TreatiseTreatise

Net Leases and Sale-Leasebacks: A Guide to Legal, Tax and Accounting Strategies

 by Ken Miller
 
 Copyright: 2017

 Product Details >> 

Product Details

  • ISBN Number: 9781402429491
  • Page Count: 316
  • Number of Volumes: 1
  •  

Net Leases and Sale-Leasebacks: A Guide to Legal, Tax and Accounting Strategies covers every aspect of the ownership, financing, documentation, taxation and accounting for net leases and sale-leasebacks. The book focuses on those areas where the treatment of net leases and sale-leasebacks differs from the treatment of other forms of real estate investment.

This new title authored by specialist Ken Miller (Gorman & Miller) provides a detailed discussion of the important concepts underlying transactions in this area, as well as a clause-by-clause explanation of the mandatory and optional provisions of a net lease investment agreement.

Net Leases and Sale-Leasebacks: A Guide to Legal, Tax and Accounting Strategies includes in-depth guidance on sophisticated and complex structuring issues involving real estate, regulatory, bankruptcy, tax and financial accounting concerns.
  Table of Contents
  Introduction
Chapter 1: Economics of Net Leases and Sale-Leasebacks
  • § 1:1 : What Is a Net Lease?1-2
  • § 1:2 : Types of Net Leases1-2
    • § 1:2.1 : Bond Lease1-2
    • § 1:2.2 : Absolute Net Lease1-3
    • § 1:2.3 : Triple Net Lease1-3
    • § 1:2.4 : Double Net Lease1-3
    • § 1:2.5 : The Allocation of Capital Expenses and the Split Incentive Problem1-3
  • § 1:3 : Pricing and Valuation of Net Leased Properties1-4
    • § 1:3.1 : Basic Formulas1-4
    • § 1:3.2 : The Two Meanings of Capitalization Rate1-5
    • § 1:3.3 : Discounted Cash Flow Model1-5
    • § 1:3.4 : Determining the Market Capitalization Rate of Long-Term Net Leases—Background1-6
      • [A] : Ground Leases1-7
    • § 1:3.5 : Determining the Market Capitalization Rate of Long-Term Net Leases Using Comparable Sales1-7
    • § 1:3.6 : Pricing of Properties with Short-Term Net Leases1-8
  • § 1:4 : Sale-Leasebacks1-8
    • § 1:4.1 : What Is a Sale-Leaseback?1-8
    • § 1:4.2 : Sale-Leaseback As a Form of Financing1-8
    • § 1:4.3 : Advantages of a Sale-Leaseback to the Seller-Tenant1-9
    • § 1:4.4 : Disadvantages of a Sale-Leaseback1-10
    • § 1:4.5 : Sale-Leaseback Pricing1-10
  • § 1:5 : Volume of Net Lease Sales and Sale-Leasebacks1-11
Chapter 2: The Lease
  • § 2:1 : Term Sheet2-3
  • § 2:2 : Tenant’s Credit2-3
  • § 2:3 : Important Lease Provisions2-4
    • § 2:3.1 : Permitted Encumbrances2-4
      • [A] : Landlord’s Mortgage Financing Documents2-4
    • § 2:3.2 : Permitted Use—Generally2-4
      • [A] : Exception—Tax-Exempt Use Property2-4
      • [B] : Exception—Protection of Residual Value2-5
    • § 2:3.3 : Taxes—Generally2-5
      • [A] : Possible Exception—Resales2-5
        • [A][1] : California Exception for Property Subject to Long-Term Lease2-5
      • [B] : State Rental Taxes2-6
      • [C] : Explicit Exclusion of Income, Estate and Transfer Taxes2-6
      • [D] : Gross Receipts, Capital Levies and Certain Franchise Taxes—Negotiable2-6
    • § 2:3.4 : Insurance—Generally2-7
      • [A] : Property Insurance2-7
        • [A][1] : Earthquake Insurance2-7
        • [A][2] : Other Coverages2-8
      • [B] : Liability Insurance2-8
      • [C] : Issuer Requirements2-8
      • [D] : Insurance Clauses2-8
      • [E] : Waiver of Subrogation2-9
      • [F] : Self-Insurance2-9
