Secured Lenders: Keeping Your Receiver in the Driver’s Seat During Bankruptcy
You put in the work to get a receiver appointed. Do not let a bankruptcy filing get in the way of your efforts. A receivership is a remedy used by secured lenders primarily to preserve their collateral when a borrower fails to pay its debt and the property may be at risk of losing value. The receivership is often used during a judicial proceeding to foreclose a lender’s mortgage on real estate. In a court-authorized receivership, an independent party will be appointed as receiver and will exercise control over the mortgagor’s property to preserve and manage the property. That sometimes involves managing business operations, collecting rents or even preparing the property for a sale.
It is not uncommon that on the eve of a foreclosure sale, as a defense, a mortgagor will file a voluntary petition for bankruptcy to stop the sale of the property. The Bankruptcy Code not only stops the sale by virtue of the automatic stay, but it also imposes obligations on the receiver to turn over property to the debtor-in-possession and provide an accounting in the bankruptcy case pursuant to Section 543(b) of the Bankruptcy Code.
Section 543(b) states that a custodian shall:
(1) deliver to the trustee any property of the debtor held by or transferred to such custodian, or proceeds, product, offspring, rents or profits of such property, which is in such custodian’s possession, custody or control on the date that such custodian acquires knowledge of the commencement of the case; and
(2) file an accounting of any property of the debtor, or proceeds, product, offspring, rents or profits of such property, that, at any time, came into the possession, custody or control of such custodian.
Section 543(a) generally bars a receiver from taking further action to administer property of the estate, or in other words, to perform the duties and obligations the receiver is required and authorized to carry out in the non-bankruptcy proceeding.
What secured lenders should know is that the court-appointed receiver’s turnover requirements may be excused pursuant to Section 543(d). Under Section 543(d), the bankruptcy court may excuse the receiver’s compliance with Sections 543(a) and (b) if the interest of creditors would be better served by permitting the receiver to continue in possession, custody or control of the property.
Factors that bankruptcy courts have often looked at to determine whether compliance should be excused are:
(1) The likelihood of reorganization and whether funds held by the receiver are required for reorganization;
(2) Whether there were instances of mismanagement by the debtor;
(3) Whether turnover would be injurious to creditors; and
(4) Whether the debtor will actually use the property for benefit of its creditors.
In re Franklin, 476 B.R. 545, 551 (Bankr. N.D. Ill. 2012) (citing In re Falconridge, LLC, No. 07-BK-19200, 2007 WL 3332769, at *7 (Bankr. N.D. Ill. Nov. 8, 2007)). Generally, when the majority of a debtor’s debt is owed to a secured lender, the secured lender’s interest is given great weight. See In re Foundry of Barrington Partnership, 129 B.R. 550, 558 (Bankr. N.D. Ill. 1991).
These factors are not exhaustive and the bankruptcy court’s inquiry will be fact specific.
Online judicial sales – Illinois Mortgage Foreclosure Law Enters the Digital Age
Purchasers of distressed real estate in mortgage foreclosure proceedings can now work remotely, too. Governor JB Pritzker signed into law Public Act 103-930 S.B. 2919, which became effective January 1, 2025, and allows the “sheriff or other person” to conduct a judicial sale “in person, online or both.” 735 ILCS 5/15-1507(b)(2). From the birth of the Illinois Mortgage Foreclosure Law (IMFL) in 1987 through 2024, foreclosure auctions could only be conducted in person.
The primary purpose of this amendment to the IMFL is to maximize the value of real estate sold at auction by expanding the reach to bidders unbound by geography. So, rather than needing to appear in person in the lobby of a sheriff’s office or in a room of a court-approved selling officer, bidders can now log in to an online platform like Ten-X through their computer or mobile device, perhaps in their sweats, and bid up the price of the collateral being sold. The higher the sale price, the better the chance the first mortgage holder gets paid in full, a junior lien holder makes a recovery and the mortgagor collects a surplus.
The rules applicable to online judicial sales are set forth in section 15-1507.2 of the IMFL. The highlights are as follows: the sheriff or other person may may conduct an online sale or engage a third-party online sale provider and charge an additional fee for associated costs to be paid by the seller; must demonstrate to the court’s satisfaction the processes and procedures for conducting online auctions and adequate record-keeping; shall require bidders to complete a registration process that includes providing information relevant to identify the buyer, contact the buyer and complete the sale of the property; and shall verify the identity of the bidder through an independent verification process. Importantly, the person conducting the online sale and the third-party online sale provider may “promote and market the sale to encourage and facilitate bidding.”
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Text Form Now Sufficient for Long-Term Commercial Leases in Germany
Fourth Bureaucracy Reduction Act (BEG IV) entered into force Jan. 1, 2025
The Fourth Bureaucracy Reduction Act (BEG IV) took effect Jan. 1, 2025, introducing a major change for commercial leases. Compliance with the statutory written form pursuant to section 126 BGB of the German Civil Code (BGB) will no longer be required to meet the form requirement for long-term commercial lease agreements stipulated at section 550 BGB. Instead, compliance with the statutory text form pursuant to section 126b BGB will be sufficient. As a result, commercial leases with a fixed term of longer than one year will now only have to comply with the text form requirement.
As was previously the case, lease agreements concluded without complying with this form requirement will not be invalid. Rather, they will be deemed to have been concluded for an indefinite period and may be terminated after one year, complying with the statutory notice period for ordinary termination.
