Why Should Anyone Care If They Don’t Know What Constitutes An Insurable Interest In Property?

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It isn’t intuitive whether someone has an “insurable interest” in someone else’s property, but without one, an additional insured or loss payee will not see any money from that insured’s property insurance policy. This subject, admittedly, is a “little” arcane. So, we’ll try to explain is by way of a story, actually a court’s decision.

There is a lesson to be learned from a recent Bankruptcy Court decision where, most uncharacteristically, the court ruled against the bankrupt estate. Somewhat surprisingly, but probably correctly, it held that a bankrupt tenant’s landlord “owned” the insurance proceeds and took that money out of the reach of the debtor or its other creditors.

Yes, the landlord got to keep the insurance proceeds from insurance the tenant purchased to cover the tenant’s personal property. [Read more...]

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Do I Have To Pay Operating Expense Charges Or Taxes That My Landlord Just Billed Me For After Five Years?

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We’ve pondered, actually struggled, to post a piece exploring the answer to the often asked, “Do I have to pay operating expense charges or taxes that my landlord just billed me for after five years?” What we’ve found is that there is no simple answer if the lease in question doesn’t specifically cover delayed billings like this. That’s also true for related questions such as, “We never increased our rent payment after extending its term and now, five years later, our landlord wants all the back rent – do we have to pay?” Or, to, “We’ve been paying the wrong rent, can we get our money back? [Read more...]

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This Is A (Leasing, Sale, Loan) Deal. Why Have You “Gone Missing”?

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If you don’t like screeds, stop right now and we’ll see you next week after the extended July 4 holiday. Otherwise, tread lightly as you read on.

Doing a lease, a loan or a sale (and things like that) shouldn’t be like doing a divorce; it should be like doing an adoption. These are just business deals; just “money.” No one is or should be besmirching anyone’s reputation, seeking revenge or taking children away. And, even if that were the case, the negotiators are not the angry parties. Presumably, they are professionals. [Read more...]

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How Much Should It Cost To Kick-Out Of A Lease? Not As Much As Is Being Asked.

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Today, we’ll start in the middle of our thoughts by opening with an example that we’re going to return to several times in this week’s posting. You can have a five year lease with an option (in favor of the tenant) to extend its term by five years, or you can have a ten year lease with the tenant having the option to end it at the five year point. In fact, you can do those numbers any way you want. So, what’s the difference?

Psychology aside, probably nothing if the math wizards are at work. Perhaps, one party or the other can play around with the tax treatment given to the lease. But, basically, the present value for each five year segment should be the same. If someone were to suggest that having the right to terminate the lease early protects a tenant against [Read more...]

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What Is A Structural Component? Do You Know?

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Ruminations took a crack at answering this question a whole lot of blog postings ago, but we never felt fully comfortable with the way we tried to fashion an answer. Basically, we tried the “ejusdem generis” approach. [What are you talking about – you behind the keyboard? Our definition used a list of items followed by, “and thing like that.” That’s the essence of the “ejusdem generis” approach.]

Here’s a spoiler. Ruminations isn’t going to do much better today. If you make it to the end of this posting, you’ll also have figured that out. [Read more...]

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Same Tenant? New Lease? Watch Out!

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When the terms of an existing lease between a tenant and its landlord are dramatically changed, the parties frequently terminate their old lease and enter into a brand new lease.  The consequences of doing so are rarely considered by the parties, and they may be surprised to learn the following.

Any particular lease is affected by the terms of other leases at a project, recorded documents (such as Declarations of Restrictions), and the terms of financing documents.  In most cases, the tenant entering into a “replacement” lease had no control over, and no input into, any of those documents.  Frequently, landlords are unaware of important terms of those other agreements. [Read more...]

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What Is This Thing Called Quiet Enjoyment?

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Ruminations doubts that most readers know what is really meant by the “covenant of quiet enjoyment.” Understandably so. Because quiet enjoyment is a common law concept; case law being the sole source of its definition. The definitions constructed in real property treatises come from case law. Even in civil code jurisdictions, where an implied covenant of quiet enjoyment in leases is imposed by statute, the definition of quiet enjoyment is found only in case law. The Restatement (Second) of Property – Landlord and Tenant tells where the law is going, or where its authors think is ought to be going, not where it is.

[For reasons hinted at the end of this posting, Ruminations will sound a lot more lawyer-like than usual today. Don’t let that confuse you. Our website’s disclaimer is still very much in effect.]

[Also, the “quiet” in “quiet enjoyment” has nothing to do with decibel levels, and the “enjoyment” has nothing to do with pleasure.]

Dealing with quiet enjoyment would be a lot easier if the concept was implicated and analyzed in only a small number of well reasoned opinions which were consistent both over time and from state to state. Alas, were that the case. Anyone who has ever searched cases for a point and come up dry should remember the ancient Chinese proverb, “be careful what you wish for, you may get it.” Thousands of reported cases deal with the covenant of quiet enjoyment. [Read more...]

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A Shortcut To Drafting A Sublease That Might Be The Long Way To Get The Job Done

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A sublease is really no different than a lease other than its title and the use of different labels (subtenant instead of tenant; sublandlord instead of landlord; sublease instead of lease; etc.). It needs to convey an interest in real property and it needs to establish the contractual relationship between the subtenant and its sublandlord. One might think it to be “special” because it is constrained by a superior lease (master lease; overlease; etc.), but that’s not any different than a lease being constrained by a superior mortgage, a restrictive easement agreement, zoning laws, etc. In each case, the grantor (landlord or sublandlord) can’t give greater possessory rights than it, itself, has and can’t give any contractual rights that it has agreed (say in a mortgage) it won’t give or that the law won’t allow. Neither can a sublandlord.

But, there is an approach that crafters of subleases often use that is not available to crafters of leases. That’s by using an “incorporation by reference” form of sublease. [That’s not to say leases never incorporate parts of other documents by reference to those documents, references to laws being one example. And, its also not to say that there couldn’t be a publication with “standard lease terms” that might be incorporated by reference, as is done when requiring one party or the other to abide by ASTM, ASHRE or similar standards, just that, if that is being done out there, it’s a rare occurrence.] [Read more...]

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