December 2008
The leading newsletter devoted to helping retail and office tenants
negotiate, draft, and manage their leases.
in this issue
feature
Feature
How to Negotiate an Exclusive
Use Clause. . . . . . . . . . . . . . . . . . . . . . 1
Don’t end up with a useless
exclusive.
Improvements
Negotiate Refurbishment Allowance
to Finance Improvements. . . . . . . . . 1
Use our Model Lease Language
to help get the most out of your
refurbishment allowance.
Dos & Don’ts. . . . . . . . . . . . . . . . . . . . 6
➤ Secure Title Report Before
Signing Lease
➤ Check Lease, State Law Before
Sending Notices via Email
➤ Show Lease to Insurance Experts
Before Signing It
How to Negotiate an Exclusive
Use Clause
If you specialize in selling a particular product or in offering a specific
service, take advantage of what many are calling a tenant’s market and
ask for the exclusive right to sell your products and/or offer your services
at your building or center. According to New Jersey attorneys Ira Meislik
and Mark Morfopoulos, you can secure this right by asking the owner to
add an exclusive use clause to your lease.
An exclusive use clause is a promise by the owner that only you, and
no other current or future tenants, may sell or display a particular product
or offer a certain service on the premises. Most owners are reluctant to
agree to an exclusive use clause, says Morfopoulos. They dislike keeping
track of exclusive use agreements, and fear that even the smallest violation will land them in the middle of a long, drawn-out court battle. Some
(continued on p. 2)
Negotiating Tips
Get Guaranty to Back Owner
Incentives . . . . . . . . . . . . . . . . . . . . . . 7
Make sure you get what’s promised
to you.
Recent Court Rulings. . . . . . . . . . . . . 8
➤ Owner’s Failure to Offer Defense
Solidifies Damage Claim
➤ Payment to Court Isn’t Proof
of Default
➤ Issues Not Addressed in
Settlement Agreement Require
Separate Lawsuit
IN FUTURE ISSUES
■ How
to Handle Owner’s
Bankruptcy
Endorsed by
Improvements
Negotiate Refurbishment Allowance
to Finance Improvements
When you sign a long-term lease, at some point you’re going to need to
replace certain items or make improvements in your space. To defray the
costs necessary to make those changes, you may be able to get the owner
to provide a “refurbishment allowance,” says San Francisco attorney
Richard C. Mallory.
A refurbishment allowance, like a tenant allowance, gives you a set
amount of money to make improvements in your space. But unlike a tenant allowance, a refurbishment allowance is given at a future date in the
lease term—for example, in year five of a 10-year lease.
Most owners won’t want to provide a refurbishment allowance,
because it costs them money. But if you can get an owner to agree to it,
be ready to address some key issues and deal with limits.
If You Don’t Ask for It, You Won’t Get It
Since a refurbishment allowance means more money that the owner has
to shell out, you’ll have to raise the issue yourself during negotiations—
(continued on p. 5)
2
C O M M E R C I A L T e n a n t ’ s L E A S E i n s i d er ® BOAR D OF A D VISORS
Pilar L. Bosch, Esq.
Partner
Baker & McKenzie LLP
Miami, FL
Alan M. DiSciullo, Esq.
Shearman & Sterling LLP
New York, NY
Elizabeth Ferrara
1-800-Flowers.com
Westbury, NY
Robert N. Fratar, Esq.
National Retail
Tenants Assn.
Fratar, Kern & Kelly, LLP
Springfield, MA
Harvey M. Haber, QC, LSM
Goldman Sloan
Nash & Haber
Toronto, ON Canada
D. Scott Hargadon, Esq.
Bryan Cave LLP
Chicago, IL
Gary I. Kahn, Esq.
Law Offices of
Gary I. Kahn
New York, NY
Daniel Kopp, Esq.
Daspin & Aument LLP
Chicago, IL
Bruce R. Long, Esq.
Trans World
Entertainment
Albany, NY
Richard C. Mallory, Esq.
Allen Matkins Leck Gamble
Mallory & Natsis LLP
San Francisco, CA
Stephen J. Messinger, Esq.
Minden Gross LLP
Toronto, ON Canada
Jeffrey A. Moerdler, Esq.
Mintz Levin Cohn Ferris
Glovsky and Popeo P.C.
