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Landlord Issues from Tenant Bankruptcies

Landlord Issues for Tenant BankruptciesTenant bankruptcies are creating headaches for landlords. RadioShack. Brookstone. Toys R’ Us. Sears. With fifteen major retail bankruptcies filed last year in 2018, the toppled retail behemoth has almost become a cliché, and brands once courted by commercial landlords have become major sources of risk. With no sign of a slow-down, this article provides a refresher on your rights, as a commercial landlord, in commercial tenant bankruptcies.

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Commercial Tenant Bankruptcies 101: THE BASICS

• Ipso facto clauses in a lease, which trigger default or acceleration upon the filing of a bankruptcy case, are generally unenforceable under the Bankruptcy Code. Thus, you cannot terminate a lease or stop performing your obligations under the lease on account of the bankruptcy filing.

• The filing of a bankruptcy case triggers the automatic stay, which requires all actions to enforce the lease, evict the tenant or collect a debt (including unpaid rent) to cease. Unless you have a judgment to possess the subject premises, or the lease has otherwise expired by its terms, you must not continue to pursue collection or enforcement activities.

• A commercial debtor may assume a lease and assign it to a third party, in most circumstances without your consent, even if the lease requires the consent of the landlord to assignment.

• A commercial debtor may reject a lease based on its business judgment, and you have very few (virtually no) grounds on which to object to a lease rejection.

Commercial Tenant Bankruptcies 201: WHEN WILL I GET PAID AND HOW MUCH?

The Bankruptcy Code requires bankrupt tenants to continue paying rent under the lease during the pendency of the case (post-petition rent). If a debtor does not assume a lease within 210 days of the commencement of the bankruptcy case, the lease is deemed rejected.

Depending on whether the lease is assumed or rejected and the financial health of the bankruptcy estate, rent that was unpaid as of the date of the filing (pre-petition rent) may be paid in full, in part or not at all. Tenants under assumed leases must cure all breaches under the lease, including to pay in full all unpaid pre-petition and post-petition rent and any damages incurred as a result of the breach of the lease. The cure amounts must be paid at the time the lease is assumed by the debtor or its assignee.

Landlords under rejected leases, on the other hand, are entitled to a claim against the bankruptcy estate, which, depending on the financial health of the debtor, may be paid in full, in part or not at all. While unpaid postpetition rent constitutes an administrative (or dollar-for-dollar) claim against the estate, all other pre petition rent and damages caused by the rejection of the lease constitute unsecured (often, cents-on-the-dollar) claims, and will be paid pro rata with other unsecured creditors. Further, while rejection damages include the amount of rent remaining in the life of its lease, damages are statutorily capped at the greater of one year of rent or the rent for 15% of the remaining term of the lease, not to exceed three (3) years. Landlords who successfully mitigate their damages and re-let the premises may not be entitled to any claim if the rent received under the new lease is greater than or equal to the rent under the existing lease. Payments on unsecured claims are typically paid, if at all, after the debtor has confirmed a plan of reorganization.

Commercial Tenant Bankruptcies 301: DO I HAVE TO ACCEPT A RENT REDUCTION?

Bankruptcy affords the debtor tenant a unique opportunity to re-negotiate its leases. On one hand, the Bankruptcy Code prohibits the debtor from cherry picking which provisions of a lease it wants to assume and which provisions it would like to reject; instead, the Code requires the debtor to assume or reject the lease in its entirety. On the other hand, many debtor tenants leverage the specter of potential rejection to obtain significant rent concessions from landlords. Rent reduction negotiations often begin in the pre-bankruptcy period and continue in the early days of the case, with landlords being told that failure to negotiate will result in certain rejection.

You do not have to negotiate with the debtor tenant or accept a rent reduction, though doing so may increase the possibility of the assumption of your lease. Debtor tenants are more likely to reject leases:

• Not essential to the continued operation of the business,
• With above-market rent,
• In areas saturated with other debtor locations, or
• With low-performing stores.

If your lease falls outside of these categories, then the debtor may assume the lease even without obtaining a rent (or other) concession.

Commercial Tenant Bankruptcies THE BIG PICTURE

As soon as a tenant shows signs of financial weakness, consider actively pursuing remedies under the lease, including termination or eviction proceedings. If the lease has expired or you have already obtained a judgment for possession when your tenant has filed for bankruptcy, tear up this article! (after confirming with your attorney that the lease is, in fact, properly terminated).

If the lease has not expired or terminated at the time of filing, be sure to engage bankruptcy counsel to review the proceedings and protect your interests in the case. Bankruptcy counsel will object to any insufficient cure amount, file a proof of claim for your damages and review any plan of reorganization to advise you of your
anticipated recoveries. Even though retail bankruptcies have become commonplace, sound counsel will ensure
that your rights are protected and help you get paid.

Finally, engage competent real estate professionals, who can provide an accurate assessment of current market
rent and assist in finding a replacement tenant to satisfy and requirement that you mitigate your damages
after rejection/termination of the lease.

The contents of this article are for informational purposes only and none of these materials is offered, nor should be construed, as legal advice or a legal opinion based on any specific facts or circumstances.

 

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WCRE ADDS FORMER DALLAS COWBOY TO TEAM

Phil Costa to Serve Philadelphia & Southern NJ Markets

Phil CostaWolf Commercial Real Estate (WCRE) is pleased to announce the hiring of sales associate Phil Costa. Costa comes to WCRE from the sales and customer service field at Abbott, where he worked after a four-year NFL football career. 

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Costa will focus and specialize in commercial and multifamily assets in the Southern New Jersey and Philadelphia regions. Phil has developed a wide network of business and corporate relationships throughout the area and will focus to help landlords, investors and users develop strategies to achieve their commercial real estate goals. 

Costa, a Holy Cross Preparatory Academy and University of Maryland alumni, recently finished his MBA at Columbia University. His areas of expertise include multi-family, investments and relationship development.   

