Advanced Real Estate

Friday, December 5, 2014 New York City

CLE NotePad©

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Co-Sponsored by the Real Property Law Section and the Committee on Continuing Legal Education of the New York State Bar Association This program is offered for educational purposes. The views and opinions of the faculty expressed during this program are those of the presenters and authors of the materials, including all materials that may have been updated since the books were printed. Further, the statements made by the faculty during this program do not constitute legal advice.

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This program is offered for educational purposes. The views and opinions of the faculty expressed during this program are those of the presenters and authors of the materials, including all materials that may have been updated since the books were printed. Further, the statements made by the faculty during this program do not constitute legal advice.

For complete course materials: www.nysba.org/2014AdvancedRealEstateECM

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Lawyer Assistance Program 1.800.255.0569

Q. What is LAP? A. The Lawyer Assistance Program is a program of the New York State Bar Association established to help attorneys, judges, and law students in New York State (NYSBA members and non-members) who are affected by alcoholism, drug abuse, gambling, depression, other mental health issues, or debilitating stress. Q. What services does LAP provide? A. Services are free and include: • Early identification of impairment • Intervention and motivation to seek help • Assessment, evaluation and development of an appropriate treatment plan • Referral to community resources, self-help groups, inpatient treatment, outpatient counseling, and rehabilitation services • Referral to a trained peer assistant – attorneys who have faced their own difficulties and volunteer to assist a struggling colleague by providing support, understanding, guidance, and good listening • Information and consultation for those (family, firm, and judges) concerned about an attorney • Training programs on recognizing, preventing, and dealing with addiction, stress, depression, and other mental health issues

Q. Are LAP services confidential? A. Absolutely, this wouldn’t work any other way. In fact your confidentiality is guaranteed and protected under Section 499 of the Judiciary Law. Confidentiality is the hallmark of the program and the reason it has remained viable for almost 20 years.

Judiciary Law Section 499 Lawyer Assistance Committees Chapter 327 of the Laws of 1993 Confidential information privileged. The confidential relations and communications between a member or authorized agent of a lawyer assistance committee sponsored by a state or local bar association and any person, firm or corporation communicating with such a committee, its members or authorized agents shall be deemed to be privileged on the same basis as those provided by law between attorney and client. Such privileges may be waived only by the person, firm or corporation who has furnished information to the committee.

Q. How do I access LAP services? A. LAP services are accessed voluntarily by calling 800.255.0569 or connecting to our website www.nysba.org/lap Q. What can I expect when I contact LAP? A. You can expect to speak to a Lawyer Assistance professional who has extensive experience with the issues and with the lawyer population. You can expect the undivided attention you deserve to share what’s on your mind and to explore options for addressing your concerns. You will receive referrals, suggestions, and support. The LAP professional will ask your permission to check in with you in the weeks following your initial call to the LAP office. Q. Can I expect resolution of my problem? A. The LAP instills hope through the peer assistant volunteers, many of whom have triumphed over their own significant personal problems. Also there is evidence that appropriate treatment and support is effective in most cases of mental health problems. For example, a combination of medication and therapy effectively treats depression in 85% of the cases. Personal Inventory

Personal problems such as alcoholism, substance abuse, depression and stress affect one’s ability to practice law. Take time to review the following questions and consider whether you or a colleague would benefit from the available Lawyer Assistance Program services. If you answer “yes” to any of these questions, you may need help.

1. Are my associates, clients or family saying that my behavior has changed or that I don’t seem myself? 2. Is it difficult for me to maintain a routine and stay on top of responsibilities? 3. Have I experienced memory problems or an inability to concentrate? 4. Am I having difficulty managing emotions such as anger and sadness? 5. Have I missed appointments or appearances or failed to return phone calls? Am I keeping up with correspondence? 6. Have my sleeping and eating habits changed? 7. Am I experiencing a pattern of relationship problems with significant people in my life (spouse/parent, children, partners/associates)? 8. Does my family have a history of alcoholism, substance abuse or depression? 9. Do I drink or take drugs to deal with my problems? 10. In the last few months, have I had more drinks or drugs than I intended, or felt that I should cut back or quit, but could not? 11. Is gambling making me careless of my financial responsibilities? 12. Do I feel so stressed, burned out and depressed that I have thoughts of suicide?

There Is Hope

CONTACT LAP TODAY FOR FREE CONFIDENTIAL ASSISTANCE AND SUPPORT The sooner the better! Patricia Spataro, LAP Director 1.800.255.0569 Advanced Real Estate 7.0 MCLE Credits: 6.0 Areas of Professional Practice; 1.0 Ethics

Timed Agenda

8:30 a.m. – 9:00 a.m. Registration

9:00 a.m. – 10:15 a.m. Hot Topics in Leasing (1.5 Areas of Professional Practice)

10:15 a.m. – 10:45 a.m. Current Tax Issues Affecting Real Estate I (0.5 Areas of Professional Practice)

10:45 a.m. – 11:00 a.m. Break

11:00 a.m. – 11:50 a.m. Current Tax Issues Affecting Real Estate II (1.0 Areas of Professional Practice)

11:50 a.m. – 12:40 p.m. Careful What You Say: Ethics in Real Estate (1.0 Ethics)

12:40 p.m. – 1:45 p.m. Lunch (on your own)

1:45 p.m. – 3:00 p.m. Distressed Commercial Real Estate Loan Workouts and Remedies – Today's Issues (1.5 Areas of Professional Practice)

3:00 p.m. – 3:15 p.m. Break

3:15 p.m. – 4:30 p.m. Real Estate Joint Ventures - Current Issues (1.5 Areas of Professional Practice)

4:30 p.m. Adjournment

Program Faculty

Program Co-Chairs

Lawrence J. Wilk, Esq., Member, Rosenberg & Estis PC, New York, NY Andrea D. Ascher, Esq., Deputy General Counsel, Real Estate, Metropolitan Transit Authority, New York, NY

Panel

Nancy A. Connery, Esq., Partner, Schoeman Updike Kaufman & Stern, LLP, New York, NY Benjamin Weinstock, Esq., Partner, Ruskin Moscou Faltischek, P.C., New York, NY Howard J. Levine, Esq., Partner, Roberts & Holland LLP, Washington, D.C. Joseph Lipari, Esq., Partner, Roberts & Holland LLP, New York, NY Luise A. Barrack, Esq., Managing Member, Rosenberg & Estis, P.C., New York, NY Richard S. Fries, Esq., Partner, Sidley Austin LLP, New York, NY Meredith J. Kane, Esq., Partner, Paul, Weiss, Rifkind, Wharton & Garrison LLP, New York, NY Gerald Blume, Esq., Vice President & General Counsel, Rockefeller Group International, New York, NY

Advanced Real Estate

7.0 MCLE Credits: 6.0 Areas of Professional Practice; 1.0 Ethics

Table of Contents

Hot Topics in Leasing ...... 001

Current Tax Issues Affecting Real Estate I& II ...... 029

Careful What You Say: Ethics in Real Estate ...... 047

Distressed Commercial Real Estate Loan Workouts & Remedies ...... 071

Real Estate Joint Ventures – Current Issues ...... 113

Faculty Biographies ...... 129

.&1 r¡r¡¡ New York Stute Btr Associatiott Nltst.J,A. Real Property Ltw Section

¡triffi Þ{û? T$å}A{IS åN å-åì,4SfiN{; l&' Prcrcntcd bl NANCY CONNERY, ESQ, Schoenran U¡rdike Kâufmâù & Steril LLP

BENJÀMIN WIIINSTOCK, ESQ. Ruskin Moscou Fåltischck PC

.&È Netu York State Bar Associtttiott

'l\I:'fðIts-1Àt¡{f I Real Property Lnw Section

Sublease Recognilion Agreemenls

Prcscntcd try BENJAMIN WEINSTOCK, ESQ. Ruskin Moscoù Falfischck PC

Su b le qs e Reco gnìtìon Ag r e ements

A method to protect a sublessee of property from the adverse consequences of a termination or rejection of the prime lease by the Landlord.

1 S u ble as e Rec o gnition Ap r eements

\ilhen negotiating the Prime Lease, Tenant should require the Landlord to provide protection to future Subtenants.

Normally, ground leases have very Iiberal assignment and subletting rights. Therefore, Landlords who agree simply to non-disturb all subtenants may end up non-disturbing a very weak or undesirable Subtenant.

S u b less e Reco p nitio n Ag r eements

t Who will the Landlord "recognize"?

(a) Sublcase must be arm's length with a subtenant that is not affiliatcd with thc Tenant,

(b) Minimum Tangible Net Worth requirement, or rating agency approval.

(c) Minimum sublease rent is not less than the [xxx7o multiplel rent ând âdditionâl rent paid by the Tenant

S u b leas e Reco gnition Ag r eements

(d) Only one recognized subtenânt who occupies the entire site.

If thc Landlord is willing to non-disturb multiple subtenânts, then considcr: i, The maximum number of subtenânts ii. Minimum size and shapc of the space iii. Minimum rent payable by each subtenant iv, Sixe of Sublesase - contigues floors

2 2 S u b less e Recog nition Ag r eements

A"Recognized Subtenønf'shall be a retail subtenant who bas entered into an arms-length sublease with Tenant, provided that,

(i) the subtenant is uot an affiliate or subsidiary of Tenant, and not controlled by Tenant,

(ii) the configuration ofthe subleased space is comrnercially reasonable and would not unreasonably interfere with or l¡aterially and adversely impair the utility and rnarket value of any part or parts of the Leased Prernises not then sublet,

(iii) Subtenant's (or its guarantor's) creditrvorthiness is cornmercially reasonable under the circumstances,

Su b leøs e Reco gnition Ag r eements

(iv) any "free rent" or rent abatement periods are commercially reasonable,

(v) payrnents offixed or base subrerrt shall not decrease during the tenn ofsuch sublease,

(vi) Tlre Subtenant is subject to in peßonam jurisdiction in the courts ofthe State ofNew York, and not subject to any immunity from suit unless all suclr immunity is waived for the benefit of Landlord and Terrant and each present and future Leasehold Mortgagee and Fee Mortgagee,

S u ble øs e Re cog nitio n Ag r ee me nts

(vii) the sublease allows the subtenant to use and occupy its premises for lawful purposes consistent with the certificate of occupancy of the Building,

(viìi) all other terms and conditions of the sublease are commercially ¡easonable,

(ix) ifthere is a Leasehold Mortgage, the Leasehold Mortgagee has entered (or simultaneously enters or has agreed in writing to enter) ìnto a subordination, non-disturbance, and Attornment Agreement with the Subtenant, and Tenant has given Landlord written evidence thereof, and

(x) the term (including option and renewal terms) ofthe Sublease shall not extend beyond the Expiration ofthe Te¡m ofthe Lease.

3 a J S u b leas e Re co gniÍio n Ag r eements

Tenant's Deliverables

L Copy of the Sublease and Guaranties

2. Identifrcation of Subtenaut's and Guarantor(s) principals

3. Fìnancial inlormatiou for Subtenant and Guarantor(s)

4. Landlord's review fee (ifany)

5. Plan showing area to be subletif less thanthe entire premises

6. Leasehold Mortgagee's SNDA

7. Recognition Agreernent with an attornlnelìt clause signed by the Tenant, Subtenant and Guarantor(s)

S u b le as e Rec oenition A g r eements

Threshold Issues

Do I put the recognition clause in the Lease draft I send the Tenant?

Do I agree to give "recognition" on "çommercially reasonable" terms?

Do I negotiate the terms of the Recognition Agreement in advance of knowing who I am being asked 1o " r ecognize"?

S u b less e Re co p nitio n Ag r eeme nts

Landlord, Tenant and Subtenant execute a "simple" Recognition Agreement.

It provides, that if the prime lease is terminated, Landlord will recognize the sublease, which will become a direct lease between the Subtenant and Landlord.

4 4 S u b le as e Re c ognition Ag r eements

Ground Lease

20 yr. initial term

15 successive 5 year renewals : 75 years

Total = 95 years

S u b le øs e Recog nìtio n Ag r eements

Bis Box Sublease

25 yr. initial term

2 successive 10 year renewals = 20 years Total : 45 years

S u b leas e Reco gnilion Ag r e ements

Ground Lease B¡g Box Sublease lnitial Term 20 Years 25 Years

Renewâl Opl¡ons 15 x 5 Years 2 x 10 Years

Tolal Term 95 Years 45 Years

Bese Rent $30,000 $15,000 Payabìe Payable Semiannually; Monthly; $60,000 per annum $180,000 perannum

Expenses Triple Ne{ Prorala share of taxes and CAI\4; Subtenant Pays all ut¡lities

I\¡arnlenance and Triple Net Slructural repairs by Repairs Landlord, all other repairs by Tenant

5 5 Su b leas e Recopnition Ag r eements

Mission accomplished!

If the Prirne Lease is terrninated, the Subtenant attorns to the Landlord and becomes the direct Tenant ofthe Landlord

S u b less e Rec o gniÍion Ag r eements

Non-l)isturbance. So long as the Sublease is in full force and effect, Subtenant's usc. Dossession. or cniovment of the Sublcase Premises be interfered rvith, nor shall the subleasehold estate granted by the Sublease be affected in any manner, nor shall any ofthe rights of Subtenant granted under the Sublease be affected in any manner, by a termination or sur¡ender ofthe Lease, in any action or proceeding instituted to evict Tenant by reason of ÍI&!3!l!51þbg!!-s!frcL.l!¡9 Lease. (ii) Tenant's surrender of the Lease. or (iii) anv termination of the Lease due to foreclosure, casualtv. condemnation or anv other cause.

S u b le as e Re cog nilio n Ag r eements

Subtenant shall be bound to the Sublease under all of the terms, covenants and conditions of the Sublease for the l¡alance ofthe term ofthe Sublease, including any extension terms (to the extent that Subtenant shall elect or has elected to exercise any or all ofits options to extend the Sublease), with the same force and effect as if Landlord were the sublesso¡ under the Sublease... .Landlord shall have all rishts and obligations of Tenant as the sublessor undcr the Sublease as thoueh Landlord had originallv executed thc Sublease in place of Tenant. and Landlord shall be bound by all ofthe terms, covenants and condìtìons ofthe Sublease, except as otherwise set forth in this Agreement,

6 6 S u b le as e Rec ognition Ag r eements

The Recognition Agreement convefts the passive Ground Lease Landlord to an active operating Landlord.

Landlord may not be equipped to be an operator, or, even ifthe Landlord is capable of active management, the Landlord does not want to do this.

S u b leas e Reco g nition Ap r eements

Let's make the Ground Lease the operative lease between the Landlord and the Subtenant, except for the rent clause, which will be the rent clause in the Sublease (with significantly higher rents).

S u bleas e Recognition AR r eements

. . . and Landlord shall be bound by all of the terms, covenants and conditions ofthe Sublease, except as otherwise set forth in this Agreement.

7 7 Su ble as e Re co g ttitio n Ag r e ements except that Landlord shall not be:

i. liable for any representation or warranty of Tenant, any act or omission of or default by Tenant under the Sublease (but the foregoing shall not relieve Landlord from any liability to remedy a curable default that is continuing which Landlord (as sublessor under the Sublease) is obligated to remedy pursuant to the Sublease);

Sublease Recognition Asreements except that Landlord shall not be: ii. subjectto any credits, claims, setoffs or defenses which Subtenant might have against Tenant as a result of any acts or omissions of Tenant;

S u b le as e Recog nitio n Agr ee ments except that Landlord shall not be: iii. bound by rent, additional rent or other amounts which Subtenant may have paid to Tenant more than one (l) month in advance of the month to which such payments relate, and all such prepaid sums shall remain due and owing to Landlord without regard to such prepayment except as may have actually been received by Landlord for any period beyond the month in which the Lease was terminated;

8 8 S u b le ss e Reco p n it ion Ag r e ements except that Landlord shall not be: iv. responsible for repairs in or to the Building in the case of damage or destruction of the Building or any part thereof due to f,rre or other casualty or by reason ofa condemnation, [unless Landlord (as sublessor under the Sublease) shall be obligated under the Sublease to make such repairs]; or

Su b le as e Rec o p nition Ag r eemenls

except that Landlord shall not be: v. liable under any indemnity provision ofwhatever nature contained in the Sublease, including, but not limited to, any environmental indemnification, except to the extent the hazardous environmental condition was caused by Landlord subsequentto the date that the Sublease becomes a direct Lease between Landlord an Subtenant;

S u b leas e Recognìtion Ag r eements

Landlord's Exculpation :

The liability ofLandlord under the Sublease for damages or otherwise shall be limited to Landlord's ínterest in the Prernises (as defined in the Lease) including rents, net sale proceeds, net insurance proceeds and net condemnation proceeds therefrom. Neither Landlord nor any directors, officers, shareholders, members, managers, partners, principals, agents, servants or employees ofLandlord shall have any personal liability to Tenant,

9 9 S u bleas e Re c o g nit io n Ag r eements

Landlord's Exculpation:

ii. No other property or assets oflandlord or any property of the directors, offi cers, shareholders, rnembers, managers, partners, principals, agents or servants or ernployees ofLandlord shall be subject to Ievy, execution or other enforcement procedure for the satisfactior-r ofSubtenant's retnedies hereunder or under the Sublease.

S ub le as e Re cog nition Ag r e ements

Exclusive Use Provisions:

1. Restrict the excusive use clause to this Property if it is a multi-tenant proporty.

2. Carve out violations by existing uses on the Property,

3, Carve out violations that occur as a result ofa permitted change in use under existing leases.

4. Carve out violations that exist on after acquired properties that are in the restricted territory.

S u b le øs e Rec og nition A g r eements

Fire and Casualty: l. Is the obligation to rebuild governed by the Ground Lease or Sublease?

2. IfSubtenant is permitted to use insurance proceeds to rebuild, is there a mechanism in place to release the insurance proceeds in the same mauner as a building loan?

3. Do the Ground Lease or Sublease conflict with the fee or leasehold mortgages?

10 10 S ub leas e Re cog nition Ag r eements

Condemnation:

A Ground Lease generally penlits the Tenatìt to recover the value ofthe unexpired temt ofthe Lease.

An Operating Lease will be t.uore restrictive, allowing the Tenant to recover only the value of Tenant's fixtures takeu. Tenant nay not seek damages for the value of the unexpired term.

S u b le as e Re co gnitio n Ag r eements

Ownership of Leasehold Improvements and Buildinss:

A Ground Lease frequently separates ownership ofthe land from ownership ofthe buildings and other improvements.

Will the Tenant's claim to ownership of the buildirg and improvements allow Tenant to recover their value in a taking?

S u bleas e Reco g nitio n A$ eeluqÛlt

OÞportunitv to Fix Mistakes:

The Recognition Agreement may be a convenient way to corrects matters that were overlooked in the original Ground Lease.

For example, the failure to have the Ground Lessee waive claims to development rights. See MacMilløn, Inc. v. CF Lex Associates,425 NYS2d 377 (1982)

11 11 Suhlease Asrccm.enls

Overlandlord's Bankruplçy

Will the Overlandlord's rejection of the Overlease cause the sublease to temrinate?

Bankruptcy Code Section 3 65(h)( I )(A)(ii) permits 'fenant to remain in possession attd grants the Tenaut the right ofoffset for the cost ofproviding Landlord's services under the rejected Overlease.

S u b le as e Re co g nÍtion Ag r eements

The End Run

The Subtenant may avoid the Recognition Agreement cornpletely and get the benefits ofthe Ground Lease (cheaper rent and fewer restrictions on assignment, subletting, alteration and financing) by taking a conditional assignment ofthe Ground Lease froln the Tenant.

The Ground Lease should prohibit any conditional assignment of the Ground Lease to a Subtenant or to any eniity or person that is controlled by or an affiliate ofthe Subtenant, ìncluding the Guarantor

Define assignment to include entity transfers.

12 T2 Æed ¡AA&I New York StlÍe Bar Assocítttiott Renl Property Law Sectìott .l\r YStì^

Green Building Leases

Prcscntcd bl BENJÂMIN WEINSTOCK, ESQ. Ruskfu Moscou F¡ltischek PC

llhnl is n Green Buìldine?

USGBC

The United States Green Building Council

13 1 USGBC

The United States Green Building Council

LEED Certification

USGBC

The United States Green Building Council

ffiffi''"d'ii,;1ïÈì

LEED Cerlification

Green Buìlding ønd Leed Certilication

Why do landlords and Tenants want LEED Certifrcation? l. Healthier and happier work spaces. 2. Reduction of irnpact on the environlnent. 3. Reduced operating costs and greater profitabiliry 4. Higher rents, Iiigher occupancy rates 5, Higher sales prices.

6. Cornpliance increases project costs only 2o/o.

14 2 Green Buildittg ttnd Leed Certìfìcatiott

Why do landlords and Tenants rvant LEED Certification? 7. Energy lndependence and Security Act of2007 requires at least an Energy Star rating for US Covenìnlcnt Âgency leases. L Local laws are being adopted with increasing monrentunl, NYC Local Law 86 adopted effective January 1,2007

9. Non Green Buildings are at risk of becorning obsolete and relegated to a lower tier of"contps"

Green Leasìng Issues

Term

Longer telm leases generate mole LEED "points" because they |educe waste from new buildouts fot'new tenants, with a col'l'espondil-rg decrease in transpol'tation and manufactuling of the building materials

Green Leasing Issues

Permitted Use

Even in a straight office use clause or retail use clause, add:

"...provided such use does not violate the certification of the building by the U.S. Green Building Council LEED rating system or Landlord's Environrnental Managernent Plan"

15 3 Green Leasing Issues

Assignment and Sublease

Landlord may withhold consent if the proposed assignee or subtenant rnay cause the Premises not to conform with any envilonrnental or Green buildiug pt'ovisions ofthe Lease.

Whele no conscnt is needed to assign ot' sublet, the Lease should prohibit assigntnent to non-Green users.

Green Le0sitts Issues

Common Area Cnsts "CAM"

'lþnant is obligated to pay its proportionatc sharc of CAM costs. (or cost rncreases ovcr a base amount or year) to defray Landlord's costs of rnaintaining the Buildiug and property.

In a GB, Tennat leased the premises with the gxpectancy of a lower annual cost for CAM. Should the Landlord be held to a perlormauce standard before passing through operatillg costs to the Teuant?

Green Leasinp Issues

Common Area Maintenance Costs "CAM" lrr a Cì8, lhe "Creen" proccss is continuous. To what extent will the Tenant be involved in future capital expenditures for additional green Compliance?

'I'enant's obligation to pay its prorata share for capital expenditures is limited to the lesser of (r) savings realiz,ed by Tenant lrorn tlie capital improvement, and (ii) the prorata share of the improvement's annual cost atnortized over its useful life.

16 4 Green Leasittg Issues

Utilities (Gas. Electric and Water')

Utility charges should be sepalately rnetered ol sub metel'ed to a gloen tenant to incentivize energy savir.rgs through conservation.

