Tenant Leasing Illustrated – August 2018 – Seismic Abatement Provisions

Vive la France and congrats to Les Bleus on winning the World Cup, said to be the most widely viewed and followed sporting event in the world, surpassing the Olympics, and perhaps even an April afternoon game between my NY Mets and the Miami Marlins.

With no national team in the hunt, Americans have been rising early and bleary eyed for morning breakfast and “futball” without a clear rooting interest.

Rather than stay on the outside looking in, each American needed to temporarily adopt a surrogate team.

I leaned a little toward Iceland since it is hard not to root for such an underdog, and I think we may have met half of the country’s 97 residents when we visited a couple of years ago (they still talk about us).

But in the end, I went with Mexico.

Yes, I know they are our bitter rivals and the internet exploded when American star Landon Donovan dared to wear a scarf that said “My other team is Mexico.”

But you have to love Mexico’s fans. When they scored the winning goal against Germany in the opening round it was reported that they may have caused a man-made earthquake with their celebratory jumping.

Maravilloso!

True, we have clients that jump for joy when reading our perfectly crafted assignment and subleasing clauses, but even I have to admit that seismic monitors are not usually triggered by their elation.

In leasing, tenants do their jumping up and down in frustration if their landlord does not provide required services or make required repairs.

The most effective remedy to convert that frustration to jumps for joy is a well-crafted abatement provision.

Most initial lease drafts preclude abatement as a tenant remedy so this right must be negotiated and specified in the lease.

Bringing a legal action is not much of a remedy since by the time the wheels of justice turn it can be two or three years later.

The threat of a rental abatement is a tenant’s best protection and a huge incentive for a landlord to move quickly to resolve the situation (pending which the tenant receives some reasonable liquidated damages).

Generally, these clauses provide that after notice and an agreed upon cure period, if services or repairs required by the landlord are not provided, as a result a material portion of the premises is untenantable and the tenant does not actually use the applicable space, then the tenant will be entitled to a proportionate abatement of fixed rent (and often escalations) until such cure is completed.

These clauses usually exclude force majeure and casualty and condemnation, abatements for which are handled in separate lease provisions.

Many landlords resist providing any abatement rights, in particular with respect to smaller leases or in other instances where the landlord has leverage.

As you can imagine, even when granted landlords try to limit the viability of such provisions so tenants have to be vigilant in their drafting.

Follow the eight suggestions below and you can give your landlord a red card and be sure of reaching your abatement gooooooaaaals:

  • Insist on an abatement right. Even if you are only leasing a small amount of space, you should require abatement if your space become untenantable, i.e., you are unable to reasonably use or access your premises for the conduct of your business and are actually not using it.
  • Cover fixed and additional rent. Ideally, both fixed and additional rent should be abated, although it is reasonable for your landlord to limit any additional rent abatement to taxes, operating expenses and other escalations.
  • Limit landlord’s cure period. Your landlord is entitled to some time to cure its default before abatement kicks in but this time period should be as short as possible (e.g., five, seven or ten calendar or business days). Your landlord may require consecutive days to reflect individual incidents, but you should also trigger abatement rights for chronic issues as reflected by an agreed upon number of days within a particular period.
  • Cover services, repairs and access. Some leases limit abatement to the loss of “essential services” (e.g., HVAC, electricity, elevator). Your abatement should be written broadly enough to cover any landlord obligation that makes your premises or any portion thereof untenantable or interferes with reasonable access, including loss of any service or utilities, repairs required by your landlord, and work improperly performed by your landlord.
  • Avoid sole remedy limitation. The abatement may be liquidated damages but should not be your sole remedy and you should specifically allow yourself to pursue actions for specific performance or injunction and the right to claim constructive eviction.
  • Define material portion. Landlords often require that a minimum amount of space be affected before allowing an abatement (e.g., a percentage of your premises or a minimum number of rentable square feet). But make sure that such material portion includes any essential parts of your premises, such as a studio, conference center or IT or server room. You may also want to provide that if a large portion of your premises is untenantable (e.g., 50% or more), then at your option the entire premises can be deemed untenantable.
  • Limit unavoidable delays. Your landlord will likely want dispensation for circumstances beyond its control, including interruptions in service caused by the utility, casualty and condemnation (which will be covered elsewhere in your lease) and your own actions or failures to act. Try to limit your own actions to breaches of lease obligations or negligent acts (or failures to act where there is a duty to act) and willful misconduct. You may also want to try to exclude force majeure type events since you will not have use of your space, but this is a difficult point to win and you may be expected to look to your insurance.
  • Allow limited access for disaster functions. Your entry into the affected area on a limited basis to retrieve files and documents or remove, clean or inspect your property should not be deemed occupancy. Only occupancy for the conduct of your business should be included.

As an ignorant American fan, I admit that my favorite World Cup moments involve all the Oscar-worthy fake injury performances used to eat up some clock time The concept is brilliant and I myself have taken to writhing in pain on the conference room floor when an evil landlord attorney egregiously insists that my client needs to pay rent. Follow the eight suggestions above and at least time will never run out on your lease abatement clause.

Please share with your colleagues.