True Lease or Secured Financing?
In the Chapter 11 context, it is common for interested parties to challenge the characterization of a Chapter 11 debtor's obligations under an agreement styled as a lease. A Bankruptcy Court's determination as to whether a transaction is a "true" lease or a secured financing can have far-reaching consequences on the administration of a debtor's Chapter 11 case and the respective rights of each party to the agreement. As the recent decision by the Third Circuit Court of Appeals in <i>Duke Energy Royal, LLC v. Pillowtex Corp. (In re Pillowtex, Inc.)</i>, 349 F.3d 711 (3d Cir. 2003) illustrates, when faced with the question of whether a transaction constitutes a "true" lease or a secured financing, bankruptcy courts will look beyond the form to the substance of the parties' agreement.
Avoid Oversights in Lease Amendments
The following scenario frequently occurs: A multi-tenant office building landlord requests its counsel to take a quick look at a proposed two-paragraph lease amendment that the landlord drafted itself. The landlord explains that the tenant has agreed to extend the lease term and establish a new base rental rate for the extended term. Very simple and straightforward, correct? In reality, if the landlord and tenant had signed the two-paragraph lease amendment, they would have made some potentially costly errors, overlooked several issues and bypassed an opportunity to capture more comprehensive provisions that, at a minimum, should have been considered for inclusion. This article will help attorneys avoid some common oversights when working on lease amendments and identify some opportunities that should be assessed during the amendment-drafting phase.
Identify Percentage Rent Issues that May Impact the Assignment and Subleasing of Retail Space
Shopping center leases often contain percentage rent clauses that provide for the ability of the landlord to share in the sales of a tenant over a specific sales threshold while providing the tenant with a lower total rent when sales do not meet the sales threshold. A typical percentage rent provision obligates the tenant to pay a percentage (<i>ie,</i> the percentage rent rate) of the amount of gross sales generated by and from the tenant's business operated at the leased premises, that exceed the threshold amount, <i>ie,</i> a "sales" base or "breakpoint," as additional rent.
In the Spotlight: Addressing the Dilemma of Tenant Parking
Dedicated parking spaces appurtenant to office leases, especially covered spaces, are a prized commodity, particularly in suburban markets where virtually all of a tenant's employees drive to work. A tenant may be able to negotiate an arrangement where it receives more parking passes than the actual number of cars it is permitted to park at the premises at any given time under the theory that not all employees with a parking pass will actually show up for work on any given day. The problem presented by this approach is, of course, the one day when every driver with a parking pass shows up for work and there is no room for all of their cars.
Civil Litigation Implications of Corporate Employees' Criminal Acts
When corporate employees engage in criminal wrongdoing, the result is often civil litigation against their employer. The criminal conviction of such employees, whether by trial or plea, or their invocation of the privilege against self-incrimination, can have serious adverse consequences in related civil litigations against their employer, even if the employee (or former employee) is not a party. This article discusses the use of such evidence against corporations.
