In today's market, lease rates are escalating and landlord concessions
are declining. from Denver Business Journal, January 26, 2007
"Tenants are paying more per square foot versus a year ago and will continue to do so for the foreseeable future. Thus, it's critical to evaluate corporate real estate strategically and realize that every dollar saved has an impact on a company's bottom-line profit.
Many people view real estate dollars as a fixed cost, and try to save money elsewhere. But because occupancy costs are most companies' largest expense after payroll, commercial real estate leases are often an overlooked opportunity to improve earnings.
Negotiating a lease can be a time-consuming and frustrating endeavor, but it doesn't have to be. Just take the following tips into consideration.
Time is Money
More than half of tenants, approximately 60%, renew or extend their leases on expiration because they feel that their time is better spent elsewhere. But in order to obtain the best terms and conditions available in a competitive marketplace, allow yourself plenty of time to determine needs and research options. If you start negotiations too late, you won't have a choice but to renew under the landlord's opinion of fair market value.
A good rule of thumb to follow: Anchor tenants with space larger than 100,000 square feet should start looking three years before a lease is scheduled to expire. Single operations with 20,000 square feet or more should start examining options at least two years in advance, and small users a year in advance.
It's also important to determine your price range in context with current market conditions. Understand your options and related costs/benefits prior to starting your negotiations. Otherwise, you run the risk of leaving money on the table by making an uninformed decision.
Needs Analysis
A needs analysis is similar to an operations audit. Evaluate the use of current office space to make sure it's as efficient as possible and flexible enough to sustain changes. What type of and how many personnel do you have? How do employees interact with each other? Is the building layout optimal?
By embracing a non-traditional space plan, you can create efficiency without sacrificing performance. For example, a conference room can be used to host board meetings, internal training seminars, networking and community events.
A needs analysis is also a good time to evaluate reception areas.
Full-floor users can especially benefit from reception renovations as they have the leverage to choose finishes, match colors/signage with a corporate identity, etc. Reception areas are all about first impressions and should mirror the image you want to project. The correct collaboration of office space and décor can help boost morale and productivity, impress clients and attract new talent.
Leasing vs. Owning
If a user has a long-term perspective and a consistent personnel size, then ownership can be financially beneficial. But, for most companies, leasing makes more sense financially due to the changing nature of business.
Because a lease has a set expiration, there is a built-in exit strategy that allows companies to change with little risk. Ultimately an owned asset can be sold, but this strategy is easier said than done. Lease payments are typically tax deductible and there is no long-term debt on the balance sheet.
Negotiate the Transaction
When preparing to renew, restructure or sign a new lease, there are more ways to save money than simply negotiating the rental rate. Use these tips to help decrease your occupancy costs and negotiate favorable rent
components:
* Understand the building's operating expenses. Look at the
growth rate of a building's operating expenses over the last three
to five years as compared to the market in general. Determine if
inefficiencies are a management issue or a feature of the building
itself. Look for property managers with well-maintained facilities.
* Be aware of how space is measured. You may be paying for more
than your occupied space, so compare usable square footage to
rentable square footage. Buildings with a lot of common space, like a large lobby or shared restrooms, will have more rentable square footage.
* Understand the impact of tenant-improvement costs.
Tenant-improvement costs are a significant component of both
landlord and tenant costs. A $20-per-square-foot rental rate with a
$10-per-square-foot tenant-improvement allowance is substantially
different than a $20 rental rate with a $25 tenant-improvement
allowance. Knowing the financial impact to both sides in a
negotiation will allow you to negotiate from a position of
strength.
Big or small, every business should have a solid real estate strategy that supports its business plan to ensure that real estate does not restrict a tenant from achieving business goals. A well-planned and negotiated lease will improve profitability and increase
productivity."
Negotiate. Determine who is the ultimate decision maker and be
as direct as possible with them early on. In addition to the
economic factors, there are more than 40 clauses in a lease that will impact how your business operates during the lease term. Pay attention
to the details, and realize there are hidden costs lurking below
the surface. If you looking now call us for help and check out our web site: www.houstonrealtyadvisors.net
713 782-0260 ask for Ed Ayres
Tuesday, January 30, 2007
Friday, January 26, 2007
De-Malling
from Shopping Center Business, May 2006
"Considerations that a developer should take into account when evaluating whether de-malling is viable:
1. Reasons Renovation Needed:
Some of the major reasons a shopping mall may need renovating are decreased traffic, and demographic changes, which are not themselves entirely independent. A decline in traffic can occur because many non-fashion, anchored, enclosed malls do not offer the customer appeal or the desired location for today's more current, popular specialty stores.
2. Who are the Anchors, Majors and other Land Owners?
Anchors, majors and/or other land owners often use a renovation project as an opportunity to extract concessions from a developer.
3. Who is the Lender?
Although a lender obviously wants its borrower to succeed, a lender usually is more focused on ensuring that its collateral does not suffer a decline in value, which could lead to a foreclosure and potentially could result in a fire sale. Therefore, a lender may have different ideas about what is best for the success of the center.
4. Relocating Existing Tenants:
Although most leases will allow a landlord to relocate a tenant in the event of a major renovation, the leases usually also require that the tenant's business operations not be disrupted in a significant manner.
For larger tenants, the landlord's relocation right may be limited to a particular area in the center or simply be non-existent.
5. What is the Status of the CC&Rs?
Many older centers have covenants, conditions and restrictions
(CC&Rs) which govern the operation and use of the shopping mall.
CC&Rs are often entered into by the various owners of the land under the center, although anchors/major tenants also have rights regarding what can be done with respect to the center's common area.
6. Cooperation with/from Local Government:
Local governments usually are receptive to renovating an outdated shopping mall, but, as with lenders, anchors, majors and other land owners, a local government may have different priorities, such as upgrading public transit access, upgrading fire ratings for existing structures or increasing sales tax.
7. You Can't Please Everybody:
While it is only natural for a developer to want to maintain good relations with its tenants, there are times when it is necessary to make a decision that does not coincide with what a particular tenant wants.
8. Expect the Unexpected:
No matter how much foresight a developer puts into planning, there will always be unexpected delays and costs.
9. Climate:
De-malling is a popular alternative in California due to its relatively temperate climate. De-malling is not as feasible wherever extreme cold or heat is characteristic of the regional climate.
In determining whether de-malling a shopping mall is feasible and economically viable, there are factors other than the foregoing that need to be addressed. However, the issues outlined above will assist in evaluating and executing the de-malling process."
________________________________________________________________________
________________________________________________________________________
"Considerations that a developer should take into account when evaluating whether de-malling is viable:
1. Reasons Renovation Needed:
Some of the major reasons a shopping mall may need renovating are decreased traffic, and demographic changes, which are not themselves entirely independent. A decline in traffic can occur because many non-fashion, anchored, enclosed malls do not offer the customer appeal or the desired location for today's more current, popular specialty stores.
2. Who are the Anchors, Majors and other Land Owners?
Anchors, majors and/or other land owners often use a renovation project as an opportunity to extract concessions from a developer.
3. Who is the Lender?
Although a lender obviously wants its borrower to succeed, a lender usually is more focused on ensuring that its collateral does not suffer a decline in value, which could lead to a foreclosure and potentially could result in a fire sale. Therefore, a lender may have different ideas about what is best for the success of the center.
4. Relocating Existing Tenants:
Although most leases will allow a landlord to relocate a tenant in the event of a major renovation, the leases usually also require that the tenant's business operations not be disrupted in a significant manner.
For larger tenants, the landlord's relocation right may be limited to a particular area in the center or simply be non-existent.
5. What is the Status of the CC&Rs?
Many older centers have covenants, conditions and restrictions
(CC&Rs) which govern the operation and use of the shopping mall.
CC&Rs are often entered into by the various owners of the land under the center, although anchors/major tenants also have rights regarding what can be done with respect to the center's common area.
6. Cooperation with/from Local Government:
Local governments usually are receptive to renovating an outdated shopping mall, but, as with lenders, anchors, majors and other land owners, a local government may have different priorities, such as upgrading public transit access, upgrading fire ratings for existing structures or increasing sales tax.
7. You Can't Please Everybody:
While it is only natural for a developer to want to maintain good relations with its tenants, there are times when it is necessary to make a decision that does not coincide with what a particular tenant wants.
8. Expect the Unexpected:
No matter how much foresight a developer puts into planning, there will always be unexpected delays and costs.
9. Climate:
De-malling is a popular alternative in California due to its relatively temperate climate. De-malling is not as feasible wherever extreme cold or heat is characteristic of the regional climate.
In determining whether de-malling a shopping mall is feasible and economically viable, there are factors other than the foregoing that need to be addressed. However, the issues outlined above will assist in evaluating and executing the de-malling process."
________________________________________________________________________
________________________________________________________________________
Thursday, January 25, 2007
48 Laws of Excellence ( I like this)
Dr Henry Jekyll (www.brotherhoodofchange.com):
The 48 Laws Of Excellence
Law 1
Never Learn From Someone Threatened By Excellence
Never limit yourself to accommodate the insecurities of others.
Your goal is your own personal excellence and as such do not curtail the development of your skills, self-confidence or courage for anyone. If you are working for someone who is threatened by excellence, you are working for the wrong person. If you are learning from someone who is threatened by excellence, you are learning the wrong lessons. If you are learning from a man who is scared of being eclipsed, you have already eclipsed him.
Law 2
Make Trustworthy Friends
Surround yourselves with friends you can trust. No man ever achieved anything great alone. It has never happened. Build trust by being trustworthy, and cultivating a shrewd sense of character.
Do not allow yourself to fall into believing what you want to believe about a person because they are beautiful, strong and talented. Be honest with yourself. Make trustworthy friends.
Law 3
Be Relentlessly Open About Your Intentions
Inspire others to join with you by the boldness and openness with which you act. Do not worry about others moving to cut off your plans. Your bold and decisive action will cut through such scheming, and seize the initiative. Learn the skill of quick and decisive action.
Law 4
Always Say Exactly Enough To Be Understood Perfectly
Language is a tool. Use it. Learn how to use it as a master violinist plays a violin. It's purpose is simple - the communication of ideas, feelings and concepts. Use it to communicate your intentions and plans, to inspire others to join with you. Just don't talk too much for too long. You have work to do.
Law 5
Your Reputation is Incidental
Reputation is symptomatic of excellence, and not causal - that is to say, it happens around you when you cultivate excellence inside yourself and live courageously. Do not hide from reputation, and do not be ashamed to stand up and be counted, but do not get lost in it's pursuit. If you focus on your reputation in and of itself, that reputation will have no substance to back it up. If you concentrate primarily on excellence, and make reputation a secondary concern, then you will have a powerful foundation should your reputation come under assault. Never attack the reputation of others. Instead, look to their hearts, and see if they pursue excellence, or something else, such as reputation. If they do, their empire is built on a house of cards. It will be no obstacle to you.
Law 6
Do Not Shy From Attention
This is a world of indolence and apathy. Many people are seduced by the myriad of toys, games, flashing lights and drama which surround us i the modern age. As such, mediocrity is commonplace. But the potential for excellence is within everyone. As such, you must expect that your excellence will draw attention. Use it. Use that attention to project your excellence into the world, to inspire others. Do not stand out just for the sake of standing out, but stand out by the quality of your life, and the person you are. And do not hide yourself.
Law 7
Ask for, Inspire and Accept Assistance, and Give Credit Where It's Due
Remember this - your friends and comrades are as important to you as your arms and legs. As and when you rise to a position where people look up to you, delegate to them, but personally speaking, treat them as equals. Use the wisdom, knowledge, and legwork of other people to further a common cause you each share. Make sure that you never allow these people to feel unappreciated. They are so essential to your success that if they leave you it will be like losing a body part. You must understand this. Only then can you achieve greatly.
Law 8
Do not be easily provoked. Cultivate Self-Discipline
If someone is attempting to provoke a reaction from you, you are the one in control. It is always better to meet any opposition on your terms and not theirs. Remember this. If someone is provoking you, they have chosen that battlefield. Do not meet them there.
Meet them somewhere else, if at all. Always keep in mind though, that your personal excellence is massively more important than any personal victories you may enjoy over individuals.
Law 9
Take Actions, Do Not Get Lost In Argument, Or Thought.
Opinions are ephemeral and have no reality. Action matters.
Opinions and ideas are only of value when they inform action. They only have any worth at all when they are manifested in reality.
When in doubt, take control of a situation by seizing the initiative. This is a crucial law, which can be applied on a grand scale or a very small scale - even in conversations. Develop the art of moving decisively, and well. Cultivate the ability of shooting from the hip with accuracy in your life. Hone your ability to choose wisely, fast, then to act upon it in a totally committed fashion.
Law 10
Infection: Avoid the Self-Indulgent and the Skeptical.
Negative emotional states are extremely infectious. If you are keeping company with the lazy, the self-indulgent, those who have a victim mentality or those who are habitually skeptical of ideas.
They are all each highly damaging in their own way, but perhaps the worst of them are those of a victim mentality, and those who criticize the ideas of others. Self-indulgence and skepticism are easy and cowardly. These people attack excellence in all it's forms and plant seeds of doubt in the minds of others. Fight this in any way you can. Make a long term commitment to f r e e ing yourself of their influence in every possible way.
Law 11
Learn to Inspire Independence in those who wish to Join You.
Another person is always of more use to you as a powerful ally than as a sheep-like follower. Never accept blind adulation, and never allow others to rest their self-esteem on your goodwill. Always expect independence of those who seek to join with you. Reward emotional independence in your friends with respect. A bond of trust between brothers in arms is always stronger than a bond of validation and power between leader and follower.
Law 12
Use Honesty and Generosity From a position of Strength to Disarm your Enemies
Do not allow yourself to be taken advantage of, but cultivate the ability to keep your ego out of the decisions that you make regarding those who you dislike, or who dislike you. Attempt, as far as possible, to distance yourself from negative feelings toward others. You have bigger fish to fry than getting involved in personal dramas. At the same time, remember that a man is always more use to you as an ally than as an enemy. Extending an olive branch to someone is simple, and if you are offering it from a position of strength, it will most likely be accepted, which will mean that you have one less enemy and one more ally.
Law 13
When Forging Alliances, Do not plead like a bleating sheep.
Get yourself to a position where you have something to offer, then propose an alliance of mutual benefit with someone who's skills complement your own. It is easy to forge win-win relationships with people if you have something to offer them. Both of you together can achieve more than either of you individually. Make certain that you do not compromise yourself, and do not be quick to remind others of past acts of charity. Your charity is your own business.
Generosity is its own reward. What matters in the moment is the pursuit of excellence, of real achievement. Remember this.
Law 14
Do not Spend Time Obsessing Over Rivals
They are an irrelevance to you. You are not gauging your success by that of others, but only by the distance you have travelled on the road to personal excellence. If you are under threat, deal with the threat decisively and shrewdly - but only if you are under threat.
Remember that your genuine cultivation of personal excellence makes attacking you at a deep level very difficult. Even if someone could successfully portray you as something else, such a deception, no matter how convincing, would be no more than a facade. Reality itself is on your side.
Law 15
Transcend your Enemy Totally
Do not pick fights. End them. Make certain that you are the most difficult-to-provoke person in the world. You are succeeding on your terms, not those offered to you by well-meaning friends or the terms offered to you by those who attack you. If you get sucked in to fighting personal battles, your excellence will always be something that exists relative to another. You have bigger fish to fry. As far as you can, beat your enemies by transcending the petty concerns they wish to squabble over with you. If you need to eliminate a threat, someone who is attacking you, always remember that if they provoked the fight they have done so because of a weakness in them, probably based on some form of self-deception and fear which they have not overcome. As such, the truth is on your side. Look for that truth. It is a weapon of incredible power.
Law 16
You Are Defined Most By How You Handle Damage
When you are weak, when you feel low, when you have been struck in the most personal and heart-wrenching of ways that is the time to fight harder than you've ever fought. It is in those moments of absolute truth where we decide our own worth. It is when all logic and reason are telling us to give up on what we know is right, on what our hearts desire more than anything in the world, that we must fight the hardest. Let the blows of your enemies and the cruel twists of fate be spurs to your efforts. Cultivate your defiance of them to an extremely high degree. Optimism is not an alternative to pessimism. It is the state of mind of those who refuse, in the face of logic and reason, never ever to give up on themselves or on their heart's desire no matter what the situation in which they are placed.
Law 17
Keep On Your Toes: Cultivate an Air of Dynamism
Humans are creatures of habit, and fall into patterns. You are not immune, and neither are those around you. Cultivate in yourself the faculty of creativity and imagination, so that your actions are neither predictable nor ineffective. Demand constant and persistent action in pursuit of your heart's desire, and do not get bogged down in worrying about the correct method. If in doubt, act. You will make mistakes, but you will also score victories and the more action you take, the better you will become at taking action.
Effective action is like a muscle. Work it.
Law 18
The World Is A Mirror, So Drop Your Guard
The world is like a mirror. If you walk about the place with your defences high, the world will raise its defences to you, and you will be alone. If you walk around the world looking for weaknesses and openings to exploit, people will not connect with you and you will be alone. If you walk around the world with your guard lowered, wearing your heart on your sleeve, you will be attacked and it will hurt. But if you are willing to take any pain associated with lowering your guard as a lifestyle, you will make strong, effective and useful connections with other people of worth and value. You will also condition your heart to be strong, as well as open. This strength will serve as one of the key ingredients for excellence.
Law 19
Be Mindful Of Creating Enemies.
You can't make an omelette without breaking a few eggs, and there's no need to tiptoe around people's egos when you have to do what is right. At the same time, if you can do what is right without offending others, do it that way. This is not something to obsess over, but make certain that if you are making an enemy, you are aware of what you are doing and you've thought through the consequences. There are millions of ways to achieve each and every goal you set yourself. It's better for you not to put yourself in a position where you might come under attack in the future.
Law 20
Commit to your conscience, Commit to yourself.
Your moral sense is the core of your being, whether you like it or not. Never be ashamed to act upon what you believe to be right. At the same time, and as much as is possible, retain your integrity, and hold control of your anger. Always control your indignation do not allow it to control you. At the same time, your morality is critical. It drives you to do what is highest and best, and it will show you the path that your life should be taking, if you let it.
Listen to it, and commit to its call. It is the heart of you. If you walk in tune with your morality, you will be at peace with yourself, even if the road you tread is a difficult one.