Tenant should requile that the environrnerttal systems (thermostats and other controls for' heating and air conditioning, humidistats, water conservation and frltration) should be undel' Tenant's coutlol.

Green Leasing Issue;

Opelating Covenants

Tenants in Gl'een Buildings need to be aware that Landlords may lequire thern to comply with operating rules, r'egulations and scl.redules that may be inconsistent with the Tenant's business ueeds.

Green Leasing Issues

Operatiuq Covenants - Rules and Requlations Counsel should play close attention to the ubiquitous rules and regulations schedule ofthe Lease.

Avoid this:

"Subject to the applicable provisions ofthe Lcase, Tcnant shall comply with all rules, regulations and nleasures adopted by Landlord froln time to time in connection with any green/l-EED prograrn(s) undertaken or maintained by Lartdlord from time to time."

17 5 Greett Leosins Issues

Audit Rishts

A'l'enar-rt in a Green Building may be paying a higher base rent but is attracted to the property because ofthe lorver operating costs protnised or predicted,

Tenant should have the right to audit the operating costs ifthey exceed Tenant's expectation,

Green Leasing Issues

Work Letter

Tlie Tenant's and Landlord's work letters should identify the sustainability standard that the pârties have agreed to achieve, i.e., Energy Staq or I.,EED - Certified, silver, gold or platinurn

Landlord nray require Tonant to hire an accredited LEED Professional to mattage the sustainabilíty aspects ofTenant's buildout. Tenant may have a reciprocal requiretnent for Landlord.

Green Leasing Issues

Work Letter

Landlord marketed the premises clairning specific green attributes. Tenant will require Landlord 10 meot the promised conditions.

It costs more to build and tear-out consistent with Green standards. Therefore, Tenant should negotiate for a higher work allowance,

18 6 Green Leosins Issues

Parking

Extra LEED points arc ar.varded to a property that does not have excess parking (more than tlre minirnurn required by the local zoning code).

Solid Wastc Managetnent

LEED points are affected by solid waste lìranagement. Tlie property needs a SWM protocol witlr easily accessible locatiorrs for recycling,

Green Leasing Issues

S ignage

Signage will affèct the building's I-EED score fbr "Light Pollutiorì Reductìon" and energy consumption.

Solid Waste Manageme nt

I-EED points are af'fècted by solid waste mar'ìagelneut. The property needs a SWM protocol u'ith easily accessible locations for recycling.

Green Leasinp Issues

End ofTenr Rernoval

The award ofl I-EED poilìts takes into cousideration how tlre Tenant will ret¡ove its FF&E.

'lenant's should avoid tlte lollowing:

"Tenant's removal of leasehold improvernents, trade fixtures or personal property frorn the prernises shall be perforrned by'lènartt in an environtnentally sustainable manner, including reuse and recycling, all of which must be reported to the Landlord in the forrnat requested by the L,andlord."

19 7 Green Leasing Issues

Insurance - "lf vou had a sreen buildinq before the fire, vou wrll have a sreen buildins after the fire"

Landlord and Tenant have a vested ìnterest in knowing that their policies cover the increased tinle and cost ol' resloring a Green Building. Increnrental costs include:

L The cost ofLEED ceíified professionals 2. AII LEED lees 3. Recycling debris rather than durnping in a landllll 4. Purchase ofgrid porver until alternate energy source is back online 5, I.oss ofutility credits while the butlding is under repair

Green Leasinp Issues

Property Taxes

Ifthere are tax incentives, rebates or reductions tied to the LEED Certification, deterrnine in the Lease rvhether tl-rey benefit the Tenant, the Landlord or both.

Green Leøsing Issue;

Renewal

Even if the building is not Green now, it rnay become Green in the fiture. When renewing expired leases, collsider whether a Green Rider should be attached for luture Green conversions.

20 8 Green Leasins Issues

Remedies

Light Green Leases - the green requirements are aspilational only. Dark Green Leases - Traditional breach lemedies.

21 9 22 HOT TOPICS IN LEASING

23

24

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27 28 NYSBA Fall 2014 Program Advanced Real Estate Current Tax Issues Affecting Real Estate Howard J. Levine Joseph Lipari Proposed Regulations under Sections 707 and 752

On January 30, 2014, the IRS issued a Notice of Proposed Rulemaking1 including Proposed Regulations under Internal Revenue Code ("IRC") sections 707 (disguised sales) and 752 (allocations of liabilities) of the.2 The Proposed Regulations are primarily focused on limiting the use of debt financed distributions by taxpayers to avoid the impact of the disguised sale rules of section 707(a)(2)(B). The proposed section regulations have much broader impact, however and, if adopted in the form proposed, will impact large numbers of transactions. Background To understand the reason for the proposal, it is helpful to set forth the circumstances under which debt financed distributions are employed. They are a common feature of UPREIT3 transactions. An UPREIT structure is one wherein a real estate investment trust ("REIT") holds all of its real estate assets through an operating partnership (an "OP") that the REIT controls. An owner of real estate with, for example, a gross fair market value of $20 million and debt of $5 million may transfer his real estate to an OP in exchange for $15 million of "Units" (i.e. partnership interests) in the OP. Such a transaction is tax deferred under section 721.4 A property owner, however, will often want to receive a portion (often a large portion) of

1 Notice of Proposed Rulemaking, 79 Fed. Reg. 4826 (Jan. 30, 2014) (hereinafter the "NOPR"), published in Internal Revenue Bulletin 2014-8.

2 Unless otherwise stated, all section citations are to the Internal Revenue Code of 1986, as amended, or the regulations thereunder.

3 Which stands for "umbrella partnership real estate investment trust."

4 In contrast, a transfer of real property to the REIT in exchange for stock in the REIT is generally not tax deferred due to limitations in section 351. In order for a transferor's transfer of real property directly to the REIT to be tax deferred, the transferor would need to control 80% of the vote and value of the REIT's stock after the transfer. See sections 351(a), 368(c). Section 721 imposes no control requirement for tax deferral with respect to transfers of property to a partnership (such as an OP).

29 {00327065-5} the net value of his property in the form of cash. If the OP simply pays cash to the owner, the transaction will be taxable as a "disguised sale" under section 707(a)(2)(B). To avoid gain, UPREIT transactions involving the payment of cash to the property owner are often structured by having the OP borrow funds (either by way of a mortgage on this or other OP-owned properties or by drawing down on its line of credit) and distributing these funds to the property owner. Such a distribution will be tax deferred only if the funds borrowed by the OP are allocable, under section 752, to the property owner. Since the property owner has only a miniscule percentage interest in the OP, nonrecourse debt will not ordinarily be allocable to the owner under the applicable section 752 regulations (discussed in more detail below). If, however, the distribution is funded with recourse debt, and if the property owner is the partner with the "economic risk of loss" for such debt, the debt will be allocable to the property owner5 and the distribution will be tax deferred, as the property owner will not have received a cash distribution in excess of his basis in the OP.6 To accomplish this allocation of the debt, it is necessary for the property owner to guarantee the loan. Understandably, a property owner is not interested in making a guarantee that has material economic risk to him since he often could have borrowed funds on a nonrecourse basis without transferring ownership to the OP in the first place. To accommodate the property owner's desire for a guarantee with less economic risk, practitioners developed the concept of a "bottom guarantee." Go back to our example above in which the property owner transfers property with a net value of $15 million to the OP in exchange for Units. Assume that the objective of the owner is to receive $10 million in cash. The OP can refinance the mortgage of the property contributed increasing the amount of the mortgage from $5 million to $15 million and generate $10 million of net refinancing proceeds which it can distribute to the property owner. The owner can guarantee the bottom $10 million of the mortgage. Under a bottom guarantee, the lender can only require a payment from the guarantor if the lender obtains less than $10 million on a foreclosure sale of the property. Thus, although the lender is lending 75 percent of the gross value of the property, the guarantee only guarantees debt equal to 50 percent of the gross value of the property. The guarantor's risk can be reduced further if the OP packages

5 Reg. section 1.752-2(a).

6 Section 731(a)(1). 2 {00327065-5} 30 the contributed property with other properties and borrows the $10 million against the group of properties. In that event, the bottom guarantee may only guarantee, for example, the bottom 10 or 20 percent of the loan, in which event the economic risk is almost nonexistent. In most if not all of these cases, the lender is indifferent as to whether or not the guarantee is given since the lender is relying solely on the assets of the partnership to secure the loan.

Relevant Statutory Provisions Section 721(a) provides that recognition of gain does not occur upon the contribution of property by a partner to a partnership. Section 731(a)(1) provides for nonrecognition of gain on the distribution of property by a partnership to a partner.7 However, section 707(a)(2)(B), enacted in 1984, provides that in the case of "disguised sale," the ordinary principles of sections 721 and 731 do not apply and the partner must recognize gain on the transaction. Distributions made to a partner in connection with of a contribution of property by the partner will generally be treated as a "disguised sale" if, when viewed together, they are "properly characterized as a sale or exchange of property."8

Existing Regulations The existing regulations under section 707 provide for a "facts and circumstances" analysis to determine whether a contribution to a partnership and a distribution from the partnership together constitute a disguised sale.9 The regulations provide a presumption that a distribution made by a partnership within two years of a property contribution is a disguised sale.10 The regulations provide exceptions to disguised sale treatment. In this context the most relevant exception is that a distribution is not considered part of a disguised sale if (i) the cash distributed to the contributing partner is traceable to the cash borrowed; (ii) the partnership distributes the cash within 90 days of borrowing; and (iii) the debt is properly

7 Except in the case of cash or marketable securities distributed in excess of the taxpayer's basis in the partnership. See section 731(a)(1), (c).

8 Section 707(a)(2)(B).

9 Reg. section 1.707-3(b).

10 Reg. section 1.707-3(c). 3 {00327065-5} 31 allocable to the partner receiving the cash under section 752 and the regulations thereunder.11 The theory of this regulation is the same theory that applies to the receipt of loan proceeds by the owner of real estate. A borrowing is generally not treated as a sale of the property because the taxpayer is obligated to repay the debt. The question then becomes, "How do the current regulations enable a bottom guarantee to be effective?" For those of you interested in ancient history, when we started practicing in the 1970's, Reg. section 1.752-1(e), which was adopted in 1956, set forth the rules on allocations of debt among partners. It consisted of one paragraph of three sentences, as follows: Partner's share of partnership liabilities. A partner's share of partnership liabilities shall be determined in accordance with his ratio for sharing losses under the partnership agreement. In the case of a limited partnership, a limited partner's share of partnership liabilities shall not exceed the difference between his actual contribution credited to him by the partnership and the total contribution which he is obligated to make under the limited partnership agreement. However, where none of the partners have any personal liability with respect to a partnership liability (as in the case of a mortgage on real estate acquired by the partnership without the assumption by the partnership or any of the partners of any liability on the mortgage), then all partners, including limited partners, shall be considered as sharing such liability under section 752(c) in the same proportion as they share the profits.

The regulations distinguished between recourse and nonrecourse debt and set forth different rules for each category, concluding reasonably in most cases that recourse debt should be shared in accordance with loss allocations and nonrecourse debt should be shared in accordance with profit allocations. Over time, as partnership transactions became more complicated, Treasury and the IRS felt the need to elaborate on many of these issues. In addition, the 1984 Tax Reform Act overruled12 the Court of Claims decision in Raphan v. United States,13 which held that a partner who guaranteed partnership debt was not personally liable for

11 Reg. section 1.707-5(b), (f), ex. (10).

12 See section 8.A of the NOPR.

13 3 Ct. Cl. 457 (1983), aff'd in part, rev'd in part 759 F.2d 879 (Fed. Cir. 1985) (the Federal Circuit reversed with respect to the issue at hand). 4 {00327065-5} 32 such debt. The Act directed Treasury to prescribe regulations relating to the treatment of guarantees.14 In 1991, new regulations under section 752 were promulgated,15 and unlike the earlier version, cannot be printed due to space limitations. The important point to keep in mind is that the regulations define nonrecourse debt as debt for which no partner nor person related to a partner has economic risk of loss ("EROL").16 If the debt is nonrecourse to the partnership, but a partner (or person related to that partner) bears any EROL with respect to such debt, then such debt or the portion thereof was treated as partner nonrecourse debt.17 Partner nonrecourse debt was required to be allocated to the partner who bore the EROL.18 A partner would have EROL if such partner (or a person related to that partner) either made a loan to the partnership or guaranteed a third party loan and did not have a right of reimbursement from other partners.19 More significantly, the regulations adopted a simple if unreasonable explanation of how to determine whether or not a partner had an EROL. The regulations provided that, for this purpose, it is assumed that all assets of the partnership, including cash, are disposed of for zero consideration.20 The only exception from the zero consideration assumption is for assets that secure debt for which the lender has no other recourse; such assets are deemed disposed of for the amount of the debt they secure.21 If, under these assumed circumstances, the partnership lenders have any rights to collect any sums from any of the partners or related persons, such partners have EROL for the amount they would be obligated to pay. The amount of debt would then be allocable to such partner.22

14 See section 8.A of the NOPR.

15 Adopted by T.D. 8380 (Dec. 23, 1991).

16 Reg. section 1.752-1(a)(2).

17 Reg. section 1.704-2(b)(4).

18 Reg. section 1.752-2(b).

19 Reg. section 1.704-2(b)(4).

20 Reg. section 1.752-2(b)(1).

21 Reg. section 1.752-2(b)(1)(ii) and (iii).

22 Reg. section 1.752-2(b)(5). 5 {00327065-5} 33 The ability to utilize a bottom guarantee to avoid disguised sale treatment, thus, is a direct result of this simplistic choice in the regulation. If all of the assets of a partnership are assumed to be worthless, any partner guarantee, no matter how unlikely to be enforced, is considered to be a real liability. Notably, in addition to the assumption that the partnership can pay none of its liabilities, the regulations assume that all partners and related persons who are obligated on partnership debts can perform those obligations, irrespective of their net worth, absent facts that indicate a plan to circumvent the obligations.23

Prior IRS Attempts to Limit the Perceived Abusive Use of Guarantees Prior to the issuance of the proposed regulations in January, the government had taken two steps to limit debt financed distributions claimed to be exempt from the disguised sale rules. First, Treasury issued regulations on guarantees by disregarded entities. These regulations were meant to deal with the situation where a partner in a partnership held its interest through a wholly owned LLC that was disregarded for income tax purposes. If a disregarded entity with no assets other than its partnership interest guarantees partnership debt, in theory funds could be distributed tax free under the debt financed distribution rules to the disregarded entity and then to the partner with no economic risk. To stop that abuse, the IRS issued regulations in 2006 providing that disregarded entities would only be treated as having an EROL in an amount equal to their net worth, which regulation provides elaborate rules setting forth the timing and methodology of computing the net worth of disregarded entities.24 Nevertheless, this regulation is so easy to work around (by creating entities that are not disregarded) that it is unlikely this regulation had any material impact. More significantly, the IRS successfully litigated Canal Corp.,25 a large case using the anti-abuse exception to the rule that presumes that guarantors (or indemnitors) will be able to perform their obligations mentioned earlier. In Canal Corp., taxpayer's subsidiary was a partner in a joint venture (the "JV"),26 which made a debt financed distribution to the subsidiary. Prior

23 Reg. section 1.752-2(b)(6).

24 Reg. section 1.752-2(k), adopted by T.D. 9289 (Oct. 10, 2006).

25 Canal Corp. v. Commissioner, 135 T.C. 199 (2010). See, similarly, CCA 201324013.

26 The joint venture was a partnership for income tax purposes. 6 {00327065-5} 34 to the distribution, the subsidiary gave an indemnity to the other partner in the JV, who had guaranteed the JV's debt. The subsidiary's only substantial asset (other than the partnership interest) was a promissory note from its parent corporation, the ultimate recipient of the distributed funds.27 The net worth of the subsidiary (excluding its interest in the JV) was approximately 21 percent of the amount of the indemnity, an amount that the taxpayer's tax advisors considered sufficient to avoid being disregarded. However, the Tax Court concluded that the indemnity could be disregarded on several grounds, most notably that there was no requirement that the subsidiary maintain any net worth (it could have canceled or distributed the note to its parent).

Impact of Proposed Regulations on Characterization of Debt The January 2014 proposed regulations reflect in many ways an almost complete reversal of the approach taken in the current regulations. In general, the proposed regulations revert to the view of the original 1956 regulations that partnership debts are paid out of partnership profits and that profit allocations are the most relevant criteria for determining how to allocate partnership liabilities. More significantly, the proposed regulations largely eliminate the use of guarantees by imposing requirements that will be impossible to meet even in those cases where a lender insists that partnership debt be guaranteed. A partner or related person will be treated as having an obligation to pay a partnership liability only if it satisfies the following (among other) requirements:28 (1) The partner must be required to maintain a commercially reasonable net worth throughout the term of the payment obligation or be subject to commercially reasonable restrictions on transfers of assets for inadequate consideration;29 (2) The partner or related person must be required periodically to provide commercially reasonable documentation of its net worth;30

27 The subsidiary also owned a corporate jet.

28 See generally Prop. Reg. section 1.752-3(b)(3)(ii).

29 Prop. Reg. section 1.752-3(b)(3)(ii)(A).

30 Prop. Reg. section 1.752-3(b)(3)(ii)(B). 7 {00327065-5} 35 (3) The partner's payment obligation does not end before the term of the partnership liability31 (4) The partnership or some other party may not be required to hold liquid assets in excess of its reasonable needs32 (5) The partner receives arm's length consideration for entering into the guarantee33 (6) The partner's obligation may not be subject to reimbursement or indemnification by another party, whether or not a partner or related person, even if the obligation of the other party is insufficient to cause such debt to be allocable to such other partner.34

In practice, these requirements will result in disregarding virtually all guarantees, even those undertaken for commercial purposes. Requirement (2) that the guarantee obligation remain in place for the entire term of a loan is more restrictive than most guarantees which burn off when the debtor satisfies certain economic criteria (e.g. completion of construction, payment of rent by tenant, etc.). Requirement (4) is generally considered problematic. Guarantee fees are rarely paid and it is not clear whether the partnership interest obtained by a developer for, among other things, guaranteeing a loan would satisfy this requirement. Requirement (5) is designed to eliminate bottom guarantees but does so in a way that eliminates any horizontal slice guarantee other than the top slice. As an example, the proposed regulations provide that if one partner, A, guarantees $300 of a $1,000 partnership debt and another partner, C, agrees to indemnify A for $50 if A pays on its guarantee, C is considered to have the economic risk of loss on $50 but A is considered not to have any economic risk of loss and the remaining $950 of debt is considered nonrecourse debt for debt allocation purposes.35

31 Prop. Reg. section 1.752-3(b)(3)(ii)(C).

32 Prop. Reg. section 1.752-3(b)(3)(ii)(D).

33 Prop. Reg. section 1.752-3(b)(3)(ii)(E).

34 Prop. Reg. section 1.752-3(b)(3)(ii)(G).

35 Prop. Reg. section 1.752-2(f), ex. (11). 8 {00327065-5} 36 Overall it is rare that a guarantee in a normal commercial real estate transaction will satisfy these requirements and be treated as creating EROL for purposes of the proposed section 752 regulations. Consequently, almost all third party real estate mortgages would be treated as nonrecourse debt regardless of the possibility that a portion of that debt may under various circumstances be borne by one or more of the partners or the likelihood of that occurring.

Effect of Proposed Regulations on Allocations of Nonrecourse Debt In addition to causing most real estate debt to be characterized as nonrecourse, the proposed regulations would appear to change substantially how partnerships allocate such nonrecourse debt among its partners. We used the phrase "appear to" because, frankly, we do not see how tax preparers will be able to comply with the proposed allocation provisions. To appreciate the issue, it is helpful to review the existing section 752 regulations governing allocations of nonrecourse debt.36 As a general matter, the regulations reflect the common understanding that allocations of pure nonrecourse debt (i.e. debt for which no partner nor related person has EROL) are basically arbitrary as only the third party lender bears any economic risk. The regulations are largely designed to cause partnerships to coordinate debt allocations with corresponding allocations of income and deductions. The regulations do this by setting up three tiers of allocations. First, nonrecourse debt is allocated to correlate to future allocations of partnership minimum gain (i.e. gain attributable to the excess of the nonrecourse debt over the tax basis).37 For example, a partnership agreement between a developer who contributes 1 percent of the capital and a money partner who contributes 99 percent of the capital may provide that, once the capital accounts of the partners are reduced to zero by means of losses or distributions, further nonrecourse deductions will be allocated 50 percent to each (their ultimate profit percentages once certain IRR hurdles are satisfied). Since, in this case, the deductions are allocable 50/50 each partner will be allocated 50 percent of the nonrecourse debt. A similar result would exist if, under the partnership agreement, excess loan proceeds were distributed 50 percent to each partner.

36 Reg. section 1.752-3.

37 Reg. section 1.752-3(a)(1). 9 {00327065-5} 37 The second tier of allocations is an amount equal to the gain (generally referred to partner minimum gain) that would be allocated to a partner by reason of either (i) a section 704(c) allocation with respect to property contributed by the partner to the partnership; or (ii) a so-called reverse 704(c) allocation with respect to a revaluation of partnership property.38 Since the book value of partnership property upon contribution or certain other events is increased to its agreed value, such property does not have partnership minimum gain (i.e. the book value is not less than the amount of the mortgage). To avoid triggering gain to the partners who will have section 704 allocations, the second tier regulation allocates them sufficient debt. The third tier allocations is in accordance with the partnership's allocations of profits (or by certain other methods). 39 This regulation, however, provides a partnership with substantial flexibility in determining how to allocate this third tier. In particular, so long as the allocation of profits for purposes of purposes of allocating nonrecourse liabilities are consistent with an allocation of "some other significant item of partnership income or gain," the agreement's allocation will be respected. In practice, partners are generally considered to have wide latitude in determining the allocation of profits for purposes of allocating nonrecourse liabilities under the third tier. Thus, in the example we gave above, the partnership could allocate the third tier debt 99/1, 50/50, and in many cases somewhere in between those percentages.40 As an alternative, excess nonrecourse liabilities may also be allocated among the partners in accordance with the manner "in which it is reasonably expected that the deductions attributable to those nonrecourse liabilities will be allocated."41 As an additional alternative, since 2000, the Regulations have specified that a partnership may first allocate an excess nonrecourse liability to a partner up to the amount of built-in gain that is allocable to the partner on section 704(c) property subject to the nonrecourse liability (to the extent that this nonrecourse

38 Reg. section 1.752-3(a)(2).

39 Reg. section 1.752-3(a)(3).

40 Although Reg. section 1.752-3 does not specify that an allocation of excess nonrecourse liabilities in the range between allocations of "significant items" is permissible, the regulation on allocation of nonrecourse deductions does. Reg. section 1.704-2(m), ex. (1)(ii), specifically allowed allocations of nonrecourse deductions in any ratio between 90/10 and 50/50 where there were allocations of significant items of tax at 90/10 and 50/50 ratios.

