Small Problems Waiting To Happen ? Retail Real Estate Law ...

Here?s some light reading for the Labor Day holiday. Let?s all be futurists today.

If you?ve been awake, you know that GAAP (Generally Accepted Accounting Practices) is on the way out and IFRS (International Financial Reporting Standards) is on the way in. The cut-over date isn?t yet set, but the change is inevitable. Also, it looks like there may be a ?US Flavor? of IFRS, but that isn?t settled yet.

The differences between GAAP and IFRS are beyond the scope of Ruminations and beyond the ken (one?s range of knowledge or sight) of this writer, but the fact of a near term abandonment of GAAP triggers some thoughts. While we are at it, I?ve always felt a little uncomfortable seeing a GAAP accounting requirement in leases and contracts when the reporting party uses cash basis accounting because GAAP applies only to accrual basis accounting. Since no one who does leasing or administers leasing really knows that, it apparently doesn?t make a differences.

My thoughts have nothing to do specifically with GAAP or IFRS, but with the general topic of changes in the world that document drafters and the parties they represent have no control over. Here is an example. Early in the 20th century, long term agreements (think ? leases) sometimes included a ?gold clause? as a hedge against inflation. They were invalidated by the Gold Reserve Act of 1934 and then reinstated for contracts executed after October 1977. Did those long term contracts make any provisions in the event gold clauses were invalidated?

Interest rates in loan documents are often based on an ?index? above an independent interest rate standard such as the 10-year Treasury Note. Some used the 30-year Treasury Bond (often called long-bonds). What were parties to do when no 30-year Treasury Bonds were issued during the four and a half year period from November, 2001 through February, 2006?

As has been written previously, draftspersons are still calling for ?All-Risk? insurance policies, but no one has been able to comply with that requirement since 1983, when that form and that policy designation disappeared.

The United States Postal Service is in financial trouble. It is expected to bear a $9 Billion annual loss this year. The need for its services has been disappearing for years. When it is disbanded (don?t jump ? I?m just speculating), how will notices required to be sent by certified mail be sent?

Will there always be a Prime Rate? Will there always be a Wall Street Journal?

It doesn?t take a lot to draft around these issues, but who is doing that? It requires three skills: understanding the way the ?thing? (GAAP, an Insurance Policy, etc.) works; recognizing the impermanence of things we take for granted; and formulating a way to substitute a reasonable equivalent.

These are not earth-shattering problems, probably only minor annoyances ? that is, until there is no 30-year Bond.

Thoughts?

Source: http://www.retailrealestatelaw.com/2011/09/small-problems-waiting-to-happen/?utm_source=rss&utm_medium=rss&utm_campaign=small-problems-waiting-to-happen

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