Negligence Vs Gross Negligence

Today, I would like to discuss on “Negligence” vs “Gross Negligence” in a Lease. 

Legal contracts are tricky therefore one has to be careful while drafting and reviewing the language in a lease. You often see clauses such as Indemnity, Defaults, Damages, and others use a language where Parties are responsible for the defaults resulting due to their “negligence”. Sometimes, Parties use word “gross negligence” and reviewer may ignore the word “Gross” which may have greater implications if it comes to proving “Gross Negligence” compared to the “Negligence”.

Let’s first understand the difference between Gross Negligence and Negligence.

Negligence: It is an act of carelessness.

Example: Landlord security system failed that resulted in a theft is considered to be negligence on behalf of the Landlord and Tenant may easily claim damages. However, it is difficult to prove that Landlord willfully failed or did not repair the security system on time which resulted in a theft.

Gross Negligence: It is a “willful” or an “intentional” act that resulted in carelessness on behalf of the Parties.

Example: Landlord security system failed that resulted in a theft is considered Gross Negligence if Landlord received several notices to repair the system but did not take any action to remedy the correct. 

This is again difficult to prove in court as Landlord can challenge stating that they were working on rectifying the issues. Therefore, it is advisable not to use the word “Gross Negligence”.

However, the party drafting lease agreement sometime acts smart and uses Gross Negligence for themselves but Negligence for the other party. It is either recommended to use the word “negligence” only or be reciprocal and use the same keyword for both the parties.

Do share your comments if you have come across a similar situation in past and how you handled the same.

Abhi Chadha
Founder – Lease Admin
abhi.chadha@leaseadmin.ca
Info@leaseadmin.ca

http://www.leaseadmin.ca

Fast forward to 2017

The last blog post that we wrote was 2 years ago. A lot has changed since then in the Lease Abstraction service industry, especially from the technology perspective.

There are few companies in the market who are developing the technology to automatically extract and/or abstract data out of the Lease Agreements.

A lease abstract which takes around 12 – 16 hours for manual abstraction will take a couple of minutes only in near future.

At one end this is exciting but at the other end, many people will lose their jobs because of advancement in the technology.

Machine Learning (a branch of Artificial Intelligence) is making things possible for automating lease abstract activity. It is the same technology that is used in automatic driven (driverless) cars, chat bots (or robots), email filtering and such similar applications.

No one can stop the future the best you can do is adapt. Please share your comments and suggestions on how we can help you to adapt.

Lease Dollars

Dates are the most critical part of the Lease as they define the duration or term of use of the Premises. The next important information in Lease Agreements after Dates is Dollars or Rent.

Let’s understand in simple terms: Which is that one thing that concerns you most at the time of taking any property on Lease?
– The Rent.
We ask ourselves how much I am going to pay for the property on Monthly basis.

Rent is the money paid by Tenants to Landlord for the use of premises. Now since we are talking about US Real Estate in general we are using the word Dollars which is currency of the US.

Some of the questions which get answered while abstracting or summarizing Rent information are as follows:
[Q1] How much amount a Tenant will be paying Rent during its duration or term of Lease?
[Ans1] This will be specified in the Rent section/clause/article of the Lease agreement.

[Q2] When will the Rent increase during the term?
[Ans2] This will also be specified in the Rent section/clause/article of the Lease agreement.

[Q3] What will be the method for calculating the Rent increase?
[Ans3] The method by which Rent will increase is also specified in the Rent clause/article; and will be of following types:
i. Fixed $ increase
ii. Fixed % increase
iii. Increase based on CPI or Porter’s wage

We will cover this up in detail. Don’t worry for now. Just keep on reading. 🙂

[Q4] What is the penalty amount if Tenant does not pay Rent on time?
[Ans4] This information will be available in Rent or Late Fees or Default clause/article.

[Q5] Are their any other lease sections/clauses which get affected by Rent increase?
[Ans5] Yes. The Security Deposit which is paid by Tenant at the time of taking the premises can be linked with Rent increase. Which means that Tenant should pay more Security Deposit whenever the Rent increases.

Let’s try to find answers to our questions in Mr. Bill and Mr. Lee’s leases.

Hitting F5 (Refresh)

2014 I decided and was determined to complete my Lease Abstract blog. Many told me that Consistency is the biggest hurdle for Bloggers and I thought I will prove them wrong. Result: They were right!

I continuously wrote until Apr. 2014 and after that something happened and I lost momentum.