The relaxation of the form requirement applies to all commercial leases entered into or amended after Jan. 1, 2025. For leases concluded before Jan. 1, 2025, the written form will continue to apply up to and including Jan. 1, 2026. Thereafter, the applicable form for existing leases will also be the statutory text form. Compliance with the Statutory Text Form
In contrast to the written form, the text form does not require a wet-ink signature or a qualified electronic signature. To comply with the statutory text form, a legible declaration must be recorded on a durable medium and names the person making the declaration. A durable medium enables the recipient to store or save the declaration in such a way that it remains accessible to them for a reasonable period and can be reproduced unchanged. Examples of such mediums include e-mail, messenger services, SMS, social media messaging services, as well as PDF files or data files that have been signed using a simple electronic signature (e.g. via DocuSign).
Open Questions
Previous case law has developed several requirements for complying with the statutory written form, particularly regarding wet-ink signatures. The signature serves as a concluding function, and courts required maintaining “documentary connection” (Urkundszusammenhang), meaning all components of a lease agreement (the individual pages, annexes, and amendments), must be recognizable as belonging to the same contract. While current case law no longer requires the physical binding of all documents, a connection between the main contract, amendments and annexes must remain clearly recognizable through corresponding references. It remains uncertain whether the courts will impose the same requirements for lease agreements executed in text form. However, given that the form requirement’s purpose remains unchanged – allowing property purchasers who enters into lease agreements by operation of law the opportunity to comprehensively review the contract – suggests this may be the case.
Despite the BEG IV’s relaxation of the required form, careful consideration remains essential. Companies should review and potentially adapt existing conclusion and signing processes, depending on the preferred method of signing. Additionally, companies may wish to exercise caution during digital contract correspondence, as it could bring about unintended contract changes or risk required form breaches by failing to preserve the required documentary connection. Additionally, the content of digital correspondence is often unclear, incomplete, or contradictory. This not only makes it more difficult for the contracting parties and potential purchasers to clearly determine the contract content, which may lead to disputes and give rise to a breach of form due to unclear provisions.
Considerations
In light of the new relaxation of the form requirements, companies and practitioners should consider the following points:
Form of signature
As future long-term commercial lease agreements now only need to comply with the statutory text form, neither wet-ink signatures nor qualified electronic signatures are required. As such, lease agreements can be concluded electronically, without printing out the contract and its annexes. For evidentiary and storage purposes, however, consider using tools to sign the contract digitally. Wet-ink or qualified electronic signatures also remain permissible, as they meet the text form requirements. Parties may also agree to subsequently use the stricter written form. Landlords should determine whether and how they wish to sign their contracts in future and adapt their contract conclusion, signing and storage processes, if necessary. Purely digital contracts may quickly gain acceptance, particularly in the case of major landlords or international contracting parties, due to the simplified processes for preparing contracts and obtaining signatures.
Careful contract drafting
Material contractual terms should still be recorded clearly and without contradiction, regardless of form. Companies should consider creating a single (even if only digital) document including all annexes. Caution should be exercised when concluding or amending contracts by means of purely digital correspondence, e.g. by way of email, as this entails risks with regard to form and interpretation.
Disclaimers in offers and correspondence
To avoid unwanted contracts being concluded by email or other digital media, companies should use clear communication guidelines and appropriate disclaimers.
Complete contract document exchange
When concluding a contract digitally, parties should exchange the entire contract, rather than only exchanging signature pages. If annexes need to be sent separately, they should clearly relate to the main body of the contract, and the other party should expressly confirm their content.
Secure digital document storage
Digitally concluded contracts must be permanently saved. Since some tools delete contracts after a certain period of time, separate storage is required. Depending on the circumstances, associated email correspondence may also need to be archived.
Amendment of previous written form clauses
Depending on the preferred conclusion procedure, previously standard written form clauses should be amended in new and existing lease agreements, and any voluntary (text) form criteria for concluding future contracts defined, e.g., it can be agreed, for evidentiary and storage purposes, that contract conclusion requires at least the exchange of parts signed using a simple electronic signature.
In summary, while the relaxation of the form requirement under section 550 BGB the BEG IV introduced will simplify the conclusion of long-term commercial leases in the future, it does give rise to potential pitfalls. Parties should continue to carefully observe form requirements and adjust existing contract conclusion, signing, and filing processes if required.
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CFPB Issues Warning on Risks of Home Equity Contracts, Takes Legal Action to Ensure Compliance with TILA
Today, the Consumer Financial Protection Bureau (CFPB) issued a report, consumer advisory, and filed an amicus brief addressing the risks associated with home equity contracts (HECs)—financial products often marketed as home equity “investments.” The Bureau highlighted the high costs, complexity, and risks these products pose to homeowners, including the potential for financial distress and forced home sales if repayment obligations become unmanageable. The Bureau’s amicus brief, filed in a lawsuit currently ongoing in the United States District Court for the District of New Jersey, is discussed in detail below.
CFPB Amicus Brief
In its amicus brief the Bureau argued that HECs are traditional mortgage loans subject to the Truth in Lending Act (“TILA”). Under TILA, a “residential mortgage loan” is “any consumer credit transaction that is secured by a mortgage, deed of trust, or other equivalent consensual security interest on a dwelling or on a residential property that includes a dwelling.” 15 U.S.C. § 1602(dd)(5). The Bureau disagreed with the defendant home equity loan provider’s argument that its product is an investment contract, not a credit product (and thus not subject to TILA), on the grounds that:
Defendant’s HEC Satisfies the Statutory Definition of Credit. Under the HEC, the plaintiff has an obligation to pay defendant either 70% of the value of the home, or the initial payment she received, plus 18% interest. Accordingly, the plaintiff incurred a debt and payment of the debt is deferred, making the product credit.
