Operating, Managing, Policing, Insuring, Repairing, And Maintaining

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Most retail leases have a “CAM” provision and though they are formulated in a myriad of ways, a common element can be found in the way “common area maintenance” (CAM or Operating Expenses) is defined. The words used are seen so often that many eyes glaze right over them. They are so familiar that, long ago, we stopped thinking about them. This occurred to Ruminations as we read an unpublished February 19 decision from the Court of Appeals of Arizona (an “intermediate” appellate court).

Here’s what that court told us. A bunch of shopping center tenants, as a group, sued their common landlord over a Common Area Maintenance (CAM) billing for capital expenses. Exactly what is a capital expense? There are too many definitions used for a “capital expense,” and even the Internal Revenue Code doesn’t provide much help because its “definition,” if you can call it that, relies on some principles. Here is what those might be: [Read more…]

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It Might Be Negligence To Leave Out The Word Negligence (Unless It Isn’t)

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Are there “magic words” or are there not? Once again, we feel compelled to warn readers that “we need to know what we are doing.” A lot of people in this “business” of ours cross over jurisdictional lines whether rightly or not. There is a lot of material out there about the ethics of doing so. That’s a reasonable concern to have, but there is a far less discussed, but more serious, problem. It is called malpractice. That term is not limited to attorneys. It isn’t even limited to professionals. It is hard enough to know the law in a single jurisdiction. Know the “law” in every jurisdiction (e.g., state) is, frankly speaking, impossible.

If we are going to “practice” in the real estate world, we need to practice well, not malpractice. “Mal” is a “combing form,” one that is added to words. It comes from the French “mal,” and that came from the Latin “male” which meant “badly.” [We sure hope the word is pronounced differently than is the gender.] The bottom line, however, is that “malpractice” is practicing in a faulty or improper or inadequate manner. No reader of this blog wants to come within a million miles of anything “mal” in her or his practice. So, we need to know that we don’t know the law everyplace. One example is how various jurisdictions view liability waivers. Today, we write only about one aspect of that question – whether to effectively be released from one’s own negligence, a waiver must expressly say that “negligence” is being waived or whether waiving “all” claims for damage really means “all,” including those claims arising out of negligence. [Read more…]

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Pretext; Equity; Eviction; What Do You Think?

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Today, we write about the use of pretext. We’ll explain. First, here’s a story from a recent California appellate court decision.

A tenant (residential, but for our purposes, that’s of little consequence) only sent its check to cover part of its monthly rent. Its landlord returned the “rent check without cashing it.” [Now, we will digress (surprise). The quoted words come from the decision itself. If you wonder what “without cashing it” adds to the facts, you are not alone. If you read the actual decision, which can be seen by clicking: HERE, you will be able to analyze the court’s writing abilities in greater detail. Likely, you’ll find more of the same as in: “without cashing it.”]

Consistent with California law, the landlord served a three-day notice on its tenant. The notice said that “there was ‘unpaid and delinquent rent’ of $507.61 for June 2107.” It also said that if the tenant didn’t pay the delinquent rent within three days, the landlord “does hereby elect to declare a forfeiture of the subject lease … and will institute legal proceedings for the lawful detainer … to recover possession of the premises ….” After what appears to be a week or so after the end of the 3- day period, the tenant sent its check for the full amount and also included a second check as early payment of July’s rent. By that time, the landlord had sued to evict its tenant.

In what was a surprise to us, there was a jury trial. The jury’s found that the tenant HAD paid the rent. Presumably (according to the appellate court) this was because the jury decided that the landlord had prevented the payment by returning the check. In response to an appeal by the landlord, the appellate court held that the jury had clearly erred. In its view, although the tenant had tendered a deficient rent payment, the landlord had not accepted the check and, consequently, the rent was, in fact, NOT paid. Under the relevant statute, if a tenant is in default in the payment of rent after a three-day notice is served, it may be evicted. [Read more…]

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Why Do I Want/Need A Waiver Of Subrogation?

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Two weeks ago, we cautioned against thinking that because we know the “general” law, we know the law in a particular jurisdiction. Yes, there is a lot of commonality on a broad level – if a tenant doesn’t pay the rent, it can lose its right to stay – but just what a landlord has to do (the needle it needs to thread) varies greatly from place to place. Today, we’ll give a more focused example in the context of explaining why the (misnamed) waiver of subrogation is important.

