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Editorial Policy: Probate & Property is designed to assist lawyers practicing in the areas of real estate, wills, trusts, and estates by providing articles and editorial matter written in a readable and informative style. The articles, other editorial content, and advertisements are intended to give up-to-date, practical information that will aid lawyers in giving their clients accurate, prompt, and efficient service.
The materials contained herein represent the opinions of the authors and editors and should not be construed to be those of either the American Bar Association or the Section of Real Property, Trust and Estate Law unless adopted pursuant to the bylaws of the Association. Nothing contained herein is to be considered the rendering of legal or ethical advice for specific cases, and readers are responsible for obtaining such advice from their own legal counsel. These materials and any forms and agreements herein are intended for educational and informational purposes only.
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This significantly updated edition of Third-Party and Self-Created Trusts explains the effect that governmental legislation has had on trust law and guides you through the maze of federal laws that affect planning for the elderly and disabled. Focusing on the effect of the Omnibus Budget Reconciliation Act of 1993 on trusts for older and disabled Americans, this guide includes the full text of this act and outlines how it affects the drafting of trusts, illustrated by a comprehensive chart showing OBRA 1993’s effect on nine commonly used trusts.
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The Uniform Law Commission recently appointed a Drafting Committee on Child Digital Entertainers to create a new uniform law focusing on financial compensation for minors featured in digital entertainment content. A group of family law attorneys proposed the project, but it will also be of interest to the trust and estate bar because of its proposed requirement to hold assets in trust for the benefit of a minor.
Several states have a history of legislating to protect the earnings of children who perform as actors, models, athletes, and similar endeavors. In 1939, California adopted the first such statute, called the “Coogan Law,” after former child actor Jackie Coogan sued his mother for misuse of the funds earned during his childhood acting career. (The law has since been amended several times. See Cal. Fam. Code §§ 6750 to 6753.) New York adopted similar protections for child actors on Broadway with the Child Performer Education and Trust Act of 2003. N.Y. Est. Powers & Trusts Law § 7-7.1.
But the issue is no longer confined to child actors on stage and screen. The rise of the internet and the use of social media platforms by content creators to generate profit has more states looking at this issue. If an adult creates a video featuring a child’s performance, should the law require a percentage of the profits generated by that video to be reserved
Uniform Laws Update Co-Editor: Benjamin Orzeske, Uniform Law Commission, 111 N. Wabash Avenue, Suite 1010, Chicago, IL 60602.
Uniform Laws Update provides information on uniform and model state laws in development as they apply to property, trust, and estate matters. The editors of Probate & Property welcome information and suggestions from readers.
for the benefit of the child? Illinois, Minnesota, and Utah have enacted laws ensuring minors will be compensated for appearing in videos that generate income. 820 Ill. Comp. Stat. 206/1 to 206/999; Minn. Stat. § 181A.13; Utah Code §§ 34-23-501 to 34-23-504. At press time, legislation was pending in several other states, but there were substantial differences in the scope of the new and proposed regulations and the amount of funds required to be reserved for minors. The drafting committee will attempt to create a more uniform set of rules for consideration by state legislatures.
The drafting committee began by examining existing state legislation, enacted and proposed, for digital entertainment content, which means content shared on online platforms. Most states require an adult who produces content (e.g., a YouTube video) that includes a minor child’s name, image, or likeness to set aside a percentage of funds for the benefit of the minor. But details vary widely. Some states protect minors up to 18; others only up to 16 or 14. Some exclude content self-produced by the child. Some presume that the adult is a parent or guardian for the minor with
attendant parental duties, and some do not.
Fiduciary requirements also vary. Some states require only a custodial account under the Uniform Transfers to Minors Act (UTMA), but others require an express trust. Some states allow the adult to act as a trustee, but others require an independent trustee or a court-administered trust.
Some states go beyond the question of financial compensation and also impose restrictions on the type or amount of labor a child may perform, and a few of the pending bills provide privacy protections by requiring an internet-based platform to take down content at the request of the minor.
Finally, there is the question of enforcement. Some states create a right of action allowing minors to sue, either at the age of majority or above some younger threshold. Others allow a state attorney general or labor commissioner to enforce the law.
The Uniform Law Commission has asked the committee to focus on financial issues and create a uniform system to protect the financial interests of children whose name, image, or likeness appears in online content. The committee welcomes input from any interested party. Sign up to follow the committee at www.uniformslaws.org to receive drafts and notice of future committee meetings. n
This series is an introduction to the income taxation of trusts and estates under Subchapter J of the Internal Revenue Code, with a focus on sections 641-668. The series will start with an in-depth review of the key concepts of fiduciary accounting income (FAI) and distributable net income (DNI). Part 2 will apply these concepts to the taxation of simple and complex trusts and estates. The series will end highlighting nuances and special circumstances to be aware of when the general rules do not necessarily apply.
This series is part of the fundamentals programming designed for attorneys and advisors who are newer to the field and those who do not have a strong grasp of fiduciary income tax principles.
Session 1: The Building Blocks of Fiduciary Income Tax - Tuesday, July 1, 2025
Session 2: Taxation of Simple and Complex Trusts - Tuesday, July 15, 2025
Session 3: Special Rules in Fiduciary Income Tax - Tuesday, July 29, 2025
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By Kristina M. Stanger, Henry J. Jaffe, Amy M. Oden, Jeffrey Azuse, and Maria Z. Cortes
In the ever-evolving landscape of commercial real estate, bankruptcy often looms as a potential disruptor. Although it is a critical legal and financial tool for companies seeking relief, bankruptcy can significantly affect real estate stakeholders—landlords, tenants, lenders, and developers. With a comprehensive understanding of the Bankruptcy Code, however, stakeholders can navigate these challenges effectively and even uncover opportunities amid uncertainty.
This article explores the intersections of real estate and bankruptcy law, illustrating key principles through recent trends and case studies and offering practical strategies for real estate constituents to mitigate risks and leverage opportunities.
Bankruptcy is governed by Title 11 of the U.S. Code, enacted under Congress’s authority to legislate uniform bankruptcy laws. U.S. Const. art. I, § 8, cl. 4. Under this authority, Congress enacted the “Bankruptcy Code.” The Bankruptcy Code balances debtor relief and creditor rights, enabling debtors to reorganize or liquidate while protecting creditors’ interests. Specific chapters, such as Chapter 11 (reorganization) and Chapter 7 (liquidation), often directly intersect with real estate issues.
The COVID-19 pandemic catalyzed a seismic shift in work culture, leading to widespread adoption of remote work and
Kristina M. Stanger is a shareholder attorney at Nyemaster Goode, PC in Des Moines, Iowa. She is the firm chair for the bankruptcy and creditor’s rights group.
Henry J. Jaffe is a partner at Pashman Stein Walder Hayden P.C. in Wilmington, Delaware.
Amy M. Oden is an associate at Pashman Stein Walder Hayden P.C. in New York, New York.
Jeffrey Azuse is an executive vice president at Hilco Real Estate. He leads the real estate sales group within Hilco, with a focus on bankruptcy sales.
Maria Z. Cortes is an associate at Holland & Knight in Philadelphia, Pennsylvania. She is the vice chair of the Section’s Retail Leasing Group and an associate articles editor of this magazine.
a decline in demand for office spaces. As property owners grapple with refinancing challenges, maturing loans, and higher interest rates, bankruptcies among real estate constituents have surged. In early 2024, bankruptcy filings for cases involving real estate valued above $5 million reached record levels, reflecting this trend.
There are seven forms of bankruptcy cases under the Bankruptcy Code, which are referred to by the name of the chapter that describes them.
A Chapter 7 bankruptcy proceeding is an orderly, courtsupervised procedure by which a Chapter 7 trustee steps in to control and liquidate the debtor’s assets, reducing them to cash and then making cash payment distributions to creditors. The debtor may retain exempt property. These cases often can be resolved in fewer than 90 days from filing. If the debtor is an individual, the debtor receives a discharge and release from any future personal liability for most debts. If a debtor’s income exceeds certain thresholds, however, the debtor may not be eligible for Chapter 7 relief and might need to seek relief under Chapter 11 or Chapter 13.
A Chapter 9 bankruptcy proceeding provides for the reorganization of a “municipality.” This chapter includes relief for cities and towns, counties, taxing districts, municipal utilities, and school districts.
A Chapter 11 bankruptcy proceeding is used when a business seeks to continue operating and repay creditors through a court-approved plan of reorganization or to sell the business as a going concern (meaning selling the business while it is still operational). The debtor has the exclusive right to file a plan of reorganization during the first 120 days. After this
period, other parties may file their own plans for the debtor’s business. The plan must be voted upon and approved by creditors and subsequently confirmed by the court. Through this process, the debtor can reduce debts, discharge others, terminate burdensome contracts and leases, recover assets, pursue claims, and adjust operations to return to profitability. Although Chapter 11 can be costly and time-consuming, the ultimate goal is to enable the business or a portion of it to emerge from bankruptcy in a stronger financial position.
For a debtor that meets the definition of a “small business debtor” under 11 U.S.C. § 101(51D), the business may qualify for a Subchapter V bankruptcy. This “mini–Chapter 11” offers a quicker and more cost-effective process than a traditional Chapter 11. Notably, under Subchapter V, equity owners may retain ownership of the business following the reorganization.
A Chapter 12 bankruptcy proceeding provides debt relief to family farmers and fishermen currently engaged in operations, provided their total debts do not exceed $11,097,350 (for family farmers) or $2,268,550 (for family fishermen). The Chapter 12 process is similar to Chapter 13, under which the debtor proposes a plan to repay debts over three to five years. A Chapter 12 trustee disburses payments to creditors under the confirmed plan, while the debtor is allowed to continue operating the business during this period.
A Chapter 13 bankruptcy proceeding is designed for individual debtors with a regular source of income whose debts exceed the limits for Chapter 7. In Chapter 13, the debtor proposes a plan to repay creditors over three to five years, allowing the debtor to retain valuable assets. Unlike Chapter
7, Chapter 13 is not a liquidation and the debtor keeps possession and control of assets while making payments through a Chapter 13 trustee under the plan. Upon completing all plan payments, the debtor receives a discharge of the remaining debts. During the plan period, the debtor is protected from creditor actions.
A Chapter 15 bankruptcy filing addresses cross-border insolvency cases. It is used when a debtor has insolvency issues within the United States and in a foreign country.
At a high level, the automatic stay is a cornerstone of bankruptcy law, halting all creditor actions against a debtor upon filing. For real estate, this means landlords cannot evict tenants and lenders cannot foreclose on properties without court approval. Creditors can seek relief from the stay under certain conditions, however, such as a lack of adequate protection or if the debtor lacks equity in the property.
Specifically, Section 362(a) of the Bankruptcy Code provides for an automatic stay of all claims and actions against a debtor once a bankruptcy case is filed. 11 U.S.C. § 362. Automatic means automatic—the stay starts by operation of law upon the filing of a bankruptcy petition without any further notice or due process. See id. § 362(a). “The automatic stay is one of the fundamental protections for a debtor and permits the debtor to focus on its reorganization.” In re Roman Cath. Diocese of Rockville Ctr., New York, 651 B.R. 622, 637 (Bankr. S.D.N.Y. 2023).
The automatic stay operates to stay, among other things, (i) the commencement or continuation of any action or proceeding or collection attempts (see 11 U.S.C. § 362(a)(1), (6)), (ii) any action to enforce a judgment (see id. § 362(a) (2)), (iii) any action to obtain possession or control over the debtor’s property (see id. § 362(a)(3)), and (iv) any action
to set off a debt, which could include applying a security deposit to a tenant’s leasehold obligation (see id. § 362(a)(7)).
There are, however, certain exceptions to the automatic stay, including efforts by a landlord to recover possession of an expired lease of nonresidential real property. See id. § 362(b) (10). In addition, even where the stay applies, creditors and other parties can seek permission from the bankruptcy court to have the stay lifted so that the creditor can take certain— otherwise stayed—actions against the debtor, most often in situations where the creditor is a mortgagee who can either show cause, including a lack of adequate protection of the creditor’s interest in the property (see id. § 362(c) (1)), or where the debtor has no equity interest in the property and it is not necessary for an effective reorganization (see id. § 362(c)(2)(A)–(B)).
Creditors are well advised to take the automatic stay very seriously. Generally speaking, the majority of courts conclude that a violation of the automatic stay by a creditor is simply void and the action taken will be treated as if it never happened (and even the minority of courts find that such actions are, at the very least, voidable). The real danger is that a “willful” stay violation can land a creditor in trouble and a “willful” violation means only that a party knows or has reason to know of the bankruptcy case, not that it knows that its action violated the stay. See id. § 362(k)(1). A debtor can seek and obtain costs, attorney fees, damages, and even punitive damages for a knowing stay violation. See id. Thus, when in doubt, creditors should not take an action that may potentially be subject to the stay, and, if they think that the action may be stayed, seek advice of bankruptcy counsel before you proceed.
U.S.C. § 365)
At a high level, under Section 365 of the Bankruptcy Code, debtors can assume (assumption) or reject (rejection) executory contracts (contracts where go-forward performance is owed both by the debtor and by the
non-debtor party), which can include real property leases. Assumption allows the debtor to cure defaults and continue the lease, while rejection treats the lease as if it were breached, allowing landlords to claim damages capped by Section 502(b)(6). For landlords, this provision provides critical protections, such as the requirement for debtors to pay post-petition obligations (debts incurred after filing for bankruptcy) promptly under Section 365(d)(3).
Perhaps the most important highlevel concept that arises with respect to leases and executory contracts is that Section 365 of the Bankruptcy Code permits a debtor-in-possession (typically in a Chapter 11 or 13 case) or a trustee (typically in Chapter 7 or in some Chapter 11 cases) to either assume or reject leases. If the lease is assumed, it is, in essence, affirmed and blessed, and the debtor or trustee must cure defaults and perform moving forward. 11 U.S.C. § 365(b)(1)(A)–(C). If the lease is rejected, upon the date of the rejection, the debtor or trustee is generally excused from performing under the lease going forward, the rejection is treated as a pre-bankruptcy breach of contract, and the creditor can assert claims arising from that breach. Id. § 365(g).
In terms of the debtor’s decision to either assume or reject a lease, the decision itself is difficult to contest as it comes down to the debtor’s (or trustee’s) business judgment as to whether the action proposed (assumption or rejection) is in the best interests of the debtor’s bankruptcy estate. From a practical perspective, it is almost impossible to successfully oppose a rejection (where the debtor or trustee has decided that the lease is a burden to the bankruptcy estate) and, because of this, counterparties rarely even attempt to contest a rejection.
Another high-level takeaway, and as discussed below, is that Section 365 of the Bankruptcy Code has a number of key protections for landlords of nonresidential real property leases as well as tenants of all residential and nonresidential real property leases.
As a general rule, the Bankruptcy Code permits a debtor-in-possession to continue operating its business and performing ordinary-course-of-business transactions during a Chapter 11 case, including paying ordinary-course post-bankruptcy obligations, without first obtaining an order of the bankruptcy
court. See id. § 363(c). By contrast, in a Chapter 7 case, the trustee typically does not operate the debtor’s business. Chapter 7 is the Bankruptcy Code’s liquidation chapter, and the trustee must obtain court authority to operate the business, which rarely occurs. See id. § 721.
Section 363(b) of the Bankruptcy Code also permits a debtor to sell some or all of its property in a bankruptcy sale, considered “out of the ordinary course of business,” subject to bankruptcy court approval. Such bankruptcy sales may include the sale of property subject to a mortgage and also may include the assumption and assignment of real property leases. Additionally, because these “out of the ordinary course of business” sales require decisions to be made about which leases will be assumed and assigned to the purchaser, it is often during this time that many leases undesirable to the purchaser are rejected by the debtor. This rejection helps reduce post-bankruptcy operating costs, such as post-bankruptcy rent and other leasehold obligations that the debtor must pay to its landlord.
Cases in Chapter 11 culminate in the confirmation of a Chapter 11
Bankruptcy cases are replete with deadlines and traps for the unwary.
bankruptcy plan, which may be either a plan of reorganization (allowing the debtor to continue operating after confirmation) or a plan of liquidation, provided the standards of Section 1129 of the Bankruptcy Code are met. Among these standards is the requirement that all post-bankruptcy “administrative claims” (typically valid operating claims, including leasehold obligations arising post-bankruptcy) must be satisfied in full when the plan becomes effective. See id. § 1129(a)(9)(A). But in small business bankruptcies under Subchapter V of Chapter 11, these administrative claims may be paid over time. See id. § 1191(e).
To the extent that a real property lease (or any other lease or executory contract, for that matter) has not yet been assumed or rejected, the confirmation of the plan becomes the outside deadline by which a debtor must decide whether to assume or reject it. See id. § 365(d)(2) (for residential real property), (4) (for nonresidential real property). Note, however, that, as discussed below, there are limited time periods in Chapter 11 cases for the debtor to assume or reject nonresidential real property leases where it is the tenant. Nevertheless, assumption or rejection must still be determined no later than plan confirmation.
One word of caution for clients and attorneys who do not regularly practice bankruptcy law: be extremely careful about your rights in bankruptcy and strongly consider seeking the assistance of bankruptcy counsel.
Bankruptcy cases are replete with deadlines and traps for the unwary. To begin, there is the deadline for filing proofs of claim, and failure to file a claim could bar any recovery in the bankruptcy case. If a lease is rejected, there will be another deadline for filing rejection damage claims. Additionally, there may be deadlines for filing unpaid post-bankruptcy “administrative” claims.
Landlords and tenants also must keep careful track of notices to assume or reject leases. These motions and notices often contain very short deadlines for parties to assert claims (even if they have already filed a proof of claim) under their leases, or they risk losing those claims. Finally, all bankruptcy plans and sale motions must be carefully reviewed to determine their effect on lease or mortgagee rights. It is not uncommon for these motions and plans to be difficult—even for bankruptcy attorneys—to decipher, with key details and deadlines often buried in obscure sections of the documents.
Although it is true that a debtor or trustee may assume or reject a landlord’s lease in a bankruptcy case, there are, nonetheless, several key protections for landlords, especially landlords under nonresidential real property leases under Section 365 of the Bankruptcy Code.
Although it is generally true that a debtor-in-possession has the ability to pay post-bankruptcy obligations in the ordinary course of business under Section 363(c) of the Bankruptcy Code, in most cases, a debtor (or trustee) is not required to pay those obligations as they come due. The consequence of a debtor’s or trustee’s failure to pay these obligations is that a creditor may have to wait until the end of the case to be paid on these claims (either pursuant to a Chapter 11 plan or a trustee’s distribution of estate proceeds), as Section 1129(a)(9)(A) requires these claims to be paid on the effective date of a Chapter 11 plan. See id. § 1129(a)(9) (A). If a case is “administratively insolvent” (i.e., there are insufficient assets to pay administrative claims in full, which generally means a plan cannot be confirmed), the bankruptcy case may be converted to Chapter 7, and those claims might not be paid in full or at all. Fortunately for landlords under nonresidential real property leases, Section 365(d)(3) requires the debtor or trustee to promptly pay all leasehold obligations arising post-bankruptcy, such as monthly rent and other charges. This may be true even if some of those claims relate to the pre-bankruptcy period, so long as the obligation to pay only arises under the lease post-bankruptcy. Regarding what obligations must be performed, some courts use a “billing date” approach, which means that the obligation must be performed so long as it first comes due and can be billed during the post-bankruptcy period, even if the obligation (such as taxes) accrued in whole or in part prebankruptcy. Other courts, however, require the obligation to be performed only if it accrued during the post-bankruptcy period (the so-called accrual approach).
A more complicated situation arises for landlords in nonresidential real property cases where the bankruptcy case is filed after an obligation to pay monthly rent arises and before the following month’s rent is due. For example, if rent was due on January
1 and the bankruptcy case is filed on January 10, is the landlord entitled to partial rent, or, in bankruptcy parlance, “stub rent,” for the rest of the month of January? If so, does it need to be paid immediately upon the bankruptcy filing? Even under the billing date rule, where all rent for the month was due pre-petition, while the landlord is entitled to an administrative priority claim in the bankruptcy case (which would have to be paid upon confirmation of a bankruptcy plan), it is not entitled to immediate payment of these monies. Likewise, courts appear to find that, even under the accrual approach, to be entitled to immediate payment under Section 365(d)(3), the obligation to pay must both arise under the agreement during the post-petition period and accrue during the post-petition period. Thus, if the contractual duty to pay arose pre-petition, there is generally no immediate duty to pay post-petition stub rent, although such claims will be entitled to administrative claim status.
Two additional items should be noted regarding Section 365(d)(3). First, the court does have some power, for cause shown, to extend the deadline for performance of any obligation that arises within the first 60 days of a case filing, but, in most cases, only to the 60th day after filing. See id. § 365(d)(3).
Second, Section 365(d)(3)’s protections apply to landlords under nonresidential real property leases. If the lease is a residential lease and the case is under Chapter 13 or 11, the tenant is permitted to pay the rent but may not be required to pay until plan confirmation.
If the tenant does not pay rent or meet other leasehold obligations when due, the landlord is not left entirely without options. The landlord is permitted to file a motion to compel the debtor to assume or reject the agreement before the occurrence of any statutory deadline to assume or reject. See id. § 365(d)(2). Factors a court may consider in determining such a motion include (a) the damage that the non-debtor will suffer beyond compensation available under the Bankruptcy
Code, (b) the importance of the contract to the debtor’s business and reorganization, (c) whether the debtor has had sufficient time to appraise its financial situation and the potential value of its assets in formulating a plan, and (d) whether the debtor’s exclusive period for filing a plan has terminated. How a court will react to such a motion may depend on whether the lease is for nonresidential real property. If it is, courts take the requirement of immediate payment seriously and, if that obligation is not being met, may (or may not) require a rapid decision on assumption or rejection. If the lease is a residential lease, courts generally will give the debtor as much of a chance as possible to cure its defaults.
When Must a Debtor Decide to Assume or Reject a Lease?
So, when must a debtor (or a trustee if the case is in Chapter 7) decide to assume or reject a lease? In a Chapter 7 case, because it is presumed that the trustee will not be operating any business, the trustee is generally required to make a decision to assume or reject the lease within 60 days after the bankruptcy case was filed, unless the court, for cause, extends this time period. Id. § 365(d)(1). If the lease is not assumed within this time period, it is deemed to be rejected. Id
In a Chapter 11 or 13 case, if the lease is a residential lease, unless otherwise ordered by the court, the debtor has through the date of the confirmation of the plan to decide whether to assume or reject the lease. Id. § 365(d) (2). More stringent rules apply in Chapter 11 where the debtor is the tenant under a nonresidential real property lease. In that instance, the debtor or tenant has until the earlier of plan confirmation or 120 days from the filing of the bankruptcy case to assume the lease, unless, before expiration of that period, the court grants a further extension of 90 days for cause shown (resulting in a time period of as long as 210 days). See id. § 365(d)(4)(A)–(B). Moreover, the court may further extend the deadline past the 210-day period, but only with consent of the landlord.
Id. § 365(d)(4)(B)(ii). If, however, the lease is not assumed during such time period, it will be deemed rejected. Id. § 365(d)(4)(A).
Debtor’s Obligations in Connection with Assumption
If a debtor wants to assume a lease, it must promptly cure (i.e., pay) all monetary defaults arising under the lease before the assumption and also provide adequate assurance that it will continue to perform under the lease going forward. See id. § 365(b)(1)(A)–(C). The assumption process allows the landlord to be paid in full, even on the pre-bankruptcy unsecured claims for which it might otherwise receive little or no payment from the bankruptcy estate. Sometimes, if the debtor does not like the terms of the lease or believes that it is an over-market lease, it can seek to enter into a lease amendment with the landlord as a condition of assumption. Also, landlords should be aware that, although the debtor may have to cure most defaults arising under the lease, it will generally not have to cure defaults relating to the debtor’s insolvency or the filing of a bankruptcy case, as these provisions are generally unenforceable in this context. See id. § 365(b)(2).
The landlord and its counsel must keep a close eye on the bankruptcy docket and bankruptcy notices that they receive. Often, in a request or motion to assume a landlord’s lease, the identification of the lease itself may be buried in a long document or schedule. The time periods to respond, especially if the cure amount proposed is incorrect (which it frequently is), can be shockingly short. Sometimes, it is even the case that by the time the notice is received, the lease counterparty may have only a day or two to respond, so it is important to have counsel in place and ready to proceed.
Not only may a debtor assume a lease under the Bankruptcy Code, but it also may be authorized to assign the lease to a third party. The debtor will likely have this right even if the lease contains an anti-assignment clause, as such
clauses are typically unenforceable in connection with assignments. See id § 365(f)(1)–(2). In fact, the assumption and assignment of leases are routine and essential aspects of many large Chapter 11 cases, particularly when the debtor is selling its business as a going concern to one or more buyers. In such cases, buyers often “cherry-pick” the best (below-market) leases and locations, and the debtor frequently rejects leases that are not assumed and assigned.
