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01. This Book
02. Syndicate Boom
03. Get Information
04. Syndicator
05. How much?
06. Depreciation
07. Depreciation Applied
08. Declining Balance
09. Straight Line
10. Paying Taxes
11. Pay Mortgage
12. Income Taxes
13. Paper Loss
14. Tax Shelter
15. Rent?
16. Syndicator Units
17. Wear + Tear
18. Lease-Hold
19. Building
20. Comparison
21. Specialized Properties
22. Growth
23. Leverage
24. Share Growth
25. Why + How
26. Syndicate Agreement
27. Net Lease
28. Long-term Lease
29. No Guarantee
30. Inflation Clauses
31. "Inflation Clause" Works
32. Inflation Clause?
33. Mortgage Due
34. Interest Rates
35. Short Term Mortgage
36. Good Mortgages
37. Refinancing
38. Refinancing Clauses
39. Share of Mortgage
40. Share of Profit
41. Purchase Options
42. How Purchase Options
43. Stunt the Growth
44. "Subordination"
45. Long Term Lease
46. Business Organizations
47. Syndicate Debts?
48. Management
49. Your Consent?
50. Sell Your Unit
51. Investment Trust?
52. Business Syndicate
53. Multiple Properties
54. Dream or Reality?
55. Syndicator's Background
56. Value of Guarantees
57. Look for Yourself
58. Conclusion
Resources
29. Long-Term Lease to Syndicator or Insider Is No Guarantee of Income to You
You may believe that in view of the long term lease to the syndicator or to another insider you are at least assured of receiving your monthly distributions for the term of the lease. There is no such assurance in most of the cases examined. Bear in mind that the lease is made to a corporation controlled by the syndicator or an insider. In most cases that corporation has no other assets except the lease. Indeed, the brochure will usually disclose the fact that in spite of such long-term lease your distributions depend entirely and solely on the ability of the property to produce income.
Even if the corporation, which is the tenant under the long term lease, has assets, you have no assurance of rental income and distributions to you. In such case the long term lease will probably contain the following clause, (the words in parentheses were added by us to make the meaning clear) :
The Tenant {Syndicator) may assign the lease without the landlord's {the investors') consent and upon such assignment and assumption by the assignee of the lease (a dummy), the Tenant (syndicator) shall have no further liability thereunder.
The legal effect of that clause is that the long term tenant (the syndicator) will be relieved of all obligations under the lease, including the obligation to pay rent, as soon as someone else takes over the lease. The syndicator does not have to find someone with money, not even someone solvent. The tenant could create a new dummy corporation without any assets whatsoever and have that corporation assume the lease. The very purpose of the above clause is to give the syndicator-tenant an opportunity to cancel the long-term lease at any time.
You have then, as a practical matter, the following situation. If the leasehold is profitable, the syndicator will keep the lease and take that extra profit over the lease's term. If the leasehold continues to be profitable, the syndicator-tenant will exercise the successive renewal options which frequently run for as long as 78 years. If the leasehold should turn out to be unprofitable, the syndicator's corporation will fail or assign the lease to someone who cannot fulfill it. The syndicator or insider almost never incurs any personal risk or liability under the customary form of the long-term lease, or if he does, he limits it to, the first few years.
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