Law 21
Never Be Ashamed Of Your Gifts, And Do Not Hide Them
If you are intelligent, be openly intelligent. If you are eloquent, be openly eloquent. If you are skilled at your job, be openly skilled at your job. If you have a skill, do not hide it for the benefit of others. The only part of them you are benefiting is the lowest and least worthy their ego. Develop your excellence in the light of day. Those who feel intimidated by this and who shy away from you or snipe at you, even if large in quantity will be totally outclassed by the quality of the people your pursuit of excellence will draw to you.
Law 22
Use the Surrender Tactic: Give the Baby His Bottle
If you are being sucked into a conflict, it's often better to surrender graciously very early on. The key is knowing whether or not the conflict is something worth fighting. Most of the time it isn't. It is hard to see this sometimes because when you are provoked, many people will stand their ground over a point of principle when the actual reality of the conflict is basically irrelevant to them. This is anathema to excellence. Cultivate within yourself the ability to step back from conflicts and examine them dispassionately. If it is apparent that someone is throwing a tantrum over an issue that has no higher meaning, give the baby his bottle. You will often find that it is insecurity and fear which motivated them in the first place, and once they do not see you as a threat, they may indeed become a useful ally.
Law 23
Concentrate Your Efforts
Achieve things by focusing your efforts totally on the achievement of one task at a time. This is critical. Focus yourself on completing that task to a degree of excellence and effectiveness, and then move swiftly on to the next task. Focus completely on that. This is the principle of the application of maximum force.
Focus all your energies at one challenge at a time, overcome that challenge, then focus all your energies on the next one. You are invincible in this as long as you do not let up, or lose focus, and you continue to assault the problem for as long as it takes for that problem to be overcome. No task is beyond your power to accomplish.
Law 24
Never Play the Courtier
It is far better to offend someone than it is to make a habit of lying. The excellence of your genuine self is what you seek to develop. Deception and trickery are a gamble and a trap. If you allow yourself to use these tools out of fear or greed then they can and will obscure your true self from others, and from you. This is catastrophic. Instead, work on the development of your skills of self-expression, and make the genuine self you express a powerhouse of excellence. There will be no limit to how far you can rise in the world.
Law 25
Re-Create Yourself In Line With Your Deepest And Most Noble Desire
Look into yourself. Take a long time with this one. Really plunge deeply. Work through all the layers of propriety and social programming, all the things you've been told are important and all the things you just want for reasons of ego. Punch down through those layers and really find your heart's desire. What do you want to be? Ask yourself that, and keep asking until you find a clear and distinct answer. That answer is the meaning of your life. It will give you a clarity of purpose, a goal which you can focus on to rise above the irrelevant dramas of the present and something to move toward. No matter how wild or amazing it seems, hold to it. It is what you want the most. It is your Arete, your excellence.
Picture it clearly and often. Never, ever let it go.
Law 26
Get Your Hands Dirty
Get involved on every level. Never be above the grunt work. Make the amount that you are willing to actually do in the pursuit of excellence exactly this: as much as it takes. Do whatever it takes.
Make things happen. Build your castle stone by stone with your own bare hands if you must. No task is ignominious that is part of the pursuit of excellence.
Law 27
Utilize People's Desire to Connect to Create a Group of Staunch, Powerful and Creative Allies
People have an overwhelming desire to believe in something. Never, ever become the focal point of such desire. Remain grounded in yourself, and fully human in public. Do not set yourself up to be something you are not, because it is a gamble that you do not need to make. Also, the benefits which it will give you will be transitory and weak the worship that you are given by someone is not a comment on your greatness, but on their insecurity. Instead, remember that the greatest and most talented people in the world need friends also. No-one is above gaining one more ally. Share with them your vision of what you will become. Fuse your heart's desires together into great projects. In a world filled with apathy, indolence and selfishness, your honest pursuit of excellence will be a breath of fresh air.
Law 28
Cultivate Effective Audacity
Hone your audacity like the edge of a blade by being audacious whenever you can to the best of your ability. If you wish to achieve something, but are unsure of a course of action, attempt it anyway. Audacity and boldness are crucial skills for achieving excellence. Even if you fail, you will learn more about taking action, about seizing the initiative instead of overanalyzing an opportunity until it is gone. You will learn more about how you react under pressure, and what it feels like to face down fear.
These skills are more important than any contingent victory.
Cultivate them. Remember that any mistakes you commit through audacity may well be corrected with more audacity as long as you act swiftly and well.
Law 29
Make Specific, Contingent Plans
The detail is everything. Making specific plans is a creative effort, and like any creative effort it is a skill which can be developed to a very high level. Excellence is something that must be cultivated, and excellence at making specific plans for effective action is skill that is impossible to do without. No matter how well you react to others, and no matter how effective an opportunist you are, sooner or later you will need to seize the initiative in a sustained way or lose it. As such, this skill, the skill of practical planning, is effectively the skill of taking control of your destiny. Do not be without it.
Law 30
Do Not Rely On Clever Tricks
When your actions are in line with your expertise, they are natural and executed with ease. All the toil and practice that goes into developing them becomes invisible. Do not feel you need to hide this excellence is not a magic trick. It is something that you must be developed, cultivated, built up from solid foundations.
Your excellence is not an illusion. Do not build it with clever tricks, but around a core of rock solid central skills. You do not need to have a dizzying repertoire of tricks let all your tricks and shortcuts be totally incidental. Build your excellence on just doing the obvious things really well.
Law 31
Create the Options: Play By Your Own Rules
An option is nothing more than an idea. It is very rare that there are only two ideas which can resolve a situation. Usually, there are millions of different ways to resolve a situation in your favour. If you are presented with a stark choice where you lose either way, detach your emotions from the situation and think dispassionately and creatively. Avoid choosing the lesser of two evils. Always look for a way out that benefits everyone involved there is almost always one to hand.
Law 32
Appeal to People's Best Selves Give Them A Chance To Shine
The truth is often avoided because people are afraid of it. Many people spend a great deal of time and energy building up their fears into something big. Fear is ugly and unpleasant. Never appeal to weakness and insecurity if you do only weakness and insecurity will answer your call. If you build an empire on that, you are building it on sand like a fool. The truth may be harsh, but it is solid. Build an empire on truth and reality. It will have a strong foundation. If you appeal to courage and excellence, courage and excellence will answer your call. There is great power in tapping into the excellence of the masses. That power can be focused and unleashed, and as you build an empire of excellence in the world, you build an empire of personal excellence inside yourself.
Law 33
Discover Each Man's Excellence
Everyone has a strength, one practical ability which they can develop to an extremely high degree. It is what they love, it is their passion and their calling. Whatever it is, if you can encourage it in others, you will draw out of them all that is highest and best. You can create extremely strong alliances this way with people who quickly become highly effective and highly skilled.
Law 34
Respect Yourself.
Self respect is based on a simple recognition that you are a human being. Do not allow yourself to be treated badly. Do not compromise your dignity. You are a human being, and all human dignity has worth and value. Therefore your dignity itself has worth and value.
Do not compromise on disrespect. If someone disrespects you, call them on it do not allow your feelings to be provoked, but call them on their disrespect. Respect is something that your humanity demands. It is not something you need to earn. It is your birthright. Moreover, do not be cruel to yourself. Refrain from berating yourself over past errors. You would not savagely berate someone else for their mistakes - their humanity itself affords them the right to err and still be of great intrinsic value. Your humanity affords yourself the same right. Recognize that and act accordingly.
Law 35
Master the Art of Opportunity
Your hard work and diligence is only as useful as the direction in which you move. The opportunities that you seek are critical. Keep a weather eye out for any chance of a break, and if you get one, act swiftly and decisively. Your plans exist for you to seize the initiative, but always understand that it is only through capitalizing on the opportunities that are presented to you, and the opportunities created by your victories that you will achieve greatly. If you fail to take an opportunity, or fail to capitalize on an opening, do not beat yourself up. Redouble your efforts.
Create another opening. Capitalize on that. Seize opportunities with both hands. Drop everything and pursue them trust your instincts. They are what you have been waiting for.
Law 36
Disdain Things you cannot have: Ignoring them is the best Revenge
By focusing on problem, dramas and conflicts you distract yourself from your goal personal excellence, alliance and the attainment of your heart's desire. At the same time, you will encounter a myriad of problems, dramas and conflicts in your pursuit of excellence.
Sometimes these things cannot be avoided. Some battles must be fought. What you focus on is what life gives you. When facing problems, focus on solutions. When facing drama, focus on resolution. When faced with conflict, focus on victory.
Law 37
Be Spectacular
Let your excellence be a beacon to others. Develop yourself until you can compete at the highest degree, and win. Be a fireworks display of humanity, a living example of what can be achieved through endurance, faith and courage. Find an arena where you can excel openly, and excel there. Dominate it. Own it. Once you have demonstrated that it is your own, find a bigger arena. Inspired by your excellence, others will join with you, lift you higher and raise themselves up in turn.
Law 38
Cultivate the skill of connecting with others, And Guard Against Arrogance
If you have the ability to genuinely connect with others, you can go against the times, explore and utilize unconventional ideas and ground breaking methods, and people will still love you for who you are. Never lose touch with your humanity, for if you do you will lose touch with the humanity of others. Make sure that you cultivate a love of humanity as part of your excellence disdain for the weak is the thin end of the wedge of arrogance. Look for the humanity in others, and cultivate compassion for those who live enslaved by fear. Do not allow them to infect you with doubt, but do not let them infect you with a sense of superiority either. The only person you can gauge your success by is you.
Law 39
Let Your Enemies Defeat Themselves
Do not provoke others into conflict for the sake of glory. At the same time, understand that in attempting to better yourself, in pursuing excellence, you will threaten others who will seek to attack you and bring you down. Answer only the intellectual content of their attacks, and do not repay their vitriol in kind. Always seek to link your ideas with theirs over shared common ground instead of annihilating their intellectual position it is always better to broaden your position so that it includes the main thrust of their attack within it. In doing so, you will undercut their attack and broaden your perspective. If they continue to attack you, it will be increasingly obvious to anyone that they are not motivated by rational concerns, but by jealousy, envy and spite.
They will lose by default.
Law 40
Despise the f r e e Lunch
Learn to accept help from others when it is offered. Your pursuit of excellence will be inspiring to many who you cannot directly assist. If they wish to help you, accept their help. Generosity is a blessing which can center a person and transcend the petty concerns in which they are bogged down. It allows them to become part of something higher and greater, and their assistance to you, as an act of kindness on their part, allows them to pursue excellence in their own lives. There is nothing to fear from accepting help when it is genuinely and f r e e ly offered. At the same time be mindful that no-one uses the memory of past assistance to blackmail you emotionally into compromising yourself.
Law 41
Stand on the Shoulders Of Giants
Do not try to reinvent the wheel. Learn from others and then develop new directions with innovation and creativity. Always strive to be at the cutting edge. Do not slavishly follow anyone, and appreciate the fallible humanity of those you look up to. All the legends in your chosen field of excellence were nothing more than people, just like you. You are capable of more than them. Much more. Think of them as the people who cleared the path for you to blaze a trail further, brighter and higher than any who have come before.
Law 42
Be Mindful Of The Profoundly And Consciously Selfish
Understand that some people who attack you will do so convincingly and well. They are threatened by the existence of excellence because they worship self-interest, manipulation and the control of others. You, and especially your success, represents a critical threat to the entire belief systems of these people, and they dare not face the darkness in their own hearts because, in truth, it terrifies them. If you come across such people, avoid them like the plague. Cut them completely out of your life. They will become a convergence point for dissident elements who wish to attack excellence itself. Do not play by their rules, do not get sucked in to their games, and remember this like vampires, they thrive on shadows and darkness. They cannot stand the light of day. Do your work in the open, and they will be unable to move against you decisively without revealing their rotten nature.
Law 43
Connect With the Hearts and Minds of Others
If you openly coerce someone into helping you, they will nurse a grudge and wait for an opportunity to take you down. Even if they do not do this, they will spread poison behind your back, slipping stilettos of doubt between the ribs of those who can help you. If you manipulate someone into helping you out, the second they realize they are your pawn they will attack you with a vengeance many times as powerful as if you had openly coerced them. Moreover, they will spread the truth of your deceitful nature among your allies, and weaken your alliances. Coercion and manipulation are desperate fall-back options when everything else has already failed. As lifestyle choices, they are doomed to failure. Instead, connect with someone's strengths. Do this by finding common cause among others who pursue excellence, and those who you inspire to pursue excellence. Do it also by forging true friendships among those you work with.
Law 44
Your fear is your compass.
Do not build coping strategies to work your way around the things you fear the most. Face them head on. The fact is that fear is the root of every insecurity, every failure, every regret that you use to beat yourself up with when you are feeling low. Defeating it is not an optional extra. It is the critical flaw that has held you back, and you must overcome it. Overcoming fear does not mean becoming fearless. It means getting angry. Become furious at your fear. Go straight for it, straight for the throat. Savage it. Never let it get away with controlling you. It has nothing but your failure at heart. It is your enemy. It is your greatest foe. It is in many ways, your only true enemy. Fight it always, with righteous fury. Whatever you are most afraid of is what you should be doing right now in order to be f r e e .
Law 45
Embrace Change, but Keep a sense of direction and reality
The pursuit of excellence has internal and external aspects.
Internally, fight your fear and fix your heart's desire as your ultimate goal. Externally, face your fear in reality day after day, and forge your heart's desire into something real and amazing with endurance, opportunism and courage. As you do this, make certain though that you keep yourself grounded. If you lose touch with reality, you will have failed. If you become lost in dreaming, you will have failed. Excellence is something that must be real, that must be realized, that must be pushed into actuality through force of will. Reality is the ultimate testing ground for excellence.
Excellence must be given form in reality for it to have any meaning. Honing yourself is a key facet of excellence, but do not get lost in sharpening a sword you never draw in battle. If you never wield your excellence in reality then you might as well not waste your time honing it at all.
Law 46
Excellence is not perfection; Excellence is better.
Seeking perfection is self-defeating because perfection is static.
This means firstly that, as a static concept, it has no existence in the real world. Secondly it means that a perfect thing is something that has been completed, and thus ended. If you seek to perfect yourself, you are really seeking to end yourself. To finish yourself. If you seek something long enough, you will achieve it.
Excellence is dynamic, and as such it has no limits. If you seek excellence, you are seeking to reach a state of positive dynamism that is greater than anything yet seen. Excellence, unlike perfection, leaves infinite room for personality, style, panache and flair. As such, this quest is both endless, and endlessly worthwhile.
Law 47
Remain grounded in reality but reach for the stars
Each victory is nothing more than a way point. Excellence is never complete. Each victory is simply an opportunity to capitalize upon and no victory, no matter how absolute, is ever the end of the story. It is only the end of the chapter, and it opens the doorway to the achievement of even greater things.
Law 48
Seek Excellence, and not Perfection
Excellence is your birthright as a man. If unclaimed, it will forever elude you. If you turn your whole life to it's pursuit, the world will salute you for your courage, and you will open the door to the greatest future of which you are capable. Ultimately, the universe is a mirror. If you make excellence the core of your heart, excellence will find you and you will live an excellent life. It will, at times, be hard. It will, at times, be scary. But it will always, in some way, be excellent. As will you.
The 48 Laws Of Excellence
Law 1
Never Learn From Someone Threatened By Excellence
Never limit yourself to accommodate the insecurities of others.
Your goal is your own personal excellence and as such do not curtail the development of your skills, self-confidence or courage for anyone. If you are working for someone who is threatened by excellence, you are working for the wrong person. If you are learning from someone who is threatened by excellence, you are learning the wrong lessons. If you are learning from a man who is scared of being eclipsed, you have already eclipsed him.
Law 2
Make Trustworthy Friends
Surround yourselves with friends you can trust. No man ever achieved anything great alone. It has never happened. Build trust by being trustworthy, and cultivating a shrewd sense of character.
Do not allow yourself to fall into believing what you want to believe about a person because they are beautiful, strong and talented. Be honest with yourself. Make trustworthy friends.
Law 3
Be Relentlessly Open About Your Intentions
Inspire others to join with you by the boldness and openness with which you act. Do not worry about others moving to cut off your plans. Your bold and decisive action will cut through such scheming, and seize the initiative. Learn the skill of quick and decisive action.
Law 4
Always Say Exactly Enough To Be Understood Perfectly
Language is a tool. Use it. Learn how to use it as a master violinist plays a violin. It's purpose is simple - the communication of ideas, feelings and concepts. Use it to communicate your intentions and plans, to inspire others to join with you. Just don't talk too much for too long. You have work to do.
Law 5
Your Reputation is Incidental
Reputation is symptomatic of excellence, and not causal - that is to say, it happens around you when you cultivate excellence inside yourself and live courageously. Do not hide from reputation, and do not be ashamed to stand up and be counted, but do not get lost in it's pursuit. If you focus on your reputation in and of itself, that reputation will have no substance to back it up. If you concentrate primarily on excellence, and make reputation a secondary concern, then you will have a powerful foundation should your reputation come under assault. Never attack the reputation of others. Instead, look to their hearts, and see if they pursue excellence, or something else, such as reputation. If they do, their empire is built on a house of cards. It will be no obstacle to you.
Law 6
Do Not Shy From Attention
This is a world of indolence and apathy. Many people are seduced by the myriad of toys, games, flashing lights and drama which surround us i the modern age. As such, mediocrity is commonplace. But the potential for excellence is within everyone. As such, you must expect that your excellence will draw attention. Use it. Use that attention to project your excellence into the world, to inspire others. Do not stand out just for the sake of standing out, but stand out by the quality of your life, and the person you are. And do not hide yourself.
Law 7
Ask for, Inspire and Accept Assistance, and Give Credit Where It's Due
Remember this - your friends and comrades are as important to you as your arms and legs. As and when you rise to a position where people look up to you, delegate to them, but personally speaking, treat them as equals. Use the wisdom, knowledge, and legwork of other people to further a common cause you each share. Make sure that you never allow these people to feel unappreciated. They are so essential to your success that if they leave you it will be like losing a body part. You must understand this. Only then can you achieve greatly.
Law 8
Do not be easily provoked. Cultivate Self-Discipline
If someone is attempting to provoke a reaction from you, you are the one in control. It is always better to meet any opposition on your terms and not theirs. Remember this. If someone is provoking you, they have chosen that battlefield. Do not meet them there.
