You Can’t Cover Everything; So, What’s One To Do?

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Leases, mortgages, and the other agreements that are grist for our reader’s mills get longer and longer. Word processors, now long ago invented, are accomplices in this crime, and we’re talking both about the job description and the equipment. Yet, even with technology, you can’t cover everything.

Post-agreement behavior is critical to making agreements work. Not very far down from this sentence, we’ll try to explain.

It is estimated that the typical novel contains 65,000 words. Clarissa, or, the History of a Young Lady is an epistolary novel by Samuel Richardson, published in 1748. It is estimated to contain a tad less than 1,000,000 words (and is available as a 1,534 page paperback if you are interested). Does this book obviate the utility of 15 “typical” other novels? For those who have read Clarissa, is it 15 times “better” than the typical novel?

The Internal Revenue Code is estimated to contain about 3.8 million words (but only 11,400 in 1914) and, with its accompanying Regulations, U.S. tax law (not including case law) has about 9 million words, though not all of them different. Yet, a disagreement about tax law comes up every 7.5 seconds. [OK, we made that “fact” up, but you know the point we wanted to make.] How could that be? Nine million words MUST cover EVERYTHING. Right? Well, if there are gaps in a 9 million word set of documents (think of the Regulations as an exhibit to the Internal Revenue Code), then is it possible that there can be a lease in which no leaf has gone unturned? [We came across a library fund-raising campaign title, “No leaf unturned,” and its website presented us with today’s underlying message, words from Henry Ford: “Coming together is a beginning. Keeping together is progress. Working together is success.”]

So, after researching the length of novels and of the U.S. tax code, we turned to looking at leases. Some of our recent ones that seemed to run pretty long and we found one with about 91,000 words, longer than the typical novel, yet far short of 9 million words. So, by analogy, we concluded that if the tax code doesn’t cover everything despite the enormous cost to write, amend, and maintain it, whose lease is going to come close to doing the job? And, that goes for mortgages, SNDAs, and all manner of real property (and other) agreements.

How can the world function with such a shortcoming? We think the answer can be found by recognizing you can’t predict every situation and “predestine” every outcome. It takes contracting parties working together, applying common sense, and showing a willingness to belly up to the bar when it is the right thing to do.

Very often, those who craft and negotiate agreements are asked to divine the solution to a dispute. That’s probably because they know what would be a reasonable commercial expectation. Yet, too many of us think we are being asked to “rule in favor” of our client or employer.

Where a landlord and tenant (by way of example) each have a legitimate, but different, expectation and the governing document really doesn’t have THE answer, it often makes sense to “work it out,” especially when the topic at hand is really “no big deal.” Standing on principle is very, very important, except that the principle in commercial transactions is actually spelled as “principal,” i.e., the “bottom line.” Good ongoing relationships have monetary value. Tit for tat is costly.

Relationship building begins with negotiation. Hard negotiating is appropriate, appreciated, and expected. Unpleasant negotiating is not. But relationship building does not end when the lease or other agreement is signed. We’ve observed that lenders “get it” and strive to maintain good customer relationships with their borrowers. Borrowers have become similarly inclined. Newbies, it wasn’t always like that. We think competition in the lending market has driven this change. Regrettably, as we continue to see it, landlords and tenants haven’t come that far.

Landlords, there is a difference between “can’t pay” and “won’t pay.” While it is true that, in either case, the rent will not have arrived, each situation can be approached in a similar way – through building a personal relationship. When a national or regional tenant stops paying rent or runs later and later, there usually isn’t anything a particular landlord can do to get paid. If it is out of money, you’ll meet in Bankruptcy Court. In fact, if it has run out of money, you’ve probably been receiving the rent, but you’ll meet there anyway. If it has the money, but “won’t pay,” it will have told you, over and over, why it is withholding payment.

But what about the “little” tenant? If it “won’t pay,” it might or might not have communicated its gripe to you. If it can’t pay, then it probably hasn’t told you that it can’t or told you if and when it can pay. So, how about an old-fashioned personal visit? That seems to have been forgotten in this world of instantaneous (and impersonal) communications.

Yes, Ruminations urges that landlords and tenants regularly meet and talk. It makes good business sense. It saves money and the cost of blood pressure medication. It allows each to cut off problems before they become “issues.” Tenants have good ideas; landlords have good ideas. Tenants are the eyes and ears at a property; landlords are in the hospitality business, just like a hotel. Tenants are the paying guests. Their suggestions are valuable.

