FASB Finalizes Its Decisions on Rerunning Leveraged Leases
As reported last month by Bill Bosco, the Financial Accounting Standards Board planned to, and did in fact, meet on March 2 to finalize its decisions on the issue of recalculating a leveraged lease in the event of changes in timing of tax benefits. The Board affirmed its tentative conclusions that a change in timing of the realization of tax benefits should require a recalculation of the leveraged lease and a re-evaluation of the classification of the leveraged lease.
Come 'Hell or High Water' NorVergence Causing a Stir over Documentation
So-called "hell or high water," "waiver of defense" and lessor favorable "submission to jurisdiction" clauses have long been cornerstones of equipment finance documentation. But, the unfolding debacle over the last year involving a company called NorVergence has cast an unfavorable light on these important provisions and, in doing so, entangled most of the top players in the leasing industry.
Case Briefs
Highlights of the latest insurance cases from around the country.
New York: Moving to a 'Prejudice' Standard for Late Notice?
New York has long been known as a state in which a direct liability insurer need not prove prejudice in order to prevail on a defense that the policyholder provided late notice of an occurrence or a claim. New York ranks among the minority of states following the "no prejudice" rule. According to Ostrager, Barry R. and Newman, Thomas R.: Handbook on Insurance Coverage Disputes, approximately 80% of the states require a liability insurer to prove prejudice to prevail on the late notice defense, while the remainder either follow a straight "no prejudice" rule or adopt different rules for different types of insurance policies.
Insurers' Rights to Recoup Defense Costs
Commercial General Liability ("CGL") policies typically provide two distinct benefits to policyholders: defense against potentially covered claims, and indemnity against covered claims. Because the duty to defend is broader than the duty to indemnify, it is as important, if not more important, than the duty to indemnify. <i>See, e.g., Buss v. Los Angeles Superior Court</i>, 65 Cal.Rptr.2d 366, 373, 939 P.2d 766, 773 (1997). Insurers often accept their defense obligations, however, subject to reservation of their rights to assert non-coverage. Now, with increasing frequency, insurers also are demanding reimbursement if it turns out that the liability claim was not covered.
Who Is in the Chain of Liability for OFAC Noncompliance?
By now many of us have either heard or read several articles written about compliance with the Executive Order 13224, titled "Blocking Property and Prohibiting Transactions with Persons Who Commit, Threaten to Commit, or Support Terrorism" (the "Executive Order"). Although the probability of leasing or selling to any "Persons Who Commit, Threaten to Commit, or Support Terrorism," is extremely low, the consensus among the real estate bar seems to be that it is better to comply with the Executive Order and protect yourself and your client rather than risk the stiff penalties and stigma that would follow by inadvertently violating it. It is apparent that the creation of a Landlord-Tenant relationship or a conveyance of a property interest would give rise to an obligation to comply with the Executive Order, thereby triggering all of the potential liability associated with violating it.
Terrorism Insurance: A Two-Edged Sword
In the landlord-tenant arena, the issue of whether terrorism insurance must be purchased has two frequently encountered aspects. In one factual pattern, a tenant of a single-user property is required by its lease to purchase certain insurance coverage to protect both its own interest and the landlord's. Does this lease provision include terrorism insurance, as well as other types of coverage generally required on the leased premises? In another factual pattern, tenants of a multi-tenant facility must reimburse the landlord for their share of the landlord's taxes, common area expenses and insurance premiums. Do those insurance premiums properly include the landlord's cost of obtaining terrorism insurance?
In the Spotlight: Exploring the 'Gray' Between Ground and Space Leases
There are frequently varying shades of gray between a true ground lease and a space lease, particularly in retail real estate. The true ground lease is exactly that: a lease of ground — dirt — generally for a long term where the landlord has few, if any, obligations and, in fact, few rights other than to collect a rent stream which can only be interrupted in extremely limited circumstances. A space lease, of course, provides a landlord with varying responsibilities from construction to maintenance, repair, enforcement of other tenant obligations, etc., as well as creating various landlord rights such as use restrictions, radius restrictions, continuous operation provisions, etc. Landlords often get into trouble when they blend concepts from both ground and space leases without carefully considering whether the blend actually works throughout the lease term.
