Know Your Lease

One of the most important assets of any business is its lease. As a business owner, it is critical that you know the essential terms, in particular when you must exercise any options to renew. Think about it. A person owns a successful restaurant business. How much is that restaurant worth if there is one year remaining on the lease? Now, how much is that restaurant worth if there are four years remaining on the lease, or seven or eight? It’s worth even more if there are, for example, two five-year options to renew. It’s important that you know and keep track of options to renew. These clauses frequently contain a deadline by which to exercise the renewal, for example, six months before the end of the lease. Many a business owner has been caught short when he or she advised the landlord late of a decision to stay. The landlord then threatens to not renew the lease. (Ask the landlord to extend the notice date if you need more time. A simple timely email, with a positive response from the landlord, even if it doesn’t comply with formal lease requirements to extend a deadline, can, at a minimum, greatly increase your bargaining strength and may even save the option completely.)

Now you, the business owner, are stuck. You will no longer benefit from the previously negotiated lease renewal rent (assuming it was favorable). You are now in a position where you have to negotiate with the landlord to stay, and the landlord has the stronger negotiating position. If the landlord refuses to renew, he will likely prevail in that dispute no matter how innocent a mistake it was to forget to renew timely. In this day and age of e-calendars that can look ahead many years – Google calendar, Outlook, iCal and numerous others – there is no reason not to track such dates, no matter how many years in the future the date may be. (The same applies to other important contracts, including key employee contracts, but that’s a topic for a later post.)

Commercial leases vary widely in form and content and the business executive reading his or her lease may be mystified by many of the terms. However, the essential terms that matter to the business executive - rent, utilities, insurance, common charges, and options to renew – are usually easily located and written in plain English. When you sign a lease, scan it. This makes it easy to retrieve or reference. (Of course, you should save the original too.) Make a brief abstract containing the essential terms – it can be as informal as a hand-written single side of paper. Put it on top of the lease when you make the scan. When you call it up on your computer, it will always be the first thing you see. Use your calendar system to docket critical dates, such as options to renew. Set reminders well in advance.

No matter when your option to renew is due to be exercised, set a separate reminder well in advance of that date to evaluate whether you are staying or leaving at the end of the lease. Even a small, service oriented business that needs only 2,000 – 3,000 square feet generally needs six to nine months to move in an orderly manner. Larger businesses, businesses that have equipment, inventory and some sort of operations, can easily need more than a year to move. If you a operating a business that is larger than a small business, you should begin evaluating your lease-end options 18 months to two-years before the end of your lease or the time to exercise the option. There is perhaps no bigger interruption for a business than moving. So in short, know your lease.

The Stigma About Lawyers

While waiting for my client’s case to be called today in Bankruptcy Court, a woman’s case was called where she appeared pro-se (representing herself). Opposing her bankruptcy discharge was a government attorney (US DOJ) objecting to the discharge of her student loans. (Government attorney was very professional, by the way, so no issue there.) Student loans have special and very strict standards applicable to discharge, and they are rarely discharged in bankruptcy (which, in my personal opinion, is correct public policy). This woman’s situation is all-too-common – young daughter with medical issues, ugly divorce pending, husband avoiding his support obligations, husband is a lawyer who is gaming the system in family court, limited ability to work due to caring for her child. I left the courtroom, found her in the hallway after, and gave her my card. We take a limited number of pro-bono (no fee) cases each year and this one has the kind of social issues we look for. My law partner, Sally Keenan, would actually be the one handling this – she’s the bankruptcy expert. It’s not likely that the loans will be discharged but we can give her some good advice on options and restructuring, and maybe we can get her to a family court attorney to chase the delinquent husband.

I hear plenty of negative lawyer comments every day, some quite venomous, including plenty on dive boats. I don’t mind – some of it is certainly deserved by the profession, and hearing it from all walks of life on dive boats is a good reality check. But when you criticize lawyers, please try to keep some perspective. We are hardly the only lawyers out there trying to do some good – I know plenty of others. There are good lawyers and bad lawyers, good cops and bad cops, good teachers and bad teachers, doctors, etc, etc, etc...

A Legal Victory Against Citimortgage

A very nice legal victory today. Late last year Citimortgage proceeded with a foreclosure sale at the very same time the owners' HAMP mortgage modification was in the final stages of review. Fannie Mae bought the house at the foreclosure sale and the family was facing eviction. Enter our firm. Remarkably, Citi claimed it had every right to proceed on "dual tracks" - both foreclosure and modification evaluation - at the same time with no duty to coordinate between the separate departments. Yes, the owner was on the phone with Citi almost daily alerting them to the conflict and the impending train wreck for her family, which included kids in the local high school. This family was exactly who the HAMP and other modification programs were designed to help. Long time owners who got slammed in the Great Recession and were now back on their feet and qualified for a mortgage modification.

Back in January we made a motion to vacate the sale and convinced a judge to stay the eviction proceeding while this mess would be reviewed. The judge scheduled a hearing on the issue of vacating the sale. Citi's attorneys then adjourned the hearing multiple times.

Well earlier today, Citi's attorneys conceded. They called us and agreed that they can't defend our motion and would voluntarily vacate the sale (as soon as they and the Fannie lawyers figure out how to do that).

I take special pride in taking on banks when they behave poorly. I don't know why, but bankers often think they are the smartest person in the room. They are not. My partner and I like being the only thing that stands between a person or family or small business and an injustice being committed by a behemoth that has no sense of fair or unfair, right or wrong. Remember, banks created this mess and their behavior in dealing with it has been really poor and downright shameless.

Failure to Pay Taxes Results in Loss of Driver's License

So here's something noteworthy for New York State business owners and NYS attorneys. My firm has now been consulted recently by two small business owners whose driver licenses have been restricted to driving to and from work only because they are behind in remitting sales tax they have collected in doing business. Now admittedly, they owe the sales tax and should have remitted it, but this license restriction as an enforcement device is new.  It is by governor executive order within the last year and just starting to be used. It applies to ALL taxes due over $10,000. How far will DMV take this program? That remains to be seen. NYS Tax has always been aggressive, but this is a whole new level. With computer networks and databases today talking to each other, things like this will become more and more common.