Apocalypse Now For Shopping Malls?

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We had a posting teed up for this week, ready to click the “publish button” today. Then we read an on-line article last night, one about the most visible retail real estate we have – shopping malls. So, for the first time in nearly 500 Ruminations blog postings, we are scrapping (actually delaying) our planned posting, one focused on the danger of just plopping in new text at the last minute without reading all of the “notwithstanding” provisions already in that document. Basically, we interrupt your regularly scheduled blog posting to bring you this important message, one written today.

The article appears in today’s New York Times under the headline: “With Department Stores Disappearing, Malls Could Be Next.” In another first for Ruminations, click HERE for a link to the article. We’ve never before linked to another publication. Though this is a newspaper article written from the transitory point of view of one author, she spoke with the largest operators in the United States. We don’t want to substitute our summary for the actual article. Two of the printed quotations should be enough to give our readers the “flavor.” [Read more…]

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More Thoughts About Force Majeure Provisions

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Last week, we wrote about a court decision interpreting a lease’s poorly written force majeure clause. If you missed it, click: HERE to see it. Following that blog’s posting, we engaged in some “off-line” discussions with old friends about the scope of force majeure provisions. Basically, our back-and-forths concerned their scope: “Should they be broad or narrow?” Today’s posting is an outgrowth of those discussions.

Our position last week was that these provisions are “catch-alls,” i.e., they usually cover situations beyond the control of the parties. These clauses usually begin with: “If A, B, C, …, Z,” examples being labor strikes, meteorite crashes, etc. Then the clauses end with: “or other events beyond the reasonable control of a party.” The keyword is “other.” That tells us that A, B, C, and so forth are examples of things beyond the reasonable control of a party. They (A, B, C, etc.) don’t have to be listed. That is if people would agree that they are such. [Read more…]

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Is A Poorly Written Force Majeure Clause Worth The Ink?

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We’ve all seen, or perhaps been assaulted by, a surfeit of articles about force majeure clauses and how all of our agreements should include one. Other pundits have gotten way ahead of this one by explaining how we will have a better world if the advice to include such clauses would be taken by all. They’ve noted that very few agreements with a force majeure provision have covered the kind of closures we have experienced and are still experiencing. But, what we’ve not seen is much understanding that there is nothing special about a “force majeure” clause: it is no more than another risk-shifting device. What differentiates these provisions from co-tenancy or fire damage provisions is that force majeure clauses don’t know in advance how a particular risk will manifest itself. Even though some speak of “labor disputes,” “acts of G-d,” “public enemies,” etc., they invariably end with: “or other events beyond the control of a party” or some such. Without getting into the rules of contract interpretation, we’ll simply note that this teaches that these clauses are intended to relieve one party or the other of an obligation if something beyond the control of the obligated party prevents performance. [Read more…]

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“And, If Not” – The Question Left Unasked: Crafting A Lease Requires Thoughtfulness

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The court opinion we wrote about last week continues to bother us. It wasn’t only about the court decision’s primary question of whether an “election,” once made, can be revoked. There is a second aspect that bothers us, one that we will get to about 300 words from now. First, we’ll summarize what bothered us about how the lease didn’t “do the right thing,” “didn’t keep the question out of a court.” And, if the parties went to court, the lease didn’t give the court a rule or even guidance.

As to whether a notice, once given, can be revoked, we know that the parties crafting an agreement should cover that in their agreement. We also know that if the non-electing party reasonably incurs damages when relying on such an election notice, it should be made whole. If they don’t, then what should the rule be? Last week, we saw a court look at a lease that was silent on the question as to whether a landlord that sent a 12-month notice requiring a tenant to temporarily vacate its premises could change its mind two months before the required move-out date. It ruled that the election made by the landlord requiring such a move-out could not be rescinded. What the court failed to do was to adequately explain why it ruled that way. [Read more…]

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Exercising An Option – Can You Change Your Mind?

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We agree with most judicial decisions, though there are a very few we think are misguided (read that as “wrong”). But, it isn’t very often at all when we’re not sure what we think. Today, we’ll present one of those, a “slip opinion” about whether a landlord could “withdraw” a notice when the lease didn’t say so – either way.

The lease included a reasonably comprehensive set of provisions designed to allow a landlord to redevelop a multi-tenanted building, one with high-end retailers (and possibly others). The redevelopment, if implemented, would take up to three years before the building could be re-tenanted. The building had to be empty during the redevelopment.

Basically, the lease gave the landlord the right to “suspend” it for up to three years. During the “suspension,” it would be as if there was no lease. When the redevelopment was completed, the lease would spring back into effect, essentially as if time had stopped while the redevelopment was taking place. [Read more…]

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Bargaining Power – Will The Tables Be Turned?

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We could have made today’s posting our shortest ever by posting only its title. But, that wouldn’t be Ruminations.

Traditionally, though bargaining power has been very site/situation-specific, larger enterprises always had a head start. And, though that meant large, mostly national, tenants with “brand” names, more often it meant the “landlord.” Owners of multi-tenant projects usually had the upper hand over most tenants and prospective tenants – the small ones who populate and support our shopping centers. While large tenants could easily negotiate for exclusive use rights, even if their market power made those rights mere surplusage, small tenants desiring protection for their core businesses found themselves whistling in the wind. Large tenants got to use their own, tenant-focused leases forms, while small tenants were offered a Hobson’s choice – take it or leave it. [Read more…]

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A Sneaky Attempt At Amending A Lease Fails – Lessons To Be Learned

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A little more than eight years ago, we wrote: “[I]t seems like a fair number of lenders think the “A” in “SNDA” stands for “Amendment,” i.e., an amendment of the lease.” [Click HERE for more about that.] Today, we look at an Estoppel Letter and see whether the initial “E” stands for “Emendation.” [We found a website explaining the following: “Amend is to change something, usually a document or personal behavior, to make it better. Emend is to correct something, usually in a text, to fix an error.”] Either way, SNDA or Estoppel Letter, let’s stop trying to use those documents to amend or emend a lease.

In an April 15, 2020 published decision, a United States Court of Appeals court looked at the history of a lease and other lease-related documents for a single-tenant office complex. The validity of the lease and five subsequent amendments was not at issue even if there was some dispute over their meaning. All were signed by both the landlord and tenant. On the other hand, the court was presented with two other documents – one was a letter from the landlord to its tenant (signed only by the landlord), and the other an estoppel letter (seemingly) signed only by the tenant and given to the property’s buyer. The estoppel letter, in its recitals, referred to the landlord’s letter as one of the lease’s amending documents. [Read more…]

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Today, Hubris And Existentialism, Not “The Missing Comma”

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Hubris (hu·​bris), n. [Gr. Hybris].wanton insolence or arrogance resulting from excessive pride or from passion. That’s what it would be if we were to present today’s blog posting as if our subject matter was important in the current situation. It is also what all of us, unknowingly for sure, have demonstrated in thinking that our agreements could cover every possibility. If any reader had a COVAD-19 provision in their documents before January, we invite you to share it with the rest of us.

Countries have shut down walk-in commerce. In the states and Canada, stores, large and small, are closing “temporarily.” Restaurants, the “saviors” in today’s shop-on-line world, are closing “temporarily.” Hours are being cut back. Rents won’t be paid. Some, mainly marginal, tenants won’t be coming back. Some (pretextually) will use their co-tenancy right to “skinny down” their portfolios. We’ll all fight about the meaning of “force majeure.” We’ll be picking through our leases, open purchase agreements, and loan documents (including loan commitments) in an effort to “get out.” [Read more…]

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