the textualist (almost religious) creed, and to ignore it as the foundation of any argument before this Court in its current make-up is done at one’s own peril.

To Justice Gorsuch (and most times a majority of this Court), one must set aside all else – what “chaos” may ensue from a ruling, what the conventional wisdom is on an issue (or here, has been for over a hundred years), or – more controversially put – what may be the best or most just outcome of a dispute – and decide disputes based solely on the written words of the law at issue. To a textualist, all citizens should be able to rely on the law as written, regardless of what even a majority may believe was intended by the law, or what an individual jurist may believe in a given case is a more just outcome. It is Judge Gorsuch’s purely textualist approach that dictated the outcome in this case, more than any political ideology or concern.

Once Justice Gorsuch rejected Oklahoma’s argument on the text of the law, he further applied his own textualist principles to dismiss the others. Oklahoma’s argument that the “historical practices and demographics, both around the time of, and long after the enactment of, all the relevant legislation” controlled was soundly rejected. To ignore the plain meaning of the words of a statute based upon matters outside the text, in Justice Gorsuch’s thinking, would risk, as he stated, “substituting stories for statutes.” Stories, to a textualist, are inherently more unreliable than the plain meaning of words on a page. Here, historical stories also typically favor history’s victors and undermine its victims. In this case, Justice Gorsuch found an exemplar case to divorce his “textualist” approach from previous criticism from the left that it is merely a conservative tool, or means to dictate conservative ends. Once you accept stories over the written word of law, to Justice Gorsuch, then the law itself is unmoored and subject only to the prevailing political winds of the time.

Justice Roberts’ Striking Dissent

Almost as striking as Justice Gorsuch’s triumphant planting of his textualist flag this term in Bostock and now McGirt, was Justice Roberts’ continued trend towards a more pragmatic and cautious legal approach. While that trend was highlighted more by pundits in cases where he sided with the more liberal justices, in McGirt, Justice Roberts again (even though he sided with the conservatives) championed the narrower and less ideological approach.

Writing for the four dissenting Justices, Justice Roberts concluded that “a century of practice confirms that the Five Tribes’ prior domains were extinguished.” The dissent ignored what Justice Gorsuch and the other majority justices could not. That to hold as such would be to allow Oklahoma to re-cast its decades of illegal practices, usurpation of authority, and mistreatment of the Creek Nation into “historical custom and practice” that it could then use to justify its dishonoring the “Trail of Tears” promise.

McGirt most assuredly creates sensational headlines due to its massive shift of power and authority from Oklahoma to the Creek Nation. Most articles reviewing this case focus on the uncertainty it will cause in matters between Native Americans and States within whose borders Indian Reservations exist. However, McGirt is also important for another, less sensational, but perhaps more impactful assertion regarding the rule of law in America going forward – the rise of Justice Gorsuch’s brand of “textualism.”

Takeaways

To Justice Gorsuch, the rule of law and the word of the law are paramount to all other interests. As the saying goes – one’s word is their bond. And it is that word – and that word alone – that should always be honored, whether you are a person, or a country. Justice Gorsuch closed his opinion consistently:

Today, we are asked whether the land these treaties promised remains an Indian reservation for purposes of federal criminal law. Because Congress has not said otherwise, we hold the government to its word.

While perhaps over 100 years late, in McGirt, the United States Supreme Court affirmed that what you promise must be honored, and in doing so, belatedly (and surprisingly) fulfilled a “Trail of Tears” promise most thought died long ago.

Copyright 2020 © Burg Simpson Eldredge Hersh & Jardine, P.C.

Riot-Related Damage and Income Losses are Covered under Most Business Owners’ Policies

Following the deaths of George Floyd, Breonna Taylor, Ahmaud Arbery, Tony McDade, and Rayshard Brooks, protests against systematic racism in general, and police brutality in particular, have swept the globe. These protests have largely been peaceful, but a small, fractious group of individuals has used the protests as cover to incite violence, damage property, and loot businesses. While it might be cold comfort to the affected business owners to hear that property damage is not the norm, most have insurance that protects their pecuniary interest.[1]

 First-party property insurance policies generally include riot and civil commotion as covered causes of loss, unless there is a specific exclusion in the policy. Although courts have acknowledged that defining a “riot” can be difficult because they can vary in size, courts have identified at least four elements:

  1. unlawful assembly of three or more people (or lawful assembly that due to its violence and tumult becomes unlawful);
  2. acts of violence;
  3. intent to mutually assist against lawful authority where “lawful authority” is not limited to official law enforcement, but extends to those whose rights are or may be injured and who seek to protect those rights; and
  4. some degree of public terror (i.e., any minor public disturbance does not rise to the level of “riot”).