New York, NY
Robert P. Reichman, Esq.
Siller Wilk LLP
New York, NY
Mark A. Senn, Esq.
Senn Visciano
Kirschenbaum P.C.
Denver, CO
Thomas F. Stewart, Esq.
Downey Brand LLP
Sacramento, CA
Camilla Titterington, Esq.
PetSmart, Inc.
Phoenix, AZ
Editor: Arthur Guess
Executive Editor: Heather Ogilvie
Production Director: Kathryn Homenick
Director of Operations: Michael Koplin
VP & Managing Director: Mark Fried
Editorial Director: Anita Rosepka
Commercial Tenant’s Lease Insider (ISSN 1551-2215)
is published by Vendome Group, LLC, 149 Fifth Avenue,
New York, NY 10010-6823.
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December 2008
Exclusive Use Clause (continued from p. 1)
owners go so far as to ban exclusives at their premises and add a noexclusives clause to their leases. These clauses usually state that:
■ Tenants agree not to have an exclusive at the building or center;
■ Tenants, their successors, assignees, and subtenants won’t be subject to any exclusives of any other tenants at the premises that would
prevent them from selling any products or offering any services authorized by the use clause;
■ The owner has not already signed any leases, and does not plan to
sign any leases in the future, that could impose an exclusive use restriction on the tenants or their successors, assignees, or subtenants.
But if your owner can’t afford to ban exclusives or deny your
request, expect the right to be extended—with certain limitations.
Watch for Five Limitations to Exclusive
An owner that agrees to grant you an exclusive use right will look to
limit that right as much as possible, says Meislik. However, if you’re
not careful, the exclusive use clause may be drafted in such a way as to
make the right almost useless. Here are five common owner limitations
and advice for negotiating them:
1) Exclusive is limited to primary use. Owners tend to limit exclusives
to your primary use—that is, the activity that drives your overall business. They fear that offering overly broad exclusives for small or insignificant parts of one tenant’s business might deprive other tenants of a
use that could be important to their business and discourage potential
tenants from leasing space at the premises.
Therefore, when defining “primary use,” consider what aspects of
your business are vital, especially in the near term. Try to agree to a
primary use that is broad enough to allow room for expansion as the
need arises.
However, be aware that describing your primary use as a general
category of space or type of store won’t necessarily protect you from
competition, warns Meislik. For example, if you sell consumer electronics, the owner may agree not to lease space to another consumer
electronics store. This may seem to satisfy the exclusive use agreement,
but there’s a loophole here that you need to watch out for.
If the owner agrees not to lease to any other consumer electronics stores, that won’t necessarily prevent it from leasing to other types
of stores that also sell consumer electronics. For example, by leasing
space to a furniture store that happens to sell consumer electronics, the
owner won’t violate the exclusive use agreement, and you will still face
competition—competition that should’ve been eliminated by the exclusive use clause.
Practical Pointer: To avoid indirect competition, be very specific and firm
about what products or services you want the exclusive right to sell and/or offer
when negotiating the exclusive use clause. And don’t omit a product line or
service that has potential for future success.
© 2008 by Vendome Group, LLC. Any reproduction is strictly prohibited.
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December 2008
3
C O M M E R C I A L T e n a n t ’ s L E A S E i n s i d er ® 2) Exclusive doesn’t cover
entire building or center. At larger
properties, owners may offer an
exclusive that will cover only a
portion of the premises. To protect
the pool of available prospective
tenants, owners may agree to give
you the exclusive, but limit it to a
“protected area”—an area designated by the owner as off limits to
competitors.
Once again, beware of this conditional offer as it may not completely serve its intended purpose,
says Morfopoulos. For example,
if you lease space in a mid-sized
strip mall and your exclusive use
agreement designates the protected area as the south side of the
mall, there’s technically nothing
preventing the owner from leasing
space on its north side to a direct
competitor.
Therefore, if the owner insists
on designating a protected area for
your exclusive, try to negotiate for
an area that gives you the advantage over potential competitors.
For example, if traffic patterns
make it easier for customers to
get to a specific part of the center,
try to negotiate with the owner to
locate your business in that area.
3) Duration of exclusive is limited. Most tenants ask for exclusive
use rights for purposes of establishing a presence in a new market.