“Costa will be responsible for advising and supporting a diverse client base throughout their various commercial real estate transactions and needs.  His hiring brings WCRE, which is approaching their 8-year anniversary, to a team of 26 outstanding commercial real estate service providers”,

said Jason Wolf, founder and principal of WCRE. 

“Our people have always been our biggest asset and differentiator in the marketplace.”

Said Chris Henderson, Vice president and principal of WCRE.  

Phil was a Team Captain and two-time Academic ACC student at the University of Maryland and spent four years with the Dallas Cowboys as an Offensive Lineman. Most recently, Phil co-authored the book, “The Transition Playbook for Athletes”. He lives in Philadelphia, PA.

Costa is a licensed salesperson in New Jersey and Pennsylvania license candidate. 

About WCRE

WCRE is a full-service commercial real estate brokerage and advisory firm specializing in office, retail, medical, industrial and investment properties in Southern New Jersey and the Philadelphia region. We provide a complete range of real estate services to commercial property owners, companies, banks, commercial loan servicers, and investors seeking the highest quality of service, proven expertise, and a total commitment to client-focused relationships. Through our intensive focus on our clients’ business goals, our commitment to the community, and our highly personal approach to client service, WCRE is creating a new culture and a higher standard. We go well beyond helping with property transactions and serve as a strategic partner invested in your long-term growth and success.

Learn more about WCRE on Twitter & Instagram @WCRE1, and on Facebook at Wolf Commercial Real Estate, LLC. Visit our blog pages at www.southjerseyofficespace.com, www.southjerseyindustrialspace.com, www.southjerseymedicalspace.com, www.southjerseyretailspace.com, www.phillyofficespace.com, www.phillyindustrialspace.com, www.phillymedicalspace.com, and www.phillyretailspace.com.

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WCRE HELPS FEED THE COMMUNITY WITH 6th ANNUAL THANKSGIVING FOOD DRIVE

Wolf Commercial Real Estate (WCRE) wrapped up its sixth annual Thanksgiving Food Drive today by delivering over 100 bags of food and $1,525 in supermarket gift cards and donations to the Samost Jewish Family and Children’s Service food pantry.

As in previous years, the firm spent the past several weeks collecting food and grocery store gift cards from friends, clients, and colleagues throughout the region. More than thirty-five area businesses contributed to the effort.

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“Over the past six plus years, WCRE has become an integral charitable partner in our efforts,” said Marla Meyers, MSW, executive director of Samost Jewish Family and Children’s Services of Southern New Jersey. “We thank the entire WCRE team for their generosity and leadership today and throughout the year.”

The food drive is part of WCRE’s Community Commitment program, which also includes donating a portion of the proceeds from transactions to one of several local charities.

In 2016, WCRE formed The WCRE Foundation to manage and oversee our community fundraising efforts and donations.  To date, The WCRE Foundation has successfully raised approximately $315,000 from its community efforts.

Currently, WCRE and The WCRE Foundation support Bancroft, CARES Institute at Rowan University, the American Cancer Society, Susan G. Komen Foundation, Samaritan Healthcare & Hospice and the Jewish Federation of Southern New Jersey. We also offer our clients the option to designate the charitable portion of their transaction to a charity of their choice.

About WCRE

WCRE is a full-service commercial real estate brokerage and advisory firm specializing in office, retail, medical, industrial and investment properties in Southern New Jersey and the Philadelphia region. We provide a complete range of real estate services to commercial property owners, companies, banks, commercial loan servicers, and investors seeking the highest quality of service, proven expertise, and a total commitment to client-focused relationships. Through our intensive focus on our clients’ business goals, our commitment to the community, and our highly personal approach to client service, WCRE is creating a new culture and a higher standard. We go well beyond helping with property transactions and serve as a strategic partner invested in your long term growth and success.

Learn more about WCRE at www.wolfcre.com, on Twitter & Instagram @WCRE1, and on Facebook at Wolf Commercial Real Estate, LLC. Visit our blog pages at www.southjerseyofficespace.com, www.southjerseyindustrialspace.com, www.southjerseymedicalspace.com, www.southjerseyretailspace.com, www.phillyofficespace.com, www.phillyindustrialspace.com, www.phillymedicalspace.com and www.phillyretailspace.com.

About JFCS

To learn more about JFCS’ efforts, visit https://jfcssnj.org/

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Does Your Business Have Equipment Breakdown Insurance?

equipment breakdown insurance policiesLet’s take a look at equipment breakdown insurance. Companies need safe and working equipment to operate efficiently and generate revenue. In fact, some organizations rely exclusively on a few pieces of equipment to run their entire business. Following a breakdown, major losses can occur, and many organizations turn to equipment breakdown insurance (sometimes referred to as boiler and machinery insurance).

Breakdown coverage is a form of property insurance designed to protect a company’s mechanical, electrical and computer equipment from unexpected breakdowns. These policies are flexible, and help organizations recoup financial losses related to property damage, business interruption and spoilage. Read on to see examples of this coverage in action.

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Benefits of Equipment Breakdown Insurance

• Repair cost coverage — Following an breakdown, organizations may have to pay thousands just to get their business up and running again. Equipment breakdown insurance can help soften the blow, reimbursing organizations for the cost to repair or replace damaged equipment due to an accident.

• Expediting expenses — Repairing complex equipment in a hurry can be an expensive endeavor. Most equipment breakdown insurance policies cover any expenses needed to speed up the repair or replacement of damaged property, including the cost of temporary repairs.

• Protection against business interruptions — Virtually in all cases, an equipment failure disrupts a business. In some instances, these disruptions are quantifiable, leading to lost revenue and productivity. Equipment breakdown insurance covers some of these costs, including income lost as a result of a covered accident. What’s more, this protection is in effect until the equipment is repaired or replaced.

