A lot of trees have been cut down for the paper used to write about operating expenses or common area costs. That’s because when you talk about passing along operating costs, you are talking real money. Yet, aside from deals where the operating expense charge is a fixed (and usually escalating) amount, far less negotiation is had for a nickel or a dime per square foot of operating expenses than is the case with the same nickel or dime of basic rent. Yet, a nickel is a nickel and a dime is a dime [See: John Lee Hooker, Bottle Up & Go], whether called base rent or operating expenses. In sum, like weather, everybody talks about it, but nobody can do anything about it. But, is that really true? In part, “Yes”; in part, “No.” Here’s our attempt to start a discussion – kill more trees. [Read more...]
It isn’t intuitive whether someone has an “insurable interest” in someone else’s property, but without one, an additional insured or loss payee will not see any money from that insured’s property insurance policy. This subject, admittedly, is a “little” arcane. So, we’ll try to explain is by way of a story, actually a court’s decision.
There is a lesson to be learned from a recent Bankruptcy Court decision where, most uncharacteristically, the court ruled against the bankrupt estate. Somewhat surprisingly, but probably correctly, it held that a bankrupt tenant’s landlord “owned” the insurance proceeds and took that money out of the reach of the debtor or its other creditors.
Yes, the landlord got to keep the insurance proceeds from insurance the tenant purchased to cover the tenant’s personal property. [Read more...]
Doing a lease, a loan or a sale (and things like that) shouldn’t be like doing a divorce; it should be like doing an adoption. These are just business deals; just “money.” No one is or should be besmirching anyone’s reputation, seeking revenge or taking children away. And, even if that were the case, the negotiators are not the angry parties. Presumably, they are professionals. [Read more...]
Today, we’ll start in the middle of our thoughts by opening with an example that we’re going to return to several times in this week’s posting. You can have a five year lease with an option (in favor of the tenant) to extend its term by five years, or you can have a ten year lease with the tenant having the option to end it at the five year point. In fact, you can do those numbers any way you want. So, what’s the difference?
Psychology aside, probably nothing if the math wizards are at work. Perhaps, one party or the other can play around with the tax treatment given to the lease. But, basically, the present value for each five year segment should be the same. If someone were to suggest that having the right to terminate the lease early protects a tenant against [Read more...]
Ruminations took a crack at answering this question a whole lot of blog postings ago, but we never felt fully comfortable with the way we tried to fashion an answer. Basically, we tried the “ejusdem generis” approach. [What are you talking about – you behind the keyboard? Our definition used a list of items followed by, “and thing like that.” That’s the essence of the “ejusdem generis” approach.]
Here’s a spoiler. Ruminations isn’t going to do much better today. If you make it to the end of this posting, you’ll also have figured that out. [Read more...]
When the terms of an existing lease between a tenant and its landlord are dramatically changed, the parties frequently terminate their old lease and enter into a brand new lease. The consequences of doing so are rarely considered by the parties, and they may be surprised to learn the following.
Any particular lease is affected by the terms of other leases at a project, recorded documents (such as Declarations of Restrictions), and the terms of financing documents. In most cases, the tenant entering into a “replacement” lease had no control over, and no input into, any of those documents. Frequently, landlords are unaware of important terms of those other agreements. [Read more...]
Ruminations doubts that most readers know what is really meant by the “covenant of quiet enjoyment.” Understandably so. Because quiet enjoyment is a common law concept; case law being the sole source of its definition. The definitions constructed in real property treatises come from case law. Even in civil code jurisdictions, where an implied covenant of quiet enjoyment in leases is imposed by statute, the definition of quiet enjoyment is found only in case law. The Restatement (Second) of Property – Landlord and Tenant tells where the law is going, or where its authors think is ought to be going, not where it is.
[For reasons hinted at the end of this posting, Ruminations will sound a lot more lawyer-like than usual today. Don’t let that confuse you. Our website’s disclaimer is still very much in effect.]
[Also, the “quiet” in “quiet enjoyment” has nothing to do with decibel levels, and the “enjoyment” has nothing to do with pleasure.]
Dealing with quiet enjoyment would be a lot easier if the concept was implicated and analyzed in only a small number of well reasoned opinions which were consistent both over time and from state to state. Alas, were that the case. Anyone who has ever searched cases for a point and come up dry should remember the ancient Chinese proverb, “be careful what you wish for, you may get it.” Thousands of reported cases deal with the covenant of quiet enjoyment. [Read more...]