We Can Waive Claims, Not Subrogation

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What’s an “evergreen”? An evergreen contract is one that automatically renews unless one party or the other affirmatively terminates it. An “evergreen” blogging topic is one that never dies; one that we can visit over and over. The topic of insurance waivers of subrogation is such an “evergreen.”

We just reviewed a March 22, 2017 decision from a United States District Court sitting in New Jersey. Let us tell you some things about it. It has a twist. [You can see it yourself by clicking: HERE.]

Allegedly “unsupervised, untrained, and unlicensed maintenance workers” employed by a residential landlord were accused of misusing (our euphemism) an acetylene torch and thereby setting a fire that destroyed tenants’ property. The tenants’ insurance company paid the losses and sued the landlord for recovery.
The landlord (almost certainly, the landlord’s own insurance company) responded that each tenant-insured had waived and released it from liability for such a fire. [Read more…]

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In Good Faith, Would Your Agreements Say That A Party Can Act In Bad Faith?

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Would you write that a tenant’s or landlord’s consent was required but that consent could be withheld in bad faith? We don’t think so. We’ve never seen such. We doubt we ever will.

There is no need for a contract, such as a lease or mortgage, to say that the parties will act in good faith. The obligation to act in good faith and deal fairly with the other party or parties is implied by law into every agreement. As such, it is a contractual obligation, not a fiduciary duty. So, we think that, as a contractual obligation, it can be negated by a voluntary and knowing agreement between the parties to an agreement. That’s what expressly allowing one party or the other to act in bad faith would do.

Admittedly, we haven’t done any legal research that would support or undermine our thinking. That’s because we strongly doubt anyone ever included a “bad faith allowed” provision in their agreement. If any reader knows otherwise, let us and other readers know through the comment feature of this blog site. [Read more…]

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Representations; Warranties; Covenants; Weasel Words And Estoppel Certificates. Huh?

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Last week, we left off with: This trilogy (“represent” – “warrant” – “covenant”) is thrown about so casually that it isn’t possible to generalize as to what the cumulative effect might be. Try replacing the word “covenant” with the word “agree” and then reread the statement being requested as part of the estoppel. To “covenant” does not mean to “acknowledge.” It means to “agree” in the sense of to “promise.”

Now, as promised, we will elaborate. [That should come as no surprise to long-time readers of Ruminations.]

One way to appreciate the difference between making a representation and giving a warranty is to understand the consequence of each statement. In the case of a representation, the “relying” party may act as if the representation (statement) was true, but only if that relying party either did not know it was untrue at the time it was given or if the relying party couldn’t have easily known it was untrue. That’s what “reliance” is all about. In addition, in appropriate circumstances, though unlikely in an estoppel, if a material representation is untrue at the time given, the recipient of that representation may suspend its contractual obligations or even terminate an agreement with the representing party. For example, in the normal transaction, if a car seller represents that the car runs, and it doesn’t, the buyer can terminate any agreement to buy that car because whether a car runs is material. Of course, if the buyer really knew that the car didn’t run, it could not rely on the representation. [Read more…]

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Estoppel Letters – Can’t We All Get Along?

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About 9 months ago, we wrote about some practical aspects of dealing with estoppel letters. Readers can see that blog posting by clicking: HERE. [We did so more substantively in 2011 and that can be seen by clicking: HERE.] Today, in fulfillment of a promise made 9 months ago, we have more to say about requesting and furnishing those letters.

We start with where we left off. Furnishing estoppels is an administrative matter, not a substantive one. There may be items under dispute that will be covered by an estoppel, but responding to the request for the estoppel should not be one of them. And, it shouldn’t matter whether the lease requires one party or the other to furnish one. Estoppels are needed to support the property, to keep the stool upright, so to speak.

Experience informs us that the most common tension as between landlords and tenants about estoppels is that the requesting party often has made its request too close in time to when the certificate is needed. Sometimes that situation is inevitable; sometimes it is the result of carelessness. Regardless of the reason, the need for a quick response frequently causes unneeded tension. It may seem that landlords are those most often pressuring their tenants for a quick turn-around. That’s only because, by far, landlords request estoppels more frequently from tenants than tenants request them from their landlords. [Read more…]

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Wear And Tear: Easier Said Than Understood

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There are lots of comfortable phrases and concepts we all use without ever thinking about what they really mean or how they play out. One example is the well-worn formulation: “ordinary wear and tear excepted.” We see it all the time. Everyone writes it into their leases (and often into property acquisition contracts). To be sure, there are variations. One example is: “wear and tear, damage by fire or damage from any other cause covered by … insurance excepted.” Another is: “fair wear and tear and … excepted.” Regardless of how many words are used with any of these approaches, they all rely on the meaning of “wear and tear.”

Let’s start by trying to define “wear and tear.” Certainly, there are many perfectly fine ways to do so (and certainly there are “contorted” ways to do so if you don’t like the “result” of using a proper definition). Today, we’ll lift one from a 1969 [“time-honored”] decision from a California court:

The exception of ordinary wear and tear contemplates that deterioration will occur by reason of time and use despite ordinary care for its preservation.

The most common place we see an exception for “wear and tear” is in a lease’s surrender provision. What condition must the leased space be in when “returned” to the landlord? What does a tenant have to repair or restore that it didn’t have to repair or restore during the course of its tenancy? [Read more…]

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Fools And Bankruptcy And Broken Leases

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What is an herbaceous plant that has jagged leaves covered with stinging hairs? Some may think it is a “nettle.” We’re thinking it is “bankruptcy law.” That’s a reason why we’ve steered away from doing any Ruminating about nettles. Today, we’re shunning the 300 year old advice from Alexander Pope in his An Essay on Criticism when he warned: “Fools rush in where angels fear to tread.” Ruminations is fairly characterized as “criticism” and we have been duly warned.

For some reason, explicable, but slightly off-base, leasing professionals are asked: “What can a landlord recover when its bankrupt tenant rejects its lease?”

Our starting point is the bankruptcy law itself. Its most relevant provision reads thusly: [Read more…]

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What Does Difluoromonochloromethane Mean To Landlords And Tenants?

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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…]

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Whose Deal Is It Anyway?

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Two stubborn mature men arguing with each other isolated on white background

Rules are made to be broken even if no one knows there was even a rule. In this case, it is Ruminations violating its own rule against two consecutive screech-blog postings. Over the last 300+ postings, we’ve “salted” Ruminations with observations about our own bad habits and those we’ve seen in our generally great real estate community. We’ve tried to space them about a month apart. Last week, we wrote about an all too common way that a minority, but a disturbing minority, of our colleagues try to put the “other” negotiator down. This week we address another one of our “bugs.” That’s a rule-breaker.

To make matters worse for us, we are breaking another one of our rules – the one that has kept us from singling out one subset of our community – this week, the lawyer subset (of which this writer is a very proud member). Our distress isn’t limited to this subset. Certainly we of that persuasion hold no monopoly on the tendency to be complained-about today. Yet, we in that profession certainly suffer more frequently from this affliction than do members of any other subset of the real estate community.

Alright already, what is it? It is thinking that we are the business people who are actually making the deal – forgetting that it is our client’s (or principal’s) deal. How do we do this? We do it by arguing pure business terms as if the money to be paid or received will be coming out of our own pockets. [Read more…]

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