• Coverage for perishable goods — Following an equipment failure, food-related businesses experience some of the most direct losses. Food industry equipment is not only expensive to repair and replace, but businesses can lose thousands of dollars worth of product if a freezer or refrigerator fails. Thankfully, equipment breakdown insurance provides adequate protection and covers food spoilage, manufactured goods or other perishable items after a covered incident.

Claims Scenario: Give Me a Break

The company: A metal cutting company.

The challenge: Equipment failure is a broad risk—one that can affect organizations of all kinds. What’s more, equipment failure isn’t always the result of a specific catastrophe, and many events that lead to a breakdown are out of a company’s control. Recently, a power surge caused by a major storm destroyed two circuit boards at a metal cutting shop. This unexpected outage left the business without the necessary machinery to continue operations. Furthermore, in order to meet production deadlines, shop workers had to travel to the company’s sister location. Between the lost time, travel expenses and repair costs, the organization experienced $52,000 in losses—all from just one storm. Equipment breakdown insurance in action: Equipment outages and breakdowns are not generally covered under standard commercial insurance policies. Instead, organizations should acquire comprehensive breakdown insurance to cover the cost to repair or replace damaged equipment. In addition, the insurance reimburses companies for lost time, which can prove invaluable following a sudden outage.

Claims Scenario: Spoiler Alert

The company: A small, family-owned restaurant.

The challenge: A restaurant recently experienced major losses after several of their refrigerators stopped working. The restaurant depends on these appliances to deliver fresh food to their clients. After several attempts to fix the system, the restaurant had to close for the day and call for repair services. Not only did the restaurant have to pay over $1,000 in maintenance costs, they also lost about $18,000 worth of food products due to spoilage—a major hit for a small business. Insurance in action: Just one equipment failure can lead to multiple losses, including lost revenue from business interruptions and lost product from spoilage. Thankfully, breakdown insurance can protect against these risks. In fact, equipment breakdown insurance is one of the few ways restaurants and other food-related businesses can recoup losses from spoiled inventory. An outage of any kind could easily result in the inability to prepare, cook, serve and sell food. As such, organizations need to secure the right policy to ensure their business is protected before, during and after an breakdown.

Learn More About Equipment Breakdown Insurance

Problems with your equipment can be extremely risky if you are not properly insured. What’s more, standard property insurance policies do not guarantee cover for these types of losses. In these instances, breakdown insurance is invaluable, protecting you in the face of unforeseen damage or breakdowns. Consult Hardenbergh Insurance Group today to learn more about equipment breakdown insurance to combat costly, and often unpredictable, problems at your place of business. We have the commercial property expertise to help you mitigate your risks and protect your bottom line.

Brian Blaston Hardenbergh

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Avoiding Exposure for Commercial Real Estate Developers

Avoiding Exposure for Commercial Real Estate Developers

Commercial real estate developers and owners of recently completed development projects should be aware of a few things that can be done after the ribbon cutting to prevent headaches later on, avoid exposure to potential penalties for failing to comply with certain development conditions, and possibly put some money back in the till. Attention should be paid to these three issues after a project is completed.

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OBTAIN AN AS-BUILT SURVEY OF YOUR PROJECT.

An as-built survey is a detailed land survey that includes exact locations of subsurface infrastructure such as pipes and foundations. Sometimes owners rely on contractor notes that have been scribbled on design plans in the field during construction to serve as an as-built. Incorporating these notes in a clean and accurate as-built survey is well worth the time and expense as it will save headaches trying to piece information together later.
An as-built survey should be prepared immediately after the project has been completed. A purchaser might also consider procuring an as-built if one is not available. Some might view this an unnecessary expense; however, consider the following:

1) what is actually built by the contractor in the field doesn’t always line up exactly with the engineering design plans;

2) preparing a clean survey to document as-built conditions immediately after construction eliminates the time consuming and often costly effort required to piece together the information at a later date; and

3) if, at a later date, you want to make improvements or put an addition on the property, having an accurate as-built survey of existing conditions shows exactly where everything is on your site and expedites the process.

As an example of how an accurate as-built survey can save time and money, consider a scenario in which an owner wishes to construct an addition to an existing building and tie a new sewer lateral into an existing underground sanitary sewer force main. The design plans for the addition are developed based on the original design plans for the main building rather than an as-built survey, because the owner never had an as-built survey completed after construction. The design plans for the addition referenced an ‘approximate’ location of the force main, as the ‘exact’ location was never documented. What if that force main was not in the location indicated
on the design plans? If not, it would require a lot of digging and an expensive subsurface utility investigation to locate the pipe to determine the exact location. This costly delay could be avoided if the owner invested in a complete and accurate as-built survey of the property immediately after construction, including the location of all underground infrastructure.

MAKE SURE YOUR NJDEP PERMITS (INCLUDING YOUR WETLANDS LOI) WERE RECORDED WITH THE COUNTY CLERK

Many landowners and commercial real estate developers understand the need to obtain permits from the NJDEP to make improvements to land in New Jersey. However, compliance with administrative permit conditions is sometimes overlooked. One of the conditions of all permits that are issued by the NJDEP under the Freshwater Wetlands Protection Act Rules (Rules), N.J.A.C. 7:7A, is that permits must be recorded with the Office of the County Clerk (or the Registrar of Deeds and Mortgages, if applicable) where the site is located. Permits must be recorded within 30 calendar days of receipt (for activities taking place in only one county) and within 90 calendar days of receipt (for activities within two or more counties). A copy of the recorded permit must be forwarded to the NJDEP. Recently, as of July 2019, NJDEP has also required that freshwater wetland delineations and verifications must also be recorded. As
stated in the Rules, within 90 calendar days after the NJDEP issues a wetland delineation or verification letter of interpretation on a privately owned lot, or on a publicly owned lot other than a right-of-way, the recipient of the delineation or verification shall submit certain information to the Office of the County Clerk or the registrar of deeds and mortgages in which the site is located, and shall send proof to the NJDEP that this information was recorded on the deed of each lot referenced in the delineation or verification letter of interpretation.