Defendant’s Product Is Not “Credit” Under Reg Z. Reg Z states that “credit” does not include “[i]nvestment plans in which the party extending capital to the consumer risks the loss of the capital advanced.” 12 C.F.R. Pt. 1026, Supp. I, cmt. 2(a)(14)-1.viii. The Bureau contended that this exception does not cover defendant’s product because it does not meaningfully risk the loss of its capital due to its structure. Plaintiff was paid a lumpsum equivalent to only 44% of the value of their home but was required to repay 70% of their home’s value; unless the home value depreciates by more than 39%, the company will profit.
Issue Spotlight: Home Equity Contracts
The Bureau’s Issue Spotlight was an overview of the home equity contract market. The Bureau found that the industry is small but has expanded in recent years, driven in part by an emerging secondary market for securitizations. In the first 10 months of 2024, the four largest HECs companies securitized approximately $1.1 billion backed by about 11,000 HECs.
Consumers primarily used HECs for debt consolidation and home improvements, though some consumers have reported that they use the funds for real estate investing or savings for or during retirement.
The Bureau found that HECs are often marketed as an alternative to a cash-out refinance, home equity line of credit (HELOC), or traditional reverse mortgage loans but in their view are more expensive than those offerings. Moreover, they noted that advertisements for home equity contracts tout large upfront payments, with “no monthly payments,” and “no interest,” and also claim that HECs are not debt, a contention they disagree with.
Finally, according to the Bureau, HECs are complex financial contracts that can be difficult to understand or compare to other options, and companies currently provide non-standardized disclosures. The Bureau pointed to consumer complaints that highlighted how difficult they were to understand.
Consumer Advisory
Many of these criticisms were later highlighted on the Bureau’s consumer advisory. The Bureau noted that HECs companies may not give standard loan disclosures, conduct ability to re-pay underwriting, may contain arbitration clauses, and may be more expensive than traditional loan products.
Putting It Into Practice: Assuming the Bureau’s provision prevails in the litigation prevails, this will have a dramatic impact on the small but growing HEC market. HECs will need to be restructured to comply with TILAs requirements, including having standard disclosures, and no arbitration provisions which are currently in many agreements. In addition, HEC providers will need to conduct ability-to-repay underwriting, and provide loss mitigation options for consumers. Finally, assuming the Bureau reverses its position in a new administration, litigants will likely not be deterred. Advocacy groups such as the National Consumer Law Center, and state regulators such as the Washington Department of Financial Institutions have been active in this space. See DFI Issues Report on Home Equity Sharing Agreement Inquiry
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New Statute Affects Small Business Leases in California
Go-To Guide:
California Senate Bill 1103 (SB 1103) introduces changes to commercial leases, offering enhanced protections for small business tenants.
Tenants that meet the “5/10/20 rule” and provide written notice of their qualified status can seek the benefits of these new protections.
Landlords must translate leases into the tenant’s primary language for qualified commercial tenants.
Leases with qualified commercial tenants automatically renew unless landlords provide timely nonrenewal notices, aligning commercial tenancy practices more closely with residential standards.
Rent increases for short-term leases require advance notice, and any fees for building operating costs must be proportionate and documented.
Effective Jan. 1, 2025, SB 1103 makes four principal changes to commercial tenancy law:
1.
increased notice periods for rental increases on short term tenancies (month-to-month or shorter);
2.
a new requirement for translating the lease into other languages;
3.
automatic renewal of the tenancy unless the landlord objects in a timely manner; and
4.
limitations on rental increases based on building operating costs. The law provides additional leasing protections to small business commercial tenants who meet the definition of “qualified commercial tenants.”
Commercial landlords should be aware of all the related changes and should build these new requirements into their form leases, tenant notices, and operating procedures. More generally, landlords should be aware that like the protections for small commercial tenants enacted during COVID-19, these new leasing regulations indicate a legislative policy towards treating small businesses more like residential tenancies, as opposed to traditional commercial leases with larger commercial tenants.
Definition of ‘Qualified Commercial Tenant’
Businesses must meet two elements of the qualified commercial tenant definition to qualify for these new protections.
First, a business must be a “microenterprise,” a restaurant with fewer than 10 employees, or a nonprofit with fewer than 20 employees. A microenterprise is defined in Business & Professions Code section 18000 as a sole proprietorship, partnership, LLC, or corporation with five or fewer employees (including the owner), who may be full or part-time, and which generally lacks sufficient access to loans, equity, or other financial capital. A convenient way to remember this definition is the “5/10/20 rule,” based on the number of employees.
Second, the tenant must have provided to the landlord, within the previous 12 months, written notice that the tenant is a qualified commercial tenant and a self-attestation regarding the number of employees the tenant employs before or upon the lease’s execution and annually thereafter. In other words, the law’s provisions are not self-executing – the tenant must give notice first. The rental rates, the premises’ square footage, and the tenant’s income or wealth are not considered when determining qualified status.
With these definitions in mind, here are the four principal changes SB 1103 makes to commercial tenancy law.
The Four New Tenant Protections
1.
