Leases As Prose, Not Poetry

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From time to time, you actually get a gift. Last Tuesday, Ruminations received one from Judge Richard A. Posner. He sits on the United States Court of Appeals for the Seventh Circuit. No shrinking violet is he. The gift was his concurring opinion in a non-real property case and can be seen by clicking HERE and turning to page 17.

His gift, welcome as it was, resulted in our making our prepared, unusually short blog posting a little longer than we had planned. That in and of itself would trigger his ire, but for the triviality of the Ruminations Retail Real Estate blog when compared with what he sees from the bench.

Recall that his was a concurring opinion in the traditional sense. The reason he wrote it, however, is interesting and might be a commentary on the leases and other documents we, real estate people, write. Try these tidbits on for size: [Read more…]

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Two Different Words – Two Different Meanings; No Word; No Meaning

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Today, we’ll be looking at a court’s decision resolving a dispute over the default provisions of a mortgage loan repurchase agreement. Knowing that few readers harvest crops in that vineyard, all we will tell you about such agreements is “what they are.” Most readers know that the best of Wall Street created a financial product that combines a whole (big) bunch of individual mortgage loans, none paying more than (say) 6% and promises that some investors in such a loan collection can earn 18% (or numbers like that). It’s magic and infallible. And, did we say, “risk free”? OK, we’ve been a little tongue in cheek, and most of you have used those clues and are ready to cry out, “CMBS” or “Commercial Mortgage Backed Securities.” [Some might have been thinking “residential,” and called out another acronym, but “six of one, a half-dozen of another.” [Read more…]

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The Long And The Short Of It: The Invincible Lease

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There’s nothing like a mysterious title to draw the flies. Usually, Ruminations knows its destination before it begins each weekly journey. Not so today. Our long-ago set plan was to rant (once again) about the trees lost in the service of creating ever and ever longer agreements. Then, we saw a March 29, 2016 decision from the Court of Common Pleas for the State of Delaware that made us wonder if some agreements aren’t long enough. That opinion made us wonder if courts read our agreements as closely as we write them. That case, and we’ll rant about it soon enough, led us to think about some things written in a very fresh, April 27, 2016 decision from the United States Court of Appeals for the Second Circuit. Can we synthesize all of that? Frankly, “No.” That, however, won’t stop us. [Read more…]

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It Isn’t A Quiz Show Choice, “Ordinance Or Law.” So, What Is It?

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Riding on our success with an insurance discussion last week about the meaning and implications of having someone’s insurance coverage be “primary and noncontributory,” we thought we’d risk a similar topic this week. [To see what Ruminations said about “primary and noncontributory,” click: HERE.]

There are two pretty common land use and construction approval concepts across the country. If a building is destroyed beyond a certain degree (by fire or otherwise), its reconstruction has to comply with current law. “Grandparenting” (f/k/a “grandfathering”) doesn’t allow you to put it back the way it was. Generally, when it comes to construction codes, new buildings and major reconstructions need to meet most new code requirements. For example, if the “old” building had 1/2 inch wallboard (which was lawful when built) and the current code requires 3/4 inch wallboard, 3/4 inch is the answer to your question.

As to compliance with land use requirements, the most common “threshold” is 50% destruction. In some jurisdictions, that is 50% of value; in some that’s 50% of floor area; in some it might be 50% of bulk volume. The “threshold” is jurisdiction specific. Look it up. Regardless of the threshold, if the damage exceeds that level, you don’t have the right to put the building as it was, if it didn’t conform to the land use requirements on the day the damage took place. So, if the building was a prior nonconforming use because it was a three-story building now in a two-story zone, you don’t have the right to rebuild three stories. You need to get a variance. The same goes for setback violations, and so forth. And, yes, sometimes you can’t get the variance and the building can’t be reconstructed. [Read more…]

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Here Is A Primer On “Primary And Noncontributory”

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Many of us who “do” agreements, such as a lease, were seemingly trained by Admiral David Glasgow Farragut, “remembered for his order at the Battle of Mobile Bay (in which he was victorious) usually paraphrased as ‘Damn the torpedoes, full speed ahead’ in U.S. Navy tradition.” [Thank you, Wikipedia.] How so? Well, we all like to jump in there and use terms of art, not our own, as if we understand those terms. Like, what? Try, insurance terms.

