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
Tuesday, January 16, 2007
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
Wednesday, January 3, 2007
Now is the time to plan for Hurricane Season
The past two hurricane seasons have wreaked havoc with many tenants, with buildings forced to shut down for days, if not weeks, due to the lack of electricity and other factors. When a building is forced to close, property management typically determines when it will open, leaving tenants at the mercy of their decisions to reopen. As a result, many tenants in the market for new space are asking how well office buildings may be prepared for an emergency. Among factors tenants question are the inclusion of hurricane-rated glass and an emergency back-up generators.
However, that they may not be the right questions to be asking. Most buildings have back-up generators, but they are installed as a life safety feature to light hallways and power elevators in the event of an emergency. Likewise, hurricane-rated glass does not always prevent damage. Some buildings with hurricane-rated glass suffered damage, and some 20-year-old buildings did not.
Tenants should establish a detailed plan that pertains to operations after a storm. The real estate component just looks at where a company places its assets. The biggest part of preparing for a storm is the operational component.
Tips include:
• Ensure that all employees contact information is up-to-date and that more than one person in the company has been identified as an emergency contact person. At times, the named emergency contact must evacuate the area leaving employees with no way to communicate with their employer.
• Insurance policies and other important documents should be stored off-site because tenants often cannot access buildings that have been shut down after a storm.
• Tenants should identify personnel that is critical to operations and where short-term space may be leased to accommodate them.
• Videotape premises prior to a storm so that damage can be accurately documented after a storm when making insurance claims."
However, that they may not be the right questions to be asking. Most buildings have back-up generators, but they are installed as a life safety feature to light hallways and power elevators in the event of an emergency. Likewise, hurricane-rated glass does not always prevent damage. Some buildings with hurricane-rated glass suffered damage, and some 20-year-old buildings did not.
Tenants should establish a detailed plan that pertains to operations after a storm. The real estate component just looks at where a company places its assets. The biggest part of preparing for a storm is the operational component.
Tips include:
• Ensure that all employees contact information is up-to-date and that more than one person in the company has been identified as an emergency contact person. At times, the named emergency contact must evacuate the area leaving employees with no way to communicate with their employer.
• Insurance policies and other important documents should be stored off-site because tenants often cannot access buildings that have been shut down after a storm.
• Tenants should identify personnel that is critical to operations and where short-term space may be leased to accommodate them.
• Videotape premises prior to a storm so that damage can be accurately documented after a storm when making insurance claims."
Subscribe to:
Posts (Atom)
Posts
