Substance over Form in the Bankruptcy Courts
The old saw is that if it walks like a duck and sounds like a duck, it must be a duck. Although bankruptcy is sometimes viewed by its detractors as defiant of common sense, the common sense duck adage is alive and well in bankruptcy courts. No matter what the parties or their lawyers may call an agreement or transaction, the courts are inclined to change the label and treatment to match what they see as the parties' true intention, risk retention, or economic reality. In bankruptcy parlance, the duck rule is called "recharacterization" and it is most commonly seen when courts are asked to consider shareholder loans, personal property leases, factoring arrangements, and asset backed securitizations. Through recharacterization, loans become capital contributions, leases become security agreements, and claimed true sales (the linchpin of factoring and securitizations) become loans. The impact of relabeling an agreement or transaction is significant. What was intended to be "bankruptcy remote" may find itself at bankruptcy central. The purpose of this article is to canvass just those situations where a lender, lessor and buyer could be very surprised, and how the recharacterization can affect the parties' expectations.
Application of a Universal Law in Multidistrict Litigation
When product liability cases are consolidated through Multidistrict Litigation ("MDL") proceedings, the proceedings are rife with complexities, and the obvious temptation for an MDL judge is to streamline and simplify these proceedings as much as possible. MDL judges have many appropriate tools at their disposal, such as case management orders and adoption of uniform discovery requests, to facilitate the proceedings. While certain techniques used to simplify and consolidate are appropriate, application of a "universal law" — in which one substantive law is applied to cases from various jurisdictions — is not. Application of a universal law violates due process and places consolidation and expediency above the interests of justice. Such a dangerous proposition was briefly suggested during the Ephedra MDL proceedings, involving hundreds of cases consolidated for pretrial purposes in the Southern District of New York.
What's in a Vanilla Box?
When negotiating a long-term lease, the landlord and the tenant should specifically agree upon the condition that the premises will be in at the time of delivery by the landlord to the tenant. Too often phrases such as "vanilla box," "warm vanilla box" and "as-is condition" are utilized by leasing representatives to describe generically the condition that the premises will be in at the time of delivery. However, the differences between what each party means by those terms can be dramatic. By specifically addressing the condition of the premises, landlords and tenants may avoid costly disputes once the lease has been executed and the landlord delivers the premises. This article addresses the terminology and the common pitfalls associated with the terms "vanilla box," "warm vanilla box" and "as-is condition."
The Sales Volume Termination Clause: Protecting the Landlord's Interests
As the popularity of lifestyle center developments continues to grow, the national and regional small-shop tenants forming the leasing backbone of these projects persist in their efforts to negotiate lease rights traditionally granted only to anchor tenants just a few years ago. One such right is the sales volume termination right. Generally, the sales volume termination clause allows a tenant to terminate its lease in the event sales from the tenant's premises do not exceed a predetermined sales volume during a specific period of time. The primary purpose of this clause is to provide a tenant with an exit strategy for an underperforming store. Although the cause of such underperformance may be attributable to a struggling shopping center, alternate causes include poor store management and misguided merchandising decisions, among others. Certainly, landlords would prefer to avoid granting tenants any termination rights; however, the relative bargaining position of the parties may require that the landlord concede to the tenant's insistence for a sales volume termination right. If a landlord finds itself providing a sales volume termination right, then the sales volume termination clause should be structured to address the tenant's specific concerns rather than serve as an open-ended
In the Spotlight: Lien Waivers ' What Do They Really Mean?
Lien waivers are a staple of construction projects. Everybody knows the importance of obtaining a lien waiver, although many owners and contractors never bother to collect them. However, do they know where the waiver forms themselves come from or what the waivers really mean? Unfortunately, many owners, contractors and subcontractors cannot answer these questions, and the consequences are often devastating.
Commercial Leases As an Asset of the Landlord and Tenant
Tenants and landlords should view the lease as an asset of their business. A lease cannot be entered taking into account only those conditions existing as of the date of execution. The terms of the lease will bind the parties for a considerable period, and it is important to draft the lease carefully up front in order to accommodate current and future circumstances. This article addresses the lease as an asset from the tenant's perspective, then from the landlord's perspective, and finally suggests how to approach negotiating potentially conflicting ideas about how to preserve this "joint" asset.
Does Your Lease Have an Operating Covenant?
A retail lease should include a covenant requiring a tenant to operate in the premises. The covenant needs to state clearly and unequivocally that a tenant will be required to operate in the premises for the term of the lease. The active and open operation of tenancies is the essence of retail and what ultimately makes for a successful shopping center. A clear operating covenant, or lack thereof, also facilitates the party's exit strategy from the lease, something which is often more important than the actual operation of the business in the premises.
Enhancing Tenant Flexibility in In-Line Retail Leases
While it would not be possible to identify a "typical" in-line retailer (their perspectives vary as much as their products and their business plans), there are issues that recur in negotiation of leases for them. As attorneys negotiating on behalf of in-line retailers, it is important to consider the potential implications of the lease over its entire term and to plan for changes in clients' business plans by making the leases more flexible. This article examines selected practical issues in flexibility and makes recommendations for negotiating stronger leases from the retailers' perspective.