Notice of Rent Increase for Short Term Rentals
Existing Civil Code Section 827 provides that for short term residential leases, namely month-to-month or a shorter period, the landlord must give prior notice of a rent increase. The amount of notice required depends on how much the rent will increase.
SB-1103 extends this notice requirement to qualified commercial tenant leases. If the increase is 10% or less of the prior year’s rent, the notice mut be given at least 30 days before the increase date, and if it is greater than 10%, then the notice must be given at least 90 days prior. The notice itself must advise the qualified commercial tenant of the requirements of this amended statute.
It is unclear how relevant this provision would be to most small businesses. Unlike short term residential tenancies such as residence hotels, a commercial business is not likely to be a month-to-month tenancy unless it is a holdover from a longer fixed lease. Due to an apparently unresolved inconsistency in the Senate and Assembly versions of this section, however, its protections may extend beyond month-to-month leases. Landlords may assume this provision applies to rental increases for all commercial real property leases by a qualified commercial tenant.
Violation of this provision does not entitle the qualified commercial tenant to civil penalties, but qualified commercial tenants may be eligible for restitution of overpaid rent or an injunction to prevent further violations.
2.
Translation of Lease
Existing law in Civil Code Section 1632 requires a business to deliver a translation of a contract from English to the primary language in which the agreement was negotiated, specifically in Spanish, Chinese, Tagalog, Vietnamese, or Korean (translation requirement) but provides an exception if the other party uses their own interpreter (interpreter exception).
SB 1103 expands this requirement to a landlord leasing to a qualified commercial tenant for leases negotiated on or after Jan. 1, 2025. It requires the landlord to comply with the translation requirement but does not grant the landlord the interpreter exception. In other words, the landlord must always comply with the translation requirement.
If the landlord fails to comply with this requirement, the qualified commercial tenant (but not the landlord) is entitled to rescind the lease.
3.
Automatic Renewal
Existing Civil Code Section 1946.1 provides that a residential lease is deemed renewed unless the landlord gives 30 to 60 days’ notice of nonrenewal prior to termination, depending on whether the lease was for less than one year.
SB 1103 expands this protection to qualified commercial tenant leases and requires the landlord to give notice of the provisions of this section in the notice to a qualified commercial tenant. Qualified commercial tenants who believe their landlord has violated this section’s notice requirement can file a complaint with local housing authorities or pursue legal action.
4.
Limitation On Building Cost Charges
Existing Civil Code Section 1950.8 prohibits a landlord from demanding an extra fee to continue or renew a lease unless the amount is stated in the lease, but this requirement does not apply if the increase is for building operating costs incurred on behalf of the tenant and the basis for calculation is established in the lease.
SB 1103 adds a new law, Civil Code Section 1950.9, that applies to leases executed or renewed on or after Jan. 1, 2025. The section prohibits a landlord from charging a qualified commercial tenant a fee to recover building operating costs unless the costs are allocated proportionately, the costs were incurred in the prior 18 months or are reasonably expected to be incurred in the next 12 months, and the landlord provides a prospective tenant notice that the tenant may inspect the cost documentation.
There are some substantial enforcement teeth in this particular provision, including actual damages, attorneys’ fees and costs, and in the case of willful, oppressive, fraudulent, or malicious violations, treble damages, and punitive damages. The tenant can also raise this section as a defense to eviction.
Application
SB 113 applies to all commercial tenancies in California where the tenant is a qualified commercial tenant. Obvious applications are shopping malls, strip malls, and other buildings where a variety of small business are collected. Some commercial landlords, for example the owner of a large commercial office building leased to large businesses, might think the statute is not relevant to them, but smaller tenants such as a café or gift shop in the lobby may be covered.
Unanswered Questions
Unanswered questions remain, such as the case of subleases, where the tenant might not be a qualified commercial tenant, but the subtenant might qualify under SB 1103. Similarly, it remains to be seen how and when a landlord could challenge the tenant’s self-attestation of qualified status, particularly if that status changes during the tenancy.
Mass. Appeals Court: 9-Month Repair Delay Exposes Landlord to Chapter 93A Penalties
A residential landlord is generally subject to Chapter 93A, as they engage in the “conduct of trade or commerce” by leasing residential property unless, as explained by the Massachusetts Supreme Judicial Court in Billings v. Wilson, the leased property is owner-occupied. Therefore, a non-owner-occupied landlord must contend with (i) specific Massachusetts landlord-tenant laws1 and (ii) Chapter 93A.
The Massachusetts Appeals Court recently subjected a residential landlord to Chapter 93A in Ndoro v. Torres. The litigation arose from the landlord’s action to recover possession of an apartment. In response to the lawsuit, the tenant counterclaimed and asserted that the landlord had breached the implied warranty of habitability by failing to repair “rotted bathroom underflooring” within a reasonable time. The trial judge found for the tenant on the breach of implied warranty claim and awarded her continued possession of the premises and damages. The judge, however, dismissed the tenant’s Chapter 93A claim. According to the judge, the landlord had repaired the premises within a reasonable time.
The Appeals Court disagreed. Based on the record, the landlord waited approximately nine months to repair the premises. As the defects in the bathroom underflooring presented a safety hazard, that delay breached the implied warranty of habitability. That alone was sufficient to violate Chapter 93A and, independently, 940 Code Mass. §3.17(1)(b)(1)-(2) and 3.17(1)(i). The Appeals Court noted that the landlord had not challenged the trial court’s finding that the landlord was engaged in “trade or commerce.” It is unclear from the opinion whether the landlord also lived at the premises, which may have precluded the tenant’s Chapter 93A claim.
