This article discusses the bankruptcy recharacterization risks in synthetic leasing transactions. It analyzes the applicable statutory and case law in this area, including the factors that bankruptcy courts consider when deciding whether a document designated as a lease is in fact a security transaction. It also discusses the consequences of such a recharacterization by a bankruptcy court.
A comparison (including advantages and disadvantages) in outline form, for the benefit of a party seeking to employ capital in connection with the utilization of real estate to operate an active and ongoing business, of synthetic leasing structures and ownership of the property, sale and leaseback of the property, a conventional lease of the property, and purchase of the property.
This article discusses the status of the proposed implementation of international accounting standards, and their impact on cross-border real-estate lease and lease-financing transactions.
This article discusses the issue of whether, if a lessor/lender is actually making a loan to the lessee in a synthetic leasing transaction, it is "doing business" in the state where the property is located and therefore must legally qualify to do business in that state.
This article discusses and analyzes the IRS Private Letter Ruling issued on May 21, 1999, which concluded that, based on all the facts and circumstances, a real-estate synthetic leasing transaction involving a retail distribution, storage, production and outlet financing facility was a valid and enforceable alternative financing arrangement under the Internal Revenue Code.
This article discusses and analyzes a new form of real estate financing known as a "lease-leaseback" transaction. Although it has features similar to both sale-leaseback and synthetic-leasing transactions, and the legal issues regarding recharacterization and title-insurance coverage are similar, it is uniquely structured to provide benefits to a developer of commercial real estate improvements as well as certain types of investors and financing sources.
A summary of the Ninth Circuit Court of Appeals' holding in Unocal v. Kaabipour, which is the first federal appellate opinion dealing directly with a synthetic lease transaction in a real estate context. The article discusses the court's approval of the synthetic leasing structure utilized by the appellee corporation and the court's confirmation that, notwithstanding the designation of the document as a lease, it is in fact an alternative form of financing for the acquisition and development of commercial real estate.
This article discusses a decision by the Delaware Chancery Court, which held that a "supermajority" provision in a corporation's articles of incorporation, which required the vote of 75% of the company's eight stockholders to incur any indebtedness in excess of $15 million, did not apply to an "operating lease format" (i.e., a synthetic lease) entered into by the corporation to finance a gas pipeline expansion. The article provides drafting tips to address this issue.
A discussion of the nature, scope and dynamics of "synthetic" lease structures in connection with real estate transactions, as well as the advantages and disadvantages of this type of structured financing.
A discussion and analysis of title-insurance issues in connection with synthetic-lease financing. This article contains sample title exceptions and endorsements commonly utilized in connection with this type of financing.
This article contains, in outline form, a discussion and analysis of the various IRS, bankruptcy, state court, environmental and title recharacterization risks that exist in synthetic-leasing transactions.
This article examines, in detail, the bankruptcy issues faced by the parties to a synthetic leasing truncation, including the creation and use of a "bankruptcy remote entity," lease-mortgage recharacterization issues, executory contract issues, and "lease-leaseback" financing. The article also contains drafting suggestions and a discussion of how title insurance can help mitigate the bankruptcy risk.
This article addresses the issue of whether, as some commentators have suggested, counsel for synthetic lessees should seek to obtain a perfected security interest in the lessee's purchase-option right contained in the lease. As a result of contemplated revisions to the accounting rules governing synthetic-lease transactions, these commentators believe that there may be a greater risk of such an option right being rejected by a "conduit" lessor that subsequently files bankruptcy. This article discusses the legal uncertainties and risks involved when attempting to obtain such a security interest.
This article discusses the issue of whether a down payment or payment for an option to purchase, in connection with a synthetic leasing transaction involving an energy company (and in particular, a turbine or generator, which is considered to be the same as real estate or else deemed to be "integral equipment," would constitute a "hard cost" or a "soft cost" under EITF 96-21 issued by the Financial Accounting Standards Board.
An analysis, in outline form, of the recently issued statement by the Financial Standards Accounting Board's Emerging Issues Task Force regarding the treatment for financial accounting purposes of build-to-suit real estate projects where an entity that is involved with the construction of the project leases it upon completion of the construction.
This article discusses recent developments with respect to tax department rulings and statutes in New York and Florida (both of which have significant taxes on mortgages), which enable the participants in synthetic-lease transactions to avoid "double taxation" of the lease/mortgage entered into by the SPE lessor and the lessee, and, in some circumstances, to avoid deed transfer taxes as well.
This article discusses recent final and proposed Interpretations issued by the Financial Accounting Standards Board (FASB) with respect to guarantees of SPE obligations and the consolidation of assets and liabilities of certain SPEs, respectively, which will impact the use of SPEs in synthetic-leasing transactions (as well as other forms of real-estate financing).
A discussion of title insurance issues, and the forms of title insurance coverages and endorsements available, in connection with synthetic-leasing transactions.
This article discusses the effect of the new FASB rules, regarding consolidation and disclosure, on synthetic leases, and the "unwinding" of many synthetic leasing transactions as a result of implementation of the new FASB rules. The article also discusses the benefits of the ALTA leasehold policy in connection with synthetic leases, the payment of transfer taxes in connection with unwinds of synthetic leases, and the availability of specific title coverages and endorsements in connections with such unwinds.
This article analyzes the options of a lessee in a synthetic-leasing transaction that, because of current economic, accounting, or other concerns, wishes to "unwind" the synthetic lease and seek alternative forms of financing. The alternatives discussed (with both their advantages and disadvantages) include sale-leasebacks, conventional leases, credit tenant leases, and outright ownership with mortgage financing.
This article contains, in outline form, a discussion and analysis of the issues raised in synthetic leasing transactions when a special purpose entity ("SPE") is utilized as the lessor, including typical provisions in the agreement creating the SPE, applicable Financial Accounting Standards Board rulings and bulletins, and bankruptcy concerns.
