Transcript LITIGATING COMMERCIAL LEASES, DEFAULTS AND …

LITIGATING COMMERCIAL LEASES,
DEFAULTS AND REMEDIES: THOSE
PESKY AND EXPENSIVE
FREQUENTLY LITIGATED LEASE
ISSUES
By
Martin H. Orlick
Jeffer, Mangels, Butler & Marmaro LLP
ACREL 2007 Mid-Year Meeting
San Diego, California
March 23, 2007
WHAT HAPPENS IN THE REAL
WORLD WHEN THE BRILLIANT
LEASE CLAUSE YOU DRAFTED IS
LITIGATED
 Real estate transaction lawyers do not become
judges
 Litigators do!
 Judges and, more importantly, their research
attorneys, do not understand leases like the
drafters do, nor do they want to
 Jurors know even less about leases
 Once your lease is under the litigation
microscope, you lose control of the outcome
DEFINING A DEFAULT THAT CAN
LEAD TO AN EVICTION AND
TERMINATION OF THE LEASE
 Monetary defaults – non-payment of rent
installments, taxes, insurance, pass throughs
 Non-monetary defaults – violation of building
codes (Americans With Disabilities Act), quiet
enjoyment, use, waste, contamination,
unauthorized transfer of the leasehold interest
NEGOTIATING DEFAULT PROVISIONS
 Notice Requirements
 "Second Bite at the Apple" clauses
 Need for notice of non-monetary defaults
and a reasonable opportunity to cure
 Length of notice and cure period
THE ART OF THE DEFAULT NOTICE
 The type of notice may be defined by statute or by the
lease
 3-Day Notice to Pay Rent or Quit
 30-Day Notice to Cure Non-Monetary Defaults or Quit
 Requirement of strict conformity to codes and lease
provisions
 The notice defines the issues for trial
 Technical accuracy is essential
 A defective notice is fatal and exposes landlords to
liability for tenant's attorneys' fees and costs
 Rent and charges limited to one year in arrears
EVICTION, DELINQUENT RENT AND
NON-MONETARY DEFAULTS
 Summary unlawful detainer proceedings –
expedited right to recover possession
 Expedited trial and limited discovery
 Limited defenses
 Rent control in the Land of Oz
 Vacancy Rent Control the Land of Oz on
steriods
 Forfeiture of the leasehold interest
LANDLORD REMEDIES
 Unlawful detainer actions are creatures of
statute
 Remedies are typically cumulative
 Lease may provide for payments by landlord to
third parties for the tenant's account
 Right to terminate the lease
 Right to terminate possession
 Recovery of accrued rent
LANDLORD REMEDIES (CONT'D)
 Separate breach of contract action for damages
 Right to recover rent as each installment comes
due
 Rent acceleration remedy provided by statute
and the lease
MITIGATION OF DAMAGES
 Relation to actions for rent acceleration and
damages
 Landlords in many jurisdictions have an
affirmative obligation to relet the premises to
mitigate damages
 What constitutes effective mitigation –
marketing, listing property with brokers,
improvements and other up-front costs
THE PROVISIONSL REMEDIES OF
PRE-JUDGMENT WRITS OF
ATTACHMENT AND THE
APPOINTMENT OF A "KEEPER":
REAL ATTENTION GRABBERS
 Expedited remedy to freeze or collect Tenant's
assets pending litigation
 State-wide freeze or seizure of assets
FREQUENTLY LITIGATED NONMONETARY LEASE DEFAULTS AND
REMEDIES
 Assignment and subletting
 Abandonment: express and implied continuous
operating covenants – "Go Dark" Rights
 Damage remedies – diminution in value
 Injunctive relief – The Limited experience:
Could it only happen in Indianapolis?
 Exclusive use violations
CALIFORNIA SUPREME COURT
HOLDS THAT PRE-DISPUTE JURY
TRIAL WAI VER IS UNENFORCEABLE
 Trizec Properties, Inc. v. Superior Court (1991)
229 Cal.App.3d 1616 (waiver enforceable)
 Grafton Partners L.P. v. Superior Court,
36
Cal.4th 944 (2005) (waiver unenforceable)
CONCLUSION
 Remember: real estate transaction lawyers do
not become judges
 The most artfully drafted lease will be
interpreted by non-experts, so draft for judges
and jurors who have little or no experience
with leases