This will be a primer on the meaning or concept behind the insurance term: “primary and noncontributory.” [Yes, for those who are wondering, “primer” and “primary” both share the common Latin root: Prīmārius, meaning “of first rank.”] That’s helpful information because, as should become clear, the essence of what is behind “primary and noncontributory” is priority of payment, which insurance carrier pays first. Not “pays all,” but “pays first.” Yes, the “primary” in “primary and noncontributory” doesn’t mean “the most important”; it means it, the “primary” carrier, pays first. With that start, Ruminations is going to “back into” the bottom line” by explaining some related concepts. [By the way, “short’ was for last week.] [Read more…]

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Edward Snowden Can Help You Negotiate Your Agreements

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We’ve promised this before, but have yet to deliver. This time, we’ll keep our promise. Today’s blog posting will be short. Yes, short, but not unimportant. (Yes, short by Ruminations standards, only by those standards).

Data within data is called “metadata.” Your word processing program creates it and embeds it, hidden, within your documents. So does your spreadsheet program. Your digital camera does so as well. Digital videos have it. Web pages, too.

We’ll restrict today’s Ruminations to documents (because we promised you and ourselves) to be brief.

Buried and hidden in documents, especially those produced using Microsoft’s Word program, are the changes that were made to the original document. You might find who wrote the original document. You can find “hidden” text. You can find its revision history. If that’s not enough, there’s more as well. [Read more…]

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What’s In A Name? That Which We Call A Tenant…

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We titled today’s posting with apologies to Shakespeare, who wrote for this line for Juliet: “What’s in a name? That which we call a rose; By any other name would smell as sweet.” Ruminations has wanted to explore this issue for quite some time, but hasn’t found a “handle” to latch onto until now. What issue, you ask? It should be obvious, ABC, so to speak, that when you look at a lease (or any other agreement), you should be able to know who the landlord and tenant are. Amazingly, that isn’t always the case. Allow us to continue.

But, before we begin, we’ll explain that when the problem arises, we’ve only seen it concern the identity of the tenant, not the landlord. That’s never been discomforting because lack of care or lack of knowledge is more common when the lease involves a small space and, in most of those cases, the form used comes from the landlord and the landlord knows its own name even if it isn’t already built into the form itself. [Read more…]

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Who Treats A Non-Recourse Loan As A Full Recourse Loan? Your Uncle Might.

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We very much doubt that the Internal Revenue Service took note of our the blog posting that follows, but on April 15, 2016, two weeks after we wrote about the significant change to the tax treatment of non-recourse carve-outs, it published a “backtracking,” some might call it a reversal, of its earlier position. You can see how it essentially reversed its earlier position by clicking: HERE.

So, the text that begins in the paragraph below the shaded one is mostly of historical significance, hopefully only an aberration. Nonetheless, we leave it posted not only to preserve history, but also for how it explains the effect of “recourse debt,” an arcane topic.

Here is the latest position of the Internal Revenue Service, as of March 31, 2016:

If a partner’s guarantee of a partnership’s nonrecourse obligation is conditioned on the occurrence of certain “nonrecourse carve-out” events described below, the guarantee will not cause the obligation to fail to qualify as a nonrecourse liability of the partnership … until such time as one of those events actually occurs and causes the guarantor to become personally liable for the partnership debt under local law.

If a partner’s guarantee of a partnership’s nonrecourse obligation is conditioned on the occurrence of certain “nonrecourse carve-out” events described below, the guarantee will not cause the obligation to fail to qualify as qualified nonrecourse financing … until such time as one of those events actually occurs and causes the guarantor to become personally liable for the partnership debt under local law.

Today’s blog posting was written with more than a little trepidation. Before we reveal its topic, Ruminations needs to emphasize two of our recurrent themes. The first is that the prime skill in counseling clients or bosses is not to know the answer, but to figure out the question – to identify possible issues, problems or opportunities. With the question in hand, most answers are easily found. Without knowing the question, the answer is useless even if in your own head.

The second highlighted theme is that you don’t need to know all of the answers or even all of the questions if you have an expert source available to you. We’ve touted the need to have a “Rolodex” (for those more recently arrived on Earth, that’s a trademark for a conveniently arranged set of cards holding names and contact information for easy retrieval). Your Rolodex should have contacts for construction issues, utility issues, insurance issues, and whatever other experts you can gather in your data base. After wading through the labyrinth of today’s technical and boring posting, you’ll want to find one or more tax experts to add to your Rolodex, probably a tax-focused accountant and even a (business) tax attorney. Today, our sole mission is to sensitize readers to a narrow tax issue brought to mind by an October 15, 2015 Tax Memorandum from your friend and ours, the Internal Revenue Service. Yes, there will be a useful, but (probably) esoteric, “fact” revealed someplace near the end of today’s posting. But, that is only to scare readers into yielding up their egos and get better connected with experts. [Read more…]

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