At the end of the day, who really pays the insurance premiums for the property – landlord or tenant? When a lease requires the tenant to pay or reimburse its landlord for insurance premiums, isn’t the tenant really paying the premiums? When the stated rent includes the then-existing amount of insurance premiums and the tenant pays only for increases beyond that “base” amount, isn’t the tenant really paying the premiums? Even when the stated rent is “all-in,” might it not be that the tenant is really paying the insurance premiums? [Read more…]

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Hindsight Isn’t Always 20/20

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Guilty! Ruminations and its author have done this, though we’ve long been conscious of its flaws. What is “this”? It is that we’ve criticized documents prepared by others when we “weren’t there.” Before we proceed with today’s rant, a small clarification is in order. There will be no apology for our pointing out unnecessarily vague or ambiguous language. In fact, we think there is a place for intentional ambiguity and remain firmly behind the thoughts we expressed seven years ago in a piece titled: The Artful Use of Intentional Ambiguity in Document Drafting. It can be seen by clicking: HERE. What we are pleading guilty to is to the crime of criticizing others based on business terms that have included or omitted from their documents. Often, that’s the wrong thing to do. Let the ones among us, those who have not done this, throw the first stone.

Experience and intellect qualify us to analyze a lease or purchase agreement or loan document or whatever. Those qualify us to question why some things have been included and others omitted. We are not alone. Many, many readers (and non-readers) of Ruminations are similarly or even better qualified. But, having the ability to do so doesn’t mean we should be doing so. Why do we feel that way? [Read more…]

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Fighting The Last War

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In 1934, Edward P. Warner, writing about the implementation of the National Recovery Act (N.R.A.), expressed the following: “There is a saying that is rather common among the critics of the military profession that ‘soldiers are always preparing to fight the last war.’ Business must not incur the rebuke that it is devoting itself to preparing to sell goods under the conditions of the last economic cycle.”

The language is a little “1934” stiff, but the message remains relevant. We shouldn’t be structuring deals for the future as if the future will be unchanged from the past. That’s not to say we should fashion every deal tabula rasa (as if on a blank slate). Of course, much of what has worked in the past remains valid today. But, “much” falls short of “everything.” The trick is knowing what to save and what to discard. Until a genuine “crystal ball” is invented, we’ll need to divine the future unaided by a magical device. Instead, what we all need to do is to pay attention to early trends, some of which have been in front of our eyes for years, even decades. [Read more…]

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How Good Is A Lease Guaranty After The Original Term Expires?

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It’s a funny thing about this business. After all is said and done, you still need to know the “law.” And, by “law,” we aren’t thinking about the “law in general.” Instead, we are thinking about the “law” in the place where it matters. Almost always, that’s the state where the property in question is located. In today’s world, it’s not possible to know everything, everywhere. But, what is possible is to know the “questions.” There are some universal concepts. Not all of those concepts are universal, fixed rules such as the rule that if valid rent is unpaid, the tenant can’t stay. The most important universal concept is that the law is not the same throughout the more than 51 jurisdictions that make up the United States. In most cases, the law is similar, but the law is not the same. As with many “learned professions,” knowing the questions to ask is the hard part. That’s the real challenge we face. Finding answers is easy. Said another way, if you want to have your agreements, such as leases and guaranties, mean what you have said, then you have to be aware of the way the law differs jurisdiction to jurisdiction. [Read more…]

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Is “Display” A Verb Or A Noun; More About Exclusives

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If exclusive use rights are so important to some tenants and if landlords almost always resist granting such rights, why is it that, when agreement (compromise) is reached, the parties keep making the same mistakes? We’ve written before about the generality of “exclusives” and also about some specific approaches. For the benefit of new readers and to remind others, Ruminations holds that the presence or absence of an exclusive use right (and the scope of that right) is purely a function of bargaining power. Basically, how much does each party want the lease? That having been said, here are more of our thoughts.

To the extent that an exclusive use right is justifiable, tenants should be entitled to protection for their primary business, not for items of tertiary importance. A pizzeria sells pizza. If a pizzeria couldn’t sell pizza, then it isn’t one. Selling pizza is its “primary” use. So, to the extent that the presence of a second pizzeria at a particular property would seriously cannibalize sales at the first one, it is entirely appropriate for a landlord to be barred from allowing that second one. But, a tenant that holds itself out to be a pizzeria shouldn’t be entitled to keep others (such as a health food store) from selling frozen pizzas or to keep others from selling “Italian-style” sandwiches. If a pizzeria can’t co-exist with a sandwich shop, then it is a sandwich shop, not a pizzeria. Of course, defining a tenant’s primary business may not be as easy as looking at the tenant’s name, but we all get the idea (provided we are willing to step out of our uniforms – landlord or tenant – and look at the entire picture). [Read more…]

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