Blackledge v. Omega Ins. Co., 740 So. 2d 295, 299 (Miss. 1999).

Civil commotion likewise is undefined in most property policies. As a starting point, the term necessarily means something other than “riot,” since each term in an insurance policy is presumed to have its own meaning. See, e.g., Portland Sch. Dist. No. 1J v. Great Am. Ins. Co., 241 Or. App. 161, 171 (2011). Thus, while “civil commotion” may be similar to a riot, courts have construed the term more broadly, finding that civil commotion entails “either a more serious disturbance or one that is a part of a broader series of disturbances.” Pan Am. World Airways, Inc. v. Aetna Cas. & Sur. Co., 368 F. Supp. 1098, 1138 (S.D.N.Y. 1973), aff’d, 505 F.2d 989 (2d Cir. 1974). In fact, most property policies contain no limitation on the breadth of commotion or the type of harm that it might pose to person or property.

In many policies, riot, civil commotion, vandalism, and malicious mischief are “specified causes of loss.” The practical effect of this designation is that numerous exclusions will contain exceptions for loss caused by these situations. For example, while damage to a business’s electronic data may be excluded, the exclusion may contain an exception for damage to electronic data resulting from specified causes of loss, such as riot or civil commotion. Similarly, even where the policy contains a pollution exclusion – purportedly excluding loss, damage, cost, or expense caused by or contributed to or made worse by the release of “pollutants,” which could include tear gas – that exclusion may not apply to loss or damage caused by riot, civil commotion, or vandalism.

If a policy covers riot or civil commotion, covered losses may include property damage to the building and its contents, and lost income while the building is under repair or subject to government orders affecting the business’s operations (e.g., curfews limiting hours of operation) where the order is the result of property damage elsewhere. Business insurance policies may also cover costs incurred in protecting insured property from future, imminent harm or continued damage. These costs might include hiring (or increasing) security personnel, boarding up windows and doors, securing inventory in place or moving inventory and operations off-site.

Prior to the riots in Minneapolis, Minnesota, the costliest U.S. civil disorder occurred after the acquittal of police officers involved with the arrest and beating of a black American, Rodney King, from April 29 through May 4, 1992, causing $775 million in insured losses.[2] More recently, there were approximately $24 million in insured losses following the death of Freddie Gray, a black American who died in police custody after suffering a spinal cord injury.[3] Insured losses are not yet available for the riots in Minneapolis, but the Property Claims Services (“PCS”) unit of Verisk Analytics designated the event as a catastrophe. On June 4, 2020, PCS included over 20 other states, making the civil unrest that started in Minnesota a multi-state catastrophic event.[4]

If your business has experienced or may experience a loss because of civil unrest or riots, you should begin keeping track of these losses – and costs incurred to avoid them – immediately. Save receipts and inventory damages. Contact your insurance company as soon as you experience a loss to report your claim and diligently log your interactions with your insurer and its representatives. If you feel your insurer wrongfully denied your claim or delayed payment, contact experienced insurance coverage counsel.

[1] The authors by no means intend to equate property damage and a lost life. Quite the opposite. One is recoverable (and insurable); the other is irreplaceable.

[2]  https://www.iii.org/fact-statistic/facts-statistics-civil-disorders (last viewed June 15, 2020).

[3] Id.

[4] Id. By June 4, 2020, at least 40 cities in 23 states had imposed curfews. National Guard were called in Washington, D.C. and at least 21 states.

Copyright © 2020, Hunton Andrews Kurth LLP. All Rights Reserved.
For more on property insurance amid protests, see the National Law Review Insurance, Reinsurance and Surety law page.