41 If a partnership uses this method of liability allocation for purposes of section 752, the method apparently would apply for disguised sale purposes as well. 10 {00327065-5} 38 liability was not already allocated to the partner under the second tier).42 This change was meant to avoid gain recognition to a contributing partner as the amount of section 704(c) gain (and correspondingly the amount of second tier debt) burns off due to depreciation deductions with respect to the contributed property taken after the contribution.43 The proposed regulations would eliminate the provisions of the third tier allocation, which provide flexibility in determining the share of profits and deductions. Although the regulation as amended would still provide that the third tier is allocated in accordance with profits (or in accordance with 704(c) or reverse 704(c) gain not allocated under the second tier), the elimination of discretion is likely to create substantial confusion in all cases where profits are not done on a simple percentage basis. The proposed regulations eliminate a partnership's ability to allocate excess nonrecourse debt in accordance with a "significant item" of tax, or in a manner that "in which it is reasonably expected that the deductions attributable to those nonrecourse liabilities will be allocated." Instead, the proposed regulations substitute in a method whereby excess nonrecourse deductions are allocated in accordance with profits under a liquidation value approach.44 Under such liquidation value approach, the profits are periodically tested based on assumptions of how distributions would be made if the partnership were liquidated on the testing dates (i.e. the dates of formation and the dates when partnership book revaluations could occur even if they are not made). This relief provision will not help most partnerships that do not regularly have revaluation events. In general, most accountants preparing partnership tax returns do not spend a great deal of time parsing the terms of the partnership agreement or the existing regulations. Rather they take a practical approach and report debt allocations in accordance with a simple overriding principle; any partner with a negative tax capital account must be allocated sufficient partnership debt to avoid gain recognition. Under the existing regulations, most accountants and

42 Adopted by T.D. 8906 (Oct. 31, 2014).

43 This method of allocation of nonrecourse debt is not available when allocating debt for purposes of the disguised sale rules under section 707.

44 Prop. Reg. section 1.752-3(a)(3). 11 {00327065-5} 39 lawyers could feel comfortable that, one way or another, the debt allocation made is permissible. Under the proposed regulations, it will be far harder to do so.

Effective Dates In general the proposed regulations are effective with respect to debt incurred after the regulations become final.45 To avoid triggering gain attributable to a change in the character of debt incurred prior to the effective date, the regulations proposed with respect to EROL and guarantees set forth a seven year transition period.46 There is no transition period for the proposed disguised sale regulations or the proposed changes to the allocation of excess nonrecourse liabilities.

Recent IRS Informal Announcements In recent weeks word has come out that the IRS is looking for ways to limit the impact of the proposed regulations, for now, to disguised sales under section 707 rather than apply the proposed regulations generally under section 752.

45 Prop. Reg. sections 1.707-9(a)(1), 1.752-2(l)(1), 1.752-3(d).

46 Prop. Reg. section 1.752-2(l)(2)(i). 12 {00327065-5} 40 CURRENT TAX ISSUES AFFECTING REAL ESTATE I & II

41

42

43

44

45 46 AMERICAN BAR ASSOCIATION STANDING COMM ITIEE ON ETHICS AND PROFESSIONAL RESPONSI BILITY

Forma l Opinion 11 -461 August 4, 2011 Ad vising Clients Regarding Di rect Contacts with Represented Persons

Parties to a legal matter have the right to communicate directly with each other. A lawyer may advise a client a/that right and may assist the client regarding {he substance of any proposed communication. The lawyer's assistance need not be prompted by a request from the client. Such assistance may not, however, result in overreaching by the lawyer. J

A lawyer may not communicate with a person the lawyer knows is represented by counsel, unless that person's counsel has consented to the communication or the communication is authorized by law or court order. ABA Model Rule 4.2 (sometimes called the "no contact" rule). Further, a lawyer may not use an intermed iary, i.e., an agent or another, 10 communicate directly wilh a represented person in violation of the "no contact" rule. 2 It sometimes is desirable for parties to a litigation or transactional matter to communicate direct ly with each other even though they are represented by counsel. Two examples may be where the parties wish to cement a settlement or break an impasse in settlement negotiations. In this opinion, the Committee explores the lim its within which it is ethically proper under the Model Rules of Professional Conduct for a lawyer to assist a client regarding communications the client has a right to have with a person the lawyer knows is represented by counsel. Even though parties to a matter are represented by counsel, they have the right to communicate directly with each other.) In add ition, a client may require the lawyer's assistance and a lawyer may be reasonably expected to advise or assist the client regarding communications the cl ient desires to have wi th a represented person. A client may ask the lawyer for advice on whether the client may lawfu lly communicate directly with a represented person without their lawyer's consent or their lawyer being present. The comments to Rules 4.2 and 8.4(a} state that such advice is proper.' Even if the cl ient has not asked fo r the advice, the lawyer may take the initiative and advise the client that it may be desirable at a particular lime for the client to communicate directly with the other party. For example, a lawyer represents a client in a marital dissolution. The client's husband also is represented by counsel. The parties and their lawyers have reached an impasse in their negotiations over various issues. The cli ent may ask her lawyer if she may communicate directly with her husband to see if an agreement can be reached on some contested issues. Alternatively, the lawyer might independently

I This opinion is based on the ABA Mode! Rules of Professional Conduct as amendcd by the ABA House of Delegates through August 20 I I. The laws, court rules, regulations, rules of proft!ssional conduct, and opinions promulgated in individual jurisdictions arc controlling. 1 Rule 8.4(a). The Rul e stales: "[ilt is professional misconduct for a lawye r to violate or altempt to violate the Rules of Proli:ssionat Conduct, knowingly assist or induce another to do so. or do so through the acts of another." ABA Comm. on Ethics and Profe~sional Responsibility. Formal Op. 95-395 (1995) (,"Since a I~wy e r is barred undcr Rule 4.2 from communicating with a represented party about the subject of the representation, she [under Rule 8.4(a») may not circumvent the Rule by sending an investigator to do on her behalf Iha! which she is herself forbidden to do."); ANNOTATEO MODEL RULES OF PROFESSIONAL CONOUCT 408 (ABA 7'h ed. 2011) ("A lawyer may not, however, "mastermind" a client's communication wi th a represcnted person."). J See Holdren v. General Motors Corp., !3 F.supp.2d 1192, 1195 (D. Kan. 1998) ("there is nothing in the disciplinary rule~ which restrict a client's right to act independently in ini tiating communications with the other side, or which requires that lawyers prevent or anempt to discourage such conduct." (citing New York Ci ty Bar Association Formal Opinion No.199 1-2, at 5-6)): Dorsey v. Home Depot U.S.A., inc., 271 F.supp.2d 726, 730 (D.Md.2003) ("Nothing in the law prohibits litigants or potential litigants from speaking among and between themselves, as opposed to anorneys for such panies attempting direct communications with represented panies."); Northwest Bypass v. U.S. Army Corps of Engineers, 488 F.Supp.2d 22, 28-29 (D.N.H. 2007) (no! improper for represented party to communicate directly with represented opponent) . • See Rule 4.2 em!. 4 ("A lawyer may nol make a communication prohibited by this Rule through the acts of another. See also Rule 8.4(0.) cm!. I ("Lawyers are subject to discipline when they violate or aHempt to violate the Rules of Professional Conduct, knowingly assist Or induce another to do so or do so through the acts of another, as when they request or instruct an agenllO do so on the lawyer's behalf. Paragraph (a), however, does not prohibit a lawyer from advising a client concerning action the dient is legally entitled to take.").

47 11-461 Formal Opinion 2 suggest that the possibility of resolving outstanding issues would be enhanced if the client communi cates directly with her husband. The client also might benefit from the lawyer's advice on how she should conduct such settlement negotiat ions, the topics or issues to be covered, and the goals or objectives to be reached. The client also could ask the lawyer to prepare a marital settlement agreement with the goal of having her husband execute the agreement during her meeti ng with him. The language of Rule 4.2 Comment [4) raises the primary question addressed in th is opinion, to what extent may the lawyer advise and assist the client in communicating directly with the represented husband without violating Rule 4.2 through the acts of another, i.e., the cli ent. S However, there is tension between Comment [I] to Rule 4.2 and Rule 8.4(a). In ABA Formal Op. 92-362 (1992), this Committee opined that, without violating Rules 4.2 and 8.4 (a), a lawyer may ethically advise the client to communi cate directly wi th a represented adversary to determine if the adverse party's lawyer had infonned them that a settlement offer was pending. 6 The inquiring lawyer in the opini on represented the plaintiff in a civil case in which the defendant also was represented by counsel. Previously, the plaintiff's lawyer made a settlement offer to opposing counsel. Plaintiff's lawyer had received no response, and the case was set for trial in two weeks. Plaintiff's lawyer suspected that opposing counsel had not informed the defendant of the offer. In that opinion, the Committee concluded that, although the plaintiffs lawyer could not communicate the senlement offer directly to the defendant wi thout violati ng Rule 4.2, the plaintiff's lawyer had an ethical duty under Rules 1.1 , 1.2(a), and 1.4(b) to advise the client that the lawyer believed his settlement offer had not been commun icated by defendant's counsel to the defendant and that the plaintiff had the right to speak directly with the defendant to detennine whether the settlement offer had been communicated. ABA Formal Op. 92-362 acknowledged tension between the lawyer's decision to advise the client of the right to communi cate directly with a represented adversary and Rule 8.4(a)'s prohibition against the lawyer's doi ng indirectly what the lawyer cannot do directly. Nevertheless, the Committee concluded that "where the purpose of the communi cation is to ascertain whether a settlement offer has been communicated to the other party, Rule 8.4(a) shoul d not be read to preclude the lawyer's fulfilling the lawyer's duty, reasonably expected by the client, fu lly and fair ly to advise the cli ent of the lawyer's best professional judgment as to the exercise of the client's rights in furtherance of the representation. ,, 7 The Committee expressly indicated that it was not addressing what the lawyer might tell the client to say to the other party and where the line might be crossed before running afoul of Rule 8.4(a). The Committee was careful to note that if the client was on ly going to find out if the other party had been told of the offer, there would be no violation of the rules. Several bar ethics committees likewise have concluded that it is not a violation of the professional conduct rules for a lawyer to suggest or recommend that the c li ent communicate directly with a represented person.' The decision to communicate directly with a represented person may be the cl ient's idea or the lawycr's. Some decisions and opinions suggest thaI counsel may be violati ng the rules prohibiting communication with a represented party by encouraging or failing to discourage a client speaking directly

j We conclude that a lawyer's client is "another" for purposes of Rule 8.4(a). In re Marietta, 569 P.2d 92 1 (Kan. 1977) (lawyer sanctioned for preparing release and advising client 10 pass it on to represented adverse party); S.F. Bar Informal Opinion 1985- 1 (1985) r·it would be inappropriate ... for la] lawyer 10 use the client as an indirect means of communicating with the adverse pany" in sellJement negotiations). 6 ABA Comm. on Ethics and Profl Responsibility, Formal Op. 92-362 (1992) (Contact With Opposing Pany Regarding Senlement OlTer). in FORMA L AND INFORMAL ETHICS OPI NIONS 1983-1998 (ABA 2000) al 85, 88. 7 !d. at 89. , See. e.g .. Massachuseus Bar Op. I 1-03 (20 I I) (nOI violation of Rules 4.2 and 8.4(a) for lawyer to advise client to urge another pcrson to release allachment on client's property. even though other person is represented by counsel); Oregon Eth. Op. Op. 2005 -1 47 (1997) (Direct Communication Between Represented Panies) ("Allowing the panies themselves to discuss the issues and possible avenues for senlement does not conflict with the policy behind the rule [prohibiting a lawyer from causing another to communicate on the subject of the representation]." ): Calilbmia Comm. on Prof I Resp. and Conduct Formal Op. 1993-131 (1993 ) (lawyer may confer with client as to Strategy to be pursued in, goals to be achieved by, and general naturc of communication client intends to initiale with opposing pany as long as communication itself originates with. and is directed by, client and nOllhe lawycr); Michigan Elh. Op. CI-920 (1983) (in domestic relation case. it is permissible for lawyer to give client draft settlement proposal even when lawyer knows client may discuss document with spouse who is represented by counsel); San Francisco Bar Assoc. In fonnal Op. 1985 -1 ( 1985) (lawyer may allow or encourage his client to attempt to resolve dispute by communicating directly with opposing party, so long as client is not directly or indirectly acting as agent of lawyer).

48 11-461 Form al Opinion 3 to the other party.9 The "no contact" rules applied in these opinions, however. differ from the Model Rules in that they do not contain the relevant language in Rule 4.2 Comment [4) that "a lawyer is not prohibited from advising a client concerning a communication that the cl ient is legally entitled to make." As the Committee observed in Fonnal Op. 92-362, other rules may require that, in some situations, a lawyer advise the cl ient to consider communicating directly with her represented adversary about a matter related to the representation. Rule 1.1 requires that "[a] lawyer shall provide competent representation to a client." Rule 1.4{a)(2) requires the lawyer to consult with the client as to the means by which the client's objectives are to be accomplished. 10 These fundamental ethical principles, coupled with the comments to Ru les 4.2 and 8.4(a), suggest that the assistance a lawyer may give to a client extends beyond advising her of her right to communicate with her adversary. Rule 8.4(a)'s prohibition against a lawyer's violating the rules through the acts of another raises questions about what a lawyer mayor may not say to the lawyer's client, or what the lawyer may do to assist the client in communicating directly with the represented opponent. These issues were explicitly left unaddressed in Formal Op. 92-362. When Formal Opinion 92-362 was issued. the comments to Rules 4.2 and 8.4 did nOI contain the current language that expressly permits the lawyer to advise the client regardi ng communications the client is legally entitled to make and actions the client is legally entitled 10 take. There is very little authority that provides guidance in any context regarding the scope of assistance and advice a lawyer may give a client under the comments to Rules 4.2 and 8.4. Some authority states that because of Rule 8.4(a)'s prohibition against violating or attempting to violate the Rules of Professional Conduct through the acts of another, a lawyer may not "script" or "mastermind" a client's communication with a represented person and may violate Rule 4.2 by preparing legal documents for the cl ient to have a represented person sign without the assistance of theiT counsel.l I What constitutes "scripting" or " masterminding" the communication is not clear, but such a standard. if too stringently applied, would unduly inh ibit pennissible and proper advice to the client regarding the content of the communication, greatly restricting the assistance the lawyer may appropriately give to a client. 12 Relying on language similar to Comment [4] of Model Rule 4.2, the Restatement (Third) o/The Law Governing Lawyers (2000) ("the Restatement') explains:

The lawyer for a client intending to make such a communication may advise the client regarding legal aspects of the communication, such as whether an intended communication is libelous or would otherwise create risk for the client. Prohibiting such advice would unduly restrict the cliem's autonomy, the client's interest in obtaining important legal advice. and the client's ability to communicate fu ll y wi th the lawyer."ll

9 See. e.g., Miano v. AC & R Adv.:rtising, Inc. 148 F.R.D. 68, 82 (S.D.N.Y. 1993) ("where a client directly asks hisor her 3ttorney whether he should approach a n:preSCl\l.:d adversary, the attorney may not t:lhically recommend or endon;e such action·'); N. Y . City Ethics Op. 2002-3 (2002) (if client "conceives of the idea" of communicating with represented adversary. lawyer may advise client about it but must avo id helping client to eilher elicit confidential information or encourage other party to proceed wilhoul counsel); Massachusetts B3r Op. 82-8 (1982) (lawyer who has prepared senlcmem agreement on client's behalf should discourage client from speCifically discussing settlement with other party or directly sending lener that addresses settlemem wilhout consent of thaI party's lawyer). 10 See ABA Formal Op. 92-362, FORMAL AND INfORMAL ETHICS OPINIONS 1983-1998 al 88. II See, e.g., Holdgren v. General MOlors Corp., 13 F.Supp.2d 1192, 1193-96 (D.Kan. 1998) (lawyer in age discrimination case violated rules of professional conduct "through the acts of another" by encouraging client to obtain affidavits from coworkers, advising him of difference between "out of court statements" and signed affidavits for trial purposes, and advisin8 him how to draft affidavit); In re Pyle, 91 P.3d 1222, 1228-29 (Kan. 20(4) (lawyer "circumvented the constraints" of Rule 4.2 by, at client's request, preparing affidavit for her to deliver (o represented defendant in personal injury case); California Comm. on prorl Resp. and Conduct Fonnal Op. 1993-131 ("An attorney is also prohibited from scripting the questions to be asked or statements to be made in the communications or otherwise using the client as a conduit for conveying to the represented opposing party words or thoughts originating with the attorney.·'); Massachusetts Bar Op. ! 1-03 ("We believe, however, that the lawyer would cross the line if she prepared a release of the attachment and presented it to the sister tor execution wi thout the knowledge and express permission of the siSler's lawyer .. · J. 11 See n. ll. iJ RESTATEMENT (THI RD) OF TH E LAW GOVERMl'G LAWYERS § 99 cml (k) (2000). See also John Leubsdort; Communicating With Another Lawyer's Client.· The Lawyer's Veto and Ihe Client's IntereSIS, t27 U. PA. L. REV. 683, 697 (1979) ("An extension of the (no-contact] rule to communications between clients is hard to reconcile with its ostensible purposes. Whatever dangers flow from the confrontation of professional guile with lay innocence are absent

49 11-461 Formal Opinion 4

Restatement § 99 Illustration 6 clarifies this point with the fol lowing scenari o. A lawyer represents a client who has a dispute with a contractor. On her own, the client drafts a letter outlini ng her position in the dispute and shows a copy to her lawyer. Viewing the draft as inappropriate, the lawyer redrafts the letter and recommends that the cl ient send it out as redrafted. The client does so. The Restatement concl udes that the lawyer's assistance to the client was not an improper communi cation with a represented person. The lawyer also may draft a document fo r the cl ient to del iver to the represented adversary although authority restricts the lawyer's assistance to situations where the el iem originates the communication, stating that it is improper for the lawyer to ori ginate or direct the proposed communicati on. I' Section 99 of the Restatement does not explicitly address this questi on, although Comment (k) and Illustration 6 are based on the el ient having ori ginated a proposed communication with a represented adversary. The line between pennissible advice and impermissible assistance may not always be clear. This Committee does not think that line should be drawn based on who ini tiates the fi rst draft ofa communication with a represented adversary. Such an approach favors only those clients who have the sophisti cation to ask the lawyer to draft a document fo r the cl ient to give to a represented adversary. In addition, all owing the lawyer to assist only if the cl ient originates the substance of the communicati on leaves the unsophisti cated client without the benefi t of the lawyer's advice in formulating communi cati ons that the ru les allow the cl ient to have with a represented person. Instead, the li ne must be drawn on the basis of whether the lawyer s assistance is an attempt to circumvent the basic purpose of Rul e 4.2, to prevent a cl ient from making uninfonned or otherwise irra ti onal decisions as a result of undue pressure from opposing counsel. This Commi ttee bel ieves that, without violating Rules 4.2 or 8.4(a), a lawyer may give substanti al assistance to a client regard ing a substantive communication with a represented adversary. That advice could include, for example, the subjects or topics to be addressed, issues to be raised and strategies to be used. Such advice may be given regardless of who--the lawyer or the client...... -<:onceives of the idea of having the communication. This Committee favors the approach taken by Restatement § 99 Comment (k). Under that approach, the lawyer may advise the client about the content of the commu ni cati ons that the clie nt proposes to have with the represented person. For example, the lawyer may review, redraft and approve a letter or a set of talking points that the elient has drafted and wishes to use in her communicati ons with her represented adversary. Such advice enables the client to communicate her points more articul ately and accurately or to prevent the client from disadvantaging herself. The cl ient also could request that the lawyer draft the basic terms of a proposed settlement agreement that she wishes to have with her adverse spouse, or to draft a ronnal agreement ready for execution. Rules 4.2 and 8.4(a) may pennit the lawyer to ful fill the cl ient's request without violating the lawyer's ethical obligati ons. However, in advising the clien!, counsel must be careful not to violate the underly ing purpose of Ru le 4.2, as explained in Rule 4.2 Comment f1 ]:

This Ru le contributes to the proper function ing of the legal system by protecting a person who has chosen to be represented by a lawyer in a mailer against possible overreachi ng by other lawyers who are participating in the malter, interfe rence by those lawyers with the client- lawyer relati onshi p and the uncounselled disclosure of information relating to the representati on. I' when twO nonlawyer.; communicate... . Perhaps we huve again come across the desire to keep disputes safely in the control of lawyers."'); James G. Sweeney. Allorneys' Arrogance: Worning Unheeded. N. Y. L.J., June 17, 1991, at 2 col. 3 ("To dcny or deter the client from the Opportunity of entering into the gauging process of what value is to him in a particular dispute by denying him an opportunily to sit al the bargain ing table with his adve rsary works aga in st the very fundamental idea of the se lfand of human autonomy."). 14 See, e.g. . Cal ifornia Comm. on Profl Resp. and Conduct Formal Op. 1993-13 1 e'When the co ntent of thc communication 10 be had with the opposing party originates with or is directed by the attorney, it is prohi bited by ru le 2- I ~O."') . I~ See ABA Fomllli Opinion 9S-396 (1995), in FOR."IAL AND iNFORMAL ETHICS OPINIONS 1983- 1998 (ABA 2000) at 330,334 ("The anti-contact rules provide protection orthe represented person against overreach ing by adverse counse l, safeguurd the c lient -lawyer relationship from inlerference by adverse co unsel, and reduce the likelihood that clients will disclose privileged or other infonnation thai might harm their interests."). See also Niesig v. Team I, 558 N.E.2d 1030, 1032 (N. Y. 1990) ("By preventing lawyers from deliberately dodging adversary counsel 10 reach-and-exptoit the client alone, Ithe rule prohibiting communicating with a person represented by counsel] safeguards against clients maki ng

50 11-461 Formal Opinion 5

Prime examples of overreaching include assisting the cl ient in securing from the represented person an enforceable obligation, disclosure of confidential information, or admissions againsl interest without the opportunity 10 seek the advice of counsel. To prevent such overreaching, a lawyer must, at a minimum, advise her client to encourage the other party to consult with counsel before entering into obli gations, making admissions or d isclosing confidential information. If counsel has drafted a proposed agreement for the client to deliver to her represented adversary for execution, counsel should include in such agreement conspicuous language on the signature page Ihat warns the other party to consul t with his lawyer before signing the agreement. 16

lmprovidem sel1 lemenlS. ill-advised disclosures and unwarranted ooncessions."); State v. Gilliam, 748 So.2d 622, 638 (La. Ct. App. (999), writ denied, 769 So.2d 12 I 5 (La. 2000) (rule intended to "prevent disclosure of attorney-client communications and to protect a party from 'liability-creating statements' elicited by a skilled interrogator"); Messing, Rudavsky & Weliky, P.e. v. President and Fellows of Harvard College, 764 N.E.2d 825, 830 (Mass. 2000) (ru le preserves counsel's "mediating rule" and protects clients from overreaching by other lawyers); Polycast Tech Corp. v. Uniroyal. Inc., 129 F.R.D. 621, 625 (S.D.N.Y. 1990) (rule prevents lawyers from eliciting "unwise statements" from opponents, protectS privileged information, and facilitates settlements by allowing lawyers to conduct negotiations); CHARLES w. WOLFRAM, MOOERN LEGAL ETIlICS, § 11.6.2, at 6 11 (1986) ("The prohibition is founded upon the possibility of treachery that might result if lawyers were free to exploit the presumably vulnerable position of a representcd but unadvised party"); EC 7- 18 ("The legal system in its broadest sense functions best when persons in need oflegul advice or assistance are represented by their own counscl."). 16 This opillion does not address situations in which a lawyer advises a client wilh respect to using nn investigator or agent to gather facts from a represented person. These situations may involve II variety offactoTS. not considered in this opinion. rclevant to the presence or absence of overreach ing.