Meet them somewhere else, if at all. Always keep in mind though, that your personal excellence is massively more important than any personal victories you may enjoy over individuals.
Law 9
Take Actions, Do Not Get Lost In Argument, Or Thought.
Opinions are ephemeral and have no reality. Action matters.
Opinions and ideas are only of value when they inform action. They only have any worth at all when they are manifested in reality.
When in doubt, take control of a situation by seizing the initiative. This is a crucial law, which can be applied on a grand scale or a very small scale - even in conversations. Develop the art of moving decisively, and well. Cultivate the ability of shooting from the hip with accuracy in your life. Hone your ability to choose wisely, fast, then to act upon it in a totally committed fashion.
Law 10
Infection: Avoid the Self-Indulgent and the Skeptical.
Negative emotional states are extremely infectious. If you are keeping company with the lazy, the self-indulgent, those who have a victim mentality or those who are habitually skeptical of ideas.
They are all each highly damaging in their own way, but perhaps the worst of them are those of a victim mentality, and those who criticize the ideas of others. Self-indulgence and skepticism are easy and cowardly. These people attack excellence in all it's forms and plant seeds of doubt in the minds of others. Fight this in any way you can. Make a long term commitment to f r e e ing yourself of their influence in every possible way.
Law 11
Learn to Inspire Independence in those who wish to Join You.
Another person is always of more use to you as a powerful ally than as a sheep-like follower. Never accept blind adulation, and never allow others to rest their self-esteem on your goodwill. Always expect independence of those who seek to join with you. Reward emotional independence in your friends with respect. A bond of trust between brothers in arms is always stronger than a bond of validation and power between leader and follower.
Law 12
Use Honesty and Generosity From a position of Strength to Disarm your Enemies
Do not allow yourself to be taken advantage of, but cultivate the ability to keep your ego out of the decisions that you make regarding those who you dislike, or who dislike you. Attempt, as far as possible, to distance yourself from negative feelings toward others. You have bigger fish to fry than getting involved in personal dramas. At the same time, remember that a man is always more use to you as an ally than as an enemy. Extending an olive branch to someone is simple, and if you are offering it from a position of strength, it will most likely be accepted, which will mean that you have one less enemy and one more ally.
Law 13
When Forging Alliances, Do not plead like a bleating sheep.
Get yourself to a position where you have something to offer, then propose an alliance of mutual benefit with someone who's skills complement your own. It is easy to forge win-win relationships with people if you have something to offer them. Both of you together can achieve more than either of you individually. Make certain that you do not compromise yourself, and do not be quick to remind others of past acts of charity. Your charity is your own business.
Generosity is its own reward. What matters in the moment is the pursuit of excellence, of real achievement. Remember this.
Law 14
Do not Spend Time Obsessing Over Rivals
They are an irrelevance to you. You are not gauging your success by that of others, but only by the distance you have travelled on the road to personal excellence. If you are under threat, deal with the threat decisively and shrewdly - but only if you are under threat.
Remember that your genuine cultivation of personal excellence makes attacking you at a deep level very difficult. Even if someone could successfully portray you as something else, such a deception, no matter how convincing, would be no more than a facade. Reality itself is on your side.
Law 15
Transcend your Enemy Totally
Do not pick fights. End them. Make certain that you are the most difficult-to-provoke person in the world. You are succeeding on your terms, not those offered to you by well-meaning friends or the terms offered to you by those who attack you. If you get sucked in to fighting personal battles, your excellence will always be something that exists relative to another. You have bigger fish to fry. As far as you can, beat your enemies by transcending the petty concerns they wish to squabble over with you. If you need to eliminate a threat, someone who is attacking you, always remember that if they provoked the fight they have done so because of a weakness in them, probably based on some form of self-deception and fear which they have not overcome. As such, the truth is on your side. Look for that truth. It is a weapon of incredible power.
Law 16
You Are Defined Most By How You Handle Damage
When you are weak, when you feel low, when you have been struck in the most personal and heart-wrenching of ways that is the time to fight harder than you've ever fought. It is in those moments of absolute truth where we decide our own worth. It is when all logic and reason are telling us to give up on what we know is right, on what our hearts desire more than anything in the world, that we must fight the hardest. Let the blows of your enemies and the cruel twists of fate be spurs to your efforts. Cultivate your defiance of them to an extremely high degree. Optimism is not an alternative to pessimism. It is the state of mind of those who refuse, in the face of logic and reason, never ever to give up on themselves or on their heart's desire no matter what the situation in which they are placed.
Law 17
Keep On Your Toes: Cultivate an Air of Dynamism
Humans are creatures of habit, and fall into patterns. You are not immune, and neither are those around you. Cultivate in yourself the faculty of creativity and imagination, so that your actions are neither predictable nor ineffective. Demand constant and persistent action in pursuit of your heart's desire, and do not get bogged down in worrying about the correct method. If in doubt, act. You will make mistakes, but you will also score victories and the more action you take, the better you will become at taking action.
Effective action is like a muscle. Work it.
Law 18
The World Is A Mirror, So Drop Your Guard
The world is like a mirror. If you walk about the place with your defences high, the world will raise its defences to you, and you will be alone. If you walk around the world looking for weaknesses and openings to exploit, people will not connect with you and you will be alone. If you walk around the world with your guard lowered, wearing your heart on your sleeve, you will be attacked and it will hurt. But if you are willing to take any pain associated with lowering your guard as a lifestyle, you will make strong, effective and useful connections with other people of worth and value. You will also condition your heart to be strong, as well as open. This strength will serve as one of the key ingredients for excellence.
Law 19
Be Mindful Of Creating Enemies.
You can't make an omelette without breaking a few eggs, and there's no need to tiptoe around people's egos when you have to do what is right. At the same time, if you can do what is right without offending others, do it that way. This is not something to obsess over, but make certain that if you are making an enemy, you are aware of what you are doing and you've thought through the consequences. There are millions of ways to achieve each and every goal you set yourself. It's better for you not to put yourself in a position where you might come under attack in the future.
Law 20
Commit to your conscience, Commit to yourself.
Your moral sense is the core of your being, whether you like it or not. Never be ashamed to act upon what you believe to be right. At the same time, and as much as is possible, retain your integrity, and hold control of your anger. Always control your indignation do not allow it to control you. At the same time, your morality is critical. It drives you to do what is highest and best, and it will show you the path that your life should be taking, if you let it.
Listen to it, and commit to its call. It is the heart of you. If you walk in tune with your morality, you will be at peace with yourself, even if the road you tread is a difficult one.
Law 21
Never Be Ashamed Of Your Gifts, And Do Not Hide Them
If you are intelligent, be openly intelligent. If you are eloquent, be openly eloquent. If you are skilled at your job, be openly skilled at your job. If you have a skill, do not hide it for the benefit of others. The only part of them you are benefiting is the lowest and least worthy their ego. Develop your excellence in the light of day. Those who feel intimidated by this and who shy away from you or snipe at you, even if large in quantity will be totally outclassed by the quality of the people your pursuit of excellence will draw to you.
Law 22
Use the Surrender Tactic: Give the Baby His Bottle
If you are being sucked into a conflict, it's often better to surrender graciously very early on. The key is knowing whether or not the conflict is something worth fighting. Most of the time it isn't. It is hard to see this sometimes because when you are provoked, many people will stand their ground over a point of principle when the actual reality of the conflict is basically irrelevant to them. This is anathema to excellence. Cultivate within yourself the ability to step back from conflicts and examine them dispassionately. If it is apparent that someone is throwing a tantrum over an issue that has no higher meaning, give the baby his bottle. You will often find that it is insecurity and fear which motivated them in the first place, and once they do not see you as a threat, they may indeed become a useful ally.
Law 23
Concentrate Your Efforts
Achieve things by focusing your efforts totally on the achievement of one task at a time. This is critical. Focus yourself on completing that task to a degree of excellence and effectiveness, and then move swiftly on to the next task. Focus completely on that. This is the principle of the application of maximum force.
Focus all your energies at one challenge at a time, overcome that challenge, then focus all your energies on the next one. You are invincible in this as long as you do not let up, or lose focus, and you continue to assault the problem for as long as it takes for that problem to be overcome. No task is beyond your power to accomplish.
Law 24
Never Play the Courtier
It is far better to offend someone than it is to make a habit of lying. The excellence of your genuine self is what you seek to develop. Deception and trickery are a gamble and a trap. If you allow yourself to use these tools out of fear or greed then they can and will obscure your true self from others, and from you. This is catastrophic. Instead, work on the development of your skills of self-expression, and make the genuine self you express a powerhouse of excellence. There will be no limit to how far you can rise in the world.
Law 25
Re-Create Yourself In Line With Your Deepest And Most Noble Desire
Look into yourself. Take a long time with this one. Really plunge deeply. Work through all the layers of propriety and social programming, all the things you've been told are important and all the things you just want for reasons of ego. Punch down through those layers and really find your heart's desire. What do you want to be? Ask yourself that, and keep asking until you find a clear and distinct answer. That answer is the meaning of your life. It will give you a clarity of purpose, a goal which you can focus on to rise above the irrelevant dramas of the present and something to move toward. No matter how wild or amazing it seems, hold to it. It is what you want the most. It is your Arete, your excellence.
Picture it clearly and often. Never, ever let it go.
Law 26
Get Your Hands Dirty
Get involved on every level. Never be above the grunt work. Make the amount that you are willing to actually do in the pursuit of excellence exactly this: as much as it takes. Do whatever it takes.
Make things happen. Build your castle stone by stone with your own bare hands if you must. No task is ignominious that is part of the pursuit of excellence.
Law 27
Utilize People's Desire to Connect to Create a Group of Staunch, Powerful and Creative Allies
People have an overwhelming desire to believe in something. Never, ever become the focal point of such desire. Remain grounded in yourself, and fully human in public. Do not set yourself up to be something you are not, because it is a gamble that you do not need to make. Also, the benefits which it will give you will be transitory and weak the worship that you are given by someone is not a comment on your greatness, but on their insecurity. Instead, remember that the greatest and most talented people in the world need friends also. No-one is above gaining one more ally. Share with them your vision of what you will become. Fuse your heart's desires together into great projects. In a world filled with apathy, indolence and selfishness, your honest pursuit of excellence will be a breath of fresh air.
Law 28
Cultivate Effective Audacity
Hone your audacity like the edge of a blade by being audacious whenever you can to the best of your ability. If you wish to achieve something, but are unsure of a course of action, attempt it anyway. Audacity and boldness are crucial skills for achieving excellence. Even if you fail, you will learn more about taking action, about seizing the initiative instead of overanalyzing an opportunity until it is gone. You will learn more about how you react under pressure, and what it feels like to face down fear.
These skills are more important than any contingent victory.
Cultivate them. Remember that any mistakes you commit through audacity may well be corrected with more audacity as long as you act swiftly and well.
Law 29
Make Specific, Contingent Plans
The detail is everything. Making specific plans is a creative effort, and like any creative effort it is a skill which can be developed to a very high level. Excellence is something that must be cultivated, and excellence at making specific plans for effective action is skill that is impossible to do without. No matter how well you react to others, and no matter how effective an opportunist you are, sooner or later you will need to seize the initiative in a sustained way or lose it. As such, this skill, the skill of practical planning, is effectively the skill of taking control of your destiny. Do not be without it.
Law 30
Do Not Rely On Clever Tricks
When your actions are in line with your expertise, they are natural and executed with ease. All the toil and practice that goes into developing them becomes invisible. Do not feel you need to hide this excellence is not a magic trick. It is something that you must be developed, cultivated, built up from solid foundations.
Your excellence is not an illusion. Do not build it with clever tricks, but around a core of rock solid central skills. You do not need to have a dizzying repertoire of tricks let all your tricks and shortcuts be totally incidental. Build your excellence on just doing the obvious things really well.
Law 31
Create the Options: Play By Your Own Rules
An option is nothing more than an idea. It is very rare that there are only two ideas which can resolve a situation. Usually, there are millions of different ways to resolve a situation in your favour. If you are presented with a stark choice where you lose either way, detach your emotions from the situation and think dispassionately and creatively. Avoid choosing the lesser of two evils. Always look for a way out that benefits everyone involved there is almost always one to hand.
Law 32
Appeal to People's Best Selves Give Them A Chance To Shine
The truth is often avoided because people are afraid of it. Many people spend a great deal of time and energy building up their fears into something big. Fear is ugly and unpleasant. Never appeal to weakness and insecurity if you do only weakness and insecurity will answer your call. If you build an empire on that, you are building it on sand like a fool. The truth may be harsh, but it is solid. Build an empire on truth and reality. It will have a strong foundation. If you appeal to courage and excellence, courage and excellence will answer your call. There is great power in tapping into the excellence of the masses. That power can be focused and unleashed, and as you build an empire of excellence in the world, you build an empire of personal excellence inside yourself.
Law 33
Discover Each Man's Excellence
Everyone has a strength, one practical ability which they can develop to an extremely high degree. It is what they love, it is their passion and their calling. Whatever it is, if you can encourage it in others, you will draw out of them all that is highest and best. You can create extremely strong alliances this way with people who quickly become highly effective and highly skilled.
Law 34
Respect Yourself.
Self respect is based on a simple recognition that you are a human being. Do not allow yourself to be treated badly. Do not compromise your dignity. You are a human being, and all human dignity has worth and value. Therefore your dignity itself has worth and value.
Do not compromise on disrespect. If someone disrespects you, call them on it do not allow your feelings to be provoked, but call them on their disrespect. Respect is something that your humanity demands. It is not something you need to earn. It is your birthright. Moreover, do not be cruel to yourself. Refrain from berating yourself over past errors. You would not savagely berate someone else for their mistakes - their humanity itself affords them the right to err and still be of great intrinsic value. Your humanity affords yourself the same right. Recognize that and act accordingly.
Law 35
Master the Art of Opportunity
Your hard work and diligence is only as useful as the direction in which you move. The opportunities that you seek are critical. Keep a weather eye out for any chance of a break, and if you get one, act swiftly and decisively. Your plans exist for you to seize the initiative, but always understand that it is only through capitalizing on the opportunities that are presented to you, and the opportunities created by your victories that you will achieve greatly. If you fail to take an opportunity, or fail to capitalize on an opening, do not beat yourself up. Redouble your efforts.
Create another opening. Capitalize on that. Seize opportunities with both hands. Drop everything and pursue them trust your instincts. They are what you have been waiting for.
Law 36
Disdain Things you cannot have: Ignoring them is the best Revenge
By focusing on problem, dramas and conflicts you distract yourself from your goal personal excellence, alliance and the attainment of your heart's desire. At the same time, you will encounter a myriad of problems, dramas and conflicts in your pursuit of excellence.
Sometimes these things cannot be avoided. Some battles must be fought. What you focus on is what life gives you. When facing problems, focus on solutions. When facing drama, focus on resolution. When faced with conflict, focus on victory.
Law 37
Be Spectacular
Let your excellence be a beacon to others. Develop yourself until you can compete at the highest degree, and win. Be a fireworks display of humanity, a living example of what can be achieved through endurance, faith and courage. Find an arena where you can excel openly, and excel there. Dominate it. Own it. Once you have demonstrated that it is your own, find a bigger arena. Inspired by your excellence, others will join with you, lift you higher and raise themselves up in turn.
Law 38
Cultivate the skill of connecting with others, And Guard Against Arrogance
If you have the ability to genuinely connect with others, you can go against the times, explore and utilize unconventional ideas and ground breaking methods, and people will still love you for who you are. Never lose touch with your humanity, for if you do you will lose touch with the humanity of others. Make sure that you cultivate a love of humanity as part of your excellence disdain for the weak is the thin end of the wedge of arrogance. Look for the humanity in others, and cultivate compassion for those who live enslaved by fear. Do not allow them to infect you with doubt, but do not let them infect you with a sense of superiority either. The only person you can gauge your success by is you.
Law 39
Let Your Enemies Defeat Themselves
Do not provoke others into conflict for the sake of glory. At the same time, understand that in attempting to better yourself, in pursuing excellence, you will threaten others who will seek to attack you and bring you down. Answer only the intellectual content of their attacks, and do not repay their vitriol in kind. Always seek to link your ideas with theirs over shared common ground instead of annihilating their intellectual position it is always better to broaden your position so that it includes the main thrust of their attack within it. In doing so, you will undercut their attack and broaden your perspective. If they continue to attack you, it will be increasingly obvious to anyone that they are not motivated by rational concerns, but by jealousy, envy and spite.
They will lose by default.
Law 40
Despise the f r e e Lunch
Learn to accept help from others when it is offered. Your pursuit of excellence will be inspiring to many who you cannot directly assist. If they wish to help you, accept their help. Generosity is a blessing which can center a person and transcend the petty concerns in which they are bogged down. It allows them to become part of something higher and greater, and their assistance to you, as an act of kindness on their part, allows them to pursue excellence in their own lives. There is nothing to fear from accepting help when it is genuinely and f r e e ly offered. At the same time be mindful that no-one uses the memory of past assistance to blackmail you emotionally into compromising yourself.
Law 41
Stand on the Shoulders Of Giants
Do not try to reinvent the wheel. Learn from others and then develop new directions with innovation and creativity. Always strive to be at the cutting edge. Do not slavishly follow anyone, and appreciate the fallible humanity of those you look up to. All the legends in your chosen field of excellence were nothing more than people, just like you. You are capable of more than them. Much more. Think of them as the people who cleared the path for you to blaze a trail further, brighter and higher than any who have come before.
Law 42
Be Mindful Of The Profoundly And Consciously Selfish
Understand that some people who attack you will do so convincingly and well. They are threatened by the existence of excellence because they worship self-interest, manipulation and the control of others. You, and especially your success, represents a critical threat to the entire belief systems of these people, and they dare not face the darkness in their own hearts because, in truth, it terrifies them. If you come across such people, avoid them like the plague. Cut them completely out of your life. They will become a convergence point for dissident elements who wish to attack excellence itself. Do not play by their rules, do not get sucked in to their games, and remember this like vampires, they thrive on shadows and darkness. They cannot stand the light of day. Do your work in the open, and they will be unable to move against you decisively without revealing their rotten nature.
