Most lenders are familiar with EPC/OC rules, but calculating the correct rent for an EPC/OC lease agreement can be complicated. The SBA does not allow lenders to grant SBA loans to passive companies, i.e. companies that do not actually use or occupy the assets acquired or improved, that have been acquired or improved through loans. The only exception to this rule is that a passive undertaking is qualified as an eligible passive undertaking (“EPC”) under the SOP. To be considered an EPC, a lease agreement between the EPC and the business registrant or operating company (“OC”) must include, among other things, a rental payment that “does not exceed the amount required for the loan to the lender and an additional amount to cover the epc`s ownership costs. Such as maintenance, insurance and property taxes. In essence, the SBA authorises the granting of the loan to a passive EPC as long as the EPC does not obtain a profit on the lease with the CB. A joint lease agreement under which several natural or legal persons own or offer to own immovable property as joint tenants is considered an EPC. Conversely, two or more passive companies with separate properties leased to one or more eligible operating companies are not eligible, as this structure includes several EPC applicants. For more information about existing third-party tenants and EPC/OC leases, please contactVictor (407) 667-8811 or VDiaz@StarfieldSmith.com. NAGGL has launched a waiting list to attend the conference. If you would like to be included in this list, please send an email to firstname.lastname@example.org.
In these cases, the seller must also transfer to the buyer, as part of the transfer of real estate, all shares in existing third-party leases. If the buyer is an EPC, the assignment of an existing lease from a third party to an EPC would be contrary to the EPC/OC rule, which does not allow the SBA loan! Accordingly, the best practice is to convert a third party`s existing lease into a sublease of the EPC/OC lease, with the agreement of the lessee and its affirmative subordination of the lease to the lender`s policy instruments. The subletting goes directly from the CB to the third tenant. For more information about these and other services that Starfield & Smith, P.C. provides to its customers, please contact Ethan Smith at (215) 542-7070 or ESmith@StarfieldSmith.com. The revised regulation provides for a long-standing SOP requirement that OK rents or rents must not exceed the amount needed for the loan to the lender and an additional amount to cover the EPC`s direct expenses for ownership of the property, such as maintenance, insurance, and property taxes. . . .