Category Archives: General

Lease Points Colleges and Universities Should Not Miss

DO NOT BE FOOLED BY “STANDARD FORM LEASES” and
BEWARE OF CHANGING RULE ON TREATMENT OF LEASES IN TITLE IV COMPOSITE SCORE

There is no such thing as a “standard lease,” even if the document has that title at the top.

Julie Mebane, Partner (Real Estate), Duane Morris LLP

If your institution is reviewing a lease form and you are considering signing it for the tenant, make sure that you don’t gloss over it in the belief that its terms cannot be negotiated.  Usually, many lease terms can be modified and the tenant’s position can be enhanced if you pay attention to its language, especially a few important provisions:

  • Consider starting out by having both landlord and tenant sign a term sheet with the key business points summarized.  This can avoid confusion and disagreements later when the lease is reduced to writing.
  • Pay close attention to the description of the leased premises.  Make sure that the location and the number of rentable square feet are included and accurate, and consider including a space plan as an exhibit.
  • Double-check the rent calculations in the lease.  With regard to periodic rent increases, you may want to include a chart that summarizes the timing and amount of rent increases, rather than just a description like “3% rent escalations per year.”
  • If the tenant will be paying operating expenses as part of its rent, consider negotiating a cap on the amount of annual increases that can be passed through to the tenant.
  • Ask the landlord to pre-approve and describe in the lease any up-front alterations or other work of improvements the tenant needs to do on the premises.
  • In the use clause, more general language benefits the tenant.  Try to include the right to conduct “office and other administrative uses” or possibly “all other lawful uses.”  You may enhance the tenant’s right to assign and sublet in the future by broadening the use clause.
  • With regard to the parties’ respective maintenance and repair obligations, be sure there is a complete description of the landlord’s duties.  Try to include structural maintenance and repairs, floors, ceilings, roofs, windows, HVAC and building systems, interior plumbing and wiring in the landlord’s list.
  • Get a representation from the landlord that the premises and the property are in compliance with applicable laws and in good operating condition and repair as of the commencement date.
  • Try to negotiate the surrender language so the tenant does not need to remove all of the tenant improvements, cabling and furniture, fixtures and equipment at the end of the term.
  • Beware of leased spaces formerly occupied by Title IV institutions. See our [date]  blog post on that subject.

These provisions of a lease, and many others, can usually be negotiated and improved for the tenant.  Don’t consider any lease, even a pre-printed form that says it’s “standard,” to be carved in stone.

New and Extended Lease Rules Are Changing for Title IV Composite Score Purposes

Katherine Brodie, Partner (Education), Duane Morris LLP

On September 23, 2019, the U.S. Department of Education published a Final Rule that applies to all higher education institutions that participate in the federal student financial aid programs under Title IV of the Higher Education Act (“Title IV programs”).

Specifically, the Final Rule amends the annual Title IV financial responsibility composite score to take into account the Financial Accounting Standards Board (FASB) Accounting Standard Update (ASU) 2016-2, which requires that leases be treated as both right-of-use assets and liabilities. Public entities must adopt 2016-2 for leases entered into after fiscal years starting on or after December 15, 2018. Private entities must adopt the new standard starting January 1, 2020. FASB, however, has proposed delaying the private entity implementation date to January 1, 2021.

The Department of Education’s Final Rule exempts all leases entered into before December 15, 2018 from application of 2016-2 for composite score purposes. For leases entered into on or after December 15, 2018 (which the Department states can include extensions or modifications of pre-December 15, 2018 leases), auditors must apply FASB ASU 2016-2 and, as a result, some institutions’ composite scores may be adversely impacted. Since FASB ASU 2016-2 does not subject private entities to the new standard until at least January 1, 2020, there is an argument that the Department should not have an institution’s official composite score calculation reflect the new lease accounting standards until such time as the new standard is required under GAAP, but the Department has not yet clarified its position on this point (despite several pending requests for clarity on that point). Bottom line, as institutions negotiate new leases or seek to extend or modify current leases, they should consult Title IV counsel and their auditors for guidance because certain lease terms may significantly impact the carrying value of a leased asset under the new FASB standard as applied by the Department of Education.

