“And, If Not” – The Question Left Unasked: Crafting A Lease Requires Thoughtfulness

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The court opinion we wrote about last week continues to bother us. It wasn’t only about the court decision’s primary question of whether an “election,” once made, can be revoked. There is a second aspect that bothers us, one that we will get to about 300 words from now. First, we’ll summarize what bothered us about how the lease didn’t “do the right thing,” “didn’t keep the question out of a court.” And, if the parties went to court, the lease didn’t give the court a rule or even guidance.

As to whether a notice, once given, can be revoked, we know that the parties crafting an agreement should cover that in their agreement. We also know that if the non-electing party reasonably incurs damages when relying on such an election notice, it should be made whole. If they don’t, then what should the rule be? Last week, we saw a court look at a lease that was silent on the question as to whether a landlord that sent a 12-month notice requiring a tenant to temporarily vacate its premises could change its mind two months before the required move-out date. It ruled that the election made by the landlord requiring such a move-out could not be rescinded. What the court failed to do was to adequately explain why it ruled that way. [Read more…]

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No One Is At Fault: It’s Time To Rethink Our Leases And Loan Documents

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A few weeks ago when COVID-19 kidnapped our blog postings, we wrote about recognizing the differences between individual catastrophes and community catastrophes. As further evidence that Ruminations has little if any influence on our industry, it seems to us that we stand almost alone in the way we are analyzing the current situation. While newspapers, other media, law firms, industry gurus, and general analysis sources are predicting the future from a global perspective – i.e., what will the “new normal” look like; will this coronavirus rear its head again, over and over; will it morph and be with us for a long time to come – the industry blog postings and law firm memorandums we are reading (by the hundreds) seem to focus on weaponization. Yes, how can one of the three: landlords, lenders, and tenants, defend or protect themselves against the others?

Articles about “force majeure” are an example. Those that look backward analyze how clauses written without any thought of a pandemic can be retroactively reinterpreted to provide rent relief. Those that look forward seem to be encouraging that tenants (in their leases) and landlords (in their loans) insist on a provision giving relief either for a pandemic or, in essence, for any situation not anticipated at the time the binding documents are executed. We’ve seen “advice” from respected sources suggesting that, in situations such as what we are all facing today, payment modifications or workouts be treated just like “we always did,” beginning with a review of the payor’s financial statements, business plans, financeability, etc. [Read more…]

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Rights Without Remedies: Moratoriums And Real Estate

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If blog postings, law firm memorandums, newspaper articles, televised pundits, and the like were effective medications for COVID-19 infections, this crisis would be over. Without even asking readers, we know that all of you are inundated with reliable [and less than reliable] information and guidance about this virus and how to deal with it. Unfortunately, more and more, it seems like we’re hearing Arthur “Guitar Boogie” Smith and Don Reno performing “Feudin’ Banjos” on their seminal 1955 recording. We don’t play the banjo. Therefore, we won’t be joining the COVID-19 legal advice band today.

 

One thing, however, bothers us more than the many others. We’ve seen a lot of words speculating on what “laws” were needed. Some opinions have been sage. Many have been uninformed. What bothers us is that much of what we are reading ignores or blurs the difference between “rights” and “remedies.” Almost all lawyers know the following; many of our other readers may not. One way to explain what is going on is to use an example that comes right out of our current news. An increasing number of jurisdictions are legislating (or administratively imposing) rent relief for (usually only residential) tenants. [Read more…]

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The COVID-19 Crisis Is Now Over – What Is Next For Retail Real Estate?

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If you are like we are, you’ve been receiving dozens of COVID-19 emails or other messages each DAY. On the “law” side, they discuss and dissect the legal rights and remedies implicated by the current crisis – force majeure, impossibility, impracticality, material adverse changes (effects), foreclosure moratoriums, and on and on. On the “business” side, they opine on holding off the payment under mortgages or leases, or the applicability of insurance coverage, and on and on. The now 94-year old Newton Minow, when last to speak on a panel, is reported to have said something like: “By this time, everything to be said has already been said, but not everyone has had a chance to say it. Now is my turn.” That’s the feeling we are getting about the nearly 200 messages we are receiving weekly.

Some “advice” is well thought out; some is authoritative; some is important; some is trivial; some are well-meaning but dangerous. To us, the common factor is that all (that we have seen) are backward-looking. What about tomorrow? In the words of Bishop T. D. Jakes, “Never make a permanent decision based on a temporary storm. No matter how raging the billows are today, remind yourself: ‘This too shall pass!’” [Read more…]

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Today, Hubris And Existentialism, Not “The Missing Comma”

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Hubris (hu·​bris), n. [Gr. Hybris].wanton insolence or arrogance resulting from excessive pride or from passion. That’s what it would be if we were to present today’s blog posting as if our subject matter was important in the current situation. It is also what all of us, unknowingly for sure, have demonstrated in thinking that our agreements could cover every possibility. If any reader had a COVAD-19 provision in their documents before January, we invite you to share it with the rest of us.

