Crafting Agreements In A Virtual Realty World

Print
Print Friendly

What does it take to craft a lease provision (or, for that matter, any agreement provision) from scratch? What does it take to review any agreement provision? Can anyone just wake up one morning and honestly declare: “I can do that”? Ruminations doesn’t think so. It may be possible for just anyone to wake up one morning and decide she or he can be President of the United States, but it just doesn’t work when it comes to “doing” leases or other agreements.

Without doubt, the more knowledge someone has, the better the chance the agreement will do its job. And, that means knowing about the subject matter – the business terms and the context – of the agreement, not just the common nuts and bolts of a lease. Today, we’re going to use leases for our examples. Readers can “translate” those examples to any other kind of agreement. When we write, “context,” readers can think about “how the property works” – what is unique about the property or the parties, and consequently, the deal. Even if one memorized every word of the world’s best lease form and even remembered the order of those words and where every punctuation mark went, she or he wouldn’t have a workable lease. Ruminations could launch a diatribe on the subject, but knowing our readers, we’d be preaching to the choir.

So, the more you know, especially the more you know about what you don’t know, the better the lease you can write. [“… [B]ecause as we know, there are known knowns; there are things we know we know. We also know there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns – the ones we don’t know we don’t know.” – Donald Rumsfeld.]

Readers, tell Ruminations to stop stating the obvious. OK, we get it. Here’s what we were building up to. Here are some important skills we all need to prepare the best agreements we can prepare. These are one’s you probably haven’t heard about before. They include: imagination and the ability to play a virtual reality game.

We need to “imagine” what might happen in the future. Let’s keep in mind that we’re working on transactions that play out over time, sometimes 10, 20, 50 or 99 years or even longer. We are crafting leases, not for tomorrow, but for the year 2050. These are transactions such as buying a pencil. Very little will happen between our selecting the pencil and completing the transaction at the cash register. Even the purchase of a house takes only a couple of months. The parties don’t have much interaction during those two months and, after the closing, there is no continuing relationship. But, a lease (and a mortgage to a more limited extent) involves a continuing two-way relationship. Stuff happens. Things change. Risks must be absorbed and allocated.

Granted that the “crystal ball” has not yet been perfected, but that doesn’t mean that we are without tools to predict what MIGHT happen in the future. We have our own experiences to guide us. We also need to learn about the experiences of others. That means we have to listen to the principals (e.g., clients, bosses, property managers). It also means we need to listen to the experience of colleagues and other real property professionals. That means we have a continuing obligation to read the “literature” and to participate in discussions, whether in small professional groups or by availing ourselves of a vast trove of continuing professional education programs.

With our experiences and those of others well in hand, we have to imagine possible future scenarios. What kind of scenarios? One example would be: “What would happen if there were a serious fire at THIS PROPERTY?” Every property is different. How would it affect THIS TENANT or THIS LANDLORD? Think about it. There really is no “generic” fire. What about a taking by eminent domain? How likely is it? Some leased premises are threatened by a road widening, others at the same project really aren’t.

Here are some others. Is it likely that a property will be renovated during the term of the Lease even though the project was built only ten years earlier? Is there a reasonable likelihood, even if small, that a project will need to be repositioned during the term of the lease? Are traffic patterns changing in a way that access to the project might change dramatically? Has the tenant chosen this location based on the belief that the area will be further developed in the years to come? If so, what might happen if that development stalls or never happens? What happens if the tenant opens with a temporary certificate of occupancy, but can’t get a final one because of a problem in the common area?

Basically, asking and answering those and many other questions enables us to create scenarios. And, that’s where 3-D virtual reality game playing skills become important. We need to imagine the most likely scenarios and then “walk through” them in our minds. We need to imagine what might happen. We need to walk down those paths and alleyways to see what happens, because those are the kind of things that really do happen.

Following what has become known, simply, as “9/11,” our government convened meetings with fiction writers, in particular with those who write crime and spy thrillers and science fiction writers – persons with imagination. Those novelists, fiction writers, were asked to imagine how terrorists MIGHT act against the United States. Think about that. Here are ramrod straight military people, Generals, Admirals, and other people who have military discipline in their blood, asking dreamers to help paint scenarios for use in a virtual realty exercise.

When lease-crafters go through this exercise, it means thinking about simple things like what could possibly happen during the process of a tenant taking possession of its leased space. It also includes the reasonably possible, though unexpected, such as the tenant disappearing before the space is deliverable.

So, once you imagine what kind of things might happen in the future, you can “walk” through that future. If you can think of what “might” happen, you can play the virtual reality game of: “if this happens, then this will happen.”

