Who Knew Purchase Options Could Be So Complicated?

Print

We don’t know if there are more ways to write a purchase option in a lease “wrong” than right,” but we do know opportunities abound. Here are a couple of examples. The first is based on a statement of California law within a court opinion from March of 2018. [See it by clicking: HERE.] Basically, that court lifted text from earlier cases, each of which is pretty stark. Here they are:

Where an option to purchase exists within a lease agreement, the exercise of the option to purchase causes the lease and its incorporated option agreement to cease to exist, and, instead, “a binding contract o[f] purchase and sale c[omes] into existence between the parties.”

[W]hen defendant exercised the option granted her to purchase the property by making the first payment of $500 thereunder, the lease and option agreement no longer existed and a binding contract of purchase and sale came into existence between the parties.

Further, a consequence of the termination of the lease agreement is that the former lessee’s obligation to pay rent under the lease also terminates, unless there is an express stipulation that requires continued rent payments after the exercise of the purchase option.

Where the relation of landlord and tenant exists under the terms of a written lease, containing an option to purchase which the lessee exercises, [and it is exercised,] he is no longer in possession as a tenant, but his possession is that of a vendee.

[Read more…]

Print

Consent Expressly Given – A New Look

Print

Sometimes a party has the right to withhold its consent when the other party requires that party’s consent. And, sometimes the right to deny consent is desired to be absolute and unconditional. In such cases, and for a very long time, Ruminations has been using a formulation saying that such consent “may be withheld for any reason or no reason at all.” We just read a June 28, 2019 Supreme Court of Texas decision possibly chastising us for wasting those words. After analyzing a contract provision stating simply that a party could not assign its rights “without the express written consent” of the other, that court wrote that the added words, “for any reason or no reason,” were surplusage. As that court wrote, consent-required provisions with or without the extra words have identical meaning. Accordingly, “the same can be said” as to a provision reading that consent “can be granted or withheld at [a party’s] sole discretion.”

Before every reader starts searching for an eraser to take to their form agreements, there is a caveat. This decision came out of the state of Texas. That’s not going to be the law in every jurisdiction. Also, it was based on the premise that a provision, in an oil and gas “farm-out” agreement saying that one a party could not assign its interest without the other’s consent, is “unambiguous.” [Viewing Wikipedia would tell you that “a farmout agreement is an agreement entered into by the owner of one or more mineral leases, called the ‘farmor,’ and another company who wishes to obtain a percentage of ownership of that lease or leases in exchange for providing services, called the ‘farmee.’”] When a court decides that an agreement’s provision is not ambiguous, it refuses to look outside of the agreement itself to aid in interpreting that provision. It accepts the “plain meaning” of the words. At most, it will refer to a dictionary of its own choice, sometimes, as Ruminations, has noted, one with a definition that supports an already decided conclusion. What a court won’t do is to look at prior discussions or negotiations to aid interpretation. [Read more…]

Print

Is The Next Landlord Liable For The Brokerage Commission?

Print

We’ve always been a little murky as to whether a successor landlord always becomes obligated to pay renewal commissions to the original broker responsible for the presence of an existing tenant. After all, there is no actual agreement between that later landlord and the broker whose original commission agreement calls for the payment of a renewal commission. The broker can’t point to where it and the successor landlord “shook hands.”

But, it is pretty common for leases themselves to include provisions such as: [Read more…]

Print

What Is A “Reasonable Time”?

Print

What is a “reasonable time” for something to happen or to get done? Do we ask this question of ourselves when we use that phraseology in our leases and other agreements? We can’t avoid using concepts such as “reasonable,” “material,” “promptly,” and the like, but are we being as careful as we should be when sprinkling them around?

