How Do You Respond To An Initial Draft Of A Document?

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Today, we’ll put the conclusion right up front – there isn’t any one way to do it. Now, you’ll have to read on to learn what “it” might be. And, if you want to skip all of that, take a quick look at the end of today’s blog posting to get an update on something we wrote about a few weeks ago.

We’ve been thinking about the best way to respond to someone’s initial draft of an agreement. It could be a lease or a loan agreement or a settlement agreement or any other kind of “involved” document. How does one decide whether to do a comprehensive redraft and send it back before even making contact with the preparer? What about interlineating short narrative comments and questions inside that initial draft and flinging it back over the transom? Or, how about the phone call to point out significant points of disagreement? What about preparing a narrative, written response? How do you like the idea of preparing an elaborate matrix with a column showing the challenged provision alongside columns showing each side’s position? Then, there is always the drip, drip, drip approach of cryptic email messages objecting to one point after another without asking for anything specific in their places? [Read more…]

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Option Rights, Reasonable Expectations, And Traps For The Unwary

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A few weeks ago, we included the text of a common lease extension option clause in our blog posting. We didn’t endorse it; we only used it as an illustration. An astute reader pointed out a weakness (from the landlord’s perspective) of what, at first blush, looks like a landlord-friendly aspect of the cited provision. Today, Ruminations is going to disseminate that thought and explore some other related aspects. The general theme will be what happens when it is a condition of the tenant’s lease extension option that it not be in default. So, we’ll start by republishing the lease provision that triggered today’s thoughts: [Read more…]

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Does Experience Get In The Way Of Doing Deals?

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Today, we intend to serve up some food for thought. After re-reading it ourselves, we fear the offerings are probably for those who already have gotten the message. If, however, Ruminations recruits one more such person to the cause, we’ll be happy.

Experience is a valued trait for those who negotiate leases and other agreements – the more the better. Does anyone disagree? But, experience can serve as a straight jacket, limiting movement, making the “deal” fit the form, not the other way around. Creativity can solve problems and overcome negotiating bottlenecks, but the “untested” can be an invitation to later problems. Can a balance be struck?

We think that most leases and other agreements are handled by people who live in a box, the walls of which stopped moving a long time ago. They have a toolbox full of tools accumulated over the years, but stopped buying new tools a long time ago. So, they are only willing (and able) to work out problems if they have a tried and true “clause” or solution in their arsenal. What is more is that they don’t even understand the issues because they stopped buying new tools in 1995 (or whenever). [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 Is A Similar Major Tenant? Take A Guess.

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A shoe store had a 5- year 1999 lease with three 5- year extension options. Notably, the lease had a continuing co-tenancy provision and that’s what today’s blog posting is based upon and what was before a United States District Court judge in a case that can be seen by clicking: HERE.

The story and its outcome turn on the text of that co-tenancy provision, so it pays to read it before plowing on. Here it is:

In the event either Wal-Mart or Cato shall cease the conduct of business in the Shopping Center, and is not replaced within thirty (30) days of closing for business by another similar major tenant occupying at least ninety percent (90%) of the leased premises, then Tenant shall have the right to pay, twenty (20) days in arrears, monthly, four percent (4%) of Gross Sales in lieu of Minimum Annual Rent and all other to this charges pursuant Lease [sic]. In the alternative, should the similar major tenant not be in place within six (6) months of said closing for business, then Tenant shall have the right to cancel and terminate this Lease on thirty (30) days written notice to Landlord anytime thereafter.

The Cato store (3,680 square feet of floor area) closed at the beginning of 2006. About 17 months later, a bible book store took over the space. The book store operated a nationally branded catalog sales department in a small area of its store. The tenant lasted 4 years before closing. It took only a month for a new tenant to take its place. That new tenant lasted about 2-1/2 years before it, too, closed. [Read more…]

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How Big A Default Was It?

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It is pretty common for a lease or other agreement to grant a party (usually the tenant) a particular right or option and then make it conditional on the “entitled” party not being in default or never having been in default. We are “talking” about such provisions that look like the following sample, but we aren’t endorsing its particular formulation. That would be a whole ‘nutter discussion.

Provided that on both the day that Tenant gives its Renewal Notice and on what would have been the Expiration Date had the Lease Term not been extended by the giving of the Renewal Notice: (a) this Lease had not been previously terminated; and (b) Tenant shall not be in default beyond applicable notice and grace periods, Tenant shall have the option to …

In Merry Ole England, the King had a court system that heard and resolved all disputes. Well, not really all disputes, only those that fit into a limited number of “off-the-shelf” cognizable claims (lawyers, think: causes of action). These “pre-packaged” claims, called “writs,” were “designed to enable the English law courts to rapidly process lawsuits.” The writs were highly technical, and even though new ones were regularly issued to create new rights, the system just couldn’t keep up. If a claim couldn’t be fit into an existing “writ,” the aggrieved person was out of luck – “no writ, no remedy.” The law was the law and too bad! [Read more…]

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The Accountants Are Coming; The Accountants Are Coming: New Lease Accounting Standards Are Upon Us

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Today, we return from ranting (last week) to “wonky.” And, we do that despite knowing that only a small number of readers really need to know about lease accounting. We do it because a large number of our readers, though not needing to know, like and want to know a little something about the topic.

Today’s impetus is because the International Accounting Standards Board (IASB) just (January 13) issued its latest standard: IFRS 16, Leases. This is the culmination of a decade-long project, sidetracked by many, many issues, comments, and objections. Now, astute readers would rightly say: “Why do I care about the IASB. Here in the good ole’ USA, we abide by standards promulgated by FASB, the Financial Accounting Standards Board.” Well, that one is easy. IASB and FASB worked arm in arm on this standard and FASB’s version, expected to be published in February, will call for the very same things as this one.

There’s no need to spill your coffee or skip that bathroom break to read today’s posting. This lease accounting standard (and the expected FASB standard) becomes effective after 2018.

Here’s another important point. The FASB standards (being the ones that will be incorporated into GAAP – Generally Accepted Accounting Principles) will not be identical to the ones issued by the IASB last week. BUT, they will be pretty close. The two standards follow the same principles and share the same objectives. [Read more…]

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My Way Or The Highway – There Is Only One Way To Write Our Agreement

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Stubbornness. Unwillingness to listen. Often wrong but never in doubt. Preconceived notions. OK, today’s posting will qualify as a rant. As such, our aim is to keep it short.

Do you want to make a deal or does it have to be written the one and only way you’ve conceived as the “right way” to say it in the agreement? Though Ruminations, opinionated as we are, strives to avoid “absolutes,” we can’t do so with the following: There is always more than one way to properly express an agreement that has been reached. If that is true, and we’ll fight anyone who challenges us (but, if you are right, we’ll find another way to express the same thought), then why do we resist stepping back and “writing it again, though differently”?

We don’t care how long someone “has been doing this.” Forty plus years ago in a different life, we had a shipping manager who, on a daily basis, would express his competence by telling everyone: “I’ve got 25 years of experience in shipping.” Every day, we’d say: “[Name], yes, that’s one year over and over 25 times.” Only because we remained friends could we have that daily dialog. Forty plus years of experience is valuable especially because with longevity in rank should come wisdom, not arrogance. [Read more…]

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