CASH OR CREDIT…LANDLORDS BEWARE!

nat rosasco • May 18, 2013

INTRODUCTION Though it may seem that the economy is on the mend, a quick discussion with the leaders of many area businesses exposes an underlying unease as to whether the economy as a whole can sustain its recovery given the inability of bureaucrats in Washington to craft long-term solutions to our country’s financial crisis. Many […] The post CASH OR CREDIT…LANDLORDS BEWARE! appeared first on GGHH Law.



INTRODUCTION

Though it may seem that the economy is on the mend, a quick discussion with the leaders of many area businesses exposes an underlying unease as to whether the economy as a whole can sustain its recovery given the inability of bureaucrats in Washington to craft long-term solutions to our country’s financial crisis. Many of these businesses continue to struggle to remain profitable and avoid the financial pitfalls of the recent recession. These same struggles affect more than the businesses themselves, and when a business’ financial struggles involve a bankruptcy they can have devastating results for creditors, particularly commercial landlords. While commercial landlords either holding a cash security deposit or a letter of credit may think themselves isolated from a tenant’s bankruptcy, some have found that neither is actually immune from risk.


CASH PITFALLS

Cash security deposits have long been the traditional form of security for a commercial lease, typically in the amount of one to two month’s rent. However, the recent financial crisis exposed a weakness in what was otherwise thought to be ironclad security against a tenant’s default. When a tenant declares bankruptcy the landlord may find themselves enmeshed in a fight with the bankruptcy trustee to retain that security deposit. A cash security deposit is generally regarded as an asset of the bankruptcy estate under Section 541(a). Courts have held, however, that landlords may offset a portion of the security deposit against their allowable claims but that any surplus must be returned to the debtor ( Oldden v. Tonto Realty Corp. , 143 F.2d 916 (2 nd Cir. 1944)). They have gone further to provide that a landlord’s security deposit constitutes a perfected security interest or lien in the landlord’s favor ( In re Johnson , 215 B.R. 381, 384 (Bankr. N.D. Ill. 1997)). It would seem the landlord’s ability to retain the security deposit is an equitable remedy until one examines and understands what an “allowable claim” is under the Bankruptcy Code.


A debtor-tenant has the ability to reject certain leases pursuant to Section 365 of the Bankruptcy Code. Such a lease rejection is tantamount to a default under the terms of most leases giving the landlord a general unsecured claim against the bankruptcy estate for the resulting damages. Unfortunately, the landlord’s claim is limited by Section 502(b)(6) of the Bankruptcy Code to the amount of accrued but unpaid rent plus the amount of rent reserved under the lease for the greater of one year or 15% of the remaining term of the lease. To the extent the cash security deposit exceeds the amount of the Landlord’s claim, it must be returned to the debtor’s bankruptcy estate.


WHY IS A LETTER OF CREDIT BETTER THAN CASH

In order to provide some insulation from the risk of a security deposit being tied up in a tenant’s bankruptcy, many landlords prefer the issuance of a standby letter of credit. A standby letter of credit issued by the tenant’s bank or, preferably, a bank satisfactory to the landlord is an independent obligation of the issuing bank to the landlord. The letter of credit stands apart from the tenant’s obligation to reimburse the issuing bank and is therefore not generally a part of the bankruptcy estate. Less risk? It would seem that way until one considers the long list of bank failures over the past several years and the FDIC’s unwillingness to honor letters of credit issued to commercial landlords by failed banking institutions. With the economic recovery still uncertain, commercial landlords should take proactive measures in their leases requiring tenants to replace letters of credit issued by insolvent banks and permitting the landlord to make a periodic review of the letter of credit issuer. Landlords should also reserve the absolute right to approve the bank issuing the letter of credit or provide a list of acceptable financial institutions from whom they will accept a letter of credit. It should also be noted that the interaction between a landlord’s proposed draw on a letter of credit and the 502(b)(6) cap is unsettled. Landlord’s should anticipate that any drawdown on a letter of credit may have an impact on the amount of the landlord’s claim in a tenant’s bankruptcy.


