Casualty and Condemnation Provisions: Balancing Conflicting Interests of Lenders, Borrowers, and Tenants

Lisa Zana will be a presenter during the Strafford CLE webinar, "Casualty and Condemnation Provisions: Balancing Conflicting Interests of Lenders, Borrowers, and Tenants: Using SNDAs to Address Lease Requirements, Special Issues With Ground Leases." 

This CLE course will examine casualty and condemnation provisions in real estate finance documents and how best to balance the interests of lenders, landlords, and tenants concerning disbursement of proceeds and the right or obligation to rebuild. The panel will discuss lease scenarios that can impact casualty and condemnation provisions and issues about the allocation of proceeds that can arise with ground leases.

For more information or to register, please visit the event page here.

Description

Casualty and condemnation provisions in mortgage loan documents typically give the lender some degree of control over the proceeds and how to apply the proceeds toward repair or restoration of improvements. But such provisions require negotiation between the parties, and underlying leases or ground leases may contain conflicting rights to address in the loan documents or an accompanying SNDA.

Existing leases often require the landlord to rebuild the leased premises within a specific time frame or tenants are entitled to terminate. Anchor or big-box leases may even give the tenant control of the proceeds and the rebuilding process. Counsel will need to balance the borrower's desire to comply with existing leases against the lender's preference to protect its collateral.

Materiality is a primary concern. Documents may include a percentage threshold below which the lender will permit the borrower to control the proceeds, a second threshold where the lender holds the proceeds but agrees to make them available for a rebuild of the premises, and the third threshold above which the lender can accelerate the loan and apply the proceeds to pay down the loan. The appropriate limits may vary between portfolio and CMBS lenders.

Ground leases present the risk of lease termination and the loan wiped out in the event of condemnation and, in some instances, casualty. The ground lease may contain a formula for allocating proceeds with which the lender will need to abide.

Listen as our authoritative panel discusses the current thinking on casualty and condemnation provisions in commercial mortgages and how different lease and ground lease scenarios can impact these provisions.