AMERICAN BAR ASSOCIATION STANDING COMMITTEE ON ETHICS AND PROFESSIONAL RESPONSIBiLiTY 321 N. Clark Street, Chicago, Illinois 60654-4714 Telephone (312) 988-5310 CHAIR: Robert Mundheim. New York, NY • Nathaniel Cade, Jr., Milwaukee, WI • Lisa E. Chang, Atlanta, GA . James H. Cheek, III . Nashville. TN • Robert A. Creamer, Evanston, IL • Paula J. Frederick. Atlanta, GA . Bruce A. Green, New York., NY • James M. McCauley, Richmond, VA . Philip H. Schaeffer, New York, NY • E. Norman Veasey, Wilmington. DE CENTER FOR PROFESSIONAL RESPONSIBiLiTY: George A. Kuhlman. Ethics Counsel; Eileen B. Libby, Associate Ethics Counsel itl2011 by lhe American Bar Association. AU rights reserved.

51 52 ,)p, ' IAI I5~Uf : WHAT'S NEW IN ETHICS AND PRIVILEGE

Ethical Obligations Regarding Inadvertently Transmitted E-Mail Communications By Eric M, Hellige

On a daily basis, with a click of the mouse, hundreds (i) the importance the [ABA] Model Rult'S Df l'·mails are (,xchanged behvel'1l attorneys and their di­ give to lllilintaining client confidenti al­ I:'nts. Mud. of this tfil(fiC constitutes harmless correspon­ ity, Oi) the law governing waiver of the dence, but often the content of the e-mai! includes sensi­ attorney-client privilege, (iii) the law tiw, confidential or privileged information. Occasionally, governing missent property, (iv) the simi­ in the constant stream of ~'-mail exchange, an e-mail will larity between the circumstanct.'S here ad ­ inadvertently be sent directly or copied to the wrong dressed and other conduct the p roft:'ssion party. This situation presents a serious concern for attOT­ universally condemns, and (v) the receiv­ neys charged with milin taining their own confidentiality, ing lawyer's obliga tions to his client.3 as well as thai of their clients. Desp ite how regularly these Following the issuance of ABA Formal Op. 92-368, circumstances arise, there is no clear consensus among the New York weighed in with its responses. The New York relevant ru les of professional conduct or the ethics opin~ County Lawyers' Association Committee on Professional ions interpreting the rules on attorneys' ethical resp()nsi~ Ethics issued Formal Opinion 730, "Ef/lienl Oliligatiofls bi li ties regarding inadvertently sent or received e-mails, nor does the case law provide consensus concerning any UpOI1 Receipt oj IlIarlvertently Disclosed Privilegerllnjorma­ tioll," in 2002, which basically rei teril ted Formal Op. USl' th~ ftXipient may make of inadvertently rt.'Cf-'ived 92-368. ~ In 2003, the Association of the Bar of the City of e-mails, or their impact on the waiver of attorney-client New York (the "ABCNY") Committet.' on Professional and privilege. As a result, attorneys face ,1 conundrum when Judiciill Ethics issued Formal Opinion 2003-4, "Obligations they l"t'"Ceive inildvertently disclosoo e-mails. This article Upon Rl'Cf'it,illg II Clllllrlltlllicnlim! C(lIIluillillJ.; Ctmfirlences or presents attorneys practicing in the State of New York Secrets Not il/tentied for fI/!: Recipient," which concluded with som(' basics that will enable them to better deal with tha t inadvertently transmitted communications. a lawyer receivi ng a misdire(ted commu­ Histori ca l Development nication containing confidences or secrets In 1992, the American Ba r Association (the "ABA") (1) has obligations to promptly notify the Committee on Ethics and Professional Responsibil ity is~ sending attorney, to refrain from rev iew sued ABA Formal Opinion 92-368, "/uadvtrlenl Disclosure of the communication, and to return or o/G.mjidcntial Mnteria/s," which provided that destroy the communication if so request­ la]lawyer who receives materials that ed, but, (2) in limited ci rcumstances, may submit the communicati on for in cam- on their face appear to be subject to the em Te\'iew by a tribwlal, and (3) is not attorney-client privilege or otherwise ethically confidentiaL under circumstances where barred from using information gleaned prior to knowing or having rea­ it is clear they were not intended for the son to know that the communication con~ receiving lawyer, should refrain from t:'X­ tains confidences or secrets not in tended amining the materials, notify the sending for the receiving 1;I'Nyer. However, it is t.'S­ l

18 NYS BA Inside 1 SpringlSummer 2012 1 Vol. 30 I No . 1 53 , c, p, IA. bSUE: WHAT'S NEW IN ETHICS AND PRIVILEGE

()pClml"l!t~ That May Cnl/faill Hiddrll Data Rl'jlecting C/ienl !l J Responsibility to a cl ient rt.'qu ires a Confidel/ces and Secrets," described the standard of care lawyer to subordinate the interests of oth­ lawyers should follow when using e-mail communication, ers to those of the dient, but that respon­ stating thai "a lawyer who uses technology to commu­ sibility does not imply thai a lawyer may nicate with clients must use reasonable care with respect disregard the fights of third persons. It is to such communication ... /tlhe extent of [which] v.lrliesl impractical 10 catalogue alt such rights, with the circumslances,"t> but they include legal restrictions on methods of obtaining evidence from th ird Addressing the Confusion persons and unwarranted intrusions For many years, confusion remained as to whether into privileged relationships, such as the tilt., thrt.'E' duties set forth in ABA Formal Op. 92-368 were client-lawyer rela tionship. appropriate statements of professional responsibility to [2] [Rule4.4(b)J recognizes that lawyers which lawyers must ad here. As a consequence, in the last sometimes rl'(eive documents that were major revision of the ABA Model r~ules of Professional mi stakenly sent, produced, or otherwise Conduct, the ABA adopted new rules governing inadver­ i.nadvertently made available by oppos­ tent disclosure. ABA Model Rull! 1.6(3), "Confidentiality of ing parties or their lawyers. One way to illformation," prevented attorneys from reveaLing informa­ tion about a client without consent and required them resolve this situation is fo r lawyers to enter into agreements contai ning explicit to protect confidential client information? Comments to the rule required lawyers to safeguard client information provisions as to how the parties will deal from inadvertent or unauthorized disclosure, and 10 take with inadvertently sent d ocuments. In the absence of such an agreement, however, reasonable precautions to prevent information from reach­ ing unintended recipients.s ABA Model Rule 4.4{b), "Re­ if a lawyer knows or reasonably should know that such a document was sent spect .filr Rights of Third Persolls," reduced the ethical dulies imposed on attorneys who receive inadvertent e-mails, inadvertently, this Rule requires only that leaving only the duty to notify the sender of the inadver­ the lawyer promptly notify the sender in order to permit that person to take pro­ tent transmission.'} As a result of that change, in 2005, the ABA Committee on Ethics and Professional Responsibility tective measures. Although this Rule d oes not require that the lawyer refrain from iS~lIed ABA Formal Opinion 05-437, "lnndz>crteIJt Dischl­ reading or continuing to read the d ocu­ .~ WT '~f COIJfidential Materials: WitlJdmwal of Formal 0l'illi(ll/ ment, a lawyer who reads or continues to 92-368 (NoVLmbl'r 10, 1992)," withdrawing its previously read a document that contains privileged expressed opinions in ABA Formal Op. 92-368. 10 or confidential information may be sub­ Despite the ABA's adoption of rules governing ject to court-imposed silnctions, induding inadvertent disclosure, the New York Lawyer's Code of disqualificCl tion and evidence-preclusion. Professional Responsibility, which governs thl' conduct of Whether the lawyer is required to take New Yo rk ilttorneys, Lacked provisions expressly govern­ additional steps, such as returning the ing inildvertent disclosure until 2009. State courts and original document, is a matter of law ethics committees struggled with how to deal with such beyond the scope of these Rules, as is the situations, and a body of law developed to expressly question whether the privi leged status of address such iSsues. However, the New York Rules of a document has been waived. Similarly, Professional Conduct, which became effective on April 1, this Rule does not address the legal duties 2009, attempted to rectify this gap by including a provi­ of a lawyer who receives a document that sion that specifically addressed inadvertent disclosure. the lawyer knows or reasonably should New York Ru le 4.4(b), "Rcspcct for Rigllls of Third Person," know mily have been wrongfully ob­ st<1tes that "[a]lawYl!r who receives a document rela ting tained by the sending person. For pur­ to the representation of the Lawyer's client and knows or poses of thi s Rule, "document" includes reilsonably should know that the document was inad­ e-mail and other electronically stored vertently sent shall promptly notify the sender."11 Given information subject to being read or put the brevity of New York Rtdc 4.4(b), the comments to the into readable fo rm. rut£', WlllCh sp~l'ificalty provide that the term "document" includes any electronically stored information that can be [3] Refraining from reading O f continuing read (including t.'-maits), are more helpfut in providing to [ead a document once a l<1wyer real­ guidance to attorneys. The comments state ilS follows: izes that it was inadvertently sent to the wrong address and returning the docu-

NYSBA Inside [ Spring/Summer 2012 I Vol. 30 I No.1 19 54 SPf ' IAL ISSUE : WHAT'S NEW IN ETHICS AND PRIVILEGE

men! to the sender honors the policy of using business devicL>S for communications with their th~se I{utes to p rotect the principles of own counsel. Clients should be warned if (i) they have clien! confidentiality. Because there arc engaged in, or indicated an intent to engage in, e-mail circumstances wlwrt! a lawyer's ethi- communicatiuns; (ii) their employment provides ac­ C,)! obliga ti ons should not bar use of the cess to wurkplace communication devices; (iii) given information obtaint;.'CI from an inadver­ the circumstances, the employer or other third party has tently $en t document , however, this Rule the abili ty to access e-mail communications; or (iv) as does not subjt,'ct a lawyer to professional fa r as the lawyer knows, the client's employer's policies diScipline for reading and using that in­ and the jurisdiction's laws do not clearly prutect those formation. Nevertheless, substantive law communications. 15 or procedural rules may require a lawyer to refrain from reading an inadvertentl y ABA Formal Opinion 11 -460, "Duty Wherl Lowyer sent document, or to return the docu­ Rl.'ceives Copies of (l Third Party's E-mail Communiclltions ment to the sender, or both. Accordingly, with C01mscl," exp la ins that when an employer's lawyer in dedding whether to retain or use an receives copies uf an emploYl't"s private communications with counsel, ABA Model Rule 4.4(b) does not require inadvertently n.'Ceived document, some the employer's lawyer to notify opposing counsel of the lawyers may take into account whether 16 the attorney-client privilege would at­ receipt of the communications. With ABA Formal Op. tach. But if applicable law or rules do not 11-460, the ABA has provided a clear distinction for deal­ ing with inadvertently received communications based address the situation, decisions to refrain from reading such documents or to return on how they Wl're disclosed to the unintended recipients. them, or both , il re matters of profeSSional In the case of a communication that is inadvertently sent judgment reserved to the lawycr. 12 to an unintended recipient by one of the parties to the communication, ABA Model Rule 4.4(b) "obligates the Addressing the S,1me issue two years later under the receiving lawyer to notify the sender of the inadvertent AHA Model Rules of Professional Conduct as amended transmission promptly."I? However, when the communi­ by thro> ABA House of Delegates through August 2011, ca tion has been retrieved by an unintended recipient from the ABA Standing Committee on Ethics and Professional a public or private space where it is stored, such as in the Responsibility issued two opinions that address attorneys' context of an employer 'S access 10 an employee's files, ethica l obligations concerning inadvertently disclosed cor­ then the ABA opines that ABA Model Ru le 4.4(b) d oes not respondence under the ABA Model Rules. require the third party to notify opposing counsel of the receipt of the communications.ls ABA Formal Opinion 11-459, "Duty to Protect the COllfidelltiality of E-mail Communications with Olle's Client" It is important to note that the ABA Model Rules and l'xplains that lawyers have a duty to warn clients about the ABA formal opinions afe not binding, and merely pro­ the risks of sending or receivi ng electronic communica­ vide guidance to the states regarding the ABA's position tions wht're th~re is a signifiCilllt risk that an employer or on the rules of professional cond uct, and how to interpret third party may gain access to privileged e-mail corr€'• those mies. Therefore, attorneys should pay attention to spondenceP As a general nile, the ABA explains, lawyers developments on ethical issues in the state laws, ethical should advise clients about the importance of communi­ rules and case law of their local jurisdiction. cating with the lawYl'r in a manner that prutt'c!s the confi­ dentiality of e-mail communica ti ons, and warn the client Curr@nt Exp@ctations of Profession al Conduct against discussing their communications with others. A To review, the following are the current positions of lilwyer shou ld also instruct the cl ient to avoid using an the ABA and the State of New York uf which every lawyer t:lllp loyer-issued computer, telephone or other electronic should be aware when he or she receives an inadvertently device to receive or transmit confidential communica­ disclosed e-mail : ti ons. Despite e-mail becoming a common replacement for leiters and in·person meetings, e-mail communica­ ABA tions without sa feguard s can be just as risky as having a Sender's Duty When Tra nsmitting E-mails confidential facc+to-face conversa tion in a setting where it 14 The sender has no explicit duty regarding the sending (",111 be overheard . of e+mails. A lawyer's general duties with regard to the The ABA also points to various factors that tend to confidentiality of client information under ABA Model establish an ethica l duty on the lawyer to protect clit'nt­ Rl11e 1.6 apply to e-mail communications as well. 19 lilwyer confidentiality by warning the client against

20 NYSBA Inside I Spring/Summer 2012 I Vol. 30 I No.1 55 C; "f lA, "'SUE: WHAT'S NEW IN ETHICS AND PRIVILEGE

Must the Recipient Notify the Sender Upon Receipt of ethical obligations should not bar use of the information an Inadvertently Transmitted E-mail? obtained from an inadvertently sent document, (the] Rule does not subj~'C t a lawyer to professional discipline for Yes. Under ABA Model Rule 4.4(b),

8. Modd I<\lk~uf t'rof'l Cundu("t . R. 1.6 emt. (19t!..1).

New York 9. Model Ru"-~ of I'rof'! Conduct. 1<. 4.4(b) (1983).

Sender's Duty When Transmitting E-mails 10. ABA Comm. on E.thics ond ('rof't r~L-spons;bitity, Formot Op. 05-437 NYSSA Op. 782 notes that "a lawyer who uses tech­ (2005). nology to comm unic

that the communication was misdirected ... is not barred, 19. Mod(' l l

NYSBA Inside I SpringlSummer 2012 I Vol. 30 I No.1 56 21 NYSBA | NYSBA Ethics Opinion 38 Page 1 of 2

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Home For Attorneys Ethics Opinions Home NEW YORK STATE BAR ASSOCIATION My NYSBA Professional Ethics Committee Opinion Blogs Opinion #38 - 12/06/1966 (6-66) CLE Committees Topic: Conflict of Interest, Representation of Adverse Parties

Events Digest: Lawyer may not represent both buyer and seller of real estate where there is a clear instance of conflicting interests For Attorneys Canon: Former Canon 6 Professional Standards for Attorneys Ethics Opinions QUESTION NYS Court System Web Site Is it ethically proper for a lawyer who represents a party to a real estate transaction to undertake also the representation of an adverse party, assuming NY Codes Rules and such representation would ordinarily involve merely computing the adjustments and preparing the deed, or where title insurance is not used, the Regulations (NYCRR) preparation also of a title abstract? Would the answer be different if a subdivision were involved in which an access road is required to be built but there is no agreement as to who is to build the road? Legal Links of Interest Legislation OPINION Pro Bono Information for Attorneys Canon 6 of the canons of Professional Ethics provides as follows: Charity Corps Free Legal Research from Loislaw.com "6. Adverse Influences and Conflicting Interests Government and Public Interest Attorneys Resource "It is the duty of a lawyer at the time of retainer to disclose to the client all the circumstances of his relations to the parties, and any interest in or Center connection with the controversy, which might influence the client in the selection of counsel. Join the Lawyer Referral Service "It is unprofessional to represent conflicting interests, except by express consent of all concerned given after a full disclosure of the facts. Within the LPM Resource Guide to meaning of this canon, a lawyer represents conflicting interests when, in behalf of one client, it is his duty to contend for that which duty to another Vendors client requires him to oppose. Lawyer Assistance Program (LAP) "The obligation to represent the client with undivided fidelity and not to divulge his secrets or confidences forbids also the subsequent acceptance of Member Benefits and retainers or employment from others in matters adversely affecting any interest of the client with respect to which confidence has been reposed. Savings Programs NYSBA/Loislaw CaseAlert Dual representation should be practiced sparingly and only when it is clear that neither party will suffer any disadvantage from it. It is difficult to justify, Service except in unusual and very limited circumstances, and only after complete disclosure and consent, with a clear understanding by both parties of its Non-resident Resources possible effect on their respective interests. [Legal Ethics by Henry s. Drinker, page 104 (1954), Legal Ethics by Raymond L. Wise, page 141 (1966).] The lawyer who represents conflicting interests acts at his peril and should realize that the thrust of Canon 6 is to discourage acceptance of such Solo and Small Firm representation. Resource Center Jobs and Careers The attorney has the affirmative duty to be certain that the clients have the capability and actually do fully understand the conflicts that may arise and CasePrepPlus the peculiar position dual representation may cause them to be placed in. Revised Local Rules for U.S. District Courts SDNY & EDNY In real estate transactions it is not always true, even in relatively simple ones, that representation of both buyer and seller involves nothing but computations of adjustments and preparation of the deed. For the Community

Forums / Listserves A number of questions arise that require the exercise of legal judgment. Examples are (i) whether the deed should be full covenant and warranty, bargain and sale, with or without covenants, or quiteclaim, (ii) what customs are to be followed in making adjustments, (iii) which points disclosed in the Membership title report are important and which may be disregarded, (iv) what title company to use, considering the fact that a title company reinsuring may perpetuate past errors which another title company would pick up. Practice Management Publications / Forms The inquiry makes special reference to the necessity of having an access road to the property being transferred. This will involve negotiations in which dual representation is virtually impossible. Sections In Informal Opinion No. 886-9/28/65 the Committee on Professional Ethics of the American Bar Association passing upon the propriety of dual Special Services representation in a real estate development said "we suggest that the attorney for the developer would be ill-advised to in any way represent the For the Media buyers." Government Relations Law, Youth & Citizenship One authority says, "The prudent lawyer would be wise never to put himself in a position of representing conflicting interests "Legal Ethics by Raymond L. Wise, page 141 (1966). Lawyer Assistance Program Lawyer Referral Service

Pro Bono Affairs Conference of Bar Leaders

THE NEW YORK Related Files BAR FOUNDATION Conflict of Interest. Representation of Adverse Parties. (Adobe PDF File)

Connect With NYSBA

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58 http://www.nysba.org/AM/Template.cfm?Section=Ethics_Opinions&template=/CM/Cont... 11/28/2012 59 60 61 62 63 64 CAREFUL WHAT YOU SAY: ETHICS IN REAL ESTATE

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70 Richard S. Fries Direct Phone: 212.839.5640 Direct Fax: 212.839.5599 [email protected]

December 5, 2014

Distressed Commercial Real Estate Loan Workouts and Remedies -- Today’s Insights and Strategies©

I. Initial Steps -- Inquiries -- Planning A. Determine Performing Status B. Review Legal Documents 1. Completeness 2. Defects 3. Perfection C. Periodic Title Updates 1. Confirm Recordation of Mortgage 2. Identify Subordinate Liens, Judgments 3. Subsequent Transfers of Property -- Change in Ownership Identity -- “New Debtor Syndrome” 4. Violations D. Evaluate Post Closing Loan Administration 1. Course of Conduct 2. Representations 3. Assurances 4. Memos, E-Mails in File E. Understanding Lender’s Goals and Capabilities 1. Benefits of Modification (Short Term, Long Term) 2. “First Loss is Smallest Loss” 3. Lender’s Capacity to Own, Manage or Liquidate 4. Evaluate Long Term Market Conditions 5. Explore Asset Sale Prospects

© Copyright 2014 by Richard S. Fries, Esq.