To assume and assign a lease, the debtor must cure all defaults (often, the debtor and buyer agree that the buyer will pay these amounts), and the buyer (rather than the debtor) must provide adequate assurance of future performance. Id. § 365(f)(2)(B). Additionally, the new tenant must provide a security deposit “substantially the same as would have been required by the landlord upon the initial leasing to a similar tenant.” Id. § 365(l).
In this context, as well as in cases of straight lease assumptions by a debtor, it is important to note that adequate
assurance of future performance does not require an iron-clad guarantee of performance. Instead, the debtor’s performance must be likely (i.e., more probable than not), based on reason, and not speculative, arbitrary, or capricious, yet adhering to commercial standards.
The Bankruptcy Code provides specific “adequate assurance of future performance” protections to shopping center landlords to safeguard their unique rights and interests. To provide adequate assurance to a shopping center landlord, the debtor must demonstrate that (A) the source of rent and other payments due under the lease is sufficient, ensuring the assignee has a financial condition and operating performance similar to those at the time the lease was entered into; (B) the percentage rent will not decrease substantially; (C) the lease or its assignment will comply
with all radius, use, location, and exclusivity provisions in the lease and will not breach other lease or financing restrictions with third parties; and (D) the assumption or assignment will not disrupt the tenant mix or balance in the shopping center. See id § 365(b)(3)(A)–(D).
What happens if, instead of assuming your lease, the debtor rejects that agreement? Typically, the rejection of a lease, although it does not formally terminate the lease, will result in the debtor having to vacate the premises.
To the extent that any leasehold obligation relates to the post-bankruptcy period and remains unpaid, the landlord may assert a post-petition, first-priority administrative claim.
Additionally, the landlord will have a claim for breach of contract damages resulting from the rejection of the lease. The rejection of a lease is considered a breach of contract arising immediately before the filing of the bankruptcy case,
giving rise to a pre-bankruptcy claim. See id. § 502(g)(1). A creditor must file a proof of claim for lease rejection damages, with the deadline set by the Bankruptcy Court. See Fed. R. Bankr. P. 3002(c)(4). These rejection damages are considered pre-bankruptcy claims and are typically unsecured unless they are secured by a deposit provided by the debtor under the lease. In such cases, they are considered secured claims under Section 506(a) (1) of the Bankruptcy Code. See 11 U.S.C. § 506(a)(1).
Furthermore, landlord damage claims are capped under the Bankruptcy Code. The landlord’s claim is limited to the amount owing as of the time of the bankruptcy petition filing (or, if earlier, the date the landlord repossessed or the tenant surrendered the property), plus unaccelerated rent “for the greater of one year, or 15 percent, not to exceed three years, of the remaining term of such lease.” See id § 502(b)(6).
The growing consensus, known as the “time approach,” interprets this provision to mean that damages are capped at an amount equal to the next one year of rent due under the lease or the rent due over the first 15% of the remaining term, but not exceeding three years of rent. For example, if the remaining lease term were 10 years, the prospective damages would be capped at 15% of the term, or the rent due for the first 1.5 years of the remaining lease. By contrast, the alternative “rent approach” applies the 15% cap not to the length of the lease but to 15% of the value of the remaining rent reserved under the lease. This approach could result in different outcomes, particularly if the lease provides for escalating rent payments. It is important to note that the Section 502(b)(6) limitation is a cap on damages, not a measure of damages. A creditor must first calculate its damages under non-bankruptcy law (taking into account the duty to mitigate) and then apply the Section 502(b)(6) cap to determine the extent of its potential claim.
In most bankruptcy cases involving leases, the debtor is typically the tenant; however, this is not always the
case. In some instances, the debtor is the landlord. In such situations, the same overarching concepts regarding the debtor’s duty to assume or assign its leases under Section 365 apply, but the application of those rules differs. For example, the time period in Section 365(d)(4) for the debtor to assume or reject a nonresidential real property lease applies only when the debtor is the tenant, not the landlord. See id. § 365(d)(4). Similarly, the claims cap under section 502(b)(6) applies only when the creditor is a landlord.
By contrast, the 60-day period for a trustee to assume or reject a lease applies equally regardless of whether the debtor is the tenant or the landlord. Additionally, as discussed below, there is one notable provision of the Bankruptcy Code—Section 365(h)—that applies exclusively when the debtor is the landlord.
What happens if the debtor is the landlord and rejects a real property lease where the non-debtor party is the tenant? Must the tenant vacate the premises upon rejection and be forced to relocate?
The answer to this question is generally no, because Section 502(h) of the Bankruptcy Code provides important possessory protections to the tenant of a real property lease. Upon rejection, the lease is treated as having been breached, allowing termination under non-bankruptcy law. The tenant may then treat the lease as terminated (and presumably vacate the premises while filing a claim for breach of contract). See id. § 365(h)(1) (A)(i). If the lease term has already commenced, the tenant may retain its rights under the lease—including the rights to possession, quiet enjoyment, and hypothecation, among others—for the balance of the lease term. This includes the right to renew or extend the lease term under the agreement and applicable law, provided the tenant satisfies its payment obligations. See id. § 365(h)(1)(A)(ii). In essence, the tenant may choose whether to remain in possession under the rejected lease, assuming the lease term has commenced.
But, in the event of such a rejection,
does the debtor (landlord) or trustee have any performance obligations moving forward? The answer is generally no—but this does not mean the tenant is deprived of all its rights and remedies (though these rights are also limited). Upon rejection, if the tenant elects to retain its rights under the lease, the debtor’s or trustee’s performance obligations cease. The tenant may offset damages arising from the landlord’s nonperformance against the rent reserved under the lease. Beyond this, the tenant has no right against the bankruptcy estate or the debtor for damages occurring after the rejection date. See id. § 365(h)(1)(B). Additionally, the tenant’s rights under Section 365(h) may be asserted by any successor, assignee, or mortgagee permitted under the lease. See id. § 365(h)(1) (D). As a result, the tenant effectively waives any right to specific performance or to assert a claim based on the debtor’s or trustee’s post-rejection nonperformance.
Consequently, the tenant should carefully consider whether the rent it will pay is sufficient to offset the debtor’s nonperformance obligations or whether other landlord duties (e.g., HVAC services or common area maintenance) cannot be remedied or are excessively costly. If such costs exceed the value of the rental payments or render the property effectively uninhabitable, the election to retain possession may be rendered worthless. Furthermore, if the tenant elects to retain possession and the lease pertains to a shopping center, the rejection does not affect the enforceability of any applicable non-bankruptcy law or lease provision “pertaining to radius, location, use, exclusivity, or tenant mix or balance.” See id. § 365(h)(1)(C). This constitutes an important, though limited, exception to the general rule that lease terms are not enforceable upon rejection.
Section 365(d)(3) Obligations of Debtor or Trustee
Interestingly, Section 365(d)(3), which imposes timely performance obligations on the debtor or trustee pending
Obtaining relief from the automatic stay is challenging unless the case is in Chapter 7 and there is little to no equity in the property.
the assumption or rejection of a lease, does not, by its terms, apply solely where the debtor is the tenant under a nonresidential real property lease. Rather, although this provision is typically viewed as providing critical protection to tenants, its plain language suggests that it should also apply where the debtor is the landlord. At least one court, however, has held that section 365(d)(3) applies only to debtor-tenants and not to debtor-landlords.
The automatic stay prevents mortgagees from foreclosing or stays foreclosure proceedings in the first instance, without the need for a court order. The stay “protects bankruptcy estates by restraining any formal or informal action or legal proceeding that might dissipate estate assets or interfere with the trustee’s orderly administration of the estate.” Picard v. Fairfield Greenwich Ltd., 762 F.3d 199, 207 (2d Cir. 2014). The stay applies even if the debtor has only a mere possessory interest in the property.
A mortgagee must seek relief from the automatic stay to proceed with a foreclosure. If the mortgagee is aware that the mortgagor has filed for bankruptcy but still proceeds with the foreclosure action, the mortgagee can be found to have “willfully” violated the automatic stay, which can result in sanctions.
Obtaining Relief from the Automatic Stay Section 362(d)(1) of the Bankruptcy Code provides that the court shall grant relief (e.g., by terminating, annulling, modifying, or conditioning the stay) for cause under section 362(d)(1), including a lack of adequate protection of an interest in the property. The court has broad discretion to tailor relief to the specific circumstances of the case, balancing the need to sufficiently protect the mortgagee with the debtor’s interest in the property.
For example, the court may permit the mortgagee to commence a foreclosure action—which can take considerable time to complete—but bar the creditor from holding the foreclosure sale or enforcing any foreclosure judgment. The court may also allow the debtor to retain and use the property, provided the debtor makes timely payments for expenses such as taxes and insurance.
Stay relief also must be granted if the debtor has no equity in the property and the property is not necessary for an effective reorganization. See 11 U.S.C. § 362(d)(2)(A)–(B). Most courts hold that a debtor has no equity in the property for purposes of this section when the debts secured by liens on the property exceed its value. A minority of courts, however, may consider only the amounts owed to the moving lienholder and any senior lienholders, particularly in cases where junior
lienholders cooperate with the debtor on a Chapter 11 plan and object to senior lienholders’ requests for stay relief.
Regarding the second prong of the test, it is not sufficient for property to be necessary for any reorganization; it must be necessary for an effective one. This means there “must be a reasonable possibility of a successful reorganization within a reasonable time,” and the property in question is necessary in that reorganization.
As a practical matter, obtaining relief from the automatic stay is challenging unless the case is in Chapter 7 and there is little to no equity in the property (or unless the trustee is making adequate protection payments, which, as described below, is unlikely). Generally, courts will not lift the stay unless the creditor presents compelling evidence that the property’s value will decline during the period in which the debtor is permitted to present its reorganization plan.
Bankruptcy Code Section 363(e) provides that “at any time, on request of an entity that has an interest in property used, sold, or leased, or proposed to be used, sold, or leased, by the trustee, the court, with or without a hearing, shall prohibit or condition such use, sale, or lease as is necessary to provide adequate protection of such interest.” The purpose of this provision is to compensate a secured creditor for any depreciation of its collateral between the time the creditor moved for relief from the stay or for adequate protection, and the confirmation of a plan.
Adequate protection must be “completely compensatory” and should “as nearly as possible under the circumstances of the case provide the creditor with the value of his bargained for rights.” In re Pulliam, 54 B.R. 624, 625 (W.D. Mo. 1985). However, this does not include a creditor’s right to immediate foreclosure.
Section 361 of the Bankruptcy Code provides three ways to offer adequate protection: (1) requiring the debtor or
trustee to make periodic cash payments, (2) granting the mortgagee additional or replacement liens, or (3) granting such other relief as will result in realization of the “indubitable equivalent” of the mortgagee’s interest in the property. 11 U.S.C. § 361. These examples are not intended to be exhaustive, but the statute explicitly states that granting an administrative expense claim is not an acceptable means of adequate protection. Id. Section 361 is purely a procedural, rather than substantive, provision that specifies methods by which adequate protection may be provided if required by other sections of the Bankruptcy Code.
The first two methods of providing adequate protection—periodic cash payments (including interest payments to the mortgagee) and additional or replacement liens—are relatively straightforward. In addition to requiring the debtor to provide such payments and protections directly to the mortgagee, the debtor will typically be required to protect the property by paying taxes and ensuring insurance obligations are met. Legislative history and case law suggest that periodic payments may be particularly appropriate for adequate protection purposes when the property in question is depreciating at a relatively fixed rate. Alternatively, courts may grant a lien on unencumbered property of the debtor or a junior lien on encumbered property. The primary challenge with this option is valuing the new collateral to determine whether the protection is adequate. But “mathematical certainty” is not required for a court to find that a replacement lien provides adequate protection.
The third, catch-all provision—providing the “indubitable equivalent”—is less clear. The phrase originates from In re Murel Holding Corp., a case under the former Bankruptcy Act, which held that when a debtor seeks to approve a plan of reorganization over a secured creditor’s objection, the creditor is entitled to treatment providing the “most indubitable equivalence” of its interest in the collateral. 75 F.2d 941, 942 (2d Cir. 1935). Essentially, “indubitable
equivalence” means that the treatment afforded the secured creditor must compensate the creditor for the value of its secured claim while ensuring the integrity of the creditor’s collateral position.
Bate Land Co. LP v. Bate Land & Timber LLC, 877 F.3d 188, 192 (4th Cir. 2017) (quoting Richard Levin & Henry J. Sommer, 3 Collier on Bankruptcy § 506.03 (16th ed. 2017)). Although a debtor need not provide full details, there must be reasonable assurance that a suitable substitute will be offered. In re Murel Holding Corp., 75 F.2d at 943. In essence, it must be shown that the treatment afforded the secured creditor “must be adequate to both compensate the secured creditor for the value of its secured claim, and also insure the integrity of the creditor’s collateral position.”
Bate Land Co. LP, 877 F.3d at 192 (quoting Levin & Sommer, supra, § 506.03).
One of the most common forms of adequate protection for an oversecured creditor is demonstrating an “equity cushion.” “Under the ‘equity cushion’ theory, if a debtor has equity in a property sufficient to shield the creditor from either the declining value of the collateral or an increase in the claim from the accrual of interest or expenses, then the creditor is adequately protected.” In re Hamilton, 651 B.R. 499, 507 (Bankr. D.S.C. 2023) (quoting R&J Contr. Servs., LLC v. Vancamp, 652 B.R. 237, 243–44 (D. Md. 2023)). Junior liens on the property are not considered when determining whether an equity cushion exists, as they are subordinated to the liens of senior creditors.
To determine whether a secured creditor is adequately protected by an equity cushion, the court compares the equity cushion to the value of the collateral, not to the claim of the moving creditor. This determination is made on a case-by-case basis, considering factors such as (i) the amount of time since the debtor filed its petition for relief, (ii) the success of the debtor’s post-petition operations, and (iii) evidence regarding the stability of property values. There is no minimum equity percentage considered adequate; even “the most microscopic equity cushion” could suffice “if the chances of jeopardizing the
creditor’s interest were also de minimis.” In re Panther Mountain Land Dev., 438 B.R. 169, 191 (Bankr. E.D. Ark. 2010). The general trend, however, suggests that an equity cushion of less than 10% is insufficient, but one exceeding 20% is sufficient. Valuation of collateral for equity cushion purposes is also case-specific, with courts applying various approaches to determine fair market value, including going concern value and liquidation value.
A mortgagee must proactively request adequate protection, as it has no right to obtain it until requested or otherwise granted by the court. The bankruptcy court first determines when the creditor would have obtained its state law remedies had bankruptcy not intervened, which is typically after the creditor seeks relief from the stay. The court then determines the value of the collateral as of that date.
One other potential remedy for a mortgagee is to seek dismissal of the bankruptcy as being “not filed in good faith.” See 11 U.S.C. § 1112. This provision is intended to protect the mortgagee if the sole purpose of the case is to frustrate the claims or rights of the mortgagee.
Filing of a bankruptcy petition on the eve of a foreclosure or eviction does not, by itself, establish a bad faith filing or “cause” for relief from the stay; it is only one of several indicia that a court may appropriately look to in determining whether, under the totality of the circumstances, the petition was filed in good faith.
Under section 506(b) of the Bankruptcy Code, an oversecured creditor is generally entitled to interest, reasonable fees, costs, or charges under its mortgage agreement to the extent that the value of the property exceeds the mortgagee’s claim. A secured creditor’s claim is secured only to the extent of the collateral’s value. Id. § 506(a) (1). The Supreme Court has held that the value of collateral (and thus the amount of the secured claim) is the price a willing buyer in the debtor’s
trade, business, or situation would pay to obtain similar property from a willing seller. Assocs. Com. Corp. v. Rash, 520 U.S. 953, 960 (1997). If the mortgagee is undersecured (meaning its lien is worth less than its claim), its claim will be bifurcated and treated as secured to the extent of the value of its lien on the date the case was filed, with the remaining amount treated as a separate unsecured claim (called a “deficiency claim”). See 11 U.S.C. § 506(a)(1).
There is an exception to this rule under Section 1111(b) to protect undersecured creditors, which can be discussed in the context of plan treatment of secured creditors. This provision allows an undersecured creditor to “elect” to have its entire claim treated as fully secured by the collateral while waiving any deficiency claim. The electing creditor is entitled “to receive payments with a face value equal to the amount of its claim, the present value of which must at least equal the value of the collateral.” In re Hous. Reg’l Sports Network, L.P., 603 B.R. 804, 807 (Bankr. S.D. Tex. 2019) (citing 11 U.S.C. § 1129(b)(2)(A)(i)(II)).
Circumstances where an undersecured creditor might make a section 1111(b) election include (i) when a plan proposes little to no recovery to the unsecured class (which would include its deficiency claim); (ii) when collateral has been undervalued, is inherently difficult to value, or is likely to appreciate in value post-confirmation; or (iii) where the debtor is likely to default on its payment obligations under the plan.
Circumstances where an undersecured creditor might not make the election include (i) if it wants to block confirmation of the plan (where its deficiency claim controls the general unsecured class) or (ii) where the plan proposes to pay the creditor’s secured claim over an unacceptable time frame.
2. Importance of Lien Perfection: To ensure the mortgagee’s rights as a secured creditor in bankruptcy, it is essential that its mortgage lien be properly perfected under non-bankruptcy (real estate) law. Unperfected or improperly perfected liens may be unwound through
the provisions of the Bankruptcy Code (see Bankruptcy Code § 544(a)(1)–(3)), which would render the mortgagee an unsecured creditor. See 11 U.S.C. § 544(a) (1)–(3). In short, if there is a defect in the mortgage perfection such that a judgment creditor, execution creditor, or bona fide purchaser would take priority over the mortgagee under non-bankruptcy law, the debtor or trustee will be permitted to “step into the shoes” of such an attacking party and unwind the mortgage under the Bankruptcy Code. Id
3. Debtor in Possession (DIP) Financing: “DIP financing” refers to financing provided to companies in Chapter 11 bankruptcy, enabling them to continue operations. It is distinct from other financing methods because DIP lenders typically receive priority over existing debt, equity, and other claims. Obtaining DIP financing involves numerous requirements and must be approved by the bankruptcy court. See, generally, id. § 364.
The court may grant a “priming lien” (a lien superior to all existing liens) as part of DIP financing if the debtor demonstrates that it could not secure financing without offering a priming lien as an incentive. See id. § 364(c)(2). The debtor also must prove that the interests of the existing lenders being primed are adequately protected. Id. § 364(d)(1)(B). This is where valuation disputes often arise: There must be sufficient equity and other safeguards to ensure that the priming DIP lien does not impair the mortgagee’s rights as they existed at the time the bankruptcy petition was filed. In many cases, to avoid valuation disputes, DIP lenders opt to take a junior lien on encumbered property, subordinated to the mortgagee’s pre-bankruptcy lien.
4. Claims of Debtor or Trustee for Preserving or Disposing of Property: Unless their claims are waived, debtors and trustees are permitted, under Section 506(c) of the Bankruptcy Code, to recover the “reasonable, necessary costs and expenses of preserving, or disposing of, such property to the extent of the benefit to the holder of such claim.” It is best to negotiate issues regarding 506(c) rights or waivers as soon as possible,
particularly in connection with the negotiation of adequate protection payments. Note that if the real property is to be sold in bankruptcy, however, the debtor or trustee will expect to either assert a Section 506(c) claim or negotiate a “carve out” (portion) of any proceeds from the sale of property.
5. Bankruptcy Sale Issues: Section 363 of the Bankruptcy Code generally permits a debtor to sell its property free and clear of liens and claims to maximize returns, even if these are non-ordinary course sales. In many instances, the debtor can sell property subject to liens and encumbrances free and clear of those liens and other interests, even if the parties holding these interests do not consent to such treatment. A debtor must satisfy one of the following conditions:
• Applicable non-bankruptcy law would permit a sale of such property free of the interest. Examples include sales under certain provisions of the Uniform Commercial Code.
• The other entity consents. The entity must consent to the sale free and clear of liens, not merely to the sale of the assets. Consent may be express or implied, although some courts have held that failure to object does not constitute consent under Section 363(f)(2).
• The interest is a lien, and the sale price exceeds the aggregate value of all liens on such property. Some courts interpret the “aggregate value of all liens” as the actual economic value of the liens or the “value” as determined under Section 506(a) (governing the determination of secured status). Other courts hold that the sales price must exceed the face amount of all liens.
• The interest is in bona fide dispute. The debtor bears the burden of demonstrating that there is an objective basis for a factual or legal dispute regarding the validity of the lien or interest.
• The entity could be compelled in a legal or equitable proceeding to
accept a monetary satisfaction of the interest. If, under applicable legal or equitable proceedings, the interest holder could be compelled to accept payment in exchange for its interest, the trustee can sell free and clear of this interest. This provision is generally interpreted as contemplating a hypothetical proceeding and does not require the actual satisfaction of the interest from the sale proceeds.
Some courts, however, have rejected this hypothetical approach. For example, the Ninth Circuit Bankruptcy Appellate Panel in Clear Channel rejected the argument that a secured creditor, if subject to cramdown under Section 1129(b)(2) (i.e., forced to accept less than the full value of its claims), allows the property to be sold free and clear under Section 363(f)(5). The court reasoned that this interpretation employs circular reasoning by sanctioning the effect of cramdown without providing the substantive and
procedural protections of section 1129(b)(2). Clear Channel Outdoor, Inc. v. Knupfer, 391 B.R. 25, 46 (B.A.P 9th Cir. 2008).
Under Clear Channel, if the first lien lender is undersecured, the debtor cannot sell the property free and clear absent the lender’s consent because the debtor likely cannot satisfy Section 363(f)(5); there is no non-bankruptcy legal or equitable proceeding that would compel the first lien lender to accept monetary satisfaction for less than the full value of its claim.
Other courts have disagreed. For example, the Bankruptcy Court for the Southern District of New York held that “Section 363(f)(5) does not require that the sale price for the property exceed the value of the interests. As recognized in a post-Clear Channel decision from a Bankruptcy Court in the Ninth Circuit, the existence of judicial and nonjudicial foreclosure and enforcement actions under state law can satisfy section 363(f)(5).” In re Boston Generating, LLC, 440 B.R. 302, 333
(Bankr. S.D.N.Y. 2010). Courts remain split on this issue.
It is, however, clear that the estate cannot sell free and clear of an interest (such as a restrictive covenant) that can be enforced only by compelling or restraining certain actions. In most cases, the assets are sold and the liens attach to the proceeds of the sale in the order of their priority, with these proceeds subsequently distributed to lienholders.
If one contests a sale under Section 363 before the Bankruptcy Court and loses, obtaining subsequent relief is almost impossible. Any sale accomplished in good faith under Section 363(m) of the Bankruptcy Code may close notwithstanding the possibility of an appeal, thereby mooting the appeal. A mortgagee’s only recourse would be to obtain a stay of the closing, which is extremely difficult to achieve.
6. Bankruptcy Plan Issues: Typically, in a Chapter 11 bankruptcy plan, the claims of secured creditors are divided into separate classes. If a class
Courts have generally not approved so-called “dirt-for-debt” plans, in which a debtor purports to value real estate collateral and then transfers only so much of the collateral as is necessary to satisfy the secured creditor’s claim.
of creditors, such as a secured creditor class, votes in favor of the plan—which describes the treatment of the secured creditor’s claim—then the plan’s treatment will govern. But if the creditor does not consent, the debtor may seek to “cram down” the plan treatment of the secured creditor’s claim to force acceptance of the plan’s terms. There are three ways to satisfy the “cramdown” requirements under Bankruptcy Code Section 1129(b)(2)(A):
• Option 1: Requires that (i) holders of such claims retain the liens securing their claims, whether the property subject to such liens is retained by the debtor or transferred to another entity, to the extent of the allowed amount of such claims and (ii) each holder of a claim in such class receives, on account of such claim, deferred cash payments totaling at least the allowed amount of the claim, with a value, as of the effective date of the plan, at least equal to the value of the holder’s interest in the estate’s interest in such property.
• Option 2: If the creditor’s collateral is sold free and clear of liens, the creditor’s liens attach to the proceeds of the sale. This provision is subject to the creditor’s right to credit bid.