Law 43
Connect With the Hearts and Minds of Others
If you openly coerce someone into helping you, they will nurse a grudge and wait for an opportunity to take you down. Even if they do not do this, they will spread poison behind your back, slipping stilettos of doubt between the ribs of those who can help you. If you manipulate someone into helping you out, the second they realize they are your pawn they will attack you with a vengeance many times as powerful as if you had openly coerced them. Moreover, they will spread the truth of your deceitful nature among your allies, and weaken your alliances. Coercion and manipulation are desperate fall-back options when everything else has already failed. As lifestyle choices, they are doomed to failure. Instead, connect with someone's strengths. Do this by finding common cause among others who pursue excellence, and those who you inspire to pursue excellence. Do it also by forging true friendships among those you work with.
Law 44
Your fear is your compass.
Do not build coping strategies to work your way around the things you fear the most. Face them head on. The fact is that fear is the root of every insecurity, every failure, every regret that you use to beat yourself up with when you are feeling low. Defeating it is not an optional extra. It is the critical flaw that has held you back, and you must overcome it. Overcoming fear does not mean becoming fearless. It means getting angry. Become furious at your fear. Go straight for it, straight for the throat. Savage it. Never let it get away with controlling you. It has nothing but your failure at heart. It is your enemy. It is your greatest foe. It is in many ways, your only true enemy. Fight it always, with righteous fury. Whatever you are most afraid of is what you should be doing right now in order to be f r e e .
Law 45
Embrace Change, but Keep a sense of direction and reality
The pursuit of excellence has internal and external aspects.
Internally, fight your fear and fix your heart's desire as your ultimate goal. Externally, face your fear in reality day after day, and forge your heart's desire into something real and amazing with endurance, opportunism and courage. As you do this, make certain though that you keep yourself grounded. If you lose touch with reality, you will have failed. If you become lost in dreaming, you will have failed. Excellence is something that must be real, that must be realized, that must be pushed into actuality through force of will. Reality is the ultimate testing ground for excellence.
Excellence must be given form in reality for it to have any meaning. Honing yourself is a key facet of excellence, but do not get lost in sharpening a sword you never draw in battle. If you never wield your excellence in reality then you might as well not waste your time honing it at all.
Law 46
Excellence is not perfection; Excellence is better.
Seeking perfection is self-defeating because perfection is static.
This means firstly that, as a static concept, it has no existence in the real world. Secondly it means that a perfect thing is something that has been completed, and thus ended. If you seek to perfect yourself, you are really seeking to end yourself. To finish yourself. If you seek something long enough, you will achieve it.
Excellence is dynamic, and as such it has no limits. If you seek excellence, you are seeking to reach a state of positive dynamism that is greater than anything yet seen. Excellence, unlike perfection, leaves infinite room for personality, style, panache and flair. As such, this quest is both endless, and endlessly worthwhile.
Law 47
Remain grounded in reality but reach for the stars
Each victory is nothing more than a way point. Excellence is never complete. Each victory is simply an opportunity to capitalize upon and no victory, no matter how absolute, is ever the end of the story. It is only the end of the chapter, and it opens the doorway to the achievement of even greater things.
Law 48
Seek Excellence, and not Perfection
Excellence is your birthright as a man. If unclaimed, it will forever elude you. If you turn your whole life to it's pursuit, the world will salute you for your courage, and you will open the door to the greatest future of which you are capable. Ultimately, the universe is a mirror. If you make excellence the core of your heart, excellence will find you and you will live an excellent life. It will, at times, be hard. It will, at times, be scary. But it will always, in some way, be excellent. As will you.
Wednesday, January 24, 2007
AVOID DRAFTING MISTAKES IN LEASE
It is no surprise that ambiguous provisions in a commercial lease can be very costly to an owner.
from www.ruskinmoscou.com/article-avoid-drafting-mistakes.htm
"Clarity of drafting is particularly important in the financial provisions of leases, especially rent escalation clauses. An owner unable to recover expected escalations due to sloppy drafting will be justifiably critical of his counsel: In this case ambiguity breeds contempt.
The importance of accurate and precise drafting in determining landlord and tenant obligations is even more critical in challenging economic times. Lease audits have become more prevalent as corporate tenants look to cut expenses. Ambiguous clauses can provide a predicate for a tenant's overcharge claims, or defenses against owner's efforts to collect additional rent, or even base rent.
Even if those claims or defenses are ultimately proven unfounded, the cost of collection can be substantial, particularly in attorney's fees. The problem is exacerbated when a drafting ambiguity is repeated in numerous leases for the same property, and multiple tenants mount challenges to the enforceability of the rental clause.
Such a situation arose in Citibank, N.A. v. 666 Fifth Avenue Limited Partnership, (__ A.D.2d__, N.Y.L.J., Nov. 20, 2002, p.23, c. 1).
The main issue in Citibank was whether the escalation provisions allowed for a reduction in the tenant's fixed rent when the real property taxes were reduced below the base-year amount.
Citibank entered into two leases for office space at 666 Fifth Avenue in 1989. The leases contained similar terms and included an "escalation" (paragraph 1) stating that the fixed rent would be adjusted to reflect fluctuations between annual real estate taxes and comparable taxes for the base-year. The lease provided:
'If the Taxes payable for any Tax Year...shall represent an increase above or decrease below the Base Taxes then the Fixed Rent for such Tax Year and continuing thereafter until a new Tax Statement is rendered to Tenant, shall be increased or decreased, as the case may be, by Tenant's Share of such increase or decrease.'
The tax escalation adjustment formula was further addressed in the following paragraph (paragraph 2):
'[If] as a result thereof a refund of Taxes is actually received by or on behalf of Landlord, then promptly after receipt of such refund, Landlord shall send Tenant a Tax Statement adjusting the Taxes for such Tax Year and setting forth Tenant's Share of such refund and Tenant shall be entitled to receive such Share by way of a credit against the Fixed Rent next becoming due after the sending of such Tax Statement; provided however that Tenant's Share of such refund shall be limited to the amount, if any, which Tenant had theretofore paid to landlord as increased Fixed Rent for such Tax year.'
Citibank cited paragraph 1 in arguing that the parties specifically contemplated and intended an actual reduction in fixed rent when taxes fall below the base-year amount. The landlord countered that paragraph 1 could not be read alone. When considered in context with the limiting clause in paragraph 2, Citibank could only be entitled to a credit against escalations that it had previously paid and the base rent was never intended to be decreased.
In denying each party's summary judgment motions, the court decided that the lease language was ambiguous at best and it could not conclusively determine the parties' intent regarding whether a credit against fixed rent was intended as a result of the reduction in taxes.
To resolve the issue, the court looked outside the four corners of the lease and examined extrinsic evidence. It noted that it would be important to examine prior drafts of the lease to ascertain the intent of the parties. However, neither party produced earlier drafts of the lease. Testimony at trial also failed to offer any indication of the intent of the parties as to a fixed rent reduction.
There was only one witness noted by the court who testified about the current norms in the New York City commercial leasing market.
Consistent with the general lack of clarity of the facts presented to the court, one witness' testimony was actually cited by both sides in support of their respective positions. On one hand, the witness stated it was not common for a tenant to be granted a credit against fixed rent when taxes are reduced below the base-year amounts. The same witness later testified that he has a number of clients whose leases contain such clauses. Due to the inherent inconsistencies, the court apparently discounted the evidentiary value of the witness'
testimony.
Ultimately, the most compelling factor in the court's decision was the conduct of the parties. The court found that Citibank had been a party to countless commercial leases in New York City and Citibank could not identify one instance where it would be entitled to reduction in fixed rent by virtue of a reduction of taxes below the base-year level. A longtime employee responsible for administering leases testified that he `never sought to insert a clause in a lease providing for a reduction in the fixed dollar amount rent based upon a lowering of the real estate taxes below that paid in a base period.' It was clear that based on its past lease negotiations, there was no expectation on the part of Citibank that it would be entitled to a fixed rent reduction under these facts.
The delay in asserting Citibank's claim also was critical to the court's decision.
The lease was executed in 1989. Throughout the term of the lease, Citibank had received numerous copies of tax bills and statements reflecting tax escalations. Citibank had retained numerous employees to examine and review the escalation provisions in the hundreds of commercial leases to which Citibank was a party.
Despite the monitoring of these leases, Citibank failed to assert its claim for a fixed rent credit against the landlord of 666 Fifth Avenue until nearly ten years after the leases were signed, and only after Citibank had engaged a lease-auditing firm.
Citibank explained that it did not assert a claim for the credit largely because it did not know it was entitled to one. The Court inferred from the action, or rather inaction, of Citibank, that since Citibank did not believe it was entitled to a reduction in fixed rent, then the parties never intended a rent reduction of the type Citibank demanded and, accordingly, the Court dismissed Citibank's action.
Citibank was not alone in its attempt to challenge the escalation provisions in leases for 666 Fifth Avenue. Several other tenants forged similar attacks to pursue rent reductions based upon the ambiguous clause.
In Executive Office Network, Ltd. v. 666 Fifth Avenue Partnership,
294 A.D.2d 166, 742 N.Y.S.2d 36 (1st Dept., 2002), the tenant contended that it was entitled to a reduction in the fixed rent based upon operating expense reductions below base year amounts of the operating expenses for the building. Citing similar escalation provisions to those found in Citibank, the lower court agreed with the tenant in Executive Office and awarded the tenant summary judgment for nearly $500,000.
However, in vacating the award, the First Department reached the same conclusion in the lease interpretation as the Citibank court. In fact, the Executive Office court found the language so confusing that it labeled the lease provisions `hopelessly ambiguous' and ordered the resolution of the issues to be tried.
Another tenant of 666 Fifth Avenue suffered a similar fate.
In Agip Petroleum Co., Inc. v. 666 Fifth Avenue Limited Partnership,
297 A.D.2d 483, 746 N.Y.S.2d 717 (1st Dept., 2002), the tenant was awarded summary judgment for more than $100,000 claiming that it was entitled to a reduction in fixed rent as a result of a decrease in both the taxes and operating expenses under the base-year amounts.
The First Department vacated the award and dismissed the tenant's complaint relying on the fact that Agip failed to notify the landlord of objections to the tax and operating statements in a timely manner.
Interestingly, this time the appellate court found no ambiguity in the drafting of the lease contrary to the same court's holdings in Citibank and Executive Office.
The panel, which included two of the same judges who concurred in Executive Office, concluded that the subparagraphs of the escalation provision, substantially in the same form as in the Executive Office and Citibank leases, determined that the fixed rent should not be altered.
The fact that different panels in the same court had opposing views on substantially the same lease, with similar fact patterns, only further underscores the severity of the problems encountered because of the ambiguity of the lease. But what was the ambiguity that would have caused courts to award summary judgment to two separate tenants, only to have them reversed at the appellate level?
Neither the landlord nor its attorneys intended to have an ambiguous lease. They labeled it an `escalation' clause and yet two tenants were awarded substantial rent reductions that were later reversed and remanded on appeal. The landlord may ultimately prevail, but not without lengthy litigation, including appeals addressing the `hopelessly ambiguous' clause. Perhaps the landlord will be spared because the tenant presented virtually no credible evidence that the parties intended that fixed rent would be reduced due to lower real estate taxes, or that the tenant itself believed it was entitled to such a reduction, or that such clauses are customary in New York City leases. One wonders whether the next tenant who sues
666 Fifth Avenue Limited Partnership will learn from these mistakes.
The problem suggests the solution. The following should be considered:
Keep it clear.
Fixed Rent or Base Rent should stay fixed and immutable. Additional rent should encompass all escalations and any credits or refunds.
Use examples.
Sample calculations and examples are excellent for clarifying a concept that may be difficult to follow. Remember, though, that examples are not a cure for poor drafting. They should be used to illustrate how a clause works and to help the reader follow the computation. Do not rely on a clear example to repair a problematic clause.
Get help.
After finishing the lease, the landlord's administrative or financial staff should do the billing. Make sure that they understand the clause, are instructed how to bill it correctly, and concur with you that it is consistent with the landlord's financial recordkeeping practices. Obviously, this should be done before the lease is signed.
Retain lease drafts to establish intent.
Lease drafts can evidence intent. If the court looks beyond the four corners of the lease, prior drafts that covered the issue could estop a claimant from taking a variant position. Modern document imaging techniques, e-mail and retaining drafts on a CD-Rom may be more manageable than maintaining paper files for the number of years of the lease term.
Don't wait.
Courts deem it important whether a party acquiesced in the interpretation suggested by their adversary. Any objection to the landlord's rent escalation statement should be raised promptly. Even though a claim is still viable within the statute of limitations period, the fact that a claimant sat on its presumed rights is given considerable weight by a court." Call us at 713 -782-0260 for more info. or see; www.houstonrealtyadvisors.net
from www.ruskinmoscou.com/article-avoid-drafting-mistakes.htm
"Clarity of drafting is particularly important in the financial provisions of leases, especially rent escalation clauses. An owner unable to recover expected escalations due to sloppy drafting will be justifiably critical of his counsel: In this case ambiguity breeds contempt.
The importance of accurate and precise drafting in determining landlord and tenant obligations is even more critical in challenging economic times. Lease audits have become more prevalent as corporate tenants look to cut expenses. Ambiguous clauses can provide a predicate for a tenant's overcharge claims, or defenses against owner's efforts to collect additional rent, or even base rent.
Even if those claims or defenses are ultimately proven unfounded, the cost of collection can be substantial, particularly in attorney's fees. The problem is exacerbated when a drafting ambiguity is repeated in numerous leases for the same property, and multiple tenants mount challenges to the enforceability of the rental clause.
Such a situation arose in Citibank, N.A. v. 666 Fifth Avenue Limited Partnership, (__ A.D.2d__, N.Y.L.J., Nov. 20, 2002, p.23, c. 1).
The main issue in Citibank was whether the escalation provisions allowed for a reduction in the tenant's fixed rent when the real property taxes were reduced below the base-year amount.
Citibank entered into two leases for office space at 666 Fifth Avenue in 1989. The leases contained similar terms and included an "escalation" (paragraph 1) stating that the fixed rent would be adjusted to reflect fluctuations between annual real estate taxes and comparable taxes for the base-year. The lease provided:
'If the Taxes payable for any Tax Year...shall represent an increase above or decrease below the Base Taxes then the Fixed Rent for such Tax Year and continuing thereafter until a new Tax Statement is rendered to Tenant, shall be increased or decreased, as the case may be, by Tenant's Share of such increase or decrease.'
The tax escalation adjustment formula was further addressed in the following paragraph (paragraph 2):
'[If] as a result thereof a refund of Taxes is actually received by or on behalf of Landlord, then promptly after receipt of such refund, Landlord shall send Tenant a Tax Statement adjusting the Taxes for such Tax Year and setting forth Tenant's Share of such refund and Tenant shall be entitled to receive such Share by way of a credit against the Fixed Rent next becoming due after the sending of such Tax Statement; provided however that Tenant's Share of such refund shall be limited to the amount, if any, which Tenant had theretofore paid to landlord as increased Fixed Rent for such Tax year.'
Citibank cited paragraph 1 in arguing that the parties specifically contemplated and intended an actual reduction in fixed rent when taxes fall below the base-year amount. The landlord countered that paragraph 1 could not be read alone. When considered in context with the limiting clause in paragraph 2, Citibank could only be entitled to a credit against escalations that it had previously paid and the base rent was never intended to be decreased.
In denying each party's summary judgment motions, the court decided that the lease language was ambiguous at best and it could not conclusively determine the parties' intent regarding whether a credit against fixed rent was intended as a result of the reduction in taxes.
To resolve the issue, the court looked outside the four corners of the lease and examined extrinsic evidence. It noted that it would be important to examine prior drafts of the lease to ascertain the intent of the parties. However, neither party produced earlier drafts of the lease. Testimony at trial also failed to offer any indication of the intent of the parties as to a fixed rent reduction.
There was only one witness noted by the court who testified about the current norms in the New York City commercial leasing market.
Consistent with the general lack of clarity of the facts presented to the court, one witness' testimony was actually cited by both sides in support of their respective positions. On one hand, the witness stated it was not common for a tenant to be granted a credit against fixed rent when taxes are reduced below the base-year amounts. The same witness later testified that he has a number of clients whose leases contain such clauses. Due to the inherent inconsistencies, the court apparently discounted the evidentiary value of the witness'
testimony.
Ultimately, the most compelling factor in the court's decision was the conduct of the parties. The court found that Citibank had been a party to countless commercial leases in New York City and Citibank could not identify one instance where it would be entitled to reduction in fixed rent by virtue of a reduction of taxes below the base-year level. A longtime employee responsible for administering leases testified that he `never sought to insert a clause in a lease providing for a reduction in the fixed dollar amount rent based upon a lowering of the real estate taxes below that paid in a base period.' It was clear that based on its past lease negotiations, there was no expectation on the part of Citibank that it would be entitled to a fixed rent reduction under these facts.
The delay in asserting Citibank's claim also was critical to the court's decision.
The lease was executed in 1989. Throughout the term of the lease, Citibank had received numerous copies of tax bills and statements reflecting tax escalations. Citibank had retained numerous employees to examine and review the escalation provisions in the hundreds of commercial leases to which Citibank was a party.
Despite the monitoring of these leases, Citibank failed to assert its claim for a fixed rent credit against the landlord of 666 Fifth Avenue until nearly ten years after the leases were signed, and only after Citibank had engaged a lease-auditing firm.
Citibank explained that it did not assert a claim for the credit largely because it did not know it was entitled to one. The Court inferred from the action, or rather inaction, of Citibank, that since Citibank did not believe it was entitled to a reduction in fixed rent, then the parties never intended a rent reduction of the type Citibank demanded and, accordingly, the Court dismissed Citibank's action.
Citibank was not alone in its attempt to challenge the escalation provisions in leases for 666 Fifth Avenue. Several other tenants forged similar attacks to pursue rent reductions based upon the ambiguous clause.
In Executive Office Network, Ltd. v. 666 Fifth Avenue Partnership,
294 A.D.2d 166, 742 N.Y.S.2d 36 (1st Dept., 2002), the tenant contended that it was entitled to a reduction in the fixed rent based upon operating expense reductions below base year amounts of the operating expenses for the building. Citing similar escalation provisions to those found in Citibank, the lower court agreed with the tenant in Executive Office and awarded the tenant summary judgment for nearly $500,000.