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F. Understanding Borrower’s Goals and Capabilities 1. Replacement Member, Equity Investor, Operator, Tenants 2. Management Skills 3. Reputation -- Honesty 4. Capital Infusion -- from Borrower or Equity Source 5. Delay -- Market Improvement 6. Discounted Repayment 7. Guarantors’ Commitment to Transaction or Business 8. Guarantors’ Financial Wherewithal G. Understanding the Relevant Market 1. Availability of Financing 2. Availability of Private Equity 3. Value of Collateral and Borrower’s Business (Including Good Will) 4. Marketability of Collateral 5. Business Market Trends 6. Leasehold Market Trends 7. Debt Service Marketplace -- the Real Economic Costs of Recasting Debt 8. Borrower’s Sales Prospects H. Understanding the Collateral 1. Value 2. Cash Flow 3. Condition 4. Deferred Maintenance 5. Environmental Considerations 6. Appraisals (Access to Conduct) 7. Evaluate Project Finances 8. Potential for Commingling or Diversion of Cash Flow 9. Leases 10. Mezzanine Loan Interests -- Tranche Warfare

72 I. Ramifications of Borrower as Agent for Lender (No Equity, No Guarantors) 1. No Downside Risk for Borrower 2. Borrower has All Upside of Delay, Assertion of Defenses, Bankruptcy Filing 3. Is There a Benefit to Borrower’s Continued Management and Ownership J. Mezzanine Lender’s Rights 1. Inter-Creditor Agreement Governs Use of Remedies 2. No Lien on Real Estate 3. Succeed to Borrower’s Interests -- Control of Project 4. Replacement Guaranty Requirements 5. Duties and Obligations to First Mortgagee 6. Uniform Commercial Code Foreclosure of Personalty Collateral (a) Situs of (out-of-court) foreclosure (b) Speed and efficiency (c) Process for asserting defenses 7. Existing “Good Guy” Guaranty (a) Enforceability upon mezzanine loan foreclosure (b) Triggering event caused by mezzanine lender or successor in interest (c) Ipso facto rules 8. Impact on Borrower’s Equity of Redemption 9. Mezzanine Lender also Holding a First Mortgage Lien II. Defaults and Acceleration A. Material Defaults 1. Maturity 2. Non-Payment of Debt Service 3. Non-Payment of Real Estate Taxes/Escrows 4. Non-Payment of Insurance Premiums

73 5. Material Breach of Debt Service Coverage Ratio Covenant 6. Loss or Diminution of or Change in Insurance Coverage (e.g., Terrorism Exclusion) 7. Damage to Mortgaged Property 8. Impermissible Subordinate Financing 9. Transfer of Mortgaged Property 10. Violation of Environmental Indemnity 11. Material Adverse Change in Financial Condition (“MAC Default”) (but see [B][6] below) 12. Fraud B. De Minimus Defaults 1. Failure to Deliver Financial Statements (Timely, at All) 2. Breach of Loan-to-Value Covenant 3. Entry of Minor Monetary Judgment 4. Death of Guarantor 5. Erosion of Cash Flow 6. Material Adverse Change in Financial Condition 7. Cross-Defaults under Other Credit Facilities 8. Short Term Capital Requirements C. Evaluation of Efficacy of Material Adverse Change Covenant in this Economic Cycle 1. Permanence of “MAC” 2. Durational Requirements 3. Implication for Loans that are Otherwise Performing D. Election to Accelerate E. Notice of Acceleration 1. Clear 2. Overt 3. Unequivocal F. Mechanics and Effect of Acceleration 1. Imposition of Default Rate of Interest

74 2. No Obligation to Accept Partial Tender or Borrower’s Cure of its Default 3. Entire Debt is Due -- Acceleration as Maturity G. Return of Subsequent Debt Service Payments H. Course of Conduct Relating to Past Defaults 1. Ramifications of Sudden Shift in Position or Use of Remedies 2. Covenant to Act in Good Faith and Deal Fairly III. Enforcement of Guaranties A. Promise to Pay the Obligations of Another B. Can be Unconditional or Limited (Partial) C. The Guaranty as Leverage for Borrower’s Commitment to the Property and to Repayment D. “Honor” isn’t Enough E. Joint and Several Guarantors F. Independent of Obligations of Borrower G. Partial Payment Guaranty -- Make Sure Guaranty Covers Last, Not First, Obligations H. Construction Completion Guaranty I. Full or Partial Debt Service Guaranty J. Financial (or Other) Covenants Guaranty K. Guaranty “Burn off” if Benchmarks (or Milestones), such as Leasing, are Met L. Use of “Bad Boy” Springing Guaranties for “Non- Recourse” Exceptions 1. A “Bad Boy” Guaranty Provides for Personal Liability against Principals of Borrower upon the Occurrence of Certain Enumerated “Bad Acts” 2. Principal or Affiliate Would Have No Obligation to Repay the Loan (i.e., “Non-Recourse”) Unless There Was Some “Bad” Act 3. This is a Behavior Modification (a “Bad” Act) -- Not a Credit Enhancement M. Doctrine of Novation N. Ratification of Guaranties -- Implications and Waivers

75 O. Beware of Conduct, or Course of Conduct, that Releases Guarantors P. “Carveouts” as a Negotiation Device IV. Common “Bad Boy” Triggers (“Non-Recourse Exceptions”) A. Fraud or Misrepresentation B. Diversion of Cash Flow -- Misappropriation of Rents or Revenues C. Environmental Liability D. Interference by Borrower or Guarantor with Legal Remedies E. Material Alteration of Collateral F. Waste (or Mismanagement) G. Filing Bankruptcy (or Soliciting an Involuntary Bankruptcy) H. Modification of Borrower’s Articles or Organization I. Violation of “SPE” (Special Purpose Entity) or “Separateness” Covenants J. Difference Between “Actual Losses” and “Entire Debt” Categories of Recourse V. Nature of “Bad Boy” Guaranty of a “Non-Recourse” Real Estate Loan A. The “Actual Losses” Bucket (Liability Limited to Lender’s Actual Damages) 1. Fraud or Misrepresentation 2. Misappropriation of Revenue 3. Misappropriation of Condemnation Awards or Insurance Proceeds 4. Failure to Turn Over Income or Revenues from the Property During an Event of Default 5. Acceptance of More than One Month’s Advance Rent 6. Physical Waste 7. Failure to Pay Real Estate Taxes or Insurance Premiums 8. Objection to Non-Judicial Foreclosure, if Applicable

76 B. “Entire Debt” Bucket (Liability for Entire Indebtedness) 1. Voluntary Bankruptcy 2. Involuntary Bankruptcy Commenced Against Borrower or Guarantor 3. Prohibited Transfer of the Mortgaged Property 4. Breach of the Special Purpose Entity Covenants 5. Interference with Mortgage Foreclosure Remedy 6. Insolvency -- (?) -- see Cherryland Discussion (below) C. Bad Boy Guaranties are Enforceable 1. EVERY Reported Decision (Except Two -- see ING v. Park Avenue Hotel and CP III Rincon Towers v. Cohen below) Enforces Them (a) Bank of America, N.A. v. Lightstone Holdings, LLC, 32 Misc.3d 1244(A), 938 N.Y.S.2d 225 (Sup. Ct. N.Y. Co. 2011) (b) G3-Purves Street v. Thomas Purves, 101 A.D.3d 37 (2d Dep’t 2012) (c) USB Commercial Mortgage Trust -- FLI v. Garrison Special Opportunities Fund L.P., 938 N.Y.S.2d 230, 2011 N.Y. Slip Op. 51774 (Sup. Ct. N.Y. Co. 2011) (d) Wells Fargo Bank, N.A. v. Cherryland Mall Ltd. Partnership, 812 N.W. 2d 799 (Mich.App. 2011) (e) 51382 Gratiot Avenue Holdings, LLC v. Chesterfield Development Company, LLC, 835 F.Supp. 2d 384 (E.D. Mich. 2011) (f) Bank of America N.A. v. Freed, 2012 IL App. (1st) 110749 (Ill. App. First Dist. 2012) (g) Wells Fargo Bank N.A. v. Mitchell’s Park, 2012 WL 4899888 (N.D. Ga. 2012) (h) Turnberry Residential Ltd. Partner v. Wilmington Trust, 33 Misc.3d 1220 (A) (Sup. Ct. N.Y. Co. 2011), affd, 99 A.D.3d 176, 950 N.Y.S.2d 362 (1st Dept. 2012)

77 (i) LaSalle Bank v. Pace, 2011 BL 358538 (Sup. Ct. N.Y. Co. 2011) affd, 100 A.D.3d 970, 955 N.Y.S.2d 161 (2d Dept. 2012) (j) Blue Hills Office Park v. JPMorgan Chase Bank, 477 F. Supp. 2d 366 (D. Mass. 2007) (k) CSFB 2001-CP-4 Princeton Park Corporate Center v. SB Rental I, 410 N.J. Super. 114, 980 A.2d 1(App. Div. 2009) (l) Wertheimer Mall, 2008 U.S. Dist LEXIS 64152 (S.D.N.Y. 2008) (m) 111 Debt Acq. v. 6 Venture, 2009 U.S. Dist. LEXIS 11851 (E.D. Ohio 2009) (n) Diamond Pt. v. Wells Fargo, 929 A.2d 932 (Md. 2007) (o) Potomac v. Green, 2099 WL 1537853 (M.D. Ala. 2009) (p) Federal Deposit Insurance Corp. v. Prince George Corp., 58 F.3d 1041 (4th Cir. 1995) 2. Equity Arguments Against Enforceability (a) The basic objections: (i) Unfair (ii) Unconscionable (iii) Inequitable (iv) Oppressive (v) Void as against public policy (vi) Frustrates constitutional right to file for bankruptcy (vii) These arguments are generally not held successful or persuasive to a court, especially in business context 3. Implication of “Bad Acts” Committed by Third Parties (a) New equity owner can cause personal liability for former equity owner without any repercussions

78 (i) “Bad boy” guaranty seems to lose its purpose -- original guarantor did not perform a “bad act” (ii) Unintended consequences in connection with mezzanine financing (iii) Mezzanine lender purchasing controlling equity stake can force defaults triggering “bad boy” guaranty -- Put borrower in bankruptcy to trigger defaults -- Use threat of putting borrower in bankruptcy or triggering other default in negotiations with first lien lender -- Party in control of directing borrower’s actions should be responsible for guaranty in order for guaranty to be effective 4. But See (a) Stuyvesant Town decision -- Bank of America, N.A. v. PSW NYC LLC, 2010 NY Slip Op. 51848(U) [29 Misc. 3d 1216(A)], September 16, 2010 (Supreme Court, New York County, Lowe, J.) (b) Rule -- mezzanine lender must cure defaults (including full payment upon acceleration or maturity) under first mortgage loan before pursuing remedies D. Cherryland (Court of App. Michigan) -- Is Non-Recourse Now Rendered an Illusory Concept? 1. Insolvency as “Bad Boy” Guaranty Trigger (a) The “bad boy” guaranty required borrower to maintain its “SPE status” (b) “SPE status” required borrower to “remain solvent”

79 2. Definition of Insolvency (a) Liabilities exceed assets -- or (b) Unable to pay debts as they come due (c) “Every” distressed real estate owner “is” insolvent (fair market value is less than indebtedness) (d) Makes every defaulted loan potentially fully recourse without regard to actions of the borrower (e) Consequences of Cherryland are dramatic (i) The decision makes non-recourse loans into recourse loans -- this was not the intention in the CMBS market (ii) Creates full guarantor liability without a “bad act,” based solely on value or market forces outside borrower’s control (iii) Cherryland injects uncertainty into a market where “bad boy” recourse was the standard operating procedure (iv) Future of nonrecourse CMBS financings jeopardized (v) $700 billion loans already outstanding which would be susceptible to recourse claims upon default for insolvency (vi) $500 billion in defaulted loans that have been foreclosed or even taken in lieu of foreclosure but statute of limitations for suit on nonrecourse guaranty have not expired (vii) Fiduciary obligation of special servicers (who are bound to obtain maximum recovery under CMBS pooling and servicing agreements) -- contractually required to pursue guarantors of insolvent SPE borrowers

80 (viii) Avalanche of potential litigation (ix) Adverse accounting implications for sponsors, borrowers and guarantors due to recourse versus nonrecourse nature and treatment of commercial mortgage debt on financial statements (x) Chill and destabilize rebirth of CMBS 3. Chesterfield -- Federal Court in Michigan, December 2011 -- same outcome 4. Michigan Non-Recourse Mortgage Loan Act, (Chapter 445 of Act 67 of 2012, effective March 29, 2012) E. ING v. Park Avenue Hotel (610 Lexington Avenue), 26 Misc. 3d 1226(A), 907 N.Y.S.2d 437, Sup. Ct. N.Y. Co. (2010) 1. “Bad boy” Guaranty Provided (i) Borrower May Not Incur Secured or Unsecured Indebtedness, Except as Provided in Loan Agreement; and (ii) Borrower has 20-Day “Safe Harbor” to Cure Certain Defaults 2. Borrower was 19 Days Late on a $300M Real Estate Tax Installment Payment 3. Borrower Cured Tax Arrears on Day 20 4. Lender Sued Guarantor for Entire Indebtedness under Bad Boy Guaranty; Debt was $145MM; Fair Market Value was $55MM -- Deficiency was $90MM 5. Court Held “Bad Boy” Guaranty WAS AN “Unenforceable Penalty” (a) Immediate liability for the entire debt is not a reasonable measure of any probable loss associated with the delinquent payment of $300,000 in real estate taxes when compared to a $90 million deficiency

81 (b) The Court’s analysis: (i) A commercial agreement should not be interpreted in a commercially unreasonable manner or contrary to the reasonable expectations of the parties (ii) Immediate liability for the entire debt is not a reasonable measure of any probable loss associated with delinquent payment of a relatively small amount of taxes (iii) “Such an unlikely outcome could not have been intended by the parties, sophisticated commercial borrowers and lenders aided by competent counsel at the time of the drafting, and is impermissible under New York law.” 6. Post-Script -- Borrower “Purchased” the Loan at a Discount (of $75MM) F. CP III Rincon Towers v. Cohen, 10 Civ. 4638 (S.D.N.Y. April 7, 2014) 1. Bad boy guaranty provided full recourse for “unpermitted indebtedness” and voluntary liens, in addition to customary full-recourses events such as bankruptcy, fraud, impermissible transfers, etc. 2. Mechanic’s liens were filed; they became judgments 3. After foreclosure auction, there was a $40 million deficiency 4. Lender sought full recourse against the guarantor 5. The Court held that mechanic’s liens are not “voluntary” liens (a) The borrower disputed the liens (b) A mechanic’s lien is “inherently involuntary”

82 6. Mechanic’s liens do not trigger full recourse under the “transfer” provision -- to do so would render the prohibition on “voluntary” transfers superfluous 7. Implications (a) Mechanic’s liens and judgments will not trigger full recourse (b) The penalty -- full recourse for a deficiency -- is disproportionate to the wrong-doing VI. Considerations in Dealing with Borrowers -- How Far to Go -- Lender Liability Risks A. Preliminary Considerations 1. Review Credit File -- Internal Memoranda 2. Review Loan Administration/History 3. Availability of Loan Officers as Witnesses 4. Attorney-Client Privilege 5. Admissions Against Interest 6. Pre-Workout Agreements B. Right to Protect and Preserve Collateral 1. Request for and Review of Financial Statements 2. Review of Books and Records 3. Understanding Borrower’s Operations, Business 4. Insurance Coverage 5. Protective Advances 6. Real Estate Taxes 7. Insurance 8. Essential Repairs 9. Appraisal of Property 10. Right to Inspect Collateral 11. Right to Approve Budgets (as Part of Restructure) 12. Right to Receive Release Prices for Existing or New Collateral C. Covenant of Good Faith and Fair Dealing and Certain Borrower Defenses Relating Thereto 1. Inherent in All Contracts and Negotiations 2. Duty to Act Consistently

83 3. Cannot Convey False Sense of Security 4. Cannot Reverse Established Course of Dealing 5. Misrepresentation by Loan Officers 6. Agreement to Waive or Not to Enforce Rights -- Forbearance -- Estoppel 7. Detrimental Reliance by Borrower 8. Oral Negotiations 9. Overreaching, Duress, Bad Faith, Unequal Bargaining Position 10. Economic Duress (Pledge of Collateral for Default Cure, New Loan) D. Imposition of Fiduciary Duty on Lender 1. Fiduciary Duty Generally Does Not Exist 2. Relationship is Lender-Borrower, Creditor-Debtor 3. Criteria for Fiduciary Relationship (a) Long-standing relationship of trust (b) Reasonable reliance on lender to protect interests (c) Lender offers business advice (d) Lender participates in management of borrower’s business (e) Lender takes ownership interest (rather than security interest) (f) Lender assumes position resembling that of controlling shareholder (g) Lender obtains powers over borrower through pledge of voting stock as collateral or through restrictions contained in loan agreement 4. Duty to Regulate and Monitor Extension of Credit (a) Borrower’s ability to service debt and repay (b) Borrower’s suitability and sophistication (c) Suitability of the credit product E. Lender’s Control over Business Affairs of Borrower 1. Instrumentality or Alter Ego Doctrine

84 (a) Lender responsible for debts/obligations of borrower (b) Difficult to prove (c) Must show lender assumed “actual participatory total control” 2. Partnership -- Joint Venture (a) Share in profits/losses (b) Equity kickers (but not if interest on loan) (c) Maintain control of underlying project 3. Assumption of Duty (a) Mismanagement, negligence (b) Daily Operations -- directives or recommendations from lender (c) Duty to act with reasonable care 4. Fraud -- Standards (a) Misrepresentation (b) Falsity (c) Knowledge of falsity (d) Borrower’s reliance (e) Damages F. Impermissible Interference with Borrower’s Business Affairs 1. Offering Business Advice 2. Participating in Management of Borrower’s Business 3. Taking Ownership Interest (i.e., Share in Profits/Losses) Rather than Security Interest 4. Assuming Position Resembling that of Controlling Shareholder (a) Compelling borrower to execute contracts (b) Hiring contractors (c) Renegotiating existing contracts (d) Requiring approval for payments of operations

85 G. Tortious Interference 1. Dealing with Borrower’s Corporate Governance 2. Usurping Management Responsibility and Control (a) Requiring officers to take salary reductions (b) Requiring borrower to replace management company, accountant (c) Requiring approval for payments for operations 3. Controlling Elections of Officers and Directors 4. Dealing with Third Party Contractors (a) Business or contractual relationship 5. Interference with Valid Contract or “Prospective Contractual Advantage” (a) Defense of “justification” (b) Malice required for interference with prospective contractual advantage H. Credit Crisis Implications and Defenses – And Beyond 1. Good Faith Steps to Refinance or Perform 2. Impossibility of Performance 3. Contracting Tenancies 4. Densification I. Suitability of Participants as Lenders 1. Major Decisions 2. Voting and Control 3. “Veto Power” and the Doctrine of Reasonableness VII. Judicial Foreclosure A. Real Estate Loan Documentation -- Default and Remedy- Related Provisions 1. Typical Provisions of the Commercial Mortgage (a) Property related (i) Description of collateral (ii) Insurance (iii) Protective advances as part of debt (iv) Real estate taxes; tax escrow

86 (v) Borrower to maintain and preserve premises (vi) Mortgagee’s right to inspect/ appraise (b) Debt related (i) Borrower to pay the debt (incorporates note) (ii) Default rate interest (iii) Late charges (iv) Attorneys’ fees (v) Prepayment prohibition v. prepayment premium (usually in the note) (c) Remedy related (i) Events of default -- Non-payment of debt -- Insurance -- casualty, terrorism issues/ requirements -- Real estate taxes -- Damage to property -- Failure to maintain property -- Subordinate financing -- Transfer of property -- Environmental violation -- Non-delivery of financial statements -- Monetary judgment -- Material adverse change in financial condition (ii) Right to accelerate (iii) Right to foreclose (iv) Entire debt secured by mortgage (v) Receivership -- without notice (vi) Assignment of leases and rents (additional collateral) (vii) Due on sale

87 (viii) Foreclosure sale in one parcel (d) Lender protections (i) Borrower to furnish financial statements (ii) Non-waiver of lender’s rights (iii) Usury savings clause/limitation on interest (iv) No further encumbrances: prohibition on subordinate financing (v) No oral modification B. Counsel’s Considerations Prior to Commencement of Foreclosure 1. Audit Mortgage Loan Documents 2. Perfection of Lien 3. Collateral Assignments 4. Credit File -- Internal Memoranda 5. Loan Administration/History 6. Course of Conduct Determinations 7. Admissions Against Interest 8. Understand Underlying Transaction/Collateral 9. Ascertain Lender’s Goals, Objectives, Priorities and Capabilities 10. Determine Borrower’s Objectives, Capabilities and Resources 11. Availability of Loan Officers, Witnesses 12. Guarantors/Subordinate Lienors/Tenants -- Necessary Parties Defendant 13. Environmental Reports 14. Evaluate the Market C. Review of Multi-Creditor Relationships 1. Participation Agreements 2. Syndication Agreements -- Agent Obligations 3. Agent’s Duty of Care and Fiduciary Responsibilities to Syndicate Members

88 4. Special Servicers (a) Requirement for “default” (b) Restrictions on loan modifications (c) Remedies (d) Risks (e) “Servicer Paralysis” 5. Mezzanine Loans -- Intercreditor Agreements D. Starting the Foreclosure 1. Review Loan Documents (a) Recourse (b) Non-Recourse (c) Recourse carve-outs (d) Springing guaranties (e) Execution, perfection, modification 2. Order Foreclosure Search -- Update Prior to Filing 3. Determine the Parties to the Lawsuit (a) Maker (b) Mortgagor (c) Guarantor (d) Subordinate lienholders (e) Subsequent owner (“new debtor syndrome”) (f) Judgment holders (g) Tenants (h) Municipality 4. Election Not to Foreclose Anchor or Market Tenants or Distant Judgment Creditors 5. Non-Disturbance Agreements E. Summons and Verified Complaint 1. Parties (Name All Defendants, John Doe Defendants) 2. Necessary Parties v. Permissible Parties 3. Describe Mortgage History 4. Describe Collateral being Foreclosed with Particularity 5. Causes of Action for Foreclosure

89 6. Ask for Receiver 7. Ask for Deficiency Judgment 8. Separate Cause of Action on Guaranties 9. Update the Foreclosure Search F. The Notice of Pendency (in General) 1. Unique Real Property Device 2. Available in All Actions Affecting Title to or Use, Possession or Enjoyment of Real Property 3. Effective for Three Years -- Can be Renewed (in New York) 4. Grounds for Cancellation 5. Improper Use -- Slander of Title G. Effect of Filing of Notice of Pendency 1. Notice to Subsequent Encumbrancers/Lienors 2. “Bound as if a Party” to the Foreclosure 3. Impact on Marketing Efforts 4. Third Party Approach to Lender 5. Sale of the Loan 6. Title Insurance 7. “New Debtor” H. Election of Remedies 1. New York Law (a) Requires an election (i) Either foreclose the mortgage or sue the guarantor (ii) Cannot do both simultaneously (b) If “elect” to sue the guarantor cannot start the foreclosure until the action on the guaranty is complete (i) Execution on judgment must be returned “unsatisfied” (ii) This is the consequence of the election of remedies doctrine

90 (c) If “elect” to foreclose, guarantor is named in the foreclosure action for a deficiency (Phase II -- after foreclosure sale, guarantor liable for amount by which debt exceeds purchase price or value of property) 2. Hot Tip -- “Unless the Court Orders Otherwise” -- RPAPL 1301(3) -- “Without Leave of Court” (a) Where it is known there will be a deficiency, ask the court for permission to sue the guarantor for the deficiency simultaneously with the foreclosure (b) Example: (i) At origination -- $80MM loan; $100MM fair market value (ii) At foreclosure -- $80MM loan; $50MM fair market value (iii) $10MM partial guaranty (iv) There will be a $30MM deficiency; ask the court for permission to sue guarantor for $10MM 3. Cases Support this Practice -- see Investors Warranty of America v. Maclara, Index No. 1958/10, Sup. Ct. Nassau Co. February 18, 2010 4. Common Approach (a) Invariably the lender will elect to foreclose its collateral first and name the guarantor for the deficiency (b) The loan is underwritten on the strength of the (income--producing) collateral (c) Receivership in foreclosure protects the lender against a diversion of cash flow (d) Real Estate Tax Delinquency, Insurance, and Threats to Security and Priority of the Mortgage -- Catastrophic Loss -- Crisis Management I. Summary Compendium of Foreclosure Defenses and Lender Liability Theories of Recovery 1. Classic Lender Liability