• Option 3: As with adequate protection, the creditor may be
provided with the “indubitable equivalent” of its interest. One example of “indubitable equivalence” is the unconditional abandonment of the collateral to the creditor. In the alternative, legislative history indicates that a lien on similar collateral would satisfy the “indubitable equivalent” standard; however, courts generally disfavor this approach unless the plan provides for the payment of the present value of the lien and ensures the safety of the principal. On the other hand, in Murel, discussed above, the court refused to confirm a plan that proposed paying a secured creditor interest on its collateral (an apartment building) for 10 years, with full payment of principal due at that time. The plan did not provide for amortization of the principal or maintenance of the building. The court held that the plan was speculative because the creditor would receive neither money nor property nor an equivalent substitute. Additionally, courts have generally not approved so-called “dirt-for-debt” plans, in which a debtor purports to value real estate collateral and then transfers only so much of the collateral as is necessary to satisfy the secured creditor’s claim. This is because real property is unique and determining the value of real property is nearly impossible until it is actually sold.
This section discusses current trends, alternatives such as receiverships, and the opportunities that bankruptcy cases present in the real estate market.
Receivership proceedings are becoming increasingly common and are a popular alternative to bankruptcy. These are typically state-law proceedings that involve fewer hearings, lower fees, fewer filing requirements, and less transparency. Compared to the Bankruptcy Code, this process varies significantly from state to state and may provide limited due process and standing rights to creditors. Generally, a receiver is a court-appointed nonparty who acts as an “officer of the court” and a fiduciary of the assets placed in the receivership. The receiver is appointed by court order upon motion (typically by a secured creditor). The order can be extraordinarily broad, setting out powers, duties, and payment schedules. The receivership is a temporary role for the duration of the case, with a duty to preserve collateral until an ancillary action, such as foreclosure or determination of possession and ownership rights, is completed.
The Uniform Commercial Code (UCC) allows a secured creditor to enforce rights through certain nonjudicial remedies, one of which is an “Article 9 sale.” Article 9 of the UCC typically provides the secured creditor with rights to seize and sell collateral the borrower has pledged for a loan. This process also can serve as an alternative strategy to bankruptcy for a debtor. In short, the secured creditor conducts a “commercially reasonable” disposition of the collateral to a new buyer (or to itself). If the sale process is proper, the buyer avoids claims of successor liability, and the debtor’s and guarantors’ liabilities are expunged. This transaction typically does not generate returns for unsecured creditors if the sale proceeds lack equity. In such cases, unsecured creditors are left with remedies unrelated to the business’s
collateral. Often, debtors and lenders consensually agree to this process in exchange for a release or reduction of the deficiency obligation to the lender. There are five general steps to an Article 9 sale:
1. The initial transaction that secured the collateral;.
2. Declaration of default under the relevant loan documents and security agreement, along with repossession;
3. Provision by the secured party of a 10-day notice to sell, consistent with Section 611;
4. Maximization of the sale price; and
5. Application of sale proceeds to secured and unsecured debt, consistent with the priority of position.
An assignment for the benefit of creditors (ABC) is used when a business seeks to wind down operations and distribute remaining assets to creditors according to a priority and pro-rata scheme. This alternative to Chapter 7 bankruptcy is often faster and cheaper. In an ABC, assets are voluntarily assigned to an independent, third-party fiduciary “assignee.” The assignee liquidates the business assets and repays creditors with the proceeds.
An ABC reduces liability risks for business owners compared to conducting the wind-down themselves under applicable state law. It also may help avoid the negative publicity associated with bankruptcy.
Real estate stakeholders can take proactive measures to address potential bankruptcy situations, including:
1. Credit enhancements: Obtaining larger security deposits, letters of credit, surety bonds, third-party or cross-party guarantees, or other measures that provide lien rights or alternative payment options.
2. Remaining vigilant: Terminating a lease before bankruptcy allows landlords to renegotiate new
terms post-filing. These terms might include shorter durations, limited premises use, or additional guarantors. Post-petition rent enjoys administrative priority claim status. Creditors also may pursue aggressive collection of past-due rent before bankruptcy, though with the risk of a Section 547 clawback. A creditor, however, should consider all relevant facts and circumstances before terminating a lease prebankruptcy, especially if the lease would be essential to the debtor (or a buyer of its assets) and a substantial pre-bankruptcy debt is owed that would have to be cured (i.e., paid) as part of an assumption of that lease. Once terminated, however, the lease can no longer be assumed and so pre-bankruptcy amounts cannot be paid in full as a cure and will constitute only general unsecured claims. So, sometimes, a landlord can obtain an optimal outcome by not terminating a lease prebankruptcy and working to secure a lease assumption in the bankruptcy case.
3. Post-bankruptcy vigilance: If a debtor breaches post-petition obligations, such as rent payment, creditors should seek relief from the court, including lifting the automatic stay or setting firm deadlines for lease assumption or rejection.
Valuation methods and techniques are in flux. Property valuation is a major issue affecting all real estate asset classes in today’s market, affecting lending and sale transactions, litigation, and development transactions.
Recent cases highlight disputes between debtors and creditors over asset valuation, often involving significant disparities in appraisals. Debtors typically argue for higher property values, while creditors aim for realistic assessments. Rising interest rates and stricter lending requirements have made refinancing increasingly
challenging, leading to more bankruptcy filings.
To establish a property’s value, running a fair sales process often proves most effective, allowing the market to determine the asset’s worth. Secured creditors can credit bid up to the amount of their claim during these sales. Whether to disclose the credit bid amount publicly depends on the case, as it can either motivate or chill bidding.
Alternative financing sources exist but are typically expensive, with high interest rates. Additionally, lenders are becoming more selective about new borrowers.
Government and regulatory efforts have supported the real estate market by updating rezoning laws and other regulations to facilitate restructuring and revitalization. Examples of conversions include:
• Harrah’s in Reno to Reno City Center;
• Marriott to student housing in New York;
• Suburban hotel conversions to workforce housing in Clive, Iowa; and
• Conversion of empty commercial offices in downtown Chicago to housing.
By contrast, some agencies have tightened restrictions on private rentals, such as Airbnb and VRBO, funneling economic activity back to traditional hotel facilities.
Bankruptcy, although daunting, does not have to spell disaster for real estate stakeholders. By understanding the interplay between bankruptcy and real estate law, practitioners can navigate challenges effectively, safeguard their clients’ interests, and even uncover opportunities in a distressed market. As the real estate sector adapts to post-pandemic realities, these insights are more critical than ever. n
COTENANTS: Imposition of tax lien without foreclosure does not sever joint tenancy. Brian and Lisa Priest took title to real property as “joint tenants and not as tenants in common.” On two separate occasions, they failed to pay property taxes, and each time the town imposed a tax lien. After they paid the delinquent taxes, the town executed an instrument entitled “Municipal Quit Claim Deed,” confirming this payment of the taxes and releasing the land, “Meaning and intending to convey the Town’s interest in the above-described property by virtue of a tax lien.” Brian died intestate, survived by Lisa and two children. Lisa filed a petition for an order that the property was not an asset of Brian’s estate because the joint tenancy was not severed by the tax lien. The probate court denied the claim, but the supreme court reversed. The court explained that a tax lien is just that—it does not transfer ownership to the town but only gives the town the power to foreclose to recover delinquent taxes, while reserving an 18-month period for the landowner to redeem the property before foreclosure. Despite their titles, both of the quitclaim deeds issued by the town operated only as “a discharge of the tax lien mortgage” that had no effect on the joint tenancy. Thus, Lisa’s right of survivorship as a joint tenant remained intact. Estate of Priest, 331 A.3d 451 (Me. 2025).
DAMAGES: Claim for attorney’s fees from litigation are consequential damages barred by waiver in lease agreement. Southline Little League,
Keeping Current—Property Editor: Prof. Shelby D. Green, Elisabeth Haub School of Law at Pace University, White Plains, NY 10603, sgreen@law.pace.edu. Contributors: Prof. Darryl C. Wilson and Ryan D. Ellard.
offers a look at selected recent cases, literature, and legislation. The editors of Probate & Property welcome suggestions and contributions from readers.
Inc., owns land with a ball field and athletic facilities. In 2016, Up State Tower Co. signed a lease with Southline to build a cell tower on its property with the intent of serving the town of Cheektowaga and the surrounding area. Up State then applied to the town for the necessary permits, but the town denied the application on several grounds, including that the proposed use was prohibited by a restrictive covenant in Southline’s deed limiting use of the property to “recreational purposes.” Up State then sued the town, but an intervenor joined the case to enforce the covenant. Up State and Southline filed crossclaims against each other. Up State claimed breach of the lease’s quiet enjoyment provision, in which Southline promised that the property was free of encumbrances other than any that do not interfere with Up State’s use of the premises. As for damages, Up State claimed only the attorney’s fees it incurred in preparing its permit application and throughout the litigation. The district court first dismissed all claims involving other parties and then granted summary judgment for Southline. The court then determined that Up State’s claim for attorney’s fees were consequential damages. Because the lease contained an express waiver of consequential damages, the court dismissed the breach of contract claim. On appeal to the Court of Appeals for the Second Circuit, Up State argued that its attorney’s fees are general damages, not consequential damages, and
therefore not barred by the waiver. The court rejected the claim. Agreeing with the lower court, the Circuit Court of Appeals explained that under New York law, general damages are limited to what “a reasonable person, not possessing special information about the parties’ plans,” would have anticipated, in contrast to special or consequential damages, which do not so directly flow from the breach. Instead, consequential damages compensate a plaintiff for additional losses, other than the value of the promised performance. But consequential damages are awarded only if they are reasonably contemplated by the parties at the time of contracting. The court held that the lower court properly characterized the claim as one for consequential damages, which were barred by the waiver. Because Up State had the unilateral right to withdraw from the lease if it could not secure the necessary permits, no reasonable person would have anticipated the litigation as a “natural and probable consequence” of an alleged breach. Up State Tower Co. v. Town of Cheektowaga, 2025 U.S. App. LEXIS 2981, 2025 WL 444207 (2d Cir. Feb. 10, 2025).
GUARANTY: Waiver of statute of limitations defense for action on promissory note is enforceable. Between 2010 and 2012, MMV Investments LLC made a series of loans totaling $12 million to Dribble Dunk LLC and All Net, LLC, whose intent was to build a professional basketball arena in Las Vegas. The owner of both borrowers, Robinson, personally guaranteed the loans. The guaranty agreement contained the following provision: “Guarantor, regardless of whether recovery upon any such obligation may be or hereafter become barred or otherwise unenforceable, shall guarantee payments of all past due sums in default.” After the borrowers defaulted
on the loan, in an email sent in June 2021, Robinson stated that “our plan is that within 6 months we anticipate that we will be paying off all of our investors. We are committed to paying off all of our investors first upon receiving our construction loan or bond loan proceeds.” Several months later, MMV filed a complaint against the borrowers and Robinson, alleging contract and fraud claims. Robinson moved to dismiss under the applicable statute of limitations, arguing that the contractbased claims expired at the latest in 2018. Nev. R. Civ. Proc. 12(b)(5). The district court granted the motion, ruling that the “guaranty Robinson signed is void under Nevada law because the obligations it guaranteed are timebarred.” The supreme court reversed, although acknowledging that in most jurisdictions, contractual waivers of statute-of-limitations defenses violate public policy and therefore are unenforceable. The theory for this stance is that statutes of limitation “promote the general welfare” by “affording comfort and rest to the defendant” and that they “protect the courts and the public from the perils of adjudicating stale claims.” The Nevada court nevertheless concluded these public-policy concerns should not preclude contractual statute-of-limitation waivers in Nevada, particularly because a party can waive the statute of limitations by not asserting it as an affirmative defense during litigation. If that waiver made after litigation commences does not run afoul of public policy, then the court saw no reason to treat a waiver via contract any differently. The court found no existing legislative determination or public-policy justification to prohibit a party from contractually waiving a statute-of-limitations defense. Instead, the court was guided by a longstanding policy that, absent some countervailing reason, contracts will be construed from the written language and enforced as written. The court agreed with the district court that the language in Robinson’s email was not a clear, explicit, or direct acknowledgement or promise to repay so as to revive the otherwise time-barred action to recover on the
promissory notes. But the district court erred in dismissing MMV’s breachof-guaranty claim against Robinson because he waived the statute-oflimitations defense in the guaranty agreement. MMV Invs. LLC v. Dribble Dunk LLC, 564 P.3d 1290 (Nev. 2025).
HISTORIC PRESERVATION: Regulation of property purely for aesthetic purposes may constitute regulatory taking. The Moneys bought a home in a historic district. The home was previously owned by Frank Zimmerman, who was notoriously associated with the Ku Klux Klan. Zimmerman had attached a Juliet balcony with a wrought iron “Z” for “Zimmerman” to the front of the house. The Moneys desired to remove it, but the Historic District Commission denied their application for a certificate of appropriateness. Instead of appealing to the Zoning Board of Adjustments, the Moneys sued the city in federal court, asserting facial and as-applied takings claims under the Fifth and Fourteenth Amendments and an unconstitutional exercise of police power under the Texas state constitution. The district court dismissed the case, but the Fifth Circuit Court of Appeals reversed. First, the court found that the appeal was ripe for review, the Historic District Commission’s denial being a final decision. The Moneys were not obligated to exhaust their remedies by filing an appeal, because appealing the Historic District Commission’s denial would not have mooted their Texas constitutional claims, which challenged not solely the denial of the permit but the constitutionality of the process. The court went on to find the complaint stated a per se taking under the federal constitution by the Historic District Commission’s prohibiting a landowner from removing an object. Moreover, the Texas Supreme Court had long held that a regulation of private property for purely aesthetic purposes violates the state constitution. The only evidence in the record that the ordinance also aimed at historic preservation was a video recording from the Commission Hearing, which the court stated was not properly considered in
dismissing the complaint. The court remanded for continued proceedings, consistent with its opinion. Money v. City of San Marcos, 2025 U.S. App LEXIS 2897, 2025 WL 429980 (5th Cir. Feb. 7, 2025).
LANDLORD-TENANT: Questioning landlord’s title does not automatically strip magistrate of authority to hear landlord’s eviction action. In 2009, Jessie Mae Smith orally agreed to allow the Riverses to live rent-free in a home she owned. In 2013, she granted her son, James Smith, a power of attorney, pursuant to which the next year he conveyed the property to himself. In 2018, James asked the Riverses to vacate the home, and when they refused, he filed an application for eviction with the magistrate court. The Riverses contested the eviction, arguing that James used an invalid power of attorney to convey to himself. The Riverses claimed that Jessie Mae had previously conveyed the property to them as a gift. The magistrate held that James was the owner of the property and entered an order evicting the Riverses. The intermediate appellate court reversed based on a statute providing that a “magistrate shall have no cognizance of a civil action . . . when the title to real property shall come into question.” S.C. Code § 22-3-20(2). The court reasoned that the magistrate’s jurisdiction ended the moment it became clear that there was a challenge to title. James appealed, and the supreme court reversed. The court recognized that allowing a tenant facing eviction to oust a magistrate of authority to hear the matter simply by denying the landlord’s title was impractical and contrary to legislative intent. Instead, the court explained that the question of title is, in most cases, subsumed by the question of whether a landlord-tenant relationship exists. In most modern cases, this question will be resolved by reference to a written landlord-tenant agreement. In those rare cases in which there is no written agreement, the magistrate court should determine whether the purported landlord has demonstrated that the tenant has been paying rent, or whether the
public record of the county indicates he has title to the property. This demonstration will ordinarily suffice to satisfy the landlord’s burden. If the magistrate court determines, for whatever reason, that there is no landlord-tenant agreement, that ends the case, and the identity of the true title holder must be litigated in another forum. Here, because the record established that the Riverses were tenants of James, even as the relationship began under an oral agreement with Jessie Mae, the magistrate court had authority to hear the case. Rivers v. Smith, 2025 S.C. LEXIS 24, 2025 WL 542848 (S.C. Feb. 19, 2025). Many states have statutes similar to S.C. Code § 22-3-20(2), which encompasses commercial evictions, as well. In South Carolina, a magistrate has the authority to hear both residential and commercial ejectment actions. Real estate practitioners should take note of the holding here, i.e., where a tenant enters into a written agreement to lease real property, it seems the tenant implicitly waives its right to contest title in a subsequent eviction action. It also appears true that where a landlord is seeking a quick and efficient eviction in the magistrate court, the tenant can no longer strip the magistrate of authority to hear the action simply by denying title.
LANDLORD-TENANT: Thirty-day pre-eviction notice requirement under CARES Act expired when the federal 120-day moratorium on evictions ended. Miller signed a one-year lease for an apartment. Rent was due on the first of the month, and if a tenant failed to pay, the lease stated the landlord could issue a three-day notice of tenancy termination and seek additional relief via forcible entry and detainer (FED). That portion of the lease was consistent with applicable statutory law. After Miller failed to pay her rent, she received the notice, and nine days later, the landlord filed an FED action. Miller did not attend the court hearing, but the court dismissed the case after ruling that the federal Coronavirus Aid, Relief, and Economic Security Act (CARES Act), 15 U.S.C. §9058, required the landlord to provide a 30-day notice
prior to bringing an FED action. The CARES Act was passed by Congress in 2020 during the COVID-19 pandemic. The case concerns the interplay between two of its provisions: subsection “(b) Moratorium” provides for a 120-day period restriction on certain types of evictions, and subsection “(c)(1) Notice” states that a tenant cannot be required to vacate a dwelling unit before the date that is 30 days after the tenant receives a notice to vacate. The appellate court affirmed, finding that under the plain language of the statute, “(b)” had expired per its express time references, but that “(c)(1)” had not expired. The supreme court reversed and remanded. The court declined to rely on decisions from other jurisdictions that analyzed “(c)(1)” independently of “(b)”. Instead, the supreme court concluded that “(c)(1)” was meant to be read in context with the other provisions of § 9058 as an integrated whole. Therefore, the notice requirement only applied to nonpayment defaults that occurred during the 120-day moratorium described in “(b).” Further “(b)” and “(c)(2)” both expressly reference the moratorium period, such that it would be incongruous to have a provision unrelated to the moratorium sandwiched between others that specifically relate to it. The court also stated that reading “(c) (1)” alone is improper because it would apply to all types of tenant defaults, not only to rental payment defaults. In the court’s assessment, it is one thing to say that Congress preempted local landlordtenant law briefly during the national COVID-19 emergency. It would be another to say that Congress preempted it permanently. MIMG CLXXII Retreat on 6th, LLC v. Miller, 16 N.W.3d 489 (Iowa 2025).
Lease allows tenant to terminate if water damage makes premises untenantable. In May 2009, the government leased two floors of a New York City office building to house the Field Office of the United States Citizenship and Immigration Services. The term of the lease was 15 years, beginning after completion of the initial build-out. The lease contained clauses that permitted early
termination if “the entire premises are destroyed by fire or other casualty” or in “case of partial destruction or damage, so as to render the premises untenantable, as determined by the Government.” On the morning of January 8, 2015, the government discovered extensive water damage throughout the premises caused overnight by a burst sprinkler head. The government vacated the office then notified the lessor of its right to terminate if the premises were no longer tenantable and the lessor was not able to remediate the damage and restore the space to its original “as-built” condition. The government demanded that the lessor develop a remediation plan and provided the lessor with the results of an inspection conducted by its operations support specialist. The remediation plan provided by the lessor promised the space would be totally dry and free of mold conditions by January 30. The government rejected the plan, as well as a revised plan, which extended the time for remediation to February 7, and thereafter gave notice of termination of the lease. The lessor sued for breach of contract and alleged the termination violated the implied covenant of good faith and fair dealing. The claims court granted summary judgment for the government, and the Court of Appeals for the Federal Circuit affirmed. The court agreed with the trial court’s reading of the termination clause—that it should be interpreted according to its plain meaning, i.e., that the government was given the authority to determine whether the property was untenantable. That is particularly so because the lease did not define “untenantable,” nor did it provide a framework or standard for evaluating untenantability. Even so, the government’s discretion was not without limits but would be set aside if the decision is arbitrary, capricious, or unreasonable. The conditions detailed by the government’s operations support specialist met the ordinary meaning of untenantability, which focuses on the extent of damage and whether the premises can be restored without unreasonable interruption of the tenant’s occupancy. The operations
support specialist found that much of the leased space was covered by approximately an inch of water, that there was ceiling-to-floor damage, that more than 1,500 square feet of drywall would have to be removed and replaced, and that the property would be unusable for months. The lessor’s remediation plan involved water extraction, moving furniture and equipment, replacing damaged interior improvements, disinfecting all areas, and cleaning the HVAC system and ducts. Even under the landlord’s proposed schedule, that work was expected to take at least a month from the date of the accident, displacing the tenant during the work. Given the solid grounds for untenantability, the court found no evidence that the government did not act in good faith in exercising the right to terminate. 27-35 Jackson Ave. LLC v. United States, 127 F.4th 1314 (Fed. Cir. 2025).
Property allocation between unmarried couples is not controlled by equitable distribution for divorcing spouses. Brian Repnow and Christine Berger were in a relationship for approximately ten years but never married. The parties maintained separate residences during their relationship and never cohabited. In August 2021, Berger filed an action for partition, conversion, and related claims. Berger alleged ownership interests in five parcels of real property titled in Repnow’s name, which Repnow contested. The trial court entered findings in favor of Repnow regarding four of the properties and awarded Berger complete ownership of the fifth, a house where she resided. Repnow appealed. The supreme court stated that the action was controlled by N.D. Cent. Code. ch. 32-16, for partition between co-owners, as opposed to N.D. Cent. Code. §14-05-24, for equitable distribution of marital property following a divorce. The court noted that the partition statute provided courts with wide discretion and great flexibility in fashioning appropriate remedies. Although the testimony and documentation regarding events after Repnow’s purchase of the house were inconsistent
as to each individual’s specific contributions, the supreme court concluded that the evidence did show that the house was purchased with an intent to share ownership. Thus, the trial court erred by awarding Berger sole and complete ownership of the house. Instead, after correctly determining the property was jointly owned and thus subject to partition, the court should have considered the parties’ respective individual contributions and any other relevant considerations to determine their proportionate ownership interests. Berger v. Repnow, 16 N.W.3d 452 (N.D. 2025).
Provision shortening statute of limitations for arbitration of disputes is unenforceable. The Huskins bought a home from Mungo Homes, LLC (Mungo) and signed the seller’s standard contract. That contract included an arbitration clause requiring any claims to be made within 90 days or be “deemed waived and forever barred.” Later, the Huskins filed a lawsuit alleging various claims related to the sale. Mungo moved the court to dismiss and to compel arbitration. The Huskins asserted the arbitration clause was unconscionable and unenforceable. The trial court granted Mungo’s motion, and the Huskins appealed. The appellate court reversed in part, agreeing with the Huskins regarding the unenforceability of the clause because it shortened the applicable statute of limitations. It determined that that portion of the clause could be severed from the rest of the arbitration clause and thus affirmed the order compelling arbitration. The supreme court reversed, finding the entire arbitration clause unenforceable and not severable, and remanded to the trial court to determine the dispute based on the rest of the contract. Noting the absence of a severability clause, the court adopted the preferred view to find the whole
clause unenforceable because it was void and illegal as a matter of public policy. This position was buttressed by the finding that this was a contract of adhesion, presented to the Huskins as a “take it or leave it” proposition, thus making it highly doubtful that the parties intended for severance to apply. The court said that the seller cannot be allowed to accomplish through arbitration something that statutory law forbids. Huskins v. Mungo Homes, LLC, 910 S.E.2d 474 (S.C. 2024).
TRESPASS: Federal law allows hunters to cross the corners of checkerboard lots even though it is trespass under state law. Iron Bar Holdings owned a ranch in a checkerboard holding in south Wyoming that included federal and state public plats. Elk hunters had to momentarily occupy the private land to move from public to public land. The corners were physically denoted by a steel U.S. Geological Survey Marker cap in the ground. Once at the cap, the elk hunters corner crossed, i.e., stepped directly from the corner of one public parcel to the corner of the other. They never made contact with the surface of Iron Bar’s land but momentarily occupied its airspace. Iron Bar sought to prevent the elk hunters from corner crossing on the ground that it constituted a trespass. The district court denied Iron Bar’s suit for civil trespass, and the Court of Appeals for the Tenth Circuit affirmed. The court offered a very
Drawing from opinion in Iron Bar Holdings.
colorful description of the history of the country’s westward movement, beginning before the Louisiana Purchase, through the Lewis and Clark expedition, and continuing to the development of the Oregon Trail. The court attributed the heart of the conflict to the checkerboard pattern of land conveyance, begun in the mid-1800s, as part of the effort to build the transcontinental railroad. Congress marked off 10-mile corridors, extending in both directions from the railroads’ proposed corridor, around which surveyors platted 6-by6-mile townships, each divided into one-mile sections. Congress conveyed the odd-numbered sections to the railroads and retained the even-numbered sections, which were later conveyed to private owners. In the grants, Congress did not provide for easements or other access to the lots, but assumed “ordinary pressures of commercial and social intercourse would work itself into a pattern of access roads.” Alas, that expected cooperation did not happen, and contests over rights of way were persistent. In 1885, Congress enacted the Unlawful Inclosures Act (UIA), 43 U.S.C. § 1061, which declares “All inclosures of any public lands . . . to be unlawful.” The court explained that over the years, the courts have found that this statute is violated not only by physical fences, but other legal barriers, such as “no trespassing” signs, creating a virtual wall. Although Wyoming law provides that landowners own airspace without limits, thus making the
hunters’ corner-crossing a trespass under state law, the court ruled that federal law preempts state law. Under the UIA, one may not completely prevent or obstruct another from peacefully entering or freely passing over or through public lands. This means that a barrier to access, even a civil trespass action, becomes an abatable federal nuisance in the checkerboard when its effect is to enclose public lands by completely preventing access for a lawful purpose. The effect of the UIA is to create an implied right of access. Iron Bar Holdings, LLC v. Cape, 131 F.4th 1153 (10th Cir. 2025).
