“Another Similar Major Tenant” – What Did You Say? A Co-Tenancy Failure Saga

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Last week, we described, in some detail, a long story about a tenant seeking the benefit of a continuing co-tenancy provision in its lease and its landlord’s less than favorable response. We’re not going to repeat the “long story” this week. If you want to read it (to catch up, and you should), just click: HERE. Today, readers get the “short” version.

A shoe store’s lease gave it the right to pay reduced rent and even to terminate its lease if either of two particular businesses at the property vacated and were not timely replaced by “another similar major tenant.” The dispute, which was narrowed by a United District Court, but not resolved to conclusion, was whether a particular bible book store that replaced one of the designated “co-tenants,” a women’s fashion retailer, satisfied the criterion of being “another similar major tenant.” There were also issues of whether the show store’s long delay in “complaining” would adversely affect the specific remedies the tenant got under its lease.

The bible book store was long established in the marketplace and had relocated from a nearby location into the entire space occupied by the fashion retailer. Its sales in that same space exceeded those of the fashion retailer it replaced. [Read more…]

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What Is A Similar Major Tenant? Take A Guess.

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A shoe store had a 5- year 1999 lease with three 5- year extension options. Notably, the lease had a continuing co-tenancy provision and that’s what today’s blog posting is based upon and what was before a United States District Court judge in a case that can be seen by clicking: HERE.

The story and its outcome turn on the text of that co-tenancy provision, so it pays to read it before plowing on. Here it is:

In the event either Wal-Mart or Cato shall cease the conduct of business in the Shopping Center, and is not replaced within thirty (30) days of closing for business by another similar major tenant occupying at least ninety percent (90%) of the leased premises, then Tenant shall have the right to pay, twenty (20) days in arrears, monthly, four percent (4%) of Gross Sales in lieu of Minimum Annual Rent and all other to this charges pursuant Lease [sic]. In the alternative, should the similar major tenant not be in place within six (6) months of said closing for business, then Tenant shall have the right to cancel and terminate this Lease on thirty (30) days written notice to Landlord anytime thereafter.

The Cato store (3,680 square feet of floor area) closed at the beginning of 2006. About 17 months later, a bible book store took over the space. The book store operated a nationally branded catalog sales department in a small area of its store. The tenant lasted 4 years before closing. It took only a month for a new tenant to take its place. That new tenant lasted about 2-1/2 years before it, too, closed. [Read more…]

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How Big A Default Was It?

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It is pretty common for a lease or other agreement to grant a party (usually the tenant) a particular right or option and then make it conditional on the “entitled” party not being in default or never having been in default. We are “talking” about such provisions that look like the following sample, but we aren’t endorsing its particular formulation. That would be a whole ‘nutter discussion.

Provided that on both the day that Tenant gives its Renewal Notice and on what would have been the Expiration Date had the Lease Term not been extended by the giving of the Renewal Notice: (a) this Lease had not been previously terminated; and (b) Tenant shall not be in default beyond applicable notice and grace periods, Tenant shall have the option to …

In Merry Ole England, the King had a court system that heard and resolved all disputes. Well, not really all disputes, only those that fit into a limited number of “off-the-shelf” cognizable claims (lawyers, think: causes of action). These “pre-packaged” claims, called “writs,” were “designed to enable the English law courts to rapidly process lawsuits.” The writs were highly technical, and even though new ones were regularly issued to create new rights, the system just couldn’t keep up. If a claim couldn’t be fit into an existing “writ,” the aggrieved person was out of luck – “no writ, no remedy.” The law was the law and too bad! [Read more…]

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The Accountants Are Coming; The Accountants Are Coming: New Lease Accounting Standards Are Upon Us

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Today, we return from ranting (last week) to “wonky.” And, we do that despite knowing that only a small number of readers really need to know about lease accounting. We do it because a large number of our readers, though not needing to know, like and want to know a little something about the topic.

Today’s impetus is because the International Accounting Standards Board (IASB) just (January 13) issued its latest standard: IFRS 16, Leases. This is the culmination of a decade-long project, sidetracked by many, many issues, comments, and objections. Now, astute readers would rightly say: “Why do I care about the IASB. Here in the good ole’ USA, we abide by standards promulgated by FASB, the Financial Accounting Standards Board.” Well, that one is easy. IASB and FASB worked arm in arm on this standard and FASB’s version, expected to be published in February, will call for the very same things as this one.

