If, three months ago, you failed to carry contractually required insurance for one week, can you cure that breach now? Over the past week, we were thinking about the curability of defaults. And, we weren’t distinguishing between those of landlords or tenants or borrowers or lenders. Our starting point was the common formulation used to define an “Event of Default,” the occurrence of which triggers “consequences.” Here’s an example of the genre: [Read more...]
Mortgage Loan Term Sheets Are So Long; So, Why Are They Missing All Of The Provisions Borrowers Should Be Looking For? Part 2.
Last week, we started a list of loan terms that regularly seem to be left out of Loan Term Sheets prepared by lenders despite those term sheets using up an entire tree for what is included. If you didn’t see that posting and you are compelled to start at the beginning of our Ruminations, click HERE to start at the beginning. Today, we continue and then conclude our list. Don’t confuse “conclude our list” with “conclude the complete list,” because we know the limits of our ability and experience. A further caveat would be – every deal has its own factors to consider, but most loan term sheets attempt to fit all shape pegs into a round hole.
So, here we go with the rest of our list of “missing” terms in the common Loan Term Sheet:
Cash Management Accounts. If a borrower can avoid a “clearing account” (essentially, a “lock box”), it should. For those unfamiliar with how those work, the lender “owns” an account at the bank you choose and all rent checks go to that account. Your bank agrees, with the lender, to “sweep” all money out of that account every night and put the swept funds in your own account. That is, it will do that sweep until the lender notifies the bank to sweep the money into the lender’s regular bank account (at whatever bank the lender uses). That allows the lender to interrupt the cash flowing to the borrower when the lender thinks a “Trigger Event” has occurred. A Trigger Event could be the borrower’s default or it could be that the rental income, though exceeding the debt service payments, doesn’t exceed it by enough. It could also be when a key tenant has left the property. In fact, it could be anything the loan documents say it is, including receipt of a report of alien abduction signed by two adults. Though the last example is unlikely, it does illustrate that if the Loan Term Sheet calls for a cash management account, it should state what the Trigger Events would be. [Read more...]
Mortgage Loan Term Sheets Are So Long; So, Why Are They Missing All Of The Provisions Borrowers Should Be Looking For? Part 1.
We think it’s called “document creep.” When documents were hand-written, they were pretty short and the world survived. Then, along came the typewriter, and a three page mortgage and a five page lease were probably seen to be somewhat burdensome by the party most burdened. Then, as typing got faster, the documents got longer. Rudimentary word processors, such as memory typewriters, made it easy to go even longer. Modern word processing allows for 100-plus page mortgages, leases, and other documents. Yes, now, we’re able to craft super-long documents “in a single bound.”
Even the term sheets for loans have succumbed to this “document creep.” A dozen or more pages? – No sweat. Doesn’t this benefit everyone, having a complete set of loan terms right up front so that the lawyers don’t wind up negotiating important items while the “outside closing date” looms close? Wish that were the case, because, as lengthy and detailed loan term sheets are getting (call them commitment letters, loan applications or whatever), for some reason they don’t exactly cover all of a borrower’s concerns. Ruminations doesn’t mean “all of a ‘particular’ borrower’s concerns.” We mean all of the concerns that any (or every) borrower should or does have. Like what, you ask? Like, the kinds of items we’ll be covering this week and next (and maybe even the one after that). [Read more...]
Attorneys fee clauses – where did we leave off last week? Well, we had a list of issues and only explored the first two. Here’s the list. If you want to see what we’ve written thus far, click HERE.
To make this page “look good” and match the look of prior blog postings, we’ve got to do some “fill-in” text. So, this is a good opportunity to thank our large audience of readers, many of them fervent followers of Ruminations. With today’s posting (our 151st to date), we’ve broken through the ”150″ barrier. All of our prior posting are available and our crude search feature might get you to explore some topics you never thought could be topics. So, here’s a big THANK YOU, and the end of our segue to the list of issues we promised in the paragraph directly above. Keep your comments and your ideas for future postings coming this way.
And now, here’s that list: [Read more...]
Attributed to George Bernard Shaw is this (perhaps variant) observation: “The English and the Americans are two peoples divided by a common language.” So, there should be no surprise to experienced readers that, when it comes to the right to collect attorneys fees, there is the “English Rule” and there is the “American Rule.”
Those two rules simply reflect different philosophies or “public policies.” Under the English Rule, losers pay the winner’s attorneys fee under the policy that, if your claim could not be sustained, the party you claimed against should be returned to where it stood before the suit was filed. The American Rule, fully cognizant of the “fairness” goal of the rule from across the ocean, says that, absent fraud on the party of the one charged or a [Read more...]
“At present I would prefer not to be a little reasonable” – Asking For The Unreasonable Vs. Acting Unreasonably
We’ve written, with favor, about the use of words such as “reasonable” in agreements of all sorts. Just like the use of the modifier, “material,” the modifier “reasonable” works pretty well in practice. If you are curious about what we’ve written about “material,” click HERE. Today, we’re going to Ruminate about being “reasonable” in another context – negotiations.
First, two anecdotes, the first being about a large retailer, one with over 30,000,000 square feet of leased space, whose general counsel explained the company’s negotiation policy as follows: “It is our corporate policy to be unreasonable.” The second, perhaps not technically an anecdote, is a literary quote from Melville’s character, Bartelby, the scrivener: “At present I would prefer not to be a little reasonable.” [Read more...]
A couple of weeks ago, we Ruminated about leasehold mortgages and why landlords shouldn’t get bent out of shape when a tenant who qualifies for one wants to be able to encumber the tenant’s (not the landlord’s) interest in the lease. We won’t repeat much of that, if you hadn’t seen that blog posting or if it was immediately forgettable, you can visit or revisit it by clicking HERE.
Basically, our take on a leasehold mortgage and how it affects the leasing arrangement between a landlord and its tenant is as follows: [Read more...]