91 (a) Oral modification (b) Waiver and estoppel (c) On-going negotiations (d) Agreement not to enforce rights (e) Unconscionability, duress, overreaching, unequal bargaining position (f) Fraud (g) Actions taken in bad faith (h) Standards of good faith and fair dealing (i) Detrimental reliance (j) Course of conduct, reversal of established course (k) Tortious interference with contract (l) Tortious interference with prospective contractual advantage (m) Joint venturer or partner -- mezzanine loans in particular (n) Breach of fiduciary duties (o) Excessive lending (duty to curtail, moderate or investigate borrower’s financial condition) (p) Misrepresentation or misleading statements by loan officers (q) Lender’s duty to act consistently and not to give a false sense of security (r) Impermissible interference with borrower’s business affairs (s) Lender as borrower and mezzanine lender -- fiduciary duties, conflict of interest (t) Clogging the equity of redemption 2. “New Lender Liability” (a) Proof of ownership of note (b) Standing to Sue (c) “Robo Signing” affidavits (d) “Robo Verifying”

92 (e) Cutting corners in foreclosure process -- fraud (f) Affiant’s lack of personal knowledge (g) Defective foreclosures (h) Loan participant suitability (i) Chain of title defenses -- Ibanez (j) Impossibility of performance (k) Force majeure (l) Doctrine of “deepening insolvency” -- fraudulent expansion of corporate life (m) “Loan to own” activities J. Class Action “Hot Themes” 1. Predatory Lending 2. Sub-Prime Considerations 3. Rate Re-Set 4. Anti-Flipping 5. Fax Charges -- “Junk Fees” 6. Unauthorized Practice of Law (Charging a Fee for Preparation of Documents by Non-Lawyer) K. Second Mortgagee’s Rights 1. Participate in Foreclosure (“Piggy-back”) 2. Distributions out of Proceeds 3. Right to Cure First Mortgage Defaults (a) Need subordination agreement (b) Avoid imposition of default rate interest on first mortgage (erosion of equity) (c) Default under second mortgage 4. Acceleration of Second Mortgage 5. Separate Foreclosure Action on Second Mortgage 6. Foreclosure Strategies as Holder of First and Second Mortgages (a) Foreclose subordinate, “subject to” first mortgage (b) Foreclose first only -- wipes out second (c) Separate causes of action on each mortgage

93 (d) Valuation of property 7. Notice of Default to First Mortgagee Not Necessary 8. Consent of First Mortgagee to Subsequent Second Mortgage L. Lender’s Exercise of Assignment of Rents 1. Revocation of Borrower’s License to Collect 2. Demand for Turnover of Rent 3. Notice to Tenants 4. Mortgagee-in-Possession 5. Perfection of Security Interest in Rent/Cash Collateral/Standards 6. Lock Box Arrangement -- Joint Notice to Tenants M. Interim Revenue Agreements in Lieu of Receivership 1. Cash Flow Mortgage 2. Approved Budget 3. Approved Expenditures 4. Extraordinary Expenditures/Reserve 5. Lender’s Control of Decisions 6. Lock Box 7. License to Collect Revenue; Termination of License N. Receivership 1. Procedures, Effectiveness and Strategy in Seeking Appointment 2. New Rules in New York Receiverships (a) 22 NYCRR Section 36 (i) Receiver cannot be related to the appointing judge (ii) The court makes/approves all appointments -- managing agent; receiver’s counsel (iii) Limits number of receivership appointments 3. Perfection of Security Interest/Cash Collateral 4. Managing Agent, Commissions, Collection of Rent 5. Preservation of Security

94 6. Assignment of Rents, Defenses to Exercise 7. Consensual Receivership 8. Designation of Property Manager 9. Receiver as Officer of the Court 10. Receiver’s Right to Make Necessary Repairs 11. Shortfall in Receiver’s Account 12. Receiver’s Discharge 13. Alternative of Coordinated Collection Efforts O. Judgment of Foreclosure and Sale 1. Establishes Liability for the Debt 2. Directs Sale of Mortgaged Property 3. Affidavit of Regularity in Support 4. Delete John Doe Defendants 5. Referee Sells the Mortgaged Property 6. Sale is Subject to Certain Encumbrances 7. Provides for Distribution of Proceeds 8. Plaintiff May Credit Bid 9. Liability for Deficiency Judgment is Established 10. Directs Purchaser be Put in Possession 11. Right of Redemption P. Auction and Sale 1. Notice of Sale (a) Publication (b) Service on Parties 2. Terms of Sale 3. Memorandum of Sale -- Binding Contract 4. Auction at the Courthouse 5. Closing -- Referee’s Deed 6. Effectiveness of Referee’s Deed Q. Assignment of Bid 1. Prior to Closing 2. Tax Advantages 3. Non-Ownership Advantages 4. Disadvantages -- Ownership “Limbo”

95 5. Continuance of Receivership R. Deficiency Judgment Proceedings 1. Recourse to Maker/Guarantor -- Recourse Events 2. Determine scope of recourse (a) Full liability (b) Partial liability (c) Construction completion guaranty -- but note, full payment out of collateral (d) Covenant violations (e) “Actual losses” (f) Bad acts 3. Guarantors 4. Fix Liability in Foreclosure Action 5. Calculation of deficiency (a) Equal to amount of indebtedness less the greater of (i) successful bid in foreclosure or (ii) fair market value of the mortgaged property (generally based on appraisal) (b) Contemporaneous (at time of auction) appraisal of mortgaged property (needed to determine deficiency) (c) Consent judgment of foreclosure -- consent to deficiency calculation and to method for determining fair market value 6. Short Statute of Limitations VIII. Workout and Restructuring Strategies, Techniques and Objectives A. Pre-Workout Agreement/Standstill Agreement 1. “Ticket for Admission” to Workout Discussions 2. Preserves Status Quo 3. Sets Ground Rules for Discussions 4. Either Party can Terminate Discussions at any Time 5. Protects Lender against Waiver, Oral Modification Arguments 6. No Oral Agreements can be Made

96 7. Lender’s Goal: Obtain Borrower’s Acknowledgement of Debt and Waiver of Defenses (Difficult to Accomplish in a Pre-Workout Agreement) 8. Loan Documents in Force 9. Without Prejudice to Rights and Remedies 10. Overreaching Admissions (a) Fundamental fairness v. “ticket for admission” (b) Duress (c) Validity B. Background Considerations 1. Identify All Necessary Parties, Sources of Funding, Credit Enhancements 2. Intercreditor Rights and Restrictions 3. Identify, Negotiate and Resolve All Material Business Points Early to Avoid Borrower’s Disguised Delay Tactics 4. Engagement of Financial Consultants or Turnaround Specialists 5. Beware Oral Modification or Waiver During Negotiations 6. Prepare and Execute Detailed Term Sheet (Subject to Credit Approval) 7. Issue a Loan Commitment, if Appropriate 8. Need a Formal Instrument of Modification 9. Need for Requisite Corporate or Partnership Authority 10. Ratification of Loan Documents, Guaranties 11. Consolidation of Debt and Mortgage (if New Advance) 12. Obtain Subordination Agreements (or Discharge of Liens) 13. Title Insurance -- Payment of Taxes

97 C. To Avoid: 1. Unrealistic Optimism about Borrower, Borrower’s Business, the Property or the Market Place 2. Needlessly Complex Strategies or Restructure Models 3. Strategies that Ignore Essential Parties 4. Strategies or Models where Lender has All Downside and Borrower has All Upside D. Opportunity for Enhancements 1. Concessions or Contributions from Other Lenders 2. Concessions or Contributions from Private Equity 3. Additional Collateral (Shares of Stock, Partnership Interests, Business Assets, Homes, Reserve Accounts, Confessions of Judgment) 4. Beware Pledge of Assets by Non-Obligors (Consideration, Fraudulent Conveyance Issues) 5. New or Additional Guaranties -- Increasing Scope of Guaranteed Obligations 6. Cure Legal or Document Deficiencies 7. Obtain Additional Loan Covenants or Monitoring Rights 8. Control of Project Revenue -- Cash Collateral -- Cash Management Agreement -- Lock Box 9. Obtain Waiver and Release of Defenses and Counterclaims 10. Ratification of Indebtedness 11. Formal Extension of Matured Obligations 12. Preserve or Improve Underlying Collateral (Capital Expenditures) E. Lender’s Strategy -- Use of Workout to Fix Loan, Collateral and Perfection Defects 1. Offer Concessions/Forbearance in Effort to Fix Collateral or Perfection Defects (Illustration -- Internal Audit Discloses U.C.C. Financing Statements Never Filed) 2. Obtain Acknowledgement of Debt/Waiver of Defenses

98 3. Obtain Remedies -- Certainty, Finality, Predictability -- Finishes the Process F. Additional Collateral/Guaranties 1. As Consideration for Business Concessions by Lender 2. Additional Collateral and/or Guaranties Protect Lender Against Downside, Further Business Erosion and Insolvency 3. Expansion of Existing Limited Guaranties; Guaranty of Tranches of Debt 4. Types: (a) Partnership or membership interests (b) Additional mortgages (c) Other project interests (d) Home mortgage (e) Cash collateral (f) Letter of credit (g) Guaranties (h) Confessions of judgment IX. Alternative Restructure Models -- One Lender or Multi- Lender Transactions A. For Multi-Creditor Transactions: 1. Agency, Master Servicer, Special Servicer Considerations 2. Default or Performing Loans 3. Participant Suitability 4. Major Decisions and Consent Rights (a) Market standard (b) Conflicts (c) Enforcement of remedies 5. Participant as “Squeaky Wheel” in Loan Restructurings (a) Unanimous consent for certain major decisions (including loan extension and deferral of principal payments) (b) Impact on other participants

99 (c) Agent’s responsibilities, alternatives and strategies 6. Open Business Discussion among Creditors 7. Awareness of Concessions, Contributions and Business Requirements by Other Creditors 8. Pari Passu Relationships 9. Treatment of Claw Back (Excess Cash Flow), Deferral Notes and Debt Forgiveness 10. Beware: Tortious Interference with Contract 11. Guaranty Dilution B. Reinstatement of Loan -- Cure Short Term Default 1. Justification for Default 2. Borrower’s Open and Honest Reaction to Market Forces -- Catastrophic Loss, Product Change, Deferred Maintenance Obligations, Business Contraction 3. Technicality -- Withdraw Acceleration (No Obligation to Do So) C. Discounted Repayment Agreement -- as an Exit Strategy 1. Tied to Market Conditions, Lender’s Business Objectives, Target Market 2. Example -- $50MM Debt -- Accept $45MM in Six Months or $40MM Immediately 3. Include Remedies -- Discount Debt as an Incentive to Sell or Refinance Coupled with Consent Judgment of Foreclosure -- Ensure Finality 4. In Non-Recourse Loan, Discount Needs to Give Borrower Incentive to Pay the Discount -- Possible Equity Recapture by Borrower 5. In Recourse Loan -- Discount in Exchange for Release of Note and Guaranty 6. Never Release Note or Guaranty Until Payment or Consensual Asset Liquidation has Occurred D. Short Term Forbearance Agreement 1. Six Months to Cure Identified Business Problem -- Suspension or Reduction of Debt Service Payments 2. Waiver of Covenant Defaults

100 3. Waiver of Defenses, Acknowledgement of Debt, Release of Claims 4. Remedies (a) Nature and extent (b) Overreaching (c) Duress (d) Reaction of the courts E. Longer Forbearance (i.e., One to Two Years) Tied to 1. Shortening Maturity 2. Economic Concessions 3. Discounted Repayment Built into Restructure 4. Remedies Included in Forbearance Agreement (a) Consent judgment of foreclosure (b) Confession of judgment (c) Waiver of bankruptcy stay 5. Additional Collateral Included in Forbearance Agreement 6. Increasing Number of Guarantors or Scope of Guaranty 7. Amplification of “Good Guy” Guaranty 8. Accrual of Default Rate or Interest Shortfall, with Waiver upon Performance F. Substantive Loan Restructure 1. Restructure Loan to Conform to Market (Lower Interest Rates, Change or Eliminate Amortization, Less Burdensome Financial Covenants) 2. Reduce Interest Rate or Principal Debt if Borrower Infuses Cash, Stabilizes Business, Brings in Beneficial Business Partner or Adds Collateral 3. Principal Debt Repayment Plan with Contractual Incentives (e.g., $10MM Loan -- Recast at $9MM; Pay $2MM, Forgive $1MM) 4. Pari Passu with Other Creditors 5. The Claw Back (Cash Flow) Component (a) Stabilizes business (b) Reduces debt loan

101 (c) Keeps component of debt alive as leverage, with realistic expectation of payments out of on-going business operations (d) Tied realistically to borrower’s ability to perform and economic viability 6. Incorporate Remedies (a) Consent judgment of foreclosure (b) Consent to asset turnover (c) Waiver of bankruptcy stay (d) Liquidation (e) Guarantor’s confession of judgment G. Note A/Note B/Note C as Workout Device 1. Note A as the “Performing” Note (a) Market interest rate (b) Pay rate/note rate/accrual 2. Note B as the “Claw-Back” Note (a) Cash flow (b) Lock box (c) Reporting requirements 3. Note C as the “Deferral” Note -- Parties’ Intention is Ultimate (Not Immediate) Forgiveness 4. Discount or Forgiveness Only after Primary Debt Repaid 5. Note A at Market Value, Interest Rate and Business Capabilities 6. Note B Tied to Cash Flow Formulas, Business Improvement 7. Sharing Arrangements with Other Creditors 8. Note B Guaranteed 9. Note C as Leverage to Maximize Loan Restructure Performance 10. Notes B and C Come Due upon Default 11. Note A/B Structure in Lieu of Forbearance 12. Claw-Back Tantamount to Cash Flow Mortgage

102 X. Deed in Lieu -- Consent Judgment of Foreclosure -- Consensual Turnover or Liquidation of Assets A. Implications and Benefits of Deed-in-Lieu 1. Business Decision to Take Back or Market the Collateral 2. Predictability 3. Speed 4. Finality 5. Deed or Consensual Liquidation -- Faster than Court Remedies 6. Need Consent Judgment to Wipe Out Subordinate Liens on Real Estate 7. Lender Should Strive to Make the Remedy Part of the Workout 8. Ramification of Consent Judgment of Foreclosure in Escrow 9. Benefits of Entry of Judgment of Foreclosure with Stay of Execution B. Non-Delivery of Deed in Lieu of Foreclosure as “Bad Boy” Act 1. In Some States (e.g., New York -- RPL Section 320) a Deed in Lieu of Foreclosure in Escrow is Considered “Additional Collateral Security in the Nature of a Mortgage.” 2. Rather than Hold the Deed in Escrow, the Lender Should Require Borrower, upon the Occurrence of a Default, to Execute and Deliver the Deed to Lender or its Designee or Nominee. 3. Failure to Perform this Covenant Constitutes a “Bad Boy” Act Triggering Full Recourse Under the Guaranty. 4. If There Was No Creditworthy Guarantor at Loan Origination, a New Guaranty from a Creditworthy Party Could be Executed and Delivered as Part of the Restructure.

103 5. The New Guaranty Could Provide for Full and Unconditional Recourse upon Borrower’s Failure to Deliver the Deed in Lieu of Foreclosure, As and When Required. XI. Lender’s Sale of the Distressed Loan to a Third Party A. Speed, Certainty, Finality, Elimination of Further Risk of Loss 1. “First Loss is Best Loss” 2. Lender’s Capital Requirements B. Target Market Considerations -- “Leave” Relationships C. The Third Party Purchaser Bargains for Long Term Upside Value D. Public Relations upon Enforcement, Lender Liability Considerations E. Ready Marketplace -- Purchasers of Distressed Debt 1. Exclusivity 2. Due Diligence 3. Seller Financing the Loan Purchase F. Lender Liability Considerations -- Tortious Interference with Prospective Contractual Advantage G. Split of Loan into Tranches and Sale of Parts 1. Different Markets 2. “Higher Risk -- Higher Rate” 3. “Loan to Own” H. Proof of Original Note I. Loan Purchaser’s Due Diligence 1. Underlying Loan Documents -- Signatures 2. Priority of Lien 3. Scope of Guaranty 4. Title Insurance 5. Property Analysis 6. Enforcement of Underlying Loan Documents (a) Status of loan (b) Nature and quality of default

104 (c) Communications with borrower -- lender liability (d) Internal memos and communications -- admissions against interest (e) Foreclosure timeline and “judicial sympathy” (f) Leverage of guaranty -- “release of guaranty in exchange for deed” XII. The “Hope Certificate” A. Applicable to Discounted Repayment or Sale of Debt Workout Models B. Prevents Borrower’s Quick or Premeditated Flip of Assets at a Profit C. Protects Lender in Soon-to-be-Rising or Uncertain Market D. The “Soft Note” Model 1. Lender Retains a Portion of the Debt 2. No Debt Service Payments 3. Note Collateralized by Second Mortgage or Lien Without Foreclosure Remedies 4. Intercreditor Agreement -- New First Mortgagee Consents to the “Soft Second” Lien 5. Upon Quick Sale or Refinance, Lender Receives Additional Payment E. The Burn Away 1. The “Hope Certificate” Burns Away After Negotiated Short Period (i.e., Six Months to One Year) or in Stages 2. Prevents Premeditated Flip at a Profit F. Tool to Accomplish the Loan Sale

105 106 DISTRESSED COMMERCIAL REAL ESTATE LOAN WORKOUTS AND REMEDIES – CURRENT ISSUES

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Joint Ventures

Meredith J. Kane, Partner, Paul Weiss Rifkind Wharton & Garrison LLP

Gerald W. Blume, Senior VP and General Counsel, Rockefeller Group Development Corporation

PAUL, WEISS, RIFKIND, WHARTON & GARRISON LLP

Types of Joint Ventures

Equity Financing Joint Ventures

• JVs for Development

• JVs for Recapitalization of Maturing Debt

• JVs for Acquisition Financing for Operating Property

Strategic Joint Ventures

• JV between landowner and developer

• JV between not-for-profit sponsor and for-profit developer

• JV between equal parties/pro rata investors

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Equity Joint Ventures in the Capital Structure

Typical Capital Structure in Operating Property

• Senior Debt – Mortgage and Mezzanine (loan to value) – 60-75%

• JV Equity Requirement – 25-40% Financial Member Equity Share - 70-90% of cash requirements Sponsor /Operating Member Equity Share – 10-30% of cash requirements, guaranties, existing equity on recap Typical Capital Structure in Development Project

• Senior Debt – Mortgage and Mezzanine (loan to cost)– 65-85%

• JV Equity Requirement – 15-35% Financial Member Equity Share –75-100% of cash requirement Sponsor/Operating Member Equity Share– <10% of cash requirement; land, entitlements, development fees, soft costs, guaranties

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Structuring the Right Deal

• A Joint Venture is a Marriage

• The JV Agreement is both the Pre-Nup and the Pre-negotiated Divorce

• Keys to Success Are: – Choosing the Right Partner – Alignment of Interests Throughout the Life of the Membership – Allowing Each to Have a Voice in Management and Controls Commensurate with the Interests of Each and with Business Operating Efficiency of JV – Transparency in Financial Matters – Fiduciary Responsibility to the Partner – Putting the Interests of the Company Before the Interests of the Individual Partner – Process for Dispute Resolution – Commitment to Mutual Success

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Choosing the Right Partner

• Choosing a Financial Partner: Issues for Consideration – Investor Return Thresholds • IRR Driven • Total Return Driven – Investment Time Horizons • Exit/Liquidation Date on Fund • “Patient” Capital of Insurance Companies, High Net Worth Private Investors – Risk Tolerance and Investment Parameters • High Risk, High Yield • Conservative Risks and Rewards – Asset Class Allocation • Development • Operating Property Asset Classes – Core, Core Plus, Retail, Industrial, Multifamily • Choosing a Sponsor Partner: Issues for Consideration – Available skills and staffing; Competing projects and exclusivity

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Characteristics of Equity JVs - Organization

• Types of Organization – LLCs – Delaware or Local Law – Each “Borrower Entity” Structured as a Single-Member Entity with SPE Manager – “Real” JV usually up one level from property (or two, if mortgage and mezzanine debt) – LPs – characteristic JV format of funds

• Management Structure of Equity JVs – Operating Member as Managing Member – Financial Member as Co-Managing Member or Non-Managing Member with Major Decision Rights – In Partnerships, Operating Partner as General Partner – Financial Partner as Co-General Partner or Special Limited Partner – Executive Committee Role

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Characteristics of Equity JVs – Capital Contributions

• Initial Capital Contributions – Cash – Land or In-Kind contributions – Valuation, Built-In Gain – Conditions to Equity Pay-In

• Additional Capital Contributions – Mandatory Additional Capital – limited purposes, capped amounts – Permissive Additional Capital – who calls, for what purposes? – No third-party beneficiary of overcall obligations

• Guaranty Capital Contributions – for Loan Guaranty Liability – Environmental – Recourse-Carve-Out “Bad Boy” – Completion and Cost Overrun – Parent Company Obligation to Fund Guaranty Capital Contributions

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Characteristics of Equity JVs – Capital Contributions cont’d

• Failure to Make Additional Capital Contributions – Punitive Remedies should be only if Mandatory Capital (including mutually agreed capital calls) – Loan to Defaulting Member – Dilution of Defaulting Member Percentage Interest with Penalty Formula: Contribution Interests vs. Distribution Interests – Loss of Voting Rights after Default – Loss of Voting Rights if dilution below Specified Percentage Interest • Removal of Management Role after Dilution Below Specified Percentage Interest – Lender and Other Consent Considerations in Replacing Managing Member – Substitution of Loan Guarantor or Back-Up Indemnity to Removed Guarantor

• If Default In Permissive Capital, Remedy Should Be Priority Loan To Membership

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Characteristics of Equity JVs – Distribution Waterfall

• First, Priority Loans or Default Capital Repaid with Interest - Repayment from JV or from Defaulting Member

• Second, Additional Capital (“New Money”) with Preferred Return Paid

• Third, Initial Capital with Preferred Return Paid, Until First Hurdle Rate

• Fourth, Subordinated Fees, Excess Land Value, Development Cost Overruns or Other Subordinated Additional Capital Contributions Repaid, With or Without Return

• Fifth, Initial Promote Structure of Operating Member Paid After Initial Hurdle Return on Investor Capital – e.g., 15% after a 15% IRR

• Sixth, Additional Promote Structure of Operating/Developer Member Paid After Subsequent Hurdle Returns on Investor Capital

• Seventh, Residual Percentages

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Characteristics of Equity JVs – Responsibilities

• Responsibilities of Managing/Operating Member – Prepare Budgets and Business Plan – Arrange Financing – Contract for Services on Behalf of Venture – Originate Transactions for Venture – Additional Acquisitions, Sales

• Affiliate Contracts – – Fair and arms’-length terms – Approval and Enforcement Rights in Non-Affiliated Member

• Accounting, Books and Records, Tax Matters

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Characteristics of Equity JVs – Decision-Making

• Unanimous Consent for “Organic” Decisions – Merger, Dissolution, Amendment of Structure, Tax Treatment, Additional Members – Bankruptcy – Control Must Be in Hands of Non-Recourse Carve-Out Guarantors

• Supermajority/Non-Managing Member Consent for “Major Decisions” – Capital and Operating Budgets, Business Plans – Major Leases – Financings, Recapitalizations – Sales of Property or Major Interests – Development Project: Key Development Decisions – Program, Architect, CM, Financing, Sales/Leasing Program, Budget and Amendments – Capital Calls

• Managing Member Day-to-Day Operational Controls

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Characteristics of Equity JVs – Guaranties

• Guaranties to Lender – Which Member Gives? – Guaranties which are JV risks • Environmental • Other Property-Related • Principal, Financial Guaranties – Guaranties which are Risks of One Member • Development Guaranties – Completion and Cost Overrun • Non-Recourse Carve-Out “Bad Boy” Guaranties • Contribution and Indemnity Between Members Where One Gives Guaranties to Lender

• Guaranties from One Member to Another – Development – Completion and Cost Overrun Guaranties • Structure and Recovery of Cost Overrun Capital – Alignment of Interests – Guaranteed Investment Return

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Characteristics of Equity JVs – Resolving Deadlocks

• Buy-Sell – Triggering cause or no cause – Lockout period – stabilization, completion of project – Lender concerns – “Leveling the Playing Field” Between Operating and Financial Member with Extended Exercise and Closing Time Frames, etc.

