To A Hammer Everything Looks Like A Nail

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Knowing what you don’t know is a good thing. A practical application of that statement comes when you are trying to figure out how a particular jurisdiction will treat a particular agreement such as a lease. There are some legal principles that suffuse state law throughout the United States. The law of damages is NOT one of those principles. Yes, the generality of “damages” is pretty much the same all over, but the details are not. Here’s an example from a just-decided Colorado case from its Supreme Court.

The question that court considered was whether a seller could really make the choice of remedies provided-for in the following contract clause: [Read more…]

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You Can’t Get An ALTA/ACSM Land Title Survey Anymore

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Today, we write about surveys, but in a pretty narrow way. We assume readers know enough about surveys for our posting to make sense and be useful – useful as in “it’s time to update our lease, mortgage, and other forms.” If you are still calling for an “ALTA/ACSM Land Title Survey,” start calling for an “ATLA/NSPS Land Survey.” In 2012, the American Congress on Surveying and Mapping (ACSM) merged into the National Society of Professional Surveyors (NSPS). Earlier this year, in February to be more specific, the survey standards were changed to reflect that change. So, if any reader wants to be “hip,” start practicing “ALTA/NSPS.”

That wasn’t the only change to the 2011 survey standards; they became the 2016 standards. Thus, we’ll all want to refer to the “2016 ATLA/NSPS” ones.

What are the other changes, trivial and a little less trivial? Here are some highlights. [Read more…]

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I Paid For Replacement Cost Insurance Coverage, Where Is the Rest Of My Money?

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We were Ruminating about the reasons some people, instead of asking for “replacement cost” insurance coverage, ask for “full replacement cost” or “100% replacement cost” coverage. That made us think about the difference between a quart of milk and a full quart of milk. We don’t have any better answer than anyone else, so that was a dead-end for a Ruminations blog posting. Fortunately, those thoughts led us to today’s topic. So, our Ruminating was not for naught.

What is “replacement cost” coverage and what other kinds of property insurance coverage levels are there? We’ll start with the second question first. There are two basic ways a loss to insured property can be valued: (1) based on its replacement cost; and (2) based on its actual cash value (ACV). [Read more…]

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If You Don’t Understand It, Don’t Pretend You Do: Builder’s Risk Insurance (Part 2)

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The take-away from last week’s Ruminations posting was supposed to be that if you really don’t understand “insurance,” align yourself with someone who does. Not doing so is like cutting and pasting text from a foreign language document hoping that is says what you’d like it to mean. If that point didn’t come across last week, perhaps this second part on the topic of “Builder’s Risk” insurance will push readers into finding an insurance mentor.

Last week, we wrote about policy forms for builder’s risk insurance and how there is really no standard form. We also wrote about who could and should be covered. Those who read last week’s posting would have seen some thoughts about what property is covered, what is not, and what can be added to the coverage. If you missed that, click HERE to see what was said. You’ll also see some thoughts about some additional coverages that can be included along with the basic coverages under the builder’s risk typical policy. So, that will be our launching point. [Read more…]

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Yes-O-Phobia, A Barrier To Quickly Negotiating Agreements

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Yes-o-phobia: The fear of saying yes, often in the course of negotiating agreements. Usage example: “No.”

This phobia is more prevalent among those new to their field or job, but not exclusively to lesser experienced negotiators. It is also much more common among lower level staff than it is among principals or senior management. That’s because fear on the part of the phobicis not so much fear of giving up complete control over whatever may possibly happen in the future as it is a fear of being criticized by a superior. In law firms, “senior” partners, almost always, are willing to say “Yes” whereas newly minted attorneys and newly minted partners are commonly reticent. [Read more…]

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Ice Cream, Deal Making, The Law Of Diminishing Marginal Utility And Why It Matters To Real Estate Deal Makers

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We wanted to achieve two goals today: (a) to Ruminate about the negotiation process; and (b) to achieve record “shortness” [for Ruminations, that is]. When you reach the end, let us know “How’m I doing?” [see, Edward Irving “Ed” Koch].

The most essential economic concept affecting business negotiation is (or should be) what economists call “The Law of Diminishing Marginal Utility.” You and I love ice cream. You have a lot and I have none. But, I have money (or something else you’d like).

What is marginal utility? With apologies to Samuelson, Marshall, Krugman, Tirole, and others, we’re going to stick with our ice cream theme. Think how refreshingly delicious an ice cream cone would be on the hottest day of the hottest summer on record. “Ahhh… .” It’s so good, I think I’ll have a second. That was pretty good too. Not as good as the first bite of the first cone, but pretty good. To each individual, there comes a point where “enough is enough” [see, Streisand and Summers, No More Tears]. Yes, you would have paid a handsome premium for that first ice cream cone, but virtually nothing for the third, fourth or whatever is beyond your personal cut-off point. [Read more…]

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What Kind Of Help To A Tenant Is Self-Help? Part 1.

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Here a mantra often heard by tenants all of their lives: “Make sure you get self-help rights. Make sure you get self-help rights.” It’s not a bad theme, but is it a cure-all? No, it’s not, and what it doesn’t cure depends on the relationship between the leased premises and the entire property. More about that in a little while. First, we’re going to list the kinds of landlord obligations that tenant might want to fulfill if the landlord doesn’t: [Read more…]

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Mortgage Loan Term Sheets Are So Long; So, Why Are They Missing All Of The Provisions Borrowers Should Be Looking For? Part 2.

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Last week, we started a list of loan terms that regularly seem to be left out of Loan Term Sheets prepared by lenders despite those term sheets using up an entire tree for what is included. If you didn’t see that posting and you are compelled to start at the beginning of our Ruminations, click HERE to start at the beginning. Today, we continue and then conclude our list. Don’t confuse “conclude our list” with “conclude the complete list,” because we know the limits of our ability and experience. A further caveat would be – every deal has its own factors to consider, but most loan term sheets attempt to fit all shape pegs into a round hole.

So, here we go with the rest of our list of “missing” terms in the common Loan Term Sheet:

Cash Management Accounts. If a borrower can avoid a “clearing account” (essentially, a “lock box”), it should. For those unfamiliar with how those work, the lender “owns” an account at the bank you choose and all rent checks go to that account. Your bank agrees, with the lender, to “sweep” all money out of that account every night and put the swept funds in your own account. That is, it will do that sweep until the lender notifies the bank to sweep the money into the lender’s regular bank account (at whatever bank the lender uses). That allows the lender to interrupt the cash flowing to the borrower when the lender thinks a “Trigger Event” has occurred. A Trigger Event could be the borrower’s default or it could be that the rental income, though exceeding the debt service payments, doesn’t exceed it by enough. It could also be when a key tenant has left the property. In fact, it could be anything the loan documents say it is, including receipt of a report of alien abduction signed by two adults. Though the last example is unlikely, it does illustrate that if the Loan Term Sheet calls for a cash management account, it should state what the Trigger Events would be. [Read more…]

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