ENVIRONMENTAL PROTECTION:
Prof. Carlton Waterhouse, in Moving Toward Sustainable Environmental Protection and Justice: Lessons from Social Dominance, 15 Geo. Wash. J. Energy & Envtl. L. 111 (2024), comments on the gains that the environmental justice movement has made in the four decades since it started, but notes that the core of the movement is still not well understood. Planners, advocates, and business leaders struggle to develop ways to develop and implement environmental justice in practice. He brings up the use of Social Dominance Theory, which posits that dominant group members claim and enjoy a disparate share of society’s positive social value, such as wealth, education, quality housing, healthcare, abundant and high-quality food, political power, and leisure. Prof. Waterhouse sees this theory as a valuable tool to understand social inequality broadly and environmental inequality in particular because it explains the processes that produce and maintain prejudice and discrimination at multiple levels. For the environment, this translates to greater access to green spaces, communities without waste facilities, clean air to breathe, clean drinking water, and higher resilience to natural disasters. Subordinate group members bear a disproportionate share of
negative social value, represented by inadequate housing, lack of employment, less and lower-quality education, both high-risk and undesirable labor, high rates of punishment, and higher rates of disease and morbidity. This disproportionate distribution is most evident in the barriers to access to property ownership by discrimination in sales and lending. His central thrust is that when institutions follow ostensibly neutral practices that reinforce social hierarchy, they further social inequality. “[P]orous environmental protection” results from the neutral implementation of environmental laws that ignore cumulative impacts and the concentration of risks borne by overburdened and vulnerable communities. The failure to see the inequities experienced by communities carrying disproportionate environmental burdens in pursuit of a greater good leads to continued environmental injustice. He recognizes that a shift to environmental protection grounded in social equity could be difficult for many environmental organizations who have not historically focused on integrating social equity into their environmental advocacy. But, in Prof. Waterhouse’s view, “ignoring the social dominance within human society and its consequences misses the commonality shared between the human communities and the rest of the natural world threatened and harmed by unsustainable development and destructive ecological practices.”
MORTGAGES: In The Unraveling of the Federal Home Loan Banks, 41 Yale J. on Reg. 1011 (2024), Prof. Kathryn Judge examines the current stature, power, and role of the Federal Home Loan Banks (FHLBs). She describes how the FHLBs have evolved into a thing wholly different (and worrisomely so) from their original creation in 1932, i.e., to use government backing to raise cheap funds and then loan those funds to thrifts that could post “good” mortgages as collateral, simultaneously promoting home ownership and wealth creation among the middle class. Although she admits that in this conception, they accomplished much in the succeeding
years, including propping up thrifts and redistributing liquidity within the housing finance system, she points out that housing finance today bears little resemblance to that nearly a century earlier. Due in large part to competition from Government-Sponsored Enterprises and private mortgage loan providers, the FHLB system has become “unmoored from the structure that animated its creation.” As a consequence of market changes and little government oversight, despite seemingly unwavering support, the FHLBs have become largely unaccountable and driven more by their own profit motive (and in this regard, making apparently unwise investments—the collapse of Silicon Valley and Signature Banks, being cases in point—than by a mission to improve housing access. Prof. Judge offers a prescription for how the banks can be put right, starting with restating the top priority as housing finance, in particular, affordable housing projects. Then, she calls for broadening eligibility for membership to include non-bank entities, which currently occupy a large role in housing finance. These, with greater transparency, public engagement, and disclosures about who is borrowing from the FHLBs, would go far.
LANDS: Prof. Jamie Pleune, in The BLM’s Public Lands Rule and “Periodic Adjustments in Use to Conform to Changing Needs and Conditions” Under the Federal Land Policy and Management Act, 42 Pace Envtl. L. Rev. 101 (2024), evaluates the “Public Lands Rule” newly adopted by the Bureau of Land Management (BLM). The rule’s stated aim is “to advance the BLM’s multiple use and sustained yield mission by prioritizing the health and resilience of ecosystems across public lands.” Although on the surface this aim might seem non-controversial, there are yet critics. Some worry that the rule will further “lock up” federal lands, but others maintain that the rule corrects the lapses by BLM in fulfilling directives under Federal Land Policy and Management Act (FLPMA) toward conservation. Prof. Pleune considers both positions. The article offers a snapshot of historical
and present uses of public lands, which reveals that a “staggering 90% of the 245 million acres managed by the BLM are open to oil and gas leasing”; roughly 62% are available for livestock grazing, and 1.3 million acres are devoted to mining. Prof. Pleune asserts that these extractive activities have worked to degrade the natural values of the lands. Rangelands dominated by invasive species, like cheatgrass, provide lower quality forage for grazing, threaten wildlife habitat, compromise recreation opportunities, and intensify the size and frequency of wildfires. The new rule updates some of the BLM’s land management regulations and refines its ability to balance multiple uses, while ensuring that public lands retain their ability to assure “sustained yields” of renewable resources like productive rangelands, healthy watersheds, abundant wildlife, and fish habitat, as well as natural scenic, scientific, and historical values. According to Prof. Pleune, the most consequential concept is the idea expressed in the preamble to the new rule that conservation is “both a land use and also an investment in the landscape intended to increase the yield of certain other benefits elsewhere or later in time.” In other words, “protection and restoration are tools to achieve conservation.” Prof. Pleune goes on to show how this view is not only consistent with Congressional intent but indeed required by the mandate of FLPMA to manage public lands for multiple uses and sustained yield. On this basis, she dismisses as unpersuasive the worries expressed by opponents of the Public Lands Rule.
MINNESOTA amends property law on partition. The law allows a partition action by the holder of a remainder interest against the life tenant to prevent waste of the remainder interest. 2025 Minn. Ch. Law 2.
NEBRASKA adopts the Uniform Unlawful Restrictions in Land Records Act. The act contains a prescribed form for the removal of restrictions. 2025 Neb. Laws 21.
NORTH DAKOTA adopts the Uniform Commercial Real Estate Receivership Act. A receiver may be appointed before or after judgment. The act sets out the requirements for receivers. The law also states that the appointment of a receiver at the request of a mortgagee does not result in mortgagee-in-possession status or change other rights of a mortgagee. 2025 N.D. SB 2122.
UTAH amends the condominium association law. The amendments establish an Office of the Homeowners’ Association Ombudsman, empowered to issue an advisory opinion under certain circumstances; make void and unenforceable a homeowners’ association transfer fee under certain conditions; require the association to give notice to owners before imposing fees and charges, with limits on those charges; and limit the power of the association to amend the association’s governing documents. 2025 Ut. HB 217.
UTAH adopts requirements for licensing property managers. The state real estate commission is charged with establishing standards for licensing. 2025 Ut. HB 337.
VIRGINIA amends property code to facilitate transfers to the land bank. For blighted, abandoned, or tax-delinquent properties, a town may petition the court for the appointment of a commissioner to execute a deed to convey the real estate to the town’s land bank, in lieu of a sale at public auction. 2025 Va. ALS 449. n
By Diane K. Roskies
As global mobility expands, more U.S. citizens and permanent residents are acquiring homes abroad—whether as vacation retreats, inherited family properties, or dual residences for work, particularly among international executives. Canada, in particular, has become an increasingly desirable destination for U.S. residents seeking cooler climates and access to world-class recreational properties. But owning property in a foreign country presents unique legal challenges, particularly regarding estate planning. A carefully structured approach using two wills—one for U.S. assets and another
for the foreign property—can help ensure that your estate is administered smoothly and according to your wishes.
Each country has its own legal framework governing inheritance. For example, Canada has different probate rules and tax implications than the United States. In Canada, inheritance laws vary by province. Though a U.S. will might govern worldwide assets, it may not be the most effective way to transfer foreign property.
Canada currently has laws restricting non-Canadians from purchasing certain residential properties in urban areas,
though these restrictions may not apply to vacation homes, cabins, or cottages. Additionally, if a non-Canadian inherits residential property in Canada, they typically would not be required to sell it. The probate and tax implications of such an inheritance can be complex.
If only a U.S. will is used to bequeath a foreign property, several complications may arise:
• Translation issues: If the Canadian home is located in Quebec, certain documents may need to be translated into French. However, some terms in French and English may not have direct equivalents, and certain legal concepts
may not translate precisely. Additionally, the translation may need to be certified by a qualified translator whose credentials are recognized in Canada.
• Execution requirements: Different countries have different will execution standards. What is valid in the United States may not be legally recognized in Canada.
• Filing requirements: The original U.S. will may need to be filed in both the United States and Canada. Some courts accept exemplified, authenticated, or court-certified copies of the will with an apostille, but others may not. Certain foreign courts may even require a bonded attorney from the United States to personally hand deliver the original will to the foreign country for inspection and copying.
A U.S. will alone cannot ensure that your Canadian second home is distributed according to your wishes. If the will does not comply with Canadian
laws, it may be subject to local intestacy rules, leading to unintended consequences. For instance, Quebec’s civil law system includes “forced heirship” rules, meaning a portion of the estate may be legally required to pass to certain heirs, regardless of the testator’s wishes.
A practical solution is to maintain two wills: one governing U.S. assets and another specifically for Canadian property. This may require two probate procedures—one in each jurisdiction— but is often preferable to undergoing original probate in the United States followed by ancillary probate in Canada. It is essential for your American estate attorney and Canadian attorney to coordinate when drafting two wills. The documents must not contradict or revoke each other. Having a Canadian executor named in a local will also can facilitate a smoother transfer of ownership.
Canada does not have an inheritance tax, but it does impose a capital gains
tax upon death based on the appreciation of the decedent’s Canadian assets. U.S. estate tax also may apply to Canadian property depending on the total value of worldwide assets at the time of death. The U.S.-Canada Tax Treaty may provide a credit for Canadian taxes paid on the U.S. estate tax return.
Although Canada serves as a strong example, similar estate planning issues arise in other countries. Many European nations, including France, Italy, and Spain, enforce forced heirship laws. Mexico, Israel, and Korea also have unique probate and tax systems that may not recognize American wills. The key takeaway is that local estate laws must be considered whenever a U.S. person owns foreign real estate.
To ensure clarity and prevent unintended revocation, each will should include a carefully drafted revocation clause that explicitly defines its scope and preserves the validity of the other.
Below is an example of how this might appear in a U.S. will:
I, ANTONIO GONZALEZ, being a citizen of the United States of America and a resident of the City, County, and State of New York, publish and declare this to be my United States Last Will and Testament, to control the disposition of the property hereinafter described and defined as my Estate, and I hereby revoke all wills and codicils at any time heretofore made by me with respect to such Estate. This United States Will shall not revoke or otherwise interfere with the disposition of any property situated in Canada. This United States Will can only be revoked by another will that is later in date than this United States Will. This United States Will may not be revoked unless the revocation clause of another will specifically refers to this United States Will by date of execution and explicitly revokes it.
A corresponding clause should appear in the Canadian will, specifying that it governs only Canadian property and does not revoke the U.S. will.
1. The U.S. will should specify that it governs worldwide property except for real estate in Canada (or another foreign country).
2. The foreign will should state that it governs only property in that specific country.
3. The U.S. will should designate the law of which state of the United States governs the U.S. will.
4. Both wills should explicitly list the types of assets they cover.
5. The governing law for each will should be clearly stated.
6. Spousal elective share and forced heirship rules in both countries should be considered.
7. The ability of the U.S. executor to pay estate expenses in the foreign country should be addressed.
The general rule is that an individual should have only one will at a time, but multiple wills—one per jurisdiction—are often used in international estate planning.
8. Inheritance taxes in the foreign country may be collected from the beneficiaries rather than the estate. The U.S. will should clarify whether the executor can reimburse heirs for these taxes.
9. A properly tailored residuary clause should be used to prevent conflicts between the two wills.
10. The enforceability of powers of attorney or health care directives across jurisdictions should be reviewed to ensure they are valid and recognized in both countries.
The general rule is that an individual should have only one will at a time,
but multiple wills—one per jurisdiction—are often used in international estate planning. Multiple wills can help streamline the estate administration process, reducing delays and ensuring that assets in different jurisdictions are handled efficiently. Additionally, this approach can offer greater privacy regarding worldwide property distribution. But without a well-structured estate plan—including a separate will specifically tailored to the legal requirements of each relevant jurisdiction—your family may encounter unnecessary legal complications, prolonged administrative delays, and unintended consequences that could have been avoided with proper planning. n
ASSET PROTECTION TRUST: Settlorbeneficiary’s control may justify imputing trust income for child support. After his divorce, a father transferred multiple profitable businesses into a self-settled Alaska trust, claimed only a modest salary as income, and disputed a child support increase based on the trust’s earnings. The Alaska Supreme Court in Chapman v. Chapman, 563 P.3d 1155 (Alaska 2025), affirmed that a settlor-beneficiary’s control over an Alaska DAPT may justify imputing trust income for child support purposes, even if distributions are not taken. The court did not question the validity or enforceability of the trust itself. Additionally, although the court used the trust as justification for reviewing the child support calculation, it did not force any distributions from the trust.
ANTI-LAPSE STATUTE: Anti-lapse statute applies in spite of disinheritance of heirs. The decedent’s will gave the residue to the decedent’s parent, and if the parent did not survive, to the decedent’s uncle. The terms of the will also “intentionally omitted” to provide for the decedent’s heirs except as otherwise provided in the will. Both the parent and the uncle predeceased the testator, and the uncle’s three children survived the testator. The decedent’s sister objected to probate, alleging that the decedent died intestate and that she was the sole heir. The trial court denied the objections and the New Hampshire Supreme Court affirmed in In re Estate of Thurrell,
Keeping Current—Probate Editor: Prof. Gerry W. Beyer, Texas Tech University School of Law, Lubbock, TX 79409; gwb@ ProfessorBeyer.com. Contributors: Julia Koert, Paula Moore, Prof. William P. LaPiana, and Jake W. Villanueva.
Keeping Current—Probate offers a look at selected recent cases, tax rulings and regulations, literature, and legislation. The editors of Probate & Property welcome suggestions and contributions from readers.
No. 2023-0528, 2024 WL 5049387 (N.H. Dec. 10, 2024), holding that the antilapse statute applied to the gift to the decedent’s uncle, first because of the strong presumption against intestacy, and second because the testator knew how to override the anti-lapse statute by attaching the survival condition to the gift to the parent and omitted it in the gift to the uncle.
ARBITRATION: Arbitration provision in will is enforceable. A will term requiring arbitration of any dispute involving the will is enforceable under Hollingsworth v. Swales, No. 10-23-00018CV, 2025 WL 479545 (Tex. App. Feb. 13, 2025), for three reasons. First, those opposing arbitration have taken benefits under the will and therefore assented to arbitration. Second, the dispute involving the extent of the testator’s exercise of a general power of appointment over property in a trust is a dispute over the construction of the will. Third, the agreement does not violate the statutory requirement that the probate court hear all probate proceedings because the court must still decide whether to confirm the arbitration award, enter an order, and then enter a judgment. In addition, the question of the extent of the decedent’s exercise of the power of appointment is only part of the probate proceeding, which could continue in the probate court.
CAPACITY: Attorney has no duty to evaluate a client’s capacity without evidence of impairment. A child omitted from the parent’s estate plan sued the parent’s lawyers, alleging that they should have evaluated the parent’s capacity before working to make changes to the estate plan. In Carey v. Hartz, 256 N.E.3d 469 (Ill. App. Ct. 2024), the intermediate Illinois appellate court reversed the circuit court’s dismissal of the complaint, finding that although Illinois law did not create an affirmative duty to assess capacity, the complaint alleged facts related to the parent’s condition which if proved would show that lawyers had a duty to inquire further. Failing to do so could be malpractice.
Equitable adoption requires proof of intent to adopt. In In re Estate of Schappell, 331 A.3d 471 (Md. 2025), the Supreme Court of Maryland set forth a two-step test for proof of equitable adoption. The claimant must show by clear and convincing evidence first, that the decedent, who must have died intestate leaving no surviving spouse, registered domestic partner, children, parents, siblings, or grandparents, had the intent to adopt the claimant, and, second, that the decedent acted in accordance with the intent to adopt by communicating to the public that the claimant was considered to be the decedent’s child and publicly treating the claimant as the decedent’s child.
CAPACITY: The testator under conservatorship had capacity despite dementia and Alzheimer’s diagnoses. The Supreme Judicial Court of Maine in Estate of Spofford, 331 A.3d 406 (Me. 2025), affirmed the probate court’s summary judgment dismissing a challenge to a testator’s will alleging lack of capacity where the record contained significant evidence of
testator’s capacity on day of will execution, including videos of the execution ceremony recorded by the testator’s attorney and testimony by the testator’s primary care physician. Evidence of lack of capacity, including diagnoses of dementia and Alzheimer’s disease, was too far removed from the date of execution and did not preclude execution during a “lucid interval.” In addition, the fact that the testator was under guardianship and conservatorship did not preclude a finding of testamentary capacity.
Email exchange does not amend trust. Like UTC § 602, New Hampshire’s version, N.H. Rev. Stat. 564-B:6-602, allows amendment of a revocable trust by any method that manifests by clear and convincing evidence the settlor’s intent, so long as the terms of the trust do not set forth a method of amendment that is made exclusive. In In re Omega Trust, No. 2024-0001, 2024 WL 5200550 (N.H. Nov. 25, 2024), the New Hampshire Supreme Court affirmed the trial court’s decision that an email exchange between the settlor and the settlor’s attorney did not constitute an amendment of the settlor’s revocable trust because the evidence showed that the attorney understood that the settlor was requesting drafts to review and that the settlor’s practice was to extensively edit documents before executing them. In addition, there was no evidence that the settlor adopted the email exchange as an amendment, such as signing a printed copy or forwarding it to the trustee.
SAVINGS
U.S. savings bonds beneficiary designations are not subject to state statute automatically revoking designation of spouse upon divorce. The decedent had not removed the ex-spouse as POD beneficiary of Series EE United States Savings Bonds at the time of the decedent’s death. In Matter of Estate of Jones, 328 A.3d 923 (N.J. 2025), the New Jersey Supreme Court held that the bonds belonged to the ex-spouse, not because federal law preempted the state revocation on divorce statute, but because the federal law and
regulations governing the savings bonds are the sort of “governing instrument” that supplant the default rule of the state statute.
WILL EXECUTION: Due execution of a will requires further hearing where the witnesses signed only the self-proving affidavit. The testator signed an attestation clause on page four of the will. On page five of the will, there is language describing the execution ceremony and the typed names of two witnesses, but no signatures. Page seven is a self-proving affidavit signed and acknowledged by the testator and the two witnesses. The Iowa intermediate appellate court in Matter of Estate of Gavin, No. 23-0680, 2024 WL 5152368 (Iowa Ct. App. Dec. 18, 2024), reversed the denial of probate, following precedent holding that the signatures of the witnesses on the self-proving affidavit were signatures on the will. The court held, however, that the affidavit was defective because it recited that the witnesses had signed the will. That defect can be cured, and the matter was remanded to allow further evidence from the witnesses.
ESTATE TAX: Settlement payment owed to estate by QTIP trust whose assets are in the gross estate is also includible in gross estate. The IRS issued an estate tax deficiency against the decedent’s estate. At the center of the appeal from a Tax Court decision was a settlement payment owed to the decedent’s estate. After her husband’s death and until her own, the decedent was the beneficiary of a QTIP trust consisting primarily of ten income-earning rental properties. During the decedent’s probate proceedings, the estate and trustees settled a claim that the trust had failed to distribute the full amount of income generated by the assets in the QTIP trust during the decedent’s lifetime. As a result of the settlement, the QTIP trust owed the estate over $6.5 million. The Second Circuit in Estate of Kalikow v.
Comm’r, No. 23-7957, 2025 WL 686037 (2nd Cir. Mar. 4, 2025), rejected the petitioner’s argument that the value of the QTIP trust when included in the gross estate should have been reduced by the liability to the trust created by the settlement payment. The Second Circuit reasoned that because the trust was a separate legal entity that was not an asset of the estate, a liability that belongs to the trust but does not affect the value of the underlying assets would not alter the value of the gross estate. The terms of the settlement also did not affect the fair market value of the assets of the trust. The Second Circuit also rejected the petitioners’ argument that the value of the settlement payment should be an administration expense deduction for the estate because the entity responsible for paying the undistributed income claim is the trust, not the estate. The settlement payment is an estate asset, not an expense, even though the liability is that of an entity that held assets includible within the taxable estate.
ADVANCE HEALTH CARE DIRECTIVES: In Everyone Deserves Autonomy: Making Advance Care Planning Accessible for All, 59 Real Prop. Tr. & Est. L. J. 241 (2024), Amelia Tidwell examines advance care planning in the United States, specifically focusing on advance health care directives, which only about one-third of adults use. She concludes that state systems are ineffective in promoting the use of advance healthcare directives or ensuring people have access to them.
AI RENDERINGS: In A Right to Be Left Dead, 112 Cal. L. Rev. 1591 (2024), Mark Bartholomew proposes a new legal right—the right to be left dead. With artificial intelligence now capable of virtually reanimating the deceased, he argues that existing privacy and property laws do not provide enough protection. He also begins a preliminary discussion of what new laws might be needed to address this issue.
IN TRUST LITIGATION: In Turning the Tables: How Anti-SLAPP Motions Can Neutralize Enforcement of No-Contest Clauses in High-Stakes Trust Litigation, 67 Orange County L. 36 (2025), Blaine Brown explains how trust litigation can be both emotionally difficult and legally complex, especially when no-contest clauses are involved. These clauses penalize beneficiaries who challenge trusts without valid cause. A recent case demonstrated the effectiveness of anti-SLAPP motions in trust disputes, revealing how they can shift the burden of proof and expose a trustee’s errors. Additionally, Brown explains how these motions can be a crucial strategy for defending clients against potential disinheritance.
CRYOGENIC PRESERVATION: In Rest in Freeze: The Need to Regulate the U.S. Cryonics Industry, 32 Elder L.J. 231 (2024), Mehroz Mohammed examines the unregulated cryonics industry, highlighting the risks it poses to vulnerable individuals and the need for uniform regulations to ensure safety, accountability, and adaptability for future advancements.
CRYPTOCURRENCY: In Crypto and the Fiduciary Investor, 94 Miss. L.J. 193 (2025), Eric Chason explains that Bitcoin and other cryptocurrencies go through cycles of big gains and losses but are becoming more popular as investments. Because Bitcoin doesn’t fit traditional models, it is often difficult to analyze it under the prudent investor rule. Chason argues that courts should focus on how trustees make decisions and ensure they diversify their investments, rather than simply labeling Bitcoin as too risky.
CY PRÈS: In Nearer to Thee: Cy Pres and Religious Discrimination, 59 Real Prop. Tr. & Est. L.J. 93 (2024), Christopher Ryan analyzes court decisions from the nation’s founding up to 2019, showing how legal doctrines like cy près have evolved over time. He uncovers a potential bias, indicating that courts were less likely to grant the cy près remedy to Catholic churches and charities when all other factors were the same.
CY PRÈS: In AG Trust Issues: Navigating Donor Intent in a Changing World, 17 Est. Plan. & Cmty Prop. L.J. 22 (2024), Cheng-ch (Kirin) Chang and Yenpo Tseng explore the pivotal role state attorneys general play in cy près actions and conduct a comparative analysis using the laws of several other nations. The authors conclude with recommendations to improve how courts should apply the cy près doctrine.
ESG: In Fiduciary Investment of Charitable Assets: From Legal Lists to ESG, 59 Real Prop. Tr. & Est. L. J. 269 (2024), Susan Gary explains the legal framework that governs the investment of charitable assets. She also explains how charities can engage in mission-driven investing and how to best use their investments to support their goals.