• Single Member Override on Specified Decisions

• Forced Sale of Asset

• Does Arbitration or Third-Party Decision Ever Make Sense?

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Characteristics of Equity JVs – Exit Strategies

• Sales of Interests to Third Parties with ROFR In Non-Transferring Member – Permitted Transfers – Sales of Upper Tier Interests in Member Entities

• Forced Sale of Property with ROFO In Non-Selling Member

• Drag Along and Tag Along on Interest Sales

• Valuation Effects on Interests Being Sold – Sale of Interest vs. Sale of Project

• Put Rights

• Lock-Out Period – Stabilization, Completion of Project

• Lender Issues

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Characteristics of Equity JVs – Fees

• Development Fees

• Property Management and Leasing Fees

• Asset Management Fees

• Partnership Management Fees

• Expense Reimbursement

• Other Service Fees – Acquisitions, Debt Placement, Construction

• Fee Subordination to Loans, Preferred Returns

• Fee Sharing Among Members

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Strategic Joint Ventures

• JV between a Not-for-Profit Institution Selling Underutilized Land to Developer in Return for Cash and New Facility as Part of Larger Development – Not-for-profits own valuable land in desirable locations, often lack capital for required capital improvements – Seek to unlock land value with JV transaction with developer to develop new facility for NFP in tandem with on-site commercial development

• Structuring the Transaction – Recognition of Division of Expertise and Responsibility – Harmonizing the Divergent Interests and Risk Tolerances of the Members – Clear Cost Allocations, Financial Accountability and Transparency – Taking Advantage of NFP Tax Exemptions – Completion Guaranties and Security

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Joint Ventures

Meredith J. Kane Partner, Paul Weiss Rifkind Wharton & Garrison LLP [email protected]

Gerald W. Blume Senior VP and General Counsel, Rockefeller Group Development Corp. [email protected]

NYSBA – December, 2014 Page 17

Our Offices

New York London Washington, DC 1285 Avenue of the Americas Alder Castle 2001 K Street, NW New York, NY 10019-6064 10 Noble Street Washington, DC 20006-1047 United States London EC2V 7JU United States Telephone: 212.373.3000 United Kingdom Telephone: 202.223.7300 Facsimile: 212.757.3990 Telephone: 44.20.7367.1600 Facsimile: 202.223.7420 Facsimile: 44.20.7367.1650 Beijing Wilmington Unit 3601, Fortune Plaza Tokyo 500 Delaware Avenue, Suite 200 Office Tower A Fukoku Seimei Building Post Office Box 32 No. 7 Dong Sanhuan Zhonglu 2-2, Uchisaiwaicho 2-chome Wilmington, DE 19899-0032 Chao Yang District, Beijing Chiyoda-ku, Tokyo 100-0011, United States 100020, PRC Japan Telephone: 302.655.4410 Telephone: 86.10.5828.6300 Telephone: 81.3.3597.8101 Facsimile: 302.655.4420 Facsimile: 86.10.6530.9070 Facsimile: 81.3.3597.8120

Hong Kong Toronto Hong Kong Club Building, Toronto Dominion Centre 12th Floor 77 King Street West, Suite 3100 3A Chater Road, Central P.O. Box 226 Hong Kong Toronto, Ontario M5K 1J3 Telephone: 852.2846.0300 Canada Facsimile: 852.2840.4300 Telephone: 416-504-0520 Facsimile: 416-504-0530

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130 Andrea D. Ascher MTA Deputy General Counsel, Real Estate (212) 878-7255; [email protected]

Andrea D. Ascher was recently appointed MTA Deputy General Counsel to head the real estate legal group at the Metropolitan Transportation Authority and its agencies, including Metro North, LIRR, NYC Transit, Buses & Terminals, Bridges and Tunnels and MTA Capital Corporation. Prior to joining the MTA, Ms. Ascher was formerly with Schoeman Updike Kaufman Stern & Ascher LLP, a certified woman-owned firm (Partner,. 2010 to 2014), Proskauer Rose LLP (Partner, 2007 to 2010) and Cadwalader Wickersham & Taft LLP (Counsel, 1998 to 2007). She began her career in 1977 at Trubin, Sillcocks, Edelman & Knapp, a law firm, founded by Senator Jacob Javits and former NYS Assistant Attorney General John Trubin, which firm, with a commercial real estate law department of over 40 attorneys and paralegals, was special real estate counsel to Citicorp at the time. Ms. Ascher, while in the private sector, had a multi-faceted national transactional real estate law practice focusing on real estate lending and finance, including syndicated and securitized financings, debt restructures and workouts, acquisitions, dispositions and development, construction related and lien law issues, project and property management agreements and commercial leasing, regularly representing institutional lenders and borrowers, owners, and commercial landlords and tenants, involving all types of commercial properties including office buildings, shopping center, hotel, multi- use and multi-family properties. She worked on the construction loan financings of many of our iconic properties, including the South Street Seaport and the Blumberg building.

A recognized leader in her field, Ms. Ascher was named to Who’s Who of American Women (14th edition; 1985-86)), was elected to the American College of Real Estate Lawyers in 1993, is a fellow member of the American College of Mortgage Attorneys, has been listed as a New York SuperLawyer annually since its inception in 2006 and has a Martindale-Hubbell Peer Review Rating of AV Preeminent (5.0 out of 5). She served as Chair of the New York City Bar Association, Real Property Law Committee from 2011 to 2014, and as Co-chair of the New York State Bar Association, Committee on Financing and Liens. Apart from her numerous industry organization memberships, Ms. Ascher is also a frequent lecturer and speaker in her field. She is a graduate of Emory University School of Law and Cornell University, and remains actively involved in her alma maters, having served on the Dean’s Advisory Board of her law school and the Dean’s Advisory Council of her undergraduate college. Ms. Ascher and her husband, Paul Ascher, a well-regarded criminal defense attorney, live in the Town of New Castle, New York, and have two sons, Zachary (Cornell ’13) and Michael (Cornell ’16).

131 Comprehensive Real Estate Representation 733 Third Avenue . New York, NY 10017 . 212-867-6000

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Luise A. Barrack SEARCH THE SITE: Search our site

CONTACT US Luise A. Barrack Bold labels are required.

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Phone Location: New York, New York Brief description of your legal Phone: 212-551-8430 issue

Fax: 212-551-8484

E-mail: [email protected] 132 vCard: I have read the disclaimer. Privacy Policy

Luise A. Barrack is the Managing Member of Rosenberg & Estis, P.C. She co-heads the firm's Litigation Department, imparting her trial and appellate experience to the firm. She is a IN-DEPTH INFORMATION: staunch advocate for her clients, many of Administrative Law / Rent whom she has represented for almost 30 Regulations years. Her no-nonsense approach has helped Appellate Law make Rosenberg & Estis, P.C. the tough and highly respected law firm it is today. Litigation Transactional Law Ms. Barrack's practice focuses on complex commercial litigation at the trial and appellate levels. She has substantial expertise in all CONTACT facets of real estate litigation, and is an Rosenberg & Estis, P.C. experienced practitioner in the Commercial 733 Third Avenue Division of the New York State Supreme New York, NY 10017 Court. Her real estate practice concentrates Phone: 212-867-6000 on representing developers, commercial Fax: 212-551-8484 owners, hoteliers, not for profit corporations and educational institutions. Ms. Barrack is NEW YORK LAW OFFICE also one of New York City's leading Loft Law experts, handling legalization, valuation of loft fixtures, and the costs of code compliance.

Matters handled by Ms. Barrack include: defeating a claim that a developer was required to conduct an environmental study prior to filing an administrative proceeding for permission not to renew rent stabilized tenants' leases in order to demolish a Central Park South building; reaching a multimillion dollar deal and property exchange with Columbia University; representing New York Law School in recovering a site essential to building its new urban campus; and defeating a party claiming an option to purchase an interest in a High Line building containing a chic and extremely high profile nightclub. 133 Ms. Barrack also represents owners and developers in construction litigation, developments, demolitions and assemblages, and disputes including succession rights, non- primary residence, and owner occupancy. In addition, she is seasoned in cooperative, condominium, and shareholder disputes. In one such matter, Ms. Barrack obtained a judgment for maintenance withheld by a real estate attorney shareholder for his Park Avenue co-op and an order requiring him to pay the bulk of the attorneys' fees he caused his co-op to incur.

Year Joined Firm

1984

Areas of Practice

Litigation (Commercial) Litigation (Real Estate) Landlord Tenant Law Loft Law

Bar Admissions

New York, 1981 U.S. District Court Eastern District of New York, 1981 U.S. District Court Southern District of New York, 1981

Education

New York Law School J.D. - 1980 Honors: Member, Moot Court Association, 1978-1979 134 Law Review: New York Law School Law Review, Member, 1978 - 1979 Law Review: New York Law School Law Review, Research Editor, 1979 - 1980

State University of New York at Stony Brook B.A. (Cum Laude) - 1977

Representative Cases

Matter of 220 CPS "Save Our Homes" Assn. v. New York State Div. of Hous. & Community Renewal, 60 A.D.3d 593, 877 N.Y.S.2d 21 (2009)

Classes/Seminars

R&E's 2013 In-house Lecture Series: Attorney Client Relations 101 (Ethics), May 1, 2013 PLI - Catastrophe and the Law: What Lawyers Need to Know to Advise Clients to Prepare and Respond to Disasters 2013 (Real Estate Litigation, Property Law and Landlord-Tenant Law), April 4, 2013 2nd Annual 2013 Real Estate Weekly Women's Forum - Women Who Rule: CEO and Founder's Round Table, February 27, 2013 NYSBA 2012 Advanced Real Estate Transactions - Careful What You Say: Ethics in Real Estate, December 6, 2012 IMN-2nd Annual Real Estate General Counsel's Forum (What is on your Checklist? Property Acquisitions & Due Diligence), September 10-11, 2012 SL Green - Residential Rent Law Seminar, April 20, 2012 Commercial Summary Proceedings - 135 Landlord Representation for the Civil Court in the County of Kings, March 2, 2012

Current Real Estate Leasing Issues (Including Ethics and Civility), New York State Bar Association, Real Property Law Section – Annual Meeting, January 26, 2012

CLE - “Hot Topics Affecting Cooperatives & Condominiums- Cases & Marketplace Developments in the Last Six Months”, October 2014

Honors and Awards

Selected for inclusion in New York Super Lawyers, 2006 - 2014 AV Rated by Martindale Hubbell Honored by Real Estate New York as a "Woman of Influence" in its November 2008 Edition Joseph Solomon Scholar, University of Bologna School of Law, Italy Honored by Real Estate Weekly as an Industry Leader, August 2010 Edition Selected for inclusion in New York Super Lawyers Top Women Attorneys in the New York Metro Area, 2012 - 2014 Honored by Real Estate Forum as a "Woman of Influence" in its July/August 2011 - 2014 Edition

Professional Associations and Memberships

New York City Bar Association, Member, Committee on the Judiciary, Class of 2010- 2013

New York City Bar Association, Member, 136 Committee on Cooperative and Condominium Law Committee, 2013-2015

Member of the Irvington Village Zoning Board, 2014-2018

Pro Bono Activities

YMCA Development Committee, Leadership Council

Rosenberg & Estis, P.C. is located in New York City. Our attorneys practice in Manhattan, the Bronx, Queens, Brooklyn, Staten Island, Long Island, Westchester County, Nassau County, Suffolk County and the Tri-State Area. We have appeared in connection with litigation, transactions and leasing throughout the country.

© 2014 by Rosenberg & Estis, P.C. All rights reserved. Disclaimer | Site Map Privacy Policy | Business Development Solutions by FindLaw, a Thomson Reuters business.

137 Gerald W. Blume is Senior Vice President and General Counsel, Rockefeller Group Development Corporation. His practice includes all aspects of ownership and development of commercial office and industrial properties and mixed use properties around the country. He has been with the company since 1990. He has been involved with the development of Flushing Commons since the project’s inception in 1995. Among his other transactions, he has been involved in the acquisition and development of The Green at Florham Park, a large multi-use project in Florham Park, New Jersey that is home to the New York Jets and the North American headquarters of BASF Corporation; the operation of over 2 million square feet of first class office space in midtown Manhattan, and the acquisition, financing and operation of office properties in Washington DC, San Francisco, LA and Boston on behalf of an institutional fund. Prior to joining The Rockefeller Group, Mr. Blume was an Associate at the New York City law firm of Willkie Farr Gallagher. Mr. Blume holds a BA degree from the University of Connecticut and a JD degree from Columbia Law School.

138 Nancy Ann Connery, Partner Nancy Connery’s area of concentration is real estate law. She has a general real estate practice and has represented individuals, public and private companies, utilities, and not-for-profit entities in a variety of real estate matters, including: Leasing and Other Space Transactions: Ms Connery has negotiated office, loft, retail, and industrial space leases, garage leases, ground leases, easements, and licenses.

Download to Outlook Purchases and Sales: As part of her commercial practice Ms. Connery also has

551 Fifth Avenue represented clients in the purchase and sale of office buildings, loft buildings, New York, NY 10176 industrial buildings, and other commercial space; negotiated tenant buyouts in Phone: 212-661-5030 connection with such acquisitions; and overseen the real estate aspects of government- Fax: 212-687-2123 [email protected] granted economic benefits. Ms. Connery also represents her private and corporate clients in the purchase and sale of residential real estate, including cooperative Practice Groups: apartments, condominiums, and houses. Corporate Transactions; Real Estate; Private Practice Lending: She has represented both lenders and borrowers in residential and Honors and Awards: commercial mortgage loans. Fellow, American College of Real Estate Lawyers; New York Superlawyers (2008-2014); Former Cooperatives and Condominiums: Ms Connery’s practice includes conversions of Chair, New York City Bar Association buildings to cooperatives, and the general representation of both cooperatives and Real Property Law Committee; Former condominiums. Chair, New York City Committee on Cooperatives and Condominiums General: Ms. Connery’s real estate practice involves her in a variety of real estate Education: related matters, including brokerage issues, construction issues, trespass claims, B.A., Douglas College, 1968; M.A., UCLA, 1971; partition litigation, and other matters. J.D., Rutgers University, 1978, with honors; American Jurisprudence Before practicing law, Ms. Connery taught high school biology, chemistry and Award in Constitutional Law physics. Admissions: New York U.S. District Court, Southern District Professional Recognition: of New York Member, American College of Real Estate Lawyers New York SuperLawyers, 2008-2014

Professional Activities:

New York State Bar Association Member, Executive Committee of Real Estate Section Member, Cooperative and Condominium Law Committee, and Commercial Leasing Committee Ms. Connery has participated in the drafting of a model form of mortgage opinion, model 139contract of sale for cooperative apartment, model form of sublease and overlandlord consent, model form of office lease, model form of contract of sale for a commercial office building, and a model form of ground lease. She also chaired a Task Force that evaluated proposed cooperative disclosure legislation The Association of the Bar of the City of New York

Former Chair, Committee on Real Property Law Former Chair, Committee on Cooperative and Condominium Law Member National Association of Women Lawyers Member American Bar Association Chair - Assignment and Subletting Committee, Leasing Group Member, Leasing Group

Publications and Speaking Engagements:

"Tips for Negotiating the Small Office Space Lease," The Practical Real Estate Lawyer's Manual On Commercial Leasing in Troubled Times (ALI ABA 2009). "Tenant Buyouts," NYSBA N.Y. Real Property Law Journal, Winter 2008, Vol. 36, No. 1. Chapter Author, "Negotiating and Drafting Office Leases" (Law Journal Seminars-Press). "Courtesy, Professionalism and Ethics: E-mail, the Internet and Computers," Fall 2002 New York Real Property Law Journal (New York State Bar Association). "Evicting Defaulting Sponsors and Investors and Terminating Their Interests," Metes and Bounds (publication of Real Property Law Committee of the The Association of the Bar of the City of New York). Chapter Author, Practicing Law Institute Handbook series (chapters on security deposits, bankruptcy boilerplate leasing concepts; subleases; letters of credit, leasehold mortgage financing, and construction issues). Speaker, programs on commercial leasing and other aspects of real estate law sponsored by the Practicing Law Institute, ALI-ABA, the New York State Bar Association, and the Association of the Bar of the City of New York. Topics she has covered include compliance with laws, construction issues, bankruptcy, security, letters of credit, the Americans with Disabilities Act, ground leases, and assignment and subleasing. She has also participated in panels on residential transactions and lending transactions.

EDUCATIONAL: Faculty Member, Real Estate Institute, New York University (1987-1990)

140 RICHARD S. FRIES Partner

New York +1.212.839.5640 +1.212.839.5599 Fax [email protected]

PRACTICES ADMISSIONS & CERTIFICATIONS • Global Finance • U.S. Supreme Court, 1981 • Real Estate • U.S. Court of Federal Claims, 1981 • U.S. Court of Appeals, 2nd Circuit, 1980 AREAS OF FOCUS • U.S. District Court, E.D. of New York, 1978 • Real Estate Litigation • U.S. District Court, S.D. of New York, 1978 • Acquisition and Disposition • New York, 1978 • Construction and Real Estate Development • Corporate and Institutional Real Estate EDUCATION • Debt Financing • New York University School of Law (J.D., 1977) • Financial Institutions Litigation • Brooklyn College (B.A., 1974) • Private Equity and Joint Ventures • Real Estate Workouts and Restructurings

RICHARD FRIES is well-known throughout the New York and national legal, real estate and finance communities. According to Chambers USA, “true master negotiator” Richard Fries is a “superstar” who is regarded as “one of the premier real estate litigators in the City.” Chambers notes that he is “extremely well respected for his collaborative approach and expertise in complex workout and restructuring matters.” This year, Who's Who Legal acknowledged Richard as one of the ten "Most Highly Regarded" real estate lawyers in the Americas.

As a member of the Real Estate team, Richard focuses his practice on a wide array of complex real estate financing transactions, in which he represents national and global institutional lenders, investment banks and private equity firms.

Richard has been involved in the financing, foreclosure and restructuring of permanent, construction, acquisition and mezzanine loans of all types, including agented and syndicated facilities, secured by office buildings, land development projects, healthcare complexes, hotels, mixed-use projects, apartment buildings, shopping centers, franchise operations and automobile dealerships, among other real estate and business assets.

Richard is particularly distinguished for his work in high-profile distressed commercial loan workouts and restructurings, mortgage foreclosure, distressed portfolio and asset sales, creditors’ rights and insolvency. He has developed a unique market-leading practice using litigation tools to restructure real estate loans, projects and businesses. His experience and reputation in loan workouts has been acknowledged by Chambers as “legendary.”

He also has extensive experience representing private equity investors, property owners and developers in real estate joint ventures, commercial real estate litigation, construction, hospitality and partnership disputes, asset disposition, loan portfolio sales and project development.

Richard also represents national lending institutions in the purchase and sale of performing and underperforming loan portfolios, real estate assets and participation interests in loans, and the 141 implementation of national standard loan and workout programs and documentation for real estate, commercial and private banking loan products.

Richard has been highly recognized by Chambers USA as one of the country’s leading real estate lawyers. He has been ranked by Chambers in “Band 1” in Real Estate Nationwide for 2013 (the year such rankings began) and 2014 and in “Band 1” for Real Estate Finance in New York each year from 2009 through 2014. He has also been recognized as a Leading Lawyer in Legal 500 for Real Estate and was named by Best Lawyers as its Real Estate Litigation Lawyer of the Year in New York City in 2013.

Awards & Honors

• Chambers USA, Real Estate Finance, New York, Band 1 (2009-2014)

• Chambers USA, Real Estate, Nationwide, Band 1 (2013-2014)

• Legal 500, Real Estate (2007, 2009, 2011, 2013)

• Best Lawyers, New York City Litigation - Real Estate Lawyer of the Year (2013)

• Best Lawyers, Real Estate (2008, 2010-2015)

• International Who’s Who of Real Estate Lawyers (2010-2014)

• Who’s Who Legal, Real Estate (2010-2014)

• Law360, Real Estate MVP (2011)

• NY Super Lawyers, Top 100 list (2011-2014)

• NY Super Lawyers, Real Estate (2006-2014)

• Guide to the World’s Leading Real Estate Lawyers (2008, 2010, 2012)

• Real Estate Weekly’s “All Stars in Real Estate” (2008)

EXPERIENCE

Recent Representative Transactions Include:

• Representation of several financial institutions in the origination and syndication of numerous acquisition, construction and development loans secured by existing real estate projects and new development sites located throughout the New York metropolitan area.

• Representation of a group of European financial institutions in the recapitalization and restructuring of a real estate loan secured by a high-profile office building located in San Francisco.

• Representation of a private equity investor in the recapitalization of more than $2 billion of distressed multi-site development projects located in Southern and Central California (each consisting of several thousand residential land development lots), as well as hotels and apartment complexes located nationwide.

