Crafting Exclusive Use Provisions Is No Simple Task Unless You Want To Ignore The “Why” Behind Them

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On their faces, this week’s blog posting (and last week’s as well) are about exclusive use rights. Actually, they are about setting ourselves free of the handy formulations we all lean on when negotiating leases. Handy as the “same old, tried and true” lease clauses may be, sometimes we should step back and spend some serious thinking time about the subject matter in front of us. The topic of exclusive use rights is a perfect one to remind us of that approach. One has to think of the actual goods or services to be protected. One has to understand the “principle” behind every single “stock, standby, old friend” lease clause. As to those that grant a tenant an exclusive use right, Ruminations suggests that what a tenant is “entitled” to have protected is the good will that very tenant creates at a particular location. On the flip side, Ruminations doesn’t think that a tenant is entitled to protection against competition in general. [Read more…]

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Writing Exclusive Use Rights Provisions Is Tricky. How So?

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Ruminations is on record as taking no stance on whether a tenant is “entitled” to the benefit of an exclusive use restriction in a lease. Similarly, we don’t believe that landlords have an absolute “right” to narrowly restrict what a tenant may do in its leased space. Each should be an outcome resulting from the bargaining process. Yes, there may be a market expectation depending on the type of business involved or the size of the overall project or the nature of the tenant or landlord, but the bottom line is that each outcome results from the bargaining process.

Today (and next week), we’ll muse about what a tenant should reasonably expect if it is agreed that it will benefit from an exclusive use right. Also, we’ll point out a few common ways that leases inadequately describe such an exclusive use right. Yes, this will be another “words matter” posting.

The law disfavors restrictions on the use of real property. One corollary of that principle is that courts will generally (but not always) interpret (or construe) restrictive covenants (such as restrictions against engaging in certain activities at real property) in the narrowest of ways. Basically, if a restriction doesn’t clearly bar a tenant from selling or displaying something (lawful) in its leased space, the tenant can go ahead and do so. [Read more…]

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Ignorance Abounds And It Isn’t Bliss – Faking It Doesn’t Get The Deal Done

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Typically, we avoid postings two rants in a row, and we had planning today’s posting for a few weeks from now. Then, on Thursday, we saw a piece in The New York Times and we wanted to post a link to that article. But, we can’t find the link and can’t find the article. So, we’ll go it alone.

Our subject is ignorance. That’s a lack of knowledge, not a deficiency in intelligence. Even for smartest of people, ignorance gets in the way of making a deal. It interferes with collegial negotiations. It delay the “signing.” It raises the cost of making the deal. And, it happens over and over again. Ignorance is the gift that keeps on giving.

It isn’t enough to know every lease or mortgage or sales agreement clause “cold.” If we are going to make deals happen, we have to know how the world works. To make a deal happen correctly, we have to understand numbers. It boggles the mind that some of us can’t figure out fractions or make percentages add up to 100. As a consequence, we see too many documents with formulas to determine rental amounts or loan payments that just don’t “add up.” [Read more…]

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So, Exactly What Does A Broker Bring To The Table In 2015?

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The “third rail” has been in the news for the last few days and that made Ruminations think about posting this piece having to do with the role of brokers in commercial lease transactions. At the risk of needing to purchase a bespoke Nomex suit crafted to protect against possible flaming, we proceed.

Brokers make the marketplace work. They connect parties who might not have known of each other’s interests in the absence of the broker’s efforts. Certainly, the internet and the information age have made information readily available that historically had been in the “secret” files of the brokerage community. If, however, that were the only grip a broker had over prospective buyers, sellers, tenants or landlords, the show would have been over a long time ago – the curtain would have fallen.

[Read more…]

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Can A Tenant Enforce A Rent Abatement Penalty? Here, A Court Says: “No.”

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What would you think if Ruminations told you that it is perfectly fine in California for a tenant to terminate its lease if a co-tenancy condition isn’t met, but not to exercise a rent waiver, even if it hasn’t opened its store? Well, we’re telling you that based on our seeing a January 12 court decision from a California Court of Appeal. The case is Grand Prospect Partners, L.P. v. Ross Dress For Less, and the decision can be seen by clicking: HERE.

Uncharacteristically, we’re aiming for a “short one” today. [We’ve missed.] So, lawyers and law buffs should certainly take a look at the court’s opinion. It is rich with “real” legal analysis, though we think it is far short when it comes to the court’s understanding of commercial reality. What is more, the court’s analysis doesn’t seem to be limited to co-tenancy remedies; it could be equally applicable to agreed-upon remedies for violation of exclusive use rights or access violations.

The keystone to today’s blog posting, and to the court decision that led to it, is the legal concept of an “unreasonable penalty.” We’ve written about this before in the guise of what is known as a liquidated damage. Search Ruminations using “liquidated damage” as a search term. But, now, to the story. [Read more…]

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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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