There’s no need to spill your coffee or skip that bathroom break to read today’s posting. This lease accounting standard (and the expected FASB standard) becomes effective after 2018.

Here’s another important point. The FASB standards (being the ones that will be incorporated into GAAP – Generally Accepted Accounting Principles) will not be identical to the ones issued by the IASB last week. BUT, they will be pretty close. The two standards follow the same principles and share the same objectives. [Read more…]

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My Way Or The Highway – There Is Only One Way To Write Our Agreement

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Stubbornness. Unwillingness to listen. Often wrong but never in doubt. Preconceived notions. OK, today’s posting will qualify as a rant. As such, our aim is to keep it short.

Do you want to make a deal or does it have to be written the one and only way you’ve conceived as the “right way” to say it in the agreement? Though Ruminations, opinionated as we are, strives to avoid “absolutes,” we can’t do so with the following: There is always more than one way to properly express an agreement that has been reached. If that is true, and we’ll fight anyone who challenges us (but, if you are right, we’ll find another way to express the same thought), then why do we resist stepping back and “writing it again, though differently”?

We don’t care how long someone “has been doing this.” Forty plus years ago in a different life, we had a shipping manager who, on a daily basis, would express his competence by telling everyone: “I’ve got 25 years of experience in shipping.” Every day, we’d say: “[Name], yes, that’s one year over and over 25 times.” Only because we remained friends could we have that daily dialog. Forty plus years of experience is valuable especially because with longevity in rank should come wisdom, not arrogance. [Read more…]

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For What Did You Intend To Indemnify? Choose Your Words Carefully!

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Today, we’re going to discuss two legal issues, one old and one new. The old one has to do with the use of extrinsic evidence, but with an interesting twist. “Extrinsic” means information coming from the “outside,” in our business (agreements, such as a lease), that means information from what was said or what was written before or at the same time the document was signed, but didn’t show up in the document itself.

The second, and the one that has generated a little bit of “buzz,” has to do with the scope of a promise to indemnify someone.

For those readers who like “primary” material, take a look at the California Court of Appeal Order published on December 7, 2015 in the case of Hot Rods, LLC v. Northrop Grumman Systems Corporation. It can be seen by clicking HERE. [Read more…]

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But, Not Everyone Can Get Away With Fraud By Clever Drafting

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Today, we continue our story of how to get away with fraud and deception. For those of you who were, as the Brits say, on “Holiday” last week (yes, England and the United States, two nations separated by a common language), you can catch up by clicking HERE.

Last week, we described how the seller of a company was able to hide behind an agreement’s provision wherein the buyer agreed that it was relying only on the information and representations recited in the agreement. Then, by signing the agreement on the day of closing, it could only complain about what happened between signing and closing. At best, that was a few minutes or so. Perhaps our readers accepted that as fair because the buyer was carefully monitoring the company’s revenues for March of 2012, the critical “test” month. It knew that the sales figures were somewhat implausible and should have known that the “last minute” jump in revenue was “strange.” Maybe, that’s why the Delaware Chancery Court was unwilling to parcel out a little of the “equity” for which chancery courts were developed. (OK, that explanation is a stretch, but we’re not ready to concede that the words “justice” and “business” are in different dictionaries. But, how about the rest of last week’s story?) [Read more…]

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How To Write Your Agreements So As To Get Away With Fraud

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Court opinions coming out of the Delaware Chancery Court are a delight to read. They are almost always clear and incisive. They are important and influential. That court doesn’t often “see” real estate disputes, but that doesn’t mean its work is irrelevant to our chosen day jobs. One such decision, published on November 24, does an incredible job of dealing with an agreement’s “we didn’t rely on any representations you don’t find in the text of this agreement” provision and that agreement’s “integration” or “merger” clause. As a bonus, it sheds some light on how and whether the fairly standard indemnification provision covers damages directly incurred by the indemnified party (a “first” party), or just for claims against the indemnified party by a “third party.” Unless you go directly to the Court’s written decision, you’ll need to keep reading if you want the answers [to all but the “indemnification” part; for that, you’ll need to wait until next week’s posting]. [Read more…]

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