It is important that this condition is not overlooked, as the NJDEP has the authority to take enforcement action if permit conditions are not met. As stated in the Rules, any noncompliance with a permit constitutes a violation of the NJDEP rules and is grounds for enforcement action under N.J.A.C. 7:7A-22, which includes potential penalties and suspension and/or termination of a permit. In the case of a wetland delineation or verification letter of interpretation, termination of a permit may mean having to re-delineate the wetlands which can be expensive, time-consuming, and subject to a new interpretation.

CLOSE OUT YOUR ESCROW ACCOUNTS AND REQUEST RELEASE OF PERFORMANCE GUARANTEES

Under the Municipal Land Use Law, N.J.S.A. 40:55D-1 et seq. (MLUL), there is a specific process for closing out escrow accounts and requesting release of performance guarantees. For application review escrow accounts, once the approving authority has signed the subdivision plat or site plan, or for inspection escrow accounts, once the work is completed, the commercial real estate developers are to send a written notice by certificated mail to the chief financial officer (CFO) of the municipality, to the approving authority, and to the relevant municipal professionals. After such notice is transmitted to the appropriate parties, the professionals are to submit a final bill to the CFO of the municipality within 30 days, with a copy to the developer. The CFO of the municipality must render a written final accounting to the commercial real estate developer on the uses to which the deposit was put within 45 days of receipt of the final bills. Any balances remaining in the deposit or escrow account, with any interest, must be refunded to the developer along with the final accounting. See N.J.S.A. 40:55D-53.2.

For performance guarantees, upon substantial completion of all required street improvements (except for the top course) and appurtenant utility improvements, and the connection of same to the public system, the commercial real estate developers may submit a request by certified mail to the governing body to the attention of the municipal clerk, with a copy to the municipal engineer, for the municipal engineer to prepare a list of all uncompleted or unsatisfactory bonded improvements. That request should specify which of the bonded improvements have been completed or remain uncompleted in the opinion of the developer. In response to the request the municipal engineer is to inspect all bonded improvements and submit a detailed list and report, in writing, to the governing body, with a copy to the developer, within 45 days after receipt of the request. Simply put, depending on the outcome of the inspection, the performance guarantee may be either released or reduced by a specific amount, commensurate with the remaining work. If the municipal engineer fails to send or provide the list and report as requested within 45 days from receipt of the request, the commercial real estate developer may seek a court order compelling the engineer to provide the list and report within a set time and may also be reimbursed for the cost of applying to the court, including reasonable attorney’s fees. See N.J.S.A. 40:55D-53.

Following up on these three issues after a project is completed can save time, money and headaches. For more information on any of these topics, contact Rod Ritchie or Bob Baranowski for assistance.

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Just What is Title Insurance Anyway

Just What is Title Insurance AnywayWhat is title insurance? Title insurance has been around for hundreds of years, yet most people still do not truly understand the what is title insurance, what is its purpose and what is it there for. You know you need it to buy or refinance a property. It can cost a lot depending on price of your property or loan amount. But what does title insurance really do for you and do you really need it?

You should always protect yourself by purchasing a title insurance policy. Title insurance is an agreement to indemnify against damage or loss from a defect in title as evidenced by a policy of title insurance to a specific parcel or real property.

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What is Title Insurance and How Does It Function?

There are two types of policies available: Owners Policy and Loan Policy. An owner’s policy insures an owner of any type of real property against loss by reason of those matters covered under the policy of insurance for as long as they own that property. A lender’s policy insures the lender has priority by way of a security instrument that protects them over claims that others may have in the property.

For example, let’s say you are looking to buy a property that has an old mortgage showing up on public records that was given to the current owner 20 years ago. Mr. Seller is saying it was paid off a long time ago. If you purchased your property without title insurance from that seller and the lender whose mortgage was still showing up on title comes knocking on your door for final payment because Mr. Seller lied, guess who will be losing their home to a potential foreclosure? YOU.

You see, with title insurance, we review the history of public records that include mortgages, judgments, liens, and other encumbrances that may affect your property after you purchase it. We minimize the risk by addressing all the potential issues that could become claims and eliminate them so that we can provide free and clear title to you, the buyer.

Title companies provide a number of services to all of the parties in a real estate transaction. Not only do they provide the final title policy which is the ultimate proof of insurance on the property, they also provide assurances that the transfer of title takes place in a timely manner and that the interest of the buyers and lenders are protected under the terms and conditions of the policy. One major responsibility of a title company is ensuring that all parties receive their funds efficiently and securely.

Title insurance is different from other lines of insurance that most people are familiar with (homeowners, car insurance, etc). These other types of insurances assume risks providing financial protection for losses that may arise from an unforeseen future event such as a fire, theft or accident. With title insurance, you pay a one-time premium at the time of closing, unlike the other types of insurance which are typically paid on an annual basis.

For more information on title insurance, please visit our website at: www.deedsearchers.com

Nicole Malcolm

 

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Bankruptcy Provisions in Commercial Leases

Bankruptcy Provisions in Commercial LeasesLet’s examine what you need to know about bankruptcy provisions in commercial leases. Each property is unique and every relationship has its own contours that will drive the path of commercial lease negotiations. While a lease cannot account for or predict every potential scenario in the course of a commercial landlord-tenant relationship, landlords can put themselves in a better position to weather a tenant bankruptcy by understanding the bankruptcy landscape, including which provisions will be enforced and which provisions will be ignored by bankruptcy courts.

