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By Martin H. Orlick Jeffer, Mangels, Butler & Marmaro LLP

LITIGATING COMMERCIAL LEASES, DEFAULTS AND REMEDIES: THOSE PESKY AND EXPENSIVE FREQUENTLY LITIGATED LEASE ISSUES. By Martin H. Orlick Jeffer, Mangels, Butler & Marmaro LLP. ACREL 2007 Mid-Year Meeting San Diego, California March 23, 2007.

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By Martin H. Orlick Jeffer, Mangels, Butler & Marmaro LLP

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  1. LITIGATING COMMERCIAL LEASES, DEFAULTS AND REMEDIES: THOSE PESKY AND EXPENSIVE FREQUENTLY LITIGATED LEASE ISSUES By Martin H. Orlick Jeffer, Mangels, Butler & Marmaro LLP ACREL 2007 Mid-Year MeetingSan Diego, CaliforniaMarch 23, 2007

  2. WHAT HAPPENS IN THE REAL WORLD WHEN THE BRILLIANT LEASE CLAUSE YOU DRAFTED IS LITIGATED • Real estate transaction lawyers do not become judges • Litigators do! • Judges and, more importantly, their research attorneys, do not understand leases like the drafters do, nor do they want to • Jurors know even less about leases • Once your lease is under the litigation microscope, you lose control of the outcome

  3. DEFINING A DEFAULT THAT CAN LEAD TO AN EVICTION AND TERMINATION OF THE LEASE • Monetary defaults – non-payment of rent installments, taxes, insurance, pass throughs • Non-monetary defaults – violation of building codes (Americans With Disabilities Act), quiet enjoyment, use, waste, contamination, unauthorized transfer of the leasehold interest

  4. NEGOTIATING DEFAULT PROVISIONS • Notice Requirements • "Second Bite at the Apple" clauses • Need for notice of non-monetary defaults and a reasonable opportunity to cure • Length of notice and cure period

  5. THE ART OF THE DEFAULT NOTICE • The type of notice may be defined by statute or by the lease • 3-Day Notice to Pay Rent or Quit • 30-Day Notice to Cure Non-Monetary Defaults or Quit • Requirement of strict conformity to codes and lease provisions • The notice defines the issues for trial • Technical accuracy is essential • A defective notice is fatal and exposes landlords to liability for tenant's attorneys' fees and costs • Rent and charges limited to one year in arrears

  6. EVICTION, DELINQUENT RENT AND NON-MONETARY DEFAULTS • Summary unlawful detainer proceedings – expedited right to recover possession • Expedited trial and limited discovery • Limited defenses • Rent control in the Land of Oz • Vacancy Rent Control the Land of Oz on steriods • Forfeiture of the leasehold interest

  7. LANDLORD REMEDIES • Unlawful detainer actions are creatures of statute • Remedies are typically cumulative • Lease may provide for payments by landlord to third parties for the tenant's account • Right to terminate the lease • Right to terminate possession • Recovery of accrued rent

  8. LANDLORD REMEDIES (CONT'D) • Separate breach of contract action for damages • Right to recover rent as each installment comes due • Rent acceleration remedy provided by statute and the lease

  9. MITIGATION OF DAMAGES • Relation to actions for rent acceleration and damages • Landlords in many jurisdictions have an affirmative obligation to relet the premises to mitigate damages • What constitutes effective mitigation – marketing, listing property with brokers, improvements and other up-front costs

  10. THE PROVISIONSL REMEDIES OF PRE-JUDGMENT WRITS OF ATTACHMENT AND THE APPOINTMENT OF A "KEEPER": REAL ATTENTION GRABBERS • Expedited remedy to freeze or collect Tenant's assets pending litigation • State-wide freeze or seizure of assets

  11. FREQUENTLY LITIGATED NON-MONETARY LEASE DEFAULTS AND REMEDIES • Assignment and subletting • Abandonment: express and implied continuous operating covenants – "Go Dark" Rights • Damage remedies – diminution in value • Injunctive relief – The Limited experience: Could it only happen in Indianapolis? • Exclusive use violations

  12. CALIFORNIA SUPREME COURT HOLDS THAT PRE-DISPUTE JURY TRIAL WAI VER IS UNENFORCEABLE • Trizec Properties, Inc. v. Superior Court (1991) 229 Cal.App.3d 1616 (waiver enforceable) • Grafton Partners L.P. v. Superior Court, 36 Cal.4th 944 (2005) (waiver unenforceable)

  13. CONCLUSION • Remember: real estate transaction lawyers do not become judges • The most artfully drafted lease will be interpreted by non-experts, so draft for judges and jurors who have little or no experience with leases

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