Write It Right And Avoid A Tour Of Every Court In The State: Fighting A Cherry Picker Can Be Expensive

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The hallmark of a lease is that, in return for paying rent, a tenant gets exclusive possession of its leased premises. So, if a tenant is entitled to exclusive possession, absent a specific lease provision, by what right does its landlord get to show the leased premises to prospective buyers or tenants? The answer to that question got mangled by a trial court and an appellate court in Iowa, only to be properly reached by the Supreme Court of Iowa. Or, so Ruminations thinks and a disappointed tenant does not.

It is best to start with the “central” lease provision facing all three courts. Here it is. Read it carefully because it “looks” OK at first blush, but smart, experienced leasing professionals will quickly identify the deficiency that sent an anxious landlord and its anxious tenant to three courts at commensurate expense and with a likely sense of angst. This was the last part of an article labeled: “SIGNS”: [Read more…]

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Does Context Matter When Interpreting An Agreement (Lease, Mortgage, Whatever)?

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Last week, we signaled that we’d be writing about the wisdom of saving drafts or “redlines” created during the negotiation process. In reality, that analysis may have been appropriate 50 years ago, but it would be wasted in 2015. That’s because someone is saving a copy even if she or he thinks otherwise. Basically, it’s very hard to really lose an electronic document. You’d need to see that “both” sides of a deal have obliterated every early draft and that everyone who ever received a copy did the same. And that means making all of the archived copies on email servers disappear. Basically, it ain’t going to happen. So, what was Ruminations really promising to discuss?

For those who kind of understand what lawyers call the Parol Evidence Rule, here’s a short synopsis of what will be a relatively long blog posting. For others, please slog through. A basic attribute of the Parol Evidence Rule, when it applies, is that you can’t use prior discussions or writings to change the meaning of something in an executed agreement that, on its face, is unambiguous. You can use that earlier information to choose between or among ambiguous meanings. But, if there are no choices because a court finds something to be unambiguous, the earlier stuff will be ignored. That makes sense. If you know what a word, phrase or entire provision means on its face and there is no doubt as to that meaning, why should anyone go back and look at something that could change the meaning? So, the Parol Evidence Rule says: “You can’t go back again.” [Our apologies to Thomas Wolfe for this variant adaptation of his words.] [Read more…]

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What Does A “Shut-In Royalty” Have To Do With Retail Real Estate [And (Maybe) Save Those Drafts]?

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With apologies to attorneys and others who understand “Oil and Gas Leases,” Ruminations will try to draw some lessons from a case decided by the Court of Appeals of Texas on May 21 of last year. It is called PNP Petroleum LP v. Taylor and the decision can be found by clicking: HERE.

Whatever similarities or differences there may be between an “Oil and Gas” lease and the ones we usually drone on about, the relevant commonality for today’s purposes is that an “Oil and Gas” lease has a “term,” and thus an “expiration date.” The one in the PNP lease was for a single year, its “primary term,” and there were two ways by which the term could be extended. The first, and not implicated in the dispute, was that the term would extend for “as long thereafter as oil / or gas in paying quantities is produced from and sold from the land subject to this lease.” That didn’t apply because the thirteen wells on the land were “non-producing” at all relevant times. [Read more…]

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Whose Deal Is It Anyway?

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Let’s start off the New Year with an admonishment for all of us, Ruminations included. Notice to negotiating agents: “We are just agents. We need to take ourselves out of the equation.”

Admonishments should be short. So today’s blog posting will be.

When our counterpart asks for something that might take money out of the landlord’s/tenant’s/lender’s pocket, it isn’t our pocket. It’s not personal. A $5,000 a month, 10-year lease involves $600,000 of basic rent. A $5,000 request for something by a landlord’s representative or by a tenant’s representative is a pretty small request in a $600,000 contract. It is 0.8333%. More importantly, it is one month’s rent and a fight over it for no reason can cost that month’s rent anyway. MOST IMPORTANTLY, it is the principal’s money and that is who should know about the request and decide whether “to do it.” It’s one thing to say “No” as if it is our money and another to say, “I’ll ask my client/boss/principal (but I’m doubtful she will agree).”