Ultimately, the Appeals Court concluded that the tenant had prevailed on her Chapter 93A counterclaim without the need for further evidence. The Appeals Court remanded the matter to the Housing Court Department to enter judgment under Chapter 93A for the tenant, determine the tenant’s damages (and whether those damages should be doubled or trebled under Section 9), and award attorneys’ fees and costs. This case underscores the importance of understanding the laws governing landlord-tenant rights and when a landlord is engaging in “the conduct of trade or commerce” that falls into the scope of Chapter 93A.
1 See The Attorney General’s Guide to Landlord and Tenant Rights and 940 C.M.R. s. 3.17 (Landlord-Tenant Regulations)
Key Considerations for the Construction Industry in 2025 Under President-Elect Trump
As President-elect Trump prepares to take office on January 20, the construction industry must anticipate shifts in trade policy, particularly concerning tariffs. These changes are expected to have significant implications for various sectors, including energy and clean technology.
The industry’s growing reliance on energy-efficient and clean technology components is driven by sustainability goals and regulatory requirements. For example, the US Department of Energy (DOE) guidelines on “Zero Emissions Building” provide a framework for sustainable practices, offering benchmarks for energy efficiency, zero on-site emissions, and clean energy use. Similarly, New York City’s Local Law 97 (LL97) sets ambitious emissions reduction targets for buildings, focusing on energy efficiency and renewable energy.
However, potential tariffs on imported clean technology materials could lead to increased costs, hindering compliance with regulations that rely on the imports of energy-efficient materials, and posing challenges to the adoption of sustainable building practices.
As these developments unfold, the construction sector must remain vigilant in monitoring policy changes that could affect the availability and cost of clean technology components in 2025.
Key Points to Watch in 2025
1. Evolving Tariff Policies:
The topic of tariffs under Trump’s second Administration has been a source of concern as President-elect Trump has already threatened to impose universal tariffs in addition to other country-specific tariffs.
At this juncture, we can anticipate an increase in tariff measures, but the specific measures are still unknown in part due to the uncertainty surrounding the rate of potential new tariffs, the countries they may affect, and the mechanisms that will be used to impose them, which will impact the timing any tariffs will take effect.
Because the Trump Administration’s trade policies have particularly focused on imports from Mexico, Canada, and China, such targets could significantly impact the import of construction materials, such as steel, aluminum, softwood lumber, concrete, glass, and binding materials.
For example, tariffs could benefit domestic manufacturers by increasing demand for locally produced materials, such as mass timber, but could create vulnerabilities for the construction sector that relies on imports raw materials used for energy efficiency and sustainable buildings that are sourced from Canada, Mexico, or China.
2. Material Cost Fluctuations:
Be prepared for possible increases in material costs due to tariff adjustments. This could lead to higher project expenses and necessitate budget recalibrations.
Contractors may face challenges in predicting material costs and securing project financing due to economic uncertainty and potential price volatility.
3. Supply Chain Adjustments:
Anticipate disruptions in supply chains as suppliers adapt to new trade regulations. This may result in delays and increased lead times for material availability.
Evaluate current supply chain dependencies and explore alternative sourcing options to mitigate risks.
How Can We Help?
As the new administration takes office, the construction industry must remain vigilant and proactive in addressing potential challenges posed by evolving tariff measures. Companies may need to adjust their project plans to account for potential cost increases and supply chain disruptions. Strategies such as seeking alternative suppliers, exploring domestic options, and reevaluating project budgets and timelines will be crucial in navigating these challenges.
Strategic planning and collaboration with trade experts and legal advisors will be crucial in navigating these changes. Here are some strategic ideas to consider:
Diversify Suppliers: Consider expanding your supplier base to reduce reliance on any single source, particularly those affected by tariffs.
Explore Alternative Materials: Investigate the use of alternative materials that may offer cost advantages or are less impacted by tariffs.
Contractual Safeguards: Review and update contracts to address “escalation,” “force majeure,” or other potential political risks, trade restrictions, and cost fluctuations.
Engage in Advocacy: Participate in industry advocacy efforts to influence policy decisions and promote favorable outcomes for the construction sector.
Monitor Trade Policy Developments: Monitor announcements from the new administration regarding free trade agreements (FTAs) and tariff adjustments that could affect material costs. These could include benefits from the United States-Mexico-Canada Agreement (USMCA) and exclusions from tariffs, such as the Section 301 tariffs on products from China.
Industry members seeking detailed analysis and guidance are encouraged to consult with trade experts and legal advisors specializing in construction and trade policy.
FTC Announces Final Junk Fees Rule Applying to Live-Event Tickets and Short-Term Lodging
On December 17, 2024, the U.S. Federal Trade Commission (FTC) announced its final “Junk Fees Rule” (the “Final Rule” or “Rule”) to prevent certain practices related to pricing in the live-event ticketing and short-term lodging industries. The Final Rule requires businesses that offer a price for live-event tickets or short-term lodging to disclose the total price, inclusive of mandatory charges, and to do so more prominently than other pricing information. The Final Rule also prohibits businesses from misrepresenting fees or charges in any offer, display, or advertisement for live events and short-term lodging. Notably, the Final Rule does not prohibit any one type of fee, nor does it prohibit specific pricing practices, such as itemization of fees or dynamic pricing. Instead, the Rule focuses on ensuring that fees are clearly disclosed.
