Cross A State Line And Co-Tenancy Failure Remedies Can Become Valid/Invalid

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In early 2015, we characterized a California court’s decision in a co-tenancy clause case as: “[A] California appellate court has found a typical lease provision to be an unenforceable penalty.”  There, a tenant’s lease gave it the right to take a rent reduction and, after a period of time (if the landlord did not replace the lost co-tenant), it could terminate the lease. The California court allowed the tenant’s lease termination but made the tenant pay full rent during what was supposed to be the reduced rent period. Basically, it agreed with the landlord by holding that the substantial loss from the lower rent constituted an unenforceable penalty. For those interested in our description of that case and implied criticism as well, click HERE to step back to February 2015. [Read more…]

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We, The Real Estate Professionals, Are Fighting The Last War(s)

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We’re thinking of renaming the Ruminations blog: Incoherencies. Not really, but today’s non-technical posting would sure support such a name change. [We also rejected a change to Ramblings, but only because that would give fuel to all of those who have tried to pin that moniker on us.] Here we go. Fortunately for readers, today’s blog posting will be short (for Ruminations).

The Times They Are A Changin’ – by Robert Zimmerman – has these lyrics:

Come writers and critics

Who prophesize with your pen

And keep your eyes wide

The chance won’t come again [Read more…]

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For A New Landlord/Tenant, Does History Override An Unambiguous Lease Provision?

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We think this comes up much too often, and, it is often about rent, more often about additional rent, and sometimes it is about a non-monetary issue. What is “this”? “This” is about when a lease says one thing and the parties, over a long period of time, do another. We bring this up today because we just read a June 6, 2019 decision by the District of Columbia Court of Appeals.

A long-term air rights lease called for rent to change every five years beginning on the 10th anniversary of the “Lease Commencement Date.” The lease provided that the new rent [that’s what the court wrote, but we all know what it meant to say as that the amount of the “rent increase“] would be the current rent:

multiplied by twenty-five percent of a fraction, “the numerator of which is the CPI at the date of adjustment and [ ] the denominator of which is the CPI at the immediately preceding date of adjustment[:]”

By the tenth grade we were taught to convert that text to the following formula: [Read more…]

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What’s In A Name When It Comes To Sending An Extension Notice?

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We just looked at a court decision about a lease renewal notice and can’t make up our mind what we think about the result or about the wisdom of the issue having been litigated in the first place. We’ll begin with the story and conclude with the “wisdom” part.

A national retail chain store had an important lease in a big city. The initial lease term was ending, but there was a 5- year extension term available upon the tenant’s sending of proper notice. It seems that the agreed-upon extension term rent was, in the aggregate, $3 million below what the then-market rent would have been. To most of us, that’s “big bucks.” In hindsight, a savvy landlord would regret making such a deal. Some might even be willing to spend some money to thwart or, let’s say, resist, a tenant’s efforts to exercise such an extension option. If, perhaps, there was only an 8-1/3% chance of doing so, would one spend $250,000? That’s 8-1/3% of $3 million. In the Appellate Court of Illinois decision (of August 26, 2019) we just read that is what happened. The landlord spent $125,000 (or so) to cover its successful tenant’s legal fees, and (presumably) a similar amount for its own fees (or, possibly less – we don’t really know). It lost. [Read more…]

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Who Wrote Your Lease, Loan Agreement, Or Other Document?

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“A committee is a cul-de-sac into which ideas are lured and then quietly strangled” — Sir Barnett Cocks. Much the same can be said about the documents we read and, sadly, write. Sir Cocks didn’t necessarily mean only that ideas were strangled to death. We want to think he also was thinking about damaged survivors, the ones that survived, but with a life-long injury.

Think about the process we follow to create a written agreement, whether that is a lease, an easement, a loan agreement or any of the others we, Ruminators, can list. In most cases, we start with a form written by predecessors. The words in those forms aren’t “ours.” The “voice” isn’t “ours.” In some cases, we cut and paste from a selection of related forms, each with its own voice. Then, we modify this “base” document, adapting it to the deal in front of us. In simple cases, we fill in some blanks, delete some provisions, and add a few. In others, we make significant changes, some to the very core or philosophy of what the form’s original authors had in mind. Our additions might have been written solely from our own thoughts; they are never tabula rasa (def.: an absence of preconceived ideas or predetermined goals); they never are. In fact, our additions often are snippets from something else we or others have written. [Note that we’ve written “authors,” not just author. That’s because our selected foundational document or document very likely was put together in the same way we are describing.] [Read more…]

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Insurance Proceeds: Use Them Or Lose Them

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When it comes to some property insurance proceeds, the tag line is: “Use it or lose it.” Most agreements such as leases and mortgages, even poorly written ones, call for one party or the other (or both) to carry property insurance for “replacement cost.” [By the way, “full replacement cost” isn’t one barleycorn larger than plain, old “replacement cost.” A full quart of milk takes up no more space than a lowly quart of milk. And, it isn’t “replacement value,” it is “replacement cost.”] But, “replacement cost” doesn’t mean that the insurer goes out and writes a check for what is determined to be the damaged property’s replacement cost, even if the property is totally destroyed. The insured only gets paid for the cost of what is actually repaired. Note that we’ve just written “repaired,” not “replaced,” even though the coverage is called “replacement” cost. That’s because “replacement cost” is a limit, not the amount that is going to be written on the check. [Read more…]

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Landlords Can Be Liable For A Tenant’s Sale Of Counterfeit Goods

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Should a landlord be concerned about trademark or copyright law? Perhaps, not overly concerned (considering how many other challenges they face), but the answer is: “Yes.” Simply stated, a landlord can be liable to legitimate product suppliers if a tenant is selling counterfeit goods. Is it as simple as that? Well, no – but that’s the law, and there are court decisions that have cost some landlords “big bucks.”

The “problem” is mostly at flea market or swap shop projects, but there is no legal principle that would exempt “legitimate” shopping centers if a tenant is selling counterfeit goods. What we find interesting is that the only places we’ve seen a lease provision directly addressing this issue are at “super-max” centers where the probability of a tenant deliberately selling such goods is pretty low.

We’ll begin with some background. Everyone knows that trademarks are protected by law. To get all of us on the same page, here is how the United States Patent and Trademark Office explains a trademark: [Read more…]

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How Do I Lose An Exclusive Use Right? Let Me Count The Ways

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If you operate a liquor store at a shopping center, would you like to be the only one there? Of course, you would. It isn’t like a dress shop where other stores would have different styles and price points and those other dress shops will bring you business as well. But, when it comes to wine and liquor, everybody carries the same core items. Some will skew their wine offerings in one direction; others may have a different wine focus. But, when it comes to wine and liquor, all merchants have the same merchandise available to them and all can sell whatever everyone else sells.

So, it will come as no surprise that a large-scale liquor store at a shopping center negotiated and was granted some exclusive use protection. This is exactly what its lease provided: [Read more…]

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