Let’s Learn Our Trade – Warning: A Rant

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Imagine you are the computer user of the century. There is nothing about using a computer you don’t know. [So you think.] Your friends call you day and night asking, “How do I do this; how do I do that?” Coding? – No problem. Formatting to produce a publishable book using Microsoft Word? – No problem. Manipulating data to prove or disprove human involvement in climate change, if there is such a thing? – No problem.

Then, one day, boxes from all over the world show up at your door. There are no notes, no letters, and no instructions to tell you what you’ve got. But, one of the boxes has something that looks very much like a computer case. With that clue and looking at the generality of some of the other things that were in the other boxes, your best guess, a good one, is that these are the parts for a computer. You’ve looked inside a lot of computers before. After all, your friends have had you play with some connectors; you’ve replaced a hard drive or two, even a solid state one. But, can you assemble the parts to make a working computer? Do you really, really understand how to assemble a computer? Will your proficiency in using a computer, even playing with its cables and poking around inside the case be enough for you to put all of those parts together? [Read more…]

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What’s In A Name: Gross And Net Leases

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Gross vs. Net Leases. Rent is the dominant continuing connection between a landlord and a tenant.  Almost always, all expenses arising out of real estate development are paid by tenants – taxes, insurance, maintenance and other operating costs, environmental costs, and the rest.  These costs may already be included in the initial rent.  In such a case, unless the lease is for a very short term, the tenant will thereafter separately pay the amounts by which taxes, insurance premium, and maintenance costs increase over the “base year” cost of those items.  The base year is almost always the first year of the lease term.  So, it doesn’t matter if the initial rent has already taken into account the then current taxes, insurance premiums, and maintenance costs or whether it doesn’t.  When they are included, the rent is higher and the tenant only pays subsequent cost increases – that’s called a “gross” rent lease.  When the rent doesn’t included these initial “pass-through” expenses, the tenant will pay, as “additional rent,” its entire share of the cost for taxes, insurance, and maintenance over and above the seemingly lower rent.  Leases employing this latter approach are frequently referred to as some form of “net” lease – “triple net” (NNN), “absolute net” or “net.”  Unfortunately for the inexperienced practitioner, those terms (and similar ones like them) mean little because, from their “nickname” alone, they cannot tell who is responsible for paying the costs to fix the building’s structure or flooring or items of similar character.  As a result, it is imperative that anyone preparing a lease find out “who pays for what.” [Read more…]

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We Reap What We Sow – Let’s Read What We Write

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We’re sure that, at one time, there were no written leases. It may have been that no one could conceive that putting the arrangement in writing would be desirable. More likely, it was that writing had not yet been invented. Jump ahead – handwritten, typed, and pre-printed leases came into being. And, then, the greatest invention of all – the word-processed form.

We imagine that when you wrote out a lease by hand, you already had negotiated the “deal” and all you were doing was to write it down. Our imagination isn’t good enough to have any sense as to how that felt, but it seems that some advantages of that process have been lost. Today, we’ll only touch on one of those – the scribe (or the one dictating the text) had to know the whole deal and then, to write it out, had to hear or read the deal in its entirety. The typed lease was probably a step away because, and we are guessing, the draftsperson might mark changes on prior, similar leases so as to reflect the new “deal.” Yet, there was no “search” or “search and replace” function – the editor-negotiator had to read the lease or, at least goodly parts of the lease. [Read more…]

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As Set Forth On Exhibit A (Not Actually) Attached Hereto

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As we were reading a very recent decision issued by the Supreme Court of Alabama, we once again were preparing to write how wasteful it was for the parties to litigate the issues raised. This urge happens often enough that Ruminations has considered preparing “boilerplate” language to be inserted at the end of many blog postings. Then we got to the concurring opinion. It could apply to many of the “manufactured” disputes created by one party or the other and supported by their advocates. Though the following words by that concurring justice give away part of the story we are going to tell, its content and tone resonate with Ruminations. We suggest that we all step back each time issues like these arise and reconsider our thoughts about litigating them.

[Read more…]

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How Do You Spell Trouble? ROFR, ROFO, ROLO, ROFN? All?