    • § 2:3.5 : Casualty2-9
    • § 2:3.6 : Major Condemnations2-10
      • [A] : Condemnation Clause in Bond Leases—Generally2-10
      • [B] : Condemnation Clauses in Bond Leases—Financial Accounting Concerns2-11
      • [C] : Condemnation Clauses in Bond Leases—Alternate Form2-11
    • § 2:3.7 : Minor Condemnations2-12
      • [A] : Minor Condemnations—Division of Condemnation Award2-12
    • § 2:3.8 : Intangibles2-14
    • § 2:3.9 : Repairs and Maintenance2-14
    • § 2:3.10 : Mechanic’s Liens2-15
      • [A] : Exception—Missouri and Illinois Properties2-15
      • [B] : Problematic Contest Provisions2-16
    • § 2:3.11 : Waiver of Statutory Lease Termination Rights2-16
    • § 2:3.12 : Right to “Go Dark”2-17
    • § 2:3.13 : Environmental Costs2-17
    • § 2:3.14 : Covenant of Quiet Enjoyment2-18
    • § 2:3.15 : Third-Party Leases2-19
    • § 2:3.16 : Alterations2-19
    • § 2:3.17 : Assignment and Subletting2-20
    • § 2:3.18 : Subordination, Non-Disturbance and Attornment Agreements2-20
    • § 2:3.19 : Indemnity Provision2-21
      • [A] : Indemnification After the Landlord Assigns the Lease2-22
    • § 2:3.20 : Compliance with Law2-22
    • § 2:3.21 : Tenant Estoppel Certificate2-23
    • § 2:3.22 : Easements2-23
    • § 2:3.23 : Net Lease Clause2-24
    • § 2:3.24 : Security Deposit2-24
  • § 2:4 : Optional Lease Provisions2-24
    • § 2:4.1 : Tenant Purchase Option2-24
      • [A] : Fixed Price Tenant Purchase Option—Generally2-24
      • [B] : Fixed Price Tenant Purchase Option—Comparison to Call Feature in Corporate Bond2-25
      • [C] : Fixed Price Tenant Purchase Option—Tax Consequences2-25
      • [D] : Fixed Price Tenant Purchase Option—Tenant’s Financial Accounting Treatment2-26
      • [E] : Fixed Price Tenant Purchase Option—Landlord’s Financing2-26
      • [F] : Fair Market Value Tenant Purchase Option2-26
    • § 2:4.2 : Right of First Refusal and Right of First Offer2-27
      • [A] : ROFR and ROFO—Landlord Drafting Considerations2-27
  • § 2:5 : When the Investor Is the Tenant Under a Ground Lease2-28
    • § 2:5.1 : Generally2-28
    • § 2:5.2 : The Shirt Tail Requirement2-29
    • § 2:5.3 : The Sublease2-29
Chapter 3: Bankruptcy Considerations
  • § 3:1 : Fundamentals of a Tenant Bankruptcy3-2
    • § 3:1.1 : The Automatic Stay3-2
    • § 3:1.2 : Assuming or Rejecting the Lease—Generally3-3
    • § 3:1.3 : Rejecting the Lease—Damages Cap3-3
    • § 3:1.4 : Rejecting the Lease After Assuming It3-4
  • § 3:2 : Tenant Credit Enhancements3-4
    • § 3:2.1 : Background3-4
    • § 3:2.2 : Cash Security Deposits Are Rarely Used3-4
      • [A] : Too Costly for the Tenant3-4
      • [B] : May Preclude Off-Balance Sheet Treatment for the Tenant3-5
      • [C] : Limited Protection for the Landlord3-5
    • § 3:2.3 : Parent Guarantee3-6
      • [A] : Does Not Preclude Off-Balance Sheet Treatment3-6
      • [B] : Advantageous Treatment in Tenant Bankruptcy3-6
      • [C] : Limited Protection in a Parent Bankruptcy3-7
    • § 3:2.4 : Letter of Credit3-7
      • [A] : The Independence Principle3-7
      • [B] : Structuring a Tenant Letter of Credit3-8
      • [C] : Accounting Treatment of a Tenant Letter of Credit3-8
      • [D] : Comparison of a Tenant Letter of Credit and a Cash Security Deposit3-9
      • [E] : Application of the Bankruptcy Cap to Letter of Credit Proceeds3-9
      • [F] : Structuring a Standby Letter of Credit As a Net Lease Enhancement3-10
        • [F][1] : Tax Consequences of Acceleration3-11
