Chickens, Eggs, And Waivers of Claims

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When a tenant’s property is ruined by rain coming through the roof of its leased space, what caused the damage? Was it the water or was it the landlord’s failure to repair the roof? That’s today’s issue to Ruminate about.

Right after a tenant moved into its space, it noticed the presence of water after what was called, “inclement weather.” We might have called it “rain.” So, it notified its landlord. Without delay, the landlord dispatched someone to investigate. His conclusion was the water was coming from an air conditioning unit. The tenant immediately called an independent HVAC repair company. Its conclusion was that the roof was leaking and the air conditioning unit was fine. The landlord did not make any roof repairs.

After that, each time it rained, water came into the space. After one rainstorm, only four months after the tenant moved in, so much water came in that there was damage to equipment, furniture, interior walls, and to over one million dollars (at retail) of inventory. At that time, the tenant again put its landlord on notice of the leaking roof, the damage caused, and the failure of the landlord to make repairs. The landlord had the roof inspected again. This time, its foreman determined that the water intrusion was the result of the building’s improperly constructed exterior and by something wrong with its downspout. Apparently, the landlord still did nothing, not even in response to repeated notices subsequently sent by its tenant every time water came into the space. A lawsuit followed. [Read more…]

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Abandonment, Vacancy, Default – How Are These Related?

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JDoes a tenant have a duty to occupy the leased space? No, not unless the lease requires it to do so. So, what should a lease say in that regard? We begin by contrasting two terms, vacate and abandon.

What does it mean to “abandon” leased premises? To abandon the leased space is for a tenant to relinquish its right or interest in the space with the intention of never claiming it again.  Normally that requires an understanding of the tenant’s subjective intent, a very difficult “state of mind.”  In some cases, however, that state of mind can be determined, such as when an entity tenant vacates the leased premises and is dissolved.  Mere passage of time during a cessation of active use does not constitute abandonment.  Although length of time is a factor to be considered, it is not the sole factor.  Some discontinued uses are more readily revivable than others, and the passage of time must be considered in conjunction with all circumstances, including those that caused the cessation, the nature and quality of efforts being made to resume the use, and any other objective manifestations supporting or negating the owner’s expressed intent to continue the use.  Further, just because a tenant ceases using particular leased premises does not mean that it doesn’t intend to find a subtenant for those premises.  Thus, if a tenant is otherwise performing its obligations under its lease, a landlord under a lease lacking a definition for “abandonment,” applicable to the particular circumstances, is without the ability to terminate the Lease or recapture the space. [Read more…]

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To A Hammer Everything Looks Like A Nail

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Knowing what you don’t know is a good thing. A practical application of that statement comes when you are trying to figure out how a particular jurisdiction will treat a particular agreement such as a lease. There are some legal principles that suffuse state law throughout the United States. The law of damages is NOT one of those principles. Yes, the generality of “damages” is pretty much the same all over, but the details are not. Here’s an example from a just-decided Colorado case from its Supreme Court.

The question that court considered was whether a seller could really make the choice of remedies provided-for in the following contract clause: [Read more…]

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Additional Rent Is No Rent At All

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We are aware that in New Jersey, if a lease doesn’t denominate a particular tenant’s financial obligation as some version of “rent,” then the landlord can’t get the tenant evicted for non-payment of that item. The reason we are aware of this is because we’ve seen case law that denies a landlord such relief. While the landlord can sue to collect such charges, for example, common area charges, it can’t evict the tenant if the lease doesn’t say that such charges are “rent” or “additional rent.” It doesn’t matter that Ruminations thinks that’s just plain silly. That’s the way it works even if everyone other than the court knows that such items are part of a tenant’s rent.

Nonetheless, since courts, not Ruminations, get to issue eviction documents, almost all New Jersey leases recite something like: “All monies required by this Lease to be paid by Tenant to Landlord constitute ‘Additional Rent’ and the failure to pay Additional Rent will have the same consequences as failure to pay Basic Rent.” Still, some New Jersey leases don’t say anything like that but, fortunately, almost all tenants actually pay their rent (and additional rent). So, you don’t see a lot of court decisions about the issue. [Read more…]

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How Big A Default Was It?

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It is pretty common for a lease or other agreement to grant a party (usually the tenant) a particular right or option and then make it conditional on the “entitled” party not being in default or never having been in default. We are “talking” about such provisions that look like the following sample, but we aren’t endorsing its particular formulation. That would be a whole ‘nutter discussion.

Provided that on both the day that Tenant gives its Renewal Notice and on what would have been the Expiration Date had the Lease Term not been extended by the giving of the Renewal Notice: (a) this Lease had not been previously terminated; and (b) Tenant shall not be in default beyond applicable notice and grace periods, Tenant shall have the option to …

In Merry Ole England, the King had a court system that heard and resolved all disputes. Well, not really all disputes, only those that fit into a limited number of “off-the-shelf” cognizable claims (lawyers, think: causes of action). These “pre-packaged” claims, called “writs,” were “designed to enable the English law courts to rapidly process lawsuits.” The writs were highly technical, and even though new ones were regularly issued to create new rights, the system just couldn’t keep up. If a claim couldn’t be fit into an existing “writ,” the aggrieved person was out of luck – “no writ, no remedy.” The law was the law and too bad! [Read more…]

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You Can’t Cure Them All – Sometimes It Depends On How You Write The Same Obligation

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If, three months ago, you failed to carry contractually required insurance for one week, can you cure that breach now? Over the past week, we were thinking about the curability of defaults. And, we weren’t distinguishing between those of landlords or tenants or borrowers or lenders. Our starting point was the common formulation used to define an “Event of Default,” the occurrence of which triggers “consequences.” Here’s an example of the genre: [Read more…]

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If The Lease Is Going To Wind Up This Way Anyway, Why Not Start Out This Way?

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Last week, though it might not have been clear (which would be entirely our fault), we were suggesting that the lease negotiating process would be quicker and more effective if the parties started with a form a lot closer to the finish line than has become the custom. We were surprised by how much support we received for our suggestion that the “default” approach in a lease should not call for a landlord’s approval of every detail of a tenant’s fit-up or other alteration work. Certainly, there were detractors, but we thought there would only be detractors. That turned out to be far from the case.

This got us to thinking about some other common clauses that seem to be more suited for inclusion in The Dance of the Seven Sisters (An Iroquois tale adapted by Amy Friedman). Today, our thoughts turn to the default clauses in the typical lease. [Read more…]

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More On The Exercising an Option While In Default Debate – Supplementary Thoughts

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The August 25 Ruminations posting about the right of a tenant to exercise renewal rights or non-disturbance rights even when it is in default engendered a lot of comment, both in on this Rumination site and in a number of Linked-In Group discussions. So, in a departure from past practice, I offer this “supplementary” posting with a generic form of compromise to “Get The Deal Done.” I’m not advocating one position or another with respect to any negotiation. In my role as an attorney, I represent clients, not myself. Attorneys advocate for their client’s desired outcomes. Attorneys are “who their clients are” when engaged as attorneys, though not in their public or private roles.

Ruminate over this: [Read more…]

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