Monday, March 9, 2015

No good deed shall go unpunished

Commercial leases are usually rather long and there are several different types.  Very few of them are like residential leases where the tenant pays a single amount for rent and may or may not be responsible for paying utilities also.  A commercial lease can be a gross lease [similar to residential], base plus percentage of profits, net, double net, triple net, etc.

Several years ago, I was approached for advice by a landlord who owned a commercial strip mall.  One of his long-term tenants had experienced a business slow-down, so she asked him to give her a reduced rental rate for a few months, to help her get through the downturn.  And being the nice guy that he is, he did.  They memorialized their agreement on a scrap of paper no better than a restaurant napkin.

In case you're wondering, yes a lease amendment written on a napkin is binding if signed, whether or not you asked your attorney for advice when drafting it, and even if the napkin contains a brown ring that looks suspiciously like a coffee mug.

So when this tenant's lease came up for renewal, the landlord wanted to increase the base rent per CPI, which is what was stated in the lease.  So take the final base rent amount in the lease, multiply it by CPI, and voila, there's the new monthly base rent.  Just like the lease stated.  Easy, huh?

The tenant insisted the new rent was the modified rent amount, multiplied by CPI.

This lease agreement was approximately 25 pages long, and including base rent plus common-area-maintenance [CAM] charges.  And one short paragraph in the middle of something like page 17, stated that the rent for subsequent renewal terms would be the average monthly base rent from the last six months of the current lease.

So yes, the tenant was correct.  The landlord was stuck with the reduced rent, multiplied by CPI, for the next 5-year renewal period.

This could have been avoided if the napkin had stated the reduced rent was NOT the final rent for purposes of the renewal, but the napkin didn't say that.

Most of the time, it's worth running your business decision by your attorney, even if you're only trying to be nice.

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