There are good reasons to use what Ruminations has called “weasel words” or “deliberate ambiguity.” [For earlier thoughts on this subject, click: HERE.] Basically, we don’t always know how long something should or will take, even when diligence is observed and proper efforts (whatever those are) are employed. After all, we may know that the time for something to happen may be affected by adverse weather, but we don’t know whether there will be any such weather. We might know that a particular repair, say a roof replacement, might take 30 days from beginning to end in the summer, but not how long it might take in a winter season five years hence. So, we use “reasonable” when setting a time limit for such work to take place. [Read more…]

Print

Are Waivers Enforceable?

Print

Are waivers enforceable? It depends. How unsatisfying is that answer? Generally speaking, absent duress or coercion, parties can waive what would otherwise be their right. How does one know if there is (was) coercion? Well, some situations, such as an actual gun to the head, are easy to identify. Others are not so simple. When it comes to agreements between commercial parties, there is a presumption that they are grown-ups, able to protect their own interests. The “bigger” they are, the less likely a cry of “coercion” will rule the day. Representation by an attorney will dull a party’s claim that it was improperly forced to agree to a waiver (or other contract terms). When courts reject a party’s plea that it was coerced, you’ll often see the “deal” as having been between “sophisticated parties that negotiated at arm’s length with apparent care and specificity, and represented by competent counsel.” All of those factors concern themselves with the character of the parties and how they arrived at their agreement. [Read more…]

Print

It’s A Rule: A Good Rant Is Cathartic

Print

Can you make a list of the institutions or people who employ “Make ‘em up as you go along” rules? To get the thinking process going, try bank tellers or low-level government employees. E.g.: Teller: “You need to include your middle name in the signature used to endorse that check. It’s a bank rule.” You: “But, that wouldn’t be my signature. I don’t sign my name that way. That’s my rule.” Who wins?

Someplace in the annals of U.S. Supreme Court decisions is a statement to the effect that long after the need for a law has expired, we find a new justification to enforce that law. We know it’s in there, and when we find the actual quote and the Justice who said that, we’ll post our (re)discovery.

So, now we’ll rant. Why do some, perhaps most, commercial lenders employ so many documents? Don’t any of the old ones (the documents, not the lenders) ever die gracefully? We have a notion, completely unsupported by any facts, that the industry suppliers of “stock” loan documents all engage in the following marketing process. They produce a grid listing themselves and three or four competitors across its top. Then, along the side, they list the 20 or so forms in their own offering with a check mark in their own column matching each such form. Their competitors’ columns are populated with a combination of green check marks and red X’s. This, of course, proves that the chart producer has the “best” loan document generating program.

Well, that doesn’t sit well with the X- ladened column holders. So, they add all of the “missing” forms to their own packages, and, for good measure, add a few the others don’t have. This infuriates each of the others, who then declare: “I’ll match that and raise you one form.” You get the idea.

Now, that’s only a start. For example, one of the documents is a “Corporate Consent to Loan” form. It is pre-printed (today, “pre-printed” means computer generated), and is on the loan document checklist. It doesn’t matter that the borrower is a proprietorship or a limited liability company. The bank “officer” MUST get this form executed. Of course, the officer (or closing agent) has no idea what is going on other than, “It’s a rule.”

Now, Ruminations knows this really doesn’t happen. NOT! (There’s our pop culture reference for today).

There are less obvious “checklist” items for which the reason for existence is known only to archeologists. Does a lender really need a copy of the canceled check for an insurance policy paid for eight months earlier even if it has a certificate saying the policy is still in effect? Doesn’t one subsume the other? Oh, yeah, each of us could make up a reason, one that starts with: “But, suppose …” We’d prefer to hear: “Oh, yeah, we don’t really need it.” [Except, it’s on the checklist and we really do need it because: (a) it’s on the checklist; (b) that’s the rule; (c) suppose we get audited: (d) no one else ever objected; (e) for as long as I’ve been here …; (f) etc.]

Isn’t there a rule that rants don’t have to be orderly and organized? So, here’s a related one. Ask, “Why do you need this?” and get this answer: “Because that’s our rule.”

While we are on a tear, is there a rule that once a new form is created, it can neither ever be eliminated nor integrated into another document? There must be.