Once COVID-19 is Contained– Visioning What’s Next For Offices and White Collar Businesses

When you push a pause button on a computer, it shuts down. When you push a pause button on a human, as is occurring now in the midst of the Coronavirus pandemic gripping most of the world, we do not rest. We think, refresh, imagine, and try to adapt to a new world order once the pandemic abates. Darwin surmised that it is not necessarily the strongest or smartest that survive. Rather, the survivors succeed in being flexible and adapting to new environments. Zhou Enlai, when asked by Henry Kissinger what impact the French Revolution had on China, reflected “it’s too soon to tell.”  Given the pressing necessity to re-connect our lives and economies, while at the same time staying healthy and safe, we do not have the luxury to reflect. Rather, we must plan for a future that is being quickly thrust upon us, or existing trends accelerated, at warp speed. This article imagines how that new world order might impact our office’s finance department. The survivors will successfully be flexible and adapt.

A recent paper on fifteen major pandemics and armed conflicts since the thirteenth century postulated that the major after-effects of those events lasted over forty years. Real rates of return were more substantially depressed during the period ravaged by pandemics, more so than due to wars, due to the significant precautions and adjustments business and society took after pandemics but not after wars. The postulate is that after wars, most countries just rebuild and, while they may have changed institutional frameworks, do not reassess ways of doing business and conducting their day to day lives.

This article offers possible post-Coronavirus changes to our office environment. While many alterations such as modifications to social relationships, office structure, technology, marketing, and the role of government are inevitable, this article will focus on new approaches to financial management and legal focus. To paraphrase Winston Churchill, I hope these thoughts may help us not waste this crisis and prepare for a brighter future.

Financial Management in Companies After COVID-19

The monetary seismic aftershocks of the pandemic will reverberate our financial management in many ways, some of which are noted below.

More Cash on Hand

The social disruption caused by abruptly coasting at full employment one moment and, in a flash, jolting to a 14.5% unemployment rate profoundly alters the loyalty workers have to their employer (or former employer). While most intellectually always recognized that the office was a business and not a true social and family organization, no one could have foreseen the sudden radical separation of workers from either their jobs or office environments or both.  Repairing that emotional and physical trauma will take time.  One way to gradually restore the pre-pandemic security workers felt in their office environments is to provide a better sense of community overpay as a lure to attract and retain employees. Alternatively, businesses could set aside a “rainy day reserve fund”, on top of the usual 401(k) and other retirement plans, where a portion of an employee’s pay, or company profits, could be placed in a fund to which it is used only to retain employees in situations where mass layoffs were warranted. An employee would receive his or her share of the funds upon retirement or being terminated in such a circumstance if they were not used before then.

Obviously, these funds are not a panacea but a means to dedicate some resources and provide some comfort to workers concerned for their employers and their own financial security. Moreover, businesses might manage their finances more conservatively and always agree to have some minimum level of cash, say a three months reserve, to assuage employees that it can stay afloat for some reasonable period of time in case another disaster strikes.  Further, businesses may consider not living too close to the edge and consider keeping on hand at least two to three months’ reserve to pay rent, payroll, utilities, and other critical fixed costs. This might be prudent fiscal discipline even in good times and a munificent marketing tool to give employees some comfort that they will not be reflexively jettisoned at the first sign of a downturn.

Focus on Higher Level of Health, Cleanliness, and Safety

Office environments may soon stress their focus on and sensitivity to health, cleanliness, and safety.  This necessity will significantly increase employer costs.  Return on investment on intensifying the cleanliness and sanitization of the office is not quantifiable.

These attributes, always taken for granted and never really promoted in attracting and keeping workers, may now catapult to the forefront to comfort workers’ anxieties. For example, disinfectant wipes and hand soap can become omnipresent.  Coffee machines, soda machines, food dispensers, and other purveyors of sustenance as well as countertops, printers, copiers, file cabinets will be wiped after every use. The issue of how to open the washroom door without touching the doorknob may be solved by replacing doorknobs, counter space, copier buttons, coffee put handles with virus-free coatings. We might increase the scope of services our cleaning services providers to enhance disinfecting.  A CFO will just have to bite the bullet and sign off on these vital necessities heretofore considered excessive.

