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Tenant Leasing Illustrated – Jan 2014 – Why Cure a Default Today that You Can Always Cure Tomorrow?

Why Cure a Default Today that You Can Always Cure Tomorrow?

There are two schools of thought when it comes to procrastination.

One school is often attributed to Charles Dickens (as well as Thomas Jefferson, Benjamin Franklin and other Type A personalities): “My advice is to never do tomorrow what you can do today.”

The other school is championed by Mark Twain (and my son Noah when I mention college applications or homework): “Never put off till tomorrow what may be done day after tomorrow just as well.”

I lean towards the nonsensical: “Procrastinate now, don’t put it off.” (Ellen DeGeneres).

What does procrastination have to do with leases? I’ll tell you later.

Actually, under a lease, procrastination could mean a default. The landlord does not want to hear about rent being paid late or insurance not being obtained.

But some defaults cannot by their nature be cured quickly and the tenant is not necessarily procrastinating by not remedying such defaults within the prescribed cure period.

Ideally, all leases should provide the tenant with written notice of and an opportunity to cure defaults. Generally, a short notice and cure period would be provided for monetary defaults and a longer period would be allowed for all other defaults.

The reason the notice and cure rights are important is that most lease default sections are structured as “conditional limitations”; basically, that the lease can be terminated by the landlord if certain conditions are met.

In New York (and other states), this structure is critical to a landlord since a lease structured with a conditional limitation can be enforced in Civil Court with its expedited summary proceedings (as opposed to New York Supreme Court requiring a full blown trial). The summary proceedings are for removing tenants from possession, not terminating their tenancies, so the landlord needs its own extrajudicial right to terminate the lease.

As you can imagine, this need of landlords can result in terrible consequences for a careless tenant.

The conditional limitation section becomes particularly troublesome with respect to defaults that by their nature cannot be easily cured (e.g., removing violations of record or requiring confirmation from a governmental agency, etc.).

Do not wait for the last minute to address the following in your lease’s default section:

  • Require notice and opportunity to cure all defaults. Although we think it essential that tenants receive written notice and opportunity to cure every default, even payment of the fixed rent on the first day of the month (so called “lost in the mail” protection), it is particularly important to insist on notice and the opportunity to cure non-monetary defaults. You should not lose your tenancy because you are unaware of an obligation that is not regularly recurring, in particular a trivial default of which you have not received notice or a chance to resolve.​
  • Always include a “due diligence” extension for difficult to cure non-monetary defaults. Since some defaults by their nature cannot be cured within the usual 10 to 30 day cure periods, you should always look to obtain an extension of the standard cure period for defaults which by their nature cannot reasonably be cured within the prescribed time period, as long as you have commenced to cure such default within the prescribed cure period and thereafter diligently prosecute such cure to completion.​
  • Some qualifications on the due diligence extension are acceptable. Your landlord has a legitimate concern if it is potentially subject to civil or criminal penalties from your failure to timely cure such default, but be careful how this issue is addressed in your lease. Even with a potential civil penalty, you should try to maintain this extension right by agreeing to indemnify the landlord and its principals from liability arising from such extension.​
  • Do not allow an outside date on your due diligence extension. Some leases will provide a due diligence extension but put an outside date (e.g. 90 or 120 days) by which the default must be cured. This is a concept often seen in a loan but which does not belong in your lease. The penalty if you cannot reasonably cure within that time period (loss of the entire lease) is out of proportion for matters over which you have no reasonable means of control and for which you are diligently working to cure.​
  • Consider force majeure as a substitute. If your landlord insists on an outside date for the due diligence extension and you do not have the leverage to change his or her mind, consider crafting a “force majeure” provision in your favor to get you to the same place. Force majeure is a phrase of French origins (rather than the usual Latin), which means “a superior or irresistible power” and is used to describe events (e.g., wars, strikes, acts of nature, LeBron James, etc.) which are outside the control of the parties. Most leases provide force majeure protection for the landlord if it cannot meet a lease obligation due to uncontrollable events, but similar protection for you may provide protection for these types of defaults that cannot be expeditiously cured.​
  • Beware of defaults snuck in from other sections. We recently worked on a lease that provided a due diligence extension under the default section, but provided elsewhere in a parking agreement that was an exhibit to the lease that a failure to pay the monthly parking fees would, without notice or an opportunity to cure, result in an immediate event of default under the entire lease. Although the conflict between the two sections created an ambiguity that would likely run against the landlord, nobody would want to take such a chance. You need to be careful to make sure that such potential conflicts are cleared up.​

I admit to procrastinating as much as the next guy. Yet when it comes to potential lease defaults, it is best to negotiate as much flexibility to cure as possible, in particular to avoid unforeseen and hard to cure problems. In these instances, we suggest you follow Will Roger’s advice: “Even if you’re on the right track, you’ll get run over if you just sit there.”