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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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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Just Because The Agreement Allows It Doesn’t Mean It Is Allowed

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First, Ruminations is not expanding its coverage to all that would be considered “contract law.” It’s just that leases, mortgages, and all of the other documents we encounter on a daily basis are just a subset  of the broader category of contracts, ones dealing with real property. Second, although we mostly write about memorializing agreements, from time to time we bring up the topic of how people act once their agreements are executed. Today is such a day.

So, today, Ruminations will be focusing on some post-contract behavior we read about in a January 20, 2017 decision from the Supreme Court of Delaware. For readers who don’t already know this, here’s a valuable piece of information. The Delaware Supreme Court is held in extremely high regard by courts of other states – it is “persuasive.” And, when it overrules the very highly regarded Court of Chancery of the State of Delaware, ears should perk up. [Read more…]

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Why We Can’t Write Damage/Destruction Clauses That Work

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No lease can be written that will answer every post-damage question that will arise. The “law” (whatever that is) provides some gap fillers, but not many. That’s because much of the case law concerns itself with answering epistemological questions – that is, “analyzing the nature of knowledge and how it relates to truth, belief, and justification.” Courts try to divine: “what would the parties have agreed-upon had they known this post-damage question would arise.”

The biggest single factor in determining how things will turn out after a fire, flood, explosion or some other damage-causing event is: do the landlord and tenant still love each other? Do they want to cooperate and get back in business together, or do they want to divorce. If they want to get the property restored as quickly as can happen so that the tenant’s cash register starts ringing and rent checks begin to flow again, they will make that happen and things will work out. If they each want to end the tenancy, they’ll make that happen pretty easily – the issue might be money, and if that is the case, believe it or not, money issues are the easiest to work out. Basically, if a landlord and its tenant share the same post-damage goal, they’ll work it out. [Read more…]

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Rely On Your Own Insurance And Stop Arguing About It (Again)

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It doesn’t matter how much you want to continue riding. Beating a dead horse isn’t going to get you anywhere. Or, so we have been told. Nonetheless, we are going to say, for the umpteenth time, landlords and tenants should carry AND RELY UPON their own insurance policies.

But, why should I? After all, can’t I just be happy knowing that I am an “additional insured” on the other’s commercial liability policy? [Just to make the Ruminations position clear: NO.] Before we elaborate on “here’s why,” we’ll digress. [Casablanca: “I am shocked – shocked – to find out” that Ruminations will digress.] Find us the person that couldn’t have spent more time with friends and family if she or he hadn’t been on the phone arguing with someone over the “additional insured” language in a lease, mortgage or other agreement. [Read more…]

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