Office Design and Use

Costs will increase to reconfigure office space design so workers feel safer. For example, office pools or closely clustered desks may be rethought or need to be reconfigured to assured proper ventilation. Plexiglas dividers between office pool carrels and facing the open halls should be considered. Chairs for visitors in offices may need to be spaced out or removed to discourage proximity. Conference rooms, cafeterias, and other gathering spaces may also need to be redesigned so people keep at an appropriate distance while at the same time enjoy some social interaction and forge some sort of community.  HVAC and other ventilation systems may change to assure more optimal air circulation and toxin filtration. Meetings may be limited to a few attendees in person, spaced appropriately apart, with the other participants connecting by video. Just as we submit ourselves to baggage searches at airports, perhaps there could be random, or even routine, temperature checks either at building security or random tests at the office. Further, just as we pass a scanner to gain entrance to our elevator banks, perhaps we will all pass heat detectors to gauge whether we have a fever.  All this comes at a cost, again, unquantifiable to gauge the impact on return on investment.

Higher Level of Fee Earners in Relation to Assistants

The pandemic may finally accelerate the trend toward converting labor to capital.  Fee earners’ embrace of producing documents and other ways to become more self-sufficient have already increased the ratio of fee earners to assistants from maybe 1.5 or 2 to 1 ten years ago to 3 to 3.5 to 1 now. Needing to physically space assistants out more, perhaps alternate those working from home and at the office, combined with increasing proficiency of at office and at home fee earners suggest the trend is likely to accelerate to maybe 5 to 1 in the not too distant future. Some of the replaced assistants could become retooled to fee earning work, such as quasi paralegal work, especially as legal fees continue to increase with apparent inelasticity.

Office Space

The cost of office space will be another financial aspect under greater elasticity and change. The cumulative effect of more people working remotely and less office staff suggests the need for less overall office space and thus less cost.  The size of offices has trended toward the small size in recent years, with an average size of around 140 square feet. Some are suggesting the downward trends will continue unabated, perhaps to 125 square feet per office. A countervailing offset to that trend, however, may be the requirement for more space due to the need for greater distance between and among workers and conferees and perhaps fewer employees out of the office by virtue of not traveling as much.  Even if office sizes are smaller or the same, the trend toward office hotels and using more conference rooms where proper distancing is desired is likely to continue.

Wellness Programs

This will be yet another unquantifiable but necessary cost of the new office environment. Taking an interest in the health of the office environment is but one component of health and safety. Another is the employee’s personal health. Wellness programs have proliferated in recent years, as well as access to gyms and health clubs. These trends will only accelerate, provided that gyms and health clubs can provide sufficient comfort regarding cleanliness and social distance.

Technology Costs

Expenditures for technology are likely to increase but consider that technology pricing usually declines over time with scale and adoption so perhaps that will not be as dramatic. The crucial need for workers to be connected all the time everywhere and possibly need to be remote for long periods of time underscores the recognition that it is not prudent to be miserly with tech spending. The need for broadband, cabling, wi-fi, bandwidth, data storage, data compression, backhaul, caching, routers, hubs, processing power, internet of things, bits and bytes will be the lubricant to this generation reducing if not replacing the role of oil in previous generations. Remote working will increase the risk of hacking and the heightened need for secured networks fortified against cyber theft and introductions of malware. Further, the adoption of more sophisticated applications of technology such as AI and machine learning will accelerate. AI and machine learning will enable corporate and litigation document review more efficiently and conducted at remote locations. The need will intensify to support the seemingly insatiable demand for video and broadband service.

Decreased Travel and Entertainment Costs

Greater technology use may decrease other costs such as travel and ultimately the need for office space as more people regularly and systematically work remotely. Business trips, tradeshows, and even meals and entertainment are Petri dishes for breeding microbes. Sitting in a crowded basketball arena, constantly passing beers down the twenty seat row and then passing the germ-ridden money back to the vendor, or standing up at a theatre every time a patron wants to brush by you to get to her seat conjures up frightful images of too little social distancing. Recent income tax code revisions diminished deductions for some of these items and, unless reassessed, will only contribute to this declining tactic.

Higher Insurance Premiums

The cost of providing health care, not just to pay for all the Coronavirus cases but to underwrite future pandemics, will undoubtedly lead to higher insurance premiums. How employers share these increased costs with their employees is not only a financial matter but also a policy choice of the type of “safe” workplace image the employer desires to portray. Further, insurance premiums for business interruption coverage may also increase, even if the policyholder does not purchase pandemic coverage.

