Have you ever bought a $300,000 house solely based on reading a classified ad? What about doing a $3,000,000 lease (30 years, including options, at $100,000 a year) without ever seeing the property or at least taking a good “look” at the property from far away? Why would you NEVER buy a house that way, yet regularly do a lease based solely on a term sheet and with no other “due diligence” investigation? Simply said, you shouldn’t. [Read more...]
A Pig In A Poke And Other Lease Negotiation Sad Tales Of Woe
May 19, 2013 By 4 Comments
What Would Rent Insurance Be If There Were Such A Thing?
May 12, 2013 By 5 Comments
So, the lease requires the tenant to carry a policy of “rent insurance” or requires the landlord to carry a policy of “rent insurance” or, worse, requires both of them to do so. What does that policy say and how does it work?
Trick question! You won’t find a rent insurance policy. You may find a commercial property insurance endorsement providing coverage for “rental value,” but don’t look for “rent insurance.” While you are at it, don’t call it: “rental interruption insurance,” “rent loss insurance,” or “rental income insurance.” Those are nice concepts, but lack any precise meaning. If you want to call it “use and occupancy insurance,” go ahead, but that form of policy is long, long gone. [Read more...]
Oldies Are Not Necessarily Goodies, Especially When You Find Such Terms In Your Leases And Other Contracts
May 5, 2013 By 4 Comments
We wanted to address “Rent Insurance” today, but got somewhat distracted when we started out by writing “there really isn’t something called ‘Rent Insurance,’ even if lease writers insist otherwise.” We then were going to describe “Business Interruption and Extra Expense Coverage” because that’s really what lease writers are thinking when they say “Rent Insurance.” That was to take us into “how all of that works” and “where it doesn’t work.” It would have been pages long. [Read more...]
In A Lease, If I Didn’t Do It And You Didn’t Do It: Who Should Suffer The Loss?
April 28, 2013 By 5 Comments
Stuff happens. Ask Bill Nye or David Hare.
And, in modern America, it seems as if someone else is always at fault, not me. [If you take no blame, it must be them; Who must then pay my fines. It's really is quite the cleverest ploy; By which illogic shines. – Gary Bachlund.]
Actually, there are times when bad things happen and the landlord and its tenant are each “good people.” Here are some examples: [Read more...]
Everything Is Money In A Lease, But We Argue Mostly About Allocation Of Risk
April 21, 2013 By Leave a Comment
Money, that’s the only reason a landlord and its tenant do business with each other. There are some items that, by something that approaches natural law, are firmly in the court of one or the other. For example, landlords are expected to pay their own mortgages. Tenants are expected to pay their own employees. There may not be a lot of other examples. For instance, at first blush, one might think that the tenant gets to keep its sales revenue. That’s often true, but what about percentage rent clauses? [Read more...]
When I use the word, ‘Fixture,’ “It Means Just What I Choose It To Mean — Neither More Nor Less.” [Humpty Dumpty on Retail Leasing]
April 14, 2013 By 2 Comments
What do we mean when we say something is a “fixture”? The most accurate answer is: “Who knows?” One reason for such uncertainty is that the answer depends on: (a) why you are asking; (b) who you are asking; (c) when you asked the question; and (d) where you were standing when you asked the question. The real reason is that the answer depends on the intent of the parties for whom the answer would be important.
What is not in doubt is that the question’s answer is important, for both leases and mortgages (and for taxation and some other kinds of issues). [Read more...]
What Lease Writers (And Others) Don’t Understand About Builders Risk Insurance Coverage
April 7, 2013 By 2 Comments
When a lease makes a specific reference to “Builders Risk” coverage, we know the conversation is going to go sideways. That’s because the proponent of that provision rarely knows anything more about that kind of insurance than can be intuited from the words: “Builders Risk” itself.
Here is an opening premise: the normal (ISO) coverage form for “Building and Personal Property Coverage” does not pertain to buildings under construction. [The ISO, or Insurance Services Office, is an association of insurance companies and it promulgates commonly used insurance forms. Many, but not all carriers use these forms. So, people who really want to know what is or is not covered always need to look at the policy itself. Those who draft leases might want to requires insurance policies to be on ISO forms or be on the functional equivalent of those forms.] [Read more...]
Asking For Option Rights – Negotiators Need To Be Credible. Let’s Help Them Out.
March 31, 2013 By Leave a Comment
Today, from 30,000 feet down to only 5,000 feet, we’re going to ruminate over purchase and expansion rights. We’re not doing any sample lease provisions.
We know from long experience and from a whole bunch of comments to previous postings that there is the following negotiation philosophy: “We really don’t need it; we’ll give it up just for the asking; we’ll ask for it anyway; and, sometimes we get it.” In most cases, that applies to tenant-form leases that include a right of first refusal to buy the property or to expand into adjacent (and sometime non-adjacent) space. Yes, generic provisions that have nothing to do with the “deal” and weren’t part of the letter of intent, even though quite material. Landlord forms often do the same thing when it comes to tenant relocation provisions. We’re not going to address those relocation provisions today. That’s for down the road. [Read more...]
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