Articles Posted in Commercial Leasing

homeless-300x156News outlets have recently reported that Lady Gaga’s father is refusing to pay the rent due on the commercial restaurant space occupied by him in Grand Central Terminal.  gct  Essentially, he has claimed that physical conditions interfere with the successful operation of his business.  These conditions allegedly include a growing homeless population that monopolizes seating intended for customers consuming food, rodents and aging facilities such as bathrooms and seating.  This post will discuss whether the tenant in this instance has a valid defense for refusing to pay his rent and other options that may be available to him.

In this case, the particular restaurant is in the center of the food court and does not require a patron to enter an area exclusively used by those being served.  It inherently allows for non-customers to occupy the restaurant space along with paying customers and may legitimately adversely affect business conditions.  The landlord in this case, the MTA, owns and manages the rest of Grand Central Terminal, making it potentially able to control adverse business conditions.

Generally, commercial leases negotiated by this author anticipate a tenant’s potential request for a rent reduction when property conditions deteriorate and forbids such action.  Most commercial leases provide that the landlord does not warrant property conditions and that a tenant therefore cannot withhold rent for diminished property conditions and the like.  Also, since this restaurant space was readily viewable and accessible prior to its being rented, the tenant could have anticipated the issues that he has recently raised and was aware of property conditions.

sickMost of us have been recently inundated by reports of the Coronavirus pandemic.      virus Although many of our readers do not travel to some of the afflicted locations, fear has a way of becoming contagious in its own right and can have negative business consequences.  Fundamentally, the fear is based upon not only becoming sick but also on the effect that widespread contagious illness can have upon the economy.  This post will address how our attorneys  respond to unfavorable financial times and the strategies to be rendered.

Real estate transactions  tend to be voluntary business activities.  For instance, a proposed buyer may be renting an apartment and be in the market to potentially purchase a house.  Typically, a buyer needs liquid cash assets to post a downpayment and have the cash needed to close.  If the stock market continues its losses of the past few days, a buyer may decide not to move forward because he needs to sell additional assets than previously intended in order to raise the cash needed.  An experienced attorney  would advise such a person that real estate is an investment that can be sold at a future date, hopefully at a profit.  However, continuing to rent an apartment does not provide an asset to be sold at a future date or potential tax benefits such as deducting mortgage interest and real estate taxes paid.  Now that we are about the enter the Spring market , new inventory and opportunities for buyers are available.  Perhaps if a seller is concerned that her house will not sell as readily in this economy, the price may be reduced to attract additional buyer interest.

Certainly, commercially leased properties  may see reduced customer traffic if consumers are afraid to be in public places and prefer to order products online or not visit restaurants where ill persons may be present.  If such conditions persist, a tenant may need a seasoned lawyer to negotiate a lease modification or lease surrender , thus assisting the tenant in not being required to continue in a lease that is not consistent with current economic conditions.  If such a modification cannot be negotiated, the tenant may be advised to “go dark” .  Should the landlord not be willing to accept these options, he may seek to bring a landlord-tenant proceeding against the tenant.

exitThe region served by this law firm certainly has its share of vacant commercial spaces.  An unproductive business environment at times leads to the consideration of closure by other businesses.  When a commercial lease ends prior to its termination date, it is know in the industry as “going dark”.  It is not unusual for commercial lease terms to extend for anywhere from five to twenty years.  Of course, during such a lengthy timeframe, business conditions can change drastically, making the continued conduct of business to be impractical and not profitable.  There may have even been a lease modification between the landlord and tenant which has still not assisted the tenant in the successful conduct of its business at the premises.  Perhaps the business involves a particular food or fitness craze that is no longer desired by potential customers.  When this occurs, experienced legal counsel  should be consulted to develop the optimal strategy for the tenant’s early exit.