The particular “game” we’re writing about has a time and cost limit. Imagine that to win the game the final goal has to be reached by dinnertime, and also that you have to put five dollars into the slot every minute to play. That’s no different than crafting a lease. It has to get done by some time and people are (often) paying by the hour to get it done. So, don’t look for zebras. [When you hear hoofbeats, think of horses, not zebras.] Also, let the little stuff go.

How often have you seen a lease say something like “Rent will begin 90 days after the certificate of occupancy has been issued”? People will fight over whether it should have said 120 days or 60 days, but did they think about what should happen if the certificate is never issued? Perhaps a sewer moratorium is adopted. Perhaps a historic preservation ordinance is adopted. The parties weren’t at fault. So, what happens? Yes, we know that’s something you, the reader, would never overlook. So, how is it that we all see leases like that?

Virtual reality games have “levels of difficulty.” In our business, the lower levels are played within our own lease forms. They cover a lot of the very, very common situations that do and might come up during the lease term and at the time of surrender. The higher levels are more challenging. They are the ones that separate children from adults – in our business; they are the levels that require us to craft or review custom written provisions. In those game levels, we are armed with an unlimited supply of the 26 letters of the alphabet, an unlimited supply of spaces, and an unlimited supply of the 14 punctuation marks. The game requires us to arrange them in an order that works. We’ve got to think about what is expected to happen and what should the consequences be when they happen. Also, we’ve got to think about what might happen, even if not expected (‘cepting zebras), and what should the consequences be if they do happen.

That leads us to a story. Here it is.

Fresh from moderating a continuing legal education program called Baseball and the Rule of Law (the actual presenter being: Professor Paul Finkelman), we saw this April 2, 2015 United States District Court ruling about “drafting”: Right Field Rooftops, LLC v. Chicago Baseball Holdings, LLC, we had to take the bait. [You’ll want to read the opinion just for the background story. You can do that by clicking HERE.]

Since 1914, fans, standing on the rooftops of some tall buildings surrounding Chicago’s Wrigley Field, were watching the Chicago Cubs play there. In the 1980s, some building owners turned those rooftops into grandstands and began selling tickets. In the late 1990s, the team owner became aggressive and in 2002 sued those rooftop owners for “misappropriating the Cubs’ property rights by selling tickets to patrons to watch Cubs games from the” rooftops. A 2004 settlement was reached giving the building owners permission to continue “wining and dining fans on the rooftops” in return for a 17% royalty payment.

Section 6 of the license agreement allowed the Cubs to expand the bleacher seating at Wrigley field even though doing so would impair the view from the rooftops. Depending on the nature of the bleacher expansion and the actual effect on the rooftop ticket sellers, adjustments would be made to the royalty payments the rooftop sellers were paying the Cubs. In that same Section 6, there were two critical provisions that the court needed to interpret. Here they are:

6.5       Nothing in this Agreement limits the Cubs’ right to seek approval of the right to expand Wrigley Field or the Rooftops’ right to oppose any request for expansion of Wrigley Field.

6.6       The Cubs shall not erect windscreens or other barriers to obstruct the views of the Rooftops, provided however that temporary items such as banners, flags, and decorations for special occasions, shall not be considered as having been erected to obstruct views of the rooftops. Any expansion of Wrigley Field approved by governmental authorities shall not be a violation of this Agreement, including this section. [Underlining ours.]

So, as you would know, after buying out all but a couple of the licensees (the building owners), the Cubs proceeded to make renovations to Wrigley Field, including installation of a “Jumbotron” video board and billboard signage over the right field bleachers. The video board and other large signage over the renovated bleachers would completely block the sightline from the buildings that still enjoyed the license agreements, but interestingly not from those where the Cubs now owned the license rights.

The affected building owners sued the Cubs. They claimed that the Cubs would breach the license agreement because the Cubs were erecting a barrier that the Cubs promised it would not for at least the duration of the license agreement. So, the court had to ask and then answer the following question: Did the Cubs have a contractual duty not to erect the video board that would block the rooftops’ view into Wrigley Field?

The court’s answer (which did not favor the building owners) required scrutiny of the text we underlined above providing that: “any expansion of Wrigley field approved by governmental authorities shall not be a violation of this Agreement.”

There was no question that approval for the renovations had been obtained from governmental authorities. So, what was left for the court to determine was “whether or not the video board constitutes ‘any expansion’ for which governmental approval is a bulwark against breach.”

As background for any readers who haven’t suffered Ruminations’ propensity to roll out the following or similar lists, here are the rules (actually, only some of the rules, and, in this case, only those set forth in the Cubs’ case):

  • The “cardinal rule” of contract construction is to give effect to the intent of the parties to the contract.

  • The Court must initially look to the language of the contract alone, as the language, given its plain and ordinary meaning, is the best indication of the parties’ intent.