However, in vacating the award, the First Department reached the same conclusion in the lease interpretation as the Citibank court. In fact, the Executive Office court found the language so confusing that it labeled the lease provisions `hopelessly ambiguous' and ordered the resolution of the issues to be tried.
Another tenant of 666 Fifth Avenue suffered a similar fate.
In Agip Petroleum Co., Inc. v. 666 Fifth Avenue Limited Partnership,
297 A.D.2d 483, 746 N.Y.S.2d 717 (1st Dept., 2002), the tenant was awarded summary judgment for more than $100,000 claiming that it was entitled to a reduction in fixed rent as a result of a decrease in both the taxes and operating expenses under the base-year amounts.
The First Department vacated the award and dismissed the tenant's complaint relying on the fact that Agip failed to notify the landlord of objections to the tax and operating statements in a timely manner.
Interestingly, this time the appellate court found no ambiguity in the drafting of the lease contrary to the same court's holdings in Citibank and Executive Office.
The panel, which included two of the same judges who concurred in Executive Office, concluded that the subparagraphs of the escalation provision, substantially in the same form as in the Executive Office and Citibank leases, determined that the fixed rent should not be altered.
The fact that different panels in the same court had opposing views on substantially the same lease, with similar fact patterns, only further underscores the severity of the problems encountered because of the ambiguity of the lease. But what was the ambiguity that would have caused courts to award summary judgment to two separate tenants, only to have them reversed at the appellate level?
Neither the landlord nor its attorneys intended to have an ambiguous lease. They labeled it an `escalation' clause and yet two tenants were awarded substantial rent reductions that were later reversed and remanded on appeal. The landlord may ultimately prevail, but not without lengthy litigation, including appeals addressing the `hopelessly ambiguous' clause. Perhaps the landlord will be spared because the tenant presented virtually no credible evidence that the parties intended that fixed rent would be reduced due to lower real estate taxes, or that the tenant itself believed it was entitled to such a reduction, or that such clauses are customary in New York City leases. One wonders whether the next tenant who sues
666 Fifth Avenue Limited Partnership will learn from these mistakes.
The problem suggests the solution. The following should be considered:
Keep it clear.
Fixed Rent or Base Rent should stay fixed and immutable. Additional rent should encompass all escalations and any credits or refunds.
Use examples.
Sample calculations and examples are excellent for clarifying a concept that may be difficult to follow. Remember, though, that examples are not a cure for poor drafting. They should be used to illustrate how a clause works and to help the reader follow the computation. Do not rely on a clear example to repair a problematic clause.
Get help.
After finishing the lease, the landlord's administrative or financial staff should do the billing. Make sure that they understand the clause, are instructed how to bill it correctly, and concur with you that it is consistent with the landlord's financial recordkeeping practices. Obviously, this should be done before the lease is signed.
Retain lease drafts to establish intent.
Lease drafts can evidence intent. If the court looks beyond the four corners of the lease, prior drafts that covered the issue could estop a claimant from taking a variant position. Modern document imaging techniques, e-mail and retaining drafts on a CD-Rom may be more manageable than maintaining paper files for the number of years of the lease term.
Don't wait.
Courts deem it important whether a party acquiesced in the interpretation suggested by their adversary. Any objection to the landlord's rent escalation statement should be raised promptly. Even though a claim is still viable within the statute of limitations period, the fact that a claimant sat on its presumed rights is given considerable weight by a court." Call us at 713 -782-0260 for more info. or see; www.houstonrealtyadvisors.net
Tuesday, January 23, 2007
KATRINA WILL HELP YOUR PREPAREDNESS
Good planning is essential to disaster recovery, but Hurricane Katrina put all emergency preparedness maxims to the test.
from GlobeSt.com, April 12, 2006
"Those that faired best were flexible and executed with quick- thinking teams of well-trained professionals. At a recent BOMA seminar, a number of experts in the field shared their Hurricane Katrina experiences and provided first-hand insights of lessons learned on what to do before, during and after a disaster situation.
Planning, obviously, is essential and all of the presenters agreed that flexibility must be built into disaster preparedness and recovery for both limited and catastrophic events. Every disaster is unique, so plans need to accommodate a host of uncertainties.
Preliminary conference calls, meetings and rehearsals with the response teams are necessary to review, test and modify plans.
Mapping out each facility is an important tool to aid in recovery.
This includes walking the building exterior to identify objects that would need to be removed, stored or secured, such as trash cans, site furniture and materials stored on the roof. This step requires time and should always be incorporated into the planning process.
Identify doors and windows that would need to be boarded over or taped to reduce flying glass. Other areas that may require attention include roofing materials, flashing and coping materials, roof vents, awnings and signage.
Building occupants should be prepared to store loose papers and documents; turn off and unplug all computers, telecommunications and other office equipment; and remove all critical data from the premises to a safe location.
Local evacuation procedures should be reviewed. Determine how the evacuation order will be communicated and where evacuation routes and shelters are located.
When the evacuation order is issued, building management should inform all occupants of the situation and provide a deadline for complete evacuation. After the building-evacuation deadline, the building's emergency team should conduct a floor-by-floor walkthrough to verify that all occupants have exited the building and that the building is secured. Verify that all vital records are safely stored or removed from the building, and park the elevators on a floor above any level threatened by possible flooding. Then, shut off the power to the elevators, HVAC systems, lighting and other equipment.
Last, have the dedicated first responders ready for action when the storm passes. They should be trained individuals who understand the recovery plan. Identify people who work well under pressure and can adapt easily to changing circumstances. Though you will have rehearsed your recovery plan, each situation is different and requires quick thinking to address the unique problems of a specific event.
Once the storm has passed, an assessment of the damage will be necessary. Establishing communications is an essential first step in facilitating assessment and recovery.
Performing site assessments following Hurricane Katrina proved incredibly challenging since the damaged area was so vast and critical support infrastructure, in the form of roads and security, were severely hampered. To keep in communication with one another, recovery teams relied on a variety of special equipment. GPS devices proved beneficial due to the destruction of road signs and road impassibility. Though cell phones and the government emergency telephone system cards did not perform well, text messaging provided an excellent alternative. While some teams had satellite phones, they were hampered by lack of training in their use. (Satellite phones require open spaces for operation and many responders assumed that the devices had similar reception capabilities as cell phones, which was not the case.) Lesson learned—make sure that your teams know how to use their equipment.
Damage assessment should be made of the building structure, envelope, roofs and mechanical systems. A common problem during the initial assessments from Katrina was the inability to determine if there was hidden water damage and the subsequent impact of mold problems.
Setting up proper communication channels such as a website creates a primary contact point between all involved. Such channels are an excellent tool for delivering information and relaying rebuilding progress. In the case of Katrina, finding skilled labor was--and continues to be--a challenge. Developing relationships with contractors and establishing commitments ahead of time as part of your business-continuity planning will help mitigate labor issues.
Hurricane Katrina can teach us important lessons to mitigate damage and speed recovery. Through careful planning, training and communication, we can all be better equipped to face the uncertainties that will accompany the next natural disaster." For more information please contact ed at 713 782-2060 or vist our web site www.houstonrealtyadvisors.net
from GlobeSt.com, April 12, 2006
"Those that faired best were flexible and executed with quick- thinking teams of well-trained professionals. At a recent BOMA seminar, a number of experts in the field shared their Hurricane Katrina experiences and provided first-hand insights of lessons learned on what to do before, during and after a disaster situation.
Planning, obviously, is essential and all of the presenters agreed that flexibility must be built into disaster preparedness and recovery for both limited and catastrophic events. Every disaster is unique, so plans need to accommodate a host of uncertainties.
Preliminary conference calls, meetings and rehearsals with the response teams are necessary to review, test and modify plans.
Mapping out each facility is an important tool to aid in recovery.
This includes walking the building exterior to identify objects that would need to be removed, stored or secured, such as trash cans, site furniture and materials stored on the roof. This step requires time and should always be incorporated into the planning process.
Identify doors and windows that would need to be boarded over or taped to reduce flying glass. Other areas that may require attention include roofing materials, flashing and coping materials, roof vents, awnings and signage.
Building occupants should be prepared to store loose papers and documents; turn off and unplug all computers, telecommunications and other office equipment; and remove all critical data from the premises to a safe location.
Local evacuation procedures should be reviewed. Determine how the evacuation order will be communicated and where evacuation routes and shelters are located.
When the evacuation order is issued, building management should inform all occupants of the situation and provide a deadline for complete evacuation. After the building-evacuation deadline, the building's emergency team should conduct a floor-by-floor walkthrough to verify that all occupants have exited the building and that the building is secured. Verify that all vital records are safely stored or removed from the building, and park the elevators on a floor above any level threatened by possible flooding. Then, shut off the power to the elevators, HVAC systems, lighting and other equipment.
Last, have the dedicated first responders ready for action when the storm passes. They should be trained individuals who understand the recovery plan. Identify people who work well under pressure and can adapt easily to changing circumstances. Though you will have rehearsed your recovery plan, each situation is different and requires quick thinking to address the unique problems of a specific event.
Once the storm has passed, an assessment of the damage will be necessary. Establishing communications is an essential first step in facilitating assessment and recovery.
Performing site assessments following Hurricane Katrina proved incredibly challenging since the damaged area was so vast and critical support infrastructure, in the form of roads and security, were severely hampered. To keep in communication with one another, recovery teams relied on a variety of special equipment. GPS devices proved beneficial due to the destruction of road signs and road impassibility. Though cell phones and the government emergency telephone system cards did not perform well, text messaging provided an excellent alternative. While some teams had satellite phones, they were hampered by lack of training in their use. (Satellite phones require open spaces for operation and many responders assumed that the devices had similar reception capabilities as cell phones, which was not the case.) Lesson learned—make sure that your teams know how to use their equipment.
Damage assessment should be made of the building structure, envelope, roofs and mechanical systems. A common problem during the initial assessments from Katrina was the inability to determine if there was hidden water damage and the subsequent impact of mold problems.
Setting up proper communication channels such as a website creates a primary contact point between all involved. Such channels are an excellent tool for delivering information and relaying rebuilding progress. In the case of Katrina, finding skilled labor was--and continues to be--a challenge. Developing relationships with contractors and establishing commitments ahead of time as part of your business-continuity planning will help mitigate labor issues.
Hurricane Katrina can teach us important lessons to mitigate damage and speed recovery. Through careful planning, training and communication, we can all be better equipped to face the uncertainties that will accompany the next natural disaster." For more information please contact ed at 713 782-2060 or vist our web site www.houstonrealtyadvisors.net
Monday, January 22, 2007
Restaurant Failer Rates is 66% by Second year
There is no substitution for a good location; nor is their usually any way to resurrect a poor location.
from Shopping Center Business, May 2006
"The restaurant business has an initial year failure rate of over 7% and a second year failure rate of approximately 66%.
1. Knowing the food service operation means fully understanding food and labor costs, controllable and uncontrollable expenses, along with profit.
2. Ascertain the customer profile, and who the most frequent customer is.
3. Understand the trends that are taking place, likely to take place, and evaluate the patterns of people within an area.
4. Delineate the shape and size of the trading area, which usually will correspond to the road or street pattern, altered by competition and demographics.
5. Gather factual market data. Market resources can be quantified to determine the share of market that a planned restaurant or quick- service food operation can anticipate.
6. Accept only adequate accessibility. Access occurs on 3 levels:
a) One must have access to an area.
b) Access to a particular site is essential.
c) Good access to the unit is a must.
7. Identify generative areas. Activity is people and people are potential customers.
8. Evaluate competition. Very few people in t6he restaurant business truly analyze competition. Know the competitor's sales, seating, pricing, menu, services, take out vs. eat in, items most often purchases, differences by daypart (lunch, dinner and late evening).
9. Recognize the importance of visibility and exposure. Visibility is the ability to be seen continuously from one or more directions.
Exposure is being seen and recognize over a long period of time.
10. Identify appropriate locations. Examples of acceptable locational criteria include: types of locations, compatible demographics, ethnic characteristics, traffic arteries, trade area size, speed limits, number of moving lanes, adjacent uses, traffic flow, traffic counts, ingress, egress, visibility, competition, employment, topography.
11. Estimate sales and determine parking needs. Estimating sales is properly accomplished by evaluating all the factors that affect a restaurant's potential. Parking is critical for most restaurants.
Evaluate the parking and make sure that enough parking will be available. Zoning requirements specify the number of parking spaces required to meet the code.
12. Evaluate site economics and physical characteristics. Site economics represent the ability of a restaurant's sales at a given location to support the cost of land, building and equipment or rent, while providing an acceptable profit and return on investment. There are two directions for approaching this topic:
a) A careful estimate of the sales potential can be used to
determine an acceptable cost of land and building.
b) The economics in the marketplace, such as land and
construction costs or rent, indicate the level of sales
necessary to support a specific food facility.
Unfortunately, food operators often consider application of the principles to be cumbersome, time-consuming and costly." We have represented many sucessful restaurants at Houston Realty Advisors, Inc. Find out why at www.houstonrealtyadvisors.net
from Shopping Center Business, May 2006
"The restaurant business has an initial year failure rate of over 7% and a second year failure rate of approximately 66%.
1. Knowing the food service operation means fully understanding food and labor costs, controllable and uncontrollable expenses, along with profit.
2. Ascertain the customer profile, and who the most frequent customer is.
3. Understand the trends that are taking place, likely to take place, and evaluate the patterns of people within an area.
4. Delineate the shape and size of the trading area, which usually will correspond to the road or street pattern, altered by competition and demographics.
5. Gather factual market data. Market resources can be quantified to determine the share of market that a planned restaurant or quick- service food operation can anticipate.
6. Accept only adequate accessibility. Access occurs on 3 levels:
a) One must have access to an area.
b) Access to a particular site is essential.
c) Good access to the unit is a must.
7. Identify generative areas. Activity is people and people are potential customers.
8. Evaluate competition. Very few people in t6he restaurant business truly analyze competition. Know the competitor's sales, seating, pricing, menu, services, take out vs. eat in, items most often purchases, differences by daypart (lunch, dinner and late evening).
9. Recognize the importance of visibility and exposure. Visibility is the ability to be seen continuously from one or more directions.
Exposure is being seen and recognize over a long period of time.
10. Identify appropriate locations. Examples of acceptable locational criteria include: types of locations, compatible demographics, ethnic characteristics, traffic arteries, trade area size, speed limits, number of moving lanes, adjacent uses, traffic flow, traffic counts, ingress, egress, visibility, competition, employment, topography.
11. Estimate sales and determine parking needs. Estimating sales is properly accomplished by evaluating all the factors that affect a restaurant's potential. Parking is critical for most restaurants.
Evaluate the parking and make sure that enough parking will be available. Zoning requirements specify the number of parking spaces required to meet the code.
12. Evaluate site economics and physical characteristics. Site economics represent the ability of a restaurant's sales at a given location to support the cost of land, building and equipment or rent, while providing an acceptable profit and return on investment. There are two directions for approaching this topic:
a) A careful estimate of the sales potential can be used to
determine an acceptable cost of land and building.
b) The economics in the marketplace, such as land and
construction costs or rent, indicate the level of sales
necessary to support a specific food facility.
Unfortunately, food operators often consider application of the principles to be cumbersome, time-consuming and costly." We have represented many sucessful restaurants at Houston Realty Advisors, Inc. Find out why at www.houstonrealtyadvisors.net
Sunday, January 21, 2007
Lease Audits for Large Tenants
Controlling rental costs through lease audits:
Many corporate tenants have taken advantage of high vacancy rates and a sluggish economy in recent years to "recast" their existing leases for extended periods at lower rental rates.
from Metropolitan Corporate Counsel, April 2005
"Many businesses operating within company-owned real estate have sold those properties at recent market highs, entering into sale-leaseback arrangements pursuant to which they cash-out their equity position and become a tenant of the purchaser.
Now, with another round of corporate budget tightening apparently under way, business executives are examining their recurring expenses with greater scrutiny than ever before. One group of often overlooked expenses relate to a corporate tenant's rental obligations under its leases for office, warehouse and industrial premises. The source of savings? Lease audits.
Corporate tenants are increasingly auditing their landlords' books and records in order to determine the actual pass-through expenses legitimately incurred and the correct amounts due pursuant to the terms of the lease. Expenses that an owner is allowed to recoup from its tenant are very broadly spelled out in the rent provision of a lease under `additional rent' and include items such as utility charges, real estate taxes and operating expenses.
While utility charges (when based on metered usage) and real estate taxes are fairly straight-forward pass-throughs of third party expenses which can be relatively easy for tenants to verify, operating expenses are another story.
Operating expenses are broadly construed to mean an owner's actual out-of-pocket expenses relating to the operation and management of the property, as well as the maintenance, repair and replacement of its component parts, and typically include wages and salaries, cleaning costs, insurance premiums, real estate taxes (if not separately charged), utility costs pertaining to the public portions of the property, and general accounting and legal fees.
Most landlord lease forms take a `kitchen sink' approach, utilizing an `including without limitation' set of examples of various operating expenses, and the burden is on the tenant during lease negotiations to delineate those items that should be expressly excluded from operating expenses. As a result, the question of what constitutes an operating expense has always been muddled.
After 9/11, the significant monetary expenditures pertaining to upgraded building security systems further complicated the issue of what is a necessary or legitimate operating expense. Common questions have arisen as to whether screening devices, exterior pylons, grate protectors and security cameras are permissible operating costs or excluded capital expenses, and whether the cost of additional security personnel is a valid pass-through expenditure.
Similarly, there has been an exponential rise in insurance premiums on commercial real estate since 9/11. The increases in these costs generally find their way into an operating cost invoice, leading tenants to also question whether terrorism insurance is a proper landlord expenditure on behalf of its tenants regardless of price.
The best method to establish rights to conduct an audit of an owner's books and records is generally found in a clause in the lease which permits such activity. These clauses typically come with a list of conditions including: a limited time period following receipt of an invoice from the owner within which to contest the invoice (usually much shorter in duration than the statutory period for limitation of actions on contractual matters), a limitation on who can conduct the audit on the tenant's behalf, and a requirement that the tenant pay the owner's costs and fees attributable to the audit. While these negotiated provisions may limit the time, place and manner of the tenant auditing process, the audit clause itself at least establishes the tenant's right to conduct an audit.
