Health Care Is Like A Shopping Center (A Continuation)

Print

We’re not sure that last week’s blog posting was a satisfying one for more than a small part of the Ruminations audience. Long-term readers will know that we are not deterred by that. After all, for those that have not yet reviewed our page-end disclaimer, here it is, moved to the top:

Disclaimer: Ruminating and rambling can easily be confused. There are a lot of dictionary meanings for “ruminating.” Our favorite (today) is: “to turn a matter over and over in the mind.” That sounds a lot like “rambling.” For that reason, no one should mistake anything written on this blog as resembling legal advice, even when written by an attorney —not the original blog entries, and not any comments. This blog is intended to be a discussion board for concepts–some flaky, some not–that affect Retail Real Estate Law. Please join that discussion.

We think that understanding underlying principles, such as the issues involved in allocating operating expenses, makes for better deals, better documents, and better agreements. And, to the extent each party has bargaining power, the real driver of an agreement’s business terms, knowledge is power. [Read more…]

Print

Shopping Centers Are Like Health Care

Print

There may be a connection between our national health care (insurance) policy and our industries’ approach to back-charging for common area expenses (operating costs) and real estate taxes. Oh, come on – isn’t this a craven attempt on the part of Ruminations for topical relevance? Read on and judge for yourself.

Wikipedia provides as good an explanation of “community rating” as one will find anywhere. For its relatively short entry on the subject, click: HERE. For those who don’t want to leave the page, take a look at this:

Community rating is a concept usually associated with health insurance, which requires health insurance providers to offer health insurance policies within a given territory at the same price to all persons without medical underwriting, regardless of their health status. [Read more…]

Print

What Does Difluoromonochloromethane Mean To Landlords And Tenants?

Print

Today, Ruminations will seem to be discussing difluoromonochloromethane. Though it might seem that way, we’re actually using it as a proxy for a more general “suggestion.” But, that will need to wait.

Difluoromonochloromethane has been a remarkably useful chemical compound. If you know about it at all, you probably know it as “R-22.” If you do, then you can skip right over the next sentence. R-22 is a hydrochlorofluorocarbon-based refrigerant used in about half of this country’s commercial air conditioning systems. If has some other, less common, uses but when it comes to HVAC, it is “king.” Down the road, however, it will be abdicating its office. The process began a number of years ago, but the closer we get to 2020, the clearer this will be.

This refrigerant is an ozone-depleting substance. Regardless of any reader’s position about climate change or global warming, no one thinks that destroying atmospheric ozone is a good thing. So, 30 years ago, following a series of meetings in Montreal, lots of countries, the United States included, signed an international treaty. To implement that treaty, those countries, including the United States, embarked on separate programs to end the use of ozone-depleting substances.

Here’s a short translation of what the United States did with respect to R-22 starting in 1993. Manufacture or import of equipment using R-22 refrigerant after 2009 was banned. Production or import of R-22 is banned after 2019. [By the way, by 2030, the entire class of chemical compounds known as hydrochlorofluorocarbons will no longer be manufactured in, or imported to, the United States. [Read more…]

Print

You Snooze; You Lose; Maybe; Probably

Print

What is in the water that many, too many, landlords drink? What can they be thinking? The same can be said (though not as often) about tenants, and we will do so. What is in the water that many, too many, tenants drink? What can they be thinking?

The subject is asking for money rightfully owed to those drinkers. It might be for taxes or it might be for operating expenses, percentage rent, insurance premiums, reimbursable expenses or refunds for the payment of any one or more of those. It might even be for other things such as overdue rent. Yes, why do rightfully billable charges or rightful claims go unbilled or unclaimed until years later when someone wakes up, often, but not always, a successor landlord or tenant?.

[If you] SNOOZE, you [can] LOSE. “Do not spend your days gathering flowers by the wayside, lest night come upon you before you arrive at your journeys end, and then you will not reach it. [Isaac Watts].

If you haven’t experienced the situation or been asked about the following situation yet, it is just that you haven’t been at this real property leasing thing long enough: After “X” years (“X” often being 5 or more) of failing to bill a tenant for taxes or other monies genuinely owed, a landlord sends out a (BIG) bill. Both the tenant and its landlord turn to trusted advisors and ask: “How far back can the landlord go and still have the right to collect what is owed?” [Read more…]

Print

The Long And The Short Of It: The Invincible Lease

Print

There’s nothing like a mysterious title to draw the flies. Usually, Ruminations knows its destination before it begins each weekly journey. Not so today. Our long-ago set plan was to rant (once again) about the trees lost in the service of creating ever and ever longer agreements. Then, we saw a March 29, 2016 decision from the Court of Common Pleas for the State of Delaware that made us wonder if some agreements aren’t long enough. That opinion made us wonder if courts read our agreements as closely as we write them. That case, and we’ll rant about it soon enough, led us to think about some things written in a very fresh, April 27, 2016 decision from the United States Court of Appeals for the Second Circuit. Can we synthesize all of that? Frankly, “No.” That, however, won’t stop us. [Read more…]

Print

A Management Fee Puzzle For Tenants

Print

It appears to be generally accepted, though we don’t know why, that management fees are validly included within common area costs (a.k.a. “operating expenses”). We take comfort in something that John Stuart Mill wrote in On Liberty: “It is as certain that many opinions, now general, will be rejected by future ages, as it is that many, once general, are rejected by the present.”

To Ruminations, management fees should be treated as a cost of ownership, not an expense for items that benefit a tenant. The property owner can choose to self-manage what it owns or, in the alternative, it can do little or no work and treat its shopping center or other property as if it was a share of stock in General Motors. It is one thing to seek recovery for the administrative overhead cost of managing the common areas, but quite something else to seek recovery for the cost of managing tenants, working on leasing of the property, dealing with financing issues, bookkeeping, preparing tax returns, and for the performance of similar tasks. [Read more…]

Print

What’s In A Name? Gross? Net? Does It Make A Difference?

Print

Other than giving a general sense of the way the lease deals with variable costs of operating a rental property, the labels, “gross lease” and “net lease” give no usable information. A good rule when it comes to preparing a lease or when reviewing a lease is to look at each obligation and ask two questions: “Who does it? Who pays for it?” In the truest of “net” leases, the tenant does both. You’ll see that most often for a single tenant property where the leased premises include all of the land as well as the building. That can come about in a number of ways, most often when the tenant developed the property and then sold it to an investor (a sale-leaseback). It is also common when a developer does a build-to-suit project for the tenant. Less often, but not rare, is where an existing single-tenant property is leased. In each of those cases, the overwhelming “rule” is that the tenant will do all of the work at its own expense. A very common, though limited exception, is when it comes to the building’s structure and, less often, the building’s roof. A “smart” exception would be that the landlord maintains the property insurance, though the tenant pays that cost. Such a lease is rightly called “triple net,” “net” or, as Ruminations prefers, ‘absolute net.” [Read more…]

Print

How Much Profit Should A Landlord Make From Pass-Through Items?

Print

Over the last couple of months, we’ve seen bits and pieces of a discussion (or discussions) as to whether a landlord should make a profit on operating expenses or other pass-through charges. Much of what we’ve seen didn’t appear to be very responsive to that question. It was about protecting one party or the other. That gives Ruminations an opportunity to weigh in on the operative verb: “should.”

You don’t have to get to the bottom of today’s posting to get our view. Simply speaking, it is: “Why not?” [Read more…]

Print