The FTC’s stated aim in passing the Final Rule is to curb perceived unfair and deceptive pricing practices in these two industries, specifically so-called “bait-and-switch” pricing that hides the total price of tickets and lodging by omitting mandatory fees and charges from advertised prices and misrepresenting the nature, purpose, amount, and refundability of fees or charges. The FTC pointed to evidence that these practices are prevalent in these two industries, where most transactions occur online. The FTC emphasizes that “truthful, timely, and transparent pricing” “is critical for consumers” and claims this rule will allow American consumers to make better-informed purchasing decisions in these instances.
The Rule was published in the Federal Register on January 10, 2025, and is slated to go into effect 120 days later, putting its effective date as May 10, 2025. It is possible, however, that the incoming Administration will seek to change the rule or delay its effective date.
FTC Rulemaking Leading to Final Rule
The Final Rule is the culmination of the rulemaking process that the FTC initiated in November 2022, when it announced an Advanced Notice of Proposed Rulemaking under Section 18 of the FTC Act, to address certain purportedly unfair or deceptive acts or practices involving fees. The FTC specifically sought public comment on the prevalence of certain practices related to what it labeled “junk fees” and the costs and benefits of a rule that would require upfront inclusion of mandatory fees whenever consumers are quoted a price. After posing a series of questions to solicit data and commentary, the FTC received more than 12,000 comments in 90 days.
One year later, the FTC published a Notice of Proposed Rulemaking, which proposed a rule that prohibited misrepresenting the total price of goods or services by omitting mandatory fees from advertised prices and misrepresenting the nature and purpose of fees. The proposed rule was not industry-specific; rather, it would have applied broadly to businesses across the national economy. The FTC then received 60,000 more comments on its proposed rule, most of which were supportive. The FTC interpreted this feedback as confirmation of the prevalence of the types of fee-related practices the FTC sought to address. The FTC estimated that its proposed rule would save consumers up to 53 million hours per year of wasted time spent searching for the total price of live-event tickets and short-term lodging, equating to more than $11 billion over the next decade.
In March 2024, the Biden Administration launched an interagency initiative, co-chaired by the FTC and U.S. Department of Justice, called the “Strike Force on Unfair and Illegal Pricing.” The Strike Force seeks to combat unfair and illegal pricing and lower prices for all Americans. Shortly after the announcement of the Strike Force, the FTC held a public hearing on its proposed rule while it continued to consider comments, leading to the announcement of the Final Rule last month.
Final Rule
The Final Rule prohibits hidden fees and makes it an unfair and deceptive practice for “any Business to offer, display, or advertise any price” of live-event tickets or short-term lodging without clearly and conspicuously disclosing the total price. Under Section 5 of the FTC Act, a representation, omission, or practice is “deceptive” if it is likely to mislead consumers acting reasonably under the circumstances and is material to consumers; that is, it would likely affect the consumer’s conduct or decisions regarding a good or service. Price, for example, is a material term. A practice is considered “unfair” under Section 5 if it causes or is likely to cause substantial injury, the injury is not reasonably avoidable by consumers, and the injury is not outweighed by benefits to consumers or competition.
As an example, in the commentary to the rulemaking, the FTC says that bait-and-switch pricing, where the initial contact with a consumer shows a lower or partial price without including mandatory fees, violates the FTC Act even if the total price is later disclosed.
The Final Rule specifies that the “total price” is the “maximum total of all fees or charges a consumer must pay for any good(s) or service(s) and any mandatory Ancillary Good or Service” (any additional goods or services offered as part of the same transaction). Government charges, shipping charges, and fees for ancillary goods or services may be excluded under the rule.
The total price must be displayed more prominently than any other pricing information. If a final amount is displayed before the consumer completes the transaction, it must be disclosed as prominently as the total price.
The total price also must be displayed clearly and conspicuously, which means easily noticeable (“difficult to miss”) and easily understandable by ordinary customers. The clear-and-conspicuous requirement also covers audible communications. In addition to the total price, a business must display clearly and conspicuously the nature, purpose, and amount of any optional fee or charge that has been excluded from the total price, what the fee or charge is for, and the final amount of payment for the transaction.
The Final Rule goes beyond disclosure: It affirmatively prohibits misleading fees. Under the Final Rule, it is unlawful to misrepresent any fee or charge in an offer, display, or advertisement for live-event tickets and short-term lodging, including the nature, purpose, amount, or refundability of any fee or charge and what it is for.
State Laws and Regulations on Fees
The Final Rule does not preclude state laws that are more restrictive pertaining to unfair or deceptive fees or charges, except to the extent such laws or regulations are inconsistent with the Final Rule (and then only to the extent of the inconsistency). According to the FTC, a state law or regulation is not inconsistent with the Final Rule if the protection it affords is greater than the protection under the rule.
Numerous states have passed laws aiming to increase transparency in pricing and fees, including California, Colorado, Connecticut, Maryland, Minnesota, New York, and Tennessee. Further, some states have provisions that violations of Section 5 of the FTC Act also constitute deceptive practices under their state consumer protection statutes. The Final Rule thus augments the government scrutiny of fee-related practices and conduct that businesses may receive.
Takeaways and the Future of the Final Rule
Once the Final Rule becomes effective, when businesses advertise or display a price for live-event tickets or short-term lodging, they must display the total price — including any mandatory fees — and ensure any explanations for fees or charges are truthful and not misleading. Businesses have discretion to list optional fees. For businesses that have not previously been subject to state laws or regulations, the Final Rule will now apply to those businesses.