Owners are aware of this and routinely try to limit the duration of
the exclusive use agreement. They
want to ensure that the agreement’s
enforceability lasts only as long as
it needs to, explains Meislik.
For example, if you operate
a retail store and want to build
your brand in a particular area,
the owner may propose to offer
you the exclusive right for a limited amount of time, with the
understanding that the right will
be revoked when you reach an
agreed-upon level of success.
If you have the bargaining
power, don’t agree to give up the
exclusive use right until you are
absolutely sure that your business
can thrive without it. And if your
bargaining power is weak and you
have to agree to a time limit, be
conservative about what constitutes success and specific about
what triggers the owner’s right to
revoke the exclusive.
Practical Pointer: If the
owner doesn’t try to limit the duration of the exclusive, make sure
that the provision is effective after
the lease term expires. If you have
an option to extend or renew your
lease, add language stating that the
exclusive use provision continues
during any renewal or extension of
the lease term, says Morfopoulos.
4) Remedies for owner’s violation are limited. If the owner violates the exclusive, you should have
the ability to terminate the lease or
collect damages, because the viola-
tion creates competition that could
be harmful or even fatal to your
business. However, most owners
try to limit the remedy to a rent
reduction—a temporary one that
lasts only until they can cure the
violation.
Also, the owner may want you
to prove that you were harmed by
the violation before you can take
advantage of the remedy offered
in the lease, says Morfopoulos.
For example, if the owner leases
space to a competitor that actually increases your foot traffic and
sales, unless you can prove that
you were harmed by the violation, the owner won’t want you to
be able to exercise the remedies
offered in the lease.
Therefore, make sure that you
keep detailed financial records
and, if possible, track foot traffic.
This way, you’ll have documented
proof for the owner—and a court
if necessary—that the violation is
hurting your business.
Practical Pointer: If you are
required to give notice before exercising the remedies for an owner
violation, missing the deadline is
probably the easiest and quickest
way to waive your exclusive. Pay
close attention to deadlines; if you
miss the date, you’re out of luck.
5) Owner puts “exclusive
enforcement waiver” in lease.
Before you sign your lease, there’s
(continued on p. 4)
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be jam packed with the great how-to information you’ve come to rely on.
© 2008 by Vendome Group, LLC. Any reproduction is strictly prohibited. For more information call 1-800-519-3692 or visit www.vendomegrp.com.
4
C O M M E R C I A L T e n a n t ’ s L E A S E i n s i d er ® Exclusive Use Clause
(continued from p. 3)
a strong possibility that the owner
will ask you to agree to waive or
modify your right to enforce your
exclusive use clause if you stop
using your space for the use protected by the exclusive, or if you
stop selling the items protected by
the exclusive, says Morfopoulos.
At one time, owners were less
aggressive about seeking written
waivers in their leases and considered a tenant’s right to enforce its
exclusive use clause waived if the
tenant stopped using the space for
the use that was protected by the
clause. Owners are now trying to
secure the waiver by getting it in
writing and adding it to the lease.
If you have the bargaining
power, don’t agree to put this condition in the lease. If you eventually stop selling a certain product
or otherwise no longer need the
exclusive, a desperate owner looking to fill space or to offer your
exclusive to another tenant may
offer to buy out your lease or make
other favorable concessions.
What Voids an Exclusive
Use Clause?
If the owner grants your request
to include an exclusive use clause
in your lease, it will probably also
want to include several broadly
defined acts that void your
enforcement right, says Morfopoulos. The following are examples
of what an owner might deem a
violation worthy of voiding the
exclusive use clause:
Opening competing business
nearby. If your lease contains a
radius clause—a clause prohibiting you from moving or opening a
competing business nearby—and
you open another store in close
proximity to the building or center, the owner may argue that you
violated the lease and decide to
void your exclusive.
Failing to operate continuously.
To stay afloat in a struggling economy, you may have to scale back
your operation and use less of your
space. But depending on the way
your lease is drafted, taking steps
to run leaner could be considered
“going dark.” If that’s the case,
the owner may capitalize on your
misfortune and try to void your
exclusive use clause.
Gross sales falling below set
amount. Obtaining an exclusives
clause is sometimes based on the
amount of your gross sales and
ability to maintain those numbers.
