Are Your Agreements Well Drafted?

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Are there really a lot of ways to skin a cat? Ruminations can’t think of many (or even any, mostly because it doesn’t make for a good picture). Basically, we don’t know. How many ways are there to go from a napkin’s worth of deal notes (a/k/a a letter of intent) to the first draft of an agreement? Will today’s posting have a lot more questions than answers? Who’s asking? Yes, it will.

We think there are three categories of agreements to be considered, each with a different starting point. One is the form agreement, whether designed to be so or by use of an existing one (from a prior deal); another is “from scratch,” and the third being the “hybrid” agreement, one that is partly an existing “form” and partly a blank screen (or piece of paper). Cleverly, our three categories are fully inclusive.

We’ll start our Ruminating with the “adapt the form” approach. Do you take the letter of intent in hand and, point by point, then look for the matching lease provision to change or fill-in? Do you start at the top of the form and read down until you reach a provision that intersects with the letter of intent? Whichever approach you take (and even if you claim to do a little of each and then some), how confident are you that you’ve adapted the form to the deal? What we are asking is how sure are you that you’ve “adjusted” every place in the form that is affected, even tangentially, by any non-standard part of the deal? How well do you “know” the form before you start? [Read more…]

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HUGE SALE: $20,000,000 Property For Only $300,000. Read All About It

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What does an owner-landlord do when a tenant has a $300,000 purchase option for a property worth more than 20 million dollars? That question could be the end of today’s posting if we treated that as a rhetorical question. Other bloggers might do that, but not the erstwhile Ruminator.

When the spread is over 20 million dollars, legal costs mean little. For students of the “expected value” approach, the breakeven point for a 1% chance of picking up those millions is $200,000. If you think there is a 5% chance, then spending a million dollars is fair value for such a lottery ticket. Hence, a case decided about a week ago by the United States Court of Appeals for the Ninth Circuit makes sense to us economically, but doesn’t help us with our abiding belief that a deal should be a deal. [Read more…]

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Don’t Expect A Thank You Card From The Insurance Carrier

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We’ve written about many of the “elements” implicated by today’s blog posting, but don’t think we’ve ever illustrated them in the context of a specific lease provision. Among them are the concepts of “no-fault, risk shifting” and “not spending negotiating capital, effort, time or money” on protecting an insurance company (unless you happen to be working for one).

Take a look at the following provision. We don’t offer it as the “perfect” text for every lease or, for that matter, any lease. You’ll have to decide that for yourself. We offer it so that we don’t have to stop writing this posting when you reach the upcoming period.

None of Landlord or Landlord’s agents, partners, members, employees or any other person acting on behalf of Landlord will be liable for, and Tenant waives all claims against Landlord and Landlord’s agents, employees, members, directors, contractors, and those acting for or under Landlord for any and all loss, cost, liability, damage and expense (including attorney’s fees and disbursements), penalties or fines incurred in connection with, or arising out of, any damage to, or loss (by theft or otherwise) of, any of Tenant’s property or of the property of any other person, irrespective of the cause of such injury, damage or loss (including the acts or negligence of any other tenant or occupant of the Shopping Center or of any owners or occupants of adjacent or contiguous property) and whether occasioned by or from explosion, falling plaster, broken glass, electricity, smoke, wind, water, snow or ice being upon or coming through or from the street, roof, subsurface, skylight, trapdoor or windows, electric wiring, plumbing, dampness, water, gas, steam or other pipes or sewage, or the failure of the air conditioning or refrigeration system, or the breaking of any electric wire, the bursting, leaking or running of water from any tank, washstand, water closet, waste pipe, sprinkler system, radiator, or any other pipe in, above, upon or about the Leased Premises or the Building or the Shopping Center, or which may at any time hereafter be placed therein, or from any other cause whatsoever.

[Read more…]

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Out With The Old Perfectly Good Lease, In With …

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Well, another holiday weekend has rolled around. When that happens, we try to stay away from technical or detailed topics and just Ruminate about things that trouble us. We try to throw out some easily digestible thoughts and await the bounce-back. Today’s posting meets those criteria, but after hacking out today’s blog posting, we were haunted by two old quotations. Both are almost certainly wrongly attributed to Samuel Clemens a/k/a Mark Twain. But, that doesn’t make them any less disturbing.

The first is: “What gets us into trouble is not what we don’t know. It’s what we know for sure that just ain’t so.” The other is: “When I was a boy of fourteen, my father was so ignorant I could hardly stand to have the old man around. But when I got to be twenty-one, I was astonished at how much he had learned in seven years.”

