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This blog focuses on real estate, land use and construction-related topics affecting Virginia and the Washington, D.C. metro area. With topics ranging from contract drafting and negotiation to local and regional land use project updates, the attorneys at Bean, Kinney & Korman provide timely insight and commentary on the issues affecting owners, builders, developers, contractors, subcontractors and other players in the industry. If you are interested in having us cover a specific topic, please let us know.

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  • Posts by John Kelly
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    John Kelly is a shareholder of Bean, Kinney & Korman and focuses his practice on general corporate law and real property law, including commercial real estate leasing, financing and acquisitions, and business mergers and ...

January 13, 2014
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Part one of this article series explained a landlord’s obligations under commercial leases and the remedies available for a commercial tenant should a landlord default. Part two of this article will explain how and when to include offset provisions in a lease.

As mentioned above, landlords will strongly resist including an offset provision in the lease.. In many cases, their lenders will prohibit such provisions for most ordinary lease transactions. The landlord and its lender demand and anticipate an uninterrupted income stream of rental payments and may consider this a deal point in the lease negotiations. In most situations, only the most creditworthy tenant taking sizeable premises with leverage in the transaction should demand the right to offset (perhaps an anchor or near-anchor tenant in the retail context or a financially sound national tenant taking significant multiple floors in an office building).

January 5, 2014
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Part one of this article series explains a landlord’s obligations under commercial leases and the remedies available for a commercial tenant should a landlord default. Part two of this article will explain how and when to include offset provisions in a lease.

A commercial tenant’s right to remedy a default by the landlord by performing the required work itself and then offsetting the costs of such work against future rental payments is likely the most immediate and effective remedy a tenant could ever have. However, a tenant needs to closely review the lease agreement and know the local applicable law before ever deciding to take such an aggressive measure. Most leases (and the laws of most states, if the lease is silent) essentially prohibit the right of offset, so the sophisticated and creditworthy tenant will need to negotiate for such a right before the lease is finalized.

In Part I of this blog post, we discussed the varied interests of the landlord and the tenant's lender in the tenant’s personal property located at the premises in the context of a commercial lease.  Part II below will discuss suggested compromise solutions and a typical landlord waiver. 

January 29, 2013
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Commercial real estate landlords and the lenders for their tenants have competing interests with respect  to the tenant's personal property located at the demised premises. The landlord is looking to secure the tenant's rental obligations by taking a lien against the tenant's fixtures, inventory, and equipment located in the space, which may be particularly valuable in the case of  retail and restaurant tenants, while the tenant’s lender providing premises fit-out and/or working capital financing desires a security interest in the same property . The landlord’s lien may be created either by contract under the terms of the lease or through operation of law, and allows the landlord  to levy the property located at the demised premises of a  tenant who has failed to pay rent.  While the tenant would rather not allow either party to maintain a lien against its personal property, the tenant's action in this regard is often dictated by the requirements of its lender.  While  national retailers with strong credit typically have the leverage to insist on the  waiver or subordination of  their landlord’s lien rights, most smaller or regional tenants must navigate between their landlord's and lender's competing interests.  Part I will discuss the varied interests of the landlord and the tenant's lender in the tenant’s personal property are discussed in this article, and Part II will discuss suggested compromise solutions and a typical landlord waiver.  Note that the article that is the basis for this post first appeared in the December, 2012 issue of Commercial Leasing Law & Strategy. 

July 12, 2012
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Self-Help. Ok or Not?

“Self-help,” in a leasing context, typically refers to the landlord’s historical remedy of locking out a defaulting tenant and obtaining possession of the premises without going through judicial procedures. Traditionally under the common law, a landlord was subject to few limitations in choosing its remedies against a defaulting tenant, including the liberal use of self-help. However, modern jurisprudence provides tenants with much greater protection from eviction and also seeks to prevent possible violent landlord-tenant confrontations.  Therefore, the majority of states have now abolished the traditional rule of self-help and permit landlords to evict tenants only through court proceedings. In connection with the move away from self-help, most states have established summary eviction proceedings, which in theory provide landlords a more efficient and expedient method of retaking possession than traditional civil litigation.

June 22, 2012
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In this series we have been examining a landlord's duty to mitigate their damages after a default by the tenant.  Earlier we looked at the laws in the District of Columbia and Virginia.  An examination of Maryland's law is below.

June 4, 2012
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This series focuses on a commercial landlord's duty to mitigate their damges after a default by a tenant.  Earlier we discussed the District of Columbia's treatment of the duty to mitigate.  A discussion with respect to the law of Virginia is below, with Maryland to follow shortly. 

January 30, 2012
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We will discuss the commercial landlord's duty to mitigate damages after a default by tenant in Washington, D.C., Virginia and Maryland.  First, Washington, D.C. is as follows.

January 10, 2012
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A Landlord’s Duty to Mitigate in Washington, D.C., Maryland and Virginia

 

Under common law, a landlord had no duty to accept or procure a new tenant in order to mitigate damages (i.e., take reasonable action to avoid additional injury or loss) resulting from a tenant's breach of a lease, including with respect to an abandonment or refusal to occupy its premises. The rationale for this traditional view arose from the characterization of a lease as a conveyance of a real property interest, and not as a contract. In recent years, many states have enacted statutes applicable to residential landlords that impose a duty to mitigate damages.   There is no clear consistency, however, in the law regarding a commercial landlord's duty to mitigate damages. The modem trend, followed in approximately half of the states, is to require commercial landlords to mitigate damages. This modern view characterizes the lease as a contract rather than a conveyance of real estate, and it is an established principle of contract law that parties to an agreement have a duty to mitigate their damages. There are certain exceptions to the historical common law view that a landlord has no duty to mitigate, which in different variations, are currently recognized by some of the "traditional view" states. One exception imposes a duty to mitigate once the landlord re-enters the premises following an abandonment by the tenant. There are different standards as to what constitutes re-entry. For example, merely accepting the keys to the premises or keeping the premises in good repair would not typically be considered a re-entry. A second exception imposes a duty to mitigate on a landlord if the lease contains the common "re-entry clause," which permits the re-entry of the premises following abandonment of the premises by the tenant. The District of Columbia, as discussed below, is among the jurisdictions that follow this exception. 

 

Part I of this post focused on basic provisions found in commercial real estate leases such as assignment and subletting, use restrictions and the determination of the commencement date. Here in Part II, below, we will address other important issues from the tenant’s perspective including insurance, mutual waivers and defaults.