How One Tenant Can Become Two Different Tenants Without A Landlord Knowing What Happened

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We think today’s subject is quite interesting, though we know that its greatest appeal will be to law “wonks.” [A “wonk” is variously “a person preoccupied with arcane details or procedures in a specialized field” or “a student who spends much time studying and has little or no social life” or “one who studies an issue or topic thoroughly or excessively” (Various sources)].

Even readers with no need to see a definition of “assignment,” might be puzzled as to the words “pro tanto.” Even those who know what those words mean probably don’t realize that you can combine “assignment” with “pro tanto” and do serious harm to one party or the other to a lease.

Simply speaking, an assignment results in one party (the assignor) turning over all of its rights to another party (the assignee). The assignor (say, a tenant), absent some other agreement with the person or entity on the other side of an agreement (say, a landlord and a lease), retains obligations under that agreement (e.g., under the “lease”), but not any rights. [That’s not entirely accurate because there are ways to retain certain rights by way of agreement between the originally contracting parties, but that’s for another day. Today, we’re going to confuse readers enough with the “pro tanto” concept, such that we don’t need to go down a tangent at this point in the posting.] Basically, the effect of a tenant assigning its interest in a lease is that the tenant under the lease changes and the landlord now has to deal with a new tenant, the assignee. [Read more…]

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Will, Must, May, Should, Or Nothing At All – But Not Shall.

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Legal documents love the word “shall.” At one time, not long ago, we did as well. We don’t any more.

We did a search within a few form leases and a few form mortgages. Here’s what was found: 433 (landlord’s form office lease); 588 (tenant’s form retail lease); 988 (lender’s loan agreement); 405 (landlord’s form retail lease); and (only) 88 (lender’s form of simple mortgage).

In case readers don’t know, while our legal document world has a love affair with “shall,” normal people ordinarily prefer “will.” Here’s what one stylebook writer says about this: [Read more…]

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Smart Isn’t Enough. Ours Is A Craft.

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There are those readers who will charge that Ruminations has gone “off-topic” with today’s posting, but they would be wrong for two reasons. First, and convincingly so, like the United States Supreme Court, it is Ruminations that makes such call, not anyone else. If anyone would like to a citation to Justice Harlan or Justice John Marshall on that topic, let us know. [But, don’t anyone think that we see ourselves in the same class as that Court; we don’t even hold a candle to the Justices.] Second, though what we’ll be bringing up has significant general implications for far more important areas than reaching agreements about “dirt,” that doesn’t mean that we “in this business” don’t have responsibilities, one to the other, not to accept the “that’s the way it is.” Yes, that’s pretty cryptic, but please read on.

We had queued up another posting for today, but a news article last week gave us pause. Further, we’ve been holding an “Op-Ed” since January, waiting for a posting that would benefit from our including its “link.” [Read more…]

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Whose Rogue Is It Anyway, A Landlord’s Or Its Tenant’s?

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Last week and the week before, we wrote about some substantive aspects of exclusive use covenants – promises by a landlord to its tenant that only that tenant will be permitted to sell certain goods or services at the shopping center. Our goal was to point out some of the difficulties and challenges faced when writing rules as to what can and can’t be sold and the extent to which certain other tenants could be free, in some or all regards, of those crafted restrictions.

We received some direct comments and a number were posted to various other web sites, notably on those hosted by Linked In. We also received some private comments. Most focused on the remedies an aggrieved tenant might have against its landlord if the landlord’s covenant (promise) was broken. None (yet) addressed how, when, and with what success a “protected” tenant might directly act against a neighboring tenant alleged to sell those goods or services even though the neighboring tenant knows or should know of the restriction. We promise to discuss this within the next few months, but not now. We’re waiting for a friend’s law review article to be published so that we can point interested readers to a “real” legal analysis, not just this Ruminator’s ramblings. [Read more…]

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Crafting Exclusive Use Provisions Is No Simple Task Unless You Want To Ignore The “Why” Behind Them

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On their faces, this week’s blog posting (and last week’s as well) are about exclusive use rights. Actually, they are about setting ourselves free of the handy formulations we all lean on when negotiating leases. Handy as the “same old, tried and true” lease clauses may be, sometimes we should step back and spend some serious thinking time about the subject matter in front of us. The topic of exclusive use rights is a perfect one to remind us of that approach. One has to think of the actual goods or services to be protected. One has to understand the “principle” behind every single “stock, standby, old friend” lease clause. As to those that grant a tenant an exclusive use right, Ruminations suggests that what a tenant is “entitled” to have protected is the good will that very tenant creates at a particular location. On the flip side, Ruminations doesn’t think that a tenant is entitled to protection against competition in general. [Read more…]

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Writing Exclusive Use Rights Provisions Is Tricky. How So?

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Ruminations is on record as taking no stance on whether a tenant is “entitled” to the benefit of an exclusive use restriction in a lease. Similarly, we don’t believe that landlords have an absolute “right” to narrowly restrict what a tenant may do in its leased space. Each should be an outcome resulting from the bargaining process. Yes, there may be a market expectation depending on the type of business involved or the size of the overall project or the nature of the tenant or landlord, but the bottom line is that each outcome results from the bargaining process.

Today (and next week), we’ll muse about what a tenant should reasonably expect if it is agreed that it will benefit from an exclusive use right. Also, we’ll point out a few common ways that leases inadequately describe such an exclusive use right. Yes, this will be another “words matter” posting.

The law disfavors restrictions on the use of real property. One corollary of that principle is that courts will generally (but not always) interpret (or construe) restrictive covenants (such as restrictions against engaging in certain activities at real property) in the narrowest of ways. Basically, if a restriction doesn’t clearly bar a tenant from selling or displaying something (lawful) in its leased space, the tenant can go ahead and do so. [Read more…]

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Ignorance Abounds And It Isn’t Bliss – Faking It Doesn’t Get The Deal Done

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Typically, we avoid postings two rants in a row, and we had planning today’s posting for a few weeks from now. Then, on Thursday, we saw a piece in The New York Times and we wanted to post a link to that article. But, we can’t find the link and can’t find the article. So, we’ll go it alone.

Our subject is ignorance. That’s a lack of knowledge, not a deficiency in intelligence. Even for smartest of people, ignorance gets in the way of making a deal. It interferes with collegial negotiations. It delay the “signing.” It raises the cost of making the deal. And, it happens over and over again. Ignorance is the gift that keeps on giving.

It isn’t enough to know every lease or mortgage or sales agreement clause “cold.” If we are going to make deals happen, we have to know how the world works. To make a deal happen correctly, we have to understand numbers. It boggles the mind that some of us can’t figure out fractions or make percentages add up to 100. As a consequence, we see too many documents with formulas to determine rental amounts or loan payments that just don’t “add up.” [Read more…]

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So, Exactly What Does A Broker Bring To The Table In 2015?

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The “third rail” has been in the news for the last few days and that made Ruminations think about posting this piece having to do with the role of brokers in commercial lease transactions. At the risk of needing to purchase a bespoke Nomex suit crafted to protect against possible flaming, we proceed.

Brokers make the marketplace work. They connect parties who might not have known of each other’s interests in the absence of the broker’s efforts. Certainly, the internet and the information age have made information readily available that historically had been in the “secret” files of the brokerage community. If, however, that were the only grip a broker had over prospective buyers, sellers, tenants or landlords, the show would have been over a long time ago – the curtain would have fallen.

[Read more…]

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