Co-Tenancy Rights – Use Them Or Lose Them

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It’s been a while since we wrote about rules of contract construction or about the consequences of dilatory behavior. Now, we’ve just seen a September court decision from the United States District Court for the District of Minnesota that gives us a good opportunity to cover both. As a bonus, it deals with a lease’s continuing co-tenancy provision.

The co-tenancy provision was pretty typical. In principle, to be an “Anchor Tenant” meant almost any “large, well-known national or regional retail store.” A co-tenancy failure was where certain identified space at the shopping center lacked such an Anchor Store for 120 days. Absent such an Anchor Store for that period, and if certain other conditions existed, the tenant with the continuing co-tenancy right could begin to pay “Alternative Rent” equal to the lesser of the lease’s stated rent or 3% of its gross sales. None of that was at issue at the Minnesota shopping center. The landlord agreed that the tenant’s co-tenancy right had been triggered and that it would be entitled to pay Alternative Rent, but for one issue. It claimed the tenant waited too long to exercise its right to the reduced rent. It wasn’t because an Anchor Tenant was found for the empty space. It was because the now-gone Anchor Tenant had vacated at the end of July 2016 and the claiming tenant, after paying full rent for 30 months, made a $250,000 retroactive claim in January 2019 for excess rent paid. [Read more…]

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Don’t Believe What I Told You Clauses

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Here’s a story with a few different lessons. One aspect of it won’t be of great utility to our readers, so we’ll get it out of the way right now. The tenant in this story appeared to sign a lease without counsel and without fully reading it. We don’t think that aspect casts any shade on the lessons we’ll be covering, but keep the tenant’s approach in mind as you read the rest of today’s blog posting.

The owner of a successful chain of quick-service, ethnic restaurants developed a new concept – a mall restaurant that would sell gourmet hot dogs. W.C. Fields might have called those “Gourmet Tube Steaks,” but that’s for another industry’s blogs. He honed in on a large mall, one that only had three remaining spaces in what appeared to be its food court (though the court never explicitly identified it as such). One of the existing tenants in that food court was a well-known, national, premium hamburger quick-service restaurant. No, it wasn’t the one with the golden arches. Although that hamburger restaurant sold hot dogs, they were only a sideline. So, this was of no concern to the owner’s gourmet hot dog plans. [Read more…]

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Are Waivers Enforceable?

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Are waivers enforceable? It depends. How unsatisfying is that answer? Generally speaking, absent duress or coercion, parties can waive what would otherwise be their right. How does one know if there is (was) coercion? Well, some situations, such as an actual gun to the head, are easy to identify. Others are not so simple. When it comes to agreements between commercial parties, there is a presumption that they are grown-ups, able to protect their own interests. The “bigger” they are, the less likely a cry of “coercion” will rule the day. Representation by an attorney will dull a party’s claim that it was improperly forced to agree to a waiver (or other contract terms). When courts reject a party’s plea that it was coerced, you’ll often see the “deal” as having been between “sophisticated parties that negotiated at arm’s length with apparent care and specificity, and represented by competent counsel.” All of those factors concern themselves with the character of the parties and how they arrived at their agreement. [Read more…]

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Exclusive Use Rights: Common Language Knowledge May Not Work

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We doubt that our next paragraph, let alone the rest of today’s blog posting, will make much sense to readers who haven’t seen last week’s posting. So, if that means you, we suggest you click: HERE.

After receiving a number of “off-line” comments from readers, we took a look at the various types of rice in our pantry and found the following: Carnaroli, Jasmin, Wild Rice, Arborio, California Sushi, Basmati Light Brown, Brown Jasmin, Extra Long Grain Rice, Brown Rice, and a Rice Blend (something that offers the look of much more expensive Wild Rice, but, with some white rice in the blend, is not as expensive). Who knew? Yes, to the eye some of these types clearly are “white”; some are not; some are “different minds will differ.” Thus, an expert organoleptically examining our pantry’s selection, would call some versions “white” and call others “brown.” But, when these, other than Long Grain White Rice and the straightforward Brown Rice, were offered for sale, the merchants wanted them to be seen as something other than “white” or “brown” rice. Those two boring descriptions imply “commodity” rice. Carnaroli Rice, which by the way we highly recommend over Arborio rice, for preparing risotto, costs the consumer more even though its production costs might not support that “bump.” [Read more…]

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Pretext; Equity; Eviction; What Do You Think?