Guilty on both counts.

Here’s the puzzle, one that wasn’t a puzzle when we were younger. Isn’t ignorance beautiful? Imagine this situation. There’s a shopping center lease executed in 1976, 40 years ago, and it has run out of extension options (then probably called “renewal” options). The lease has worked well. In fact, over the 40 years, no one ever dragged it out to look anything up other than to see what had to be done to exercise one of those extension options. [Read more…]

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Be Reasonable, Whatever That Means

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Why is it reasonable to Ruminations to have steered clear of the “reasonableness” issue, i.e., what does “reasonable” mean? Despite having posted more than 280 times on similar issues, we’ve avoided this question. That’s because, like pornography, we think that when it comes to “what qualifies as ‘reasonable’,” you’ll know it when you see it. [Thanks to Justice Potter Stewart for his concurrence in Jacobellis v. Ohio, 378 U.S. 184 (1964), where he wrote the following explanation of pornography: “But I know it when I see it, and the motion picture involved in this case is not that.”]

We think one has to “see” the circumstances to get a “feel” as to what would constitute a reasonable denial of consent The Alabama Civil Court of Appeals gave us such an opportunity with its August 12, 2016 Opinion in Steve Evans v. W.G. Waldrop, an Opinion that can be seen by clicking: HERE.

There are a number of “main” lessons coming out of this Court’s Opinion and there are some interesting side issues. So, we’ll start with a short version of the story. Our reading of the Opinion shows (to us, at least) that the case was not well presented at trial. Therefore, our telling of the story will “bridge” some gaps and “resolve” some discrepancies in the testimony and in the evidence presented.

A retail tenant with a shopping center lease that ran from April of 1999 until March of 2004 stopped paying its rent in May of 2000 and moved out the next month. Then, it began looking for an assignee or subtenant. After some disappointments, it located someone interested in operating an “electronic-bingo parlor” at the leased premises. [Read more…]

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The Perils Of Overreaching

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How aggressive should we be when drafting agreements? How about when responding to someone else’s version? Of course, it depends on a lot of factors, but what about the factors within our own control?

One thing to be kept in mind (or to be implanted there if it isn’t already there) is that we are rarely “doing” an agreement for ourselves. Instead, almost all readers have been entrusted with the responsibility to handle someone else’s business. Nonetheless, a good place to start is to contrast those two situations: that of our own agreement and that of a client’s or company’s agreement. [Read more…]

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Special Tip: You Don’t Want To Call For Broad Form Property Insurance

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Last week, we left off just before the “good stuff.” We wrote that the most commonly encountered commercial property insurance policy, the one promulgated by Insurance Services Office, Inc. (ISO), was a four-part insuring agreement. One of those parts, the “coverage part,” is where you find out what is covered. That’s today’s topic. If you want to start with last week’s posting, click: HERE. Otherwise, here we go.

Insurance buyers can choose from among three levels of coverage, each beginning with these four words: “Covered Causes of Loss. The three available (ISO) forms are: Special, Broad, and Basic. Here is a spoiler: “The butler did it.” For today’s purposes, that means: “Go for the Causes of Loss – Special Form coverage part.”

“Broad Form” coverage sure sounds enticing. Well, if that’s how it seems to you, pay attention to this. Basic Form coverage covers 11 specific perils. Ruminations won’t waste your time listing them. Under such coverage, if your damage wasn’t caused by one of those 11 perils, you might as well not have had insurance. [Read more…]

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So, Wise Guy, What Replaced “All Risk” Insurance?

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Ruminations looked to see how many times it had written that there hasn’t, since 1983, been something called “All Risk” insurance, the year the insurance industry “deep-sixed” that policy form (and name). Well, to put it bluntly, it was a lot. Yet, an overwhelming number of agreements coming across our desk “asking” for insurance still call for this long-dead (33 years dead) policy form. What our searching revealed, however, was that we never ever completely described its replacement. Today, we will do so, though “completely” would be an overstatement.

First, let’s get some background out of the way. As in the past, we are writing based, in large part, on the terminology and forms used and promulgated by Insurance Services Office, Inc. (“ISO”), a company that creates those things for most insurance companies. Its forms probably account for 95% of the ones you’ll ever see. Yes, there are other “forms” and insurers will add or substitute their own, but with ISO dominating the field, time spent on the subject is best spent focusing on the ISO forms. [Read more…]

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