One important exit strategy for a large space tenant seeking to shed itself of leased space is to have the option of assigning its lease or of subletting all or part of its premises. Generally, a tenant who no longer needs its space will prefer assignment if it can be simultaneously relieved of its lease obligations or if the prospective assignee is adjudged to be rock solid. Otherwise, subletting is preferred because the departing tenant, stuck with continuing contingent liability, can retain control of its space. However, to get rid of the old tenant as an intermediary between it and the landlord, an incoming tenant would prefer to take an assignment of the existing tenant’s leasehold interest. Sometimes, such as when the incoming tenant’s rent is substantially lower than the rent payable under the lease, a lease assignment just won’t work. Thus, where assignment of the lease is not workable or where less than all of the leased space is to be transferred, subleasing is the preferred choice. [Read more…]
Why has the typical office lease figured this out, but the typical office lease has not? Figured out what, you ask? Getting rid of the old tenant’s cabling when it leaves is what. Notice, we didn’t say wiring. We said cabling. What’s the difference? Cables are for low voltage applications, such as for communications, signaling or alarms. There are also optical cables, often called “fiber” or “glass.” Wiring is for delivering power, generally high voltage (120 volts and up), but sometimes lower voltage.
Why are we writing about cables and not wires? That’s because “abandoned” wires are usually removed, whereas cables, such as computed (Ethernet) wiring are not. Besides that, most electrical wires remain in use after a tenant has left.
Why is this an issue? It’s not only because the National Electrical Code (NEC) requires that abandoned cabling be removed and the NEC in incorporated by references into many local building codes. It’s really because cabling is a fire hazard. Yes, it isn’t because of the electrical current that passes through cables. If it were, then optical cable could remain under the NEC. Cabling is a fire hazard not so much because the insulation will burn, but mostly because burning insulation creates smoke. Think “burning plastic.” Even fire-resistant insulation generates smoke. It may not sustain a flame, but when it encounters a flame, the insulation burns (and smokes). [Read more…]
This will be the 237th Ruminations blog posting and the first time we’ve done a potpourri. As readers can imagine, at any one time, there are dozens of thoughts running through the Ruminator’s mind, some useful, most not. Among those that are worth expressing, there are some that wouldn’t qualify under the Ruminations stylebook because they wouldn’t result in the killing of the requisite minimum number of trees (electrons?). So, today, we’ll toss out one such substantive thought and add one adjective thought just to fill the space. We’d say, “All the news that fits, we print,” but we don’t want to be chased by The Grey Lady. [Read more…]
Building on the excitement generated by last week’s blog posting (to see it again or for the first time, click: HERE), we “Press on Regardless.” [“POR,” as we know it – ask us, see HERE]. Briefly summarized, we think a property seller should make representations in the purchase agreement as part of its answers to what would be reasonable and appropriate due diligence questions from the buyer. For a more thoughtful, though not necessarily commanding, explanation read through today’s posting until its putative end, and we’ll try to do a “wrap-up.”
Extending the list we started last week, here are some additional representations we suggest a buyer might ask for and a seller should deliver:
No party or entity has any rights of possession or occupancy to the Property except for the persons occupying under the Leases. Seller will promptly provide Purchaser with a copy of any notice of default received from any tenant between the date hereof and the Closing[, and Seller will cure any landlord default prior to the date of Closing]. No tenant has subleased all or any part of its space nor assigned its Lease and each tenant is in possession; Seller has the sole right to collect the rents under the Leases and there are no collateral assignments of rents to anyone.
Last week, we Ruminated about what “AS-IS” might mean in an agreement and when it might be an appropriate “agreement.” You can see that posting by clicking HERE. Basically, we think that the contracting party in the “best position to know” should “take the risk.” Sometimes, however, the one with the “lesser” knowledge may not need to rely on the one with the “best” knowledge. For example, Someone who owns a car for all five years of its life is in the “best” position to know if it leaks oil, but if it only takes ten seconds to look under the car, then it wouldn’t be unreasonable to ask a buyer to take the risk that the car leaks oil. Of course, if the seller fraudulently hid the leak or refused to allow inspection, that’s separately actionable.
Today (and in next week’s blog postings) we’re going to cover “AS-IS,” but in the context of a property purchase agreement and only as to how accepting a property in its “AS-IS” condition bears on the kind of representations a buyer might want to get from the seller. That’s a long and awkward way to say we are writing about representations a seller might be asked to make in a property purchase agreement. [Read more…]
When you come across a contract provision that shouts out “AS-IS,” do you have a complete understanding about what is involved or just a general one? For the most part, when you take something “AS-IS,” you are taking it without any warranty. That means the landlord or seller doesn’t have to “make it right” – the risk of something being wrong falls on YOU. Unless you find a sympathetic judge, it means you are taking the “whatever” with all faults – those you can see AND (even, maybe) those you couldn’t have seen.
Basically, “AS-IS” has to do with your expectations. If you buy a boxed radio from an electronics chain store at something close to a “real” selling price, you expect (and have the right to expect) that it will function as a radio should function. If you fish the same kind of radio from the bottom of the barrel at a flea market and pay “two bucks,” you get it “AS-IS” even if there was no sign to that effect on the barrel. [Read more…]
If the term “Gross Sales” had an intuitive meaning, we wouldn’t have had grist for today’s mill. And, thousands and thousands of us wouldn’t have the opportunity to write our own definition for that term. What a sad world that would make!
Percentage rent provisions are common and almost always rely on the starting concept of “gross rent.” But, while “gross rent” might have a generally understood meaning outside of the leasing community, that certainly isn’t the case inside the leasing community. If it had a common meaning, it would be an undefined term just as are most of the words and terms found in leases (and other agreements). Just think of this: we don’t define every word in our agreements (such as leases and mortgages); we rely on common understanding. That’s true even where words succumb to a choice of definitions. In those cases, many as they are, we understand those words and phrases in the context where found.
We’re not talking about “gross sales” as the number to which the “percentage” is applied because, at the end of the day, no one applies the “percentage” to “gross sales.” We apply it to an “adjusted” sales figure. Wherever we start as “gross,” you can be sure you’ll find a list of deductions or exclusions. These are two different “don’t count these” concepts, though, at the end of the day, their effect is the same. The “number” against which the “percentage” is applied is reduced by deductions and exclusions. [Read more…]