Therefore, be conservative, specific, and realistic about what you
agree to maintain, as the owner
could wait until your slow season
and claim that you violated the
lease by falling below the agreedupon gross sales volume, warns
Morfopoulos.
December 2008
the space, some owners view
assignments and sublets as a
change in ownership.
For example, assume that your
new lease contains an exclusive use
clause, the right to assign and sublet, and language that voids your
exclusive if the business changes
hands. Two years into the lease,
you fall on hard times and another
company approaches you about
subletting your space for the same
kind of store, assuming that the
exclusive goes with the lease. The
owner lets you exercise your right
to sublet and welcomes the new
subtenant, but refuses to honor the
exclusive, claiming that because
the sublet constitutes a change in
ownership, the exclusive use clause
is void.
Adding specific language in
your lease can help avoid such a
problem. If you have the bargaining leverage, explain to the owner
that potential buyers of your business—or potential subtenants and
assignees—will discount the value
of your lease if you do not have the
right to transfer your exclusive use
right to them, says Meislik.
Business changing ownership.
The owner may claim that its
decision to grant you exclusive
use rights is based largely on your
reputation and your business.
Therefore, it will want to add language to the lease that gives it the
right to void your exclusive if the
ownership changes hands or if you
merge with another company. You
should resist the owner’s efforts to
add this language to the lease. But
if you have to concede, be sure to
give yourself plenty of room when
defining what constitutes a change
in ownership.
Insider Sources
In particular, don’t let an
assignment or sublet void your
exclusive, warns Meislik. Because
a new tenant actually takes over
Ira Meislik, Esq.: Managing Principal, Meislik
& Meislik, 66 Park St., Montclair, NJ 07042;
(973) 783-3000; [email protected].
Mark Morfopoulos, Esq.: Meislik & Meislik, 66 Park St., Montclair, NJ 07042; (973)
783-3000; [email protected].
Practical Pointer: Beware
of an owner that tries to evade the
exclusive use clause by setting up
nonleasing agreements, such as
occupancy or license agreements,
with other parties. To guard against
this, Morfopoulos recommends
adding a lease provision prohibiting the owner from entering into
an agreement with anyone who
“occupies” space in the building or
center to utilize that space for the
same use as yours.
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© 2008 by Vendome Group, LLC. Any reproduction is strictly prohibited. For more information call 1-800-519-3692 or visit www.vendomegrp.com.
December 2008
5
C O M M E R C I A L T e n a n t ’ s L E A S E i n s i d er ® Refurbishment Allowance
(continued from p. 1)
don’t expect the owner to bring it
up, says real estate expert Keturah
Henderson.
When should you make this
demand? Henderson suggests
bringing this up when you’re
negotiating a lease of 10 years or
more, whether or not the owner
has agreed to an original tenant
improvement allowance.
Don’t assume that the owner
will automatically reject any
request for a refurbishment allowance. In today’s rocky real estate
market, many owners are agreeing
to grant concessions and allowances they might not have considered in the past. Even if an owner
refuses your request the first
time, there’s a chance that it will
eventually give in if it desperately
wants you to sign its lease. And if
you’ve already signed your lease
without a refurbishment allowance, you may want to raise the
issue during lease renewal negotiations, says Mallory.
Address Key Issues
If you get the owner to agree to
provide a refurbishment allowance, you’ll need to deal with the
specifics of the agreement. While
there are several issues that you’ll
have to address, the following
three should be dealt with first:
How should the refurbishment
allowance be paid? Most owners
would rather have you pay out of
pocket, and then reimburse you as
you submit invoices. This way, the
owner has more control over the
disbursement of the refurbishment
allowance. But since the allowance
is most likely built into your mini-
mum rent, you would probably
want the owner to give you the
allowance up front, in one lump
sum, so that you don’t have to pay
out of your pocket and keep billing the owner to get what’s rightfully yours.
If the owner refuses to give
you the allowance in one lump
sum, consider using our Model
Lease Language, below, letting
the owner set up the refurbishment
allowance on a reimbursement
basis, but requiring the owner to
reimburse you within 30 days of
the receipt of your invoices.
And make sure that all document requests made by the owner
are reasonable. Otherwise, the
owner could hijack your payments
by asking for documents that are
near impossible to get.
