Retail Real Estate Law

Negotiating Exclusive Use Clauses (With Sample)

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It is the rare retail project that is unencumbered by exclusive use rights granted by a landlord to one or more tenants.  While that may not have been as true in the distant past, this is now the “rule of the game.”  What is more, this concept has begun to spill over into the office leasing environment.

Large space tenants have the bargaining power to demand protection against competition within the project.  Conceptually, such protection is not unreasonable.  Think about it.  A large (often specialty) retailer draws customers to its store by dint of its reputation and expensive advertising.  Uncurbed, competing businesses would locate “next door” and draw business away just as a parasite would feed on a host.  In the office context, there are tenants who don’t want employees and invitees of competing businesses to be present in the lobbies, elevators, and lunchrooms. [Read more…]

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Maybe A Word Doesn’t Mean What It Unambiguously Means

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Let’s get out in the world. Let’s leave our silos. Let’s break through the real estate bubble. What is Ruminations babbling about? Real property law is not an island unto itself. It is part of the entire body of law. Yet, even those few of us who search for “real” law don’t often look at what courts say in other areas. There are things that can be learned by leaving the real estate tent to see how the rest of the (law) world lives. Today’s blog posting could show why we need to take such strolls. It describes a court decision about how to interpret a seemingly unambiguous trust document. There’s a story behind it and here it is.

As part of her estate plan, a grandmother left her estate’s assets to a trust that paid its income to her surviving husband. She specified that whatever was left upon his death was to go to her surviving grandchildren. Biologically, she had six. Two of her three children insisted that when she wrote “grandchildren,” she only considered four of those six as such. The woman suffered from no mental deficiencies. She was fully competent right up until her death. She could count. She could name all six. Yet, a court agreed that when she said the trust’s assets were to go to her grandchildren, she might have meant only four of them. [It didn’t reach that conclusion. It ordered a lower court to hold a trial to determine what the word “grandchildren” meant to her – what was her “personal” definition.] [Read more…]

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Writing That One Must Arbitrate May Not Be Enough To Require Arbitration

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We’ve written about arbitration a few times and made reference to this alternate dispute resolution process in several blog postings over the years. [For example, click: HERE or HERE.] Those who read our Ruminations may remember that we are somewhat ambivalent about its general use and a little more inclined toward its use for specific, discrete disputes, such as battles over operating expenses.

Today, for the benefit of those who like the concept and who use provisions such as: “All disputes hereunder will be resolved by arbitration,” we have a new warning. [Perhaps, we should write, “alert.”] When we first heard about an Appellate Division ruling from a New Jersey Court, one that threw out a contract’s “must arbitrate” that read as follows:

Any and all claims or controversies arising out of or relating to [plaintiff’s] employment, the termination thereof, or otherwise arising between [plaintiff] and [defendant] shall, in lieu of a jury or other civil trial, be settled by final and binding arbitration. This agreement to arbitrate includes all claims whether arising in tort or contract and whether arising under statute or common law including, but not limited to, any claim of breach of contract, discrimination or harassment of any kind.

we said (to ourselves), “That must be wrong.” After all, doesn’t the quoted provision clearly and unequivocally say that any and all claims have to be arbitrated? But, after reading the decision itself, we switched sides. That’s not to say that New Jersey’s Supreme Court won’t reverse the ruling, because it might. After all, courts just seem to “love” arbitration and seem to bend over backward to validate every agreement to arbitrate. On the side agreeing with the Appellate Division, however, is a (previously unknown to us) 2009 Mississippi Supreme Court decision eerily similar to this month’s New Jersey decision. [Read more…]

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My Tenant Ruined Its Premises, How Much Does It Owe Me?

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So, the tenant, without the required permission, made significant changes to its space and failed to properly maintain the property as it was required to do. Further, as readers might expect, at the end of the lease’s term, it didn’t return the space to its landlord it the same condition as it was when the lease started. What damages might be available to the landlord?

For one, it can’t recover more than it lost. The underlying principle is that the landlord is entitled to the amount of money that would put it in the same position it would have been had its tenant not “misbehaved.” But, it isn’t open season on the tenant. The losses claimed must be shown to flow from the tenant’s breaches. And, in making that determination, courts look through the eyes of a “reasonable person” viewing proven facts.