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Most landlords know that commercial bankruptcy cases generally take one of two forms: chapter 7 or chapter 11. In both types of cases, the automatic stay applies. In both types of cases, the commercial lease can be assumed, assigned or rejected within a finite period of time. A chapter 7 case is a liquidating case, while chapter 11 cases are typically reorganizations.

A tenant filing bankruptcy under chapter 7 will cease doing business. There, the court appoints a chapter 7 trustee to gather and liquidate assets and to distribute the proceeds to creditors. While the debtor tenant in a chapter 7 case is unlikely to continue the lease, the trustee may sell/assign a valuable lease to a third party. Negotiations in a chapter 7 case take place with the chapter 7 trustee, rather than with the debtor tenant.

On the other hand, a tenant filing a chapter 11 bankruptcy generally continues operations as a “debtor-in-possession.” The chapter 11 case typically culminates in a plan of reorganization, through which the debtor will outline its plans to fund payments to creditors, restructure debt and continue operations as the entity emerges from bankruptcy. Often, chapter 11 debtors seek to shed debt by rejecting above-market leases or leveraging the right to assume and reject leases by extracting rent concessions from landlords as a condition to lease assumption. Absent unusual circumstances, the court will not appoint a trustee, thus negotiations take place with the debtor tenant.

While a tenant bankruptcy filing shifts the balance of power to the tenant, defensively drafted leases may allow the landlord to retain some control and negotiating advantage after the filing of a bankruptcy.

7 Bankruptcy Provisions in Commercial Leases

(1) Tenant bankruptcy triggering lease termination
Bankruptcy provisions in commercial leases that would terminate a lease or modify other rights of a bankrupt party upon the filing of a bankruptcy petition are known as ipso facto clauses and are unenforceable under the Bankruptcy Code. Bottom line: Don’t waste your leverage trying to incorporate or keep an ipso facto provision in the lease.

(2) Waiver of the automatic stay.
The filing of a bankruptcy petition automatically triggers a stay of all activities to collect a debt, including efforts to obtain possession of property. To avoid the delay associated with the  imposition of the stay, consider including a provision requiring the tenant to waive the protection of the automatic stay or a waiver of the right to contest a motion by the landlord for relief from the stay. The remedy, if enforced by a court, allows a landlord to obtain relief much sooner than it would otherwise be entitled, particularly because courts are reluctant to grant stay relief in the early days of a bankruptcy case. Bottom line: Whether this provision is worth fighting for depends on your jurisdiction. Not all courts will enforce a pre-petition waiver of the stay, and even if they will, the waiver will generally not be “self-executing”. The blessing of the court is needed. Therefore, to avoid the imposition of sanctions that accompany a violation of the stay (or the voiding of stay-violating activities), landlords with waivers in a lease should consult with counsel on filing the appropriate motion with the bankruptcy court before pursuing eviction or collection activities.

(3) Adequate Assurance Definition.
Under the Bankruptcy Code, in order for a bankrupt tenant to assume a lease, it must provide the landlord adequate assurance that it will meet its future lease obligations. The Bankruptcy Code does not define “adequate assurance”, but the parties can define the concept in the lease to narrow the issues in bankruptcy court litigation. Adequate assurance provisions often require the tenant provide assurances as to (i) the source of future rent, including that any assignee is similarly situated, financially, to the tenant at the time the lease was signed, (ii) the stability of the percentage rent, if applicable; and (iii) non-disruption to the tenant mix in the center or complex. Bottom line: A lease containing specific understandings of ambiguous bankruptcy concepts will carry greater weight with a court interpreting a tenant’s post-petition obligations to its landlord.

(4) Shopping Center Provisions.
While bankruptcy courts do not favor limitations or conditions on the assignability of a lease, shopping center leases receive special treatment and, as a result, shopping center landlords have greater leverage in post-petition assignment negotiations. Therefore, if a property can reasonably be considered a shopping center, including a provision indicating that the property is a shopping center may afford a landlord with additional leverage and protections. Any shopping center lease should require that any assignee of the lease in a bankruptcy adhere to exclusive use (or other use restrictions), co-tenancy and tenant mix requirements. Bottom line: Ensure that any
shopping center lease contains provisions that protect the future viability and maintain the integrity of the shopping center if a tenant lease is assumed and assigned in bankruptcy.

(5) Security.
Cash may be king, but, generally, security deposits become property of the debtor’s estate once a bankruptcy petition is filed, limiting the setoff rights of a landlord and requiring motion practice in the bankruptcy court. A letter of credit, coupled with a lease provision allowing the landlord to draw upon it after default and without notice to the tenant, generally falls outside of “property of the estate” and therefore provides more ready access to cash to a landlord whose tenant has filed for bankruptcy. Bottom line: Securing the tenant’s obligations under the lease by collateral that falls outside the umbrella of “property of the estate” puts the landlord in a better position to recover costs when dealing with a tenant in bankruptcy.

(6) Guarantors.
A corporate parent or affiliate guaranty provides additional security for the tenant’s lease. Frequently, however, that guarantor often files bankruptcy at the same time as the tenant, and the landlord’s claim against the guarantor becomes one of many unsecured claims that will receive cents-on-the-dollar recovery. Personal guaranties from tenant equity holders may provide more protection because of the “skin in the game” and a reluctance of many individuals to file personal bankruptcy. Bottom line: The newer the business or the more limited financial history of your tenant, the more compelling a case for obtaining personal guaranties.

(7) Forecasting Trouble.
Bankruptcy provisions in commercial leases that require the submission periodic financial statements, balance sheets and cash flow statements from a tenant and any guarantors will allow a landlord to monitor the performance of its tenant. Leases containing financial covenants provide a mechanism for a landlord to call a default if financial performance declines. Having a heads-up to financial distress can allow the landlord to exercise remedies quickly and potentially in advance of any bankruptcy filing. The automatic stay does not apply to leases terminated pre-petition, so moving quickly to terminate in a distressed situation may give the landlord a valuable edge in regaining possession of the property outside of the bankruptcy court. Bottom line: The more you know about your tenant’s finances, the better you can react to a deteriorating situation, whether by exercising remedies or bolstering the security for the tenant’s obligations under the lease.