New California Bill Prohibits Colleges from Withholding Transcripts Based on Debt Owed

On October 4, 2019, California Governor, Gavin Newsom, signed AB 1313 into law. Effective January 1, 2020, AB 1313 extends to private postsecondary institutions and prohibits schools from the following:

  • Refusing to provide a transcript for a current or former student on the grounds that the student owes a debt;
  • Conditioning the provision of a transcript on the payment of a debt;
  • Charging a higher fee for obtaining a transcript or providing less favorable treatment of a transcript request because a student owes a debt; or
  • Using a transcript issuance as a tool for debt collection.

Colleges should evaluate their current Transcripts/Records on Hold policies to ensure that California campuses do not restrict a student from obtaining their transcript on the basis of a debt owed.

New California Bill Requires Schools to Provide Intimate Partner and Dating Violence Outreach Programming at Student Orientation

On July 12, 2019, California Governor, Gavin Newsom, signed AB 381 into law, amending Section 67386 of the Education Code. Effective January 1, 2020, the bill conditions the receipt of state funds for student financial assistant on postsecondary institutions (as well as community colleges and the CSU/UC systems) providing outreach programming regarding intimate partner and dating violence as part of every incoming student orientation.

Prior to the passage of AB 381, California colleges were already required to implement comprehensive policies regarding sexual violence, domestic violence, dating violence and stalking. However, AB 381 specifically addresses what must be included in a college’s outreach programming and also requires that the programming be provided to all incoming students (including graduate, transfer and international students). Colleges must inform students of: Continue reading New California Bill Requires Schools to Provide Intimate Partner and Dating Violence Outreach Programming at Student Orientation

U.S. Department of Education Publishes State Authorization Rule

On November 1, 2019, the U.S. Department of Education published the Final Regulations for accreditation and state authorization. This notice focuses on the updates to State Authorization of Distance and Correspondence Education. The effective date will be July 1, 2020, with early implementation allowed at the discretion of each institution or agency for sections § 600.2, § 600.9, § 668.43 and § 668.50 (described herein). The rule is the product of consensus negotiated rulemaking. The regulations address the role of reciprocity agreements, update the language regarding student location, clarify required state authorizations for distance education programs, and revise consumer disclosure requirements. Continue reading U.S. Department of Education Publishes State Authorization Rule

First Circuit Rejects Professor’s First Amendment Challenge to Maine Law Governing University Collective Bargaining

by John M. Simpson.

On October 4, 2019 the U.S. Court of Appeals for the First Circuit affirmed the judgment of a district court dismissing an action brought by an economics professor at the University of Maine at Machias seeking to invalidate, on First Amendment grounds, a Maine statute that governs the collective bargaining process between the University of Maine system and its faculty.  Reisman v. Associated Faculties of the Univ. of Maine, No. 18-2201 (1st Cir. Oct. 4, 2019).    Continue reading First Circuit Rejects Professor’s First Amendment Challenge to Maine Law Governing University Collective Bargaining

Avoiding Land Mines: Do Your Homework on that New Campus or Instructional Location

Authors: Julie Mebane, Partner (Real Estate) and Katherine Brodie, Partner (Higher Education)

Nothing is more unwelcome than a big surprise after your institution has invested hours and dollars in a new instructional location. Up front due diligence is essential, and it needs to identify issues that may impair your ability to operate at a new location or expose the institution to significant liabilities. Be sure to consider the following and utilize counsel well versed in college and university property acquisitions and applicable regulations to examine any problems you may encounter:

  • What is the zoning of the property? Is there a zoning report that can be reviewed (if not, consider ordering one)? Does the property have the number of parking spaces required by law or local ordinances?
  • Are there any CC&Rs (covenants, conditions and restrictions) recorded against the property? Get and review copies to make sure they don’t prohibit any intended uses.
  • Is there a conditional use permit (CUP) or planned development permit affecting the property? If so, review this for any use restrictions.
  • What is the current condition of the property and the physical plant? Check for current building permits, and consider getting a professional inspection report on the building’s systems.
  • Does the current owner have a title policy covering the property? Important information about the location and its history can be gained from this document.
  • Does the owner have a Phase 1 environmental assessment regarding any hazardous materials at the location? Request and review this for possible issues, and keep it as a baseline in case of future problems.
  • Are there any litigation or condemnation actions that have been filed relating to the property? These can be red flags for any future owner or occupant.
  • Is the property in a designated flood zone, near an earthquake fault line, or otherwise located in an area exposed to natural disasters? Natural hazard disclosure reports can be obtained without much expense.
  • Was the property previously used by an institution participating in U.S. Department of Education Title IV federal student aid programs and did that institution close with unpaid liabilities owed to the Department? If so, moving into that space by lease or purchase could expose your institution to assumption of the unpaid liabilities of the previous owner.
  • Do you know your state, accreditor and Department of Education reporting obligations? These agencies must generally be notified of any change of location or any new space where more than 50% of an eduational program will be offered, or the institution risks liability for all Title IV funds disbursed to students at the new location and potentially other regulatory sanctions.

Most of these questions can be answered with the help of a forthcoming landlord when negotiating a new lease and with the assistance of experienced counsel. If the property is being purchased, the seller is likely required by law to make certain representations and warranties and to disclose property-related information and materials during the buyer’s due diligence period.

So don’t be surprised – get the information you need before you commit to a new campus or instructional location.

 

D.C. Circuit Revives False Claims Act Retaliation Case Against University

By John M. Simpson.

On September 20, 2019, the U.S. Court of Appeals for the District of Columbia Circuit reversed a district court judgment that had dismissed a retaliation case brought by a university veterinarian who was allegedly terminated for making internal and external complaints about the conditions in which laboratory animals were being maintained. Singletary v. Howard University, No. 18-7158 (D.C. Cir. Sept. 20, 2019). The appellate panel deciding the case split on the question of whether plaintiff was engaged in protected activity or was simply doing her job. Continue reading D.C. Circuit Revives False Claims Act Retaliation Case Against University

Gainful Employment- October 1 Data Reporting Deadline for 2018-2019

On July 1, 2019, the U.S. Department of Education published a final rule rescinding the Department’s gainful employment (GE) regulations (2014 Rule) in the Federal Register. Institutions were given the option to early implement the rescission of the GE rule. Institutions that did not early implement the rule are still required to comply with the 2014 rule until the rescission becomes effective on July 1, 2020, and are expected to report GE data for the 2018–19 Award Year to National Student Loan Data System (NSLDS) by October 1, 2019. Compliance with the GE rule would be monitored via annual Title IV compliance audits and Title IV program reviews.

Detailed information about the use of NSLDS for reporting GE data is provided in the NSLDS Gainful Employment User Guide, available on the NSLDS User Documentation page of the Information for Financial Aid Professionals (IFAP) website, as well as from the “Resources” section of the Gainful Employment Information Page.

U.S. Department of Education Issues Final Borrowers Defense to Repayment Regulation

This afternoon the U.S. Department of Education posted the pre-publication notice of the Final Borrowers Defense to Repayment regulation which rewrites the regulations promulgated under the Borrower Defense to Repayment provision of the Higher Education Act (HEA). A summary of the rule can be found here. The official version will be published in the Federal Register. Continue reading U.S. Department of Education Issues Final Borrowers Defense to Repayment Regulation

Webinar: How the CCPA Impacts the Higher Education Industry

The California Consumer Privacy Act of 2018 Webinar Series will be hosting its third installment, “How the CCPA Impacts the Higher Education Industry,” to be held on September 5, 2019. The webinar will be presented by Duane Morris attorneys Brandi A. Taylor and Michelle Hon Donovan.

Brandi Taylor
Brandi A. Taylor
Photo of attorney Michelle Hon Donovan
Michelle Hon Donovan

This session provides an overview of the new law and how it applies to schools and companies in the education sector. Nonprofit educational institutions are exempt from the new law. However, it will apply to any for-profit education institutions, service providers and technology companies that collect any information on California residents and meet any of the following criteria:

  • Have an annual gross revenue of $25 million or more;
  • Collect, sell or share for commercial purposes the personal information of at least 50,000 consumers, households or devices annually; or
  • Derive at least 50 percent of annual revenue from selling consumers’ personal information.

To register for this webinar, please visit the Duane Morris website.