Don’t Fight For the Right To Terminate (And A Stray Thought About Friends)

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This will be the 237th Ruminations blog posting and the first time we’ve done a potpourri. As readers can imagine, at any one time, there are dozens of thoughts running through the Ruminator’s mind, some useful, most not. Among those that are worth expressing, there are some that wouldn’t qualify under the Ruminations stylebook because they wouldn’t result in the killing of the requisite minimum number of trees (electrons?). So, today, we’ll toss out one such substantive thought and add one adjective thought just to fill the space. We’d say, “All the news that fits, we print,” but we don’t want to be chased by The Grey Lady.

If you’ve “done” leases, you’ve seen this one or some form of this one before:

If the violation of Tenant’s Exclusive Rights continues for more than 60 days after Tenant has sent notice to Landlord that Tenant’s Exclusive Rights are being violated, Tenant, as its sole remedy, may terminate this Lease by sending a notice of termination to Landlord within 30 days after the end of the 60 days period.

Why would that be an acceptable “sole” remedy for the tenant? Assuming that the landlord could defend against a claim that it has breached the lease’s implied covenant of good faith and fair dealing [for more about that, click: HERE], the landlord can now swap out what it perceives to be a more valuable tenant for an existing one.

We understand that getting the right to terminate one’s lease because of the “Exclusive Rights” violation may be a joyful, though serendipitous, opportunity for a tenant that is sucking wind, but what does it do for a tenant whose business was successful until the competition moved in next door?

That’s only an example. Landlord form leases (and, for some inscrutable reason, even some promulgated by tenants ) try this “termination as the sole remedy” approach for other landlord failings. That’s the “if you don’t like it, leave” school of landlording. If a tenant is “paying” for a benefit, be it parking capacity, quiet enjoyment, property access or many other aspects that constitute a useful feature of the property, then landlords should deliver what the lease promises or make up the difference to the tenant. Where a tenant doesn’t feel that a “make up,” whether in the form of damages or otherwise, will sustain an ongoing business, it should be allowed to terminate the lease AND get compensation.

When we speak of termination as a “sole” remedy, we really mean as the sole “meaningful” remedy in the sense that if the alternative one is a $50 gift card at K-Mart, you know what we mean.

None of this is to say that a tenant should have more than just a termination right just because a bad thing happens. Basically, what informs this discussion is an old friend: “How should each particular risk be allocated?” In most cases, landlords should take the risk that falls from what the landlord should have or could have done, but didn’t. Similarly, tenants should take the risk that falls from what the tenant should have or could have done, but didn’t. There are exceptions and those can be negotiated.

Some risks do not arise from what either party did or didn’t or could or couldn’t do. For example, most condemnations are done adversely to the landlord’s interest. In such a case, terminating a lease if parking drops below an agreed-upon level would be an appropriate remedy as between a landlord and the terminating tenant. In most cases, it would be the sole remedy. After all, in this hypothetical example, if the landlord didn’t invite the taking and it isn’t possible to replace the parking, then why should the landlord be open to a damage claim from its tenant? Yes, a properly drafted condemnation provision could allocate the “bonus” or “leasehold” value to the tenant if there is such an award, and shouldn’t preclude a tenant from claiming statutory awards available to a displaced tenant (without the landlord coming out of pocket).[ Perhaps, one day, Ruminations will explain some scenarios where a landlord affirmatively takes advantage of the condemnation process to get rid of one or more tenants, but that won’t be today.]

We feel it unnecessary to give any other specific examples. Instead, we urge that when faced with the suggestion that, in any given situation, a tenant should only be able to terminate its lease, it should ask, “Why?” Don’t assume that it is a good deal. It (very) rarely is a good deal.

That concludes our thoughts on the “substantive” topic for today. We’ll continue with our adjective thought, hoping that readers will understand that even the following thought should be seen as a “substantive” one.

We’ve noticed that we and others take on different negotiating styles depending on whether the person on the other side of a deal is seen as a “friend” or as an “adversary.” The approach taken with “friends” always seems less harsh, if harsh at all. In between the two, friend or adversary, is another category – the people we “see” over and over in deals. Some become “friends” over time; others become less of an adversary. So, we act a little more “nicely” on return visits with frequent adversaries.

Does this make sense? Do we “give away” more to a “friend” than to an adversary? Ruminations hopes not. Yet, it might seem that way. Perhaps the disjuncture can be explained as follows. When we deal with “friends,” we don’t insist on things just to show that we are the “better” deal maker. We let unimportant things go. We are willing to accept provisions that don’t have any real negative affect to our “side” but make the “other side” feel more comfortable.

In trying to reconcile what we believe to have observed, we have concluded that in each case, the negotiation “is personal.” In the case of dealing with “friends,” the characterization as “personal” means that maintaining a good reputation and a good relationship is personally rewarding. The party we represent gets a good deal because we have not seen the other side as an adversary to be defeated, but as a partner in getting that deal done. When we see someone as an “adversary,” we are going to engage in an “adversarial” relationship, and “making it personal” means trying to boost our own ego. Most often, that comes at the expense of who we represent.

The people we represent don’t give points for what outside observers might see as belligerence. Think about it. Have you ever dealt with a negotiator’s ego and seen that ego toned down when her or his “client” is also on the phone? Yes, “No points.” Better, faster, less expensive deals come about when we negotiate as friends. Remember, today’s adversaries are tomorrow’s friends. Bargain strong; bargain well; bargain with respect.

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Comments

  1. Ira – I would like to add one more to your last sentence. Bargain with integrity. There is no faster way to throw a transaction into the toilet than to lose the trust of opposing counsel. Make sure that no matter what things opposing counsel says about you after the deal is done (hopefully all good), your lack of integrity isn’t one of them.

    • Randall Gunn says:

      John: Well thought. Too often this notion is lost. Thankfully, in the transactional practice world, both sides are trying to make a deal. Obviously the better deal for your side but, a deal where the parties are going to be contractually living and working with each other for an extended time period.

      Transactional attorneys answer calls, return calls, respond to inquiries and generally act like reasonable people who could tolerate being in the same room with each other for a meeting without a referee.

      • Randall — Thank you, but I suspect a couple of those, ah, other lawyer types may differ with you a bit, but we know who the real gentlemen and lady lawyers are, don’t we? Yep, right again!

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