Absent a clear audit provision in the lease, some states still allow a tenant access to its owner's books and records pertaining to pass- through expenses, under the covenant of good faith and fair dealing implied in commercial contracts, on the rationale that tenants must have the ability to verify the accuracy of any monetary obligation based upon the other party's actually incurred expenses (as distinguished from fixed or flat rent charges that are not pegged to actual expenditures).
Moreover, when the lease is silent as to how many years after receipt of an invoice a tenant can audit, the tenant's audit right would normally be limited to the statute of limitations for that state.
Although the failure of a lease to address a tenant's right to audit the landlord's books and records is not necessarily grounds for denial of such a right, it is certainly helpful and advisable to establish the right, as well as the ground rules for such an audit, in the lease document.
Who Will Conduct the Audit?
Although some ground rules must be set for the audit (i.e., reasonable advance notice to the owner, conducted only during normal business hours, etc.), the right itself should not be unduly restricted. To that end, the tenant should resist owner attempts to prohibit audits conducted by contingency-based firms or to require the use of a certified public accountant. Instead, the lease clause should permit the tenant to utilize its in-house financial team or to select an outside consulting or auditing firm to conduct the audit pursuant to any compensation arrangement acceptable to the tenant and the firm.
When Shall the Audit Be Performed?
The lease clause should address details pertaining to the timing, frequency and duration of audits. It should also describe the time frames and mechanisms to request an examination, perform the review, dispute the charges and settle any claims.
Some landlords get tenants to agree that if the tenant does not notify the landlord of its intention to audit within thirty days of receipt of the year-end reconciliation statement, then the reconciliation is considered final and binding on both parties. The tenant should require a longer look back period in which to audit prior years' expense records (including base year records, if applicable). It may be more efficient for a tenant to audit once every three years with respect to the entire three year period rather than once annually. Although the owner wants closure, it is ultimately more convenient for the owner to deal with the tenant's auditor once every three years instead of every year. Also, a longer audit window may well result in fewer audits for an owner to deal with because its tenant will not be confronted with an annual `use or lose' deadline and may therefore elect to give landlord the benefit of the doubt and defer questioning a line item expenditure pending the determination of the same line item amount in the following year's statement.
The tenant should also resist any effort to limit the duration of its access to the landlord's books and records (e.g., one eight hour day for each year being audited) because the time required to conduct an audit depends on the condition of the books and records as well as the level of the landlord's cooperation. In addition, the tenant should establish in the lease documents its right to photocopy expense records examined during the course of an audit.
Where Shall the Audit Take Place?
The lease should specify where the audit will be conducted (i.e., at the building or at the landlord's home offices). A far away audit location can be a significant obstacle for the corporate tenant executive who may have to justify to colleagues his or her expenditure on travel and lodging expenses (not to mention time out of the office) in pursuit of uncertain billing overcharges.
Who Should Pay for the Cost of the Audit?
The tenant should seek reimbursement from the landlord of the costs of the audit if the landlord's errors exceed 2-5% of the amount of expenses paid by the tenant during the period of time covered by the audit. The tenant should also consider adding language that will allow disputes with the landlord to be resolved through arbitration instead of the more costly and lengthy process of litigation.
Lease audit clauses are among the most complicated clauses in a commercial lease and the process lends itself to a specialized expertise for lawyers and CPAs. Drafting the audit clause itself requires a high degree of sophistication since the typical boiler plate clause attempts to modify many statutory and common law rights.
The audit process requires a skilled and experienced accountant who can pick up the errors in an invoice and explain these mistakes clearly to both landlord and tenant. The best solution for all parties is to have these issues resolved in a mutual settlement rather than going through protracted litigation which can have uncertain results for both parties. A protracted lawsuit can also drain the potential savings uncovered in an audit.
The law on lease audits and the field itself is still evolving. Each matter has the potential for setting legal precedent. Overall, more lease auditing issues are developing as a greater number of expenses are more closely scrutinized and challenged. However, having the right to audit in the lease is just the beginning. Gathering all the data necessary to check the escalation figures is the real challenge." For more information please visit: www.houstonrealtyadvisors.net
Many corporate tenants have taken advantage of high vacancy rates and a sluggish economy in recent years to "recast" their existing leases for extended periods at lower rental rates.
from Metropolitan Corporate Counsel, April 2005
"Many businesses operating within company-owned real estate have sold those properties at recent market highs, entering into sale-leaseback arrangements pursuant to which they cash-out their equity position and become a tenant of the purchaser.
Now, with another round of corporate budget tightening apparently under way, business executives are examining their recurring expenses with greater scrutiny than ever before. One group of often overlooked expenses relate to a corporate tenant's rental obligations under its leases for office, warehouse and industrial premises. The source of savings? Lease audits.
Corporate tenants are increasingly auditing their landlords' books and records in order to determine the actual pass-through expenses legitimately incurred and the correct amounts due pursuant to the terms of the lease. Expenses that an owner is allowed to recoup from its tenant are very broadly spelled out in the rent provision of a lease under `additional rent' and include items such as utility charges, real estate taxes and operating expenses.
While utility charges (when based on metered usage) and real estate taxes are fairly straight-forward pass-throughs of third party expenses which can be relatively easy for tenants to verify, operating expenses are another story.
Operating expenses are broadly construed to mean an owner's actual out-of-pocket expenses relating to the operation and management of the property, as well as the maintenance, repair and replacement of its component parts, and typically include wages and salaries, cleaning costs, insurance premiums, real estate taxes (if not separately charged), utility costs pertaining to the public portions of the property, and general accounting and legal fees.
Most landlord lease forms take a `kitchen sink' approach, utilizing an `including without limitation' set of examples of various operating expenses, and the burden is on the tenant during lease negotiations to delineate those items that should be expressly excluded from operating expenses. As a result, the question of what constitutes an operating expense has always been muddled.
After 9/11, the significant monetary expenditures pertaining to upgraded building security systems further complicated the issue of what is a necessary or legitimate operating expense. Common questions have arisen as to whether screening devices, exterior pylons, grate protectors and security cameras are permissible operating costs or excluded capital expenses, and whether the cost of additional security personnel is a valid pass-through expenditure.
Similarly, there has been an exponential rise in insurance premiums on commercial real estate since 9/11. The increases in these costs generally find their way into an operating cost invoice, leading tenants to also question whether terrorism insurance is a proper landlord expenditure on behalf of its tenants regardless of price.
The best method to establish rights to conduct an audit of an owner's books and records is generally found in a clause in the lease which permits such activity. These clauses typically come with a list of conditions including: a limited time period following receipt of an invoice from the owner within which to contest the invoice (usually much shorter in duration than the statutory period for limitation of actions on contractual matters), a limitation on who can conduct the audit on the tenant's behalf, and a requirement that the tenant pay the owner's costs and fees attributable to the audit. While these negotiated provisions may limit the time, place and manner of the tenant auditing process, the audit clause itself at least establishes the tenant's right to conduct an audit.
Absent a clear audit provision in the lease, some states still allow a tenant access to its owner's books and records pertaining to pass- through expenses, under the covenant of good faith and fair dealing implied in commercial contracts, on the rationale that tenants must have the ability to verify the accuracy of any monetary obligation based upon the other party's actually incurred expenses (as distinguished from fixed or flat rent charges that are not pegged to actual expenditures).
Moreover, when the lease is silent as to how many years after receipt of an invoice a tenant can audit, the tenant's audit right would normally be limited to the statute of limitations for that state.
Although the failure of a lease to address a tenant's right to audit the landlord's books and records is not necessarily grounds for denial of such a right, it is certainly helpful and advisable to establish the right, as well as the ground rules for such an audit, in the lease document.
Who Will Conduct the Audit?
Although some ground rules must be set for the audit (i.e., reasonable advance notice to the owner, conducted only during normal business hours, etc.), the right itself should not be unduly restricted. To that end, the tenant should resist owner attempts to prohibit audits conducted by contingency-based firms or to require the use of a certified public accountant. Instead, the lease clause should permit the tenant to utilize its in-house financial team or to select an outside consulting or auditing firm to conduct the audit pursuant to any compensation arrangement acceptable to the tenant and the firm.
When Shall the Audit Be Performed?
The lease clause should address details pertaining to the timing, frequency and duration of audits. It should also describe the time frames and mechanisms to request an examination, perform the review, dispute the charges and settle any claims.
Some landlords get tenants to agree that if the tenant does not notify the landlord of its intention to audit within thirty days of receipt of the year-end reconciliation statement, then the reconciliation is considered final and binding on both parties. The tenant should require a longer look back period in which to audit prior years' expense records (including base year records, if applicable). It may be more efficient for a tenant to audit once every three years with respect to the entire three year period rather than once annually. Although the owner wants closure, it is ultimately more convenient for the owner to deal with the tenant's auditor once every three years instead of every year. Also, a longer audit window may well result in fewer audits for an owner to deal with because its tenant will not be confronted with an annual `use or lose' deadline and may therefore elect to give landlord the benefit of the doubt and defer questioning a line item expenditure pending the determination of the same line item amount in the following year's statement.
The tenant should also resist any effort to limit the duration of its access to the landlord's books and records (e.g., one eight hour day for each year being audited) because the time required to conduct an audit depends on the condition of the books and records as well as the level of the landlord's cooperation. In addition, the tenant should establish in the lease documents its right to photocopy expense records examined during the course of an audit.
Where Shall the Audit Take Place?
The lease should specify where the audit will be conducted (i.e., at the building or at the landlord's home offices). A far away audit location can be a significant obstacle for the corporate tenant executive who may have to justify to colleagues his or her expenditure on travel and lodging expenses (not to mention time out of the office) in pursuit of uncertain billing overcharges.
Who Should Pay for the Cost of the Audit?
The tenant should seek reimbursement from the landlord of the costs of the audit if the landlord's errors exceed 2-5% of the amount of expenses paid by the tenant during the period of time covered by the audit. The tenant should also consider adding language that will allow disputes with the landlord to be resolved through arbitration instead of the more costly and lengthy process of litigation.
Lease audit clauses are among the most complicated clauses in a commercial lease and the process lends itself to a specialized expertise for lawyers and CPAs. Drafting the audit clause itself requires a high degree of sophistication since the typical boiler plate clause attempts to modify many statutory and common law rights.
The audit process requires a skilled and experienced accountant who can pick up the errors in an invoice and explain these mistakes clearly to both landlord and tenant. The best solution for all parties is to have these issues resolved in a mutual settlement rather than going through protracted litigation which can have uncertain results for both parties. A protracted lawsuit can also drain the potential savings uncovered in an audit.
The law on lease audits and the field itself is still evolving. Each matter has the potential for setting legal precedent. Overall, more lease auditing issues are developing as a greater number of expenses are more closely scrutinized and challenged. However, having the right to audit in the lease is just the beginning. Gathering all the data necessary to check the escalation figures is the real challenge." For more information please visit: www.houstonrealtyadvisors.net
Tuesday, January 16, 2007
Guarantor liability for holdovers
Guarantor who executes a guaranty agreeing to be "fully responsible for upholding all covenants of this lease, including monthly rent payments…is liable on guarantee for rental payments during holdover period when lease provides that in the event of holdover landlord, at its option, can accept proffered rent and create a month to month tenancy between the original parties, even when tenant holds over under the extended periodic tenancy for thirteen months beyond the original nine month lease.
from DIRT, April 26, 2006
"This case involves an issue that is virtually unprecedented in Illinois, and the subject of a split in decisions around the country, although one would think the issue is reasonably cut and dried, and frequently addressed. There even was a dissenting opinion in this case.
Roth v. Dillayou, 835 N.E. 2d 425 (Ill. App. 2005) appeal denied 844 N.E.2d 47
The lease provided that if tenant held over, in no event would a new term tenancy be created, but landlord had the option to accept rent payments tendered by the tenant and thereupon create a periodic month to month tenancy. Landlord also had the option to treat the tenant as a trespasser at recover possession and rent for the holdover at
150% of the original rental amount.
Tenant held over, and the landlord accepted rent for the holdover period, and the tenant wound up defaulting and then refusing to leave, resulting in a total holdover period of 13 months, for much of which tenant paid no rent.
The landlord sued the guarantor for all the back rent. Guarantor argued that it had guaranteed only performance of the original lease. Although the language of the original lease provided for a new periodic tenancy, the guarantor argued that the new tenancy was in effect a novation, and that the guarantor had no liability for it.
The trial court bought the argument. The Illinois appeals court, reversing the trial court in a split decision, found that the guarantor was liable for the extended rent, notwithstanding the fact that the tenant held over for substantially longer than the original lease term and was bound to the periodic tenancy at the landlord's option.
The court agreed that guarantors are favored parties in the law, and guaranties are read narrowly in their favor. Nevertheless, the court concluded the plain language of the guaranty in this case was inescapable.
This is an interesting conclusion in light of the fact that the court noted that in other jurisdictions there is a split on cases like this. It cited a Texas appeals court case that agrees with its approach, but a South Dakota case, certainly indistinguishable from the instant case in terms of the language of the lease and guaranty, found no guarantor liability.
We do not believe that the contingent nature of the landlord's consent should absolve the guarantor from liability during the month- to-month tenancy. The consent and resulting month-to-month tenancy were contemplated in the lease agreement. The better reasoning is that, once a guarantor is on notice that a month-to-month tenancy may result if the tenant holds over and the landlord consents to the arrangement, the guaranty continues to apply.
The dissent, stressing that the guarantor is entitled to the benefit of the doubt, stressed the use of the term `covenant' in the language of the guarantee. He stated that the tenant was not abiding by a `covenant' in the lease when she held over.
Nothing in the lease required [Tenant] to hold over and nothing in the lease required [Landlord} to permit [Tenant] to remain.
These choices appear to have been entirely unconstrained by the lease.
The dissent also cited a Utah case that it believed supported its position.
Comment 1: Note that, although this is a residential lease case, there is no reason to believe that it should not apply to commercial leases as well.
Comment 2: The crux of the dissent's argument really is that there is a `reasonable doubt' as to what the parties had in mind. The editor agrees that one can split hairs about whether the language perfectly expresses the intent, but the editor agrees with the majority that there's no real argument about what the parties really intended."
For more information contact Ed @ www. houstonrealtyadvisors.net
from DIRT, April 26, 2006
"This case involves an issue that is virtually unprecedented in Illinois, and the subject of a split in decisions around the country, although one would think the issue is reasonably cut and dried, and frequently addressed. There even was a dissenting opinion in this case.
Roth v. Dillayou, 835 N.E. 2d 425 (Ill. App. 2005) appeal denied 844 N.E.2d 47
The lease provided that if tenant held over, in no event would a new term tenancy be created, but landlord had the option to accept rent payments tendered by the tenant and thereupon create a periodic month to month tenancy. Landlord also had the option to treat the tenant as a trespasser at recover possession and rent for the holdover at
150% of the original rental amount.
Tenant held over, and the landlord accepted rent for the holdover period, and the tenant wound up defaulting and then refusing to leave, resulting in a total holdover period of 13 months, for much of which tenant paid no rent.
The landlord sued the guarantor for all the back rent. Guarantor argued that it had guaranteed only performance of the original lease. Although the language of the original lease provided for a new periodic tenancy, the guarantor argued that the new tenancy was in effect a novation, and that the guarantor had no liability for it.
The trial court bought the argument. The Illinois appeals court, reversing the trial court in a split decision, found that the guarantor was liable for the extended rent, notwithstanding the fact that the tenant held over for substantially longer than the original lease term and was bound to the periodic tenancy at the landlord's option.
The court agreed that guarantors are favored parties in the law, and guaranties are read narrowly in their favor. Nevertheless, the court concluded the plain language of the guaranty in this case was inescapable.
This is an interesting conclusion in light of the fact that the court noted that in other jurisdictions there is a split on cases like this. It cited a Texas appeals court case that agrees with its approach, but a South Dakota case, certainly indistinguishable from the instant case in terms of the language of the lease and guaranty, found no guarantor liability.
We do not believe that the contingent nature of the landlord's consent should absolve the guarantor from liability during the month- to-month tenancy. The consent and resulting month-to-month tenancy were contemplated in the lease agreement. The better reasoning is that, once a guarantor is on notice that a month-to-month tenancy may result if the tenant holds over and the landlord consents to the arrangement, the guaranty continues to apply.
The dissent, stressing that the guarantor is entitled to the benefit of the doubt, stressed the use of the term `covenant' in the language of the guarantee. He stated that the tenant was not abiding by a `covenant' in the lease when she held over.
Nothing in the lease required [Tenant] to hold over and nothing in the lease required [Landlord} to permit [Tenant] to remain.
These choices appear to have been entirely unconstrained by the lease.
The dissent also cited a Utah case that it believed supported its position.
Comment 1: Note that, although this is a residential lease case, there is no reason to believe that it should not apply to commercial leases as well.
Comment 2: The crux of the dissent's argument really is that there is a `reasonable doubt' as to what the parties had in mind. The editor agrees that one can split hairs about whether the language perfectly expresses the intent, but the editor agrees with the majority that there's no real argument about what the parties really intended."
For more information contact Ed @ www. houstonrealtyadvisors.net
Restaurant Leases
Retail landlords constantly are seeking ways to keep shoppers at properties longer. Longer stays can mean increased sales. Increased sales can mean increased percentage rental income for landlords and higher profits for tenants. As a result, landlords are setting their sights on recruiting restaurant tenants as the focal point of their leasing strategy; increasingly, restaurants want to be at the center.
Some of the unique issues regarding a retail lease include (but are not limited to):
- Permitted use
- Construction
- Operations
The permitted use should be as specific as possible. Many landlords prefer to incorporate the tenant's menu as an exhibit to the lease, thus restricting what the tenant can sell to that which is on the menu. Conversely, the tenant's interests are best served if the lease language permits flexibility and allows its concept to evolve over time. While the landlord's desire is to protect its tenant mix, the tenant wants to protect its business from present-day competition, yet allow the tenant to evolve to meet its customer's needs over the term of the lease. If a tenant is to be allowed to serve liquor in the premises, the sale of liquor should be specifically included in the permitted use clause, along with the proper liquor liability insurance requirements to be met.
