Bargaining Power – Will The Tables Be Turned?

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We could have made today’s posting our shortest ever by posting only its title. But, that wouldn’t be Ruminations.

Traditionally, though bargaining power has been very site/situation-specific, larger enterprises always had a head start. And, though that meant large, mostly national, tenants with “brand” names, more often it meant the “landlord.” Owners of multi-tenant projects usually had the upper hand over most tenants and prospective tenants – the small ones who populate and support our shopping centers. While large tenants could easily negotiate for exclusive use rights, even if their market power made those rights mere surplusage, small tenants desiring protection for their core businesses found themselves whistling in the wind. Large tenants got to use their own, tenant-focused leases forms, while small tenants were offered a Hobson’s choice – take it or leave it. [Read more…]

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What Can A Tenant Take When It Leaves?

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We’ve traveled this road before, though not very recently. What can a tenant remove from its leased space when it leaves the space? There is some “common law,” modifiable by the terms of a lease. Most leases cover the subject. All should.

We’ll start today by presenting what a landlord asserted its lease said about whether its departing tenant could remove display cabinets, television monitors, and a large outdoor air conditioning unit. Don’t get too excited. The Washington Court of Appeals also didn’t think it answered the question:

Lessee shall not make any alterations, additions or improvements to said Premises without the consent of Lessor in writing first had and obtained, and all alterations, additions and improvements which shall be made at the sole cost and expense of Lessee, and shall become the Premises of the Lessor, and shall remain in and be surrendered with the Premises as a part thereof at the termination of this Lease, without disturbance, molestation or injury.

[Read more…]

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Liquidated Damages: How Much Is Too Much?

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Imagine a landlord delivers promised space 84 days beyond the target delivery date, and the tenant gets 755 days of rent credit. That’s a little over two years’ of free rent for a delay of a little less than three months. Is that appropriate? Is it lawful? Is it a proper measure of damages? Is it a penalty imposed on the landlord? At the end of March, a federal judge in Pennsylvania, applying New Mexico law, answered the legal questions. She ruled that the 755-day rent credit was an acceptable approximation of damages and was not an unenforceable penalty. Ruminations has no argument with the court because, when it comes to whether an agreed-upon damages provision in a lease is enforceable, the unvarying answer is: “It depends.” [Read more…]

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How Gross Are “Gross” Sales? And More.

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A few weeks ago, we wrote about the distinction between “rights” and “remedies,” but in somewhat theoretical or even esoteric terms. Today, we’ll present a situation that demonstrates a practical intersection of the two. Our story comes from an April 24, 2020 decision from the Appellate Division of the Supreme Court of New York. [That’s New York’s name for its intermediate appellate court.]

Imagine a mall with approximately 150 tenants. One of those tenants (and possibly others) was listed as a “Named Retail Tenant” or as a “Suitable or Successor Replacement Anchor Store,” a “Required Tenant” or “Upscale Tenant” in the “co-tenancy” provisions within the leases of many other tenants at the mall. Basically, if this “Named Retail Tenant” left the mall, dominos could fall. [Read more…]

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A Sneaky Attempt At Amending A Lease Fails – Lessons To Be Learned

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A little more than eight years ago, we wrote: “[I]t seems like a fair number of lenders think the “A” in “SNDA” stands for “Amendment,” i.e., an amendment of the lease.” [Click HERE for more about that.] Today, we look at an Estoppel Letter and see whether the initial “E” stands for “Emendation.” [We found a website explaining the following: “Amend is to change something, usually a document or personal behavior, to make it better. Emend is to correct something, usually in a text, to fix an error.”] Either way, SNDA or Estoppel Letter, let’s stop trying to use those documents to amend or emend a lease.

In an April 15, 2020 published decision, a United States Court of Appeals court looked at the history of a lease and other lease-related documents for a single-tenant office complex. The validity of the lease and five subsequent amendments was not at issue even if there was some dispute over their meaning. All were signed by both the landlord and tenant. On the other hand, the court was presented with two other documents – one was a letter from the landlord to its tenant (signed only by the landlord), and the other an estoppel letter (seemingly) signed only by the tenant and given to the property’s buyer. The estoppel letter, in its recitals, referred to the landlord’s letter as one of the lease’s amending documents. [Read more…]

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No One Is At Fault: It’s Time To Rethink Our Leases And Loan Documents

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A few weeks ago when COVID-19 kidnapped our blog postings, we wrote about recognizing the differences between individual catastrophes and community catastrophes. As further evidence that Ruminations has little if any influence on our industry, it seems to us that we stand almost alone in the way we are analyzing the current situation. While newspapers, other media, law firms, industry gurus, and general analysis sources are predicting the future from a global perspective – i.e., what will the “new normal” look like; will this coronavirus rear its head again, over and over; will it morph and be with us for a long time to come – the industry blog postings and law firm memorandums we are reading (by the hundreds) seem to focus on weaponization. Yes, how can one of the three: landlords, lenders, and tenants, defend or protect themselves against the others?

Articles about “force majeure” are an example. Those that look backward analyze how clauses written without any thought of a pandemic can be retroactively reinterpreted to provide rent relief. Those that look forward seem to be encouraging that tenants (in their leases) and landlords (in their loans) insist on a provision giving relief either for a pandemic or, in essence, for any situation not anticipated at the time the binding documents are executed. We’ve seen “advice” from respected sources suggesting that, in situations such as what we are all facing today, payment modifications or workouts be treated just like “we always did,” beginning with a review of the payor’s financial statements, business plans, financeability, etc. [Read more…]

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COVID-20 And Beyond – What Will It Take For Brick And Mortar Retail To Thrive?

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The news is full of information about the current “novel coronavirus”: (2019-nCoV), as the Centers for Disease Control and Prevention identifies it. A “novel coronavirus” is a new coronavirus that has not been previously identified. So, there will be further coronaviruses. They will be just as novel. Hopefully, they will be no more disruptive than the common cold, also caused by a coronavirus. The keyword in that last sentence is: “disruptive.”

COVID-19 has swept swiftly over society and our industry. So has the disruption it has brought. We’ve seen many disruptions before. In fact, they overlap one another. The difference this time is its swiftness. In the 1920s, as the developed world was transitioning from an agrarian society to an industrial one, although the future was imponderable, there was time to adjust. Today, although on-line merchandising and sales are shifting the retail paradigm, the disruption has been slow and progressive. “Slow and progressive” allows time to adapt. [Read more…]

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Today, Hubris And Existentialism, Not “The Missing Comma”

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Hubris (hu·​bris), n. [Gr. Hybris].wanton insolence or arrogance resulting from excessive pride or from passion. That’s what it would be if we were to present today’s blog posting as if our subject matter was important in the current situation. It is also what all of us, unknowingly for sure, have demonstrated in thinking that our agreements could cover every possibility. If any reader had a COVAD-19 provision in their documents before January, we invite you to share it with the rest of us.

Countries have shut down walk-in commerce. In the states and Canada, stores, large and small, are closing “temporarily.” Restaurants, the “saviors” in today’s shop-on-line world, are closing “temporarily.” Hours are being cut back. Rents won’t be paid. Some, mainly marginal, tenants won’t be coming back. Some (pretextually) will use their co-tenancy right to “skinny down” their portfolios. We’ll all fight about the meaning of “force majeure.” We’ll be picking through our leases, open purchase agreements, and loan documents (including loan commitments) in an effort to “get out.” [Read more…]

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