        • [F][2] : Effect of Acceleration on Tenant’s Accounting3-12
    • § 3:2.5 : Lease Bonds and Mortgage Insurance3-13
      • [A] : Lease Bond Versus Letter of Credit3-14
      • [B] : Lease Bond Versus Mortgage Insurance3-14
    • § 3:2.6 : Credit Default Swaps3-15
      • [A] : Generally3-15
      • [B] : Cash Settlement3-16
      • [C] : Physical Settlement3-16
      • [D] : Vanilla CDS3-17
      • [E] : Using a Vanilla Credit Default Swap to Enhance the Credit of a Tenant3-18
  • § 3:3 : Recharacterization of a Lease in Bankruptcy3-19
    • § 3:3.1 : Background3-19
    • § 3:3.2 : Tenant’s Motivation to Seek Recharacterization3-20
    • § 3:3.3 : Federal Appellate Court Recharacterizations3-22
      • [A] : “True Lease” Analysis3-22
      • [B] : Recharacterization Where Landlord Did Not Have the Principal Risks and Benefits of the Property3-23
        • [B][1] : In re PCH Associates—9th Circuit3-23
        • [B][2] : United Airlines, Inc. v. HSBC Bank USA, N.A.—7th Circuit3-24
      • [C] : Recharacterization to Avoid a Forfeiture3-25
  • § 3:4 : Landlord Bankruptcy Concerns for the Tenant3-27
    • § 3:4.1 : Tenant’s Right to Retain Possession Following Landlord Lease Rejection3-27
    • § 3:4.2 : Tenant May Lose Its Right to Possession in a 363 Sale of the Premises3-27
    • § 3:4.3 : A Non-Disturbance Agreement Protects the Tenant Against Loss of Its Right to Possession in a Section 363 Sale3-27
Chapter 4: Financing
  • § 4:1 : Credit Tenant Loans4-3
    • § 4:1.1 : Generally4-3
    • § 4:1.2 : Regulatory Background4-3
    • § 4:1.3 : Summary of NAIC Requirements4-3
    • § 4:1.4 : Advantages of CTL Financing4-4
      • [A] : Lowering Cost of Capital4-4
      • [B] : Acquiring Higher Value Assets4-5
      • [C] : Satisfying the “Value” Requirement of a Section 1031 Tax-Free Exchange4-5
      • [D] : Minimizing Estate Tax4-6
    • § 4:1.5 : Zero Cash Flow Investments and Phantom Income4-9
      • [A] : Mitigating Phantom Income4-10
    • § 4:1.6 : Specific Requirements for CTL Loan4-10
      • [A] : Rental Payments Must Match or Exceed Debt Service Payments4-11
        • [A][1] : Exception: 5% Balloon4-11
        • [A][2] : Exception: Residual Value Insurance4-11
      • [B] : The Lease Must Be Non-Cancellable During the Primary Term4-12
        • [B][1] : Exception: Tenant Covenant to Pay Off Loan4-12
      • [C] : The Loan Must Be Secured by a First Mortgage with an Assignment of Rents4-13
      • [D] : Tenant Must Have an Investment Grade Rating4-13
      • [E] : Tenant Must Be Obligated to Maintain the Property and Pay All Property-Related Expenses During the Lease Term4-13
    • § 4:1.7 : Customary CTL Loan Terms4-13
      • [A] : Standard Borrower Covenants4-13
      • [B] : Lease Supremacy Clause4-14
      • [C] : Bankruptcy Remote Borrower and Springing Guaranty4-14
    • § 4:1.8 : Securitizing CTL Loans4-15
      • [A] : Background4-15
      • [B] : Selecting a Structure4-15
      • [C] : REMIC for Multiple-Maturity Pools4-15
      • [D] : Grantor Trust for Single Maturity Pools4-16
    • § 4:1.9 : Ownership Transfers of Zero Cash Flow Investments4-16
      • [A] : Potential Advantages to an Ownership Transfer of a Mortgaged Real Property Investment4-17
      • [B] : Risks of Acquiring a Mortgaged Real Property Investment by Ownership Transfer4-18
  • § 4:2 : Residual Value Loans4-19
    • § 4:2.1 : Background4-19
    • § 4:2.2 : Loan Structure4-20
  • Diagram 4-1 : Structure of Residual Value Loan4-21