Despite the Final Rule’s narrow applicability to live-event tickets and short-term lodging, the FTC made clear it has not given up on other industries. The FTC emphasized it may address unfair and deceptive practices in other industries, as discussed in its Notice of Proposed Rulemaking, but will do so using its existing Section 5 authority.
The Final Rule was approved with a 4–1 vote, with Republican Commissioner Holyoak voting for the rule and incoming Republican FTC Chair Andrew Ferguson dissenting. Although the agency under new leadership could look to withdraw the Final Rule, under the Administrative Procedure Act, the FTC would need to publish a notice in the Federal Register explaining the reasons for the withdrawal, allow opportunity for comment, and consider those comments before repealing the Final Rule. Although incoming administrations in the past have imposed moratoriums on regulations under development, the Final Rule has been published in the Federal Register, and a moratorium likely would not impact the rule going into effect. The incoming administration, however, might choose to delay the effective date of the Final Rule. The Final Rule also falls within the window for review under the Congressional Review Act, creating another potential avenue for its repeal.
Separately, on January 14, 2025, the Consumer Financial Protection Bureau (CFPB) released a report titled “Strengthening State-Level Consumer Protections.” In the report, the CFPB encourages states to continue to go after “junk fees,” citing the FTC’s Final Rule and the FTC’s findings on the prevalence of certain practices. The CFPB provides proposed language for states to consider adding to their “state prohibitions on unfair, deceptive, and/or abusive acts or practices.” The CFPB’s recommended statutory language is industry-agnostic, meaning more states may look to adopt broad fee-related rules.
Like the FTC’s recent rule on non-compete agreements, the Final Rule may be subject to potential legal challenge, including by industry groups and trade associations. The landscape for disclosure of fees continues to evolve, and businesses should watch for developments at both the federal and state level.
California Wildfires—Insurance Tips for Policyholders
The recent wildfires in California have clearly had a catastrophic impact, destroying a vast number of homes and business premises across the region. Homeowners and businesses may have limited means to protect against nature’s forces, but, in this alert, we provide tips on steps that can be taken to protect against denials of coverage by insurers. Careful and proactive attention to insurance coverage considerations could be the key to restoring homes and business operations and weathering the financial storms that follow from such disastrous events.
Potentially Relevant Insurance Policies
It is vital for affected homeowners and businesses to review all relevant or potentially relevant insurance policies promptly, including excess-layer policies, and to comply with loss notification procedures. The most common source of coverage for most individuals and businesses is likely to be first-party property coverage insuring the damaged premises and other assets, including against the risk of fire, smoke, and related damage. In many cases, this insurance will be supplemented by specialty coverages that apply to specific situations.
For businesses, the coverage will typically include the following:
Property damage where losses are caused to the business premises and assets, including computers and machinery.
Business interruption (BI) where the business experiences loss of earnings or revenue due to property damage or loss of use caused by an insured peril, for a specified period of time after the insured event or until normal business operations have been resumed.
Contingent BI which generally covers loss of revenue arising from damage to the property of a supplier, customer, or other business partner.
Denial of access, where use or access to the insured property is prevented or restricted for a specific period of time, for example, if roads or bridges leading to the property have been blocked or destroyed.
Civil authority coverage, which covers losses arising from an order made by a civil or government authority that interferes with normal business operations.
Service interruption coverage, which typically covers the insured for losses related to electricity or interruption of other utilities or supplies.
Extra expense incurred to enable business operations to be resumed or to mitigate other losses.
When presenting an insurance claim, it is important that policy provisions are considered against the backdrop of potentially applicable insurance coverage law to ensure that the policyholder is taking the steps necessary to maximize coverage. Many property policies are written on an “all risks” basis, but there will typically be exclusions, sublimits, or restrictions applicable to certain perils or circumstances. Some coverages may be subject to different policy limits and policy deductibles that impact the amount of coverage available. A proper analysis of the policy wording is vital to enable the insured to take full advantage of the coverage provided.
Practical Tips to Maximize Coverage
There are several steps policyholders should consider when making an insurance claim arising from natural disasters like the California fires:
Be Proactive in Notifying Insurers
Most policies identify specific procedures to be followed in presenting a claim, and there are likely to be timing deadlines associated with them. Failure to comply may result in insurers seeking to restrict or deny coverage for a claim otherwise covered by the policy. Policyholders should carefully consider any notice requirements, including any clause allowing for notice of a loss or an event that may or is likely to give rise to a claim. Prompt notification may assist policyholders in securing early access to loss mitigation resources and related coverages.
Early Assessment of Coverage
There are significant benefits in evaluating coverage at an early stage to understand any issues that may impact the way in which the claim is presented. Consultation with experienced coverage lawyers will assist in identifying and analyzing responsive policies as well as anticipating coverage issues or exclusions insurers might seek to rely upon.
Collate and Preserve Relevant Documents
Insurers typically require proof of loss and damage along with extensive supporting documentation. It is critical to take steps early on to ensure that potentially relevant documents and electronic records are located and preserved. In particular, insurers may argue that some part of the revenue loss is attributable to other causes, such as poor business decisions or economic downturn, such that historical records often must be examined and relied upon.
