In olden days, drivers used free maps from the gasoline station to navigate the highways and find their way home. [Legacy folding instructions may be available on the web.] Today, technology has given us a great gift: GPS. On balance, we are probably better off, especially for the many among us who are cartographically challenged. On the other hand, the shift hasn’t taken place without a loss: we’ve lost the “big picture.” We have lost perspective. With GPS, we only see one step (one turn) at a time. We see only the trees, not the forest. We see the intersections, not the route. What does that have to do with Retail Real Estate Law? Read on. Ruminations will ruminate and, in doing so (hopefully) explain.
Anyone who has examined a portfolio of leases or who has examined a commercial, secured real estate loan in New York (where the “original” mortgage earns eternal life) or who has tried to figure out a 30- year old REA, knows what a bear it is to figure out what went on. That’s because too few of us “love” our successors. Let them guess why we did what we did. Let them figure out why a couple of new names are showing up and why some of the old ones have disappeared. Don’t tell them whether a party changed identity by reason of an assignment, succession by operation of law or through the wringer of a bankruptcy. It may also be that some document craftspeople or scriveners don’t even love themselves (Narcissists) or have the unchallengeable belief that they will “remember,” one years, five years or twenty years later (Delusionists).
Some agreements, perhaps original leases or loan documents, won’t benefit much from recitals. After all, the history is clear – they were just born. Their purpose is clear – it’s a lease or a loan. There are, however, times when telling “a little story” can prove very useful, such as when the lease at hand replaces or consolidates one or more prior leases between predecessor parties of different names. As to amendments, on the other hand, it’s hard to think of any that wouldn’t benefit from a clearly told story in the form of recitals.
Identify the original document so that it can be clearly matched to the amendment. Identify each subsequent amendment. Anyone who has ever encountered two different documents titled “Third Amendment to Lease,” each a genuine amendment, but with the later one mislabeled, will recognize the problem. The later “Third Amendment” probably was written without knowledge of the earlier amendment. You can figure out how that can happen even if the “first” Third Amendment contained recitals: if you don’t know there was a Third Amendment, then you just plain don’t know. But, if you are reading the Fifth Amendment and it tells you that there was a Third Amendment of such and such date and a different Third Amendment of a later date, you know to look for two.
Identify the original parties. Identify the successor parties. Tell how they got there. Was it by assignment or by operation of law? What were the operative transfer documents? In the case of a lease, when someone goes to sell a property, people will be trying to connect the current tenant or the current landlord to the original ones, looking for privity of contract, not just privity of estate. If there were to be an eviction, could you satisfy a court that you have the right to evict the tenant or that the tenant you wish to evict is actually the successor tenant under the lease? Some courts impose a “chain of custody” test to verify that the party in front of them has the right to ask for the eviction. That concept shouldn’t be news to any reader who has read a newspaper during the (just ending?) mortgage foreclosure crisis – who has the right to foreclose? Can you satisfy a leasehold lender or an assignee or a subtenant that you really “own” the lease?
Tell the story. What is really going on? Is a tenant “swapping” spaces with the “demised premises” being changed from Suite 200 to Suite 301. If the rent was increased because the landlord took over the cost of work the tenant had originally committed to do, say so. Tell us that the landlord, not the tenant, did the work. If a tenant got the right to sell a previously prohibited item that had conflicted with another tenant’s exclusive use right, tell us that the other tenant waived its right and identify the document that says so. That way, when all of the original tenants are gone, and no one remembers what went on, a landlord can tell the tenant-successors why they have no claims against the landlord or each other. Believe us, no one will remember “how that happened.” In amendments to an REA, tell us who the new parties are and tell us about related documents, such as “sub-REAs” between or among some, but not all, of the property’s owners or occupants.
It sure helps the uninitiated, later reader to know where you’re going. Sure, you can complete a jigsaw puzzle without the box, but puzzle practitioners, other than the masochistic ones, know how useful the box’s picture can be. Look, when it comes to puzzles, the fun is in the challenge. When it comes to deal documents, let’s leave the challenge for “how to structure the deal,” not for figuring out “what happened before we got there.”
The astute among our readers can sum up all of the foregoing by observing that “recitals give context.”
Ruminations thinks the horse is dead, except to write that no reader should expect we’ve taken on an oath to keep future blog postings as short as this one turned out.