Covenant of Quiet Enjoyment

Last Updated on Tuesday, 11 July 2017 04:46 Written by Chris Griswold Tuesday, 11 July 2017 04:44

Listen up landlords, tenants, subtenants, brokers and lenders.  Sometimes, for whatever reason, we do something so many times that we actually forget the significance of doing it.  As regarding the typical commercial lease, there are certain provisions that, for some long-forgotten reason, appear again and again.  But why?  One of these provisions, the covenant of quiet enjoyment (which the Landlord owes to the Tenant), is really worth brushing up on.  This should be helpful for everyone… (and don’t forget to click on my Facebook or YouTube links below to also see my short video on this material).

Covenant of Quiet Enjoyment

Some anonymous person once humorously noted “…I have my mind made up so don’t try to confuse me with the facts.”  We’ve all seen the covenant of quiet enjoyment expressed in the leases we negotiate.  It ordinarily reads something to the effect of “… Tenant may peaceably and quietly have, hold and enjoy the premises for the term aforesaid….”  However, what is this covenant, why is it there & what implications follow from the parties expressly addressing it in their lease?

What is it?  The covenant of quiet enjoyment is the legal mechanism which prevents a landlord (or anyone for whose conduct the landlord is responsible) from “interfering” with a tenant’s use and enjoyment of the leased premises during the lease term.  Interestingly enough, if this covenant is not expressly spelled out in the lease (or if the lease was made orally), the law actually implies (i.e., inserts) this covenant into the lease.  When the law implies this covenant into the lease, the upshot is that upon such “interference” by landlord, the tenant doesn’t have to pay rent and can even elect to terminate the lease.

If the law implies it into every lease, why do I always find it written into every lease?  Even though the law implies this covenant into every lease, the parties to a lease can still modify and condition the enforcement of this covenant by tenant.  Accordingly, when the language relating to the covenant of quiet enjoyment appears in the lease, it’s actually restricting and conditioning tenant’s rights – not enlarging them….  That’s why your lease reads that “…upon tenant’s payment of rent and observance of all the terms and provisions of this lease as contained herein, tenant may peaceably and quietly have, hold and enjoy the premises for the lease term contained herein….”  Remember, in the beginning, landlords’ counsel drafted the leases to serve the best interests of landlords, not tenants.  Since that time, due to all the leases that have been executed over the years, it has become a custom that Tenant will have to pay rent and perform all of their lease obligations prior to enforcing the covenant of quiet enjoyment against Landlord (which is reverse of how the law would otherwise imply).

What implications follow from the parties expressly addressing it in their lease?  Basically, once the covenant of quiet enjoyment is expressed (i.e., conditioned) in the lease, it’s incumbent upon the tenant (and even the landlord) to carefully draft the lease provisions so that their interests are protected.  Why?  Upon seeing that the parties have chosen to negotiate their own particular terms as relating to the covenant of quiet enjoyment, the courts will not, absent certain circumstances, modify such negotiated terms.  So, negotiate carefully and write well….

What My Clients Are Saying

“I take special care when selecting business partners to represent my company and look for those who exhibit the same levels of professionalism and integrity that I try to achieve.  Chris Griswold definitely meets these requirements and is considered a very valuable member of the JOBO Properties team.  I have no hesitation in recommending Mr. Griswold to handle your business and commercial real estate transactions.” Darren Ford / Owner & Developer of JOBO Properties, L.L.C. / Oklahoma City, Oklahoma

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Loan Commitments

Last Updated on Tuesday, 23 May 2017 10:19 Written by Chris Griswold Tuesday, 23 May 2017 10:19

This month we talk about an often overlooked issue in lending and a lender’s potential liability to a borrower, under certain circumstances.  This should be helpful to everyone… (and don’t forget to click on my Facebook or YouTube links below to also see my short video on this material).

Loan Commitments

Hypothetical situation:  A borrower is buying a portfolio of chain restaurants with a portfolio price of $50M, and an unconditional liquidated damages penalty of 10% of the purchase price (i.e., $5M) payable by buyer to seller is not allowed to be conditioned upon my buyer’s inability to actually, ultimately obtain financing (actually not an uncommon purchase/sale document concept when a buyer is buying a chain of stores from a large, national franchisor – since all franchisors feel that they’re pretty big and bad enough to get whatever they want….  go figure!).