If there is a roof leak, everyone knows it has to be fixed. What property owner wants a mold problem? But, fixing a roof leak is an art, not a science, and roof leaks can be stubborn. When a roof leak persists, tenants can’t know “why” unless they are kept in the loop. Stopping by to update a tenant on how the problem is being attacked can not only delay (or avoid) the first of a series of unpleasant letters from affected tenants. There is nothing wrong, per se, with one party putting the other party “on notice,” but if the roof is being handled in a diligent manner, the notice can be oral and not adversarial. Let’s all remember, the object is to fix the problem as quickly as is practicable, not to “build a file.”

In law enforcement, there is a concept of “prosecutorial discretion.” Simply put, and by way of example, not every jaywalker gets ticketed. In fact, few do. That doesn’t mean the police officer shouldn’t say something. It means: “let’s keep perspective.” Prosecutors act the same way (or should do so, but for their fear of being seen as “soft”). Landlords: visit your tenants regularly, either drop by to talk to the proprietor or, in the case of a chain tenant, the store manager. It is good business. Tenants: take this opportunity to explain any perceived problems, whether coming out of your own operation or out of the landlord’s operation. Tell your landlord of things that you believe aren’t being taken care of at the property. It is good business.

How does this all relate to our opening thoughts about “long” and “complete” being from two different universes? Well, if the contracting parties have a good relationship, they are far, far more willing (than adversaries) to reach practical solutions to issues not “exactly” covered in their written agreement. People who have a good working relationship want to maintain that good relationship. It’s human nature.

Over the years, many attorneys and contracting parties have come to us with an agreement, usually a lease, and have presented us with their “set of facts,” asking: “what’s the outcome?” About half the time, we say the same thing: “We don’t know; the lease doesn’t cover this situation.” Yes, the lease could have (and often, should have) anticipated exactly the issue that arose, but it didn’t. After we admit our inability to find the “answer” within the lease, the inevitable question is: “So, what should we do.” To that we have a stock answer, a distillation of today’s rambling blog post: “Work it out.” Our experience is pretty predictable. Where the landlord and tenant have a good working relationship, they do. Otherwise, they fight and many then litigate to an unpredictable and often mutually unhappy end.

Property managers, Ruminations needs your support today. Please share your thoughts by adding a comment to this posting. If you don’t, readers will think we’ve gone “softy” in our old age. We’d like to think we’ve grown wise. “Coming together is a beginning. Keeping together is progress. Working together is success.”

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  1. Margaret Petersen says:

    Absolutely spot on observations and advice. Over the course of the nearly 20 years that I was in house r/e counsel for a [now defunct] retailer with, at the time of its eventual BK filing, 800+ stores (so lots of opportunities for squabbles), one of the major reasons I made it a point to attend the annual ICSC Law Conference was to build relationships with our many landlords’ attorneys, both in house and outside counsel. When, invariably, a conflict arose, whether on site (those darn roofs! those last minute parking lot resurfacing closures!) or in lease accounting (oy, the end of year rec disputes…), it was so much more productive to speak directly with a human being on “the other side”, and almost always we reached a resolution or at least cut each other some slack. Relationships! It’s a huge part of the leasing business! And the lease often doesn’t – and, to your point, can’t always – have the neat answer embedded in its 1,000s of words.

  2. Your deep insight and words light up so many clues to the whole “blanket” of cultural history that covers/dominates/pressures/releases the day-to-day interaction of people and enterprises.
    In the retail property business in Turkey, I must admit that it seems impossible to close the gaps between law and reality that have been developed through centuries; in my opinion, Alexander the Great, Hadrianus, Justinianus and Soliman the Magnifient are to blame! Well, in one sense, they were only human too!!
    Thank you for your contributions to my knowledge and perspective.

  3. Absolutely correct. In fact, I have written a “Breaking A Lease” pamphlet for those Tenants that have run out of money, and Landlords will agree with 99% of what is in it! It’s all about communication between the Landlord and Tenant, and compromise in an unexpected situation. When a Tenant runs out of money – its not like they MEANT to – then its time to figure out what to do next, and walking away with no notice to Landlord is the worst possible solution. I like your “Can’t Pay Vs Won’t Pay” – an important perspective to keep in mind!

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