ILLINOIS—POWER OF ATTORNEY: In Powerful or Powerless, 113 Ill. B.J. 26 (2025), Thomas N. Osran and Robert S. Held discuss how recent changes to Illinois law may help agents convince banks and other entities to accept and honor validly executed powers of attorney.
INTESTATE SUCCESSION: In Standing in Place: Why De Facto Parenting Obligations May Be the Answer for NonTraditional Families under Intestacy Laws, 63 U. Louisville L. Rev. 113 (2024), Amy Armstrong-Reyes examines how current intestacy laws often fail to acknowledge the significant roles non-biological parents play in a stepchild’s life. Instead, she argues that recognizing “de facto” parenting obligations would better protect non-traditional families.
PROGRAMS: In Don’t Go Changing to Try to Please Me: Understanding Sebelius via the Unconstitutional Coercion of Medicaid Estate Recovery Programs, 74 Emory L.J. 205 (2024), Isabella Ryan explains that the Supreme Court case National Federation of Independent Businesses v. Sebelius established a test for unconstitutional government coercion, but courts often struggle to apply it. This Comment explores how that ruling affects
Medicaid’s Estate Recovery Programs, which require states to recover assets from the estates of deceased recipients. This practice often surprises families and discourages people from using Medicaid.
MEMBERSHIPS: K. William Burgess discusses the specialized considerations that must be evaluated when planning for specialized property in Join the Club: Estate Planning for County Club Memberships and Season Tickets, 17 Est. Plan. & Cmty. Prop. L.J. 1 (2024).
ADMINISTRATION: R. Shaun Rainey focuses on the issues involved when estate administration involves more than one state in The Hitchhiker’s Guide to Interstate Multijurisdiction Estate Administration, 17 Est. Plan. & Cmty. Prop. L.J. 57 (2024).
NEW YORK—TRUST MODIFICATIONS: In A New York State of Mind: The Corporate Trustee’s Toolkit for Effectuating Non-Judicial Trust Modifications in the Empire State, 39 Touro L. Rev. 395 (2024), Michael Borger offers corporate trustees, trust officers, and trusts and estates professionals a summary of various statutory tools that trustees can use to reduce the risk of litigation or court involvement.
PET INHERITANCE: In Christian Perspectives and Pet Inheritance Rights, 24 Rutgers J. L. & Religion 50 (2024), Destiny Peterson examines the issue of orphaned pets under intestacy laws. She suggests that if a pet owner is unmarried and has no human children, the owner’s pets should automatically inherit part of their estate. She also explores historical, philosophical, and Christian perspectives on animals to encourage a more compassionate approach to pet care and advocacy.
POSTHUMOUS MUSIC
In Those Were Just Demos and Never Intended to Be Heard by the Public, 42 Cardozo Arts & Ent. L. J. 799 (2024), Ryan Whyte references a forearm tattoo of singer and musician Anderson Paak that clearly instructs those controlling his unreleased music to keep it private
after his death. This tattoo reflects a larger trend among major artists who are speaking out about the controversial issue of posthumous music releases, raising questions about ownership and the ethics of releasing such works.
POSTHUMOUS PREGNANCY: In Posthumous Pregnancy and Uniform Law, 59 Real Prop. Tr. & Est. L. J. 377 (2024), Thomas Gallanis discusses how the Uniform Parentage Act allows a parent-child relationship between a deceased individual and a child conceived posthumously, but only if the child is born within certain time limits. The article argues that these time limits are too rigid and calls for a more flexible approach to better align with the goals of wealth transfer.
PRO-NATALISM: In Pro-Natalism in Probate Law, 74 Am. U. L. Rev. 367 (2024), Diane Kemker explains that “pronatalism” refers to government policies that encourage childbirth, support families, and promote population growth, often by incentivizing parenthood, restricting abortion and contraception, and disadvantaging the childless. Her article explores how pro-natalist bias extends beyond reproductive rights into probate law, where inheritance rules prioritize traditional parent-child relationships. This bias ultimately limits individual autonomy in estate planning by reinforcing societal expectations about a parent-child relationship.
PUBLICITY RIGHTS: In The Rule Against Perpetual Celebrity, 74 Am. U. L. Rev. 419 (2024), Yevette Liebesman explains that post-mortem right of publicity laws allow heirs of famous deceased people to profit from their fame, but there is no federal law, so the length of this right varies by state. The author suggests limiting the right to 25 years after the famous person’s death or until the last child or spouse dies, to prevent unfair wealth accumulation and ensure descendants don’t control the fame for generations.
RENEWABLE ENERGY LEASES: In her Comment, Preserving, Promoting, and Protecting: The Power of a Family
Limited Partnership for Renewable Energy Leases, 17 Est. Plan. & Cmty Prop. L.J. 103 (2024), Shelby Curry recommends that “[p]ractitioners should encourage the use of an FLP because it provides a vehicle to ensure proper divestments, [and] limits disputes between family members through competent management and profit distribution.”
ACCOUNTINGS: In Shorr v. Harris, 248 A.3d 633 (R.I. 2021), 28 Roger Williams U. L. Rev. 624 (2023), Tyler Haas explores a recent court case in which the Rhode Island Supreme Court ruled that a trust beneficiary cannot request an accounting if the beneficiary lacks proper standing. To have standing, a beneficiary must prove that the settlor intended to create a custodial trust. The court clarified that a trust fails to meet the statutory requirements of a custodial trust if it violates the statute or lacks proof of the settlor’s intent to create such a trust, particularly in cases where the trust only benefits the settlor during their life.
SPOUSAL INTESTATE RIGHTS: In
Beyond Death Do Us Part: Spousal Intestate Succession in Nineteenth-Century Hispanic America, 41 Law & Hist. Rev. 619 (2023), Carmen Deere explains that in colonial Hispanic America, widows and widowers could inherit only if the deceased had no blood relatives within 10 degrees of kinship. This article explores how 19thcentury Hispanic American civil codes greatly expanded the inheritance rights of surviving spouses. Influenced by liberal ideas and changing social norms, these reforms represented a significant improvement over previous law.
STUDENT LOANS: In his Comment, Haunted by Debt: Estate Planning and Lingering Student Loans, 17 Est. Plan. & Cmty Prop. L.J. 147 (2024), Victor Lopez “delves into the often-overlooked aspect of what happens to student loan debts when borrowers die” and “emphasizes the importance of proactive estate planning for student loan borrowers.”
TEXAS—DISPOSITION OF IVF EMBRYOS: Given the strict restrictions
on abortion in Texas, there is uncertainty regarding whether embryos may be destroyed upon divorce or death. In her Comment, Conceiving a New Legal Framework: The Implications of Texas Abortion Regulations for In Vitro Fertilization, 17 Est. Plan. & Cmty Prop. L.J. 189 (2024), Cassidy K. Terrazas implores the Texas legislature to act to alleviate confusion and provide guidance.
ARKANSAS enacted the Arkansas Trust Institutions Act of 2025 to regulate banks, companies, and other entities created to serve as fiduciaries. 2025 Ark. Laws Act 237.
MICHIGAN passed three acts that collectively make provisions regarding the determination of parentage for individuals conceived via surrogacy or assisted reproduction. 2024 Mich. Legis. Serv. P.A. 24, 29, & 27.
SOUTH DAKOTA provides for (1) “tax trust advisors” who are fiduciaries who may be designated within a trust instrument and may assist the trustee with tax matters related to the trust, and (2) trustees to be able to decant a trust by modifying the terms of the first trust rather than actually distributing the property from the first trust to one or more second trusts. 2025 S.D. Laws SB 69.
SOUTH DAKOTA allows individuals to make an effective transfer-on-death designation on the certificate of title to a motor vehicle, off-road vehicle, snowmobile, or boat. Such a designation cannot be made if the vehicle is subject to a lien or other encumbrance.
WYOMING authorizes transfer-ondeath designations for motor vehicles. 2025 Wyo. Laws Ch. 73. n
By Kristin E. Niver and Frederick H. Mitsdarfer III
Climate risk is becoming a critical factor in commercial real estate (CRE) finance, affecting lending practices, underwriting criteria, and capital availability. Properties in high-risk areas (e.g., flood zones, wildfire-prone regions) are facing stricter lending conditions, higher costs, or even loan denials.
Kristin E. Niver is a real estate finance attorney and counsel at Robinson+Cole in the New York and Washington, D.C., offices. Kristin is vice-chair of the Section’s Commercial Real Estate Transactions Group and chair of the Section’s Affordable Housing Committee.
Frederick H. Mitsdarfer III is a partner at Tarabicos Grosso, LLP in New Castle, Delaware. He is vice-chair of the Section’s Mortgage Lending Committee and is a member of the Section’s Standing Committee on Continuing Legal Education. Fred is also a fellow of the ABA’s Standing Committee on Professionalism and a fellow of the ABA’s Standing Committee on Continuing Legal Education.
As illustrated in more detail below, the real estate investors most likely to capitalize on emerging opportunities are those who are able to proactively mitigate climate risk and incorporate sustainability practices and resilience planning into their portfolios.
CRE lenders are also now incorporating climate risk assessments into their loan terms, increasing interest rates, as a very basic example, or requiring large reserves for properties in high-risk climate areas (e.g., flood zones, wildfire-prone regions). Properties exposed to climate hazards are seeing reduced loan-to-value (LTV) ratios, requiring borrowers to put up more equity. Lenders now also require more comprehensive environmental and climate risk reporting even before approving financing.
As the recent Los Angeles wildfires
and Florida hurricanes have illustrated, climate-related disasters are leading to soaring property insurance costs, affecting debt service coverage ratios (DSCR) and overall loan viability. As highlighted in more detail below, some insurers are even pulling out of highrisk climate markets altogether, forcing borrowers to seek expensive specialty coverage in order to secure financing at all.
Lenders and appraisers are now factoring climate risk into everyday valuations, potentially lowering asset values and reducing the amount of capital available for loans. Properties with high climate exposure may be harder to sell or refinance, raising concerns about the long-term viability of such an investment. Some properties could become obsolete or uninsurable due to regulatory changes, making them unattractive to lenders.
The shift toward sustainable and resilient investments is exemplified by
the fact that many institutional investors now favor properties with at least some environmental, social, and governance (ESG) credentials across the board, increasing demand for sustainable finance solutions.
Furthermore, lenders are reducing exposure to regions prone to hurricanes, rising sea levels, and wildfires and there is a growing preference for financing properties in cities with strong climate adaptation plans and lower environmental risks. Some lenders now even require climate adaptation plans or sustainability commitments from borrowers. Others are even exiting specific markets because of climate concerns, leading to “lending gaps” and higher borrowing costs for affected areas.
Lenders now evaluate physical risks (extreme weather) and transition risks (regulatory changes, carbon pricing) when assessing any loan. Physical risks include risks that affect a property’s longterm value, insurability, and cash flow and include flood risk, hurricane and wind exposure, wildfires, heat stress and drought, and sea level rise. Transition risks include such things as regulatory and market risks, including a political party change, as we have seen recently. As some governments impose stricter climate laws, properties that do not meet sustainability standards may lose value due to new energy-efficiency requirements, face higher operating costs from carbon pricing or local energy mandates, or struggle to refinance if not aligned with ESG lending criteria.
Lenders may lower LTV ratios if a property faces extreme weather risks, but energy-efficient properties also may qualify for a higher LTV, thereby reducing a borrower’s equity requirements. Lenders may add what is commonly called a “climate premium” to interest rates for properties with high physical risk. Lenders may require borrowers to obtain additional flood, hurricane, or wildfire insurance, as well. Climate risk also can harm required DSCRs by increasing expenses, reducing revenue, and tightening lender underwriting standards,
Lenders now evaluate physical risks (extreme weather) and transition risks (regulatory changes, carbon pricing) when assessing any loan.
and lenders may even require shorter loan terms or amortization periods for assets in high-risk locations. Lenders also are increasingly adjusting reserves and escrow requirements for real estate loans based on climate risk. Properties in highrisk areas (flood zones, wildfire-prone regions, coastal areas, etc.) or with high transition risk (regulatory compliance, carbon pricing, or market shifts) may require larger reserves and higher escrow deposits to protect the lender’s exposure.
With climate change increasingly affecting CRE, investors are adopting protective strategies to mitigate risk, protect asset values, and ensure longterm profitability, regardless of politics. This is because climate change is affecting the financial bottom line. Investors are increasingly using analytics and even artificial intelligence (AI) to assess exposure to climate hazards like floods, hurricanes, wildfires, and rising sea levels. Using these data, lenders and investors are reducing exposure to highrisk locations by acquiring assets in climate-resilient regions. They also are proactively obtaining risk data from firms like Moody’s to guide investment decisions.
Investors are requiring physical upgrades to properties, including but not limited to flood protection
measures such as installing flood barriers, improving drainage systems, and elevating critical infrastructure to reduce flood damage; wind and storm resilience protections, such as reinforcing buildings with impact-resistant windows, storm shutters, and upgraded roofing to withstand extreme weather; and, most obviously following the catastrophic Los Angeles fires, wildfire prevention, such as creating defensible spaces, using fire-resistant materials, and upgrading HVAC systems with air filtration to mitigate fire and smoke risks. Heat adaptation is another new requirement, including implementing cool roofs, enhanced insulation, and shaded outdoor spaces to reduce heat stress.
Investors are focused on energy-efficient buildings that meet sustainability standards and those that have solar panels, battery storage, and microgrids to ensure energy resilience during extreme weather events. Water efficiency measures are another focus, such as requiring owners to implement rainwater harvesting, low-flow fixtures, and drought-resistant landscaping to adapt to water scarcity, to name just a few of such possible measures.
Lenders and investors are now requiring insurance policies with expensive specialized climate risk coverage and regularly updating policies based on new risk assessments, which could affect refinancing terms. Some large investors also are creating their own insurance pools to manage climate risks cost-effectively.
There are also many new lease and tenant adaptation strategies developing in this context, such as structuring leases to pass on sustainability costs and responsibilities to tenants and encouraging tenants to adopt energy-efficient practices and providing incentives for
sustainability efforts. Flexible space design and the creation of adaptable spaces also can help accommodate changing climate conditions and tenant needs.
Investors are also increasingly resorting to selling off their high climate-risk assets altogether, offloading properties with excessive climate exposure before insurance or regulatory changes devalue them. Repositioning properties is another possible option, such as converting high climate-risk buildings for alternative uses that are more weather resilient (e.g., from retail to logistics or life sciences). Developers and investors are also “land banking” in more climate resilient markets, acquiring land in lower-risk areas for future development as migration patterns shift due to extreme weather events as we have seen recently in Florida and California.
The recent Los Angeles wildfires are just one example of how climate risk
is profoundly affecting real estate investing, influencing property values, insurance dynamics, and market behaviors. Climate was previously considered as part of a “triple bottom line,” but climate risk is now affecting the financial bottom line, plain and simple, regardless of politics. The financial toll of the wildfires in Los Angeles is immense, with losses estimated to exceed $30 billion. The surge in claims is prompting insurance companies to reassess their risk models, leading to increased premiums for properties in fire-prone areas. Some insurers are opting to leave highrisk markets entirely, reducing options for property owners and potentially making it more difficult to obtain coverage. This trend could further deter investment in areas deemed vulnerable to wildfires.
The loss of over 16,000 structures exacerbates an already-existing housing shortage in Los Angeles, potentially driving up property values and rents in affected areas. Interestingly, however, and not widely discussed, is the notion that wildfires may present certain opportunities for investors while posing challenges for affordability. Rebuilding efforts face hurdles such
as stringent building codes, permitting processes, and the high costs of construction. Investors must navigate these complexities, which can affect project timelines and profitability. There are also ethical questions surrounding the obligations to rebuild.
Another key example is the Florida hurricanes. Over recent years, a series of high-profile hurricanes in Florida— from hurricanes like Irma, Michael, and, more recently, Milton, Helene, and even Ian—have exposed several vulnerabilities in the CRE market. The effect of Florida hurricanes on the CRE market and on the ability to secure insurance has been multifaceted, with immediate physical damage and long term economic and underwriting consequences. Hurricanes often cause widespread structural damage to commercial properties—from office buildings and shopping centers to industrial facilities. Damage may range from roof and facade destruction to complete loss of property, forcing owners to allocate large amounts for repairs or rebuild, which in turn affects property valuations and can depress market prices in
the short term. Studies have shown that although many properties are insured, the delay and complexity in damage assessment and claims settlement often result in extended downtime for businesses, reducing rental incomes and overall property value. Repeated hurricanes can contribute to what some call a “hurricane stigma,” a situation in which investors become more cautious about properties in high-risk areas. This caution often leads to lower transaction volumes, more conservative pricing, and higher risk premiums factored into property valuations. Even if recovery eventually occurs, temporary dips in values and prolonged uncertainty can affect commercial financing and development decisions.
In the wake of recent hurricanes in Florida, insurers have increasingly reassessed their risk models. With insured losses from storms such as Milton and Helene reaching tens of billions of dollars, many insurers are either hiking premiums significantly or pulling back altogether from high-risk regions like coastal Florida. For example, major carriers have been reported to increase commercial property insurance rates by double-digit percentages in some regions, yet others (like Progressive and Farmers) have reduced their exposure, forcing more policyholders into
the state-run insurer, Citizens Property Insurance Corporation. These market shifts not only raise the cost of insurance for property owners but also can lead to gaps in coverage availability, making it harder for businesses to secure affordable and comprehensive policies.
With the frequency and severity of hurricanes increasing (a trend linked to climate change), insurers face more frequent claims and higher aggregate losses. Insurers also are now paying closer attention to building age, construction quality, and hurricaneresilience measures when underwriting policies. Properties built before updated building codes (pre–Hurricane Andrew, for instance) often either are excluded or face very high premiums. Insurers and reinsurers alike have tightened their underwriting criteria, which may require property owners to invest in upgrades (like impact-resistant windows and reinforced roofs) to secure coverage or even lower their premiums.
Although Florida’s CRE market has historically been resilient—often rebounding strongly after storms—the increased cost and difficulty of obtaining insurance is gradually altering investment patterns. Lenders, investors, and developers are starting to incorporate more stringent risk assessments into their financing and valuation models. With the strain on private insurers,
state authorities have occasionally stepped in to regulate rate increases or even restructure the market. Initiatives aimed at enhancing building codes and incentivizing resilient construction could help mitigate future losses, though they also may increase upfront costs.
Florida hurricanes have driven up repair and reconstruction costs and have created uncertainty for CRE investors. Insurers in Florida are reevaluating risk, resulting in higher premiums and more selective underwriting. Together, these factors can depress property values in the short term, complicate financing, and ultimately pressure the market to adopt stricter risk mitigation and resilience measures.
Given more and more extreme weather events, a key step forward would be for the United States to better standardize how climate risk is priced into real estate valuation and underwriting, following the EU. The EU, of course, has mandatory climate stress testing for financial institutions that ensures that climate risks are always being factored into lending and investment decisions. The EU Taxonomy for Sustainable Activities and Sustainable Finance Disclosure Regulation (SFDR), as one of many examples, requires investors to report environmental risks and sustainability efforts in detail.
The United States also needs more green financing tools and other incentives for resilient buildings. The EU offers green bonds, sustainabilitylinked loans, and other low-interest loans for climate-resilient and energyefficient buildings. The EU also offers stronger tax incentives for building retrofits, energy efficiency, and renewable energy adoption. As discussed below, the United States should increase adoption of C-PACE (Commercial Property Assessed Clean Energy) financing for climate resilience upgrades. The United States also needs more subsidized loans and tax credits at the federal and state levels to incentivize climate adaptation,
although these very programs were created in connection with the landmark Inflation Reduction Act and are currently in jeopardy, highlighting the partisan divide on climate action, which unfortunately ignores the realities of how climate risk is affecting CRE finance irrespective of party lines.
Buildings play a major role in contributing to climate change, accounting for nearly 40% of global CO2 emissions; 28% of global emissions are attributed to the HVAC systems buildings require for heating, ventilation, air conditioning, lighting, appliances, and electronic devices. The vast majority of buildings in the United States still rely on fossil fuels for electricity and heating, as well as hot water and cooking, therefore emitting CO2. Gas boilers, furnaces, and water heaters all burn natural gas and release CO2. High-energy buildings (glass skyscrapers, older structures) often waste energy from poor insulation and inefficient systems. The remaining 11% of global emissions are attributed to the construction materials and processes (known as embodied carbon) needed for real estate development, including the cement and steel production used in construction, which is extremely carbon intensive. Cement alone contributes to 8% of global CO2.
Urban areas are known as “heat islands” because buildings and cities trap heat, making them hotter than rural areas. Concrete, asphalt, and glass absorb heat, raising temperatures. The air conditioning required then increases local emissions, creating a feedback loop where more cooling is needed.
Inefficient building design and poor insulation also waste energy. Older buildings with outdated HVAC systems are energy inefficient, and single-pane windows and poorly insulated walls in older buildings let heat escape, increasing heating costs. Cooling systems also use refrigerants that contain potent greenhouse gases. Air conditioners and refrigerators contain hydrofluorocarbons (HFCs), which are a thousand times stronger than CO2 at trapping
heat, and leakage from old and damaged A/C units also worsens climate change. What is more, as global temperatures rise, there is an even further demand for AC, which in turn leads to more emissions from fossil fuel electricity and refrigerants. Better insulation in buildings can reduce cooling needs.
A building’s climate impact can be reduced with more energy-efficient design such as passive solar, high-performance insulation, and triple-pane windows. With the help of solar panels, wind energy, and geothermal systems, buildings also can use renewable energy. Lower-carbon materials also can be used in the construction of buildings, including green concrete, recycled steel, and sustainable timber. Smart technologies such as LED lighting, automated HVAC, and energy-efficient appliances also can cut down on costs. Net zero and carbon negative buildings, increasingly required in many major cities, generate as much or more energy than they consume.
For these reasons, the buildings constituting CRE are a big cause of climate change—but also the solution. Because buildings are the major contributors to climate change, sustainable design and green technologies also can drastically reduce their impact. The future of CRE clearly depends on decarbonizing buildings through efficiency, electrification, and sustainable materials, and yet these upgrades and retrofits to buildings need to be financed at a time when capital is already prohibitively expensive from high interest rates and construction costs.
In the ever-evolving landscape of CRE, innovative financing solutions are crucial for advancing energy efficiency and sustainability for the reasons described above. One such solution gaining traction is Commercial Property Assessed Clean Energy (C-PACE) financing. This
tool allows property owners to fund energy improvements through a unique structure that benefits both the owners and the environment. Below we briefly explore the mechanics, benefits, and applications of C-PACE financing as a key example of much-needed green financing to address the many climate-risk-related issues discussed above, drawing on recent developments and examples to illustrate its potential impact.
C-PACE financing enables commercial property owners to finance up to 100% of the costs associated with energy efficiency, renewable energy, and water conservation improvements. Unlike traditional financing, C-PACE is secured by a special voluntary assessment lien on the property, repaid through property tax bills. This innovative financing mechanism offers several unique features that make it an attractive option for property owners and lenders alike.
One key feature of C-PACE financing is the non-acceleration of liens. In the event of a default, only the past due portion of the C-PACE assessment takes senior priority over other liens, protecting mortgage lenders’ interests. This feature provides significant reassurance to senior lenders, as it does not interfere with their foreclosure rights. Unlike other forms of subordinate financing, C-PACE does not require an intercreditor agreement with senior lenders, allowing them to retain their full foreclosure rights in case of a default.
Another advantage of C-PACE financing is the option for senior lenders to require escrowing the C-PACE assessment, similar to property tax and insurance escrows, to mitigate risks. Additionally, at closing, all C-PACE funds are deposited into an escrow account, ready to be drawn as project costs are incurred, providing assurance of fund availability. This immediate availability of funds ensures that capital is ready for project expenses, reducing financial uncertainties for property owners.
Furthermore, improvements financed through C-PACE often lead to
increased property values by enhancing energy efficiency and reducing operating costs. This increase in property value benefits both property owners and mortgage lenders, as the collateral’s worth is enhanced, providing additional security for the loan. By improving energy efficiency, C-PACEfunded projects also can increase a property’s net operating income, further enhancing its valuation.
C-PACE programs require enabling legislation at the state level and authorization from local governments. As of 2023, 38 states and Washington, DC, have passed C-PACE-enabling legislation. These laws define the roles of local governments in implementing and managing C-PACE programs, often leveraging existing statutes for special assessments. The involvement of state and local governments is crucial for the successful implementation of C-PACE programs, as they are responsible for levying the special assessments and ensuring compliance with program guidelines.
The process of obtaining C-PACE financing involves several steps and key players. Property owners initiate the process by identifying eligible improvements and applying for C-PACE financing. Capital providers, typically third-party lenders, offer the necessary funds for the projects, secured by the C-PACE assessment lien. Municipal governments play a critical role by levying the C-PACE assessment and collecting repayments through property tax bills. Program administrators oversee the application process, ensuring compliance and facilitating communication between stakeholders.