The tenant’s attorney  should first review the fully signed commercial lease to determine the exact date of lease termination.  If the date is far into the future, different advice may be rendered.  The lease may contain a provision as to whether the tenant has the option to terminate the lease prior to its stated termination date.  Potentially a payment will be required by the tenant in order to leave the premises early.  Such a payment may amount to a set number of months and the waiver of the refund of the security deposit.  For instance, if the early termination payment is three months rent and the waiver of the refund of one month’s security deposit, the tenant may be best served to end the lease early rather than continue with the lease that has another four years to run.  In addition, the tenant’s attorney  should make sure that any notice to the landlord regarding early termination is consistent with the notice requirements in the lease, or such notice may not be deemed to be valid.  The notice requirement may be of a certain number of days before it is effective, need to be sent by a certain method such as certified mail and may also need to be delivered to the landlord’s attorney.

Lease guarantors may also need to be considered when early termination is considered by the tenant.  Most tenants sign leases under an entity name such as a limited liability company or corporation.  In such cases, a landlord will typically seek an individual person to guaranty performance by the tenant.  Such an individual may be the principal of the entity or a third party backing the tenant’s business.  In the case of a guarantor who is the principal of the entity, such a guaranty may take the form of a “good guy” guaranty.  This type of guaranty provides that if the tenant leaves the premises in the condition as required at the end of the lease and pays all sums due to the landlord through the vacate date, then the guarantor is released from further obligation to the landlord.  When there is a good guy guaranty, terminating the lease early is low risk to the parties involved.  However, if the guarantor is a third party backing the tenant’s business, such a third party may challenge the tenant’s early vacate because it may have to fulfill the tenant’s obligations after it leaves the premises.  It is prudent to have a separate agreement between the tenant and third party guarantor to define obligations if the lease ends early.

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We  endeavor to inform our readers as to relevant news pertaining to our region.  One of the Fairway grocery stores located in Rockland County  closed yesterday.  This store is part of a chain comprising approximately fifteen stores.  As reported , the tenant was in year six of its commercial lease.  Most commercial leases  are likely to be for a term of at least ten years, with options to renew.  As such, the tenant likely is vacating before the end of its lease term.  Although this author  has not personally reviewed the lease at issue, this post will discuss the provisions customarily contained in such commercial leases and the issues raised when the tenant leaves before the end of the lease.

Fairway represented that it decided to close this particular location not because of the overall financial health of its company.  Other anchor tenants  at the shopping center had already closed, which caused decreased customer volume for the grocery store that adversely affected its revenues.

Landlords  typically negotiate the following provisions in leases.  The rent due escalates through the end of the lease and the tenant forfeits its security deposit if the tenant vacates early.  In order to avoid such costly penalties, the tenant may try to find a replacement tenant to whom the lease can be assigned.  When the lease is originally negotiated, an experienced attorney  will negotiate a liberal assignment clause so that the tenant can more readily exit the lease if the business is not successful at the location.  That way, the landlord will be required to accept another tenant located by the tenant that is leaving the shopping center.

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We often have inquiries from clients considering the purchase of a business.  An experienced attorney should be consulted when commencing this process.  Initially, the seller’s attorney will deliver the contract to the buyer’s attorney for negotiation.  Should the business being sold be a franchise, the final contract should be conditioned on approval of the franchisor to the buyer conducting business under the franchise name.

After consulting an accountant to confirm that the business to be purchased is financially viable for the buyer’s future income needs, the financial terms of the deal are to be structured.  There may be a broker who has negotiated the initial terms, which may be modified during the contract negotiation process.  Usually the payments required of the buyer are the delivery of the downpayment to the seller’s attorney to be held in escrow until closing and another payment at closing.  The payment at closing may be the last payment to be made or the buyer may sign a promissory note for subsequent payments to be made after the purchase.

Particular protections need to be in place on behalf of the buyer.  A lien search should be obtained prior to closing, so that the seller obtains lien releases for equipment and tax matters that may have an effect on the buyer.  For example, if a freezer is to be conveyed and the seller has a business loan on such equipment, a UCC Financing Statement is likely to be filed evidencing the loan.  If the loan is not paid at the closing and the UCC remains, the buyer is acquiring the freezer subject to the seller’s loan and will not own it outright.

apartment-300x150Prior blog posts have discussed the difference between the two types of landlord-tenant eviction proceedings.  To summarize, non-payment proceedings occur when a tenant fails to pay rent or other charges due to the landlord.  Holdover proceedings, which will be discussed in this post, happen when a tenant’s lease term has expired, or, in certain situations, when a tenant does not have a written lease.