    • § 4:2.3 : Basic Requirements4-21
    • § 4:2.4 : Securing the Collateral—Springing Guaranty4-22
    • § 4:2.5 : Securing the Collateral—Title Insurance and UCC Insurance4-22
    • § 4:2.6 : Securing the Collateral—Intercreditor Agreement with Senior Lender4-23
      • [A] : Intercreditor Agreement—Transfer Rights4-23
      • [B] : Intercreditor Agreement—Foreclosure Rights4-23
      • [C] : Intercreditor Agreement—Consent Rights4-24
      • [D] : Intercreditor Agreement—Cure Rights4-25
      • [E] : Intercreditor Agreement—Purchase Rights4-25
  • § 4:3 : CMBS Loans4-26
    • § 4:3.1 : Generally4-26
    • § 4:3.2 : Balloon Risk4-26
    • § 4:3.3 : Reserves—Non-Investment Grade Tenant4-27
    • § 4:3.4 : Reserves—Investment Grade Tenant4-27
    • § 4:3.5 : Cash Sweep Triggers—Non-Investment Grade Tenant4-27
    • § 4:3.6 : Cash Sweep Triggers—Investment Grade Tenant4-27
      • [A] : Tenant Goes Dark—Need for Cash Sweep4-28
      • [B] : Tenant Goes Dark—Borrower Concern4-28
      • [C] : Tenant Goes Dark—Capping the Cash Sweep4-28
    • § 4:3.7 : Lease Supremacy Clause4-29
    • § 4:3.8 : Underwritten Cash Flow and Financial Ratios4-29
    • § 4:3.9 : REMICs—Generally4-29
    • § 4:3.10 : REMICs and Partial Lien Releases4-30
      • [A] : No Significant Modification4-31
      • [B] : 80% Test and Qualified Pay-Down Transaction4-31
        • [B][1] : Grandfathered Transaction4-31
        • [B][2] : Qualified Pay-Down Transaction4-32
Chapter 5: Tax Considerations
  • § 5:1 : Ownership of Net Leased Property for Income Tax Purposes5-5
    • § 5:1.1 : Generally5-5
    • § 5:1.2 : Profit Potential5-5
      • [A] : Tenant Purchase Options5-5
      • [B] : Tenant Renewal Options5-6
    • § 5:1.3 : Loss Potential5-6
    • § 5:1.4 : IRS Guidelines for Advance Ruling on Equipment Leases5-7
      • [A] : Minimum Unconditional At-Risk Investment5-7
      • [B] : No Puts or Calls5-8
      • [C] : Investment by Lessee5-8
      • [D] : No Lessee Loans or Guarantees5-8
      • [E] : Expectation of Profit5-8
  • § 5:2 : Depreciation5-8
    • § 5:2.1 : Generally5-8
    • § 5:2.2 : Determining Amount of Basis—467 Loans5-9
    • § 5:2.3 : Determining the Basis of Property Received in a Tax-Free Exchange5-9
    • § 5:2.4 : Allocating Basis Between Land and Improvements5-10
    • § 5:2.5 : First Placed in Service5-10
    • § 5:2.6 : Depreciation Method5-11
    • § 5:2.7 : Recovery Period5-11
      • [A] : Exception for Tax-Exempt Use Property5-11
        • [A][1] : Definition of Tax-Exempt Use Property5-11
      • [B] : Exception for Qualified Leasehold Improvements, Qualified Retail Improvements and Qualified Restaurant Properties5-12
      • [C] : Additional Deduction for Qualified Leasehold Improvements, Qualified Retail Improvements and Qualified Restaurant Properties5-13
      • [D] : Bonus Depreciation5-13
        • [D][1] : “Qualified Property”5-14
        • [D][2] : Sale-leaseback Property5-15
        • [D][3] : Exclusions5-15
    • § 5:2.8 : Depreciation Convention5-15
    • § 5:2.9 : Land Improvements5-15
    • § 5:2.10 : Requirement of Ownership for Improvement Property Deductions5-16
    • § 5:2.11 : Landlord Capital Improvements—Effect of Lease5-17
    • § 5:2.12 : Ground Leases5-17
      • [A] : Ground Leases—Cost of Improvements5-17
        • [A][1] : Exception—Improvements Placed in Service Before 19875-18
      • [B] : Ground Leases—Cost of Acquiring Leasehold Interest5-18