Since its inception, C-PACE has grown significantly. By mid-2023, over $6.3 billion had been funded through C-PACE, with more than 3,200 commercial projects completed and substantial job creation resulting from these investments. The program’s rapid growth underscores its effectiveness and appeal to both property owners and investors.
Improvements financed through C-PACE often lead to increased property values by enhancing energy efficiency and reducing operating costs.
processes need to be addressed. The split-incentive issue arises because property owners may not be motivated to invest in energy-efficiency improvements if the benefits, such as reduced utility costs, accrue primarily to the tenants. Overcoming this challenge requires both regulatory measures and educational initiatives to align the interests of property owners and tenants.
The expansion of C-PACE financing has not only facilitated numerous energy efficiency and renewable energy projects but also contributed to economic development through job creation and increased property values.
C-PACE financing is used across various property types, including hospitality, health care, office, and mixed-use developments. Specific examples of funded improvements include HVAC systems, lighting, building envelopes, and water conservation measures. For instance, in Philadelphia, C-PACE has been used to mobilize over $100 million towards energy efficiency and air quality upgrades, significantly reducing the city’s carbon footprint. The ability to finance a wide range of improvements makes C-PACE a versatile tool for enhancing the energy performance of different types of commercial properties.
One of the significant expansions of C-PACE in Pennsylvania was its inclusion of multifamily housing and air-quality improvements, as enacted by Senate Bill 635 in 2022. This expansion is particularly influential in cities like Philadelphia, where energy insecurity and high utility costs burden low-income residents. C-PACE financing offers a sustainable solution to upgrade aging energy systems in affordable housing, though challenges such as the split incentive and complex application
To enhance the accessibility and effectiveness of C-PACE financing, several innovative solutions are currently being explored. Simplifying the application process and providing bridge funding can make C-PACE more attractive to property owners of affordable multifamily units. Streamlined application processes can significantly reduce the time and effort required to secure C-PACE financing, making it more accessible to property owners who may lack the resources to navigate complex application procedures.
Involving local financial institutions, such as community banks and credit unions, can help fund smaller projects that larger banks might overlook. These institutions, with their closer ties to local communities, can play a pivotal role in expanding the reach of C-PACE financing to smaller and more diverse projects. Additionally, increasing awareness among property owners and financial institutions about the benefits and processes of C-PACE can drive higher adoption rates. Educational initiatives can demystify C-PACE financing and highlight its advantages, encouraging more stakeholders to participate in the program.
As we have discussed, C-PACE is a financing mechanism that allows commercial property owners to fund energy-efficient upgrades, renewable energy installations, and resilience improvements through a special assessment on their property taxes. Although it offers many benefits, there are also certain challenges and risks associated with the program, including the senior lien priority.
C-PACE assessments are typically senior liens, meaning they take priority over a mortgage in case of default. This means that senior lenders often resist C-PACE financing because they think it can jeopardize their ability to recover funds if the property goes into foreclosure. Some mortgage lenders may refuse to approve C-PACE financing altogether or may require borrowers to pay off the C-PACE loan before refinancing or selling.
C-PACE requires multiple layers of approval, including senior lender consent, compliance with state and local regulations, and underwriting of the project’s expected energy savings. This process can sometimes be slow. C-PACE financing also may come with program fees, legal expenses, administrative costs, and origination fees, which can be higher than for traditional financing options. These extra administrative costs may reduce the financial benefits of energy savings, making it less attractive compared to other financing options like green bonds or standard bank loans. The loan sizing is also based on energy savings, which, in some cases, can be very unpredictable.
Another challenge of C-PACE is that it is not universally available. As noted above, C-PACE legislation is authorized state by state, and even in states where it is legal, not all municipalities are willing to participate. Furthermore, property owners in nonparticipating areas cannot access the program, limiting its widespread adoption.
There are also open questions about the refinancing or the resale of properties financed with C-PACE. Some buyers are reluctant to purchase properties with C-PACE assessments because they inherit the repayment obligation through the property tax bill. Related to this is the concern that many property owners do not fully understand the long-term tax assessment implications of a C-PACE loan and may be surprised to find higher-than-expected tax bills or legal complications. These concerns may complicate property sales and
refinancing, potentially delaying transactions or requiring buyers to negotiate the payoff of the C-PACE loan.
C-PACE financing represents a transformative approach to funding the energy efficiency and renewable energy improvements required in the CRE sector for the reasons described above. By leveraging this innovative tool, property owners can achieve significant energy savings, enhance property values, and contribute to broader environmental goals. The continued growth and adaptation of C-PACE programs will be crucial in addressing the energy challenges of the future and promoting sustainable development practices. As more states and local governments adopt and refine C-PACE programs, the potential for this financing mechanism to drive positive change in the real estate market and beyond will continue to expand. Through collaborative efforts and innovative solutions, C-PACE can play a central role in building a more sustainable and resilient future for all.
The U.S. Inflation Reduction Act (IRA) of 2022 was a landmark piece of legislation that introduced and expanded upon several green financing tools to support clean energy and climate resilience for the reasons we have discussed above, including funding for low-cost loans for energy efficiency improvements and tax credits for renewable energy.
One of the most significant of these programs is undoubtedly the Greenhouse Gas Reduction Fund (GGRF). GGRF is administered by the EPA to finance clean energy and climate-friendly projects across the United States. GGRF is designed to cut greenhouse gas emissions by funding clean energy projects, accelerate private investment in green infrastructure and low-carbon solutions, support disadvantaged communities through environmental justice initiatives, and create jobs in the clean energy sector.
GGRF provided a total of $27 billion
for establishing a national green bank to support clean energy projects, with a focus on low-income and disadvantaged communities. The award was distributed among three major grant programs, each targeting different aspects of clean energy investment: $14 billion for the National Clean Investment Fund (NCIF), $6 billion for the Clean Communities Investment Accelerator (CCIA), and $7 billion for Solar for All:
1. National Clean Investment Fund ($14 billion). NCIF provides financing to nonprofit clean energy lenders to finance clean energy and energy-efficiency projects across the United States, including energy-efficiency upgrades in buildings; solar, wind, and battery storage projects; decarbonization projects; electrification of heating and cooling; and electric vehicle (EV) charging stations.
2. Clean Communities Investment Accelerator ($6 billion). The focus of CCIA is on community-based lenders serving low-income and disadvantaged communities and is intended to expand access to climate solutions in underserved areas, ensuring economic and environmental benefits for all. CCIA is also intended to provide workforce training programs in communities across the United States for clean energy jobs.
3. Solar for All ($7 billion). Solar for All is intended to help states, local and tribal governments, as well as green banks and nonprofits expand solar energy access for lowincome households and invest in community solar projects, including shared solar for renters and low-income families and rooftop solar installations for low-income homeowners. The purpose of Solar for All is to make solar power more affordable and accessible while reducing energy costs for lowincome families.
The financial institutions and nonprofit groups that received the GGRF grants are to use the funds to provide loans, grants, and financing assistance for clean energy projects. The GGRF is
expected to significantly leverage private capital, with every $1 of federal investment expected to attract $7 billion in private investment, multiplying the effect.
GGRF is a transformational investment in climate solutions and a major step toward the United States achieving net-zero emissions by 2050, reducing carbon emissions, lowering energy costs for families and businesses, accelerating clean energy deployment nationwide, and creating thousands of clean energy jobs.
The IRA significantly extended and expanded the investment tax credit (ITC) and the production tax credit. The IRA also created a new direct-pay transferability mechanism whereby businesses can now sell tax credits to other entities for upfront capital.
The IRA added bonus incentives on top of the base ITC to substantially boost the overall value of a renewable energy project’s tax credit. The IRA intended for these adders to reward developers for meeting specific criteria that advance policy goals like domestic manufacturing, community revitalization, and social equity.
The base ITC generally offers a tax credit equal to a fixed percentage (commonly 30%) of a project’s eligible cost. ITC adders increase this percentage when a project satisfies additional requirements. For example, if a solar project meets all necessary labor, manufacturing, or location standards, the credit can jump well beyond the base rate—sometimes approaching 60% or more of the project cost.
There are three primary types of ITC adders:
• Domestic content adder. The first is the domestic content adder. This adder is intended to incentivize the use of US-manufactured materials (e.g., steel, photovoltaic modules, inverters). Projects that meet a minimum domestic content threshold (e.g., 40% currently, increasing over time) receive an extra 10 percentage
points on the ITC, boosting the credit and supporting American manufacturing. The intent of this adder is to create a stronger domestic supply chain and more jobs domestically.
• Energy community adder. The second adder is the energy community adder. This adder supports economic revitalization in areas historically dependent on fossil fuels (like brownfield sites or regions with coal mine closures). With this adder, projects located in designated “energy communities” can earn an additional 10 percentage points on the ITC. The goal of this adder is to transform and reinvigorate communities adversely affected by the decline of the fossil fuel industry.
• Low-income communities adder. Lastly, the low-income communities adder promotes clean energy access in underserved or lowincome areas. With this adder, projects serving low-income communities (or those located on Indian land) may qualify for a bonus—often 10% or 20%—that increases the ITC value. The purpose of this adder is to reduce energy costs for vulnerable communities while expanding renewable energy access.
In practice, a project begins with a base ITC, often 30% of the eligible project costs, and by satisfying some of the additional criteria described above—such as prevailing wage and apprenticeship standards, using a specified percentage of domestic content, or being situated in an eligible community—the project qualifies for one or more adders. With these adders, the total tax credit can climb significantly (for example, from 30% up to 50–60% or more), which dramatically improves the project’s financial returns by reducing upfront costs and shortening payback periods.
A higher ITC directly lowers capital costs, improves internal rates of return, and accelerates payback periods for renewable energy investments. By mandating domestic content and supporting projects in economically distressed areas,
ITC adders stimulate local manufacturing, create jobs, and help transition communities away from fossil fuels. Incentives like the low-income adder ensure that renewable energy benefits— such as reduced electricity costs and increased energy independence—reach underserved communities.
ITC adders are a powerful component of the renewable energy incentive framework under the IRA. By offering bonus credits for using domestically produced materials, revitalizing energy communities, and serving low-income areas, these adders not only improve the financial feasibility of solar and other renewable projects but also promote broader economic and social goals. ITC adders can help developers maximize the benefits of their clean energy investments, providing needed financing to address some of the challenges we discuss above.
2. Loan Guarantees and Direct
via the Department of Energy (DOE) The IRA also expanded the Department of Energy’s loan guarantees and direct loan programs by providing $40 billion in a new loan guaranties and expanding the already-existing Title 17 loan guarantee program that supports clean energy and infrastructure projects.
Climate change is poised to significantly influence CRE lending and investing, and yet skeptics in government persist. Although any deregulation as a result of changing political views could reduce compliance costs for developers in the short term, it also will lead to increased environmental risks. These increased environmental risks, in turn, could lead to rising insurance premiums, which could actually counteract any anticipated reduction in compliance costs. Furthermore, while developers may face less regulatory pressure to adopt green building practices, changing trade policies and the imposition of tariffs, for example, may lead to increased construction costs and supply chain constraints. The rapid change in climate-related regulations
The Section of Real Property, Trust and Estate Law is organized into two main divisions: Real Property and Trust and Estate. Each division includes several high-level Groups, which are further divided into specialized Committees focused on specific issues. These Groups play a key role in developing the Section’s high-quality educational programs we’re known for, including those presented at the National CLE Conference.
Explore our list of Groups below and see how you can get involved in the Section’s work.
REAL PROPERTY DIVISION
• Commercial Real Estate Transactions Group
• Hospitality, Timesharing, and Common Interests Development Group
• Land Use and Environmental Group
• Leasing Group
• Litigation and Ethics Group
• Real Estate Financing Group
• Residential, Multi-Family, and Special Use Group
• Special Investors and Investment Structure Group
JOINT GROUPS
TRUST AND ESTATE DIVISION
• Business Planning Group
• Charitable Planning and Organizations Group
• Elder Law and Special Needs Planning Group
• Employee Plans and Executive Compensation Group
• Income and Transfer Tax Planning Group
• Litigation, Ethics and Malpractice Group
• Non-Tax Estate Planning Considerations Group
• Trust and Estate Practice Group
• Joint Law Practice Management Group
• Joint Legal Education and Uniform Laws Group
because of recent political and ideological shifts also is introducing a generalized uncertainty into the marketplace, potentially affecting investment decisions and valuations in the CRE sector generally, as many commentators have recently noted. If the federal green financing programs created by the IRA are clawed back, owners will nonetheless still need to comply with the strict environmental regulations imposed by many cities and states and also implement any climate risk mitigation measures as required by lenders and investors as a result of recent extreme climate events, as discussed above. For this reason, green financing tools such as C-PACE and other low-cost loan programs and tax credits are crucial given the ever-increasing role of climate disasters in shaping the CRE marketplace. Fortunately, many cities and progressive states such as California, New York, and Massachusetts have their own green financing initiatives, such as state-backed bonds, tax incentives, and grants for energy-efficient construction, and private banks also are continuing to provide green bonds and sustainability-linked loans, but these are unlikely to be enough without the landmark IRA financing.
The IRA remains a cornerstone of US climate and clean energy policy. Enacted only a few years ago in 2022, the United States was just beginning to see how its provisions, including GGRF and expanded tax credits, as discussed above, would drive significant investments in clean energy improvements.
Unfortunately, there has been a significant shift in energy and environmental policies, particularly concerning GGRF. As of early 2025, federal agencies were instructed to pause the disbursement of funds appropriated through the IRA. This pause includes funds allocated to programs like GGRF. There also have been efforts to reclaim already-allocated funds. EPA Administrator Lee Zeldin announced his intention to reclaim funds previously allocated, calling for a Department of Justice investigation into the fund’s disbursement. These recent actions, of
Green financing tools such as C-PACE and other low-cost loan programs and tax credits are crucial given the ever-increasing role of climate disasters in shaping the CRE marketplace.
course, have sparked legal challenges and debates regarding the executive branch’s authority to halt or retract funds that were lawfully appropriated by Congress. Environmental organizations and some lawmakers argue that such a move undermines legislative authority.
The suspension and potential retraction of GGRF funds, of course, will delay or halt countless clean energy and greenhouse gas reduction projects across the United States counting on this financial support. These actions also reflect the current administration’s broader strategy to prioritize fossil fuel energy sources over renewable energy initiatives, marking a significant departure from the previous administration’s climate policies. These recent developments surrounding the IRA have therefore sparked a broader debate over environmental policy and government spending, highlighting the partisan divide on climate action and clean energy financing tools.
As demonstrated above, climate change is increasingly moving beyond partisan politics since it is no longer just an environmental issue but a financial concern for investors’ bottom line and loan underwriting. The economic impact of climate change on CRE investment
is unavoidable. The recent Los Angeles wildfires are just one of many examples of this. Climate change is causing real financial losses due to extreme weather, supply chain disruptions, and rising insurance costs—and businesses, including major corporations and investors, are pushing for climate action because it directly affects their balance sheet. Major companies are incorporating climate risk into their strategies and sustainable investment and ESG metrics have become mainstream largely because extreme weather events are affecting everyone. More frequent and severe hurricanes, wildfires, heat waves, and floods are affecting people across political lines, and insurance companies are adjusting coverage and pricing based on climate risks, making it a financial issue rather than a political one. Recent polls also show growing bipartisan support for clean energy, especially as renewables become cheaper and create jobs in local communities across the country. Wind, solar, and battery storage projects are expanding in countless areas across the country, benefiting local economies and creating jobs. Therefore, many states, regardless of political leaning, are adopting clean-energy policies because they just make more economic sense. Even if, for the sake of argument, someone were to take the skeptical position that climate change was not real or that there were no environmental benefits to these clean-energy financing programs, the fact remains that, separate and apart from any environmental perspective, these clean-energy financing programs provide numerous shortand long-term economic benefits for the participants. Accordingly, the question becomes, why would any prudent CRE investor not use these clean-energy financing tools, if just for the economic benefits, and if there is any chance, these programs also have environmental benefits, wouldn’t that be an added bonus? In sum, these clean-energy financing tools are used by prudent CRE investors across the ideological and political spectrum because the financial benefits are seen as savvy financial tools instead of the environmental benefits being seen as political statements. n
By Paul Golden
2024, 275 pages, 6x9
Paperback/ebook
PC: 5431138
Price: $119.95 (list) / $99.95 (RPTE Members)
Can a neighborhood Napoleon simply take over and become the owner of another neighbor’s property? Any attorney even considering approaching an adverse possession case, regardless of which side, must start here. This is the first known book that focuses on just this issue—and from the litigator’s point of view. It is a one-stop shop for practitioners, with not only full descriptions of the ins and outs of the elements and potential defenses, and sample pleadings, but also various practical tips, tricks, clues, and ideas for successfully litigating these unusual cases.
Praise for Litigating Adverse Possession Cases: Pirates v. Zombies
“Who would believe that a thirty-eight-chapter deep dive into every aspect of litigating adverse possession - that hoary doctrine that somehow transforms trespass into ownershipcould also be an engaging and accessible read? Paul Golden has somehow pulled it off. This erudite and comprehensive volume will prove truly invaluable for practitioners as well as academics and students engaging with one of the most enigmatic, yet practically important, areas of property law.”
Nestor M. Davidson
Albert A. Walsh Professor of Real Estate, Land Use and Property Law, Fordham Law School
“Paul Golden’s book is a gold mine for any lawyer litigating an adverse possession case. The book collects cases on every aspect of adverse possession doctrine, and does far more than survey standard problems that complicate adverse possession law. Golden examines the peculiarities of local law in many states and outlines a variety of defenses available to adverse possession litigators. To top it off, Golden’s refreshingly breezy style makes it easy to digest the valuable information he doles out.”
Stewart Sterk
Mack Professor of Law at the Benjamin N. Cardozo School of Law of Yeshiva University
By Kristen A. Curatolo, Jay J. Scharf, Shifra Herzberg, Shaina S. Kamen, Erica Howard-Potter, and Mikhail E. Lezhnev
Like many ordinary individuals, celebrities often fail to update outdated estate plans or ignore estate planning altogether. Even when a celebrity has done careful estate planning and has well-drafted documents, changes in family circumstances or in the tax laws can create unexpected results. When estate planning misfires occur, grieving family members can end up fighting with each other and with taxing authorities. The estate plans discussed in this article offer useful lessons to estate planners and laypersons alike.
Background
Tupac Shakur, the iconic rapper, songwriter, and activist, was tragically killed in a drive-by shooting in 1996, spurring more than two decades of legal battles over his estate.
Shakur died intestate. He was not married and did not have any children. Under California law, Shakur’s parents, Afeni Shakur and William “Billy” Garland, were presumed to share his estate equally. Because Garland was not married to Shakur’s mother and was largely absent in Shakur’s life, however, Afeni disputed Garland’s claim to
Kristen A. Curatolo is a partner in the Trusts & Estates Group at Seward & Kissel LLP in New York, New York.
Jay J. Scharf is a partner at McDermott Will & Emery LLP.
Shifra Herzberg is special counsel in Sullivan & Cromwell’s New York office and is a member of the Estates and Personal Group.
Shaina S. Kamen is a partner at Holland & Knight LLP in Miami, Florida.
Erica Howard-Potter is a partner at Pryor Cashman LLP in New York, New York. She is a member of the firm’s Private Client Group and Trusts and Estates Practice, and an active member in the ABA Tax and Real Property, Trust and Estate Law Sections.
Mikhail E. Lezhnev is an associate attorney in the Trusts and Estates department at Schwartz Sladkus Reich Greenberg Atlas LLP in New York, New York.
half of Shakur’s estate. California law requires a father who is not married to the child’s mother to have a substantial relationship with the child and provide monetary support in order to inherit from the child.
Throughout his musical career, Shakur documented his lack of relationship with Garland. His hit “Dear Mama” included lyrics like “No love from my daddy, ’cause the coward wasn’t there/I was lookin’ for a father, he was gone.” During the proceedings following Shakur’s death, Garland’s contributions to Shakur’s support were reportedly found to include $820, a bag of peanuts, and a ticket to the movie Rollerball. Garland also did not see Shakur for 15 of the 25 years that Shakur was alive. Finding that Garland’s contributions to Shakur’s support and care were minimal, a California judge determined that Garland should not inherit from Shakur.
Fortuitously, Shakur died a domiciliary of California, where
state law precluded Garland from inheriting. Had Shakur died a domiciliary of a different state, Garland may well have inherited one-half of Shakur’s estate. Intestacy laws differ from state to state, and even a simple will identifying a client’s heirs may avoid years of costly and emotional litigation.
Paul Newman was an Academy Award–winning actor, film director, race car driver, entrepreneur, and philanthropist. Newman created the highly successful consumer brand “Newman’s Own” (the Company), which donated 100% of its after-tax profits to charity since its formation.
Two months before he died in 2008, Newman amended his revocable trust
and bequeathed 100% of the Company to the Newman’s Own Foundation (the Foundation). He also gave complete control of the Foundation to nonfamily members. Newman repeatedly expressed his wish that his children direct charitable gifts from the Foundation up to a certain amount each year; however, his estate planning documents were silent on this point. In addition, although Newman clearly wanted the profits of the Company to benefit charitable causes, his estate planning documents did not consider or address the IRS limitations on private foundations that hold operating businesses.
IRC section 4943 imposes an excise tax on a foundation’s excess business holdings. In general, an excise tax of up to 200% of the value of a business will be imposed on any private foundation that receives more than 20% of the voting stock, profits interest, or capital interest in an active trade or business by gift or bequest and does not dispose of its excess ownership interest within five years (or 10 years if an IRS extension is granted). The 20% threshold can be increased to 35% in certain circumstances and is aggregated with certain interests of substantial contributors to the Foundation.
In 2018, just before the 10-year extension on the requirement for the Foundation to dispose of the Company was set to expire, IRC section 4943(g) (Newman’s Own Exception) was enacted, providing an exception to the excess business holding rules in certain cases where 100% of a business is owned by a private foundation. The Newman’s Own Exception applies only to business interests given or bequeathed to a private foundation. In addition, 100% of the net operating income of the business must be distributed each year to the foundation, and the business must operate independently in many respects from the foundation. Had the Newman’s Own Exception not been passed, the Foundation would have been forced to dispose of 80% of its holdings in the Company, and Newman’s intent for the Company’s
profits to pass to charity would have failed. In 2022, two of Newman’s daughters sued the Foundation after the Foundation reduced the amount that each daughter could allocate to charitable causes. The Foundation argued that the daughters did not have standing because they did not hold a fiduciary role in the Foundation or in Newman’s estate. The case is still ongoing, and the matters have not been settled.
The Newman’s Own Exception is available to individuals who wish to contribute 100% of an operating business to a private foundation and who are willing to allow nonrelated parties to control the business. Strict compliance with IRC section 4943(g) is critical, and care must be taken when planning to contribute assets to a private foundation.
Anne Heche was an actress who endured several personal struggles before dying at age 53 in a single-car collision that also destroyed the home into which she crashed. At the time of her death, Anne had two sons: Homer Laffoon, age 20, from her marriage to Coleman Laffoon, and Atlas Tupper, age 13, from her relationship to James Tupper.
Following Heche’s death, Homer asserted that Heche did not have a will and petitioned to be appointed as the administrator of the estate. Tupper objected, offering an email sent by Heche in 2011 purporting to be her will, which provided, in part, “FYI In case I die tomorrow and anyone asks. My wishes are that all of my assets go to the control of Mr. James Tupper to be used to raise my children and then given to the children . . and their portion given to each when they are the age of 25. When the last child turns 25 any house or other properties owned may be sold and the money divided equally among our children.”
The court determined that the email did not meet the legal requirements for a validly executed will, or a holographic will, and appointed Homer as the administrator of Heche’s estate. In order for a will to be valid under California law, it must either be in writing and signed by the testator and two adult witnesses or be written and signed by the testator, in which case no witnesses are required. Although a California holographic will does not require witnesses, the material provisions and signature must be solely in the handwriting of the testator. In both instances, the testator must be of sound mind and have the intent to create a will. Because Heche’s email to Tupper did not meet the requirements for a valid will, Heche’s estate passed equally to her two sons under California’s intestacy rules.
Heche did not create a proper estate plan. The email was grossly inadequate to constitute even a valid holographic will, resulting in litigation regarding who should be appointed as the administrator of Heche’s estate. In addition, Heche’s entire estate passed outright and quite publicly to her two young children instead of being held in trust
for them. The issues surrounding Heche’s estate could easily have been avoided with the use of a pour-over will and revocable trust whose provisions would not have been made public. Ultimately, a relatively simple estate plan that included trusts for the children with one or more adult fiduciaries is all that would have been necessary to rectify most of the problems in Heche’s estate.