Model Lease Language
Landlord shall reimburse Tenant
for the cost of the Refurbishments within [insert #, e.g., 30]
days following Landlord’s receipt
of invoices marked as paid,
unconditional mechanic’s lien
releases, and such other information as Landlord may reasonably request with respect to the
Refurbishments.
How long should the refurbishment allowance be available? When
an owner agrees to a refurbishment allowance, it’s usually given
on a “use it or lose it” basis—if
you don’t use the funds by a certain date, the funds will go back
to the owner, explains Mallory.
As a tenant, you probably disagree with the time limit and feel
that the allowance should be available for the duration of the lease.
After all, the process of making
improvements is unpredictable,
and it’s not uncommon for projects
to take longer than expected.
But if the owner won’t budge
on the time limit issue, make sure
you give yourself plenty of time to
use the allowance. The less time
you have to use the refurbishment
allowance, the greater the chance
that the owner will end up paying
you less than the full amount. Try
to get a minimum of 12 months
after the first refurbishment allowance becomes available to you to
use it up.
Model Lease Language
In the event that Tenant does not
fully utilize Refurbishment Allowance within [insert #, e.g., 12]
months following the date the
Refurbishment Allowance first
becomes available, then such
unused portion shall revert to
Landlord, and Tenant shall have
no further rights with respect
thereto.
Should you pay for the privilege?
Some owners require their tenants
to pay a fee—sometimes called
a “logistical coordination fee”—
in return for getting the refurbishment allowance. This fee is
designed to compensate the owner
for the time and energy spent
supervising and coordinating your
refurbishment process.
As a tenant, you should refuse
to pay this fee, mainly because
it will reduce the amount of the
refurbishment allowance. Also,
it will probably be difficult for
the owner to show that the fee is
actually compensating the owner
for any out-of-pocket costs. But
if you can’t get out of paying the
fee, make sure you ask the owner
to cap it and agree that it will be
reasonable.
(continued on p. 6)
© 2008 by Vendome Group, LLC. Any reproduction is strictly prohibited. For more information call 1-800-519-3692 or visit www.vendomegrp.com.
6
C O M M E R C I A L T e n a n t ’ s L E A S E i n s i d er ® Refurbishment Allowance
of the Refurbishments. Landlord
agrees that such fee shall be
reasonable and shall not exceed
$[insert amt.].
(continued from p. 5)
Model Lease Language
Landlord may deduct from the
Refurbishment Allowance a logistical coordination fee, which fee
shall be for services relating to
the coordination of construction
Be sure to consult your attorney before using our language in
your lease.
December 2008
Insider Sources
Keturah Henderson: Director, Delo itte Financial Advisory Services LLP, 191
Peachtree St. NE, Ste. 1500, Atlanta, GA
30303; (404) 220 -1785; kehenderson@
deloitte.com.
Richard C. Mallory, Esq.: Allen Matkins Leck Gamble Mallory & Natsis LLP,
3 Embarcadero Ctr., 12th Fl., San Francisco, CA 94111; (415) 837-1515; rmallory@
allenmatkins.com.
Dos & Don’ts
Title Report Before
✓ Secure
Signing Lease
If you plan on signing a lease soon, make sure you
get a title report first, says St. Louis attorney Craig
A. Olschansky. A title report will list any use restrictions on the building or center where you plan to lease
space. If you fail to secure a report, you might find
out—after you’ve already signed the lease—that a
use restriction contradicts your lease and prohibits
you from using the space the way you planned, warns
Olschansky.
For example, if you planned on opening up a
sports bar and the previous owner signed away the
right to have a smoking section, even though your
lease allows you to designate a smoking section, the
use restriction would kill your plans.
A title report is critical if your intended use is not
typical of the other businesses in the building or center, or for the neighborhood where your business will
be located. For example, if you plan on operating a
moving company in a residential area, there’s a good
chance that the large trucks necessary to run a moving company are prohibited from driving in that area.
A title report may take a couple of weeks to get
and can be expensive. But if it can help you avoid getting stuck in a bad lease and give you an advantage
during negotiations, it’s well worth it.
Lease, State Law Before
✓ Check
Sending Notices via Email
To save time and money, you may be tempted to send
the owner notices by email, but you should check the
notice section of your lease first. Many leases—par-
ticularly older ones—don’t include email as a method
that tenants and owners can use to send required
notices. Instead, they require tenants and owners to
send notice by, for example, certified or registered
mail. If your lease doesn’t permit you to send notices
via email, you can try to get the owner to amend your
lease to say that email notices are permitted.