The contents of this article are for informational purposes only and none of these materials is offered, nor should be construed, as legal advice or a legal opinion based on any specific facts or circumstances.

Have questions about about bankruptcy provisions in commercial leases?

 

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Depreciation Tax Breaks: Time to Take Advantage

bonus depreciation

100% first-year bonus depreciation is available for qualified new and used property that is acquired and placed in service in calendar-year 2019. That means your business might be able to write off the entire cost of some or all of your 2019 asset additions on this year’s return. So, consider making additional acquisitions between now and year-end. Contact your tax professional for details on the 100% bonus depreciation break and what types of assets qualify.

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Other Uses for 100% bonus depreciation

Not just for your properties but the 100% bonus depreciation provision can have a hugely beneficial impact on first-year depreciation deductions for new and used heavy vehicles used over 50% for business. That’s because heavy SUVs, pickups, and vans are treated for tax purposes as transportation equipment that qualifies for 100% bonus depreciation. However, 100% bonus depreciation is only available when the SUV, pickup, or van has a manufacturer’s Gross Vehicle Weight Rating (GVWR) above 6,000 pounds. The GVWR of a vehicle can be verified by looking at the manufacturer’s label, which is usually found on the inside edge of the driver’s side door where the door hinges meet the frame. If you are considering buying an eligible vehicle, doing so and placing it in service before the end of this tax year could deliver a juicy write-off on this year’s return.

You can also claim first-year depreciation deductions for cars, light trucks, and light vans you use in your business. For both new and used passenger vehicles (meaning cars and light trucks and vans) that are acquired and placed in service in 2019, the luxury auto depreciation limits are as follows:

• $18,100 for Year 1 if bonus depreciation is claimed.
• $16,100 for Year 2.
• $9,700 for Year 3.
• $5,760 for Year 4 and thereafter until the vehicle is fully depreciated.

Note that the $18,100 first-year luxury auto depreciation limit only applies to vehicles that cost $58,500 or more. Vehicles that cost less are depreciated over six tax years using percentages based on their cost. You should cash in on generous Section 179 deduction rules. For qualifying property placed in service in tax years beginning in 2019, the maximum Section 179 deduction is $1.02 million. The Section 179 deduction phase-out threshold amount is $2.55 million.

The Section 179 deduction may be claimed for personal property used predominately to furnish lodging or in connection with the furnishing of lodging. Examples of such property include furniture, kitchen appliances, lawn mowers, and other equipment used in the living quarters of a lodging facility or in connection with a lodging facility such as a hotel, motel, apartment house, dormitory, or other facility where sleeping accommodations are provided and rented out.

Section 179 deductions can also be claimed for qualifying real property expenditures. Qualifying real property means any improvement to an interior portion of a nonresidential building that is placed in service after the date the building is first placed in service, except for expenditures attributable to the enlargement of the building, any elevator or escalator, or the building’s internal structural framework. The definition also includes roofs,

HVAC equipment, fire protection and alarm systems, and security systems for nonresidential real property. To qualify, these items must be placed in service after the nonresidential building has been placed in service. Here is another area where the advice and skill of your CPA and your tax lawyer, can make a difference in your business. Leasing or buying/selling real estate? Well, add WCRE to the team.

FOR MORE INFORMATION:

Martin H. Abo, CPA/ABV/CVA/CFF is a principle of Abo and Company, LLC and its affiliate, Abo Cipolla Financial Forensics, LLC, Certified Public Accountants – Litigation and Forensic Accountants. With offices in Mount Laurel, NJ and Morrisville, PA, tips like the above can also be accessed by going to the firm’s website at www.aboandcompany.com.

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Winter Weather and Its Impact On Your Business

Winter weather is unpredictable and can have a large impact on your business. While maintaining business operations is always at the forefront of your mind, it is important to consider employee safety as well. You should have policies and procedures in place before bad weather hits so that your company and employees are as prepared as possible.

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Driving in Winter Weather on Company Time

winter weatherA major concern regarding winter weather is employees who drive a company car or vehicle as part of their workday. All vehicles should be given a safety check by a mechanic before the bad weather hits, and they should also be equipped with emergency materials such as a snow scraper, blanket, first aid kit and
flashlight.

In addition, employees should be instructed to dress properly for the weather, including a hat, scarf and gloves, or have extra clothing on hand in case of a breakdown or accident. In order to protect your company against liability, any employees who may drive in bad weather on company time should be trained in safe, cautious driving techniques and what to do in case of an accident. Also consider employees who drive as part of their commute—it may be wise to educate them in cautious winter driving techniques to ensure their safety while driving to and from work.

Employee Pay During Winter Weather

Pay issues arise when weather forces your business to close for any length of time or prevents employees from making it to work even if your business remains open. For non-exempt (typically hourly) employees, you are only required to pay them for the hours they actually work. Thus, if your business opens late, closes early or closes for an entire day, you are not required to pay them for any time missed.

If an exempt (typically salaried) employee works any part of the day, you must pay them for a full day. Similarly, if the business is closed for a day or more but less than a full week, you need to pay exempt employees their normal salary if they worked any part of that week. You do not need to pay employees if business is closed for a full week. This applies whether your company uses a five-day or seven-day workweek. You may, however, require that they use available paid time off or vacation time, if available. If your business remains open but an exempt employee cannot come in due to weather conditions, this is a personal reason, and you do not need to pay them. One option to ease the loss of a business day or any missed productivity is to ask exempt employees to work from home if you are already paying them for the day. You may also consider offering a telecommuting option during inclement weather even if your business remains open so employees can avoid the dangers of driving in the extreme cold or snow.

