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Consensus, Then Compromise

By attempting to achieve consensus on which issues are most important to them, leasing professionals on both sides of the table should provide useful direction to their attorneys and clarify their own requirements. This should be done early in the negotiating process, since issues of mutual concern require careful negotiation and drafting.

Often it is more important to get a lease executed promptly than to negotiate the perfect lease. If an issue is of substantially greater concern to one of the parties, there should be some deference to that party's needs. By contrast, issues that are not significant to either party often can be dealt with in general terms or by the use of some "rough justice" compromise. A few examples follow:

1. Approval rights Frequently, the existence of an approval right is much more significant than approval standards and response times, but attorneys seem to spend an inordinate amount of time negotiating the details of every approval provision in a lease.

Consider a boilerplate provision to the effect that, except to the extent expressly provided to the contrary:

* approvals will not be unreasonably withheld,

* responses will be given within a specified number of days,

* failure to respond will be deemed approval if the notice requesting the approval is in writing and contains a clear reference to such result, and

* a disapproval, if proven erroneous (in court or pursuant to some agreed-upon, alternative dispute-resolution procedure), will result only in the reversal of the decision (not damages).

Exceptions do not arise frequently if there is some mutual trust. Any exceptions that do arise can be specifically negotiated.

2. Estoppel certificates Estoppel certificates are usually much more important to landlords than to tenants. Failure to obtain them promptly, in an acceptable form, can wreak havoc on a sale or financing transaction. Major tenants often spend significant time and effort insisting on using their own form or limiting the types of matters to be included in the certificate.

With perhaps a few general protections - e.g., a knowledge standard as to certain certifications, an explicit refusal to amend the lease and a clear statement as to the result of a good- faith mistake (estoppel but not damages) - even a major tenant should be willing to deal with any reasonable form.

3. Gross sales definitions Landlords do not want to risk losing percentage rent because of a failure to capture real sales. However, a chain tenant should be permitted substantial leeway in using its standard definition as long as the tenant accounts for gross sales at the premises in substantially the same way it accounts for gross sales at its other locations, and as long as questionable exclusions do not exceed an agreed-upon percentage of total gross sales.

4. Condemnation provisions Business people frequently find some excuse to leave the negotiating session when the condemnation clause is being discussed, but many attorneys ignore this clue to the relative importance of these provisions. Existing shopping centers are rarely subjected to material condemnation actions. (The cost would usually be prohibitive for the condemning authority.)

Landlords need to be sensitive to their lenders' concerns about allocation of condemnation awards, but lengthy negotiations as to termination rights (varying with the specific area taken, the percentage of GLA taken and the number of parking spaces taken) are likely to be exercises in futility.

A simple materiality test and a reliance on the reasonable judgment of the parties may not be precise, but it is probably at least as useful.

Whether leasing professionals adopt the specific compromises outlined above pales in significance to the need for candid discussion of goals and priorities with their counterparts. If the parties are of relatively equal bargaining power, such a discussion can establish an atmosphere of good will and provide direction to the attorneys so they will know which issues require tough negotiations and which issues require creative compromises.

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