However, even if your lease does permit you
to send owners notices via email, you must check
whether your state law permits you to do so. Your
state law’s notice requirements may differ from your
lease’s—in which case you must comply with your
state’s notice requirements.
Also, consider that, although you may be legally
permitted to send notices via email, there are still reasons you may not want to do so. For instance, if you
serve a renewal notice via email, you may not be able
to prove that the owner actually received the notice—
even if you request a return receipt. And receipt of the
notice could become an issue in any subsequent lawsuit. Therefore, speak to your attorney before sending
notices via email.
Lease to Insurance Experts
✓ Show
Before Signing It
Make sure that you consult risk managers—such as
your in-house risk manager, outside insurance broker,
and/or insurance attorney—before signing your lease.
These experts should review your insurance documents, the lease’s insurance provisions, and any areas
where the insurance provisions may intersect with
other lease provisions, such as indemnification, environmental, and damage and destruction clauses.
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© 2008 by Vendome Group, LLC. Any reproduction is strictly prohibited. For more information call 1-800-519-3692 or visit www.vendomegrp.com.
December 2008
C O M M E R C I A L T e n a n t ’ s L E A S E i n s i d er ® If you don’t consult insurance experts before you
sign your lease and insurance policies, you may be
putting yourself at risk. Remember that your insurer
isn’t bound by the lease. Therefore, you’ll need to
make sure beforehand that you can satisfy the lease’s
insurance requirements. An expert will be able to
spot potential problems, such as these:
■ Your lease may require you to maintain coverages that are unavailable or prohibitively expensive in
today’s insurance market;
■ The coverage amount in your lease and/or insurance policies may be inadequate to protect you and
the owner;
7
■ Your insurance documents may be missing
important provisions;
■ The lease and/or insurance documents may contain language that could hurt you; and
■ The lease and insurance documents may be
inconsistent or even conflict with one another.
Insider Source
Craig A. Olschansky, Esq.: Partner, Thompson Coburn LLP, One
US Bank Plaza, St. Louis, MO 63101; (314) 552-6000; colschansky@
thompsoncoburn.com.
Negotiating Tips
Get Guaranty to Back Owner Incentives
Owners across the country are
sweetening the incentives they
offer to tenants. For example, New
York City-based Cohen Brothers
Realty Corp. recently offered a
year of free rent to any tenant that
leases space in any one of its three
towers, which have significant
space available for lease. Other
incentives owners are offering
include greater contributions to
tenant improvements and base
building renovations to make the
building more attractive.
Such generous incentives seem
like a great deal for tenants, but
what happens if, after you sign the
lease, the owner can’t deliver on
its promise? How can you protect
yourself?
If your signature on the lease is
contingent upon an owner’s promise to offer some sort of incentive,
consider the financial viability of
the owner and its ability to deliver
on those incentives, says New York
City attorney Jeffrey A. Moerdler.
One way of protecting yourself
is to ask for a guaranty from a
financially stable third party or
from a parent entity if the owner is
a subsidiary of a larger real estate
company.
Examples of incentives that
would require a third-party guaranty include:
■ Offering a large tenant
improvement allowance (TIA);
■ Buying you out of an existing
lease;
■ Offering to pay relocation
costs; or
■ Directly paying a contractor
to build out your space.
How Will a Guaranty
Protect You?
In today’s unstable market, it’s
not uncommon for owners to shed
financial obligations by filing for
bankruptcy. Unfortunately, financial relief for them usually creates
a set of undesirable circumstances
for you. But if you have a guaranty
from a financially sound entity
or a principal of the owner, you
should still be able to collect from
the guarantor under the guaranty,
explains Moerdler.
Make Sure Guarantor
Can Deliver
Getting a third-party guarantor
is effective only if the guarantor
can deliver. Make sure you verify
the guarantor’s financial strength
before you rely on it. Ask to see
any documents that you feel will
help you adequately assess the
guarantor’s business and personal
finances. And if, after reviewing
the requested documentation, you
still have doubts about the guarantor’s ability to pay, ask for more
security in the form of a letter of
credit—or ask for a different guarantor, says Moerdler.