Countries have shut down walk-in commerce. In the states and Canada, stores, large and small, are closing “temporarily.” Restaurants, the “saviors” in today’s shop-on-line world, are closing “temporarily.” Hours are being cut back. Rents won’t be paid. Some, mainly marginal, tenants won’t be coming back. Some (pretextually) will use their co-tenancy right to “skinny down” their portfolios. We’ll all fight about the meaning of “force majeure.” We’ll be picking through our leases, open purchase agreements, and loan documents (including loan commitments) in an effort to “get out.” [Read more…]

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Too Wordy To Be Enforceable?

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There are lessons to be learned by looking outside of our own field of interest. That was our thinking when we saw a decision out of a New Jersey appellate court last Tuesday. It involved how a document was drafted, an arbitration requirement, and more than questionable behavior by one party. Initially, when we saw that the heart of the case was overreaching by a nursing home, we set the decision aside. But, we were troubled. So, we resumed reading the decision and were rewarded with a tidbit of “wisdom.” What drew our attention was the following provision from the disputed agreement, especially its opening 229-word sentence: [Read more…]

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The Law Is Not Always Intuitive; Avoid Learning It At Your Own Peril

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Often, we come across a court decision based on a narrow set of facts and, thus, limited in its effect. The court’s analysis and the case’s result is primarily of interest to the involved parties and a handful of others who might find themselves in the same situation. Sometimes, however, there is a larger lesson to be gleaned, one not even about the narrow subject matter discussed by the court. As we see it, at the very end of January, a Florida District Court of Appeal Court delivered such a decision.

The subject matter before the court was a dispute over the obligation to pay a brokerage commission. Florida law provides that “[i]n the absence of a special contract, a broker is entitled to a commission when that person is the procuring cause of a sale.” We don’t know how many states have a similar law. Our experience is with those whose law requires a written agreement or a specific written substitute for such an agreement. For example, here is the relevant part of New Jersey’s statute [N.J.S.A. 25:1-16]: [Read more…]

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When Will I Hear Back From You?

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To beat a dead horse is to “waste effort on something when there is no chance of succeeding.” A memorial service for today’s effort will be announced shortly.

We’ve written this before: what has happened to actually discussing open points of negotiation? Is it because it is now much too easy to deal impersonally one with another? Long ago, the only practical way to get a negotiation completed during the lifetime of the negotiators was to meet in person or pick up the phone.

Now, we will digress. There is an expression: “Riding the circuit.” Wikipedia has the following entry:

Riding circuit is the practice of judges and lawyers, sometimes referred to as circuit riders, travelling to a regular series of locations in order to hold court there. Circuit riding has mostly been abolished, but the term remains in the name “circuit court”, commonly applied to levels of court that oversee many lower district courts.

Here’s a practical description of how that worked. Imagine a “circuit” that covered nine counties, each with its own county seat. That circuit had a single judge, one who would “hold court” four or more weeks each year in each of those county seats. In effect, the entire court would move around the circuit from city to city. But, it wasn’t only the judge who rode the circuit (yes – on a horse), his clerks traveled with him. And, so did those lawyers who appeared before the judge. They stayed in the same hotels; they ate all three daily meals together; they drank together; they negotiated settlements with each other.

We who negotiate agreements used to do the same. If we were in the same locality, we’d meet in one another’s office or over a meal. More often, there was no geographic proximity, but there was a telephone. Of course, we used the mails. We would send a draft agreement by mail and, days later (if we were lucky), the postal carrier would return with a copy of the same document. This time, it had handwritten comments. We won’t labor on. You know the drill. It was like playing chess by mail.

Then, along came a technical innovation: the fax machine. Though invented in 1843, it wasn’t until the early 1980s that the time it took to transmit pages fell to where it became practical for broad commercial use. Now, a written document could be received as quickly as could the human voice. But, while it replaced mail service with a faster means of communication, it was still a one-way communication. The recipient didn’t have to respond immediately as was expected on a telephone call (or at a meeting). Further, it was still the same iterative process, one that circled in on a mutually satisfactory result. By means of this repetitive process, we looked for convergence – the more back and forth, the closer we came to the final result.

Email and document comparison technology made the process even more convenient. Document sharing software, when trusted by adversaries, more so. But, all we have done is to further enable the iterative process. We can now go back and forth, faster, even to argue over a single word. It takes little time and no “personal capital” to do so, so why not? There is no keeping a “straight face” by email.

Today, we have even more advanced communications technology than email. Video conferencing is free and universally available. The iterative process can take place in a single face-to-face “meeting.” Let’s call it “one and done.” It’s not the same thing as meeting, over a meal, at the hotel across the street from the stable where we board our horses while visiting our county seats. It is, however, the functional equivalent.

Yet, who among us are negotiating our agreements electronically, cara a cara? Why not? Have we become accustomed to avoiding personal contact? Are we unwilling to take positions in person, ones we can hide behind in an email message or bury inside a redlined document?

In all fairness, some segments of our real estate community encourage or even insist upon meeting by telephone. Typically, they are the purer business segments – the investment bankers or the serious commercial real estate brokers. This process drives the underlying transactions. Ironically, it seems that the larger the transaction, the faster it moves.

What is Ruminations suggesting? It’s simple – when you get someone’s proposed agreement, pick up the phone – suggest a “meeting” by Skype, Facetime, Zoom or whatever. And, after the social niceties, start off by saying: “Here’s where I have a problem.”

If you want to discuss today’s or any week’s blog posting, call us at 973.744.0288.

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