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Wins & Insights

Tenant Leasing Illustrated – July 2016 – Self-Help, NBA Style

Self-Help, NBA Style

Yet again my NY Knicks and I both watched the NBA Playoffs on television, so I was not particularly invested in this year’s outcome.

I enjoy watching Steph Curry and the Golden State Warriors, and LeBron James is also much relieved to know that all is forgiven on my end for “The Decision” and I congratulate him on bringing a championship to Cleveland.

I am most fascinated though by all the players landing in the laps of the front row fans.

As the Wall Street Journal put it, fans in the first rows have to choose what to do “when a humongous, sweaty NBA player in sneakers comes barreling in your direction while chasing a loose ball – and then dives on top of you.”

At a Warriors playoff game against the Oklahoma City Thunder, Steph Curry went flying into the stands and no one tried to catch or help him. Worse yet, one fan started taking pictures of the NBA’s Most Valuable Player next to him writhing on the floor and was lambasted on national television by the announcers for his insensitivity and quickly became Twitter chum.

Notwithstanding such social media purgatory, there is not a whole lot of time to react. Steph Curry looks like he has not yet hit puberty and weighs a manageable 180 pounds, but last year all 265 pounds of LeBron James ran over the wife of golfer Jason Day and she was taken in a stretcher to the hospital.

As one former NBA bench player said about the notion of trying to break the fall of 325 pound freight train Shaquille O’Neal “… no way… I would’ve been a grease spot on the ground.”

The lesson to NBA players diving into the stands from the one-percenters in the first few rows is clear: “sorry, you will have to help yourselves.”

I can tell you from the safe perch on my den couch that in commercial leasing self-help has a more positive (and less painful) connotation.

Most leases specify the services the landlord must provide, the construction the landlord must complete and the respective repairs for which the landlord and the tenant are responsible.

But if a landlord does not complete required repairs or construction or provide required services, the tenant has limited practical rights.

Law suits and even abatement provisions are helpful but can take a long time to implement and in the interim rent must be paid as always.

If a tenant has sufficient leverage, such as a credit tenant under a large lease or a tenant with all or a large portion of a building, it may be able to negotiate the right to take matters into its own hands to “self-help”.

This is basically a right for the tenant, after notice, to make the required repairs or perform the needed construction on its own and invoice its landlord for the reasonable cost incurred.

There are certain risks with this approach and tenants are often reluctant to perform repairs on their landlord’s behalf for fear of liability for damages or unintended consequences arising due to the work performed, but it can be a valuable right and may, if nothing else, provide leverage to force the landlord to meet its obligations.

In anticipation of the day when the Shaq of needed repairs or construction may be bearing down on you, cover the following seven concerns in your self-help provision:

  • Grant yourself self-help rights. Although perhaps obvious, you will first need an affirmative right to exercise self-help and perform repairs or complete construction on behalf of your landlord. Your landlord may want to define a “self-help event” as one impairing a material portion of your premises, posing a safety threat or having the potential for material damage to property and may want exclusions for “force majeure” events which it cannot reasonably control or repairs that by their nature cannot be completed quickly notwithstanding your landlord’s diligence.
  • Clarify the scope of such repairs. Your landlord will try to limit your right to make repairs or perform construction within the interior of your premises, but this can be problematic since the building systems are likely outside of your premises. You should also have to right to repair mechanical areas in any other part of the building outside of your premises which service your premises exclusively. It is reasonable, however, for your landlord to require that your repairs not exceed the work that is reasonably necessary and that the cost incurred be reasonably prudent.
  • Provide notice. Your landlord is entitled to some notice before you exercise self-help. Such notice period should be shortened or eliminated for emergencies (i.e., the potential for imminent harm to persons or property).
  • Address reimbursement. Your landlord should be obligated to reimburse you for your reasonable and actual out-of-pocket expenses incurred in connection with such self-help. If your landlord does not reimburse you within an agreed upon period of time (e.g., 30 or 45 days), then these unpaid expenses should accrue interest and you should have a right to offset against future payments of rent.
  • Settle disputes with expedited arbitration. It is likely that your landlord will not grant you the offset right above if it disagrees as to whether your exercise of self-help was proper or the expenses incurred were reasonable. You will not necessarily want to start a legal action to collect these sums, so provide for a right to use expedited arbitration (e.g., under the American Arbitration Association’s expedited rules) for a (relatively) quick adjudication.
  • Consider prevailing party legal fees. You might provide that the prevailing party in any arbitration or litigation will have its legal fees and costs paid by the losing party. This can be an effective method to prevent a landlord from playing games with reimbursement, but it also requires that you only move forward if you are confident that you will prevail.
  • Do not limit your remedies. Although you should not be entitled to a duplicative right of recovery, your self-help rights should be in addition to, and not in lieu of, any other rights available to under your lease, e.g., the right to bring an action to force your landlord to meet its unfulfilled obligations.

It is not a slam dunk that a self-help right will solve all of your concerns with landlord repairs and construction, but follow the seven suggestions above and you may find that a beneficial self-help provision has painlessly fallen into your lap.