  • Because words derive their meaning from the context in which they are used, a contract must be construed as a whole, viewing each part in light of the others.”

  • The Court must not attempt to divine the intent of the parties “from detached portions of the contract or from any clause or provision standing by itself.

  • Only if the contractual language is ambiguous may the Court look outside the contract to determine the parties’ intent.

  • Courts must “reject one party’s strained, literal reading of contract language in favor of the other party’s reasonable, commonsense reading.

  • The rules of contract interpretation include the goal of giving meaning to all provisions of the contract and avoiding an interpretation that renders any provision or term surplusage.

  • Language is ambiguous if it is susceptible to more than one meaning.

  • Courts decline to read ambiguity into a clause where there is none.

  • Courts will not bend the language of a contract to create an ambiguity where none exists.

[For more rules or different ways to express them, click HERE and HERE for prior Ruminations blog postings. There are many other postings as well. Search for “rules of construction.”]

To what, in our 20 word underlined sentence, did the court apply those rules? Answer: two words, “any” and “expansion.”

Reading Section 6 as a whole, the Court concluded that “any” means “every or all.” Basically, it chose a dictionary, Black’s Law Dictionary, to conclude that the term “any” is synonymous with “either, every or all.

As to “expansion,” the court ruled that the word’s plain meaning and its context within the license agreement meant “any change to Wrigley Field that adds volume or mass, including the addition of components unrelated to seating capacity.” [Citing the Oxford English Dictionary (online ed.).]

So, what was the issue? According to the rooftop owners, because the license agreement was titled “Wrigley Field bleacher expansion,” the phrase “any expansion” in Subsection 6.6 meant only projects that added seating capacity to the bleachers. The court rejected that argument, holding that by modifying “expansion” with the word “any,” it actually distinguished Section 6.6 as a different form of expansion. Subsection 6.5, in fact, allowed the Cubs to seek and the building owners (licensees) to oppose “the right to expand Wrigley Field.”

More importantly, subsection 6.6 specifically set out the circumstances under which the Cubs could “not erect windscreens or other barriers.” According to the court’s reasoning if Section 6 of the license agreement were limited only to expansions that increased seating capacity, the variations in subject matter of each of the subsections would be unnecessary and illogical. The separate subsections would not have needed to specify that they applied to seating expansions. The Section 6.6 provision related to windscreens would have had no place in Section 6 at all because it plainly had nothing to do with seating capacity or area. So, in sum, while the four corners of the license agreement limited the definition of expansion to the bleacher area of Wrigley Field, the term, “expansion,” encompassed expansions that did not add seating capacity to the stadium.

How was the dictionary browsing and document analysis applied in this case? According to the court that performed those tasks, “expansions above the outfield wall, such as windscreens, barriers, and video boards, cause[d] Wrigley Field to occupy a larger space and add[ed] to the volume of the stadium. … If ‘any expansion’ were limited to construction projects that increased Wrigley Field’s seating capacity, or even structural expansions, it would [have been] unnecessary to specify that windscreens and other barriers were subject to the governmental approval exception.” The Rooftops’ construction, therefore, renders the final clause of Subsection 6.6 mere surplusage.

OK, that was a nice story, especially for real baseball “nuts,” but what does have to do with today’s overlong diatribe from Ruminations? Well, it has to do with our mantra, “say what you mean and mean what you say.” When negotiating an agreement, and especially when memorializing an agreement, you can’t be lazy and impatient. “Special” or “unusual” business arrangements need to be carefully thought through. It’s kind of like playing a virtual reality game. As we wrote way back near the beginning of today’s blog posting, you’ve got to walk through a futuristic 3-D battlefield, thinking about “what could happen.” Yes, there are many who have no patience for such an exercise. Yet, many of the situations that appear to be surprises during the effective period of a lease, mortgage or other executory agreement, aren’t “really” surprises because they could have been anticipated. Here, in the court’s words, “Before this dispute, the [building owners] experienced business and real estate owners, were most likely comforted by the landmark status that had been imposed on Wrigley Field which limited future alterations without governmental approval.” Basically, they didn’t understand that “any expansion” did not limit government-approved expansion only to those that added bleacher seating capacity.

That’s careless. Those who accepted the text as drafted were careless. If the building owners wanted to be sure that only expansions of the bleacher seating were permitted “expansions, (for which the license agreement provided compensation to them), then it would have been pretty easy to say so. There were many different ways, including by defining “expansion” to mean only seating capacity within the bleachers. Query: what are “bleachers”?

Print

Comments

  1. Robert Roth says:

    Regarding the point, “We need to imagine’ what might happen in the future,” when someone asks me why a commercial lease can be 100 pages or more, I say that 20 pages is for now and the rest covers the questions that start with “What if. . .”

Leave a Reply