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Hello,
Nothing is more frustrating to a tenant than discovering for the first time after its lease is executed that the landlord has a right to consent (or worse has a right not to be reasonable in granting or withholding its consent) to something that the tenant feels is critical to its tenancy.
In today's newsletter, we suggest seven items to cover to help a tenant keep its balance when addressing its landlord's obligation to consent.
Sincerely,
Alan Katz Mintz & Gold LLP |
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The High Wire Act of Landlord Consents
Although I avoided the television hype and the two hour lead in, I could not help myself and ended up watching in fascination last month for the 22 minutes and 54 seconds it took Nik Wallenda to walk across the Grand Canyon on a tightrope (really a two inch steel cable). My first reaction was "is he nuts?!!" What in the world possesses someone to even THINK of doing that? I admit, I have on occasion tossed caution to the wind (my attending law school probably elicited a similar reaction in casual observers). But even that pales in comparison to Mr. Wallenda. Besides the insanity of it all, and notwithstanding his reliance on prayer as he crossed (hey, I would pray too!), what mostly got him across the canyon was preparation. You do not just wake up one day and decide to give it a shot across the Grand Canyon. He is the seventh generation of the famed " Flying Wallendas" family and he spent his entire life preparing for this event. In fact, he previously did the same thing a few years back across Niagara Falls. In the high wire world of commercial leasing, Tenants also too often work without a net and leave important matters to their faith that the landlord will act appropriately, particularly in granting consents required under their lease. There are many legitimate issues for which landlords are entitled to require consent. It is, after all, their building and they did make the lease based on the tenant's credit, so they have real concerns about events such as alterations and subleases. But landlords will generally not be as reasonable when you are asking for their consent during the lease term as they were when they were trying to get you to sign the lease. Much like Mr. Wallenda, a tenant must prepare for potential conflicts, in this instance by obtaining flexibility and a standard of landlord "reasonableness" to the extent possible. So that you do not lose your footing when entering into your lease, make sure to focus on the standards your landlord needs to follow when granting or withholding its consent throughout the term, in particular by covering the following seven issues:
- Exclude certain items from any consent. Certain items are either too important to be left to your landlord's consent (for example, your rights to assign or sublease in connection with a sale of your business) or are too trivial to require your landlord's involvement (for example, decorative alterations to your premises, such as painting, carpeting and wallpapering).
Even if not excluded from the requirement that you obtain landlord's consent, some important matters can be consented to up front. For example, if you know that in the near future your entity will be undergoing a corporate reorganization, provide the landlord with the necessary information to approve the transaction as part of the lease execution.
- Specify the instances where the landlord must act reasonably. This will avoid arbitrary determinations by your landlord. Also, to the extent possible, define what constitutes being "reasonable" with objective standards. For example, many leases will provide that the landlord will not unreasonably withhold consent to a sublease provided that the proposed subtenant is of good character, financially sound, will use the premises in accordance with the permitted use, etc.
- Include a blanket reasonableness requirement. To avoid the difficulty of addressing your landlord's required response in each instance where consent is appropriate, try to include a blanket provision that, except as otherwise indicated, the landlord will not unreasonably withhold, delay or condition its consent. Many landlords will resist. And since "reasonable" is subject to interpretation, this language may mean nothing more than a colorable claim in a lawsuit, but it does provide you with some leverage in a dispute.
- Require the landlord to respond within an agreed upon period of time. After a certain period of time, your landlord's failure to respond should be deemed consent. A reasonable compromise on this issue is that you must first send the landlord a second notice highlighting that consent will be deemed given if the landlord does not respond.
- Insist that the landlord's response give specific reasons for disapproval. This will prevent the landlord from reflexively saying no, figuring it can create reasons for not consenting later on if you push on the issue.
- Provide for dispute resolution. Include the right to a quick and objective method of dispute resolution, such as expedited arbitration, for important issues (e.g., assignments and sublettings and alterations). An arbitration provision can provide for a pre-appointed arbitrator or recognized organization, such as the American Arbitration Association (although avoid owner industry groups such as the Real Estate Board of New York). Remember that an expedited dispute resolution method really needs to expedite, particularly with a sublease that could be lost if it takes too long and the subtenant grows impatient.
- Try to obtain damages for bad faith or capricious denials of consent. Many leases specifically exclude the imposition of damages if the landlord denies consent unreasonably in instances where it is required to be reasonable. A good incentive for the landlord to act properly is to provide in your lease that if the landlord acts in bad faith or capriciously, damages and/or legal fees will be imposed. Again, this can be hard to obtain.
Steven Colbert called Mr. Wallenda's walk across Niagara Falls "the most life-threatening event on network television since any football game". While I encourage you to take a daredevil's leap of faith in certain instances (such as when paying your attorney's invoice), remain on solid ground when negotiating your landlord's consent rights by following the suggestions above. |
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About Us
Mintz & Gold prides itself on providing the highest quality legal representation often associated with large law firms with the attention and reasonable costs of a smaller law firm. Mintz & Gold's Real Estate Department has a national practice specializing in a broad range of commercial real estate law, with a particular focus on commercial leasing. We have extensive experience with respect to office, retail and shopping center leasing, and have represented major Manhattan landlords, national and multinational institutional tenants and national retail chains. Most of our attorneys practiced for many years at large institutional law firms before joining Mintz & Gold. For more information regarding Mintz & Gold's real estate practice, click here. For a list of representative transactions of Mintz & Gold's real estate group, click here. For Mintz & Gold's website, click here. Contact: Alan Katz katz@mintzandgold.comTelephone: (212) 696-4848 Fax: (212) 696-1231 You are receiving this newsletter because you signed up to receive it or are a client, a friend or have worked with us on a prior transaction.
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Disclaimer
This newsletter has been prepared for general information purposes only, and is provided with the understanding and subject to the user's agreement that it does not constitute the rendering of legal advice or other professional advice by Mintz & Gold LLP, and does not create any attorney-client or other special relationship. The content of this newsletter may be considered advertising under the ethical rules of certain jurisdictions and prior results do not guarantee a similar outcome. You should not rely upon this newsletter without seeking legal advice from an attorney licensed in the relevant jurisdiction(s). THE CONTENT OF THIS NEWSLETTER IS PROVIDED AS-IS WITH NO REPRESENTATIONS OR WARRANTIES, EITHER EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND NONINFRINGEMENT. Additionally, the information contained in this newsletter does not constitute tax advice. Any discussion of tax matters contained in this newsletter is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties under the Internal Revenue Code or promoting, marketing or recommending to another party any transaction or matter. Copyright © 2013 Alan Katz. All rights reserved.
You may reproduce this article by including this copyright and, if reproducing it electronically, including a link to www.mintzandgold.com. No attorneys were harmed in the production of this newsletter.
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