    • § 5:2.13 : Cost Segregation Study5-19
      • [A] : Example: Hospital Corp. of America v. Commissioner5-19
    • § 5:2.14 : Depreciation Recapture—Generally5-20
    • § 5:2.15 : Depreciation Recapture—Section 1245 Property5-20
    • § 5:2.16 : Depreciation Recapture—Section 1250 Property5-21
    • § 5:2.17 : Depreciation Recapture—Like-Kind Exchanges—Generally5-21
    • § 5:2.18 : Depreciation Recapture—Like-Kind Exchanges —Section 1245 Property and Segregated Cost Studies5-22
    • § 5:2.19 : Depreciation Recapture—Like-Kind Exchanges —Section 1250 Property5-22
  • § 5:3 : Section 467 Rental Agreements5-23
    • § 5:3.1 : Generally5-23
  • Diagram 5-1 : Section 467 Rental Agreement Analysis5-24
    • § 5:3.2 : Is the Lease a Section 467 Rental Agreement?5-24
      • [A] : Increasing or Decreasing Payments5-24
      • [B] : Prepaid or Deferred Rent5-25
      • [C] : Rent Holidays and Contingent Rent Provisions5-26
        • [C][1] : Certain Rent Holidays5-26
        • [C][2] : Certain Contingent Rent Provisions5-26
    • § 5:3.3 : Is the Lease a Disqualified Leaseback or a Disqualified Long-Term Agreement?5-27
      • [A] : Leasebacks5-28
      • [B] : Long-Term Agreements5-28
      • [C] : “Disqualified”—Generally5-28
      • [D] : “Disqualified”—Tax Avoidance5-28
      • [E] : “Disqualified”—Safe Harbors5-29
        • [E][1] : Uneven Rent Test5-29
        • [E][2] : Rent Holidays5-29
        • [E][3] : Contingent Rent5-30
    • § 5:3.4 : Does the Lease Provide Adequate Interest on Fixed Rent?5-30
    • § 5:3.5 : Section 467 Rents5-31
      • [A] : Constant Rental Accrual5-31
      • [B] : Proportional Rental Accrual5-32
    • § 5:3.6 : Section 467 Loans—Generally5-34
      • [A] : Section 467 Loans—Principal Balance Calculation5-35
      • [B] : Section 467 Loans—Interest Calculation5-35
      • [C] : Section 467 Loans—Example5-36
      • [D] : Section 467 Loans—Dispositions and Depreciation5-38
    • § 5:3.7 : Section 467 Recapture5-38
      • [A] : Generally5-38
      • [B] : Example5-39
      • [C] : Section 467 Recapture in a Like-Kind Exchange5-40
    • § 5:3.8 : Using a 467 Rental Agreement to Reduce the Landlord’s Phantom Income in a Zero Cash Flow Net Lease Investment5-40
  • § 5:4 : Sales and Exchanges5-41
    • § 5:4.1 : Loss on Sale5-41
      • [A] : Generally5-41
      • [B] : Ordinary Loss on Sale of Property Used in a Trade or Business5-41
      • [C] : Definition of “Used in a Trade or Business”5-42
      • [D] : Rental Property Is Generally Considered Property Used in a Trade or Business5-42
      • [E] : Exception: Ownership of One Long-Term Net Leased Property Is Generally Not Considered a Trade or Business5-42
      • [F] : Compare: Ownership of a Portfolio of Net Leased Property May Be considered a Trade or Business5-42
    • § 5:4.2 : Gain on Sale5-43
      • [A] : Generally5-43
      • [B] : Exception for Dealer Property5-43
      • [C] : Exception for Depreciation Recapture and Unrecaptured Section 1250 Gain5-44
    • § 5:4.3 : Section 1031 Exchanges5-44
      • [A] : Generally5-44
      • [B] : Deferred Exchanges5-46
      • [C] : Reverse 1031 Exchanges5-46
      • [D] : Qualified Exchange Accommodation Arrangement5-47
      • [E] : Limitation on 1031 Tax-Free Exchanges for Tax-Exempt Use Property5-47
      • [F] : Section 467 Loan5-48
      • [G] : Same Taxpayer Requirement and Single Member LLCs5-49
  • § 5:5 : Tax-Exempt Investors and Unrelated Business Taxable Income5-50
