All Good Things Must Come to an End. When You Should Consider Terminating Your Residential Development Single Purpose Entity ("SPE")
- Consider A “Seasoning” Approach.
Many people believe that a SPE should be terminated soon after completing a project. The countervailing concern is that terminating a SPE too soon could give rise to the argument that no adequate evaluation of the potential future liabilities was made. To prevent this, a "seasoning" approach, under which the SPE is not terminated for at least a year after completing the project, might be considered.
- Document Properly.
The accommodations made for future creditors should be properly documented, including documentation of the insurance policies, indemnification rights of the SPE, any agreements under which the future obligations of the SPE will be performed, and any cash reserves being retained to address future known needs.
- Evaluate the Insurance Picture.
The insurance policies of the SPE should be evaluated to confirm that the termination of the SPE will not result in a termination of the insurance coverage and/or the duty of the SPE to "cooperate" in the defense of any action against the SPE.
- Consider the SPE’s Post-Termination Obligations.
Care should be taken to avoid situations in which another entity is deemed to be the successor of the SPE.