Finally, if the guarantor is a
company and not an individual,
make sure that the company can
actually serve as a guarantor and
that the person signing the guaranty is authorized.
Insider Source
Jeffrey A Moerdler, Esq.: Member, Mintz,
Levin, Cohn, Ferris, Glovsky and Popeo, P.C.,
666 Third Ave., New York, NY 10017; (212)
692-6700; [email protected].
© 2008 by Vendome Group, LLC. Any reproduction is strictly prohibited. For more information call 1-800-519-3692 or visit www.vendomegrp.com.
8
C O M M E R C I A L T e n a n t ’ s L E A S E i n s i d er ® December 2008
recent court rulings
➤ Owner’s Failure to Offer Defense
Solidifies Damage Claim
Facts: An owner and a tenant entered into a five-year
lease. During the end of the third renewal period,
the tenant was informed that a new owner planned
to demolish the building. The tenant tried to find an
alternative space, but the new owner refused to let the
tenant out of the lease early.
Less than six months after refusing to allow the
tenant to terminate its lease and relocate, the new
owner evicted the tenant and moved ahead with plans
to demolish the building. The tenant relocated its
dental practice and sued the owner for violating the
terms of the lease. The owner admitted that it had
violated the terms of the lease, but appealed the damages awarded by the court. The owner argued that the
court used the wrong method to determine damages,
and that the damages the tenant claimed were not
foreseeable.
Decision: A Florida appeals court ruled in favor of
the tenant and upheld the trial court’s damage award.
Reasoning: The appeals court agreed that the trial
court used the wrong method to determine the tenant’s damages. However, the owner’s failure to offer
any defense against the disputed charges gave the
court no choice but to rule that the damages were
appropriate.
Also, the court said that given the nature of the
tenant’s business and the way it was forced to relocate, there was no sound reason for the owner not to
anticipate the tenant’s damage claims.
■
West Palm Beach Development, LLC v. Blank, October 2008
➤ Payment to Court Isn’t Proof
of Default
Facts: An owner sued a tenant, claiming that it owed
past-due rent. The amount was in dispute. The owner
submitted two separate amounts, with one being substantially larger than the other. In accordance with
state law, the tenant deposited the disputed amount
in an account managed by the court and then filed a
response contesting the owner’s claim.
Even though the owner was unable to prove which
amount was correct, the lower court ruled in its favor
and granted possession. However, the court delayed
execution of the order, pending the tenant’s appeal.
Decision: A Florida appeals court reversed the lower
court’s decision and ruled in favor of the tenant.
Reasoning: The court ruled that the tenant’s payment into the court account was an effort to comply
with state law, not proof that it was in default. Also,
because the owner could not prove how much the tenant owed, it failed to meet all of the elements necessary to support an eviction action.
■
Dream Closet, Inc. v. Palm Beach Mall, LLC, August 2008
➤ Issues Not Addressed in Settlement
Agreement Require Separate Lawsuit
Facts: An owner sued its tenant for nonpayment of
rent. Before the trial, the owner and tenant settled the
dispute and entered into a settle agreement. The trial
court approved the terms and retained authority to
enforce them. The tenant agreed that if it violated any
of the financial terms of the settlement agreement,
the owner would automatically take possession of the
buildings.
Almost immediately, the tenant violated the
financial terms of the settlement agreement, and possession was returned to the owner. In addition, the
tenant violated the original lease terms that required
it to comply with all environmental laws, pay for any
work necessary to fix any environmental violations,
and provide monthly environmental reports.
The owner went back to the trial court and asked
it to use the authority retained under the settlement
agreement to address the environmental issues. After
a hearing, the court ruled in favor of the owner and
awarded damages. The tenant appealed, arguing that
the court did not have authority to award damages
based on environmental violations.
Decision: A Florida appeals court reversed the trial
court’s decision and ruled in favor of the tenant.
Reasoning: The court ruled that because the damages
sought by the owner were not addressed in the settlement agreement, a separate lawsuit would need to be
filed in order to obtain relief.
■
Boca Petroco, Inc., v. Petroleum Realty, LLC, September 2008
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© 2008 by Vendome Group, LLC. Any reproduction is strictly prohibited. For more information call 1-800-519-3692 or visit www.vendomegrp.com.