Higher Levels of Inventory

The 2000s introduced a virtual revolution in the efficiency of supply chains and improved just in time inventory management.  Purchasing managers could keep inventory lean and mean, knowing that replacements were just an order refill click away. Not anymore.  The confluence of trade wars, increased nationalism and now the pandemic have shattered the smooth functioning of inventory replenishment and certainty of seamless restocking. Not having to keep several months’ supply of Lysol wipes and other cleaning supplies, not to mention other basic necessities like copy paper and printer ink, saves countless dollars in working capital.  Concerns for delays and shortages have the opposite effect on working capital management and increases the cost of capital as well as decreases the businesses’ cash flow which is allocated to building inventory.

Migration to More Certain and Fixed Revenue Streams

To mitigate, if not avoid, the vicissitudes of hourly billing, professional service firms may consider more monthly fixed retainer models. This steady income, in good times and bad, could soften the slings and arrows of unpredictable cataclysms (assuming the clients stay solvent or do not renegotiate). The willingness of clients to pay fixed monthly retainers, however, may be problematic and, even if it is agreed to, may be reassessed at the first whiff of a downturn anyway. Ironically, many clients who had previously suggested a fixed cost arrangement with flat monthly retainers have recently started to see the benefits of a variable cost structure, which frees up monthly burdens during challenging times.

Possibly Lower Rent Costs

With more workers working remotely, less space will be needed. Of course, that need for lesser space may be offset by the required spreading out of personnel in the workspace, so maybe this will equalize itself.

More Zealous Monitoring of Cash Collection Cycle

Liquidity in the form of prompt receipts from clients and moderately stretched payments to vendors is essential to keep a business afloat and well-capitalized. Certainly, during any challenging economic set of circumstances, the cycle becomes elongated. The experience during the pandemic reinforced slavish devotion to the basic principles that Cash is King or Queen. I would expect businesses to pursue this truism more slavishly to avoid defaults or delayed payments from customers. Prudent financial management will require retainers, staying replenished, as well as security deposits and not permit advancing significant costs. Interest for late payments, late payment fees, early pay discounts, retainers, good relations, friendly but prompt reminder calls and follow-ups, credit card auto-pay, and abrupt cessation of work are some tactics a business could be quicker to pursue to avoid being used by their customers as a bank.

Increased Taxes

While the author is not an economist, the trillions of dollars of government stimulus, amounting to over 14% of our GDP, should be inflationary (although TARP and other excessive stimulus in 2007-08 did not lead to inflation). Increased taxes are a conventional tonic to drown deficit spending. This could both lead to great use of the multitude of income and estate tax planning services but at the same time decrease business activity. Financial managers will need to deal with greater tax claims on owners’ income and creative ways to minimize the bite.

Increased Regulation

The pandemic has unleashed a torrent of legislation addressing crucial pillars of our economy and business. These include lending, labor, employment, and executive compensation. Most of the legislation was written hurriedly to deal with the impending political and fiscal crisis and the need for interpretation and well as compliance creates work for the service industry.  Regulation always imposes cost, whether in the form of taxes or personnel or advisors to address the rules.

More Downtime Due to Pandemic Alerts

This pandemic will scar the psyche of many for decades to come and with the inevitable passing of stories down to the succeeding generations. Given the great disruptions a pandemic inflicts, the memories of which may become exaggerated and shibboleths as the years progress, and given the perceived slow and the less than energetic response the federal government provided, future leaders will view the efficient, competent and rapid response to even a whiff of a pandemic to be the prism through which their competence is judged. Therefore, the government will be expected to react with alacrity, not panic, and competence. Just as governors of states in hurricane regions lead efforts to warn citizens in advance of an impending hurricane and exhort them to board up their houses and head for higher ground, future national leaders, and even some state leaders, may closely monitor outbreaks of illnesses in faraway lands, just as we now monitor the formation of tropical depressions in the Caribbean, and perhaps prepare citizens and businesses well in advance. This may result in more precautionary business closures, some warranted and some like the putative hurricane that thankfully never develops or veers off course. Very few will blame a government for shutting down the office too soon rather than keeping it open too long. While we as a society balance economic health against physical health, this pandemic has slightly tilted the balance toward the latter. Therefore, business and financial models will need to add a closure cost and downtime “vacancy rate” lost revenue expense to prudently and conservatively prepare for this eventuality.