Jordan Uditsky is a partner in the corporate practice of Garelli, Grogan, Hesse & Hauert. He brings a diverse legal and business background to the firm, with a particular emphasis on the representation of startups and emerging companies, commercial real estate transactions, tax and estate planning. He advises businesses in a broad range of general corporate and corporate transactional matters, including business organizations and choice of entity issues, financing and private equity, mergers, acquisitions and joint ventures as well as business restructurings. Mr. Uditsky also employs his experience as a business owner to advise companies on regulatory issues and compliance matters, employment policies and legal issues related to their general operations and business strategy.


Garelli Grogan Hesse & Hauert offers sophisticated yet cost effective, practical solutions to our clients’ legal challenges. We strive to understand not only the legal issue but our clients’ business goals as well and craft tailored solutions to help them succeed. Our attorneys represent businesses and individuals throughout the Midwest in matters that include commercial litigation, securities, business counseling and transactions, commercial real estate, estate planning and family law. For more information contact Jordan Uditsky at (630)833-5533 x12 or juditsky@gghhlaw.com.


The post CASH OR CREDIT…LANDLORDS BEWARE! appeared first on GGHH Law.

Employers Can Require COVID-19 Vaccinations For Most Employees

By nat rosasco • February 25, 2021
As this relentlessly awful year mercifully draws to a close, a light at the end of our pandemic tunnel is rapidly approaching. COVID-19 vaccines are poised for approval, and it is expected that distribution will begin in earnest shortly. But no matter how much and how confidently the FDA and other health experts proclaim these vaccines to be safe and effective, there are large numbers of Americans who say they won’t get the shot when it becomes available. The most recent Gallup poll found that only 63 percent of Americans say they are willing to be inoculated against the disease. Many of those who don’t want to get vaccinated will soon find out that they work for an employer who feels differently. Those employers may also tell them that they either need to get the vaccine or need to find a new job. And, in most cases, employers may be well within their rights to terminate employees who refuse to take the COVID-19 vaccine. Mandatory Vaccinations Are Not New Companies that have spent the better part of the year – and lots of money - trying to keep their workplaces COVID-free see the vaccine as the apex of those efforts. With a fully vaccinated workforce, business owners can operate without disruption and provide employees, customers, clients, and patients with confidence and peace of mind. But all of those benefits of the vaccine only accrue to fully vaccinated workforces. So, many companies may mandate that employees get their shot as a condition of continued employment. By doing so, they are following a legally sound path that predates the current pandemic. Well before anyone had heard of coronavirus, plenty of employers, primarily in the health care sector, required employees to get the flu vaccine and vaccinations against other infectious diseases. Most public school districts also require proof of vaccinations before a student can enroll and attend classes. Since most employees in Illinois work on an “at-will” basis, they can face termination for almost any reason not expressly prohibited by federal, state, or local laws. Generally, no law stands in the way of an employer requiring the COVID-19 vaccine for its workers. ADA and Religious Exceptions However, employers who make vaccines mandatory need to be mindful that employees with legitimate health or religious concerns about the vaccine may be protected from termination and other adverse employment actions if they refuse the shot. But these exceptions don’t necessarily apply just because someone doesn’t believe in vaccines generally (“anti-vaxers”) or thinks that forcing them to get vaccination is an infringement on their liberties. Employees who have a disability recognized under the Americans with Disabilities Act (ADA) that prevents them from taking the coronavirus vaccine cannot be forced to get the vaccine, so long as their exemption does not impose an “undue hardship” on the employer. Such disabilities in this context may include a compromised immune system or an allergy to an ingredient in the vaccine. While there has been no definitive guidance on the subject, one could credibly argue that an employee’s refusal to get vaccinated is an “undue hardship” if it places the health and safety of other employees and visitors at increase risk of infection. Even in such cases, however, an employer may need to make a “reasonable accommodation” for the employee, such as allowing them to work from home. Similarly, the anti-discrimination provisions of Title VII of the Civil Rights Act of 1964 may protect a worker if their “sincerely-held religious beliefs” preclude them from getting a vaccination. Such beliefs do not include political or personal views. The burden is on the employee to demonstrate the legitimacy of their religious objections to the vaccine. More Than Legal Issues To Consider Even when an employer is within their legal rights to require employees to get the COVID-19 vaccine, other considerations may weigh against such a mandate. For example, they may need protection against an employee who has an adverse reaction, even if they signed a waiver upon receiving the shot. A vaccination requirement may also get an adverse reaction from employees generally as well as the general public if it seems heavy-handed and overreaching. Of course, those that decide against a mandate face risks if someone does contract the coronavirus in the workplace and sues. Please Contact Grogan Hesse & Uditsky With All Of Your COVID-Related Employment Questions If you have questions or concerns about how to handle vaccinations or other employment issues related to COVID-19, please call us at (630) 833-5533 or contact us online to arrange for a consultation.