Be Prepared for Winter Weather

Employees should be informed of your company policies related to inclement weather—safety, attendance and pay-related. You should have an established communication method to inform your employees of a business closing or delay. When bad weather is coming, address all your policies again, remind employees of communication channels to address attendance and plan for the worst potential outcome to ensure your company is prepared for the weather.

Brian Blaston
Commercial Lines – Manager
Hardenbergh Insurance Group
phone: 856.489.9100 x 139
fax: 856.673.5955
www.hig.net

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WCRE THIRD QUARTER 2019 REPORT

SOLID FUNDAMENTALS WITH MODEST GAINS IN SOUTHERN NEW JERSEY & PHILLY CRE MARKETS

Favorable Economic Conditions Expected to Continue into 2020

SOLID FUNDAMENTALS, BUT MODEST GAINS IN SOUTHERN NEW JERSEY & PHILLY CRE MARKETS

Commercial real estate brokerage WCRE reported in its analysis of the third quarter of 2019 that the Southern New Jersey and Southeastern Pennsylvania markets continued to show modest gains, continued investments, and overall solid fundamentals. Sales volume and prospecting activity held steady, leasing was up in Camden County, and especially in Cherry Hill, but dipped for the region overall. Gross leasing absorption was positive but trending lower quarter over quarter.

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“We are in a continuing period of a strong economy with low unemployment. This has supported a long streak of slow, steady growth supported by strong fundamentals,” said Jason Wolf, founder and managing principal of WCRE. “Although a given indicator might fluctuate one quarter to the next, commercial real estate in this region remains strong, and there is reason to stay optimistic.”

There were approximately 266,867 square feet of new leases and renewals executed in the three counties surveyed (Burlington, Camden and Gloucester), which was a decrease of seven percent compared to the previous quarter. The sales market increased, with about 1.67 million square feet on the market or under agreement. However, completed sales slowed to approximately 329,769 square feet trading hands, less than half the previous quarter, which had been notably active.

New leasing activity accounted for approximately 36 percent of all deals for the three counties surveyed. Overall, gross leasing absorption for the third quarter was in the range 70,000 square feet, down from 150,000 in the second quarter.

Other office market highlights from the report:

Overall vacancy in the market is now approximately 11.50 percent, which is a slight uptick from the previous quarter. This is still near a 20-year low.

Average rents for Class A & B product continue to show strong support in the range of $10.00-$15.00/sf NNN or $20.00-$25.00/sf gross for the deals completed during the quarter. These averages have hovered near this range for more than a year.

Vacancy in Camden County dropped slightly to 11.1 percent for the quarter, back to where it stood in the first quarter.

Burlington County’s vacancy stood at 11.9 percent, increasing 40 basis points. Burlington’s vacancy rate jumped earlier in the year due to several large blocks of space returning to the market.

WCRE has expanded into southeastern Pennsylvania, and the firm’s quarterly reports now include a section on transactions, rates, and news from Philadelphia and the suburbs. Highlights from the third quarter in Pennsylvania include:

The vacancy rate in Philadelphia’s office market dropped slightly to 8.6 percent, the second consecutive quarter to post a decrease of two tenths of a percent. The office vacancy rate is still near a 20-year low, and below that of comparable major cities.

The industrial sector in Philadelphia remains very strong. The third quarter saw vacancy rates virtually unchanged, at 5.0 percent, while net absorption was constrained by a shrinking volume of available space. Rent growth of 6.0 percent has far exceeded long-term average of 1.7 percent.

Philadelphia retail is so far avoiding a major spike in vacancy due to the shift toward e-commerce. Rising wages and low unemployment are fueling retail spending, buoying the CRE market. The vacancy rate inched up to 4.7 percent, while net absorption was negative 562,000 square feet over the last twelve months.

WCRE also reports on the Southern New Jersey retail market. Highlights from the retail section of the report include:

  • Retail vacancy in Camden County jumped to 6.9 percent from 5.7 percent in Q2. While average rents increased in the range of $17.05/sf NNN.
  • Retail vacancy in Burlington County ticked up very slightly, to 7.6 percent, with average rents in the range of $12.68/sf NNN.
  • Retail vacancy in Gloucester County dropped to 7.4 percent, with average rents in the range of $13.41/sf NNN.

The full report is available upon request.

About WCRE

WCRE is a full-service commercial real estate brokerage and advisory firm specializing in office, retail, medical, industrial and investment properties in Southern New Jersey and the Philadelphia region. We provide a complete range of real estate services to commercial property owners, companies, banks, commercial loan servicers, and investors seeking the highest quality of service, proven expertise, and a total commitment to client-focused relationships. Through our intensive focus on our clients’ business goals, our commitment to the community, and our highly personal approach to client service, WCRE is creating a new culture and a higher standard. We go well beyond helping with property transactions and serve as a strategic partner invested in your long term growth and success.

Learn more about WCRE on Twitter & Instagram @WCRE1, and on Facebook at Wolf Commercial Real Estate, LLC. Visit our blog pages at www.southjerseyofficespace.com, www.southjerseyindustrialspace.com, www.southjerseymedicalspace.com, www.southjerseyretailspace.com, www.phillyofficespace.com, www.phillyindustrialspace.com, www.phillymedicalspace.com and www.phillyretailspace.com.

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WCRE EXPANDS REGIONAL TEAM WITH ANOTHER TRIO OF NEW HIRES

Team Members to Serve Philadelphia and Southern/Central New Jersey Markets

Wolf Commercial Real Estate (WCRE) is pleased to announce the hiring of three new professionals serving its southeastern Pennsylvania and Southern/Central New Jersey teams.

The new hires are Christopher Jerjian, who joins WCRE as Business Advisor & Consultant, Sean Kelly, a new sales associate, and Victor DeJesus, Senior Associate with a focus in the Central New Jersey market.

