Out With The Old Perfectly Good Lease, In With …

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Well, another holiday weekend has rolled around. When that happens, we try to stay away from technical or detailed topics and just Ruminate about things that trouble us. We try to throw out some easily digestible thoughts and await the bounce-back. Today’s posting meets those criteria, but after hacking out today’s blog posting, we were haunted by two old quotations. Both are almost certainly wrongly attributed to Samuel Clemens a/k/a Mark Twain. But, that doesn’t make them any less disturbing.

The first is: “What gets us into trouble is not what we don’t know. It’s what we know for sure that just ain’t so.” The other is: “When I was a boy of fourteen, my father was so ignorant I could hardly stand to have the old man around. But when I got to be twenty-one, I was astonished at how much he had learned in seven years.”

Guilty on both counts.

Here’s the puzzle, one that wasn’t a puzzle when we were younger. Isn’t ignorance beautiful? Imagine this situation. There’s a shopping center lease executed in 1976, 40 years ago, and it has run out of extension options (then probably called “renewal” options). The lease has worked well. In fact, over the 40 years, no one ever dragged it out to look anything up other than to see what had to be done to exercise one of those extension options.

Now, the parties want to extend the leases term by another 10 years and add two 5- year extension options beyond that ten. They also want to make six discrete business changes.

Many readers have been there.

Do you update the lease? By update, Ruminations means replace it with today’s hottest and greatest form, one that has absorbed all of the horror stories every heard of, true or not. Do we reflect any changes in the relative bargaining power of the parties from that of 40 years ago?

Here is our provocation for today:

Ruminations has long adhered to the wisdom of another quotation, also one with a challenged attribution: “If it ain’t broke, don’t fix it.” A much more appropriate expression of the same thought is this newly discovered one: “If it ain’t broke, don’t break it.” [We are too old to remember if we ever thought differently, but are sure that once we really pondered the issue, this is where we would have come out.]

On our side is the “proof of the pudding” [don’t invite us to go off on another tangent about that saying]. Though “past performance is not an indicator of future results,” and most of us ignore this warning, there is a lot to be said about how the world works. When we write a lease afresh, we try to anticipate everything that might happen during the lease’s term. Nonetheless, we don’t cover everything for reasons that include using our judgment to skip over the silly things (the possibility of alien abduction, for example), not being sufficiently prescient, and just plain incompetence. Yet, despite these shortcomings, we feel confident that we’ve covered everything.

In contrast, we have 40 years of experience with the hypothetical 1976 lease. If that lease was deficient, we’d know it and could cover the situation when doing a lease extension-amendment agreement. The deficiency would be known by both parties. If that wasn’t the case, the “deficiency” would be just something one party wants, but the other party doesn’t yet know it.

Ruminations is quite capable of making the “other side’s” argument in favor of an entirely new lease, but won’t. That’s because our children long ago celebrated their 21st birthdays.

Brickbats can be sent to us, and shared with others, through use of this blog site’s comment feature.

 

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  1. Mordy Bobrowsky says:

    I would suggest that the “peaceful” 40-year tenancy might be indicative more of the ideal landlord-tenant relationship and less of the efficiency or deficiency of the lease. In my experience the best results come from common-sense business agreements, with the lease being something to be seen but not always heard.

  2. Barry Bell says:

    To paraphrase from a moronic bumper sticker, “Leases don’t litigate, people litigate – and while leases don’t change, people change!”

    If (1) you represent the landlord, and (2) he was a party to the lease 40 years ago, and (3) the tenant is the same individual that signed the lease 40 years ago, and (4) your client tells you not to change a thing, and (5) you can get an enforceable promise from him that he won’t sue you when something that was not contemplated 40 years ago suddenly rears its ugly head and nothing in the lease covers the issue, then I say, “Sure, go ahead and use the old lease – – at your peril!! But that’s a lot of “ifs.” Corporate/institutional/chain store tenants have ever-evolving real estate departments. More than once when dealing with them and suggesting “let’s just use the same form you accepted on the such and such deal,” I’ve been told “we don’t do it that way anymore.” Once when I tried the art of persuasion I was told by the tenant’s representative that “There was a new sheriff in town.”

    So I just think that unless you’re doing a deal in Lake Wobegone, an attorney would be foolish to agree to rely on a 40 year old lease form for another potentially 20 years.

    And even though it may not be broken, that doesn’t mean that preventative maintenance shouldn’t be performed at convenient intervals!

  3. Howard Burns says:

    Many 40 year old leases cover 95% + of what can ‘go wrong’ today and do it well, perhaps more fairly and more clearly than the current ‘in vogue’ language. IF the form is decent and fair then Amend it if you must with no more than 6 clarifying or updating sections. If on the other hand it is an old ‘form’ lease done by some organization that was lousy to begin with and has only survived because neither party cared about it so long as rent was low and paid on time, then re-do it entirely.

  4. Jim Henegan says:

    A few years ago I had 2 auto center/tire store leases expire without options. The auto centers were in the rear of 2 enclosed regional malls, inside the Mall, but with no frontage on the interior of the Mall. The stores had been there for 40 years. They were great leases for the Landlord because it was what would otherwise be “dead space”. Even destination restaurants would want more visibility. The Tenant was a subsidiary of a Fortune 200 company, a very strong credit tenant.

    The Landlord (one of the 3 largest regional mall owners) insisted on using their most recent in-line space lease. The original leases were very short and a new lease probably made sense, but trying to apply an in-line lease for a 2,000 sq ft clothing store to an auto center/tire store, was a problem.

    The Lease prohibited having hazardous materials in the Premises (other than cleaning materials). The Tenant was not allowed to exceed a certain load on the floors. Auto repairs were a prohibited use. The Landlord had to agree to not to build in the Common Area in a manner that would keep cars from being able to drive into the Premises. Hours of operation for an auto center are different from a Mall. They open earlier and generally close earlier.

    Auto centers cause odors (usually mild), noise, and vibrations and have increased floor loads and use hazardous materials in their operation. All things prohibited by the new lease form.

    The lease required a staff of sales personnel sufficient to operate a first class, high quality, fashionable store. They were nice auto center stores, not fashionable.

    It prohibited displaying merchandise outside the store (Tenant has 2 tire racks usually kept on the apron near the overhead doors).

    It took 6 months to negotiate the Lease. The attorney handling the project for the landlord did not have the authority to make what were pretty obvious changes. The supervising attorney had to be on several conference calls with a leasing vice president. On more than one occasion I said, “Can we just put in that the Tenant can keep operating in the same manner that it has operated for the last 40 years?”

    Eventually we made all of the changes and got a fair lease signed, but it would have been much easier to just do a 2 or 3 page amendment, extending the term and granting a couple options.

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