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Last week we expressed the belief that very few tenants are “entitled” to receive a Right of First Refusal (First Offer, Last Offer, First Notice) and that very few landlords should give in when any of these are requested. We also wrote that we didn’t think any deals would go south if the landlord said, “No.” Well, that’s the ideal world as seen by Ruminations. But, we also live in the real world. Sometimes leases give tenants one of those rights.

On August 4, 2013, in our 125th blog posting (this is our 383rd), we used this title: “What Were You Thinking? Was It a ROFO, ROFN, ROFR or ROLO?” Those who weren’t with us five years ago and those with sieve-like memories similar to our own, may want to visit that posting. That’s easy – just click: HERE.

The biggest issue with a landlord giving one of these rights to its tenant is not a legal one; it is not a business one; it is much simpler. Most landlords forget they’ve given them. It’s one thing to know that you’ve got to look at a lease to find its notice requirements. That’s a regularly occurring event and landlords develop the habit to do so. It’s the same thing when a landlord wants to send out a default notice. It knows that every lease is a little different and every lease has such provisions. So, it becomes a habit to look. [Read more…]

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Just Say No To The Request For A ROFR [What Say?]

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A contract, such as a lease, gives one party, say a tenant, a right it would not have without the agreement. That means the other party, in the case of our example – the landlord, has an obligation it would not otherwise have had. That’s the essence of a contract – an exchange of rights for obligations or duties. Think about it, without some kind of enforceable agreement, a lease (oral or written), a license agreement or a use and occupancy agreement, what right would a tenant have to possess its premises and what obligation would the owner have to allow it?

In real property law, a lease is a conveyance of an interest in real property just like an ordinary deed is a conveyance of an interest in real property. The difference is that an ordinary deed, one that conveys what the law calls a “fee simple interest,” gives the “grantee” the entire “bundle of rights” that come with ownership. A lease gives the grantee (the “tenant”) an “estate for years.” An estate for years has a “termination date,” a date upon which the tenant loses the right to remain in the premises. Basically, the tenant does not get any “ownership” rights after that date. [Read more…]

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Did They Guaranty The Lease For Its Extended Term?

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We’ve written about guaranties before, most directly in postings that can be seen by clicking: HERE and HERE. Today, we drill down to the enforceability of a lease guaranty after the lease has been modified, but without notice to or knowledge of the guarantor. Today’s Ruminating is informed by a January, 2018 unpublished opinion from the Maryland Court of Special Appeals. [Readable by clicking: HERE.]

A church’s lease was guaranteed by its Pastor, his wife, and six other church members. The church defaulted and its landlord sued for the remaining rent under a three-year extension properly signed by the Pastor on behalf of the church, but without the knowledge of the six church members. In fact, they didn’t even have a hint that the lease had been extended despite each being some form of “leader” in the church, though those roles appeared to be substantially ceremonial. Their only financial connection to the church was their obligation to tithe to it. The lower court described them as “commercially” unsophisticated.

The lease extension was by way of amendment. The lease did not have an extension option. The additional three-year term was related to a rent reduction sought by the Pastor and agreed-to by the landlord. The church performed until it didn’t with eight months to go in the lease’s term. At that time, by agreement with its landlord, the church vacated its premises. [Read more…]

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Can A Tenant Walk Out And Lawfully Stop Paying Rent When It Tires Of The Space?

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A restaurant’s lease permitted leasehold mortgages with the following proviso:

Tenant shall have the right … to encumber Tenant’s leasehold interest under this Lease … through a Mortgage (`Leasehold Mortgage’) with an institutional lender…. Landlord agrees that in the event the Leasehold Mortgagee succeeds to Tenant’s interest under this Lease (in which event it shall assume all of Tenant’s obligations under this Lease), Landlord shall, at the time of such succession, recognize such mortgagee, trustee or lender as the then Tenant under this Lease upon the same terms and conditions contained in this Lease and for the then unexpired portion of the Term.

Any such leasehold lender had the right under the lease to take over the tenant-borrower’s leasehold interest through a foreclosure. [Read more…]

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