Keep It Simple Stu…

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Who hasn’t heard this or something like this? “Can we just make it simple and do a lease amendment instead of a whole new lease? We don’t need a new lease and it will save us money.” Often, that’s a hint that there’s going to be a big bill. And, worse, later on, when a question comes up, there will be another bill.

Ruminations isn’t talking about simple changes. For those, an amendment will almost always suffice, especially if it covers only one or two changes. But what about a lease assignment combined with a space reduction, some construction, a change in maintenance responsibilities, a letter of credit instead of the cash security deposit, and you get the idea. [Read more…]

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No Shopping Clauses (Not What You Think)

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Here’s a scenario that doesn’t happen often but happens much too often. A tenant and a property owner work out a tentative deal. They put the basic terms down on paper and call it a deal sheet or elevate its name to a Letter of Intent. Either way, they don’t intend to be bound to make a lease, but they understand that they’ve agreed to negotiate in good faith to reach one.

So, they then start to work on the lease. There are some issues, but nothing that would thwart agreement UNTIL a better deal comes along. Perhaps the landlord finds another prospective tenant and negotiates with that prospect in parallel with the first one. Perhaps a nearby location that the initial prospective tenant had seen and liked better has come back on the market and discussions with its landlord are now taking place. Fair enough, but didn’t the two parties with the deal sheet or letter of intent explicitly or implicitly agree to negotiate in good faith? Yet, even as late as when one party, usually the tenant, has signed what was thought to be the final, execution copy of a lease, the other party pulls out. Then, it turns out that a few days later the retracting party signs a lease with someone else. [Read more…]

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Notwithstanding Anything To The Contrary Contained Herein

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When a carpenter or other craftsperson needs to make “that final adjustment,” she or he reaches into the toolbox and out may come a shim. We’ve all seen shims used, but not everyone knows they have a name. Those wedges, washers, and thin strips of material used to align parts or make them fit are called “shims.” We who draft agreements of every type also use shims. Reluctant as Ruminations is to use the word “all” and mean “all,” today’s use seems accurate. Who among us hasn’t slipped in at least one “notwithstanding anything to the contrary” into every agreement longer than several pages? That’s using a shim because it makes the parts of the agreement “fit” together.

Basically, this shim is used in two circumstances. The first is where, after reading what we’ve written, we realize that our crafted provision isn’t exactly right. We realize that there are one or more circumstances that don’t fit what we’ve written. We realize that what we’ve written needs adjustment. We’ve got to carve out some exceptions. So, instead of rewriting the provisions to make them say what they should say, we append a list of those things we realize don’t fit – but not of those things we didn’t realize don’t fit. [Read more…]

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Can You Back Out Of A Deal If The Agreement Is Still Unsigned?

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Anyone who hasn’t asked this question or been asked this question just hasn’t been around long enough – “Now that the final agreement has been prepared, are we obligated to sign it and go forward?” There’s no need to scroll down to the bottom for an answer. We’ll put it right here, up front – “It depends.” “It depends” doesn’t mean: “No.”

There’s a companion question that gets asked – “What if we, up front, say that we can back out at any time before signing, for any reason or no reason at all”? There’s no need to scroll down to the bottom for an answer. We’ll put it right here, up front – “It depends.” “It depends” doesn’t mean: “No.”

Today’s blog posting is mostly the following story, one that illuminates the questions we’ve begun with.

As part of an on-line, sealed bid auction sale of non-performing loans, prospective bidders were presented with a required form of asset purchase agreement.  The successful bidder would be required to sign that agreement. Interested buyers were invited to present “indicative” bids. Based on those indicative bids, the seller would select acceptable candidate-buyers and those parties could perform pre-bid due diligence for the offered loans. [Read more…]

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Subject To What Exactly?

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Today’s blog posting deals with the always “fresh” question about whether making something “subject to winding up with a signed, written agreement” allows the parties to walk away without having to look back. The answer we give today, however, may not be very satisfying to many readers. And, to those who find the answer of interest, rarely will they be able to apply today’s answer to any problems that reach their way.

Have you ever wondered what is really meant when we write that a letter of intent or other form of agreement is “subject to” one or more conditions? Basically, what is the meaning or scope of those two words: “subject to”? If there is any lesson to come out today, it might be that we should be much clearer than “subject to” before the parties are bound to an agreement or to perform an obligation under an agreement. [Read more…]

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Who’s On First? Keeping Track Of Basic Facts

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Please don’t ask for the central theme of today’s blog posting. We’ve done so already and came up empty-headed. The closest we’ve come is that we’re writing about how a stitch in time saves nine.

The genesis of today’s subject is a very simple case that reached a California appellate court. It probably isn’t worth looking at, but for those compelled to do so, the February 2, 2017 decision can be seen by clicking: HERE.] The court was confronted with a situation where, on its face, the signatory to an indemnification agreement was not authorized to sign the agreement on behalf of the indemnitor (the one who would have to pay). There was no indication that the document was signed with the intention of fooling anyone. It appears that the person signing the agreement was confused or ignorant as to “who” should have done the signing. We’ll explain.

There were two limited liability companies. One was the sole manager of the second. We’ll call the first company, the parent, and the second, the child. The parent had a managing member. He was the kind of person who breathes, unlike, say, Citizens United. He could sign on behalf of the parent, but when signing for the child, the “proper” signatory would be “by parent, as sole member of child, by breathing person, as managing member of parent.” Get it? If not, then realize that the “person” who could sign for the child was the parent. But, because the parent was an entity who could not hold a pen, a “real” person needs to sign on behalf of the parent. [Read more…]

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The Most Likely Obligation Parties To A Letter Of Intent Will Incur Is …

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Way back in July of 2012, we Ruminated about the enforceability of a letter of intent (LOI). Last month, we revisited the subject at a presentation to the International Council of Shopping Center’s Law Conference in Phoenix. There, five possibilities were explored, one of which was that an LOI imposed an obligation on the parties to negotiate in good faith even if the terms of the LOI weren’t otherwise binding on the parties. Today, we’re going to expand on that “good faith obligation to negotiate” concept because that is the most likely decision a court would reach. To see the entire 2012 blog posting and read about the other four possible outcomes, click: HERE.

There are more than a few court decisions with the outcome that entering into an LOI imposes the duty to negotiate in good faith. They don’t require that the parties ever reach an agreement, only that they really try to do so. Last month (October 27, 2015 to be more precise), a Delaware Superior Court decision was published and it dealt with just this point. The facts were complicated, but not complex. The decision didn’t go to the merits of the case, leaving the parties to fight over the facts, but it did explain this aspect of the law pretty well. For those whose appetite has been whetted (archaically speaking) and want to see the court’s decision, click: HERE. [Read more…]

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Give Me A Sentence That Uses Both “Due Diligence” And “Letter Of Intent”

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We needed to think about Letters of Intent because we’ve been asked to join a panel discussion in June and tell all we know. Certainly, we’ll recycle our thoughts from some earlier Ruminations blog postings, notably the ones you might want to revisit or see for the first time by clicking HERE and HERE and HERE. But, what about some fresh thoughts?

Those of us who try in earnest to Get The Deal Done, usually don’t see “the” Letter of Intent until it is signed, sealed, and delivered. (That is, if there even is such a document.) And, when we write, “Letter of Intent,” we’re thinking of those broadly – term sheets, email messages, (literally) jottings on a napkin – whatever. [Read more…]

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