Some might say that all the talk of major transformational shifts due to the COVID-19 pandemic is an overreaction. After all, pandemics are rare black swan events.  Ideally, there will soon be a vaccine.  In theory,  there may already be a treatment. Many die every year during the flu season. Society has to balance health and safety against a booming productive economy. All of this is true. However, in the past twenty years, we have had several worldwide pandemics, like SARS, MERS, H1N1, avian flu, Ebola, to name a few. We have also had societal and business altering events like 9/11 and the financial pandemic in 2007-8. Some might even observe that these “black swans”, being not so rare, are more like “black ducks”.

Ignoring the trends of spreading diseases in a rapidly globalized world, as well as the likely occurrence of other truly unforeseeable occurrences, is to ignore the need to properly address the ramifications of these events and perhaps recognize ways to improve our ability to mitigate disruption in the future. While no one has a crystal ball, the possible responses to the pandemic may lead to profound changes or accelerate existing trends in our office environment in a broad panoply of areas, not the least of which includes those discussed above. Our future office and work environment, particularly in how we model our financial responses, will be as profoundly different in the future as was our country before and after the last world war. Once the Genie is out of the bottle, it is difficult to put back in.

The opinions and views stated herein are the sole opinions of the author and do not reflect the views or opinions of the National Law Review or any of its affiliates.

© The National Law Forum. LLC
ARTICLE BY Fred Tannenbaum Partner at Gould Ratner and The National Law Review’s Guest Contributors.
For more on COVID-19 recovery, see the National Law Review Coronavirus News section.

Three Real Estate Contract Questions to Consider Now

Whether you hold an interest in an industrial, commercial, retail, residential asset class; whether you are an owner, buyer, seller, landlord and/or tenant, lender or borrower, property manager, or homeowner; and whether your real estate is business or personal, there is a need to address COVID-19’s immediate impact on real estate agreements.

Generally, real estate agreements reflect the business climate and risk assessments at the time the contracts were made. In negotiating, executing, and performing their contracts, parties relied on their relationships with the parties on the other side of the transaction. However, when an unforeseeable or disruptive event occurs, parties must look back at their agreements and reassess their standing, rights, remedies, recourse, and relationships.

Now is the time to check on provisions of your real estate contracts. Below are three common questions you may be asking:

1. Which provisions of a real estate purchase and sale contract, lease, or loan document might offer protections or provide guidance at this time?

The following is a sample list of applicable contract provisions:

  • Force Majeure/Acts of God – Force majeure and other provisions in real estate documents that address the parties’ rights and obligations if events occur beyond their control. Some may cover national emergencies and governmental orders.

  • Defaults – Define which actions or inactions will result in a default under the relevant document and whether the defaulting party has any right to notice and an opportunity to cure.

  • Taking – What happens when all or some material right to utilize your real estate asset has been taken away or restricted in a way that diminishes the property value or prevents you from utilizing it for your intended purposes.

  • Access – Property owners will often have certain rights to enter and inspect leased premises and may have the right to restrict access. Purchasers and sellers of a property may have ongoing rights or obligations to allow access to properties to complete due diligence. These provisions may or may not address how circumstances may change in exigent circumstances.

  • Covenant of Quiet Enjoyment – The covenant of quiet enjoyment provides tenants with the assurance they will be able to peaceably use and enjoy their leased premises. These provisions may or may not specifically address a situation where a landlord voluntarily or involuntarily restricts access to the property.

  • Maintenance – Leases allocate maintenance and repair obligations, including but not limited to cleaning. Purchase and sale contracts may contain obligations of various parties on how the owner or operator must maintain the property through closing. These provisions may or may not address who pays or the additional costs of implementation of precautionary measures.

  • Payment Obligations – Payment and closing obligations are often excluded from a force majeure clause with specific clauses that provide that time is of the essence or require payment, despite any other provision that would excuse it.

  • Notice and Cure Periods – Leases, purchase contracts, and loan documents are often very specific about the required protocols for tendering notices, which then trigger specific cure periods. Failure to give or receive proper notice might impact deadlines for cure or performance and termination rights. Cure periods may be extended as a result of the inability to perform or governmental mandates.

  • Environmental – Environmental clauses in contracts may provide additional options.

