The Perils Of Overreaching

Print

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…]

Print

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

Print

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…]

Print

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

Print

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…]

Print

How Insured Is An “Additional Insured”?

Print

Why carry your own insurance when you can have the tenant (or landlord) name you as an additional insured under its own commercial general liability policy? After all, isn’t it obvious that if the insured (tenant or landlord) has good coverage, adding your own name in “addition” to that of the policy holder must mean that you have the same coverage as that policy holder. NOT!

At this point, we’ll repeat a frequent Ruminations refrain: “Carry your own insurance.” Here are more reasons why that remains good, solid advice.

[Today, as we commonly do, our examples derive from the most common set of insurance forms, those promulgated by the Insurance Services Office, Inc., a company that provides a whole bunch of services to that industry. For short, it is known as ISO and its forms are known as “ISO” forms.] [Read more…]

Print

Costly Mistakes To Learn From

Print

How perfectly are we required to draft agreements? Ruminations doesn’t know. Do any readers know? If you do, please share your thoughts with the rest of us.

Do we abide by Voltaire’s admonition: “The best is the enemy of the good”? [Yes, we know, that’s not how you would have quoted him. But, it wasn’t original with him. He republished the Italian expression: “Il meglio è l’inimico del bene.” Feel free to translate that for yourself.]

[In fact, we just republished the core of the preceding paragraph from our June 7, 2015 blog posting.]

Or, are we obliged to live the life of the researcher in the almost certainly apocryphal story of his goal to write the definitive history of China. As the story is told, satisfied that he had “gotten it” after five years of daily travels throughout the entire country, he reach the port where his ship awaited him. As he began to board that ship, he overheard two passengers discussing an ancient war he had never heard of before. Disappointed that he failed to cover that part of China’s history, he turned around and began another five year stint throughout the countryside gathering “history” he had missed the first time. As readers may have already guessed, when he got back to that same port, and as he again walked down the departure ramp, he heard another story he had never heard before. This repeated every five years. He is buried in China along with his incomplete manuscript. [Read more…]

Print

Estop Me Before I Write Again

Print

PinnochioA commercial real property lease is supported by a three-legged stool. One leg is the tenant; one is the landlord; and one is the lender. Without one of those legs, the stool won’t serve its purpose.

Estoppel certificates or letters (and we’ll describe them merely as “estoppels”) may be bothersome or annoying, but they are needed to make or keep a healthy relationship among the three legs. Tenants need them when assigning their leases or when subletting space as well as when borrowing money against the lease. Landlords need them when selling the property or borrowing against the property. Lenders need them when lending against the property. All are legitimate purposes and all are contemplated when a lease is signed even if the lease doesn’t say so (even though it should). [Read more…]

Print

Open For One Day? Why Bother?

Print

Last week, we put forth the view that tenants with limited bargaining power will have little choice but to accept a continuous operation obligation (assuming they really want to be at the property). We offered some suggestions that could protect a tenant, otherwise acting in good faith, from uninvited consequences that could result from an unintentional violation of such an obligation. Is there anything left to write on the subject? [That was a rhetorical question.]

Warning: Today’s blog posting will wander a bit. Hopefully, by its end, it will “all add up.”

Tenants with significant bargaining power almost never sign a lease with a continuous operation obligation. Are there exceptions? Sure. The most common is where, in effect, a shopping center developer “gives” land at the project to an anchor tenant to build its own store. The understanding is that this “gift” is being made with the belief that a shopping center with one or more solid anchors will attract smaller tenants, and those smaller tenants are the “real” tenants whose rent goes to the developer. The anchor stores understand that bargain and agree to operate, BUT (usually) only for a given number of years, say 20 or 25. This won’t be a persuasive explanation, but we think readers will get the idea: the anchor tenant will have spent its own money to build a 150,000 to 250,000 square foot store at a cost of $15 million or more. How likely is it that such a tenant will close that store and write down the cost of its construction? [Read more…]

Print

Continuous Operation: 24-7 Or Bust

Print

Two words that strike the heart of man: Continuous Operation. Well, not all men’s hearts are at risk. Big strong ones can get away with stating, at the outset: “No, we won’t go there.” Weaker, but not weak ones, can offer a compromise, such as the one day trick pony. Sadly for the rest, the weakest, most vulnerable ones, they acquiesce.

To be fair, landlords don’t insist that a tenant be open and operating its business “during normal business hours,” for no good reason. There are a lot of good ones, and not just ones that directly benefit a landlord, such as optimizing percentage rent recovery from the burdened tenant. Business begets more business. Shopping centers that are “buzzing” with activity, ones that look like the place to be and be seen, draw customers; customers draw tenants and robust demand for leased space means higher rents (plus higher percentage rent recovery). [Read more…]

Print