First, let’s discuss situations when a tenant’s lease term has expired.  Most, if not all, written leases, contain a specific lease term.  It may be expressed in terms of a set period, such as one year, and can also give the specific date that the lease will expire.  What happens when the lease term expires, but the tenant remains in possession?  Under New York law, the tenant now becomes a month-to-month tenant.  This means that the lease terms remain in effect, but the lease has been extended for an additional monthly period, assuming that the tenant continues to pay the rent due, and continues to comply with the other lease terms.

By accepting the rent for an additional month, the landlord is agreeing to an extension of the lease for that additional month.  Let’s say the lease expires on March 31.  On April 1, the tenant pays an additional month’s rent check to his landlord, and the landlord accepts the rent, by depositing the check.  Under the law, the parties now have a month-to-month tenancy, which either party can terminate on thirty day’s notice.

fancyacuppa-300x158The New York Times recently published an article concerning the beloved business Tea & Sympathy, a British-themed store and restaurant located in Manhattan’s Greenwich Village, and the difficulty that it has encountered meeting its lease obligations.  Closure of this business may occur  unless the landlord is willing to amend the lease terms.  Loyal customers of Tea & Sympathy have rallied in support of the business by contributing to a “Go Fund Me” page to assist the business in meeting its expenses.  This post will examine legal strategies to be employed when a tenant foresees difficulty in meeting its lease obligations.

Some of our clients with commercial leases have contacted us when they have encountered difficulty in meeting their lease obligations.  The cause of such inability can arise from various factors.  Perhaps the tenant did not engage the services of an experienced attorney when the lease was negotiated and inadvertently agreed to terms that were not advisable for a tenant.  Unanticipated factors may have come into play that increased tenant obligations beyond those that may be comfortable,  such as increased fees and real estate tax escalations of the municipality where the leased premises is located, or a major capital improvement conducted by the landlord for which the tenant agreed to pay a percentage of the cost.  Although the tenant agreed to the rent increases when the lease was signed, the tenant may have eventually become unable to sustain the rent increases once other business expenses also increased.  The business climate may have changed since the lease was signed.  For instance, the product or service offered by the tenant may also no longer be desired or is now being offered online at a lower price.  Given that most commercial leases are long-term arrangements, many of these factors can cause a tenant to be unable to meet its lease obligations.

Your attorney should first determine whether the tenant wishes to continue to conduct business at the leased premises.  If not, a lease surrender should be negotiated prior to “going dark”.  Should the tenant wish to continue at the premises and even be fortunate enough to have sympathetic customers (like those of Tea & Sympathy) who would be disappointed if the business closes, attorneys for the tenant should conduct a negotiation with the landlord towards the goal of modifying the lease so that the current terms are consistent with the tenant’s current abilities and the landlord’s current needs to cover property expenses.  Negotiation of a lease modification avoids yet another vacancy for the landlord and maintains the landlord’s cash flow.

super-bowl-betting-300x180Scheduled for this Sunday is the Super Bowl between the New England Patriots and the Los Angeles Rams for the championship of the NFL.  Recent news stories in the New York metropolitan area involve the possibility of making legal sports bets on the “big game” at casinos or racetracks located in New Jersey.  The reason for this development is a recent decision by the United States Supreme Court which invalidated a federal law prohibiting individual states from making sports betting legal, with limited exceptions.

The Supreme Court, by a seven to two vote, held that it was a violation of the Constitution to prohibit states from making their own decision regarding the legalization of sports betting.  The result is that every one of the fifty states can now legalize sports betting (or decide not to legalize sports betting), and may determine where, when, and how such bets will be made within their state.  The details of such legalization are left up to each state, including whether to allow online betting.