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Today, we write about the use of pretext. We’ll explain. First, here’s a story from a recent California appellate court decision.

A tenant (residential, but for our purposes, that’s of little consequence) only sent its check to cover part of its monthly rent. Its landlord returned the “rent check without cashing it.” [Now, we will digress (surprise). The quoted words come from the decision itself. If you wonder what “without cashing it” adds to the facts, you are not alone. If you read the actual decision, which can be seen by clicking: HERE, you will be able to analyze the court’s writing abilities in greater detail. Likely, you’ll find more of the same as in: “without cashing it.”]

Consistent with California law, the landlord served a three-day notice on its tenant. The notice said that “there was ‘unpaid and delinquent rent’ of $507.61 for June 2107.” It also said that if the tenant didn’t pay the delinquent rent within three days, the landlord “does hereby elect to declare a forfeiture of the subject lease … and will institute legal proceedings for the lawful detainer … to recover possession of the premises ….” After what appears to be a week or so after the end of the 3- day period, the tenant sent its check for the full amount and also included a second check as early payment of July’s rent. By that time, the landlord had sued to evict its tenant.

In what was a surprise to us, there was a jury trial. The jury’s found that the tenant HAD paid the rent. Presumably (according to the appellate court) this was because the jury decided that the landlord had prevented the payment by returning the check. In response to an appeal by the landlord, the appellate court held that the jury had clearly erred. In its view, although the tenant had tendered a deficient rent payment, the landlord had not accepted the check and, consequently, the rent was, in fact, NOT paid. Under the relevant statute, if a tenant is in default in the payment of rent after a three-day notice is served, it may be evicted. [Read more…]

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I Surrender! Here’s Your Property Back: As-Is. Sue Me

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We are no fan of a particular type of “surrender” clause commonly found in leases, the “style” that calls for a tenant to “leave the property in as good condition as when it moved in, save normal wear and tear.” These clauses come in a variety of flavors, none of which Ruminations will offer today. In 2014, we shared some thoughts on this same topic in a posting that can be seen by clicking: HERE. We’ve also said (too) much about “wear and tear.” For those Ruminations of ours, search the blog site for (what else?) “wear and tear.” For the most part, our earlier writings have focused on the downside to tenants of this type of lease clause. Today, we’ll introduce a court decision that illustrates a giant shortcoming of the “same or better” condition requirement, one that should make landlords leery. Even readers who take a different approach to the condition of the leased property when its tenant departs will be interested in what the same court had to say about a property’s “move-in” condition and the implication for provisions dealing with the “move-out” condition. [Read more…]

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Personal Or General Misfortunes

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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…]

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You don’t have a tenant; you have a guest. Tenants pay rent; guests raid your refrigerator

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If your days are spent on behalf of a landlord with (internally or externally) professionally managed properties, then think of a topic you’d like to read about and search for it through Ruminations’ back library of over 400 blog postings. If, however, you have a relationship (even in a mirror) with the owner of a property or two, read on.

Too many times over too many years, our phone has rung with this question: “I have a tenant who is now five months behind, what should I do?” Self-help, even where “lawful,” is illusory. The risk of “doing it wrong” is pretty great and the damages a tenant can rightly claim aren’t pretty. So, we never advise “lock ‘em out.” We get pretty uncomfortable when asked, “Can I cut off the water or the electricity?” If your answer would be “Yes,” stop reading now.

Before we give advice, our reply is: “Have you spoken to your tenant? Is this a case of ‘won’t pay’ or is it ‘can’t pay’?” Far too often, what we hear back is: “No, I haven’t.” In such cases, our advice begins with: “Talk to your tenant.” [Read more…]

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