Preparation of Proof of Loss
The preparation of a detailed inventory and proof of loss is a time-consuming and challenging process but can prove invaluable in seeking to challenge any settlement offers made by the insurers or any loss adjustors appointed on their behalf. Many commercial policies include claim preparation coverage, which covers costs associated with compiling a detailed claim submission. The appointment of independent loss assessors or forensic accountants can prove particularly beneficial for collating BI losses, which are often challenged by insurers. For example, insurers may adopt a narrow view of what constitutes “interruption” to the business, particularly where certain business activities are ongoing.
Advance Payments
Any delays by insurers in making appropriate and periodic payments will delay the rebuilding of premises and the resumption of business operations. Insureds should consider requests for interim or advance payments, prior to completion of the loss adjustment process, particularly if the policy expressly provides for this.
Evaluating and Challenging Insurer Positions
The validity of any coverage defenses or limitations raised by insurers will be impacted by the precise wording of the insurance contract and by the applicable governing law. Experienced coverage counsel will be able to assist an insured in assessing the merit and viability of any coverage issues raised by insurers, or by their appointed loss adjusters, and in maximizing the insured’s potential recovery.
New Year Resolutions Triggered by Senate Bill 382
After the North Carolina General Assembly overrode Governor Cooper’s veto of Senate Bill 382, which became Session Law 2024-57 (the “New Law”), we published a client alert describing the state-wide effect of the New Law.
With the General Assembly’s 2024 Session concluded, some interested parties hope the General Assembly might repeal or amend the New Law in 2025. But regardless of the General Assembly’s future action, the New Law controls today.
Our first alert detailed the new limitations imposed on local government zoning authority, highlighting that the New Law applies to all zoning laws adopted after June 14, 2024 (the “Effective Date”).
This alert identifies practical New Year Resolutions for local governments and property owners to consider making because of the New Law.
Resolutions for Local Governments
Because the New Law invalidates all “down-zonings” adopted after the Effective Date and a down-zoning is a law which (1) reduces density, (2) reduces the number of permitted uses, or (3) creates a nonconformity on non-residential property, local governments should consider the following:
1. Review and Categorize: Consider identifying zoning regulations adopted after the Effective Date and divide them into three categories: (A) laws that are down-zoning under the New Law, (B) laws that might be down-zoning under the New Law, and (C) laws that are not down-zoning under the New Law. For laws falling into category (A), the local government should direct staff to not enforce these laws at this time. For regulations falling within category (B), the answer is uncertain, but enforcement of these regulations may trigger litigation, including claims for attorney fees and monetary claims.
Simple. Right? Of course not!
Note the Distinctions: Some local land use regulations are authorized by the General Assembly as zoning regulations and as local police authority regulations. For example, the General Assembly adopted statutes enabling local floodplain regulations and water supply watershed regulations.
Authorized by the General Assembly (N.C.G.S. §160D-103), many local governments have simplified and unified local land use regulations for citizen convenience through adopting and codifying all land use regulations together in a unified development ordinance. The New Law applies to “zoning regulations,” but does the New Law apply to zoning regulations when such regulations are separately authorized by the General Assembly? The New Law does not expressly answer this question.
2. Consider Moratoria: While waiting (and perhaps hoping) for action by the General Assembly, development moves forward. Under the New Law, the right to develop is vested as permitted on the Effective Date. Can the General Assembly later modify this right? The answer is beyond the scope of this alert.
But let’s assume the General Assembly has authority to remove or modify this right by new legislation. For projects where an applicant has submitted an application for a development permit or approval after the Effective Date, the applicant secures a separate, independent vested right via the permit choice statutes.
Is there anything a local government can do to, perhaps, minimize vesting under the New Law by permit choice while the General Assembly might be considering changes to the New Law? Local governments may consider adopting a targeted moratorium on issuing development approvals to lessen obvious adverse impacts to public health and safety.
The possible advantage of adopting a moratorium would be to stay processing of applications for development approvals and issuing development approvals. As N.C.G.S. § 160D-107 is worded, permit choice may only apply to complete applications submitted before the moratorium became effective.
When, specifically, might a moratorium be appropriate? When a local government adopted new FEMA flood maps after the Effective Date. Local governments do not create these federal government maps but do adopt them so their citizens may purchase federal flood insurance. A moratorium provides “breathing room” for local governments to adopt standalone flood hazard regulations outside the reach of the New Law while awaiting clarifying action by the General Assembly.
But even a moratorium doesn’t provide breathing room for all development within newly identified flood prone areas. Local governments lack authority to adopt a moratorium on “development regulations governing residential uses.” N.C.G.S. § 160D-107.
Therefore, local governments have many potential New Year Resolutions but none of them restore the status quo existing before the New Law.
Resolutions for Property Owners and Developers
Local governments have many New Year Resolutions to consider, but for property owners and developers, New Year Resolutions are fewer and simpler:
1. Verify Zoning Laws: Property owners have a vested right in the zoning laws existing on the Effective Date. Like a contract, these laws establish specific rights. While most times, an electronic copy of zoning regulations is available on local government websites, frequently they are not completely current. Property owners should consider seeking a certified copy from the local government of all land use laws existing on the Effective Date. These are the terms of the property owners’ contract.
2. Expedite Development Plans: Property owners and developers who started designing a development and who like the terms of their contract should consider expediting their design and planning activity to submit a complete application and vest their development rights via permit choice. This will provide certainty that they can move forward under the version of zoning regulations existing on the Effective Date.
Like most significant changes in law, the New Law adds to the “to do” list for a New Year and the New Year brings potential for changes to the New Law. Stay tuned.
Jordan Love contributed to this article