New Jersey, which brought the case before the Supreme Court, has already passed legislation permitting sports betting in racetracks and casinos, such as the Meadowlands Racetrack located just a few miles from New York City.  New York State has lagged behind, and has not yet legalized sports betting or decided on a structure for such potential legalization.  For the time being, New York State residents who wish to bet against the Patriots in the Super Bowl must travel to New Jersey, or to another state such as Nevada, which has authorized legal sports betting.

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Our readers who follow the news are aware that the Federal government has been partially shut down for several weeks.  President Trump has taken the position that he will not agree to re-open the government unless a wall is erected along our southern border.  The Democratic leadership has responded that it will absolutely not agree that a wall is to be installed.  It is not the goal of this author to side with either of these positions.  Rather, we find it striking that neither side is negotiating effectively.  By stating an absolute, such as there must or must not be a wall, both sides are preventing a satisfactory resolution; which requires agreeing to terms that inherently will be neither of these positions.  Presenting an “all or nothing approach” is not how matters are successfully concluded.  This post will address one of the tools that experienced attorneys have at their disposal- strong negotiating skills.  We will explore how these skills are utilized in various legal matters.

Negotiation strategies can take the following course in real estate transactions.  We recommend that parties to a proposed deal let their attorneys “do the talking” and thereby prevent themselves from showing emotion or desperation to sign the contract.  Otherwise, such a party is vulnerable to agreeing to issues in the contract that may not be beneficial and result in regret.  For instance, a seller who needs to sell for financial reasons or who may be facing foreclosure, without other viable offers, may agree to excessive demands from the buyer like making repairs, credits for inspection issues, etc.  On the flip side, a buyer “in love” with a particular house that has multiple offers in a strong Spring market may agree to risky decisions such as waiving the mortgage contingency, allowing violations to remain and the like.  The more prudent negotiation move is to allow only a qualified attorney to be aware of these factors, not display feelings and allow the attorney to be the only one to negotiate on a party’s behalf.

Commercial lease negotiations  contain their own strategy.  A tenant may want to be in a particular location and find it necessary to tolerate the unreasonable expectations of a landlord.  For instance, a landlord may wrongfully impose snow removal obligations on the tenant.  The tenant’s attorney can get more leverage in this negotiation if the tenant is willing to walk away and find another location instead.  Such flexibility may help to achieve better results for the client.  Perhaps the landlord has an opportunity to rent to a “big box” nationally known tenant.  In such a case, the tenant will require that its form of lease be signed and will not be amenable to many landlord requirements.  Locating another tenant who is willing to accept landlord demands could be best in some situations.

anchorNews outlets have recently reported that numerous Sears locations will be imminently closingOur readers are most likely aware that Toys R Us has closed all of its locations due to its bankruptcy filing.  Both Sears and Toys R Us would be considered anchor tenants by commercial landlords.  An anchor tenant leases a large square footage space or is of the nature of a large and influential company such as Starbucks or Apple.  Anchor tenants such as department stores and movie theaters draw customers to the mall or shopping center, so that the same customer continues to shop at the premises and patronize its other businesses.  Once an anchor tenant closes, the landlord should seek to locate another anchor tenant to fill the vacant space, so that the shopping mall will draw customers to the anchor location and benefit the other businesses in the mall by drawing shoppers.  This post will examine the provisions that a potential anchor tenant will ask its attorney  to have included in a lease.

Exclusive use can often be demanded by an anchor tenant.  Should Bed Bath and Beyond be the proposed tenant, it may require in its lease that the landlord may not lease another space in the shopping center to a tenant that sells home décor, bedding, kitchen equipment and the like, so as to minimize competition that may hinder its business.  Should the landlord violate such an exclusive use provision, the tenant’s lawyer may have negotiated a rent abatement and right to terminate the lease.  In addition, many anchor tenants present their own form of lease to the landlord, rather than sign the landlord’s version of the lease.

Signage is very important to anchor tenants.  Anchor tenant leases may include a provision that the anchor tenant must always be the first name on mall signage and be of the largest font size.  Visibility of signage is also important, so that the anchor store’s name is listed on internal building directories, directional signs throughout the mall and the like.