You Snooze; You Lose; Maybe; Probably

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What is in the water that many, too many, landlords drink? What can they be thinking? The same can be said (though not as often) about tenants, and we will do so. What is in the water that many, too many, tenants drink? What can they be thinking?

The subject is asking for money rightfully owed to those drinkers. It might be for taxes or it might be for operating expenses, percentage rent, insurance premiums, reimbursable expenses or refunds for the payment of any one or more of those. It might even be for other things such as overdue rent. Yes, why do rightfully billable charges or rightful claims go unbilled or unclaimed until years later when someone wakes up, often, but not always, a successor landlord or tenant?.

[If you] SNOOZE, you [can] LOSE. “Do not spend your days gathering flowers by the wayside, lest night come upon you before you arrive at your journeys end, and then you will not reach it. [Isaac Watts].

If you haven’t experienced the situation or been asked about the following situation yet, it is just that you haven’t been at this real property leasing thing long enough: After “X” years (“X” often being 5 or more) of failing to bill a tenant for taxes or other monies genuinely owed, a landlord sends out a (BIG) bill. Both the tenant and its landlord turn to trusted advisors and ask: “How far back can the landlord go and still have the right to collect what is owed?” [Read more…]

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Parallel Construction, Consequential Damages, And Use Of A Dictionary

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Questions about damages and remedies are not simple to answer and, often, the answers are less than fully satisfying. The overriding framework is that business people don’t really focus on these “leave it to the lawyers” issues until a problem rears its head. Unlike many lease and other agreement issues that are worked out between cooperating parties, when one starts to look at a document or at the law to see “what are my rights, what can I do, how can I be made whole,” the relationship has already broken down. That’s when each side starts counting commas and looking for all of the “notwithstandings.”

Today, we’re going to look at an actual case, one decided at the end of October by a California appellate court. It can be seen by clicking HERE.

It involves the concept of “consequential damages, “exclusive remedies,” and “rent and other charges.” And, as will come as no surprise to regular readers, it teaches us something about using the right words. Oh, yes, it also describes a very familiar process, that process being where lawyers are hired to try to find a way to argue that the words in a lease or other agreement support a conclusion contrary what any objective observer would see as the plain intention of the parties. In the course of that process, the dispute we’ll be describing became the subject of four, count them, four separate appellate proceedings. [Read more…]

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Open For One Day? Why Bother?

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Last week, we put forth the view that tenants with limited bargaining power will have little choice but to accept a continuous operation obligation (assuming they really want to be at the property). We offered some suggestions that could protect a tenant, otherwise acting in good faith, from uninvited consequences that could result from an unintentional violation of such an obligation. Is there anything left to write on the subject? [That was a rhetorical question.]

Warning: Today’s blog posting will wander a bit. Hopefully, by its end, it will “all add up.”

Tenants with significant bargaining power almost never sign a lease with a continuous operation obligation. Are there exceptions? Sure. The most common is where, in effect, a shopping center developer “gives” land at the project to an anchor tenant to build its own store. The understanding is that this “gift” is being made with the belief that a shopping center with one or more solid anchors will attract smaller tenants, and those smaller tenants are the “real” tenants whose rent goes to the developer. The anchor stores understand that bargain and agree to operate, BUT (usually) only for a given number of years, say 20 or 25. This won’t be a persuasive explanation, but we think readers will get the idea: the anchor tenant will have spent its own money to build a 150,000 to 250,000 square foot store at a cost of $15 million or more. How likely is it that such a tenant will close that store and write down the cost of its construction? [Read more…]

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“Another Similar Major Tenant” – What Did You Say? A Co-Tenancy Failure Saga

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Last week, we described, in some detail, a long story about a tenant seeking the benefit of a continuing co-tenancy provision in its lease and its landlord’s less than favorable response. We’re not going to repeat the “long story” this week. If you want to read it (to catch up, and you should), just click: HERE. Today, readers get the “short” version.

A shoe store’s lease gave it the right to pay reduced rent and even to terminate its lease if either of two particular businesses at the property vacated and were not timely replaced by “another similar major tenant.” The dispute, which was narrowed by a United District Court, but not resolved to conclusion, was whether a particular bible book store that replaced one of the designated “co-tenants,” a women’s fashion retailer, satisfied the criterion of being “another similar major tenant.” There were also issues of whether the shoe store’s long delay in “complaining” would adversely affect the specific remedies the tenant got under its lease.

The bible book store was long established in the marketplace and had relocated from a nearby location into the entire space occupied by the fashion retailer. Its sales in that same space exceeded those of the fashion retailer it replaced. [Read more…]

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What Kind Of Help To A Tenant Is Self-Help? Part 3 (Whew, The Finale)

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Enough with the “self-help” already, but not before we address every reader’s favorite commodity – “money.” When a tenant does what a landlord is required to do, but didn’t  (or a landlord does what the tenant should have done, but didn’t), the motive isn’t charity. Whatever was “self-helped” has to be at the expense of the non-performing party.

Just because repayment is expected and deserved, no one should be expected to write a blank check, even if that signatory brought about the situation itself. The work that was done should be necessary and the cost of doing it should be reasonable under the circumstances. That’s a two-part test that needs to “passed” before the non-performing party should be obligated to pay up. One the test taker (the self-help exercising party) gets a passing grade, the non-performing party should make its payment within a short period of time. The amount owed should be treated as if it were an “extension” of credit; and the time for payment should be based on reasonable administrative needs. Ten to twenty days should be appropriate in all but the most unusual of circumstances. [Read more…]

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What Kind Of Help To A Tenant Is Self-Help? Part 2

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Last week, we opened the topic of tenant self-help rights. We’re not going to do much repetition. So, if you haven’t seen it yet or, if you are like us, you’ve forgotten most of what you’ve read, click HERE to see that posting.

In that posting, we gave some examples of when a tenant with the right to do what its landlord should have done, won’t. In short, a tenant occupying one percent of a property isn’t very likely to plow an entire parking lot or replace a lot of roof area. That caveat doesn’t make the tenant’s self-help right entirely useless. Not all tasks are so extensive or expensive. Here are easy examples: a manageable roof leak or a rooftop HVAC replacement (in each case, assuming the landlord had responsibility to take care of those items). [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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You Can’t Cure Them All – Sometimes It Depends On How You Write The Same Obligation

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If, three months ago, you failed to carry contractually required insurance for one week, can you cure that breach now? Over the past week, we were thinking about the curability of defaults. And, we weren’t distinguishing between those of landlords or tenants or borrowers or lenders. Our starting point was the common formulation used to define an “Event of Default,” the occurrence of which triggers “consequences.” Here’s an example of the genre: [Read more…]

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