I’m Sure That The Word Meant What I Said It Meant, So Why Did I Lose The Case?

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Ruminations doesn’t think it’s going out on a limb by writing that we’re all guilty of succumbing to “Confirmation Bias” illness. We’d express that as: “We all interpret things in a way that supports our pre-conceived notions.” Psychologists would express it more artfully.

From time to time, but far less often than one might suppose, an argument will arise over “What does that contract provision mean?” Yes, believe it or not, active minds (and, in our experience, more often, inactive minds) will differ as to what a lease or other agreement provision really says or, more accurately, was meant to say. Even perfectly written text can be read to say something other than what was intended, and that’s what Confirmation Bias is all about. People see only what you want to see, and even the College of Cardinals won’t convince them otherwise. [Read more…]

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Landlord To Tenant: “I Love You, Don’t Ever Change”; Tenant To Landlord: “I Love You, Don’t Ever Change”

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Shopping center landlords want to preserve flexibility and their tenants want to protect what they “bought” when signing their leases. Ruminations believes both positions deserve respect.

If a tenant wants to be the master of its own destiny it shouldn’t be a tenant where others live. It should either buy its own homestead or do the equivalent of a sale-leaseback where it can generally write its own lease. If, on the other hand, a tenant wants the benefit of a “community” it has to yield some autonomy. Someone has to manage the community, and that manager inevitably is a “landlord.”

On the other hand (“he wore a glove,” but that’s the punchline to a clean joke not worth telling today) landlords demanding total management control need to be benevolent dictators, and in the long run, there are no such persons. Sometimes, a benevolent dictator needs to subordinate her or his own interests to those of his or her “subjects.” [Read more…]

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If You Are Going To Do Percentage Rent, Do It Right (The Rest Of The Story)

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Last week, we wrote about 65% of what we wanted to say about percentage rent. Today, we’ll write the other 65%. Jumping right in:

Let’s say a party goods store expects to, and actually does, have sales of nine million dollars in its first twelve months of business. The tenant knows that because it is moving from the same size space across the street. If sales were spread evenly over the year it would amount to $750,000 a month or $2.25MM a calendar quarter. Now, Halloween is the big, big one for a party goods store. The year-end holidays are pretty big too. In fact, one can expect that instead of the final quarter of the year accounting for 25% of the year’s sales, it will account for 45%. Let’s call that $4,050,000 or $1,350,000 each month. Yes, October will be bigger than either November or December; November will be smaller than December. [Read more…]

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What’s The Percentage In Paying Percentage Rent?

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First, we’ll define “heresy”: dissension, dissent, nonconformity, heterodoxy, unorthodoxy, apostasy, blasphemy, freethinking – opinions profoundly at odds with what is generally accepted. Now, we’re going to write a few things about “percentage rent,” beginning with a heretical view, “Why should a tenant pay percentage rent in the first place?”

Mind you, we’re not talking about a deal where the entire rent is a function of a tenant’s sales; we’re talking about the usual situation where the tenant has to pay rent even if it sells nothing. [We know of a mail order merchant maven who regales everyone with a story about the biggest flop item he ever handled. The story he tells is that he sold three units and got six returns.] Why should a landlord be a partner on the upside, but not on the downside? Ruminations has written about the concept that, in exchange for money paid as rent to a landlord, the tenant gets exclusive possession of the premises until an agreed-upon date. It’s like buying the premises with the obligation to re-convey it on that date. Further, think about a fairly common lease provision: “landlord and tenant are not partners, joint venturers, etc.” [Read more…]

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Ice Cream, Deal Making, The Law Of Diminishing Marginal Utility And Why It Matters To Real Estate Deal Makers

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We wanted to achieve two goals today: (a) to Ruminate about the negotiation process; and (b) to achieve record “shortness” [for Ruminations, that is]. When you reach the end, let us know “How’m I doing?” [see, Edward Irving “Ed” Koch].

The most essential economic concept affecting business negotiation is (or should be) what economists call “The Law of Diminishing Marginal Utility.” You and I love ice cream. You have a lot and I have none. But, I have money (or something else you’d like).

What is marginal utility? With apologies to Samuelson, Marshall, Krugman, Tirole, and others, we’re going to stick with our ice cream theme. Think how refreshingly delicious an ice cream cone would be on the hottest day of the hottest summer on record. “Ahhh… .” It’s so good, I think I’ll have a second. That was pretty good too. Not as good as the first bite of the first cone, but pretty good. To each individual, there comes a point where “enough is enough” [see, Streisand and Summers, No More Tears]. Yes, you would have paid a handsome premium for that first ice cream cone, but virtually nothing for the third, fourth or whatever is beyond your personal cut-off point. [Read more…]

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What Kind Of Help To A Tenant Is Self-Help? Part 3 (Whew, The Finale)

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Enough with the “self-help” already, but not before we address every reader’s favorite commodity – “money.” When a tenant does what a landlord is required to do, but didn’t  (or a landlord does what the tenant should have done, but didn’t), the motive isn’t charity. Whatever was “self-helped” has to be at the expense of the non-performing party.

Just because repayment is expected and deserved, no one should be expected to write a blank check, even if that signatory brought about the situation itself. The work that was done should be necessary and the cost of doing it should be reasonable under the circumstances. That’s a two-part test that needs to “passed” before the non-performing party should be obligated to pay up. One the test taker (the self-help exercising party) gets a passing grade, the non-performing party should make its payment within a short period of time. The amount owed should be treated as if it were an “extension” of credit; and the time for payment should be based on reasonable administrative needs. Ten to twenty days should be appropriate in all but the most unusual of circumstances. [Read more…]

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What Kind Of Help To A Tenant Is Self-Help? Part 2

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Last week, we opened the topic of tenant self-help rights. We’re not going to do much repetition. So, if you haven’t seen it yet or, if you are like us, you’ve forgotten most of what you’ve read, click HERE to see that posting.

In that posting, we gave some examples of when a tenant with the right to do what its landlord should have done, won’t. In short, a tenant occupying one percent of a property isn’t very likely to plow an entire parking lot or replace a lot of roof area. That caveat doesn’t make the tenant’s self-help right entirely useless. Not all tasks are so extensive or expensive. Here are easy examples: a manageable roof leak or a rooftop HVAC replacement (in each case, assuming the landlord had responsibility to take care of those items). [Read more…]

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What Kind Of Help To A Tenant Is Self-Help? Part 1.

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Here a mantra often heard by tenants all of their lives: “Make sure you get self-help rights. Make sure you get self-help rights.” It’s not a bad theme, but is it a cure-all? No, it’s not, and what it doesn’t cure depends on the relationship between the leased premises and the entire property. More about that in a little while. First, we’re going to list the kinds of landlord obligations that tenant might want to fulfill if the landlord doesn’t: [Read more…]

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