  • Remedies – Real estate agreements often provide stringent remedies for nonperformance and default. Available remedies should be analyzed in the context of the overall climate in the courts and marketplace. Different parties may be able to avail themselves of certain defenses. Essential businesses may be entitled to certain protections at law and equity. Remedy rights may be expanded or contracted temporarily by governmental entities at the municipal, state, and federal level.

  • Duty to Notify – Parties may have an express or implied duty to notify other occupants of employees, agents, and/or visitors who have been diagnosed or are experiencing symptoms of the virus and were present at the property.

  • Performance, Contingency, and Delivery Periods – Contracts related to real estate may have performance, contingency, or delivery periods. Those dates (often expressed as a number of “days” or “business days”) should be carefully reviewed to determine whether voluntary or mandatory building closures affect the number of “days” or “business days” allowed for performance. Governmental mandates might offer tolling or temporary waivers of obligations.

  • Operating Covenants – Sellers of businesses and real estate or tenants may have obligations to keep operations going or risk default. Check contracts for provisions which require “continuous operation.” Parties may or may not have the right to close buildings, cease services, or implement security or screening measures. Some contracts may require notices of material change to representations and warranties, valuations or business operations.

  • Abatement/Self Help – Agreements may provide abatement rights or self-help rights for missed delivery dates or failed obligations on the part of the other party. It is possible that governmental actions, force majeure, and common law doctrines might already or soon will provide protections or require reasonable extensions.

  • General Deadlines for Performance and Termination/Extension Rights – Carefully watch dates and deadlines in contracts. Extension and termination rights are often narrowly construed, especially where there is a “time of the essence clause.” Some deadlines may allow for tolling in the event of a force majeure, but others may not.

2. What else should purchase and sale, lease, or loan parties consider as we all move forward from this point?

The following are some additional considerations:

  • Reliance on Third Party Providers – Not all third party providers whose services are necessary to perform obligations under a transaction will be classified as essential workers. Governmental orders may prohibit or allow such parties to provide services or restrict the providers to provide services remotely. Check the applicable and evolving ordinances and contact the providers directly to determine if services are available remotely. Assess how deadlines (including, but not limited to, filing deadlines, IRS Section 1031 deadlines, due diligence deadlines for inspections, title, and survey) may be impacted.

  • Electronic Signatures and Notarization – Some states have adopted legislation related to electronic signing and notarization procedures. Not all jurisdictions and providers have equivalent technology available at this time.

  • Recording Office Delays – Buyers, sellers, lenders, and borrowers are reminded that there will likely be delays in conducting recordings. Local recording offices may not be open for business or may experience a backlog. Electronic recording is available in some, but not all, jurisdictions.

  • Closings – Check with the title company on whether electronic signatures, electronic notarization, insurance over the gap period between closing, and electronic recordings are available during periods where there might be restrictions on face-to-face closings. There are fluid situations where maintaining a physical office may not be permitted. For example, the governors of California, Pennsylvania, New York, and Illinois have issued “stay at home” orders for residents in those states and restrictions on businesses. Discuss contingency plans if title companies and lenders are not able to fund on time. Essential service providers will be stressed, and electronic transfers of funds can be delayed.

  • Insurance Coverages – Do the parties have coverages for economic losses, including business interruption/business income and loss of rents? Are there any issues that are covered by commercial general liability insurance? Most standard form insurance policies will not provide business interruption/business income insurance coverage for forced/voluntary shuts down caused by pandemics, but the parties should carefully review all of their insurance policies with their risk management teams to see whether the relevant policies are non-standard forms that do include such coverage.

  • Evolving Federal, State, Municipal laws, Ordinances, and Doctrines – New laws and ordinances will result from the most immediate public needs and will continue to evolve as contract provisions are interpreted differently by different parties whose interests differ. Our Coronavirus Task Force has analyzed several legislative updates including this one on the Families First Coronavirus Response Act.

3. From a practical perspective, where should I start?

Discuss your specific situation with your attorney. Apply good business judgment. Everyone is suffering through this together. It is important to understand the applicable contract documents and assess your relationship with your transaction parties. Courts and Congress may end up taking unusual positions and taking protective steps in the coming months to avoid recession, flatten the curve, and share the loss in ways that today’s contracts might not have contemplated.

© 2020 Schiff Hardin LLP