    • § 5:5.1 : UBTI—Background5-50
    • § 5:5.2 : UBTI and Dealer Property5-50
    • § 5:5.3 : UBTI and Debt Financed Property—General Rule5-51
    • § 5:5.4 : UBTI and Debt Financed Property—Exception for Qualified Organizations5-51
      • [A] : Qualified Organization5-51
      • [B] : No Sale-Leaseback5-52
      • [C] : Fractions Rule5-52
      • [D] : Additional Requirements5-53
    • § 5:5.5 : Using a Corporate Blocker to Avoid UBTI Characterization5-53
      • [A] : Foreign and Domestic Non-REIT Corporations—Not Effective Blockers5-54
      • [B] : REIT Blocker5-54
        • [B][1] : Exception—Pension Held REIT5-55
        • [B][2] : Exception—Dealer Property5-55
    • § 5:5.6 : Avoiding UBTI: Loan from the Tax-Exempt Entity5-56
      • [A] : Caveat—Tax-Exempt Entity May Not Control the Fund5-56
      • [B] : Caveat—Recharacterization of Loan As Equity5-56
  • § 5:6 : Interest Deductions on Commercial Real Estate Loans5-57
    • § 5:6.1 : Generally5-57
    • § 5:6.2 : Limitation on Deductibility of Nonrecourse Mortgage Loan Interest5-57
    • § 5:6.3 : Deductibility of Accruing Interest on Residual Value Loan5-58
      • [A] : Exception: Lender and Borrower Are Related5-58
      • [B] : At-Risk Limitations5-59
  • § 5:7 : Transfer Tax5-60
    • § 5:7.1 : Generally5-60
    • § 5:7.2 : Transfer Tax Treatment of a Sale-Leaseback5-60
      • [A] : Exception for Long-Term Leasebacks—Pennsylvania and California5-60
      • [B] : Exception for Financing Transactions—Pennsylvania and California5-61
    • § 5:7.3 : Transfer Tax Treatment of the Sale of a Net Leased Property5-61
      • [A] : Exemption—Transfer of an Ownership Interest5-61
        • [A][1] : Florida5-62
        • [A][2] : Maryland5-62
        • [A][3] : Pennsylvania5-63
      • [B] : Exemption for Property Subject to a Long-Term Lease—California5-63
      • [C] : Exemption for Transfer of a Leasehold Interest5-64
      • [D] : Seller in Bankruptcy5-64
  • § 5:8 : Net Investment Income Tax5-66
    • § 5:8.1 : Generally5-66
    • § 5:8.2 : Definition of Net Investment Income5-66
    • § 5:8.3 : Trade or Business Exception5-66
      • [A] : Nonpassive to the Taxpayer5-67
      • [B] : Trade or Business5-67
        • [B][1] : Safe Harbor for Certain Real Estate Professionals5-67
Chapter 6: Regulatory Considerations for the Owner-Landlord
  • § 6:1 : ERISA and the “Look Through” Rule6-2
    • § 6:1.1 : The “Look Through” Rule—Generally6-2
    • § 6:1.2 : Fiduciary Duty, Prohibited Transactions and Self-Dealing Under ERISA6-3
    • § 6:1.3 : Penalties for Violating the Prohibited Transaction Rules6-3
    • § 6:1.4 : Exceptions to the “Look Through” Rule6-4
      • [A] : Investments That Are Not Equity Investments6-4
      • [B] : Investments That Are Publicly Traded Securities6-4
      • [C] : Investments in Which There Is No Significant Participation—The 25% Limit6-5
      • [D] : Real Estate Operating Companies6-5
        • [D][1] : Exception—For Net Lease Investments6-6
    • § 6:1.5 : Structuring a Pension Plan Investment in Real Estate to Avoid Application of the “Look Through” Rule6-6
  • Diagram 6-1 : Avoiding Application of the “Look Through Rule” When Benefit Plan Investors Own 25% or More of an Investment Fund6-7
  • § 6:2 : Banks and Savings and Loans6-8
    • § 6:2.1 : Financing Leases—In General6-8
    • § 6:2.2 : Functional Equivalent of Lending—Banking Regulations6-8
    • § 6:2.3 : Functional Equivalent of Lending—S&L Regulations6-9
