World Trade Center Arbitration – What It Might Mean To You

Posted by Lee Sterling | Posted in Economics, Landlord-Tenant, Legal, Negotiation, Real Estate | Posted on 27-01-2010

World Trade Center Site

World Trade Center Site

The New York Times reported recently that Larry Silverstein, who leased the trade center complex six weeks before it was destroyed in the 2001 terrorist attack, and the Port Authority of New York and New Jersey just received the results of an arbitration hearing, with both of them claiming victory. Silverstein complained that he had been delayed in the construction of three new office towers by the actions of the Port Authority, and the Port Authority claimed that Silverstein had to begin construction immediately or he would lose the right to the lease. Silverstein lost on his claim of delay asking for damages, and the Port Authority lost on the demand that Silverstein commence construction. The parties were ordered to work out a reasonable construction schedule.

The reason I raise this issue is that the standard lease used by many commercial brokers in Southern California is the AIR COMMERCIAL REAL ESTATE ASSOCIATION standard Industrial/Commercial, Multi-tenant Lease, which gives the parties the choice of including or not including mediation and arbitration as part of the lease. If chosen, an Addendum pertaining to those clauses has to be attached to the lease.

As a tenant, you have to determine whether or not you want to provide for Mediation and Arbitration. This important decision is often dealt without much thought. YOU SHOULD DISCUSS THIS WITH YOUR COUNSEL.

Arbitration was once thought to be less expensive than litigation, but today as much expensive discovery and pre-arbitration work is involved as in litigation. You need to evaluate, with the help of counsel, whether mediation and arbitration will resolve matters more quickly, or be less expensive. Arbitration is usually private as opposed to public trial. Is that a consideration?

There are many other issues to be concerned with if you choose mediation and arbitration. Don’t agree to mediation and arbitration without careful consideration of the many issues that your counsel should review. If you’d like to discuss what issues you might want to raise with your counsel, I’m available at 760-230-1492 or at Lee@LeeSterling.com.

What To Do When Your Landlord Goes Bankrupt

Posted by Lee Sterling | Posted in Economics, Landlord-Tenant, Legal, Miscellaneous, Real Estate | Posted on 23-04-2009

bankruptcyGeneral Growth, the owner or manager of more than 200 malls in 44 states, which also owns office buildings and is involved in the management and development of master planned communities, filed the LARGEST real estate bankruptcy in U.S. history. So, what happens to its thousands of tenants in those malls and office buildings?

The bankruptcy code (Code) allows the debtor-in-possession (the landlord, for example) or the trustee of the bankrupt estate (hereinafter we’ll use Trustee to indicate either) to accept or reject executory contracts and unexpired leases (Sec. 365). As a result, the Trustee will usually affirm leases that are at or above market rent and reject those that are below market rent. Of course, the lessee of a below market rent would like to make sure it continues to have the right to occupy that space, and the lessee may want to retain the space even if it’s at market rent because of significant improvements the lessee may have made or the cost of moving may be prohibitive. Fortunately, if the lease is rejected, Section 365 provides that the lessee’s possessory rights are protected. However, the Trustee may be relieved of other provisions of the lease, such as the duty to provide services to the lessee.

What if the Trustee wants to sell the property that you have leased? Section 363 of the Code allows the Trustee to sell the real property “free and clear” of any “interest,” in the property, and a lease has been held to be an “interest.” One case, in the Seventh Judicial Circuit, with its particular facts, has held that the right of the Trustee to sell the property free and clear of the lease under 363 of the Code trumps the rights under section 365 of the Code that gives the lessee the continued right to possession. The lessee, for some reason, had not objected to the sale; perhaps counting on the provisions of Section 365. The lessee lost the possessory rights to a warehouse they had built on the bankrupt’s property. In the First Circuit, in a different case, where the lessee had objected to the sale, the Court held that the lessee’s right to retain possession was not trumped by Section 363! If you’d like more information, an interesting discussion of the cases can be found at: http://is.gd/u8Sm and http://is.gd/u8qA

As soon as you hear that your landlord has filed bankruptcy or is contemplating filing bankruptcy, immediately contact competent bankruptcy counsel to protect your rights!

Did You Know?

Posted by Lee Sterling | Posted in Economics, Miscellaneous | Posted on 27-03-2009

I received this video from a long-time friend from high school days. It was so interesting that I wanted to pass it on to my friends here in Carlsbad and Encinitas:

It’s Not Like Renting a Home

Posted by Lee Sterling | Posted in Uncategorized | Posted on 10-02-2009

There are some significant differences in the laws that apply to renting or leasing commercial space compared to the laws applicable to renting a home. As a Colorado real estate attorney (not licensed to practice law in California) I negotiated leases for commercial space and for residential space, and, sometimes, had to litigate evictions or other tenant-landlord issues. In each instance we had to make sure that we were applying the right standards to the issues.

Whenever a tenant is deliquent in paying the rent due, the landlord has to give a 3-day notice to pay or vacate. If the tenant of a home offers to pay a portion of the rent due, and the landlord accepts the partial payment, the right to evict for the noted non-payment will be terminated. In the commercial lease, the partial payment of the rent due, even if accepted by the landlord, may not terminate the landlord’s right to evict. Most commercial leases provide that the acceptance of partial performance does not negate the landlord’s right to terminate occupancy for default.  Landlords and tenants that we dealt with always made sure that there was an agreement about the effect of partial performance!

Because it’s not unusual for a commercial lease to be 30-50 pages in length, it’s a good idea to deal with a real estate agent who can advise you properly on negotiating the lease and can refer you to competent legal counsel. And, if you’re thinking about renting a home, the same advice applies. Leases, in either situation, are complex legal documents that require good counsel. If you have any questions of a general nature about lease law or real estate law you can write me at: Lee@LeeSterling.com.  I can’t give specific legal advice, but I can address general questions that might be of interest to a number of people.