Additional Rent Is No Rent At All

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We are aware that in New Jersey, if a lease doesn’t denominate a particular tenant’s financial obligation as some version of “rent,” then the landlord can’t get the tenant evicted for non-payment of that item. The reason we are aware of this is because we’ve seen case law that denies a landlord such relief. While the landlord can sue to collect such charges, for example, common area charges, it can’t evict the tenant if the lease doesn’t say that such charges are “rent” or “additional rent.” It doesn’t matter that Ruminations thinks that’s just plain silly. That’s the way it works even if everyone other than the court knows that such items are part of a tenant’s rent.

Nonetheless, since courts, not Ruminations, get to issue eviction documents, almost all New Jersey leases recite something like: “All monies required by this Lease to be paid by Tenant to Landlord constitute ‘Additional Rent’ and the failure to pay Additional Rent will have the same consequences as failure to pay Basic Rent.” Still, some New Jersey leases don’t say anything like that but, fortunately, almost all tenants actually pay their rent (and additional rent). So, you don’t see a lot of court decisions about the issue. [Read more…]

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Who Treats A Non-Recourse Loan As A Full Recourse Loan? Your Uncle Might.

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We very much doubt that the Internal Revenue Service took note of our the blog posting that follows, but on April 15, 2016, two weeks after we wrote about the significant change to the tax treatment of non-recourse carve-outs, it published a “backtracking,” some might call it a reversal, of its earlier position. You can see how it essentially reversed its earlier position by clicking: HERE.

So, the text that begins in the paragraph below the shaded one is mostly of historical significance, hopefully only an aberration. Nonetheless, we leave it posted not only to preserve history, but also for how it explains the effect of “recourse debt,” an arcane topic.

Here is the latest position of the Internal Revenue Service, as of March 31, 2016:

If a partner’s guarantee of a partnership’s nonrecourse obligation is conditioned on the occurrence of certain “nonrecourse carve-out” events described below, the guarantee will not cause the obligation to fail to qualify as a nonrecourse liability of the partnership … until such time as one of those events actually occurs and causes the guarantor to become personally liable for the partnership debt under local law.

If a partner’s guarantee of a partnership’s nonrecourse obligation is conditioned on the occurrence of certain “nonrecourse carve-out” events described below, the guarantee will not cause the obligation to fail to qualify as qualified nonrecourse financing … until such time as one of those events actually occurs and causes the guarantor to become personally liable for the partnership debt under local law.

Today’s blog posting was written with more than a little trepidation. Before we reveal its topic, Ruminations needs to emphasize two of our recurrent themes. The first is that the prime skill in counseling clients or bosses is not to know the answer, but to figure out the question – to identify possible issues, problems or opportunities. With the question in hand, most answers are easily found. Without knowing the question, the answer is useless even if in your own head.

The second highlighted theme is that you don’t need to know all of the answers or even all of the questions if you have an expert source available to you. We’ve touted the need to have a “Rolodex” (for those more recently arrived on Earth, that’s a trademark for a conveniently arranged set of cards holding names and contact information for easy retrieval). Your Rolodex should have contacts for construction issues, utility issues, insurance issues, and whatever other experts you can gather in your data base. After wading through the labyrinth of today’s technical and boring posting, you’ll want to find one or more tax experts to add to your Rolodex, probably a tax-focused accountant and even a (business) tax attorney. Today, our sole mission is to sensitize readers to a narrow tax issue brought to mind by an October 15, 2015 Tax Memorandum from your friend and ours, the Internal Revenue Service. Yes, there will be a useful, but (probably) esoteric, “fact” revealed someplace near the end of today’s posting. But, that is only to scare readers into yielding up their egos and get better connected with experts. [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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Do I Have To Pay Operating Expense Charges Or Taxes That My Landlord Just Billed Me For After Five Years?

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We’ve pondered, actually struggled, to post a piece exploring the answer to the often asked, “Do I have to pay operating expense charges or taxes that my landlord just billed me for after five years?” What we’ve found is that there is no simple answer if the lease in question doesn’t specifically cover delayed billings like this. That’s also true for related questions such as, “We never increased our rent payment after extending its term and now, five years later, our landlord wants all the back rent – do we have to pay?” Or, to, “We’ve been paying the wrong rent, can we get our money back? [Read more…]

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It’s The Occupancy Cost, Not Just The Rent, Stupid

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 Sitting, as we are, in the northeast, with what seems to be a steady barrage of snow and ice storms, our thoughts naturally turn to “occupancy costs.” Before readers call for the white coated bearers of big nets to take us in, let us explain. But, first we’re going to Ruminate a little more.

At one time, the prices quoted by hotels and airlines could be held next to one another to find a good deal. No longer. Now, even they have “unbundled.” That would be fine if it were easy to “build and then price” your own travel package. But, it isn’t. [Want a pillow, a movie, and a hummus platter?]

Shop for a rental car today. Look at the web price and then get to the counter: “return the tank full; pay $9.00 a gallon; buy a tank from us at $3.35 a gallon; add a driver; return an hour late; and, it goes on an on.” When you go to ebay.com to buy something, be sure to sort by “price plus shipping.” [Read more…]

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Why Do You Think Your Lease’s Audit Clause Provides Any Benefit Or Protection?

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Audit clauses in leases are not throw-away provisions. They are not something to be copied from the last document and the one before that and so on. While intended by landlords to “make” pass-through cost billings “final,” as often written, they won’t satisfy that purpose. Similarly, a tenant or other kind of occupant who wants to “contain” its landlord’s right to audit sales records for percentage rent purposes also may want to read what follows. For simplicity (and because the overwhelming number of such situations involve tenancies), we’ll speak of tenants and leases, but the same concepts apply to Covenants, Conditions and Restrictions (CC&Rs) and similar, but differently named, documents. [Read more…]

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Can A Tenant File A Tax Appeal When Its Lease Doesn’t Give It The Right To Do So?

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There are a number of issues commonly addressed in leases that are negotiated “somewhat in ignorance,” and often “with arrogance.” Strong words, we know, but we think a substantial number of readers will agree. Three such issue-areas are insurance, eminent domain, and property taxes.

Ruminations has said a lot about insurance issues (and promises more). We’ve touched on some aspects of eminent domain issues (and we promise more). We haven’t said much about property taxes. Today, we’ll say a little – specifically about whether and how a tenant should be able to get a tax appeal prosecuted. This thought came to us when we read a New Jersey Tax Court decision touching on this topic: Target Corp. v. Township of Toms River. Click on that title to see the court’s opinion. [Read more…]

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