Are You Eligible for the Second Round of PPP Loan Forgiveness?

By nat rosasco • January 11, 2021
The Paycheck Protection Program (PPP) is back , offering a second round of loan forgiveness to new borrowers and qualified second-time PPP borrowers. The second round of PPP loans has earmarked up to $284 billion to support business owners' payroll costs and other eligible expenses through March 31, 2021. Loans will be available to first-time participants on Monday, January 11, and existing PPP participants on Wednesday, January 13. First Draw PPP Loan Eligibility Borrowers that did not participate in the first round are generally eligible for a First Draw PPP Loan if they were in operation on February 15, 2020, and fall into one of the following categories: Businesses with 500 or fewer employees that are eligible for other SBA 7(a) loans. Eligible self-employed individuals (including sole proprietors and independent contractors). Non-profit organizations, including churches. Accommodation and food services operations with no more than 500 employees per location. Sec. 501(c)(6) business leagues with no more than 300 employees that do not receive more than 15% of its income from lobbying. Qualifying news organizations with 500 or fewer employees per location. Second Draw PPP Loan Eligibility Existing PPP participants are generally eligible for a Second Draw PPP Loan if the borrower: Used or will have used its First Draw PPP Loan as authorized. Has no more than 300 employees. Can prove it has suffered at least a 25% reduction in gross income between the same quarters in 2019 and 2020. Our team is committed to monitoring new developments with the PPP and providing you with the information you need. It is essential that your small business consults with knowledgeable corporate attorneys , financial advisors, and accountants on your PPP eligibility and forgiveness applications. If you have any questions about the new eligibility requirements or any other issues involving the PPP, please feel free to call or email us.

Amendments to PPP Loan Forgiveness

By nat rosasco • June 5, 2020
Many businesses that received Paycheck Protection Program (“PPP”) funds are coming to the end of their respective eight-week time periods (“Expenditure Period”) during which they must use the PPP funds to obtain forgiveness under the CARES Act. Unfortunately, many of these businesses have found it difficult to reopen and remain fully operational throughout the Expenditure Period and consequently to meet spending thresholds necessary to obtain full forgiveness. Luckily for these businesses, some much needed flexibility is on its way. Paycheck Protection Program Flexibility Act On June 5th, the Paycheck Protection Program Flexibility Act (“PPPFA”) was signed into law. The PPPFA made the following changes relevant to PPP loan forgiveness: Extends the Expenditure Period from eight weeks to the earlier of twenty-four weeks from the date of the loan origination or December 31, 2020. Reduces the required payroll spending amount to a minimum of 60% on payroll instead of the current 75% minimum requirement. This would allow businesses to use the remaining 40% of the PPP funds on rent and other operational items as needed. Extends the deadline for workers to be able to be rehired to December 31, 2020 instead of the current cutoff of June 30, 2020. Extends the PPP loan to a five-year term instead of the current two-year term. As any amendments governing the use and repayment of PPP loans may be vital to a small business’ ability to continue to operate and successfully plan for the future, our team will continue to keep you up to date on the on-going developments. As always, it is important to consult with informed attorneys, financial advisors, bankers and accountants on how best to use your PPP funds. Should you have any questions, don’t hesitate to call or email us.
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