It seems to us that the object of negotiation is to works things out, not to defend the form or demonstrate how resolute we can be. Yet, we all fall into that trap. [Read more…]

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Exclusive Use Restrictions: Some Will Rob You With A Fountain Pen

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It seems fitting that for the 200th Ruminations blog posting we would return to a recurring theme: “Words matter,” and do so in the context of a very recent court decision interpreting a lease’s exclusive use restriction. If you want to read the December 16 North Carolina Court of Appeal’s opinion in Charlotte Pavilion Road Retail Investment v. North Carolina CVS Pharmacy, click HERE. If you don’t, here’s a short synopsis.

The tenant lost because the restriction wasn’t written in a way so as to protect the tenant against what it could have foreseen. The tenant’s negotiators in the North Carolina lease should have read the Texas case that their litigators found when the North Carolina lease dispute went to court. That way, even if they didn’t intuitively understand the deficiency in their “formula” exclusive use language, they might have gotten a clue as to what they should have written. [Read more…]

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A Different Take On Whether Consent To An Assignment Or Subletting Can Be Unreasonably Withheld

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What happens if a lease states merely that a tenant may not assign it or sublet the leased premises? What happens if it says the tenant may do so, but only with the landlord’s consent? A majority of jurisdictions (states), perhaps even a substantial majority, do not require a landlord to be reasonable. Even though there is such a “majority rule,” negotiators need to adapt to the minority view if the leased space is in such a jurisdiction. More importantly, the winds of “do I have to be reasonable” law are shifting. That’s because, little by little, the implied covenant of good faith and fair dealing is encroaching on the grounds where “sole discretion” used to reign. So, in jurisdictions that have required that a party act in “good faith,” even where a landlord has reserved the right to deny its consent for any reason or for no reason at all, it will not be permitted to deny its consent if doing so will defeat its tenant’s reasonably expected benefit of the bargain. Basically, the covenant, as is increasingly being interpreted, prevents a party from using a given contract right as a sword when it was intended to be a shield.

Even if at the time a lease is signed the law in a given place is pretty clear that, absent a lease saying that a landlord has to be reasonable, it can act arbitrarily, that law can change during the lease’s term. Therefore, it makes good sense, in every lease, to define the “rules” for giving or withholding consent even where you think the law is settled. [Read more…]

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To Arbitrate Or Not To Arbitrate, That Is The Question.

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To arbitrate or not to arbitrate, that is the question. That has become a pretty hackneyed way of putting an issue in play. Here’s another hackneyed way of expressing something: “We’re not going to touch that third rail.” Roughly translated that means that Ruminations, in its old age [approaching 200 blog postings] is getting too wise to take a firm stand and offer anything other than an equivocal answer to that question, a lawyer’s answer so to speak – “It depends.”

Before anyone switches off to watch Pawn Stars or something else, let us explain. To us, it depends on what the subject matter of a dispute might be. An easy example is that only a court can issue a warrant of possession that a governmental official will enforce. So, we’re thinking that’s not a good “subject” for arbitration.

On the other side of the equation, except with respect to a few substantive areas where a subset of “special subject matter” judges has been selected, the rest are expected to be able to parse their way through the substance of any kind of dispute. So, when it comes to highly technical matters, such as construction issues, using a subject-matter expert arbitrator would seem to be the way to go. That is, it would be if both sides of the dispute are ready to accept some form of “objective” truth. By the way, the court process (and, by extension, the arbitration process) is thought of as a “truth-seeking” process. [Read more…]

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Why Some Negotiations Feel Like Going To The Dentist (With Apologies To All Dentists)

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Long-time readers may have discerned a certain pattern to the subjects Ruminations Ruminates about week after week. We try to mix up legal, factual, and procedural (negotiation) topics. Whereas we often do multi-part blog postings on legal and factual topics, in our library of 196 prior postings, we’ve not reached into the “procedural” shoebox for a “two-parter.” We’ve always thought that would seem like a rant disguised as a mere screed. Today, we deliver the other shoe to last week’s thoughts.

Last week we raised the issue of why some negotiators are quite parsimonious when mouthing the word, “Yes.” You’ll want to see that posting if you missed it. That’s easily done by clicking: HERE. Today, we continue by looking at some corollaries.

We posited that the word, “Yes,” is often withheld because of inexperience combined with a fear of disapprobation from the “boss,” whether that is the one that signs the paycheck or the one that signs the fee check. Unfortunately, even when a “Yes” is tendered it turns out to be a “No.” How often does one party, usually the one that didn’t draft the document, explain why something is important and hear from the other side: “OK,” and then when the redrafted document arrived, it sure doesn’t look “OK.” To minimize the variables in what follows, we’ll paint the picture with a little more detail. [Read more…]

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