      • [A] : Definition of Net Lease6-10
      • [B] : Definition of Full-Payout Lease6-10
      • [C] : Definition of Realization of Investment6-11
  • § 6:3 : Tenants in the Marijuana Business6-11
    • § 6:3.1 : Background6-11
    • § 6:3.2 : Criminal Liability and Forfeiture6-11
    • § 6:3.3 : Spending Limitation on Federal Medical Marijuana Prosecution6-13
      • [A] : United States v. McIntosh6-13
      • [B] : The Need for Annual Reenactment of the Spending Limitation6-14
    • § 6:3.4 : Lease Clauses and Forfeiture Proceedings6-15
Chapter 7: Financial Accounting Treatment
  • § 7:1 : Current Accounting Treatment for the Tenant7-2
    • § 7:1.1 : Background7-2
    • § 7:1.2 : Sale-Leaseback Accounting—Generally7-3
      • [A] : Consequences of Sale-Leaseback Accounting7-3
      • [B] : Requirements for Sale-Leaseback Accounting7-3
        • [B][1] : Continuing Involvement—Summary7-4
        • [B][2] : Continuing Involvement—Examples7-4
    • § 7:1.3 : Operating Lease Treatment7-5
      • [A] : Requirements for Operating Lease Treatment7-5
        • [A][1] : The 90% Test7-6
    • § 7:1.4 : Consolidation Rules—Variable Interest Entities7-7
      • [A] : Background7-7
      • [B] : Summary7-7
      • [C] : Variable Interest Entities—Generally7-8
      • [D] : Variable Interest Entities—Equity Requirement7-8
      • [E] : Variable Interest Entities—Equity Requirement and Landlords Under Credit Tenant Leases7-9
      • [F] : Variable Interests7-9
      • [G] : Variability—Calculation of Expected Losses, Expected Residual Returns, and Expected Variability7-10
      • [H] : Variability—Residual Value Guarantee or Purchase Options7-10
      • [I] : Primary Beneficiary—Generally7-11
      • [J] : Primary Beneficiary—Off-Balance Sheet Sale-Leasebacks7-11
      • [K] : Primary Beneficiary—Leases with Residual Value Guarantee or Purchase Options7-12
        • [K][1] : FASB Example—Operating Lease with Residual Value Guarantee and Purchase Option7-12
  • § 7:2 : New Lease Rules—On-Balance Sheet Accounting Treatment for the Tenant7-13
    • § 7:2.1 : Background7-13
    • § 7:2.2 : Definition of Lease7-14
    • § 7:2.3 : Lease Classification7-14
    • § 7:2.4 : Lease Term7-15
    • § 7:2.5 : Tenant’s Balance Sheet7-15
      • [A] : Lease Liability7-15
      • [B] : Right-of-Use Asset—Initial Measurement7-18
      • [C] : Right-of-Use Asset—Subsequent Measurement7-18
        • [C][1] : Finance Lease7-18
        • [C][2] : Operating Lease7-19
    • § 7:2.6 : Income Statement7-19
    • § 7:2.7 : Example—Measurement of the ROU Asset and the Lease Liability7-20
    • § 7:2.8 : Tenant’s Treatment of Leases Previously Classified As Operating Leases7-21
      • [A] : Example—Treatment of Pre-Existing Operating Lease7-22
  • § 7:3 : Arranging Transactions to Avoid Lease Treatment7-23
    • § 7:3.1 : Background7-23
    • § 7:3.2 : Structuring Strategies7-23
    • § 7:3.3 : Example—Using a Logistics Contract in Lieu of Leasing a Distribution Facility7-24
    • § 7:3.4 : Example—Using a Power Purchase Agreement in Lieu of Leasing a Power Plant7-25
  Appendices
Appendix A: Deriving the Simplified Formula for Perpetual Cash Flows
Appendix B: US Corporate Average Fifteen-Year Cumulative Default Rates 1981-2013 (%)
Appendix C: Description of Long-Term Issuer Ratings from the Major Ratings Agencies
Appendix D: Calculating Expected Variability of Returns Under GAAP
Appendix E: Net Lease
  Index

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