Insurance Proceeds: Use Them Or Lose Them


When it comes to some property insurance proceeds, the tag line is: “Use it or lose it.” Most agreements such as leases and mortgages, even poorly written ones, call for one party or the other (or both) to carry property insurance for “replacement cost.” [By the way, “full replacement cost” isn’t one barleycorn larger than plain, old “replacement cost.” A full quart of milk takes up no more space than a lowly quart of milk. And, it isn’t “replacement value,” it is “replacement cost.”] But, “replacement cost” doesn’t mean that the insurer goes out and writes a check for what is determined to be the damaged property’s replacement cost, even if the property is totally destroyed. The insured only gets paid for the cost of what is actually repaired. Note that we’ve just written “repaired,” not “replaced,” even though the coverage is called “replacement” cost. That’s because “replacement cost” is a limit, not the amount that is going to be written on the check. [Read more…]


It’s A Rule: A Good Rant Is Cathartic


Can you make a list of the institutions or people who employ “Make ‘em up as you go along” rules? To get the thinking process going, try bank tellers or low-level government employees. E.g.: Teller: “You need to include your middle name in the signature used to endorse that check. It’s a bank rule.” You: “But, that wouldn’t be my signature. I don’t sign my name that way. That’s my rule.” Who wins?

Someplace in the annals of U.S. Supreme Court decisions is a statement to the effect that long after the need for a law has expired, we find a new justification to enforce that law. We know it’s in there, and when we find the actual quote and the Justice who said that, we’ll post our (re)discovery.

So, now we’ll rant. Why do some, perhaps most, commercial lenders employ so many documents? Don’t any of the old ones (the documents, not the lenders) ever die gracefully? We have a notion, completely unsupported by any facts, that the industry suppliers of “stock” loan documents all engage in the following marketing process. They produce a grid listing themselves and three or four competitors across its top. Then, along the side, they list the 20 or so forms in their own offering with a check mark in their own column matching each such form. Their competitors’ columns are populated with a combination of green check marks and red X’s. This, of course, proves that the chart producer has the “best” loan document generating program.

Well, that doesn’t sit well with the X- ladened column holders. So, they add all of the “missing” forms to their own packages, and, for good measure, add a few the others don’t have. This infuriates each of the others, who then declare: “I’ll match that and raise you one form.” You get the idea.

Now, that’s only a start. For example, one of the documents is a “Corporate Consent to Loan” form. It is pre-printed (today, “pre-printed” means computer generated), and is on the loan document checklist. It doesn’t matter that the borrower is a proprietorship or a limited liability company. The bank “officer” MUST get this form executed. Of course, the officer (or closing agent) has no idea what is going on other than, “It’s a rule.”

Now, Ruminations knows this really doesn’t happen. NOT! (There’s our pop culture reference for today).

There are less obvious “checklist” items for which the reason for existence is known only to archeologists. Does a lender really need a copy of the canceled check for an insurance policy paid for eight months earlier even if it has a certificate saying the policy is still in effect? Doesn’t one subsume the other? Oh, yeah, each of us could make up a reason, one that starts with: “But, suppose …” We’d prefer to hear: “Oh, yeah, we don’t really need it.” [Except, it’s on the checklist and we really do need it because: (a) it’s on the checklist; (b) that’s the rule; (c) suppose we get audited: (d) no one else ever objected; (e) for as long as I’ve been here …; (f) etc.]

Isn’t there a rule that rants don’t have to be orderly and organized? So, here’s a related one. Ask, “Why do you need this?” and get this answer: “Because that’s our rule.”

While we are on a tear, is there a rule that once a new form is created, it can neither ever be eliminated nor integrated into another document? There must be.

At a time when a corporate filer was no longer required to stamp or emboss its seal on its federal tax return, the form still had a place for those filers who still wanted to show off their seal. Today, one will still find lenders (and others) who insist upon the placement of a physical seal on documents that don’t otherwise require one. [The word “seal” alone does the job in the limited circumstances where a “seal” has a legal implication.]

Apparently, it is easier (safer) to add than to delete. Do form documents ever get any shorter? Almost always – no. Kudos to those enterprises that periodically step back and revisit theirs, few as those enterprises may be in number.

Well, Ruminations is a rule breaker. Rants are required to be long and rambling. Today, we just rambled but have kept it short (for Ruminations, that is). We only wanted to light some kindling for our readers to benefit from as they throw their own wood on the fire. Join us in today’s rant theme by posting a comment.

Our last thought for today is that making up rules as you go along isn’t all bad. Take “Calvinball” for example. What is that? Click: HERE or HERE to find out.


Personal Or General Misfortunes


We’ve stolen our title from an article (or possibly it is a blog piece) dealing with the same concept but in a completely different field of endeavor. It wasn’t even about anything objective. But, its title and subject matter got us thinking about just what its author was discussing: that is “who should bear the risk?” We wrote about this a long time ago and, at the time, thought we had written a definitive piece on the subject. Now, we know we had not. Neither will be today’s posting. [For those intent on visiting the past, here’s a link to our 2013 rambling: LINK.]

Who deserves to lose when uncontrollable events present such an opportunity? We think few would argue that a tenant whose business goes south at all or most of its locations shouldn’t blame itself and should not blame any particular landlord. Similarly, if the neighborhood turns for the worst, and rental values fall, individual tenants are blameless when it comes to the landlord’s investment loss. But those examples aren’t entirely correct. [Read more…]


Did They Guaranty The Lease For Its Extended Term?


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…]


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


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…]


Luddites Unite – Artificial Intelligence Will Replace Us


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…]


To A Hammer Everything Looks Like A Nail


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…]


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


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…]