Here’s a simple, real-world style example showing how both IRC §467 and the Stipulated Loss Value (SLV) appear in a typical Zero Cash Flow (ZCF) lease for a corporate tenant (like Walgreens or FedEx):
🏢 Example: Zero Cash Flow Lease Summary
Purchase Price: $3,000,000
Tenant: Walgreens
Lease Term: 25 years, absolute NNN
Rent: Structured to exactly match the loan payments
Loan: $3,000,000, fully amortizing, 25 years
1️⃣ Section 467 Clause (Tax Allocation)
“Pursuant to Internal Revenue Code Section 467, the parties acknowledge that certain rent payments under this Lease are not level and include periods of rent deferral. The parties agree to allocate the rent payments for tax purposes in accordance with Section 467 of the Code and the corresponding Treasury Regulations. Lessee and Lessor shall each report income and deductions consistent with such allocation.”
💡 What it means:
Rent is not flat — maybe $0 for the first 3 years, then increases later.
The IRS doesn’t want all income deferred — it requires both sides to spread rent evenly over the lease term for tax reporting.
No cash impact, just affects when income or expense is reported.
📘 Example Table (Simplified):
| Year | Actual Rent Paid | 467 Allocated Rent (for taxes) |
|---|---|---|
| 1–3 | $0 | $120,000/year |
| 4–25 | $300,000/year | $120,000/year |
So for tax purposes, the landlord reports $120K income every year even though cash rent was $0 at first — that’s Section 467 in action.
2️⃣ Stipulated Loss Value Clause (Default Protection)
“In the event the Lease terminates prior to the expiration of the Term, Lessee shall pay to Lessor as liquidated damages a Stipulated Loss Value equal to the outstanding principal balance of the Loan, plus any accrued interest, prepayment premium, and other costs necessary to fully satisfy the indebtedness.”
💡 What it means:
If tenant defaults or property is destroyed early, the landlord (or investor) gets fully repaid.
The SLV = remaining loan balance (like a prepayment amount).
It keeps the investor “whole,” which is critical in a zero cash flow deal, since all rent goes straight to the lender.
📘 Example Table (Simplified):
| Year | Remaining Loan | Stipulated Loss Value |
|---|---|---|
| 5 | $2,650,000 | $2,650,000 |
| 10 | $2,100,000 | $2,100,000 |
| 20 | $750,000 | $750,000 |
| 25 | $0 | $0 |
⚖️ Summary
| Clause | Purpose | Type | Key Impact |
|---|---|---|---|
| IRC §467 | Tax allocation of uneven rent | Tax/IRS | Affects when income/expense is reported |
| SLV (Stipulated Loss Value) | Defines payoff on default or early termination | Contract/Financial | Protects investor; ensures debt is covered |