Following are the some of the reasons per my understanding why someone stops writing:
1. Lack of motivation: For a writer/blogger, best motivation are Readers. Their comments and feedback keep blogger engaged, and boosts him to write more and better.
2. Lack of Time: Unless you are a full time Writer/Blogger, finding time to continuously update blog will be a challenge.
3. Loose momentum: Though you keep writing and find time sometimes we just leave things incomplete. You can relate this behavior as Moody.
4. Need time for Research: Because a blog is open to World, you want to write the best content possible for which you will require time and effort to write a well researched and proper content.

This year 2015 one of my resolution is to continue writing.

Let’s see how it goes!

Please keep me motivated with your feedback/comments.

Lease Dates

Welcome to the first part of Abstraction learning – Lease Dates.

Relating to Lease, we have following dates:

1. Lease Execution Date
2. Possession Date
3. Store Opening Date
4. Lease Start / Commencement Date (LCD)
5. Rent Commencement Date (RCD)
6. Lease Expiration Date (LED)

Don’t get confused. Just look at following diagram to have easy understanding. Also, focus on the literal meaning of words rather than memorizing them.

 

Here’s the detailed explanation on each of the dates:

1. Lease Execution Date – This is the date when Lease Agreement is signed by Landlord and Tenant; and also authorized by the Notary (i.e. Government official).

Generally, you will find this date at the start of Lease where it is written something like:

In case Landlord and Tenant are signing the documents at different date then the latest (i.e. last) one is considered as the Execution date.
From our characters, Mr. Clinton signed the lease on Mar. 15, 2011 and but his Landlord signed the lease on Mar. 17, 2011. So, in this case since Mar. 17 being the latest date it will be considered as Execution date.

2. Possession Date – This is the date that a Tenant takes legal possession of the premises. For easier understanding, just treat it as the date when the Keys of Premises are handover to the Tenant.

To understand this better go with the literal meaning of the word Possess = Have, Keep, Take

After the Lease has been signed, whenever the Premises is ready for use by Tenant, Landlord will notify Tenant to take possession of the premises, and will hand over the Keys.From our characters, Mr. Lee signed the Lease and the existing Tenant hasn’t vacated the premises still. Whenever the Premises gets ready, Landlord will clean it and notify Mr. Lee that he can now have the Premises for making any changes to design & decor.

3. Store Opening Date – This is the date the Store was Open to Public or its Customers.
Now, pay little attention to the word – Store. We are talking of a specific Store here; its sort of Outlet that you see in Malls like Apple Store, Nike, Adidas, GAP, Old Navy etc. We are talking of a Retail Store which is different then the premises taken for Office use or any other.So, the Store Opening Date is only for Retail type of Properties.

But, why this date is important?

Because, for Tenants this is the date when their business starts; Customers start coming in Tenant’s store.

Many Tenants put conditions in their Lease agreement that their obligation to pay Rent will begin from the Store Opening Date. Hence, it becomes important.

4. Lease Commencement Date (LCD) – The date from which Lease Term begins. Commencement = To begin; Start.At the time of signing the Lease Agreement, it is decided that the Tenant will use the premises for a specific duration like 5 years or 10 years; and the date is also decided like January 01, 2011 to December 31, 2015.

We call this 5 years or 10 years as Lease Term. So, LCD is the date from which the Term will begin or start. Also, not only the Lease Term but all the Terms & Conditions specified in the Lease Agreement take into affect.

5. Rent Commencement Date (RCD) – The date from which Rent Obligation of the Tenant will start. This is the most important date because from this date onward the Tenant will start paying Rent to Landlord.

Generally, in Lease Agreement you will find that the Rent Commencement Date is same as Lease Commencement Date. If that is the case then you are dealing with a simple lease. However, there will be times when the RCD is conditional. Don’t worry we will cover this in another section.

6. Lease Expiration Date (LED) – The date Lease agreement will expire or will no longer be in affect.This is the date when all the Tenant obligations come to an end.

 

 

PS: Consider this section as Work-In-Progress as I will update it later. So, keep checking for this page in next few days.

Structure of Lease Agreement

If you are reading this post for first time, you haven’t missed out much because from now onwards the main knowledge sharing will begin.

Just quickly browse through earlier posts as we will be bringing Mr. Clinton & Mr. Lee’s leases into picture.

Any Lease Document will have following structure, just like any Story where you have Beginning, Middle and End/Conclusion.