Background
Matthew T. Mellon II was an American businessman whose family founded institutions such as BNY Mellon and Carnegie Mellon University. Mellon’s initial investment of $2 million in the cryptocurrency “Ripple” quickly skyrocketed in value, and by the time of his death in 2018, Mellon’s investment in Ripple was worth approximately $360 million. Mellon had three children from two marriages, both of which ended in divorce.
Mellon died with a relatively simple will that he executed years before he acquired his cryptocurrency. Mellon left his fortune to his children in trusts that terminated at the age of 35.
Mellon failed to transfer some or all of his interest in his cryptocurrency to an irrevocable generation-skipping trust during his lifetime. As such, this asset was included in his estate at the time of his death, causing approximately $60 million in estate taxes. Had Mellon transferred the cryptocurrency to an irrevocable trust soon after it was purchased, Mellon could have allocated some or all of his federal estate and generation-skipping transfer (GST) tax exemptions to the trust, and all of the future appreciation in the assets transferred to the trust would have been estate tax free for multiple generations. Ripple’s price also quickly dropped following Mellon’s death. Because Mellon did not contribute the cryptocurrency
to an irrevocable trust or even a revocable trust during his lifetime, Mellon’s executors were unable to access and liquidate the assets until formally appointed by the court. This delay caused the estate to incur losses in the rapidly fluctuating crypto market. Lastly, Mellon’s will failed to create lifetime trusts for his children to which his remaining federal GST tax exemption could have been allocated, avoiding the inclusion of such property in the children’s own estates.
Clients should update their estate planning documents as soon as they obtain highly appreciating assets. Clients also should consider gifting or selling such assets to an irrevocable trust during life to use their estate and GST tax exemptions and to provide ready access to those assets without waiting
for a formal fiduciary appointment by a court. Lifetime trusts for children and grandchildren are good estate planning tools to preserve appreciating assets for future generations.
Lisa Marie Presley was the only child of singer and actor Elvis Presley and actress Priscilla Presley. Lisa Marie was married and divorced four times and had four children, Riley and Benjamin Keough and Finley and Harper Lockwood.
In 1993, Lisa Marie created a revocable trust to manage her assets. Lisa Marie restated the revocable trust in 2010 to appoint Priscilla and Lisa Marie’s
business manager, Barry Siegel, as cotrustees. In 2016, Lisa Marie signed an amendment to the revocable trust that removed Priscilla and Siegel as co-trustees and replaced them with two of her children, Riley and Benjamin. Benjamin subsequently committed suicide in 2020 at the age of 27, leaving Riley as the sole trustee of Lisa Marie’s revocable trust, wielding full control over Elvis’s home, Graceland, including its 13-acre original grounds, Elvis’s personal effects, and Elvis’s legacy. At the time of Lisa Marie’s death, the Elvis brand brought in more than $100 million per year.
Following Lisa Marie’s death, Priscilla contested the 2016 amendment to the revocable trust. Priscilla questioned the authenticity of the 2016 amendment for several reasons, including that it was not witnessed or notarized and that Lisa Marie’s signature appeared inconsistent with her customary signature. The legitimacy of the 2016 amendment was critical in determining who would serve as Lisa Marie’s trustee or trustees. Four months after Lisa Marie’s death, the dispute between Priscilla and Riley was settled out of court. Riley reportedly agreed to give Priscilla more than $1 million in order to become the sole trustee of Lisa Marie’s revocable trust and also created a sub-trust for Priscilla’s son and Lisa Marie’s half-brother, Navarone Garibaldi. Riley, Finley, and Harper split the remainder of the revocable trust.
Carefully observing the formalities when executing an amendment to a trust agreement (such as dating the amendment, signing before witnesses and a notary, and delivering notice as required) can help avoid post-mortem challenges to a client’s estate plan. Revocable trusts in particular should be amended and restated in their entirety rather than being amended in bits and pieces that can be lost, overlooked or challenged.
Ivana Trump, a Czech American skier, socialite, and businesswoman, gained fame as the first wife of President Donald Trump. Throughout their marriage, Ivana held significant roles within the Trump Organization, and after their divorce, she authored several best-selling books and ran multiple businesses until her death in 2022.
Ivana’s estate, worth tens of millions of dollars, was distributed through her will, with her son, Eric Trump, serving as the sole executor. Although attractively simple, reliance solely on a will to pass an estate as large and well known as Ivana’s could result in significant publicity for the decedent and beneficiaries. This risk could be mitigated through the use of more advanced estate planning techniques, including revocable trusts.
The publication of Ivana’s will revealed intimate details about her life and
final wishes, including the fate of her dog, fur coats, jewelry collection, and well-known domestic and foreign real estate. Although such public disclosure might intrigue some fans and probate enthusiasts, it is an outcome most high-net-worth and high-profile individuals are keen to avoid. Ivana could have avoided the inherent publicity of the probate process by using a “pourover” will and a funded revocable trust. Under this approach, her assets would have transferred to a revocable trust, ensuring that the details of her estate and its disposition remained private. The additional benefits of funding a revocable trust during the grantor’s life include easing the management of assets in the event of the grantor’s incapacity, bypassing the delay and expense of probate, avoiding ancillary probate for out-of-state real property, and avoiding court oversight of continuing trusts created under the revocable trust agreement.
In estate planning, simplicity can be deceptive. A simple will may be easy and inexpensive to create up front, but it can create costly complexity and unwanted publicity down the line. Ivana’s case underscores the need for thoughtful planning and strategic foresight catered to each individual client.
The celebrities highlighted above each had an estate misfire. Some had no estate plan at all, and some had plans that suffered from poor drafting or poor planning. Given the ever-changing tax laws, the vast differences in state intestacy laws and estate taxes, and the complexities often inherent in today’s families, all persons should protect their assets and their loved ones by hiring competent estate planning counsel and devising thoughtful and comprehensive estate plans. n
2025, 190 pages, 7x10 Paperback/ebook
PC: 5431141
Price: $139.95 (list) / $111.95 (RPTE Members)
By Lawrence Brody and Donald O. Jansen
In 2003, there was a sea change in premium financing with the then new split-dollar regulations. Predictions that the regulations would destroy split-dollar financing have proved to be incorrect In fact, split-dollar premium financing is more popular than ever.
This book discusses the uses of premium loans (loan regime) and employer owned spilt-dollar (economic benefit regime) in such areas as deferred compensation, executive perks, business succession and wealth transfer. The differences between the regimes, their tax results, and the reasons to use one over the other are explored. Their use with grantor trusts and intergenerational split-dollar arrangements are discussed.
The new edition contains a material discussion of the impact of the Levine, Cahill, and Morrissette cases on intergenerational economic benefit regime split-dollar and the possible impact on the intergenerational loan regime split-dollar. There are analyses of the potential impact of IRC Section 409A and the status of grandfathered split-dollar arrangements. It is imperative that the advisor be familiar with the commonly used split-dollar techniques to properly advise a client on appropriate premium financing.
Table of Contents
I. An Overview of Split-Dollar Premium Financing
II. Preliminary Matters
III. Some Uses of Leveraged Premium Financing
IV. Premium Financing
V. Economic Benefit Split-Dollar Arrangements
VI. “Grandfathered” Endorsement Split-Dollar Arrangements
VII. The Impact of Section 409A on Premium Financing and Economic Benefit Split-Dollar Arrangements
VIII. Conclusion
On March 12, 2025, U.S. Environmental Protection Agency (EPA) Administrator Lee Zeldin announced more than 30 actions to roll back regulations to advance President Trump’s deregulatory agenda. See https://tinyurl.com/5hxz6zwm. As discussed in the last environmental law update, EPA is required to begin a new, time-consuming rulemaking process for each of the regulations it plans to revise, except for those regulations that Congress may repeal under the Congressional Review Act (CRA), 5 U.S.C. §§ 801 to 808. Federal Environmental Deregulation— Authority and Limits, 39 Prob. & Prop. 54 (Mar./Apr. 2025).
The CRA allows Congress to review “major” rules issued by federal agencies before the rules take effect. Congress may review and disapprove federal agency rules for 60 days using special procedures. 5 U.S.C. § 802(a). If Congress enacts a resolution of disapproval, the rule will have no force or effect. Id. 801(b)(1). Where such a resolution is enacted, the same rule or a different rule substantially similar to the disapproved rule may not be enacted unless specifically authorized by legislation enacted after the resolution of disapproval. Id. § 801(b)(2).
Under the CRA’s “look-back” window provision, final rules posted within the last 60 legislative days of the preceding Congress are open to review under the expedited process of the act. For the current Congress, only those prior
Environmental Law Update Editor: Nancy J. Rich, Katten Muchin Rosenman LLP, 525 W. Monroe Street, Chicago, IL 606613693, nancy.rich@katten.com.
Environmental Law Update provides information on current topics of interest in the environmental law area. The editors of Probate & Property welcome suggestions and contributions from readers.
administration’s rules promulgated on or after August 16, 2024, are vulnerable to CRA consideration.
Thus, most of the current administration’s targets for regulatory rollback are not subject to the CRA. For example, one of its prime targets for rollback is EPA’s finding that greenhouse gas (GHG) emissions contribute to climate change, endangering public health and welfare. This regulation is generally referred to as the “endangerment finding.” EPA issued the endangerment finding in 2009. The administration is also targeting other regulations not subject to the CRA, including the GHG reporting rule and other water and air pollution regulations.
Also, EPA will likely abandon, at least partially, the prior administration’s legal defense of a significant drinking water regulation challenged by the public water supply industry in federal court. On April 10, 2024, EPA revised its National Primary Drinking Water Rule under the Safe Drinking Water Act, 42 U.S.C. §§ 300f to 300j-27, to establish legally enforceable levels for six per- and polyfluoroalkyl substances (PFAS). This rule sets limits for five individual PFAS: perfluorooctanoic acid (PFOA), perfluorooctanesulfonic acid (PFOS), perfluorononanoic Acid (PFNA), perfluorohexanesulfonic acid (PFHxS), and hexafluoropropylene oxide (HFPO)
dimer acid (the last also known as GenX Chemicals). The rule also sets a limit for mixtures of any two or more of four PFAS: PFNA, PFHxS, PFBS, and GenX chemicals. After the new administration took office, EPA asked the court to stay the litigation until EPA could review the rule and consider its position on the litigation. Given the administration’s deregulatory policies, it seems likely that EPA may offer to limit the rule’s scope significantly. Finally and most importantly, even if the administration does not roll back its targeted regulations through the formal rulemaking process, EPA can simply exercise its discretionary enforcement power and decline to prosecute violations. The administration has stated publicly that it intends to cut 65 percent of EPA’s budget, which would almost certainly reduce available resources for EPA’s compliance monitoring and environmental enforcement activities.
On March 4, 2025, the U.S. Supreme Court narrowed EPA’s authority under the federal Clean Water Act (CWA), 33 U.S.C. §§ 1251 to 1389, to hold dischargers of effluents responsible for the overall water quality of the waterbodies to which they discharge. City and County of San Francisco v. Environmental Protection Agency, 145 S. Ct. 704 (2025). Instead of holding dischargers only to what they can control—i.e., the quality of their discharges—these “end-result” requirements also hold dischargers accountable for the condition of receiving waters.
The case involved the City and County of San Francisco, which challenged National Pollutant Elimination Discharge System (NPDES) permit conditions prohibiting discharges that “cause or contribute to”
violations of water quality standards under the CWA). The Supreme Court reversed the decision of a divided Ninth Circuit panel. In a five-to-four opinion, the Court sided with the City and County of San Francisco. The Court held that although EPA can impose effluent limits and other specific requirements, it cannot condition NPDES permit compliance on whether receiving waters ultimately meet state water quality standards.
Writing for the narrow majority, Justice Alito emphasized that it is EPA’s responsibility, not the permittees’, to determine the necessary steps to comply with the receiving water quality standards. The permittees argued that EPA’s position requires the permittees to guess what their permit conditions require instead of providing specific limits for the quality and quantity of their discharge. The Court’s majority agreed that the City’s and County’s argument is consistent with the text of the CWA and its regulatory framework and that section 1311(b)(1)(C) of the CWA does not give EPA or state agencies that issue NPDES permits complete freedom to include open-ended compliance mandates based on downstream water conditions.
The U.S. Constitution’s Supremacy Clause provides that federal law is “the supreme Law of the Land,” notwithstanding any state law to the contrary. This language is the foundation for the doctrine of federal preemption, according to which federal law supersedes conflicting state laws. The Supreme Court has identified two general ways federal law can preempt state law. First, federal law can expressly preempt state law when a federal statute or regulation contains explicit preemptive language. Second, federal law can impliedly preempt state law when Congress’s preemptive intent is implicit in the relevant federal law’s structure and purpose.
States possess substantial delegated authority to administer federal environmental laws. Multiple federal environmental statutes allow states to establish EPA-approved programs to administer the federal law. The federal Clean Air Act (CAA), 42 U.S.C. §§ 7401 to 7438, is more than permissive; it requires each state to prepare,
submit, obtain approval for, and administer a State Implementation Plan (SIP) that addresses specific issues in each state and provides for state enforcement. For example, SIPs submitted by states that have designated nonattainment areas for any of the CAA’s six National Ambient Air Quality Standard (NAAQS) criteria pollutants must include provisions designed to achieve attainment status for the NAAQS at issue.
EPA has primary authority to designate hazardous waste under the federal Resource Conservation and Recovery Act (RCRA), 42 U.S.C. §§ 6901 to 6979 States may obtain full or partial designation authority by submitting and receiving approval for an “identical in substance” RCRA program to be administered by the state environmental agency or, in some cases, most typically regarding underground storage tanks, a local agency designated by the state. The CWA authorizes EPA to designate states or a state regional agency to issue NPDES effluent discharge permits. In City and County of San Francisco, discussed above, the dispute concerned the NPDES permit issued by the San Francisco Regional Water Quality Control Board.
Without comprehensive federal regulation of PFAS, many state legislatures and environmental agencies have taken action to limit or monitor PFAS in drinking water and consumer products. Maine, Massachusetts, Michigan, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, Vermont, Washington, and Wisconsin have standards such as Maximum Contaminant Levels (MCLs) for certain PFAS in drinking water. Maine has an interim PFAS standard that is enforceable until the state fulfills its rulemaking requirements to establish final MCLs. Alaska, California, Connecticut, Colorado, Hawaii, Illinois, Maryland, Minnesota, North Carolina, New Mexico, Ohio, and Oregon have adopted guidance, health advisory, or notification levels for certain PFAS chemicals.
Maine, Minnesota, and New Mexico have also enacted laws imposing reporting
requirements and restrictions on all products containing intentionally added PFAS. Beginning in 2027, New Mexico House Bill 212 will prohibit PFAS in cookware, food packaging, and juvenile products, and in 2028, other products, such as cosmetics, furniture, and carpets, will also be banned. By 2032, New Mexico will prohibit PFAS in almost all manufactured products sold within the state. There are limited exemptions to the ban of intentionally added PFAS. These exceptions include medical, electronic, and manufacturing sectors. California’s Proposition 65, Cal. Health & Safety Code §§ 25249.5 to 25249.14, sets “safe harbor” levels for several PFAS and requires warning labels, including on product websites, for such PFAS introduced into commerce in California.
PFOA and PFOS are the only two PFAS regulated as hazardous substances under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), also known as Superfund, 42 U.S.C §§ 9601 to 9628. Because multiple types of PFAS are often found at remediation sites, various states are planning to, or have already, designated additional PFAS or PFAS-containing materials as hazardous substances under their environmental laws. One example is used firefighting foam. Each state that designates these additional PFAS as hazardous substances under its laws may enact rules to establish its own remediation standards for these PFAS.
Environmental issues in transactions involving real property and those involving companies or other assets that currently or previously produced PFAS are likely to become increasingly shaped by each state’s laws and management and enforcement of its programs that administer federal laws. If the federal administration follows through on its plan to reduce EPA’s budget by 65 percent, federal oversight of state administration of federal environmental laws will be limited. Attorneys counseling clients in this new federal-state dynamic should evaluate these increasingly important state laws and programs on a case-by-case and stateby-state basis. n
In the last Technology—Property column, The Present and Future of AI for Real Estate, 39 Prob. & Prop. 2 (Mar/ Apr 2025), Seth Rowland covered the process of creating an application that combines traditional document assembly software with one of the many generative artificial intelligence (GAI) models on the market to produce a commercial lease. Now that you have dipped your toes in the water, let me help you decide whether to use GAI more broadly in your practice. Ask the GAI vendor marketing teams, and they will provide hundreds of ways for GAI to make your law practice quicker, more successful, and more profitable. Push past the hype, and you will realize that GAI technology is still in its infancy.
Artificial intelligence (AI) is different from the traditional document automation programs you may already be using, like HotDocs and XpressDox. Artificial intelligence models are a subset of the broader group of methods referred to here as computer automation. Traditional (non-AI) automation is best used for repetitive and predictable tasks like engagement letters, estate planning, agreements, and motion practice. Think of traditional automation as a Rube Goldberg machine. A human engineer designs every step; thus, the entire process is comprehensible to the human eye. With AI, the Rube Goldberg machine gains a set of pieces that
Technology—Property Contributing
Author: Sam Rowland (sam@samrowland. press) is a freelance journalist and a graduate of Stony Brook University with a degree in journalism.
Technology—Property provides information on current technology and microcomputer software of interest in the real property area. The editors of Probate & Property welcome information and suggestions from readers.
allow it to modify itself. The AI engine is given a goal. In pursuit of this goal, the AI engine detects when it needs to modify itself.
With Generative AI, we enter the world of Large Language Models (LLMs) and Vision Language Models (VLMs). GAI allows for natural language text inputs or questions and outputs images, videos, and text. In GAI, an outside entity (human or machine) flags the model’s latest output as desirable or undesirable, thus “training” the AI. The GAI Rube Goldberg machine adds “new steps” and removes “old steps” to achieve its final goal based on these “outside” inputs. These are not the inputs of a software engineer but rather those of a “user.” These self-modifying pieces can build and deactivate pieces rapidly without direct human involvement. GAI systems can complete complex and mutable tasks, but this means no single engineer has full knowledge of how they work anymore.
As with any new legal tool, ethical questions will arise. On July 29, 2024, the American Bar Association gave official guidance on using GAI in the practice of law. In Formal Opinion 512, the ABA Standing Committee on Ethics and Professional Responsibility cited five categories from the ABA Model Rules of
Professional Conduct (MRPC or Model Rules) that must be considered when evaluating the ethics of using GAI tools in general legal practice. For the exact wording, the pdf is available on the ABA website for free (see https://tinyurl. com/3nhyvtm2).
Although more senior lawyers may not encounter these problems, they may supervise junior associates or paralegals who use GAI extensively. MRPC Rule 5.1 (Responsibilities of Partners, Managers, and Supervisory Lawyers) and Rule 5.3 (Responsibilities Regarding Nonlawyer Assistance) impose on “supervising attorneys” responsibility for any breaches of the MRPC by those working under them, whether the attorney ordered them to break the rules or they just missed a reasonable chance to correct them.
To better illustrate this point, I have identified five likely scenarios where you will encounter the ethical and unethical use of GAI tools by your firm. These examples are drawn from five sections of the ABA Formal Opinion 512 document, in no particular order.
Imagine that your office has just finished a long day of drafting and filing contracts with the help of your trusty automated document assembly software. But then the office phone rang. It was a long-standing client who does regular business and was calling with an urgent request. The client has a limited time to purchase a building at a steep discount.
The seller needs immediate cash and is willing to sell her building to your client at a sizable discount if your client agrees to sign the offer agreement and transfer the money before 7 pm
that day. The client wants your firm to review their agreement and advise them on any potential legal traps. You assign the task to your junior associate and start getting to other tasks. But something makes you turn around and notice your associate is uploading the document to ChatGPT.
The associate explained that it is a 100-page document with exhibits, and his daughter’s school play is starting at 7 pm, too. The associate wants to finish this task on time and sheepishly admits he would post ChatGPT’s summary as a reply to the client.
STOP! What your associate is about to do would likely violate MRPC Rule 1.1 (Competence). The lawyer must provide competent representation, which includes understanding and weighing the benefits and risks of any technological tools you (or your staff) use in legal practice. For GAI tools, that means reckoning with “hallucinations” and other limitations of the current GAI models. AI companies refer to when an AI seems to lie, generating untrue information from no discernible source, as “hallucinations.” A 2024 Stanford University study cited by Formal Opinion 512 found that even the leading purpose-built GAI tools for legal research “hallucinate between 17% and 33% of the time.” Generalized chatbots like ChatGPT did even worse, as demonstrated by the highly publicized disbarment of Michael Cohen for submitting fake cases sourced from Google’s Bard chatbot (see https:// tinyurl.com/5cty3ya8). Even when information is not fabricated from whole cloth, the ABA emphasized that “they may combine otherwise accurate information in unexpected ways to yield false or inaccurate results” because of their lack of the human ability to understand meaning and evaluate context. And under all of that, there’s the issue of data bias. If the documents used to train your legal AI are outdated, limited, inaccurate, or biased in any way, that bias will affect all its summaries.
But does this prevent your associate from using GAI to make a task easier, help the client, and let your associate
leave the office on time? Not entirely. Your associate can use the summary but must not rely on it “uncritically.” Tell your associate to treat a GAI summary like a very rough first draft. They should check the summarized sections against a quick read of the referenced sections of the agreement and look for clauses missed in the summary that strike them as important. Your associate may modify the “prompt” to ask the tool to quote or cite specific sections of the document supporting each conclusion in the summary. If it cites case law, your associate must confirm the cases in legal databases, read them, and verify that the cites support the proposition for which they were cited. After finishing, the associate should read through the summary and apply his or her judgment as to whether the deal is beneficial to your client and legally sound.
Our next story starts as one of your clients requests a “custom drafted” lease for a novel use of retail space in an old building that she owns. She wishes to lease her building to a company to redevelop it into a mixed-use office-plex that includes rental office space, common areas, food services, rooms for “overnights,” and a health club. Your entire firm is swamped with work today. Your junior associate, wary of getting behind on other clients, starts looking for a shortcut. This time, he comes to you asking permission to use a GAIpowered document automation tool he saw advertised online. He says it claims to be able to take unstructured prompts and turn them into contracts based on its training data. He promises to review and correct the draft thoroughly before sending it out this time.
While commending your associate’s conscientiousness, you should inform him that he is about to run afoul of MRPC Rule 1.6 (Confidentiality of Information). He has not yet determined where the transaction-specific information (such as your client’s name, confidential business plans, and building location) is going when he inputs the prompts into the tool. Eagle-eyed
readers will note this also applies to the use of ChatGPT in the first scenario.
GAI tools need access to the data you give them to generate new data from them, but each tool differs depending on what happens to the data after that. Some tools will keep uploads or text inputs as new training data for the AI, which could lead to it using that protected information to inform answers to other users. If your associate uses the wrong tool to draft the lease, a real estate investor asking the tool for a list of high-value properties in the region might become aware of the confidential business plan, the property’s address, and the expected investment amount. Even if the tool is used only by members of your firm, trained only on documents your firm produced, and hosted on internal servers, there may be a risk another colleague of yours representing a client with adverse interests to the original client could get information out of the GAI model, despite your firm’s implementation of an ethical wall between the two clients.
This also applies to any information your firm trains a system on that relates to past clients’ matters (Rule 1.9c) and any information you put into an AI from prospective clients (Rule 1.18b). So before inputting any confidential transaction-specific information into a GAI tool, the associate must be reasonably sure that the tool does not store inputs for others’ use or assert any rights over the data provided. Suppose your associate is using a third-party service. In that case, your associate must obtain references and credentials and be aware of the “availability and accessibility of . . . legal relief for violations of the vendor agreement.”
Because there is a risk of exposure to your client’s confidential information, the ABA requires prior informed consent from your client. Whether or not your associate can be entirely sure of the tool’s security or believes the benefits are worth the risk in this case, your client’s informed consent must be obtained before making the first input. The ABA requires this because of the inherent risk of cyberattacks and other server failures. The necessary consent
can be obtained during the engagement process. But simply adding exculpatory language to the engagement letter is not sufficient. There must be an actual discussion with the client about the pros and cons of using GAI and the intended use.
With this new knowledge, your associate has learned to be careful with GAI, applying human judgment and legal expertise to its algorithmic outputs. But today, you two are working together on a client’s case and collectively hitting a wall. One of your retail clients wishes to defend against eviction by asserting that its landlord engaged in an unlawful early termination of the lease. The landlord’s early termination “for cause” appears to be rock-solid. You intuitively know there is a flaw somewhere, but neither of you can give that thought shape.