142 • Representation of several financial institutions in distressed real estate loan workouts, mortgage foreclosures, restructures and insolvency proceedings involving several hotels and related hospitality assets located throughout the country.

• Representation of a lender syndicate, as senior lender, in the foreclosure, workout and ultimate disposition of a multi-tiered, multi-lender loan secured by The Ritz Carlton Club and The Residences at Kapalua Bay, Maui, Hawaii, a development consisting of hundreds of condominium units and fractional time shares managed, operated and controlled by Ritz Carlton.

• Representation of a financial institution in the workout, through a future transfer (secured by springing guaranties) of title in lieu of foreclosure, of a first mortgage loan on the Verizon Building, a vacant 800,000 square foot property located in lower Manhattan.

• Representation of a global financial institution in the sale, disposition and liquidation, over the past several years, of several portfolios of commercial real estate loans and hundreds of individual loans, each secured by real estate assets located throughout the country.

• Representation of private equity firms in the acquisition of distressed real estate loans and the subsequent enforcement of remedies to facilitate the transfer of ownership of the loans into ownership of the underlying assets.

*Includes matters handled prior to joining Sidley.

PUBLICATIONS

• Author, “Commercial Division’s Rocket Docket,” New York Law Journal (August 18, 2014)

• Co-author, “Distressed Real Estate Loan Dispute Resolution in 2012: Latest Developments, Trends and Strategies,” Inside the Minds: Real Estate Dispute Resolution (April 2012)

• Co-author, “Residential Mortgage Foreclosure: It’s A Whole New Ballgame,” New York Law Journal (March 14, 2011)

• Co-author, “A Primer on Today’s Commercial Loan Forbearance Agreement,” New York Law Journal (March 15, 2010)

• Preparation of Practice Commentaries on New York’s Non-Judicial Foreclosure Statute Matthew Bender (May 2005)

• Non-Judicial Foreclosure Legislation in New York (enacted July 7, 1998)

• “Legal Counsel” (formerly known as “It’s The Law”), Real Estate Forum, monthly, and then quarterly, column (1982-2000)

MEMBERSHIPS & ACTIVITIES

• American College of Real Estate Lawyers

• New York State Bar Association (Executive Committee, Real Property Law Section, Co-chair of its Finance Committee and Former Co-chair of its Workouts and Bankruptcy Committee; Past Delegate to the House of Delegates)

143 • New York Bankers Association

• New York City Bar Association

• American Bar Association

EVENTS

• “Lending Workshop: Today’s New Issues in Structuring and Negotiating Loan Documents,” Mortgage Bankers Association of New York, Inc. (October 2014)

• “Distressed Loans and Lender Remedies - Latest Trends and Insights,” Negotiating the Sophisticated Real Estate Deal, Practising Law Institute (June 2014)

• “Advanced Issues in Loan Enforcement,” 2014 Commercial Real Estate Financing Seminar, Practising Law Institute (February 2014)

• “Distressed Commercial Real Estate Loan Workouts and Remedies - Latest Trends and Insights,” Negotiating Real Estate Deals 2013, Practising Law Institute (June 2013)

• Presenter and co-chair, New York State Bar Association Annual Meeting for the Real Property Law Section’s Finance Committee’s Program (January 2013)

• “Distressed Commercial Real Estate Loan Workouts and Remedies - Today’s Issues,” New York State Bar Association’s Advanced Topics in Real Estate Program (December 2012)

• CLE presentation: “Loan Workouts,” First American Title Insurance Company Program (November 2012)

• “Distressed Loan Workouts and Lender Remedies,” PLI’s Negotiating Real Estate Deals 2012 program (June 2012)

• “Latest Developments in the Enforcement of Guaranties,” New York Real Property Law Section’s Financing and Workouts Committees’ Joint Program, New York State Bar Association’s Annual Meeting (January 2012)

• “Distressed Real Estate Loan Workouts and Remedies,” New York State Bar Association Advanced Real Estate Program (December 2011)

• “The Landscape of Loan Workouts Updated - Out of the Woods or a Bridge to Nowhere?,” 2011 ICSC U.S. Shopping Center Law Conference (October 2011)

• “Distressed Loan Workouts and Lender Remedies,” Practising Law Institute’s Negotiating Real Estate Deals 2011 Program (June 2011)

• “Legal Experts Perspective on Restructuring and Distressed Debt,” The Stoler Report Broadcast (February 2011)

• “Advanced Real Estate Workouts and Restructurings,” New York State Bar Association Annual Meeting (January 2011)

• “Distressed and Troubled Real Estate Loans,” New York State Bar Association Advanced Real Estate Practice Program (December 2010) 144 • “Minefields, Sheer Cliffs and Rough Roads: The Landscape of Loan Workouts in 2010,” ICSC’s 40th Annual U.S. Shopping Center Law Conference (November 2010)

• “Distressed Loans - The Lender’s Remedies,” PLI Commercial Real Estate Program (April 2010)

• “Troubled Mortgage and Mezzanine Loans and Workouts - After Acceleration,” PLI Commercial Real Estate Financing Program (March 2010)

• “Cutting Edge Real Estate Workout Strategies,” New York State Bar Association Real Property Law Section Annual Meeting (January 2010)

• “Distressed Loan Workouts, Mortgage Foreclosure and Remedies,” New York State Bar Association Advanced Real Estate Practice (December 2009)

• “Commercial Real Estate Loan Workouts - Strategies After Default in the Current Economy,” American College of Real Estate Lawyers (October 2009)

• “Basics of Commercial Foreclosure and Beyond in Today’s Market,” New York Bar City Bar Association (October 2009)

• “Distressed Loans, Workouts and Mortgage Foreclosure Strategies and Remedies after Default,” First American Title Insurance Company of New York, CLE program (July 2009)

• “New World of Loan Restructuring,” Real Estate Finance Committee of the Real Estate Board of New York (June 2009)

• “Hot Topics in Workouts, Restructuring and Remedies,” Mortgage Bankers Association of New York (May 2009)

• “Commercial Real Estate Financing 2009: How the World Changed,” Practising Law Institute (February 2009)

• “Commercial Real Estate Financing - Judicial and Non-Judicial Foreclosure and Distressed Loan Workouts,” Practising Law Institute (numerous occasions)

• “Distressed Loans, Workouts and Mortgage Foreclosure - Strategies and Remedies After Default,” Ninth Annual Commercial Real Estate Institute, Practising Law Institute (November 2007)

• “Strategies and Remedies for Breaches of Real Estate Contracts and Loan Documents,” Practising Law Institute (several occasions)

• “Advanced Real Estate Practice - Foreclosures and Distressed Loan Workouts,” New York State Bar Association (November 2007 and December 2008)

• “Distressed Loans, Workouts, and Mortgage Foreclosure - Strategies and Remedies after Default,” First American Title Insurance Company Seminar (May 2007; July 2009)

• “Current Loan Enforcement Issues,” New York State Bar Association Real Property Law Section Annual Meeting (January 2005)

• “Distressed Loan Workouts,” Citibank-Chicago Title Program (August 2003)

145 • Chair and lecturer, various New York state, New York City and Westchester County Bar Association Continuing Legal Education Programs

• “Distressed Loan Workouts,” First American Title Insurance Company Seminar (2003)

• Programs and numerous client presentations, seminars and training sessions on mortgage foreclosure, real estate, workouts, bankruptcy and asset-based finance (various dates)

146

MEREDITH J. KANE PRACTICES Partner Tel: 212-373-3065 Real Estate Fax: 212-492-0065 [email protected]

New York 1285 Avenue of the Americas New York, NY 10019-6064

A partner in the Real Estate Department and a member of the firm’s EDUCATION Management Committee, Meredith J. Kane regularly represents developers, J.D., Harvard Law School, equity investors, institutional and entrepreneurial owners and government 1982 agencies in all aspects of development, finance, acquisitions and sales, equity cum laude joint ventures, restructuring, leasing and securitization of real estate. B.A., Yale College, 1976 magna cum laude EXPERIENCE RECOGNITIONS Ms. Kane’s experience includes all aspects of the finance and development of complex public/private joint venture projects including: Woman of the Year – WX New York - Women Executives in Real Estate the long-term lease acquisition of New York’s World Trade Center complex; Euromoney Legal Media the development of MTA’s 26-acre Hudson Yards on Manhattan’s far west side Group – “Best in Real Estate” for over six million square feet of office space and 5000 residential units; and of Americas Women in Business Atlantic Yards in Brooklyn for a sports arena and up to 16 residential and Law Awards commercial buildings; Real Estate Weekly “Top 50 Women in Real the representation of the Stuyvesant Town/Peter Cooper Village Tenants Estate” and “25 Current Association in the ownership and debt restructuring of the 11,000-unit residential Leaders in the Industry” complex; Grid “Top 10 American the transaction between the City of New York and Cornell University and Women in Real Estate Technion–Israel Institute of Technology to develop a world-class Development” Engineering and Applied Sciences graduate school in New York City; Chambers USA the representation of Time Warner, Inc. in its program to relocate up to four Who’s Who Legal USA million square feet of corporate office space in the New York area; The Legal 500 the retail redevelopment and historic restoration of Grand Central Terminal; The Best Lawyers in America Member, American College of the development and securitized financing of Brooklyn Renaissance Plaza and Real Estate Lawyers the Marriott at the Brooklyn Bridge, a 1.2 million square foot office and hotel complex in downtown Brooklyn;

PAUL, WEISS, RIFKIND, WHARTON & GARRISON LLP 147 WWW.PAULWEISS.COM 1

the development and financing of Avalon Chrystie Place, a 5-building, 720-unit housing, retail and community facility development in Manhattan’s Cooper Square area;

the development and financing of the 76-story Trump World Tower luxury condominium;

the development and financing of over 5 million square feet of major mixed- use retail and residential projects in Flushing, Queens;

the development of multiple new facilities for City University of New York, including a new headquarters, new building for Silberman School of Social Work at Hunter College, and new academic facilities for CUNY senior colleges;

the acquisition and development of multiple new facilities for North Shore Long Island Jewish Medical System, including medical offices, hospital facilities, and administrative headquarters;

the development and financing of major proposed new and expanded cultural venues, including the Park Avenue Armory, New York City Opera, New York Public Library, Brooklyn Academy of Music, Poets House, and Little Shubert Theatre;

the redevelopment of nine historic theaters in the 42nd Street Development Project;

the development and financing of a new arena for the Miami Heat basketball team; and

the development and financing of numerous office, residential and mixed-use complexes.

She has represented Avalon Bay Communities, The Lefrak Organization, Vornado Realty Trust, Time Warner, Inc., Muss Development Company, Daewoo Corporation, the Metropolitan Transportation Authority, Rockefeller Group Development Corporation, Carnival Corporation, City University of New York, and others in major real property acquisitions, sales, financings and developments.

Ms. Kane has received numerous honors and awards for her work. She was honored as the 2009 Woman of the Year by WX - New York Women Executives in Real Estate, and was named one of the Top 50 Women in Real Estate and one of 25 Current Leaders in the Industry by Real Estate Weekly and The Association of Real Estate Women. Euromoney Legal Media Group named her Best in Real Estate at the 2012 inaugural Americas Women in Business Law Awards and Grid Magazine named her one of the top 10 American women in real estate development. She is cited as one of the leading real estate lawyers in the United States in Chambers USA 2014, sources describe her as a “fantastic lawyer” who is “immensely valuable” during negotiations. She is recognized for advising New York City Economic Development Corporation on the $2 billion development of an applied sciences and engineering graduate

PAUL, WEISS, RIFKIND, WHARTON & GARRISON LLP 148 WWW.PAULWEISS.COM 2

campus. Sources particularly highlight her "deep understanding of transactional matters with a focus on tax issues.” Ms. Kane is also recognized in Who’s Who Legal USA, The Legal 500, The Best Lawyers in America and numerous other peer-review publications. She is a member of the American College of Real Estate Lawyers.

Ms. Kane served as a commissioner of the New York City Landmarks Preservation Commission from 1995 to 2004. She was a member of the World Trade Center Memorial Center Advisory Committee. She was a lead official from 1985-87 of the New York City Department of Housing Preservation and Development in charge of the planning and development of 8,000 new housing units, and a City Planning official for the City of New Haven from 1977-79 in charge of mixed-use retail and commercial districts. She is a regular speaker at professional forums on real estate development and finance. She serves on the Executive Committee of the Avenue of the Americas Association (Chair, 1999-2007), and is a member of the Real Estate Board of New York, WX-Women Executives in Real Estate, the New York Women’s Forum, the ULI-Urban Land Institute, the Forum for Urban Design and the Association of the Bar of the City of New York (former Chair, Economic Development Subcommittee). She serves on the boards of several civic and not-for-profit organizations.

PAUL, WEISS, RIFKIND, WHARTON & GARRISON LLP 149 WWW.PAULWEISS.COM 3 HOWARD J. LEVINE

Partner, Roberts & Holland LLP

Washington, DC and New York, NY

Ph: 202-293-3408; Fax: 202-293-0479

E-Mail Address: [email protected]

Website: “robertsandholland.com”

Howard J. Levine is a partner in Roberts & Holland LLP in Washington, D.C. and New York,

N.Y., which is the largest law firm in the United States that is devoted exclusively to tax and tax related matters. He is a former Assistant Branch Chief, Litigation Division, Office of Chief

Counsel, Internal Revenue Service (1972-1976). Mr. Levine served as an Adjunct Professor at

Georgetown University Law School (LLM Tax) and George Washington University Law School

(LLM Tax). He is a Contributing Editor of The Journal of Real Estate Taxation, a Member of the

Advisory Board of BNA Tax Management, and a past member of the advisory board of the CCH

Journal of Global Transactions. Mr. Levine is an author of over 100 articles and publications

including BNA Tax Management Portfolio #567-5th, Tax Free Exchanges Under Section 1031

and (co-author of) BNA Tax Management Portfolio #936, Limitation on Benefits of US Income

Tax Treaties. A frequent speaker at numerous Tax Institutes around the country, Mr. Levine is a

member of the American Bar Association Tax Section (Former Chairman, Committee on Sales,

Exchanges and Basis; Former Subcommittee Chair on Like Kind Exchanges; Former

Subcommittee co-chair on U.S. Activities of Foreigners and Tax Treaties), the New York Bar, and the District of Columbia Bar.

Mr. Levine received a B.A. from Hunter College, his J.D. cum laude from SUNY at Buffalo, and

LL.M. (Taxation) from Georgetown.

150 NYSBA Fall 2014 Program Advanced Real Estate Current Tax Issues Affecting Real Estate Howard J. Levine Joseph Lipari

Joseph Lipari received his A.B. degree from Columbia University in 1975 and his J.D. from Boston University, magna cum laude, in 1978. He joined Roberts & Holland in 1978 and became a member of the firm in 1987. For more than 35 years, he has counseled U.S. and foreign clients on complex business transactions, including the purchase and sale of businesses and structuring their investments. He has represented developers of hotels, shopping centers and assisted living facilities, as well as institutional real estate investors, in a wide variety of real estate transactions, from the formation and restructuring of partnerships for the acquisition, development and operation of real property, to UPREIT transactions, sales, tax-free exchanges, co-op and condominium developments, and workouts and foreclosures, including mortgage restructurings, property exchanges, short sales of real property and other forms of debt relief. He is a member of the American and New York State Bar Associations. He is a member of the Economic Affairs Committee of the International Council of Shopping Centers

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Benjamin Weinstock Partner

Brooklyn Law School (J.D., cum laude, 1978); Yeshiva University (B.A., 1975)

Phone: (516) 663-6555 Fax: (516) 663-6755 Email: [email protected] Add to Outlook Contacts

Benjamin Weinstock is a partner at Ruskin Moscou Faltischek, where he is co-chair of the firm’s Real Estate Department. "Too often lawyers see only problems. We are dedicated to developing innovative In a career spanning three decades, Mr. Weinstock has solutions that get the job done. handled real estate transactions from the basic to the highly complex. His knowledge and skill place him among the most respected and sought-after real estate lawyers in the region. In recognition of his knowledge and contributions to the real estate industry, Governor Be n j a m i n Pataki named Mr. Weinstock to the prestigious New We i n s t o c k York State Real Estate Board, where he was elected Secretary, serving for seven terms. " The scope of his work is vast, and includes sales and purchases, leaseholds, sale-leasebacks, fee and leasehold mortgages, construction lending, development agreements, purchase options, residential and commercial co-ops and condos, senior citizen housing, zoning variances, site plan and subdivision approvals, title insurance claims, tax PRACTICE AREAS deferred exchanges, real estate tax redemptions, condemnations, architect’s and construction Real Estate 152agreements, mortgage restructurings and transfer tax audits.

PUBLICATIONS In 2008, Mr. Weinstock was selected as one of New York Area’s Best Lawyers in Real Estate. He is one of only two lawyers on Long Island to be so honored. 'Bloch v. Frischholz': A Novel Approach to the Mezuzah Case (Articles, Real Estate); In 2010, Mr. Weinstock was elected a Fellow of the American College of Real Estate Lawyers (ACREL). High-End Retail Leasing (Real Estate); Membership to ACREL is by invitation only after a rigorous nomination and screening process and is available only to lawyers who have established themselves as E-Recording Is Coming To New York (Real Estate); experts in the field, who observe the highest standards of ethical conduct and who have made significant contributions to enhance real estate law and its practice. Bye-bye “Buyer Beware? State’s New Disclosure Law on Property Sales Shifts Burden to Sellers (Real Mr. Weinstock has immersed himself in a wide range of Estate); professional organizations. He is a member of the legal advisory boards of Chicago Title Insurance Company and Condos Restricted in Financing of Repairs (Real Estate); First American Title Insurance Company of New York. He serves on the Real Property Law Committees of the Nassau Good Guy Guaranties (The Good, The Bad and The County Bar Association and the American Bar Association. Ugly) (Real Estate); Mr. Weinstock also serves as Chair of the Real Property Law Section of the New York State Bar Association as well Power of Attorney Statutory Overhaul Set to Take as the New York State Bar Association’s Committees on Effect (Real Estate); Title and Transfer and Commercial Leasing. He is a frequent lecturer on real property law matters, having Not ‘One Inch’ – A Vestige of Feudal Law Erodes in chaired several educational programs for the New York New York (Real Estate); State Bar Association and others. He currently teaches at Brooklyn Law School.

In the community, Mr. Weinstock currently serves as Deputy Mayor of the Incorporated Village of Cedarhurst, where he resides, and was previously the Deputy Village Attorney.

Published

Stop excess noise from Long Island Rail Road horns (Newsday, August 2007) Invading the Tenant’s Space – A Perilous Step No More (Retail Law Strategist, July 2006) Title Insurers Sink in the Pool of Unmarketability (New York Law Journal, November 26, 2004) Commercial Leasing Manual, Chapter on Lease Guarantees (New York State Bar Association, July, 2004) Contributing author to NYSBA Commercial Leasing Handbook, July, 2004 New Restrictions on Predatory Lending (New York Law Journal, November 6, 2002) 153 The Condominium Borrowing Dilemma (New York Law Journal, September 30, 2002) Home Sellers Have a Duty to Make Full Disclosure (New York Law Journal, February 4, 2002) New E-Signature Law Impact on B2B, B2C & B2G (The National Law Journal, September 25, 2000) Electronic Signatures Getting Off to a Troubled Start in Real Estate Transactions (New York Law Journal, August 9, 2000)

154 Comprehensive Real Estate Representation 733 Third Avenue . New York, NY 10017 . 212-867-6000

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Lawrence J. Wolk joined Rosenberg & Estis, P.C. in 2014 as a Member of its Transactional IN-DEPTH INFORMATION: Group. He is experienced in complex commercial real estate transactions, mortgage Administrative Law / Rent Regulations financing and public/private transactions. Appellate Law Prior to joining Rosenberg & Estis, Mr. Wolk Litigation was a Partner and Counsel with Holland & Knight LLP for 18 years. His responsibilities Transactional Law included representing national life insurance companies and banks in numerous single asset and multi-state, multi-asset mortgage CONTACT and acquisition transactions. Mr. Wolk also Rosenberg & Estis, P.C. oversaw numerous commercial acquisitions, 733 Third Avenue dispositions and mortgage financings for New York, NY 10017 clients headquartered outside of the United Phone: 212-867-6000 States and served as outside Real Estate Fax: 212-551-8484 Counsel to a number of State of New York NEW YORK LAW OFFICE agencies. He also frequently provided advice as local New York counsel on multi-state mortgage financing transactions.

Earlier, Mr. Wolk served as Assistant General Counsel for real estate and asset disposition at the Resolution Trust Corporation (RTC) and the Federal Deposit Insurance Corporation, where he had senior agency legal and management responsibility for the real estate, affordable housing, environmental, and workout sections of the RTC’s legal division. He implemented and closed multi-asset sales programs disposing of billions of dollars of real estate and real estate loan assets.

Prior to his service with the RTC, Mr. Wolk was in private practice in the New York area, focusing on complex real estate mortgage financing and lease transactions. 156 The notable transactions in which Mr. Wolk has played a leading role include the $735 million financing of the World Financial Center at Battery Park City; the sale of 350 Park Avenue and the acquisition of 270 Park Avenue; the acquisition of 1,200 cellular towers comprising Motorola’s North American cellular tower portfolio; the sale of the Indian Point and Fitzpatrick nuclear power plants; the ground leasing of nine (9) residential towers in Southtown, Roosevelt Island; and Phase 1 of the Moynihan Station development project. He is a frequent lecturer on real estate law topics at CLE presentations.

Year Joined Firm

2014

Areas of Practice

Transactional Law Real Estate Financing Real Estate Development Real Estate Leasing

Bar Admissions

District of Columbia, 1995 New York, 1975

Education

New York University School of Law J.D. - 1974 Law Review: New York University Review of Law & Social Change, Editor Johns Hopkins University, Baltimore, Maryland B.A. - 1971 157 Published Works

Following the meeting of the G-7 Finance Ministers and Central Bank Governors, Treasury Secretary Henry M. Paulson Jr. outlined broad principles, Holland & Knight Alert, October, 2008

Honors and Awards

Selected for inclusion in The Best Lawyers in America, 2007 - 2014

Selected for inclusion in International Who’s Who of Real Estate Lawyers, 2013 - Present Selected for inclusion in Who’s Who Legal, 2011 - 2013 Selected for inclusion in New York Super Lawyers, 2009 - 2014

Professional Associations and Memberships

American College of Mortgage Attorneys, New York State Chair American College of Real Estate Lawyers, Member District of Columbia Bar Association, Member New York State Bar Association, Real Property Section, Co-Chair, CLE Committee, Member, Executive Committee

158 Rosenberg & Estis, P.C. is located in New York City. Our attorneys practice in Manhattan, the Bronx, Queens, Brooklyn, Staten Island, Long Island, Westchester County, Nassau County, Suffolk County and the Tri-State Area. We have appeared in connection with litigation, transactions and leasing throughout the country.

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