Frustrated? – Bail Out Of A Lease Before It Begins – Impossible? No.

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Today, we offer a potpourri of rants: the doctrine of impossibility; good faith and fair dealing; and why did you think you could get away with that?

We’ve written about “impossibility” and “impracticality.” [Take a look at one such posting by clicking: HERE.] Basically, if the conditions are “right” (“the stars are aligned”), a party can get out of a contract if the purpose for which the agreement was reached turns out to be impossible to achieve. In the context of a Florida commercial lease dispute, the United States Court of Appeals for the Eleventh Circuit recently summarized a general principle of Florida law as follows:

Where the parties contract for the use of a property which use is not allowed by law, the consideration wholly fails, and the money paid for the contract should be returned and the parties mutually released.

That principle is not unique to Florida law.

The appellate court, in a decision that can be seen by clicking: HERE, tells the following, simple story. A shopping center lease was signed with a tenant wanting to open a tanning salon. The tenant then applied for an “Addition/Alteration Building Permit Application” in order to make needed changes to the space. It was denied. The reason given was that its zoning ordinance did not permit tanning salons at the tenant’s location. The sense one would get from the appellate court’s decision is that the city was probably on shaky ground when using such an excuse for the permit denial. [Read more…]

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How To Write Your Agreements So As To Get Away With Fraud

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Court opinions coming out of the Delaware Chancery Court are a delight to read. They are almost always clear and incisive. They are important and influential. That court doesn’t often “see” real estate disputes, but that doesn’t mean its work is irrelevant to our chosen day jobs. One such decision, published on November 24, does an incredible job of dealing with an agreement’s “we didn’t rely on any representations you don’t find in the text of this agreement” provision and that agreement’s “integration” or “merger” clause. As a bonus, it sheds some light on how and whether the fairly standard indemnification provision covers damages directly incurred by the indemnified party (a “first” party), or just for claims against the indemnified party by a “third party.” Unless you go directly to the Court’s written decision, you’ll need to keep reading if you want the answers [to all but the “indemnification” part; for that, you’ll need to wait until next week’s posting]. [Read more…]

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Overcoming Fear – Representations A Seller Should Give – Part 2

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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.

[Read more…]

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Representations As Part Of Proper Due Diligence

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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…]

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Give Me A Sentence That Uses Both “Due Diligence” And “Letter Of Intent”

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We needed to think about Letters of Intent because we’ve been asked to join a panel discussion in June and tell all we know. Certainly, we’ll recycle our thoughts from some earlier Ruminations blog postings, notably the ones you might want to revisit or see for the first time by clicking HERE and HERE and HERE. But, what about some fresh thoughts?

Those of us who try in earnest to Get The Deal Done, usually don’t see “the” Letter of Intent until it is signed, sealed, and delivered. (That is, if there even is such a document.) And, when we write, “Letter of Intent,” we’re thinking of those broadly – term sheets, email messages, (literally) jottings on a napkin – whatever. [Read more…]

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A Pig In A Poke And Other Lease Negotiation Sad Tales Of Woe

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Have you ever bought a $300,000 house solely based on reading a classified ad? What about doing a $3,000,000 lease (30 years, including options, at $100,000 a year) without ever seeing the property or at least taking a good “look” at the property from far away? Why would you NEVER buy a house that way, yet regularly do a lease based solely on a term sheet and with no other “due diligence” investigation? Simply said, you shouldn’t.  [Read more…]

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