1. Dates

2. Dollars

3. Clauses

4.Options

5. Appendix, Exhibits & other supporting details

 

From next post we are going to cover the above mentioned sections one by one and in detail. So, buckle up and enjoy the ride 🙂

Happy Lease Abstracting!

Let me Walk you through

Now, let’s come to the main part: LEASE AGREEMENT. Because, only after you have a Lease Agreement you can create an abstract. To understand what all goes into Lease will take some time, so why don’t we try to make it simple enough by walking you through it. Let’s say Mr. William Clinton  thought of getting office space in Manhattan; and Mr. Justin Lee thought of starting Sushi restaurant in Silicon Valley, California. They go following process before they can move into their space and start operating.

1. Get in in touch with Real Estate Broker or go online looking for space.
2. Once you have found the space, take a walk through. Do some research on the area and demographics before you finalize on the location.
3. Understand what it will cost for the space and see if its within the budget.
4. Take help of your wife / friends / parents / dear ones – only if you are confused and unable to decide…              [Just kidding :)]
5. If you have shortlisted multiple locations then do a Comparative Analysis
6. Finally, finalize the location
7. Get in touch with Attorney who will help you prepare the Lease Agreement and will bombard you with all the various Terms & Conditions

Phew… and you thought that getting into any space was just signing on the dotted line 🙂 So, now they have the Lease Agreement ready to sign.

Once the Lease Agreement is drafted and reviewed by both the partied it gets signed under the presence of Notary (consider it as Law Officer).

The final step is that both the parties get signed document with themselves that the Agreement is enforceable under the Law.

In the next section we will closely review how does Mr. William and Mr. Justin’s leases are and what all has been covered in their leases.

Parties involved with Lease

In a Lease Agreement generally following people are involved:

• Landlord – who is the owner of the Property
• Tenant – Who wants to take the Premises on Lease
• Broker – He is sort of match maker responsible for helping Tenant/Landlord find the perfect place. Landlord & Tenant can have their separate brokers. So, in a Lease Agreement there may be more than 1 Broker involved or none if Landlord & Tenant are directly interacting.
• Guarantor – He is the person who gives the assurance to Landlord that if Tenant defaults or does not fulfill his monetary obligations, Guarantor will compensate for it.

Few logical Questions

Now, that you have understood the meaning of Lease Abstraction; few questions might be arising in your mind.

Q. Why Abstract is it required when you have the entire details available in Lease document? Or Why is it important?
A > Simple answer is to “Save Time”. Who would like to read entire 50 or 100 pages Lease Document when you can get a Summary in 2-3 pages and deal with important matters.
Lease Abstract is important when making any Property transactions – Sell, Purchase or Mortgage. Before taking that important decision, you would like to have all the Facts available with you. It just makes a good business sense.
Here an example. Let’s just think for a moment that you have $100 Million and that you want to purchase a property. As an Investor, I would like to see how much returns I am expected to get from such investment. By having Lease Abstracts, I can easily sum up the total Rent collected from all Tenants in that Property. Additionally, I can ask for the Expense details from current owner of the Property. After having the Rent (Income) and Expense details, the Accountants can easily ascertain if the Investment is worth it.
You wouldn’t want to invest in a property which is completely vacant or more than 50% vacant.

Q. Who requires the Lease Abstract? and When?
A > Simple answer “Anyone”. Anyone who is in business of Real Estate – Landlord, Tenant, Real Estate Broker, Property Manager, REITs (Real Estate Investment Trust), Banks, Financial institutions, Lenders among others.
As specified in previous question, Abstract is required when making any important business decision or analysis.
Some more examples can be:
– As a Property Manager, you would like to know which Tenant is going to expire or Vacate next month. You have 2 options – read the entire Lease or just take a look at Abstract.
– As a Tenant, in the Premises that you are currently occupying there has been some damage, and you want to get it repaired. But who is going to bear the costs of repair?
Again, you have 2 options – read the entire Lease or just take a look at Abstract.

I think you have got a pretty good understanding by now about Lease Abstraction and might be thinking that’s its too Technical. Yes – In a way it’s Technical because the Lease Agreements are prepared by Attorney’s, who are expert at Law, and it requires some level of understanding and interest to read the Lease document and get into the nitty gritty of details.

If you have any other questions in your mind, please put it in Comments section.

Now to the next part – Abstraction

Now, let’s understand next part – Abstract(ion).

In law, an abstract is a brief statement that contains the most important points of a long legal document or of several related legal papers.

Consider it as synonym of Summary.

So, basically it means that when you prepare Summary of Lease Agreement it is LEASE ABSTRACTION.