FCC Proudreed Properties 2005 HSBC SG CORPORATE ...

infrastructure and the age and facilities of the building in comparison to the alternatives are all examples
of factors which influence tenant demand.
Similarly, changes to the infrastructure, demographics, planning regulations and economic circumstances
relating to the surrounding areas on which the relevant Secured Property depends for its tenant base may
adversely affect the demand for such Secured Property.
Statutory rights of Occupational Tenants
The Occupational Tenants, under Occupational Leases entered into in relation to the Secured Properties,
may be released from the performance of their obligations under the Occupational Leases when external
unavoidable and unforeseeable events (‘‘force majeure’’ events) make the performance of their
obligations impossible.
A number of statutory rights of tenants under the Occupational Leases may affect the net cash flow
realised from the Secured Property or cause delay in the payment of the rental income. In particular:
(a) where the Borrower as landlord is in default of its obligations under a Occupational Lease, the tenant
may have the right under general principles of French law (principe d’exception d’inexécution) to
withhold its rental payments until the default is cured or to refrain from performing its other
obligations thereunder;
(b) a legal right of set-off (droit de compensation légale) could be exercised by a tenant of the Secured
Property in respect of its rental obligations under the relevant Occupational Lease if a reciprocal debt
is owed to such tenant by the Borrower as landlord or otherwise;
(c) a Court may grant time to a tenant in respect of its payment obligations under an Occupational Lease.
In doing so the Court will take into account the financial standing and needs of the Borrower as
landlord. Alternatively, the court may reschedule the debts of a tenant (in both cases not in excess of
two years), treating the extension of time as a matter of procedural law governed by Articles 1244-1,
1244-2 and 1244-3 of the French Code civil, thus disregarding any provision of an Occupational Lease
to the contrary;
(d) a tenant who has legitimately carried out a business (fonds de commerce) at the Secured Property for
the three years preceding the expiry of the Occupational Lease and who is registered at the French
trade and company registry acquires, subject to certain administrative conditions, a protected
leasehold right and is entitled to the renewal of the lease (droit au renouvellement) upon its expiry or
to compensation for eviction (indemnité d’éviction) should the landlord elect not to renew the
Occupational Lease. The compensation consists of (i) an amount corresponding to the market value
of the fonds de commerce, which is determined in accordance with local standard business practices
and methods based mainly on operating profit and (ii) additional amounts relating to moving costs,
disruption of business, redundancy of staff, etc. Compensation is not payable, however, if the tenant
is in serious breach of its obligations under the Occupational Lease.
The exercise of any such rights may have an adverse effect on the amount of income capable of being
generated from the Secured Properties, which in turn could adversely affect the ability of the Borrower
to meet its obligations under the relevant Commercial Mortgage Loan and which in turn may result in the
receipt by the Noteholders, or the holders of certain classes of Notes, of a principal repayment less than
the face value of their Notes and the Issuer may be unable to pay interest due on the Notes in full.
Insolvency risk in respect of Occupational Tenants
If an Occupational Tenant were to enter into French insolvency proceedings, the relevant Borrower
would be prohibited from taking any action against the Occupational Tenant for recovery of sums due or
re-entry to the relevant premises. If an Occupational Tenant were to enter into insolvency proceedings
regulated other than by French law, the relevant Borrower may also be prohibited from taking similar
actions if and to the extent that the French courts were to recognise and give effect to such proceedings.
If the Occupational Tenant is still trading at the premises or has plans to recommence trading with a view
to the survival of the company as a going concern, it is possible that the court would refuse to grant such
leave to re-enter to the landlord on the grounds that to do so would frustrate the purpose of the
administration and, furthermore, that the court would do so notwithstanding the administrator was only
paying a reduced rent, or even no rent, under the terms of the relevant Occupational Lease.
Market risks on enforcement
In the event of enforcement of any Obligor Security, it may be necessary to sell the relevant Secured
Property. Only the proceeds from enforcement of the security in respect of Secured Properties comprised
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