Unique development and construction issues can relate to the restaurant tenant. or instance, many restaurants require grease traps. A grease trap enables a restaurant to function properly without clogging the plumbing systems of the landlord or other tenants. The lease language should be clear as to whether the landlord or the tenant is going to install the grease trap, and who pays for the expense of installation. Additionally, the language should be clear as to whose responsibility it is to maintain and/or replace the grease trap.
Additionally, a landlord may require the use of waterproof membranes for tenants. A waterproof membrane is intended to protect adjoining tenants from the "soggier" side (dishwasher, food prep sinks, etc.) of the restaurant's operation. The lease should clearly define who bears the responsibility for the installation and cost of the waterproof membrane, as well as the repairs and replacement, should they be required.
The lease should state where the tenant's wet trash should be stored. The cost of removing the trash, if it exceeds the normal retail tenant's, should be clearly set forth in the lease.
Restaurant tenants may operate at hours that differ from those of the typical retail tenant. They may operate more or fewer hours.
Restaurants require flexibility to allow their customers time to access parking areas after the other tenants have closed for the day. The lease should clearly state who bears the responsibly of shouldering these extra costs related to the extended or different hours, as well as additional lighting and security costs, if necessary.
Restaurants can create parking nightmares for landlords and other tenants. The parking needs of a restaurant tenant vary greatly from those of a customary tenant. The acceptable parking field should be attached as an exhibit to the lease. It should be of such clarity and detail as to show drive lanes and acceptable parking spaces. The tenant should require language stating that the acceptable parking field complies with applicable local codes and regulations.
Valet parking is an increasingly popular amenity, especially when restaurants are clustered together as part of an entertainment complex or lifestyle expansion. An exhibit should be attached to the lease, which clearly defines where the valet parking pick-up and drop- off location is located. The lease should also define whose responsibility it is to maintain and/or pay for the services.
Existing utility loads available to other retail tenants are not always sufficient to support the needs of kitchen equipment, gas lines are not always available at the premises, and new water and sewer lines may be needed. It is important for both the landlord's and the tenant's attorneys to involve their respective construction coordinators early in the deal process to ensure that any and all work letters are drafted in conformity with pre-approved work responsibilities.
The landlord usually insists on unfettered rights to relocate tenants. However, in light of the capital investment made in the site, and the research made in selecting the location, restaurant tenants often resist any relocation rights contained in the lease.
Understanding future development in the vicinity is crucial to understanding whether or not to delete relocation rights.
Many landlord lease forms contain a lien on tenant's fixtures.
However, a significant number of restaurant tenants obtain financing on or even lease their equipment. Therefore, tenants usually ask for the waiver of a landlord's lien on their equipment. The lease can provide for the subordination of a landlord's lien without much risk to the landlord.
A popular financing mechanism is for tenants to grant leasehold
mortgages in favor of their lenders. Landlords should be careful
that the language agreed to does not vest in the lender any rights to control the operation of the premises in the event of a default by tenant.
At the expiration of the lease, the parties are concerned with their responsibilities with regard to the condition of the leased premises. The lease should provide that the tenant has the right to remove all of its fixtures and kitchen equipment. However, it should be the tenant's responsibility to restore the premises to the same condition as they were at the commencement of the term. For more information or a list of our restaurant clients please see:
www. houstonrealtyadvisors.net
Some of the unique issues regarding a retail lease include (but are not limited to):
- Permitted use
- Construction
- Operations
The permitted use should be as specific as possible. Many landlords prefer to incorporate the tenant's menu as an exhibit to the lease, thus restricting what the tenant can sell to that which is on the menu. Conversely, the tenant's interests are best served if the lease language permits flexibility and allows its concept to evolve over time. While the landlord's desire is to protect its tenant mix, the tenant wants to protect its business from present-day competition, yet allow the tenant to evolve to meet its customer's needs over the term of the lease. If a tenant is to be allowed to serve liquor in the premises, the sale of liquor should be specifically included in the permitted use clause, along with the proper liquor liability insurance requirements to be met.
Unique development and construction issues can relate to the restaurant tenant. or instance, many restaurants require grease traps. A grease trap enables a restaurant to function properly without clogging the plumbing systems of the landlord or other tenants. The lease language should be clear as to whether the landlord or the tenant is going to install the grease trap, and who pays for the expense of installation. Additionally, the language should be clear as to whose responsibility it is to maintain and/or replace the grease trap.
Additionally, a landlord may require the use of waterproof membranes for tenants. A waterproof membrane is intended to protect adjoining tenants from the "soggier" side (dishwasher, food prep sinks, etc.) of the restaurant's operation. The lease should clearly define who bears the responsibility for the installation and cost of the waterproof membrane, as well as the repairs and replacement, should they be required.
The lease should state where the tenant's wet trash should be stored. The cost of removing the trash, if it exceeds the normal retail tenant's, should be clearly set forth in the lease.
Restaurant tenants may operate at hours that differ from those of the typical retail tenant. They may operate more or fewer hours.
Restaurants require flexibility to allow their customers time to access parking areas after the other tenants have closed for the day. The lease should clearly state who bears the responsibly of shouldering these extra costs related to the extended or different hours, as well as additional lighting and security costs, if necessary.
Restaurants can create parking nightmares for landlords and other tenants. The parking needs of a restaurant tenant vary greatly from those of a customary tenant. The acceptable parking field should be attached as an exhibit to the lease. It should be of such clarity and detail as to show drive lanes and acceptable parking spaces. The tenant should require language stating that the acceptable parking field complies with applicable local codes and regulations.
Valet parking is an increasingly popular amenity, especially when restaurants are clustered together as part of an entertainment complex or lifestyle expansion. An exhibit should be attached to the lease, which clearly defines where the valet parking pick-up and drop- off location is located. The lease should also define whose responsibility it is to maintain and/or pay for the services.
Existing utility loads available to other retail tenants are not always sufficient to support the needs of kitchen equipment, gas lines are not always available at the premises, and new water and sewer lines may be needed. It is important for both the landlord's and the tenant's attorneys to involve their respective construction coordinators early in the deal process to ensure that any and all work letters are drafted in conformity with pre-approved work responsibilities.
The landlord usually insists on unfettered rights to relocate tenants. However, in light of the capital investment made in the site, and the research made in selecting the location, restaurant tenants often resist any relocation rights contained in the lease.
Understanding future development in the vicinity is crucial to understanding whether or not to delete relocation rights.
Many landlord lease forms contain a lien on tenant's fixtures.
However, a significant number of restaurant tenants obtain financing on or even lease their equipment. Therefore, tenants usually ask for the waiver of a landlord's lien on their equipment. The lease can provide for the subordination of a landlord's lien without much risk to the landlord.
A popular financing mechanism is for tenants to grant leasehold
mortgages in favor of their lenders. Landlords should be careful
that the language agreed to does not vest in the lender any rights to control the operation of the premises in the event of a default by tenant.
At the expiration of the lease, the parties are concerned with their responsibilities with regard to the condition of the leased premises. The lease should provide that the tenant has the right to remove all of its fixtures and kitchen equipment. However, it should be the tenant's responsibility to restore the premises to the same condition as they were at the commencement of the term. For more information or a list of our restaurant clients please see:
www. houstonrealtyadvisors.net
Tuesday, January 9, 2007
BREACH OF A COMMERCIAL LEASE
When a tenant breaches a commercial lease, the landlord usually has two immediate goals:
(1) Obtain possession of the leased space, and
(2) Recover unpaid rent.
from HSFH newsletter, Winter 2006
"The ability to achieve these goals will vary greatly depending on the working of the lease and the methods employed.
A landlord may retake possession of its property from a tenant through either summary ejectment proceedings or self-help. In either case, there must be a breach for which the lease grants the landlord a right to terminate the right of possession. It is critical that the lease define precisely what defaults result in termination. A failure to pay rent ten days after demand is, by (North Carolina) statute, a forfeiture of the tenant's right to possession regardless of what is written in the lease.
Summary ejectment is a proceeding commenced by the landlord's filing of a summons and complaint. The trial will be held in small claims court without a jury. The landlord must be able to prove that:
a. The lease was breached.
b. The breach is one that results in forfeiture either by the terms of the lease or by statute;
c. It complied with the applicable notice and cure provisions, if any, contained in the lease.
Either party may appeal the decision. The appeal is heard in district court and a jury trial may be requested. Upon appeal, a tenant may remain in the premises by paying to the Clerk the amount of the arrears and signing an agreement to pay rent as it becomes due.
If the landlord desires to recover damages in excess of the jurisdictional limit of the small claims court, presently $5,000, it should only seek to regain possession in the summary ejectment action. If the landlord seeks damages in the summary ejectment up to the jurisdictional amount, such recovery will bar any action for additional damages. A separate action should be brought to recover unpaid rent. Absent a contrary provision in the lease, summary ejectment terminates the lease and a tenant will have no liability for rent to accrue for the remainder of the period.
There are two very important issues to consider when using the summary ejectment process:
I. Does the lease expressly provide that a summary ejectment does
not terminate the tenant's liability for future rent? If the lease does not so provide, then the decision to proceed should be reconsidered.
II. Should the landlord sue for damages? The landlord should not sue for monetary damages in the summary ejectment action unless the total damages sought are $5,000 or less. A separate action for the unpaid back rent should be filed in the appropriate court.
SELF-HELP
Waiver of breach:
A tenant may have a defense if the landlord waives the default. A waiver occurs when a landlord has notified a tenant of default and then accepts a rent payment. The waiver only applies to the landlord's ability to declare forfeiture and dispossess the tenant.
It will not affect the landlord's other remedies such as its right to sue for damages. A commercial lease should include a provision disclaiming a waiver of breach by acceptance of late rent payments.
Failure to strictly follow lease procedures:
A breach may be excused if the landlord fails to follow to the letter the notice and cure requirements in the lease. Notice of default, if required by the lease, must be given in strict compliance with the lease and it must be unequivocal. The landlord should specify in the notice all defaults to be used as grounds to regain possession.
ADDITIONAL REMEDIES
Attorneys' fees:
A landlord may recover its attorneys' fees in an action seeking rent only if the lease provides for such recovery and the landlord gives the tenant a five day written notice of its intention to recover attorneys' fees. The amount of the recovery is limited to 15% of the outstanding balance (again NC law).
Landlord's lien:
Unless the parties agree otherwise, a landlord who has a claim for damages against the tenant may have a lien upon the tenant's personal property. A lease should grant the landlord a security interest in the tenant's property and permit the landlord to file a financing statement covering the property."
For additional information please see: www.houstonrealtyadvisors.net
(1) Obtain possession of the leased space, and
(2) Recover unpaid rent.
from HSFH newsletter, Winter 2006
"The ability to achieve these goals will vary greatly depending on the working of the lease and the methods employed.
A landlord may retake possession of its property from a tenant through either summary ejectment proceedings or self-help. In either case, there must be a breach for which the lease grants the landlord a right to terminate the right of possession. It is critical that the lease define precisely what defaults result in termination. A failure to pay rent ten days after demand is, by (North Carolina) statute, a forfeiture of the tenant's right to possession regardless of what is written in the lease.
Summary ejectment is a proceeding commenced by the landlord's filing of a summons and complaint. The trial will be held in small claims court without a jury. The landlord must be able to prove that:
a. The lease was breached.
b. The breach is one that results in forfeiture either by the terms of the lease or by statute;
c. It complied with the applicable notice and cure provisions, if any, contained in the lease.
Either party may appeal the decision. The appeal is heard in district court and a jury trial may be requested. Upon appeal, a tenant may remain in the premises by paying to the Clerk the amount of the arrears and signing an agreement to pay rent as it becomes due.
If the landlord desires to recover damages in excess of the jurisdictional limit of the small claims court, presently $5,000, it should only seek to regain possession in the summary ejectment action. If the landlord seeks damages in the summary ejectment up to the jurisdictional amount, such recovery will bar any action for additional damages. A separate action should be brought to recover unpaid rent. Absent a contrary provision in the lease, summary ejectment terminates the lease and a tenant will have no liability for rent to accrue for the remainder of the period.
There are two very important issues to consider when using the summary ejectment process:
I. Does the lease expressly provide that a summary ejectment does
not terminate the tenant's liability for future rent? If the lease does not so provide, then the decision to proceed should be reconsidered.
II. Should the landlord sue for damages? The landlord should not sue for monetary damages in the summary ejectment action unless the total damages sought are $5,000 or less. A separate action for the unpaid back rent should be filed in the appropriate court.
SELF-HELP
Waiver of breach:
A tenant may have a defense if the landlord waives the default. A waiver occurs when a landlord has notified a tenant of default and then accepts a rent payment. The waiver only applies to the landlord's ability to declare forfeiture and dispossess the tenant.
It will not affect the landlord's other remedies such as its right to sue for damages. A commercial lease should include a provision disclaiming a waiver of breach by acceptance of late rent payments.
Failure to strictly follow lease procedures:
A breach may be excused if the landlord fails to follow to the letter the notice and cure requirements in the lease. Notice of default, if required by the lease, must be given in strict compliance with the lease and it must be unequivocal. The landlord should specify in the notice all defaults to be used as grounds to regain possession.
ADDITIONAL REMEDIES
Attorneys' fees:
A landlord may recover its attorneys' fees in an action seeking rent only if the lease provides for such recovery and the landlord gives the tenant a five day written notice of its intention to recover attorneys' fees. The amount of the recovery is limited to 15% of the outstanding balance (again NC law).
Landlord's lien:
Unless the parties agree otherwise, a landlord who has a claim for damages against the tenant may have a lien upon the tenant's personal property. A lease should grant the landlord a security interest in the tenant's property and permit the landlord to file a financing statement covering the property."
For additional information please see: www.houstonrealtyadvisors.net
Monday, January 8, 2007
Practical Risk of New Tenant in New Development
Is the project new construction? If so, the prospective tenant will require a candid and complete assessment of practical risks of the land development process. These include special zoning, building and fire safety, environmental, sewage and other permitting issues, or, more unusually, risks attendant to proposed phased delivery of the improvements or risks inherent in developing a project located in multiple jurisdictions.
Identity of the Landlord
Record ownership of existing office and industrial property inventory and equitable ownership of prime development sites often are held by special-purpose entities that are affiliated with large, well- capitalized real estate companies. The prospective tenant should determine early in the process whether an unconditional guaranty from a net worth affiliate of the landlord is prudent to assure timely, complete performance of the landlord's construction obligations, all within budget.
Special Building Requirements
All of the prospective tenant's representatives, including attorneys, brokers, architects and engineers, need to be fully informed of the company's unique spatial and fit-up requirements for the project, such as clear floor height, HVAC and project security systems, 24/7 vehicular and pedestrian access, telecommunications, lighting, vehicle loading and parking facilities, special sanitary sewage, and toxic waste disposal. Will the architects or engineers be engaged by the prospective tenant or by the landlord? This can be a major issue, particularly regarding the duty and loyalty of these professionals.
Signage
Significant and unusual signage requirements are often present in large-space office and industrial lease negotiations. The tenant's broker and legal team should coordinate their efforts to ascertain the client's signage requirements as soon as practicable in the process, if only to obtain a relatively painless concession by the landlord to satisfy these requirements. Quite often, the landlord is powerless in this matter, as the municipality's signage requirements can be onerous and require a long lead time to complete, including frequent resort to an appeal process.
Project Plans and Specifications
If the project's plans and specifications are not to be agreed upon at the time the lease is delivered by the parties, a fair, understandable and responsive process for review and approval of the project plans and specifications should be included in the lease, and agreed upon early in the lease negotiation process. In addition, the effect of change orders on the basic rent structure, whether proposed by the landlord or the tenant, should also be determined early in the negotiation process.
Size of the Premises
The economic return to the landlord is pegged to the area of the space being rented. The prudent user should require independent verification of the area of the leased space to be performed by a licensed professional in accordance with an agreed upon, objective written standard of measurement, such as the Standard Method for Measuring Floor Areas in Office Buildings approved 6/7/96 by the American National Standards Institute (ANSI) and by the Building Owners and Managers Association (BOMA). The lease should permit adjustment of the basic rent and proportionate share attributable to such space (for computing the user's liability for its share of common area maintenance costs and real estate taxes assessed against the project), all in accordance with such as-built measurement.
Delivery Dates
A determination should be made about when the user requires delivery of the space, and whether phased delivery of portions of the project is sensible given the project timetable and the company's fit-up and use requirements. Due consideration in the early negotiations should be given to the economic and other consequences of a delay in the project's completion, whether caused by the tenant or developer, or arising from force majeure.
Common Area Maintenance and Real Estate Taxes Corporate users are sometimes reluctant to negotiate late in the deal over such points as exclusions from or limitations on the landlord's common area maintenance charges and real estate taxes assessed against the site, or audit rights and consequences pertaining to such charges or taxes. The best way to deal with this predisposition is to resolve early in the lease negotiations the limitations and exclusions, audit rights, right to contest tax assessments for which the tenant is contractually liable under the lease, and consequences of overpayment.
Lease Term
Companies that only occasionally transact in real estate generally require more schooling on the range of realistic alternatives for the length of the lease term. In addition, these users are rarely attuned to the range of preferences to extend the term, expand the leased premises, or purchase the project. These preferences, when applied to term extension, expansion of the premises, or purchase of the property, include a firm option, a right of first offer, or a right of first refusal." For more information contact: www.houstonrealtyadvisors.net
Identity of the Landlord
Record ownership of existing office and industrial property inventory and equitable ownership of prime development sites often are held by special-purpose entities that are affiliated with large, well- capitalized real estate companies. The prospective tenant should determine early in the process whether an unconditional guaranty from a net worth affiliate of the landlord is prudent to assure timely, complete performance of the landlord's construction obligations, all within budget.
Special Building Requirements
All of the prospective tenant's representatives, including attorneys, brokers, architects and engineers, need to be fully informed of the company's unique spatial and fit-up requirements for the project, such as clear floor height, HVAC and project security systems, 24/7 vehicular and pedestrian access, telecommunications, lighting, vehicle loading and parking facilities, special sanitary sewage, and toxic waste disposal. Will the architects or engineers be engaged by the prospective tenant or by the landlord? This can be a major issue, particularly regarding the duty and loyalty of these professionals.
Signage
Significant and unusual signage requirements are often present in large-space office and industrial lease negotiations. The tenant's broker and legal team should coordinate their efforts to ascertain the client's signage requirements as soon as practicable in the process, if only to obtain a relatively painless concession by the landlord to satisfy these requirements. Quite often, the landlord is powerless in this matter, as the municipality's signage requirements can be onerous and require a long lead time to complete, including frequent resort to an appeal process.
