{"id":106,"date":"2019-11-19T12:05:31","date_gmt":"2019-11-19T16:05:31","guid":{"rendered":"http:\/\/blogs.duanemorris.com\/updateeducation\/?p=106"},"modified":"2019-11-19T12:05:31","modified_gmt":"2019-11-19T16:05:31","slug":"lease-points-colleges-and-universities-should-not-miss","status":"publish","type":"post","link":"https:\/\/blogs.duanemorris.com\/updateeducation\/2019\/11\/19\/lease-points-colleges-and-universities-should-not-miss\/","title":{"rendered":"Lease Points Colleges and Universities Should Not Miss"},"content":{"rendered":"<p style=\"text-align: left\">DO NOT BE FOOLED BY \u201cSTANDARD FORM LEASES\u201d and<br \/>\nBEWARE OF CHANGING RULE ON TREATMENT OF LEASES IN TITLE IV COMPOSITE SCORE<\/p>\n<p><em>There is no such thing as a \u201cstandard lease,\u201d even if the document has that title at the top<\/em>.<\/p>\n<p><a href=\"https:\/\/www.duanemorris.com\/attorneys\/juliesmebane.html\">Julie Mebane,<\/a> Partner (Real Estate), Duane Morris LLP<\/p>\n<p>If your institution is reviewing a lease form and you are considering signing it for the tenant, make sure that you don\u2019t gloss over it in the belief that its terms cannot be negotiated.\u00a0 Usually, many lease terms can be modified and the tenant\u2019s position can be enhanced if you pay attention to its language, especially a few important provisions:<\/p>\n<ul>\n<li>Consider starting out by having both landlord and tenant sign a <u>term sheet<\/u> with the key business points summarized.\u00a0 This can avoid confusion and disagreements later when the lease is reduced to writing.<\/li>\n<li>Pay close attention to the <u>description of the leased premises<\/u>.\u00a0 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.<\/li>\n<li>Double-check the <u>rent calculations<\/u> in the lease.\u00a0 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 \u201c3% rent escalations per year.\u201d<\/li>\n<li>If the tenant will be paying <u>operating expenses<\/u> as part of its rent, consider negotiating a cap on the amount of annual increases that can be passed through to the tenant.<\/li>\n<li>Ask the landlord to pre-approve and describe in the lease any up-front <u>alterations<\/u> or other work of improvements the tenant needs to do on the premises.<\/li>\n<li>In the <u>use clause<\/u>, more general language benefits the tenant.\u00a0 Try to include the right to conduct \u201coffice and other administrative uses\u201d or possibly \u201call other lawful uses.\u201d\u00a0 You may enhance the tenant\u2019s right to assign and sublet in the future by broadening the use clause.<\/li>\n<li>With regard to the parties\u2019 respective <u>maintenance and repair<\/u> obligations, be sure there is a complete description of the landlord\u2019s duties.\u00a0 Try to include structural maintenance and repairs, floors, ceilings, roofs, windows, HVAC and building systems, interior plumbing and wiring in the landlord\u2019s list.<\/li>\n<li>Get a representation from the landlord that the premises and the property are in <u>compliance with applicable laws<\/u> and in good operating condition and repair as of the commencement date.<\/li>\n<li>Try to negotiate the <u>surrender<\/u> 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.<\/li>\n<li>Beware of leased spaces formerly occupied by Title IV institutions. See our [date]\u00a0 blog post on that subject.<\/li>\n<\/ul>\n<p>These provisions of a lease, and many others, can usually be negotiated and improved for the tenant.\u00a0 Don\u2019t consider any lease, even a pre-printed form that says it\u2019s \u201cstandard,\u201d to be carved in stone.<\/p>\n<p><em>New and Extended Lease Rules Are Changing for Title IV Composite Score Purposes<\/em><\/p>\n<p><a href=\"https:\/\/www.duanemorris.com\/attorneys\/katherinedbrodie.html\">Katherine Brodie<\/a>, Partner (Education), Duane Morris LLP<\/p>\n<p>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 (\u201cTitle IV programs\u201d).<\/p>\n<p>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.<\/p>\n<p>The Department of Education&#8217;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<em>\u00a0<\/em>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\u2019 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\u2019s 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.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>DO NOT BE FOOLED BY \u201cSTANDARD FORM LEASES\u201d and BEWARE OF CHANGING RULE ON TREATMENT OF LEASES IN TITLE IV COMPOSITE SCORE There is no such thing as a \u201cstandard lease,\u201d even if the document has that title at the top. Julie Mebane, Partner (Real Estate), Duane Morris LLP If your institution is reviewing a &hellip; <\/p>\n<p class=\"link-more\"><a href=\"https:\/\/blogs.duanemorris.com\/updateeducation\/2019\/11\/19\/lease-points-colleges-and-universities-should-not-miss\/\" class=\"more-link\">Continue reading<span class=\"screen-reader-text\"> &#8220;Lease Points Colleges and Universities Should Not Miss&#8221;<\/span><\/a><\/p>\n","protected":false},"author":375,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[2],"tags":[27,47,14,21],"ppma_author":[181],"class_list":["post-106","post","type-post","status-publish","format-standard","hentry","category-general","tag-higher-education","tag-julie-mebane","tag-katherine-brodie","tag-universities"],"authors":[{"term_id":181,"user_id":375,"is_guest":0,"slug":"kdbrodie","display_name":"Katherine D. Brodie","avatar_url":"https:\/\/blogs.duanemorris.com\/updateeducation\/wp-content\/uploads\/sites\/44\/2019\/06\/brodiekatherine-125x150.jpg","0":null,"1":"","2":"","3":"","4":"","5":"","6":"","7":"","8":""}],"_links":{"self":[{"href":"https:\/\/blogs.duanemorris.com\/updateeducation\/wp-json\/wp\/v2\/posts\/106","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/blogs.duanemorris.com\/updateeducation\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blogs.duanemorris.com\/updateeducation\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blogs.duanemorris.com\/updateeducation\/wp-json\/wp\/v2\/users\/375"}],"replies":[{"embeddable":true,"href":"https:\/\/blogs.duanemorris.com\/updateeducation\/wp-json\/wp\/v2\/comments?post=106"}],"version-history":[{"count":0,"href":"https:\/\/blogs.duanemorris.com\/updateeducation\/wp-json\/wp\/v2\/posts\/106\/revisions"}],"wp:attachment":[{"href":"https:\/\/blogs.duanemorris.com\/updateeducation\/wp-json\/wp\/v2\/media?parent=106"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blogs.duanemorris.com\/updateeducation\/wp-json\/wp\/v2\/categories?post=106"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blogs.duanemorris.com\/updateeducation\/wp-json\/wp\/v2\/tags?post=106"},{"taxonomy":"author","embeddable":true,"href":"https:\/\/blogs.duanemorris.com\/updateeducation\/wp-json\/wp\/v2\/ppma_author?post=106"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}