Keep It Simple Stu…

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Who hasn’t heard this or something like this? “Can we just make it simple and do a lease amendment instead of a whole new lease? We don’t need a new lease and it will save us money.” Often, that’s a hint that there’s going to be a big bill. And, worse, later on, when a question comes up, there will be another bill.

Ruminations isn’t talking about simple changes. For those, an amendment will almost always suffice, especially if it covers only one or two changes. But what about a lease assignment combined with a space reduction, some construction, a change in maintenance responsibilities, a letter of credit instead of the cash security deposit, and you get the idea.

Let’s distinguish between “complicated” and “complex.” Complicated implies difficult; complex implies a lot of moving parts. Complex lease changes may not be intellectually complicated, but that doesn’t mean they are simple to make. Why is that? That’s because some changes touch a lot of different provisions in a lease. And, the person preparing a lease amendment with complex changes risks missing something. She or he risks having conflicting provisions between the lease and its amendment. Don’t think that the savings clause: “In the event of any conflict between the terms of the Lease and the terms of this Amendment, the terms of this Amendment will control” suffices. As we have written over and over, courts seek to give meaning to every part of a document, even an amended one. If a court can find a way to say, “No conflict,” it will.

For anything but the simplest, narrow issue lease modification, the entire lease must be read, section by section. There are little savings to be had if the agreed-upon changes are extensive or complex. Then, when a provision in the lease is identified as one that needs a “change,” it is often easier to rewrite it than to create only modifying text. So, what often happens is that the lease amendment will read something like: “Section X is deleted in its entirety and replaced with the following: ……..” The new text might include new definitions and those need to be included in the amendment. This will repeat, change after change and, at times, the amendment will take on a life of its own as it passes the 10-page mark.

Then, years later, when memories have faded beyond usefulness, a question will come up. At that point, the person reviewing the lease will take out a pencil and begin to annotate the original lease, crossing out provisions, changing numbers, interlineating text, and noting cross-references to one or (usually) more amendments. When there are multiple amendments often modifying earlier ones, the reviewer first marks the lease with the earlier amendments and then overwrites those earlier annotations as she or he gets to the later amendments. At the end of the day, more time and money may be spent by using complex lease amendments than to rewrite the lease in the first place.

Another source of complexity is the way some deal sheets are written. Though a deal sheet may be a single document, it is far too common to find that the various “agreed-upon” provisions either conflict with each other or merely don’t play nicely together. One common reason for that is because the negotiating parties don’t really know what is or is not in the existing lease. You can tell that when some of the deal terms are already in the lease.

Deal sheets also can suffer from what we call, “a little too smart by half.” That’s when one party or the other has been bugged for years by some little thing and now wants a specific change to the lease. For example, the metal trash can lids are too noisy, so the tenant wants its landlord to put a provision in all of its new leases requiring plastic ones. [That’s a made-up example.] Our suggestion is that you’ve been living with such minor annoyances for years, let these things go. And, what remedy would the noise-sensitive tenant be looking for – half rent?

Ruminations has a couple of suggestions. First, when it comes to making a deal – keep it simple. Don’t incorporate complex administrative procedures into the deal. Leave those for whoever is going to prepare the document. Chances are the lease already has a procedure for what you have agreed-upon, say the making of alterations – it doesn’t need a second procedure in the lease amendment just for the new lease terms. And, let the person who will be memorializing the amended agreement decide whether a lease amendment is the route to take or if an amended and restated lease will reduce the chances of a dispute down the road. If the deal is worth making, paying to have it done right is worth doing.

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Comments

  1. If you amend and restate the whole lease, then that invites renegotiation of everything in the lease, usually not a good thing. So I typically try to do just an amendment. And if there have been previous amendments, I often like to amend and restate just all the amendments, including the current one. That does simplify the file for the future — and forces you to think through how today’s amendment interacts with history — but it avoids reopening the entire original lease. Of course it all depends on the circumstances, tastes, and people involved, and above all the scope of today’s amendment.

  2. Elliot L. Warm, Esq. says:

    I agree with Joshua as to this being a matter of all the circumstances. Another factor is the age of the original lease. Unless the amendment is a very simple one, there is sometimes an excuse to do an entirely new document where the existing lease is many years old. This allows the landlord to update clauses that have, at least presumably, been improved over the years. There is a learning curve by experience as well as changes in law, procedure and practice, and I would like to think, for example, that a current “master” lease used in my own office is significantly better than the comparable form from a decade or more in the past. The counterveiling consideration, of course, is the concept of reinventing the wheel with a new negotiation, but there are many tenants, particularly the smaller ones, who don’t balk much at what they are sent.

  3. Tim Scott says:

    A point well made, with deference to other commentators. I’m on the sell side of a PSA signed 6 yrs ago. The PSA drafter is wordy, and when the PSA changed to an Option he merely amended the PSA. We’re now 8 major amendments in and the too long PSA has grown to a book length tome. My annotated copy was ok into Amend 6, but then it got complicated as closing conditions changed, prior amendments were amended for the 3rd and 4th times, new provisions were added but not incorporated or referenced to the body of the PSA etc. Trying to make sure an amendment is adequate and other provisions aren’t affected has become a monumental challenge and creating a usable and logical annotated copy has become nearly impossible. And our deal doesn’t even have to last 20 years through multiple changes of managers on both sides. The KISS principle has great applicability and all too infrequent usage.

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