There are two approaches to quantifying what a tenant should pay to put its landlord in the same financial position it would have been. They are either the amount by which the fair market value of the damaged property falls below the value of the same property without the damage caused by the tenant. The other is the amount it would take to repair or otherwise restore the property to the condition in which it should have been. [Read more…]

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A Tenant’s Exclusive Use Right Can Hurt It

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Some weeks we Ruminate more than others though we freely admit it may be hard to tell the difference. So, here’s more than a clue. This is a big Ruminating week.

We’ve spent a lot of our hours, far too many, negotiating exclusive use provisions. Perhaps we should have written “arguing” about exclusive use provisions. Lately, we’ve been thinking about “why” and wondering how healthy an activity this topic of negotiation really is. One conclusion is that in many cases (granted, not all cases) a tenants’ demand for exclusive use rights is at the level of an idée fixe or a priori right.

[Britannica.com defines “idée fixe” (French: “fixed idea”) as a recurring theme or character trait that serves as the structural foundation of a work. The term was later used in psychology to refer to an irrational obsession that so dominates an individual’s thoughts as to determine his or her actions. The same dictionary defines a “priori” knowledge as knowledge that is independent of all particular experiences, as opposed to a posteriori knowledge, which derives from experience.] [Read more…]

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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. [Read more…]

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Just What Is Tangible Property?

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Two days ago, an interesting decision came out of a California Appeals Court. Intriguing enough to us, maybe not to many others, that we put aside this week’s intended blog posting and scribbled this one instead. Though we fear the subject may only appeal to insurance wonks, we’re predicting that the court’s reasoning may leach into non-insurance areas as well.

In a decision that can be seen by clicking: HERE, the California Court of Appeal tells us that a leasehold is “tangible property.” Though the court doesn’t need our blessing, and that’s for sure, Ruminations thinks the court got it right. Before reading this decision, we would have said that “tangible” meant you could touch it.

There’s a little story that will give the context for the court’s decision. By reason of a conditional use permit, a property could be used (and was being) as a nightclub. A third-party security provider failed to screen certain “VIP” patrons for guns while screening others. One unscreened patron shot and killed another. One of the fallouts was that the conditional use permit was canceled and a new one was issued. The new permit eliminated a nightclub as a permitted use and now allowed use of the property as a catering hall. The property owner sued the security company alleging that the security company’s failure reduced the value of the property by a little more than $900,000 and got a judgment in that amount. Then, to collect on the judgment, it sued the security company’s liability insurance carrier. As readers might have guessed, the carrier responded that there was no coverage under the policy. Its specific defense was that loss of the right to use the property for the more valuable use, that of a nightclub, was neither bodily injury nor property damage; thus the security company’s policy did not cover such a claim. [Read more…]

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Wear And Tear Are Not Boilerplate Words

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Leases commonly assign maintenance, repair, and replacement liabilities to one party or the other, as they should. Just as commonly, as to items for which the landlord takes responsibility, leases deal with the consequences of a repair or replacement needed because of something the tenant has done wrong. In some cases, the responsibility for doing the work shifts to the tenant; in others, the landlord still has to do the work, but the tenant has to pay for that work.

This is a good place to make a few points about the relatively simple observations made thus far. So, before proceeding further, here are some thoughts. First, a key point that a lease needs to cover are these three responsibilities: maintenance, repair, and replacement. They do not have to be assigned as if they were co-joined obligations. A party can be responsible for doing one, two, or all three. Second, the party that does the work doesn’t have to be the party that pays for the work. Simply stated, “who does the work” and “who pays for the work” are separate concepts and must both be described in the lease. [Here is an old blog posting that expands on that thought: CLICK HERE:] Third, there are some kinds of work, usually major things, that a landlord should always do even if necessitated by misuse of the property by the tenant. By example, when it comes to a roof repair or replacement or a structural repair, the landlord has a greater interest in how the work is done than does a tenant without an investment interest in the property. Of course, there are some exceptions, such as where the tenant is sophisticated, technically competent, and generally reliable. Fourth, a lease should establish what “the tenant did something wrong” means. [Read more…]

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