Avoid Half Measures When Addressing Rent Abatements
I am not much of a football fan. And particularly not much of a college football fan. But I love the NCAA.
How could you not? They provide so much material.
A few weeks ago, the NCAA suspended Johnny Manziel, a.k.a. “Johnny Football”, the Heisman Trophy winning quarterback for Texas A&M, for the first half of their season opening game against Rice, a relatively weak opponent.
The first half? That counts as half of a slap on half of his wrist! All Johnny Football had to do was take his time in the locker room putting on his eye black and it would have been almost time for him to play.
I have to admit that I like the idea of only having to play one half — that is, as long as it is by choice. You can skip more than half of an NBA game (maybe all but the last 5 minutes) and not miss much. And my Mets might have a winning record if the game stopped in the fifth inning (okay, probably not).
I asked my rabbi if I could skip the first half of Rosh Hashanah services. Sadly, he said no.
The suspension for Johnny Manziel was because of accusations that he accepted money for giving autographs. Kind of hard to get too worked up over a few autographs in the multi-billion dollar industry of college sports, but in college football everyone seems to be on steroids except the punishments.
Besides the television coverage, cheerleaders and incredible athletic specimens, commercial leasing has other things in common with major college football. Landlords write the leases and when landlords dole out punishment to themselves, they also do not spare half the rod.
For example, the first drafts of many leases do not provide for any penalty to the landlord if it fails to meet its obligations to provide services and repairs under the lease. A tenant’s only remedy would be to start a legal action, a costly and time consuming approach.
If pressed, many landlords will agree to some form of abatement right, which provides that if the landlord fails to meet its lease obligations, the tenant’s obligation to pay rent will be abated until the landlord corrects such default.
Sounds fair, yes?
But when it comes to drafting the language, most landlords are only half a glutton for their own punishment, and they erect numerous obstacles that do not provide reasonable protection to the tenant.
Make sure not to end up in half of the doghouse by covering these eight essential features of your rent abatement provision:
- Trigger rent abatement if Landlord fails to provide any required services or to make any required repairs. Services at a minimum should include electricity, HVAC and access. Repairs should include any repairs required to be performed by the landlord under your lease.
- Allow for some minimal use. Rent abatement provisions are meant to mirror constructive eviction scenarios (i.e., where the landlord’s disturbance makes your space “untenantable” or unsuitable for the purposes for which they were leased, causing you to surrender possession). It is therefore reasonable for your landlord to require that you not be using the space for which your rent is abated. But it is also reasonable to have an exclusion from this requirement for minimal use for short durations for certain “disaster functions” (e.g., to remove fixtures, plan reconstruction, etc.).
- Make sure abatement is proportionately available if you are unable to use any material portion of your premises. Abatement should not be limited to an inability to use the entire premises. Abatement should be available on a proportionate basis in accordance with the amount of space that cannot be used. “Material” can be defined by the amount of space involved (e.g., 15% of the space, a certain number of square feet, etc.).
- In some instances, you should be entitled to an abatement for the entire premises even if the entire premises is not untenantable. For some spaces, the loss of use of particular portions of the space should trigger abatement on the entire space. For example, a restaurant cannot operate without its kitchen and many financial companies cannot operate without its trading floor.
In addition, if more than a certain agreed upon percentage of your space is untenantable, you cannot use the tenantable portion of the space for the conduct of your business in a manner which is consistent with your prior use and you cease the operation of your business within the entire space, the abatement should cover the entire space.
- Trigger rent abatement quickly. The landlord is entitled to a short period of time to perform, but rent abatement that does not kick in for 20 or 30 business days is not much of a remedy. Try to commence the abatement after three, five or even seven business days. Also, avoid a requirement that such days be consecutive and include a certain number of days within a particular period (e.g., seven business days in any ten business day period), so that a chronic problem is not corrected for a short period of time but not ultimately resolved.
- Be aware of force majeure exclusions. Landlords will often want to exclude causes beyond their control (so called “force majeure” events) from the abatement right. This can be reasonable up to a point, but if the force majeure event continues beyond a certain period of time, you should be entitled to the abatement and perhaps even a termination right (the presumption is that, until that point, insurance will cover the problem).
- Provide for alternate rights if the failure to provide services or make repairs continues beyond a reasonable period. Abatement is a great incentive for the landlord to meet its obligations, but if the untenantability lasts for more than a reasonable time and affects a large portion of your premises, attempt to obtain the right upon notice to either (x) perform self-help or (b) terminate the lease. You should be aware that both of these are extreme remedies and will be very difficult to obtain other than for the largest tenants.
- Do not preclude other remedies. Some landlords will require that the rental abatement become the sole remedy in the event of a failure to provide services or make repairs. Yet at a certain point it may not be enough. You should not waive your right to bring an action to compel the landlord to perform or, if necessary, to terminate the lease.
Cover these suggested approaches and you will be more than halfway home towards a solid rent abatement remedy. As for me, I would rather get an autograph from Micaela Bryan than Johnny Manziel. Micaela is the adorable daughter of Bob and niece of Mike, one of the best doubles tennis teams in the world. Seems Micaela is not yet two but has learned how to sign autographs (hey, she even has her own twitter feed). I have a good mind to pay her half a cookie for an autograph.