Project Plans and Specifications
If the project's plans and specifications are not to be agreed upon at the time the lease is delivered by the parties, a fair, understandable and responsive process for review and approval of the project plans and specifications should be included in the lease, and agreed upon early in the lease negotiation process. In addition, the effect of change orders on the basic rent structure, whether proposed by the landlord or the tenant, should also be determined early in the negotiation process.
Size of the Premises
The economic return to the landlord is pegged to the area of the space being rented. The prudent user should require independent verification of the area of the leased space to be performed by a licensed professional in accordance with an agreed upon, objective written standard of measurement, such as the Standard Method for Measuring Floor Areas in Office Buildings approved 6/7/96 by the American National Standards Institute (ANSI) and by the Building Owners and Managers Association (BOMA). The lease should permit adjustment of the basic rent and proportionate share attributable to such space (for computing the user's liability for its share of common area maintenance costs and real estate taxes assessed against the project), all in accordance with such as-built measurement.
Delivery Dates
A determination should be made about when the user requires delivery of the space, and whether phased delivery of portions of the project is sensible given the project timetable and the company's fit-up and use requirements. Due consideration in the early negotiations should be given to the economic and other consequences of a delay in the project's completion, whether caused by the tenant or developer, or arising from force majeure.
Common Area Maintenance and Real Estate Taxes Corporate users are sometimes reluctant to negotiate late in the deal over such points as exclusions from or limitations on the landlord's common area maintenance charges and real estate taxes assessed against the site, or audit rights and consequences pertaining to such charges or taxes. The best way to deal with this predisposition is to resolve early in the lease negotiations the limitations and exclusions, audit rights, right to contest tax assessments for which the tenant is contractually liable under the lease, and consequences of overpayment.
Lease Term
Companies that only occasionally transact in real estate generally require more schooling on the range of realistic alternatives for the length of the lease term. In addition, these users are rarely attuned to the range of preferences to extend the term, expand the leased premises, or purchase the project. These preferences, when applied to term extension, expansion of the premises, or purchase of the property, include a firm option, a right of first offer, or a right of first refusal." For more information contact: www.houstonrealtyadvisors.net
Friday, January 5, 2007
WHEN TO USE CONFIDENTIALITY AGREEMENTS
The Confidentiality Agreement is also known as a non-disclosure agreement (NDA), confidential disclosure agreement (CDA), or secrecy agreement.
The confidentiality agreement is typically a written document that binds all parties from discussing ideas, information, plans, secrets or discussions about confidential business transactions. The agreement says that if you violate the terms of the agreement and reveal a company's business secrets without its consent, then the company's lawyers will be knocking on your door, and your lawyers will be kept busy trying to keep you out of trouble.
The confidentiality agreement says:
`I have some trust in you (otherwise I would not be doing business with you), but I need a tighter level of assurance that you are not going to reveal what I am about to tell you, so sign here.'
The agreement also says that all parties involved in the business transaction will not use the information to their benefit without written authorization of the company. Because these agreements tend to be written by attorneys, they are customized to protect the interests of the client, and often specify in excruciating detail what information can and cannot be disclosed. They also differ based upon the type of transaction being protected. The points outlined to protect buyers and sellers in commercial real estate transactions differ from the requirements needed to maintain confidence in confidential company relocations.
Confidentiality agreements may also establish the period during which the employee may be privy to confidential information, and the period during which confidentiality of the information is to be maintained.
It is written to protect the primary concern of the client – confidentiality in transacting business.
But even confidentiality agreements have their limits. If information is later found to be public or becomes public, the obligation of confidence will not be enforceable.
Brokers and sellers use agreements to clearly define expectations and roles in a real estate transaction. These insure that brokers have exclusive rights in seeking land or space for a facility. Economic development agencies tend to sign confidentiality agreements with consultants representing companies, or with company representatives, to ensure that the company's plans to expand or relocate into the region are not made public until the company is ready to do so.
Premature disclosures could lead to stock instability and negatively impact company morale.
Accessibility to state records varies among the states. State agencies seeking to conduct confidential business transactions with companies can sometimes find themselves the target of an investigation to uncover information about a project that had been deemed confidential. In recognition of these laws, confidentiality agreements recognize the dilemma faced by economic development agencies. In the agreement that I was asked to sign, the company simply requested that they be notified immediately in writing if a third party wanted the information so that the company could maintain control over the release of confidential information.
Confidentiality agreements are not a one size fits all remedy to ensure confidential business transactions." These CA's (Confidentiality Agreements) are commonly used when undertaking investigation into a companies covenant. Typically private companies will insist on parties entering into a CA before passing over trading accounts for review.
In other circumstances CA's will be used to protect the specific terms of a leasing deal. Landlords will often want the rent, incentives et al to be kept secret so that they can't prejudice future rent reviews etc. For more information contact: www.houstonrealtyadvisors.net
The confidentiality agreement is typically a written document that binds all parties from discussing ideas, information, plans, secrets or discussions about confidential business transactions. The agreement says that if you violate the terms of the agreement and reveal a company's business secrets without its consent, then the company's lawyers will be knocking on your door, and your lawyers will be kept busy trying to keep you out of trouble.
The confidentiality agreement says:
`I have some trust in you (otherwise I would not be doing business with you), but I need a tighter level of assurance that you are not going to reveal what I am about to tell you, so sign here.'
The agreement also says that all parties involved in the business transaction will not use the information to their benefit without written authorization of the company. Because these agreements tend to be written by attorneys, they are customized to protect the interests of the client, and often specify in excruciating detail what information can and cannot be disclosed. They also differ based upon the type of transaction being protected. The points outlined to protect buyers and sellers in commercial real estate transactions differ from the requirements needed to maintain confidence in confidential company relocations.
Confidentiality agreements may also establish the period during which the employee may be privy to confidential information, and the period during which confidentiality of the information is to be maintained.
It is written to protect the primary concern of the client – confidentiality in transacting business.
But even confidentiality agreements have their limits. If information is later found to be public or becomes public, the obligation of confidence will not be enforceable.
Brokers and sellers use agreements to clearly define expectations and roles in a real estate transaction. These insure that brokers have exclusive rights in seeking land or space for a facility. Economic development agencies tend to sign confidentiality agreements with consultants representing companies, or with company representatives, to ensure that the company's plans to expand or relocate into the region are not made public until the company is ready to do so.
Premature disclosures could lead to stock instability and negatively impact company morale.
Accessibility to state records varies among the states. State agencies seeking to conduct confidential business transactions with companies can sometimes find themselves the target of an investigation to uncover information about a project that had been deemed confidential. In recognition of these laws, confidentiality agreements recognize the dilemma faced by economic development agencies. In the agreement that I was asked to sign, the company simply requested that they be notified immediately in writing if a third party wanted the information so that the company could maintain control over the release of confidential information.
Confidentiality agreements are not a one size fits all remedy to ensure confidential business transactions." These CA's (Confidentiality Agreements) are commonly used when undertaking investigation into a companies covenant. Typically private companies will insist on parties entering into a CA before passing over trading accounts for review.
In other circumstances CA's will be used to protect the specific terms of a leasing deal. Landlords will often want the rent, incentives et al to be kept secret so that they can't prejudice future rent reviews etc. For more information contact: www.houstonrealtyadvisors.net
Thursday, January 4, 2007
When is a default not a default
"Under form lease guarantee that states that guarantors obligations
will terminate if the tenant is not in default during the first three
years of lease, tenant will not be regarded as in default if it
habitually pays rent within a 20 day grace period following due date
if landlord consistently accepts such payment without objection.
Madison Avenue Leasehold, L.L.C. v. Madison Bentley Associates,
L.L.C., 811 N.Y.S. 2d 47 (N.Y. App. Div. 2006)
The lease was the Standard Form of Store Lease published by the Real
Estate Board of New York, Inc. Presumably the guarantee came from
the same source, although we're not told.
The guaranty stated that the guarantors were relieved of their
guaranty if the tenant
`…shall not have been in monetary default... at any time during the
first three years of the lease.'
Tenant routinely paid rent late, but within 20 days of the due date.
The default language, which the court correctly notes is not a model
of clarity on the issue of when a default occurs, read as follows:
`If tenant defaults in... the covenant for the payment of rent... and
if tenant shall not have diligently commenced curing such default
within such twenty (20) day period... then owner may serve a written
three (3) days notice of cancellation of this lease upon tenant.'
Tenant quit the lease three years and three months following
commencement. After three years, the rent subsidy that tenant was
receiving from the manufacturer of its Bentleys, Rolls Royce,
expired. Likely all those Bentley cars on the showroom floor did not
belong to tenant, and there wasn't any money to pay the default
damages. Obviously, the fight was about whether the guarantee had
been released.
The court acknowledged, as the dissent asserted, that it was likely
that the failure to pay rent on the original due date ought to be
regarded as a default. But it held that the landlord's consistent
pattern of accepting late payments without comment constituted a
waiver of its right to declare a default.
The landlord noted that the concept of waiver usually occurs in an
equitable context. Here, there was solely a suit for damages, not
forfeiture of the leasehold estate, as the tenant had abandoned. But
the court responded that waiver analysis is appropriate both for
legal and equitable disputes.
Of course, the fact that landlord had waived its right to enforce the
default provisions of the lease as a consequence of the late payments
didn't necessarily mean that tenant hadn't defaulted for purposes of
the guarantee release. In fact, the default clause appears to say
that failure to pay on time is a default. But the court, despite the
fact that it claimed that waiver is appropriate in a legal context,
used the waiver here as a kind of estoppel of the landlord's right to
assert that the late payments were defaults.
Having failed, over the course of three years, to give Bentley any
notice that timely payment of rent would be required, landlord may
not now insist that the tenant's failure to strictly comply with the
timely payment condition of the lease constitutes a default.
The court viewed its interpretation as necessary to the well being of
the law in light of the facts that the lease was a standard form
lease and that its interpretation was, in its view, reflective of the
probably intent of these parties and the market in general in the
interpretation of the document.
Landlord attempted a second ploy: the anti-waiver language in the
guarantee itself. The guarantee stated that the individual
defendants obligations shall in no way be terminated, affected,
diminished or impaired by reason of the failure to assert rights or
remedies reserved to Landlord [under the Lease]. Further, the
guaranty provided that the guarantors' liability shall in no way be
affected by reason of any extension of time that may be granted by
Landlord to the Tenant. Landlord pointed out that the alleged waiver
that prevented it from asserting that Tenant had defaulted during the
first three years arose from an extension of time.
The court disagreed, and said that the language of the guaranty did
not cure the problem with the establishment of the condition
precedent to the guaranty being in effect - the lack of a default
within the first three years. The editor will try to explain the
majority position, which seems quite clear to it, simply by quoting
the language of the opinion:
Once waived, the default in timely payment of rent is extinguished
and cannot later be revived, like a phoenix, into a material default
for the purpose of extending the period of the collateral guaranty.
This waiver analysis ignores the economic realities of the lease in
light of the guaranty. The guaranty effectively shifted the ultimate
risk of tenant's non performance of the obligation to make rent
payments from [Landlord] to the [guarantors.]
Accordingly, [Landlord] had no economic reason to notify [tenant] of
[tenant's] own habitually late payments during the very period in
which [landlord] allegedly waived its rights by failing to do so. To
insist on pain of waiver that [landlord] formally advise [tenant] of
what it already knew makes little sense. On the facts of this case,
in particular, that the [guarantors] are [tenant's] principals, the
waiver analysis is all the more confounding, for it reduces to this:
[Landlord] waived the rights it bargained for under the guaranty by
failing formally to belabor the obvious both to [tenant] and
[guarantor.]
The Judge was perfectly willing to concede that the Landlord might
have waived its rights against Tenant to terminate the lease for late
payment of rent. But, he asserted, this does not mean that Landlord
ever waived its right to assert against guarantors that a default had
occurred.
Comment from DIRT's Moderator Patrick A. Randolph, Jr., Elmer F.
Pierson Professor of Law, UMKC School of Law, Of Counsel: Blackwell
Sanders Peper Martin, Kansas City, Missouri
Usually, waiver arguments are used to support a claim that the party
asserting waiver was `lulled into a false sense of security' by the
other sides failure to assert its rights. But that didn't happen
here. Exactly what would the guarantors have done differently had
they known that the landlord regarded late payment of the lease as a
default, and no joking around? Made sure all payments were on time
after the first late payment? This wouldn't have mattered - the
first late payment cost them their three year `out'. Defaulted
sooner? This would only have exposed them to more liability? Done
something to the tenant? What? [In fact, it appears that they were
the tenant in other clothing.) The opinion is wrong. Let's see if
there's an appeal. The case was decided March 14, 2006."
Please seek an attorney who understands real estate law in your state.
for more information or referrals contact : www.houstonrealtyadvisors.net
will terminate if the tenant is not in default during the first three
years of lease, tenant will not be regarded as in default if it
habitually pays rent within a 20 day grace period following due date
if landlord consistently accepts such payment without objection.
Madison Avenue Leasehold, L.L.C. v. Madison Bentley Associates,
L.L.C., 811 N.Y.S. 2d 47 (N.Y. App. Div. 2006)
The lease was the Standard Form of Store Lease published by the Real
Estate Board of New York, Inc. Presumably the guarantee came from
the same source, although we're not told.
The guaranty stated that the guarantors were relieved of their
guaranty if the tenant
`…shall not have been in monetary default... at any time during the
first three years of the lease.'
Tenant routinely paid rent late, but within 20 days of the due date.
The default language, which the court correctly notes is not a model
of clarity on the issue of when a default occurs, read as follows:
`If tenant defaults in... the covenant for the payment of rent... and
if tenant shall not have diligently commenced curing such default
within such twenty (20) day period... then owner may serve a written
three (3) days notice of cancellation of this lease upon tenant.'
Tenant quit the lease three years and three months following
commencement. After three years, the rent subsidy that tenant was
receiving from the manufacturer of its Bentleys, Rolls Royce,
expired. Likely all those Bentley cars on the showroom floor did not
belong to tenant, and there wasn't any money to pay the default
damages. Obviously, the fight was about whether the guarantee had
been released.
The court acknowledged, as the dissent asserted, that it was likely
that the failure to pay rent on the original due date ought to be
regarded as a default. But it held that the landlord's consistent
pattern of accepting late payments without comment constituted a
waiver of its right to declare a default.
The landlord noted that the concept of waiver usually occurs in an
equitable context. Here, there was solely a suit for damages, not
forfeiture of the leasehold estate, as the tenant had abandoned. But
the court responded that waiver analysis is appropriate both for
legal and equitable disputes.
Of course, the fact that landlord had waived its right to enforce the
default provisions of the lease as a consequence of the late payments
didn't necessarily mean that tenant hadn't defaulted for purposes of
the guarantee release. In fact, the default clause appears to say
that failure to pay on time is a default. But the court, despite the
fact that it claimed that waiver is appropriate in a legal context,
used the waiver here as a kind of estoppel of the landlord's right to
assert that the late payments were defaults.
Having failed, over the course of three years, to give Bentley any
notice that timely payment of rent would be required, landlord may
not now insist that the tenant's failure to strictly comply with the
timely payment condition of the lease constitutes a default.
The court viewed its interpretation as necessary to the well being of
the law in light of the facts that the lease was a standard form
lease and that its interpretation was, in its view, reflective of the
probably intent of these parties and the market in general in the
interpretation of the document.
Landlord attempted a second ploy: the anti-waiver language in the
guarantee itself. The guarantee stated that the individual
defendants obligations shall in no way be terminated, affected,
diminished or impaired by reason of the failure to assert rights or
remedies reserved to Landlord [under the Lease]. Further, the
guaranty provided that the guarantors' liability shall in no way be
affected by reason of any extension of time that may be granted by
Landlord to the Tenant. Landlord pointed out that the alleged waiver
that prevented it from asserting that Tenant had defaulted during the
first three years arose from an extension of time.
The court disagreed, and said that the language of the guaranty did
not cure the problem with the establishment of the condition
precedent to the guaranty being in effect - the lack of a default
within the first three years. The editor will try to explain the
majority position, which seems quite clear to it, simply by quoting
the language of the opinion:
Once waived, the default in timely payment of rent is extinguished
and cannot later be revived, like a phoenix, into a material default
for the purpose of extending the period of the collateral guaranty.
This waiver analysis ignores the economic realities of the lease in
light of the guaranty. The guaranty effectively shifted the ultimate
risk of tenant's non performance of the obligation to make rent
payments from [Landlord] to the [guarantors.]
Accordingly, [Landlord] had no economic reason to notify [tenant] of
[tenant's] own habitually late payments during the very period in
which [landlord] allegedly waived its rights by failing to do so. To
insist on pain of waiver that [landlord] formally advise [tenant] of
what it already knew makes little sense. On the facts of this case,
in particular, that the [guarantors] are [tenant's] principals, the
waiver analysis is all the more confounding, for it reduces to this:
[Landlord] waived the rights it bargained for under the guaranty by
failing formally to belabor the obvious both to [tenant] and
[guarantor.]
The Judge was perfectly willing to concede that the Landlord might
have waived its rights against Tenant to terminate the lease for late
payment of rent. But, he asserted, this does not mean that Landlord
ever waived its right to assert against guarantors that a default had
occurred.
Comment from DIRT's Moderator Patrick A. Randolph, Jr., Elmer F.
Pierson Professor of Law, UMKC School of Law, Of Counsel: Blackwell
Sanders Peper Martin, Kansas City, Missouri
Usually, waiver arguments are used to support a claim that the party
asserting waiver was `lulled into a false sense of security' by the
other sides failure to assert its rights. But that didn't happen
here. Exactly what would the guarantors have done differently had
they known that the landlord regarded late payment of the lease as a
default, and no joking around? Made sure all payments were on time
after the first late payment? This wouldn't have mattered - the
first late payment cost them their three year `out'. Defaulted
sooner? This would only have exposed them to more liability? Done
something to the tenant? What? [In fact, it appears that they were
the tenant in other clothing.) The opinion is wrong. Let's see if
there's an appeal. The case was decided March 14, 2006."
Please seek an attorney who understands real estate law in your state.
for more information or referrals contact : www.houstonrealtyadvisors.net
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