Feeling stuck, your junior associate suggests asking a legal GAI chatbot tool for a list of “affirmative defenses” to the “for cause” termination. This is not the first time an associate has brought up this tool. In the past, you helped test the tool’s reliability and came out with a positive impression. The associate promises to check all the affirmative defenses against actual law references before using them in his motion to dismiss. If the associate actually “redrafts the language,” then this would fulfill not only Rule 1.1 but it would also fulfill the attorney’s duty to the court under MRPC Rules 3.1, 3.3, and 8.4 (Meritorious Claims, Candor Towards the Tribunal, and Misconduct).
In most cases, this is a perfectly ethical use of GAI as a legal research tool. But even when prior informed consent is not strictly required for GAI use, there are circumstances where an attorney’s communications with the client may require a discussion of GAI under MRPC Rule 1.4 (Communications). This rule requires attorneys to be open and honest with their clients in a way that allows the client to make informed decisions about the direction of their representation. In the example above,
the random set of affirmative defenses obtained from the AI will significantly influence your planning. Thus, even without matter-specific information, Rule 1.4 says you must tell your client that you have used (or will use) GAI. Other situations that would require disclosure include: (a) when the client asks about the methods you used to represent them; (b) if the client directly asks if you are or will be using GAI in their matter, especially if they set out a GAI use disclosure requirement in the retainer agreement; or (c) if you have specifically been retained based on your particular skills and judgment, and use GAI. Putting boilerplate authorizations for using GAI in your engagement agreement is insufficient to fulfill your MRPC obligations.
Now that you have realized the timesaving benefits of GAI, you feel ready to integrate it fully into your firm’s workflow despite the risks. You may have even invested in a firm-specific AI app of your own. GAI is not free. There are expenses associated with the service, and then there is the time your staff spends training the GAI and themselves. How do you get a return on your investment?
If your firm engages in value-billing where the client and the firm agree to a fixed fee for a defined transaction, you can leverage the efficiencies from GAI into profits for your firm. You must not be deceptive and pass off the GAI work as your own. If you engage in traditional hourly billing for attorney time, plus disbursements for expenses like photocopying and travel, you cannot lie or misrepresent the number of hours you worked on behalf of the client. That would be fraud. If you are doing the same type of work you always did, just faster, how can you get a return on your investment in GAI?
You meet with your partners to gather ideas for a new billing schedule. One of your partners suggests billing for the hours it would take to do the legal work without GAI. Another partner speaks up, noting that past opinions
from the ABA forbid any lawyer who agreed to bill their client by the hour from billing for more time than was actually spent on the matter (see ABA Formal Ethics Opinion 93-379). The other partner suggests adding an extra surcharge to all expenses for a limited time to cover the costs of GAI training and setup. This sounds like it would run afoul of MRPC Rule 1.4’s guidance on boilerplate GAI authorizations. That reminds you that MRPC Rule 1.5 (Fees) covers these questions. So, you bring it up on the screen and find it a complex and context-specific issue, with many rules on what you cannot do and less guidance on what you can do.
GAI use can be charged as a disbursement only when it comes as a direct cost to you (e.g., only if you pay a per-use fee to an outside company that runs and maintains an AI app on its servers). In that case, you can charge your client a disbursement for the total cost of every time you use this app in the client’s current matter. The ABA noted that some AI tools, such as spellcheck programs, are classified as overhead expenses instead. Much like office rent and utilities, subscriptions for these programs cannot be charged as disbursements.
If you developed the GAI in-house, you could not charge an extra fee for the use of your firm’s GAI tools—to cover development costs—without an up-front agreement otherwise. As a rule of thumb, the ABA stated that disbursements are meant to defray lawyer costs, not generate extra profit, in Dec. 1, 1993’s Formal Ethics Opinion 93-379. Nothing, however, prevents you from factoring the costs of AI into an increase in your base hourly rate. More productive or experienced attorneys can charge a higher hourly rate, but you must explain this to your client. You can explain that our attorneys get the job done in fewer hours than other law firms, which charge lower hourly rates.
An interesting wrinkle: Because of MRPC Rule 1.1’s base expectation of professional competence, you cannot charge a specific client for the time you spent learning how to become competent in a new GAI tool that you will
be using for other clients in the future unless the client explicitly asked you to learn and use a specific GAI tool on the client’s case and agrees to an extra charge for that request. Finally, if you’re using a flat or contingent fee, the time and effort savings of a GAI tool should be factored into that fee, meaning that you should consider charging a lower flat fee for cases where GAI was used. So, your partner who suggested surcharges was not entirely wrong. But you must obtain informed consent from each client for that billing scheme in the retainer agreement.
But let us now go back and say your firm decided against building its own GAI tool. Instead, you have your associate do the research on third-party GAI tools for legal research and drafting. What does the ABA say you should direct him to do when it comes to this research? This question ties back again to MRPC Rule 5.3 (Responsibilities Regarding Nonlawyer Assistance) but in a different way.
Direct your associate to investigate what happens to the information you put into a GAI program and confirm in writing that there are enforceable remedies and consequences for any breach of trust on the part of the GAI vendor. Tell him to read and summarize company policies, reliability metrics, and security measures for you to read. And finally, make sure he uses the same sort of reference checks and vendor credentials that you would use when considering a cloud computing service.
Despite the “ethical” pitfalls, you have decided to incorporate GAI into your legal offering. Given all these “constraints,” you would be advised to set up a training program so that all members of your firm understand how to use and how not to use GAI. Your universal new hire training must include information on the ethical and practical uses of GAI tools and best practices for secure data handling.
Training can include live lessons,
videos, and file markings. For example, Formal Opinion 512 suggests marking all materials produced by GAI as such when putting them in files to help warn future users about the potential for errors. Your firm must also create, disseminate, and enforce clear written policies on when and how GAI can be used.
Lawyers are not currently expected or required to use GAI tools in their practice. It is a new technology that is
not yet so ubiquitous that your clients expect it, like an email inbox or website. But if you take the time to train in proper, ethical usage, you will find several timesaving uses for this new technology. GAI is the backbone of a powerful library of legal tools; new models and apps come out every day. Behind all the hype, you may find a few programs that provide useful new functionality to your workflow. n
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A church with members of a minority religion does not have a permanent home. It could not find a property in the Village of Rolling Hills because its zoning ordinance does not allow churches in any zoning district except in three residential districts where a religious institution must obtain a special permit. No religious institution has ever been granted a special permit in these residential districts. Still, other places of assembly, such as community, youth, and veteran organizations, have been granted special permits. What would you advise?
Zoning can be a substantial barrier for religious institutions. They may need a new building or an expansion for worship or other religious purposes, such as a school or space for members to take religious classes.
A religious institution may also want a change in use that does not change its building footprint to add a religious school or other religious activities. It may also engage in related activities that may not seem “religious,” but that serve a ministry or calling, such as a soup kitchen or services to homeless, impoverished, or disabled individuals.
Zoning barriers can take many forms. Religious institutions can be excluded from a community or specific areas, such as residential areas. Exclusion from residential areas is not difficult to uphold. Zoning ordinances can also require religious institutions to obtain a special permit, and a permit denial based on hostility to religious institutions is easily masked.
Editor: Daniel R. Mandelker, Stamper Professor of Law Emeritus, Washington University School of Law, St. Louis, Missouri.
Local officials usually have broad discretion, which allows them to deny a special permit or attach unreasonable conditions that make compliance difficult and expensive. Zoning disapprovals can fall more unevenly on minority religious institutions but can also be devastating to larger ones.
State courts are divided on the constitutionality of zoning that restricts religious institutions. Zoning is invalid if it violates a substantive due process or free exercise clause or is not authorized by the state zoning enabling act. For a case holding that a zoning board could not exclude a church and its school from a residentially zoned area merely upon evidence that property values in the neighborhood would depreciate, see Board of Zoning Appeals of Town of Meridian Hills v. Schulte, 172 N.E.2d 39 (Ind. 1961).
State courts often uphold less restrictive zoning, such as zoning that regulates site development. New York applies a balancing test to decide how to reconcile religious institutions’ conflicting claims with zoning objectives. Pine Knolls Alliance Church v. Zoning Board of Appeals of Town of Moreau, 838 N.E.2d 624 (N.Y. 2005), for example, upheld a special use permit that allowed a religious institution’s building expansion but denied a request to build an additional access road as part of the expansion.
The Free Exercise Clause of the federal Constitution protects religious exercise. Employment Division v. Smith, 494 U.S. 872 (1990), limited the application of the Free Exercise Clause to zoning by holding
that “the right of free exercise does not relieve an individual of the obligation to comply with a ‘valid and neutral law of general applicability.’” Id. at 879. A system of “individual exemptions” that includes an individualized consideration of a person’s situation requires strict scrutiny and a compelling state interest. Strict scrutiny is also required if a facially neutral law of general applicability imposes a substantial burden on religious exercise, .
In 2000, Congress adopted the Religious Land Use and Institutionalized Persons Act (RLUIPA), 42 U.S.C. § 2000cc, to improve the civil rights of religious institutions. RLUIPA adopted a decisiondisplacing rule, which limits the decisions governments ordinarily can make. Religious institutions and the US Attorney General may enforce RLUIPA in court. RLUIPA protects “religious exercise,” defined broadly as “any exercise of religion, whether or not compelled by, or central to, a system of religious belief.” Id. § 2000cc-5(7)(A). It reaches land use regulation by defining “religious exercise” as the “use, building, or conversion of real property for the purpose of religious exercise.” Id. § 2000cc-5(7)(B). A land use regulation is defined as “a zoning or landmarking law, or the application of such a law, that limits or restricts a claimant’s use or development of land.” Id. § 2000cc-5(5).
See Wendie L. Kellington, Religious Land Use and Institutionalized Persons Act (ABA State & Local Gov’t Law Section Annual Land Use Institute 2020), tinyurl.com/ riguo, for a detailed discussion of RLUIPA case law.
RLUIPA adopted the substantial burden
rule and the strict scrutiny requirement from the Smith decision. The substantial burden clause provides that “[n]o government shall impose or implement a land use regulation in a manner that imposes a substantial burden on [religious exercise] … unless the government demonstrates that imposition of the burden … is in furtherance of a compelling governmental interest; and is the least restrictive means of furthering that compelling governmental interest.” Id. § 2000cc(a)(1).
The substantial burden rule applies to a federally-funded activity when an activity affects interstate commerce or Indian tribes and when a substantial burden is imposed by a land use regulation and its implementation that requires “individualized assessments.” An individualized assessment occurs when “the government may take into account the particular details of an applicant’s proposed use of land when deciding to permit or deny that use.” A special use permit is an example. An individualized assessment may also occur when the application of neutral and generally applicable laws “to particular facts” is not merely numerical or mechanical but involves “criteria that are at least partially subjective in nature.”
RLUIPA does not define the term “substantial burden,” which is defined by the federal courts. Some courts hold that courts should interpret the term “substantial burden” with reference to Supreme Court cases that define it when it is included in other statutes, even though these cases do not guide RLUIPA. There is little agreement in the courts on defining a substantial burden. Judicial definitions vary among and even within the circuits.
One definition states that a substantial burden occurs when a plaintiff establishes that a government puts substantial pressure on religious exercise that modifies its behavior. A more restrictive definition demands that a substantial burden must place more than an inconvenience on religious exercise and impose a significantly great restriction or onus to make the religious exercise “effectively impractical.” Another definition more leniently states that a substantial burden inquiry does not require a plaintiff to establish an “unmet” religious need in the community. Religious exercise need not be completely
hamstrung to meet the substantial burden threshold. Courts also hold that the cost and availability of alternative locations to a location selected by a religious institution can be relevant.
The assignment of the burden of persuasion is critical. The burden of persuasion shifts to the government when a religious institution establishes a substantial burden on religious exercise, requiring the government to show that the law serves a compelling governmental interest for the particular case. The Supreme Court has held that establishing a compelling governmental interest is of the “highest order.” A general interest in land use regulation, such as “ensuring residents’ safety through traffic regulations,” is not likely to be held compelling.
The government must also show that a governmental interest is not only compelling but also the least restrictive means available, a challenging test to meet. The government must show that another means to achieve its objective is not available. In one case, a government did not adopt the least restrictive means available to achieve its governmental interest when a zoning board denied a special permit and refused to consider as an alternative a special permit subject to conditions. The board denied the permit because of undue deference to opposition by a small group of neighbors.
The “Equal Terms” Clause RLUIPA includes an equal terms clause requiring equal treatment of religious assemblies and institutions. This clause forbids a government from imposing or implementing “a land use regulation in a manner that treats a religious assembly or institution on less than equal terms with a nonreligious assembly or institution.” Id. § 2000cc(b)(1). There is no defense to a violation of the equal terms clause.
A typical example is a zoning ordinance that excludes religious institutions from a zoning district but not theaters, schools, and other organizations. A court compares a religious assembly or institution with a nonreligious counterpart, called a “comparator,” to decide whether the equal terms clause is violated.
Courts differ on how they make this comparison. One court relied on the
dictionary definition of “assembly” or “institution” to decide that a zoning ordinance violated the equal terms clause by excluding churches and synagogues from locations where private clubs and places of public assembly were allowed.
Another court found this approach too friendly to religious groups. It decided whether religious and nonreligious uses are treated equally by comparing the impacts of allowed nonreligious assembly and institutional uses with the effects of religious assembly and institutional uses. Relevant impacts are drawn from the approval criteria in the local land use regulation. For example, a comparison of traffic impacts is required if the approval criteria require adequate parking.
A land use regulation cannot “discriminate against any assembly or institution on the basis of religion or religious denomination,” and a land use regulation is prohibited if it (A) “totally excludes religious assemblies from a jurisdiction” or (B) “unreasonably limits religious assemblies, institutions, or structures within a jurisdiction.” See id. §§ 2000cc(b)(2), 2000cc(b)(3).
The discrimination clause can be violated by a land use regulation that is facially discriminatory, a gerrymandered facially neutral land use regulation that has a discriminatory effect, or a neutral statute enforced in a discriminatory manner.
Courts interpret the “unreasonably limits” clause to require a detailed factual inquiry, including a review of land availability and the economics of religious institutions. Under RLUIPA, it is generally not unreasonable for municipalities to require religious organizations to obtain special use permits.
The “total exclusion” clause forbids municipalities from prohibiting religious uses anywhere within their borders. RLUIPA does not provide a defense for any of these prohibitions. n
A wise mentor gave me this advice when I was a young attorney, and it has stuck with me ever since: Lawyers are in a self-navigating profession. There is no curriculum after law school. It is up to each attorney to shape their career. It takes between seven to 12 years to make partner. Whatever the practice setting is, the first seven to 12 years of practice are generally brutal. It is a time to prove yourself to partners and clients while dealing with competing demands of time, money, and energy. Getting your foot out the door and running fast on the track to success takes priority. What comes next? Once an attorney makes partner (or a similar career milestone) and arrives at the initial destination they have longed for, what waits for them? A typical lawyer who begins their practice in their mid-twenties can have a long career that lasts four decades or more. That’s where I find myself now. This year marks my 20th year of practice, 20 years since getting licensed, and 20 years to nearing retirement. The sudden realization of equal proximity to both ends of the career felt vague and unfamiliar until the camera came into focus. Here are my humble observations and unsolicited advice for self-navigating mid-career lawyers.
If speed was a priority to get this far in the career, where and in what direction we are going is more important from here. Now that we, as mid-career lawyers, have garnered subject matter expertise, finding the current location in our career map is essential. How do we find where we are? We can use various metrics, including work-life balance, financial success, positions, and titles in our organizations. I want to focus on the practice areas and the cases we handle daily. After all, we are in the service profession, and what we work on in serving clients daily matters greatly for our career longevity. In his book titled Free to Focus, the author, Michael Hyatt, discusses work in the following four categories: Desire Zone (you are passionate about the work and proficient at it), Distraction Zone (your passion outweighs your proficiency), Disinterest
Contributing Author: Soo Yeon Lee, Mauck & Baker, L.L.C., 1 N. LaSalle Street, Suite 3150, Chicago, IL 60602, slee@mauckbaker.com
Zone (you are proficient at the tasks but lack passion), and Drudgery Zone (you have neither passion nor proficiency). Long before I came across this book, I had come up with my own four categories of cases. The actual reason behind this thought process was to keep me sane and less miserable by clarifying what made me dread, procrastinate, and avoid.
Here is my version of four categories of cases: 1) building block cases (cases I take because they will get me closer to where I want to be in terms of substantive expertise); 2) cases that I enjoy and excel at (cases I earned through passion and hard work); 3) cases I do well but I’m not particularly excited about, yet I take them because it will generate fees to support my practice (bread and butter type of cases); and 4) cases I dread (cases I had to take for various reasons but I don’t like working on them). I aim to handle Category 1 cases myself, 50% of Category 2 cases, and delegate and supervise Category 3 and 4 cases. This process not only helped me clarify what I don’t like, but it also helped me put what I want first and do more of that. This tool kept me intentional in my professional growth by acquiring more substantive knowledge, making relevant contacts, joining affinity groups, and building and designing the practice I dream of. Metrics under these categories—such as how many cases I have handled, how much in fees were generated, and how much of my own time was demanded— provide valuable insights and let me keep my focus on the target and where I need to focus on to get to where I want to be. This thought process also provides a good direction in associate and paralegal training and the resources we need to invest in and build upon. Let me say one word of encouragement in case some of us feel a sense of loss in direction: recall that we are in a self-navigating profession. We can change our ultimate destination, choose how to get there, and adjust our speed as we go.
Finding a good home for your practice is critical. Just like different homes raise different children of various dispositions, different practice settings affect lawyer growth differently. My experience is primarily in a small firm of 4-6
attorneys. I chose a small firm setting because of the flexibility it naturally affords and the entrepreneurial spirit it inevitably fosters. I later learned that my problem-solving approach is less linear and more horizontal, I work well when I can pursue what interests me, and I also enjoy the legal services sales process. I would have suffered if I started my career in a big law firm where I was expected to bill a required number of hours and where the pursuit of my interests may not have been received well because they did not fit into the already well-established system. The small size made it possible because there were few rules and conflicts among lawyers and law firm operations. My lawyer self grew up in an autonomy-driven but well-supported home until I was ready to find and build my own practice home. My current practice home is also of a similar size, where enough flexibility and freedom exist, but with a good support system of other attorneys and staff. Finding our practice home that matches well with who we are and what makes us flourish is more likely to lead to long-term success. Small firms are not perfect. They are far from it. We all know that small firms have challenges: a lack of human and financial resources. Large firms are attractive in their way and provide exciting opportunities to work for clients who shape and move the world. Our practice home is where we spend the second most time. Finding and being in the optimal practice home is key to a lawyer’s career longevity and sense of vision, happiness, and fulfillment.
In this age of fast-developing generative AI and technological advances, the security of lawyers’ jobs is being questioned. What makes clients hire us? Our stock in trade is our ability to ask relevant questions, discern issues and possible solutions, and make good and tailored judgment calls. Our unique ability to synthesize and think across various areas and deliver what our core clientele needs when they need it isn’t
readily replaceable by other humans or AI. If that ability is diversified, there lies the lawyer’s equity, just like any investment portfolio.
Diversifying lawyers’ stock in trade will help weather storms, whether economic or technological. My practice grew organically from litigation to real estate to estate planning and tax. I did not map it out like that intentionally, and I sometimes had difficulty defining my practice. Branching out across different practice areas, however, resulted in diversification in my stock in trade. A family lawyer can branch out to include a blended family’s unique estate planning needs. A real estate attorney can branch out to estate planning involving real estate. An estate planning attorney can branch out to include the tax aspect of estate planning. A litigator can become a transactional lawyer and handle the underlying transaction that led to disputes they have handled before. They will be a better litigator by knowing all aspects of the transaction, and they will also be better deal makers and negotiators because they understand how a potential dispute will play out in the court system. Let us apply what we know about investment strategy to ourselves, our most valuable assets.
Before we got to this stage in our careers, we needed to worry only about ourselves and what we did. Now, at the mid-career point, our job is to make the pie bigger for everyone and help everyone on our team succeed. We learned to trust, delegate, and let the team work, even when we could do it alone more efficiently. This is a tremendous mental shift. It certainly was for me as I was navigating the role of a new partner in a small law firm. Spending non-billable time on firm management, training and coaching associates, and ensuring enough work for everyone is hard. Dealing with wide generational and cultural gaps with varying degrees of resistance, tolerance, and accommodation is hard. Generating new business, serving clients, and retaining them is hard. It is, of course, okay to be a great
lawyer without taking on the role of the type of leader as described here. Many mid-career lawyers will feel that there is room for others. That feeling is our heart’s invitation to become part of something bigger than ourselves. We are halfway from the beginning and halfway to the end of our careers, and our willing hearts are surprisingly generous and risk-taking. Although I have yet to experience all the rewards granted to a willing leader, we always feel a sense of purpose, fulfillment, and happiness when we share our riches.
Being a mid-career lawyer has been enjoyable and powerful. Anyone arriving at this phase in their career can expect great things. As for me, I look forward to the second half of my act, savoring my journey on the misty curved path ahead of me. n
Once reserved for lighthearted texts and social media posts, emojis have taken on a far more serious role in recent years. Judges and juries now confront the interpretive challenges of these tiny symbols. As emoji use explodes in personal and professional communication, emoji-based litigation is rising along with it—raising fundamental questions about intent, ambiguity, and the evolution of language in law.
he sold it, making a $68 million profit before the price plummeted. The court ruled that emojis may create liability if they communicate an otherwise actionable idea. A fraudster may not escape liability simply because he used an emoji.
Lightstone RE LLC v. Zinntex LLC, [2022] N.Y. Slip Op 32931 (N.Y. Sup. Ct. Kings Cty. 2022): A supplier sent a
emoji in a particular way?
• Platform differences: An emoji can look drastically different on Android versus iOS, potentially shifting its meaning.
You’ve
The rise of emoji-based litigation is not just a quirky legal footnote—it’s a wake-up call for businesses and professionals who rely on informal communication when used:
! 9 = > : How Emojis
Ended Up in the Legal System
Emojis are designed to enhance digital communication—to signal tone, mood, or emotion that might otherwise be lost in plain text. But those very features can also cause confusion.
Lawsuits now feature emojis as key evidence. Courts are asked whether an emoji strengthens, softens, or contradicts the surrounding words.
When Emojis Take the Stand
Just like with words, liability appears to turn on the emoji’s particular meaning in context.
In re Bed Bath & Beyond Corp. Securities Litig., 687 F. Supp. 3d 1 (D.D.C. 2023): A Bed Bath & Beyond investor responded to a negative article predicting that the stock (ticker: BBBY) would fall to $1 with a tweet of a picture of a woman noting “her cart is full” and the side-eyed-moon emoji. A known “meme king” for his starring role in the GameStop craze, the investor disclosed his BBBY ownership had grown to nearly 12 percent. The stock price shot up, and
The Last Word Editor: Mark R. Parthemer, Glenmede Trust Co., 222 Lakeview Avenue, Suite 1160, West Palm Beach, FL 33401, mark.parthemer@glenmede.com.
emoji in response to a final draft of a deal. The buyer claimed the emoji signified approval and acceptance, amounting to contract formation. The court stopped short of enforcing the contract solely on the emoji but did accept the thumbs-up as part of the negotiation trail.
Achter Land & Cattle Ltd. v. South West Terminal Ltd., 2024 SKCA 115 (Saskatchewan Ct. App. 2024): A grain buyer received a signed contract and requested confirmation. The seller replied with a single
emoji. When the seller failed to deliver, the buyer sued. The court ruled that the emoji constituted acceptance of the agreement and satisfied the Canadian statute of frauds, noting that emojis carry clear meaning in specific contexts—especially business.
Interpreting emojis is rarely straightforward. Emojis often have multiple meanings depending on culture, platform, or generational usage. A peach
might mean fruit to one party and something more suggestive to another. Courts are now grappling with how to assess:
• Sender intent: Did the person mean to confirm a deal or just acknowledge the message?
• Recipient perception: Would a “reasonable person” interpret the
• Clarity matters: Emojis should not be used to replace formal language in business communication, especially when legal obligations might arise.
• Consistency counts: If you use emojis to confirm receipt in one instance and to agree in another, you may confuse the context in a future dispute.
In short, treat emojis as you would any other written expression. They may speak louder than words.
The legal system has been accused of being notoriously slow to adapt to changes in communication. Even if true, the rapid rise of emoji-based litigation is an exception. Much like slang, abbreviations, or GIFs, emojis are now part of the modern legal lexicon—and judges are learning the language.
Emojis were meant to simplify expression, but they often complicate things in legal settings. The smiley face may be cute, but it might cost you in the courtroom, so be a savvy texter.
Next time you are about to hit send on a @
twice. The law is
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