Did They Guaranty The Lease For Its Extended Term?

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We’ve written about guaranties before, most directly in postings that can be seen by clicking: HERE and HERE. Today, we drill down to the enforceability of a lease guaranty after the lease has been modified, but without notice to or knowledge of the guarantor. Today’s Ruminating is informed by a January, 2018 unpublished opinion from the Maryland Court of Special Appeals. [Readable by clicking: HERE.]

A church’s lease was guaranteed by its Pastor, his wife, and six other church members. The church defaulted and its landlord sued for the remaining rent under a three-year extension properly signed by the Pastor on behalf of the church, but without the knowledge of the six church members. In fact, they didn’t even have a hint that the lease had been extended despite each being some form of “leader” in the church, though those roles appeared to be substantially ceremonial. Their only financial connection to the church was their obligation to tithe to it. The lower court described them as “commercially” unsophisticated.

The lease extension was by way of amendment. The lease did not have an extension option. The additional three-year term was related to a rent reduction sought by the Pastor and agreed-to by the landlord. The church performed until it didn’t with eight months to go in the lease’s term. At that time, by agreement with its landlord, the church vacated its premises. [Read more…]

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Can A Tenant Walk Out And Lawfully Stop Paying Rent When It Tires Of The Space?

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A restaurant’s lease permitted leasehold mortgages with the following proviso:

Tenant shall have the right … to encumber Tenant’s leasehold interest under this Lease … through a Mortgage (`Leasehold Mortgage’) with an institutional lender…. Landlord agrees that in the event the Leasehold Mortgagee succeeds to Tenant’s interest under this Lease (in which event it shall assume all of Tenant’s obligations under this Lease), Landlord shall, at the time of such succession, recognize such mortgagee, trustee or lender as the then Tenant under this Lease upon the same terms and conditions contained in this Lease and for the then unexpired portion of the Term.

Any such leasehold lender had the right under the lease to take over the tenant-borrower’s leasehold interest through a foreclosure. [Read more…]

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Luddites Unite – Artificial Intelligence Will Replace Us

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We’ve been thinking about artificial intelligence applications and how they might change, even transform, the way we do our business. Then, we heard an interesting story on public radio. It was about a Southern California manufacturer of sex dolls who was introducing models incorporating artificial intelligence. For reasons quite obvious, the story didn’t get very deep into the details, but we learned that these new models were designed to figure out what their owners wanted and to respond appropriately.

We thought this application to be quite amazing in that here was a business way ahead of our own. Artificial intelligence is being used to read medical images with better results than even experienced radiologists achieve. It is being used to screen job applicants, much, much faster than humans doing so and with more satisfactory outcomes. Artificial intelligence is at the heart of visual recognition, allowing machines to replace people in manufacturing operations. It is used to write newspaper articles, such as those reporting sporting events. The list could go on and on. But, what it won’t include is negotiating agreements such as leases. That is, not yet.

Agreements such as leases are not zero-sum games. Though the parties exchange things of equal value, one needs to ask, “Value to whom?” Basically, when someone gets an item of value to them worth, say, $100, the other person may be giving up something worth only $60 to them. Someone may have two widgets and only need one. The duplicate widget isn’t very valuable to that person. A second person may need a widget and have two gizmos, but only need one. In each case, one widget or gizmo has a utility value of $100, but a duplicate one has a utility value of $60. Thus, if the parties trade widget for gizmo, each gives up $60 of value and gets $100 of value in return. That trade creates $200 of value out of $120 of value – a good deal for each trader. [Read more…]

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Pie-Eyed Romanticism And Negotiating Agreements

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Do you believe in levitation? Can a table really rise on its own, without trickery? Is it possible? Yes. Is it probable? No.

A table, regardless of the material used to construct it, is a collection of atoms, arranged in molecules, etc. Briefly stated, atoms vibrate. They vibrate in all directions. No single atom has enough energy to move the table, and the directions in which the countless atoms in a table vibrate cancel each other out but for a proportionately very small number without enough oomph to move anything. Basically, their movement is random. But, it is possible that at any one moment, all of those atoms or at least a meaningful number will be moving upward at the same time and the table will lift off the ground. Possible, but not probable. Ruminations suggests that no reader stay up all night watching a table to see it rise on its own. [Read more…]

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Waiving Non-Waiver Provisions By Waiving Such Provisions (Again)

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We’ve written about the legal concept of “waiver” too many times to warrant furnishing any links to earlier blog postings. To sum it up succinctly, we’ll start with an example of a pretty familiar provision found in most agreements such as leases and mortgages (to keep us within the real property family). It reads as follows:

All waivers must be in writing and signed by the waiving party. A party’s failure to enforce any provisions of this [lease] will not be a waiver and will not estop that party from enforcing that provision or any other provision of this [lease] in the future.

If an English-speaking visitor arrived from outer space and, after completing its abduction of one or more of the world’s inhabitants, read this, it would think there could be no waiver if it were not given in writing. It would be wrong. Likewise, native-born earthlings should always have some doubt as to whether to rely solely on the ability to read. Context (and established law) matter.

Generally speaking, at least under United States jurisprudence, the Texas Supreme Court, in a clarifying (for Texas) May 12, 2017 decision, wrote the following: [Read more…]

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Stop Them Now – They Are Killing Me!

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  • Until about a month ago (or, perhaps until this past September), had you asked us if a court would order a tenant to keep its store open and operating, we would have said, “Probably, not,” with an emphasis on the “Not.” We think a large majority of our colleagues would have agreed. That’s not to say that there couldn’t have been very special circumstances not included within our “Not,” but we would have thought those circumstances would need to have been unique in character. Today, after an Indiana court has (for now) barred a chain store retailer from closing 77 stores located in the aggrieved developer’s malls and a Washington state court has (for now) barred a (chain) supermarket from closing a single store, we’re far less sure. We aren’t going to dissect those two court orders today. That’s for next week, another holiday weekend. Today, we’ll just glaze eyes over with some legal background. [Read more…]
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Landlords, Beware The Naked Assignment

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It’s been a while since we’ve pointed out that, using the words employed by a California court in 2001, “[a] lease of real property is both a conveyance of an estate in land (a leasehold) and a contract. It gives rise to two sets of rights and obligations – those arising by virtue of the transfer of an estate in land to the tenant (privity of estate), and those existing by virtue of the parties’ express agreements in the lease (privity of contract).”

Should anyone care? Yes. And, here’s an example that should concern some landlords and benefit some tenants. It deals with a lease assignment.

We’ll lift the words used by two other California courts to explain two different paths by which an assignee takes on liability as the “tenant.” The first is from 1983 and the second from 1937: [Read more…]

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Is There A Limit To Waiving A Non-Waiver Clause?

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When we first wrote about the loophole in non-waiver clauses that recognizes parties can orally agree to waive such clauses even one that explicitly say that there can be no oral waivers, we got some notes expressing incredulity. After the reality set in, the notes started asking whether there were any limits to this “loophole.” We at Ruminations didn’t know how to answer until we came across a May 12, 2017 decision from the Texas Supreme Court in a case where one of the parties has this name: Boo Nathanial Bradberry. The decision can be seen by clicking: HERE. It ruled there was a limit and its reasoning makes pretty good sense. [Read more…]

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