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Christopher JerjianChris Jerjian specializes in office and other commercial properties in Southern and Central New Jersey and the Philadelphia Region. He has developed a wide network of business relationships over a thirty-year career as a CRE landlord and investor. His focus is to help landlords, investors and users develop strategies to achieve their goals.

He is also the founder of Kiwi Offices in Mount Laurel, New Jersey. Kiwi Offices provides flexible and move-in ready office suites focused on small businesses, professionals and satellite offices for corporations. He is currently developing a second location in Cherry Hill, with a longer-term plan to roll out more locations.

Previously Jerjian was responsible for strategy development and leasing of office space as a co-founder, principal, and managing director of the Ibis Group. He has closed more than 300 office space deals with local, regional, and national companies as a commercial landlord. His completed deals span large multi-million dollar transactions with Fortune 500 companies to small independently owned businesses. He has served on several corporate boards over the years and is a member of the Hamilton Partnership in New Jersey. He also worked with multiple non-profits over the years, including Catholic Charities.


Sean KellyAs sales associate, Sean Kelly will focus on the Pennsylvania and New Jersey markets. He specializes in sales and leasing, tenant and landlord representation for office, investment sales, and industrial properties. Previously, Kelly sold medical devices at Stryker Orthopedics, where he was responsible for growing their trauma orthopedic business in the Philadelphia region. Working with all major health systems in the area, he was responsible for driving growth, customer engagement, account management, and operational efficiency.

Kelly was also a pitcher for the Rutgers University baseball team between 2014 and 2016. During his time as a student athlete, he contributed four years of volunteer services to St. Peters Childhood Cancer programs.


Sean KellySenior Associate Victor DeJesus previously worked at KW Commercial, out of their Princeton and Moorestown, New Jersey offices. Victor has also worked for major public relations and advertising companies. Victor was a top 1% producer and has helped many of his clients reach the next level in business performance. As a senior sales associate, Victor will focus on the Central New Jersey market. He specializes in sales and leasing, tenant and landlord representation for office, investment sales, and industrial properties.


“Our entire firm is excited to have such talented new team members servicing our clients in the region,” said WCRE Managing Principal, Jason Wolf. “Our people have always been our biggest asset and our biggest advantage in the marketplace.”

About WCRE

WCRE is a full-service commercial real estate brokerage and advisory firm specializing in office, retail, medical, industrial and investment properties in Southern New Jersey and the Philadelphia region. We provide a complete range of real estate services to commercial property owners, companies, banks, commercial loan servicers, and investors seeking the highest quality of service, proven expertise, and a total commitment to client-focused relationships. Through our intensive focus on our clients’ business goals, our commitment to the community, and our highly personal approach to client service, WCRE is creating a new culture and a higher standard. We go well beyond helping with property transactions and serve as a strategic partner invested in your long-term growth and success.

Learn more about WCRE on Twitter & Instagram @WCRE1, and on Facebook at Wolf Commercial Real Estate, LLC. Visit our blog pages at www.southjerseyofficespace.com, www.southjerseyindustrialspace.com, www.southjerseymedicalspace.com, www.southjerseyretailspace.com, www.phillyofficespace.com, www.phillyindustrialspace.com, www.phillymedicalspace.com, and www.phillyretailspace.com.

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Why Smart Buildings Matter to Commercial Real Estate Owners

smart buildings energy consumptionLet’s look at why smart buildings matter to commercial real estate owners. Energy cost savings are top of mind for every commercial building owner, operator, and facility manager, but it’s time to be proactive. On average, a U.S. office building spends nearly 29% of its operating expenses on utilities, and much of this expenditure goes toward HVAC operation.

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Researchers at Massachusetts Institute of Technology (MIT) estimate commercial buildings account for 20% of all the energy used in the U.S. and conclude that as much as 30% of that energy is wasted. Wasted energy will only increase over time without intervention. Imagine a solution that prevents waste and saves 15-30% on energy expenses? That’s possible to achieve with smart buildings.

Smart buildings are any facility that have complete automated controls and systems in place that are integrated together to form an intelligent data collection application, usually via a building automation system (BAS).
BAS offers reduced operation and energy consumption, improved building efficiency, preventative maintenance, comfort for workers and building occupants, and better use of resources.

At Pennoni, we offer our Utilities Watch (UW) solution, a combination of best-in-class energy analytics/fault detection software and engineering expertise that optimizes buildings, reduces costs, and minimizes environmental impact.

Through UW, our software continually analyzes data from diverse systems: BAS, energy, water, and other resource metering systems to identify opportunities for cost reduction. The fault detection and diagnostics application within the software drills down into patterns to identify issues, deviations, and opportunities for operational improvements and cost reduction.

Utilities Watch Key Benefits

Reduce costs

  • Optimize buildings and reduce energy consumption
  • Increase control and visibility of energy budget
  • Decrease maintenance and capital costs through proactive and predictive maintenance
  • Increase lifespan and reliability of HVAC systems

Validation and M&V

  • Performance goals
  • ECM’s, LEED

Commissioning

  • MBCx – automated ongoing commissioning

Risk Management

  • Disaster recovery (information supports better identification of issues)

Improve sustainability strategies, goals, and metrics

  • Full integration to EnergyStar Portfolio Manager
  • Earn additional LEED points for existing buildings

Improve portfolio management

  • Benchmark buildings and compare performance
  • Performance accountability

Deploying smart buildings software is only half of the equation. Our energy analysts and engineers write custom algorithms to automate analyses that traditionally required constant manual effort. From there, our team of engineers interprets the data to make it meaningful and actionable with custom dashboards and notifications that ensure the facility manager has full visibility and can readily prioritize activities, ensuring much greater efficiency.

For more on smart buildings and Utilities Watch, contact Tony Lepre at (609) 214-5520 or TLepre@Pennoni.com.

tony lepre

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