True, most contracts have an escape clause about buyer’s failure to obtain financing (just not under this sort of a deal, which commonly has liquidated damages penalties due to seller/franchisor lest buyer/potential francisee fails to actually close – all predicated upon seller’s fervent belief that everybody and their brother wants to buy their licensing rights and become proud franchisees).  So, there the buyer is….  Potentially owing lots and lots of money (that can’t be secured under any financing vehicle, but must basically be cold cash) if buyer can’t get financing….

Lenders, be sure and have “hold lender harmless” statement in favor of the lender in your loan commitment letter.  Otherwise, your bank’s insurance company might be paying your insurance claim.  This can also happen if the loan turns out to be larger than the bank’s legal lending limit and the banker can’t find a fellow loan participant.  Either way, it’s a potentially big, big problem, with an easy fix.

What My Clients Are Saying

“It has been a pleasure working with Mr. Griswold. He knows the commercial real estate business well and has been an integral element in our deal making process on some very key transactions.”
Kris Davis /  Industrial and Investment Advisor / NewMark Grubb / Oklahoma City, Oklahoma

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WOTUS

Last Updated on Wednesday, 5 April 2017 01:27 Written by Chris Griswold Wednesday, 5 April 2017 01:27

Waters of the United States (WOTUS), we’ve heard a little bit about this in the past couple years.  Accordingly, I’ll answer the most commonly asked questions I’ve received about this topic.  This should be helpful to everyone… (and don’t forget to click on my Facebook or YouTube links below to also see my short video on this material).

WOTUS

Q:  Whether Oklahoma builds more in-fill development nearby its rivers in urban areas (whether in OKC or Tulsa) or in its now more rural areas which involve lakes, streams or other bodies of water – either will make highly relevant the recent changes in the Federal Government’s jurisdiction over such waters as set forth in the “Waters of the United States” (“WOTUS”) as codified in 33 USC 1344.  What is it?

A:  Through the Clean Water Act of 1972, WOTUS gives two (2) federal agencies, the “EPA” and the “Army Corps of Engineers,” large regulatory authority over land use.  The EPA regulates the discharge of contaminants/pollutants into WOTUS and the Army Corps of Engineers governs over the discharge/dredging of fill material into the WOTUS; as well as how to go about defining those waters that shall be WOTUS.

Q:  What’s the big deal about how WOTUS is defined?

A:   Those waters that are defined as WOTUS (and hence subject to EPA and Army Corps of Engineers control), shall consequently trigger the potential need for different permits to be obtained under the Clean Water Act of 1972 before any land use/development can occur.

Q:  If the Clean Water Act has been around since 1972, what’s news?

A:  On August 28th, 2015, the EPA and the Army Corps of Engineers issued a “New Rule.”

Q:  What does the New Rule do?

A:  It broadens out the meaning of WOTUS to include waters that are not only traditionally navigable, known as traditional navigable waters (“TNW’s”), and interstate waters, territorial seas, but now also tributaries and all waters adjacent to TNW’s and the foregoing.

Q:  What are the practical results of the New Rule?

A:  The EPA and the Army Corps of Engineers will now have expanded jurisdiction to decide whether certain waters are WOTUS and thus subject to Section 404 permitting under the Clean Water Act; all to be decided prior to the required permits being issued under the Clean Water Act.  In some cases, prairie potholes have been decided to be WOTUS after having been found to have a significant nexus to TNW’s, along with waters lying within 100 year floodplains or those waters within 4,000 feet of the high tide line or ordinary high water mark of a TNW, among others….

Q:  What is the permitting process like under Section 404?

A:  It’s lengthy and expensive.  The U.S. Supreme Court found under Rapanos v. United States (2006) that an average applicant spent over $270,000 in transaction costs (not including required mitigation costs) and waited an average of 788 days for a permit to be issued.  You can call the Army Corp of Engineers for a “jurisdictional determination” about sixty (60) days ahead of time, but expect delays as a practical matter.

What My Clients Are Saying

“I would certainly like to commend Chris for his efforts is a recent transaction and for keeping communications with distant legal departments of large companies informed and involved as regarding the negotiations.  Chris Griswold has been a real asset in bringing together people and has the ability to center the focus on the transaction and that is really needed in today’s commercial real estate market.  Even though we may be experienced and seasoned veterans of commercial real estate, it’s good to have qualified, energetic, and capable legal support ready to move the process along at the faster rate we need today.  My thanks to Chris for his efforts in this most recent exchange and transaction which served everyone satisfactorily.”
Irmon Gray / Broker / NAI Sullivan Group / Oklahoma City, Oklahoma

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