At a time when a corporate filer was no longer required to stamp or emboss its seal on its federal tax return, the form still had a place for those filers who still wanted to show off their seal. Today, one will still find lenders (and others) who insist upon the placement of a physical seal on documents that don’t otherwise require one. [The word “seal” alone does the job in the limited circumstances where a “seal” has a legal implication.]

Apparently, it is easier (safer) to add than to delete. Do form documents ever get any shorter? Almost always – no. Kudos to those enterprises that periodically step back and revisit theirs, few as those enterprises may be in number.

Well, Ruminations is a rule breaker. Rants are required to be long and rambling. Today, we just rambled but have kept it short (for Ruminations, that is). We only wanted to light some kindling for our readers to benefit from as they throw their own wood on the fire. Join us in today’s rant theme by posting a comment.

Our last thought for today is that making up rules as you go along isn’t all bad. Take “Calvinball” for example. What is that? Click: HERE or HERE to find out.

Print

You Need To Know French To Choose Applicable Law For Your Agreement

Print

Today, we begin with a French lesson. The French word, “renvoi,” means “to return,” in the sense of “sending back.” In law, “Renvoi” is a doctrine, and what follows is why you’ll be pleased to know that.

Last week, we tackled the humdrum, excitement-lacking “boilerplate” of specifying, in a lease or other agreement, an exclusive venue for litigation. What we didn’t even hint at was that just because the parties are obligated to duke it out in a particular jurisdiction doesn’t mean that the law of that jurisdiction will apply to their fight. Often, but not always, parties are free to specify which jurisdiction’s (state’s) law will govern their dispute. As to the location (venue) for the match, though some states will allow contracting parties with no connection to those jurisdictions to avail themselves of that state’s courts, most still require the parties or the subject matter of the dispute to at least “touch” their state. For example, if a loan is made in State X on a property in State Y, but the lender or borrower is in State “Z,” it is likely that each of those three states would allow its courts to hear the dispute. But, which state’s law would apply? A less than comprehensive list of the factors a court will use in deciding to apply the law of a jurisdiction other than its own would be: the parties’ intent, their domiciles, where the lease or other agreement was executed, and where the property is located. In the case of “property,” a secondary analysis is made as to whether the property is primary or secondary to the agreement in front of the court. For example, a personal guaranty of a mortgage loan may only have an attenuated relationship to the property serving as collateral for the loan and the parties are able to call for jurisdiction where either the borrower or lender “resides.” It could also be, but isn’t required to be, where the property is located. [A separate issue is whether a party or either party can be served in other than its “home” state, but we’ll leave that for another day (if ever)]. [Read more…]

Print

Look At The Venue Language In Your Agreements

Print

After punishing loyal readers over the last two weeks with a two-part, 4,704-word exploration of rice, Oriental cuisine, and (yes) tenant exclusives, we will now retreat to a relatively simple, unconvoluted posting. It will be short. But, wise readers will want to look at a few sentences buried inside the boilerplate of their form agreements – leases, guarantees, and so forth.

There may be a state courthouse in every county throughout the United States, but that’s not true about federal courthouses. [We’re not even sure that every U.S. County has its own courthouse. That’s something that requires “local” knowledge.] But, you don’t have to have a courthouse in your county to be subject to a federal court’s jurisdiction. There is something called, “venue.” That’s the county or district housing the courthouse where criminal or civil cases must be heard. Courthouses are “venued” in a particular location even though they can have jurisdiction over a much larger area than just their county of venue. The trick is that the boundaries of a “district” and that of a “county” are not the same. With perhaps a very small number of exceptions (known to some readers located in those places), a federal court’s “district” encompasses a number of counties (in Louisiana, “parishes”). For example, New Jersey has one Federal “District,” the “District of New Jersey,” but it effectively has three (lower case) “districts” with courthouses in Camden, Newark, and Trenton. California and New York each have four (upper case) “Districts,” but a lot more courthouses. For example, in New York, there are 11 federal courthouses. [Read more…]

Print