In this and the next post, Mike eyeballs two “approaches” to justifying non-performance of landlord-tenant obligations. This first one feels like a recycled theory of justification for tenant to suspend performance or obtain a refund of asserted lease overpayments.
Every time there’s a downturn in the economy, commercial tenants fall like flies, swan-diving into the landlord’s windshield. That’s understandable, but sometimes tenant machinations to liberate it from their promises to pay rent get a bit silly. In the last downturn, tenants turned to—as now—the convention of “I got cheated through the incorrect measurement of my space.” This comes about when so-called “lease auditors” or clever attorneys point out that the tenant may have been overcharged for rent or its shares of CAMs in net leases based on “phantom footage”—a landlord’s exaggerating the square footage of the premises.
The conventions of usable, rentable, occupy-able and leasable square footage well could occupy a separate posting, and that’s not the purpose of this one. No matter what standard of measurement applied, there’s likely nearly always some basis for discord. The questions, seems to me, are:
a. If the lease doesn’t say what standard of measurement was used in determining footage, who decides which applies? Is that an arbitrable dispute? And who will be found culpable for the “silent standard?”
b. If the lease does say which measurement standard applies, and recites the footage, is that a landlord representation and warranty of size? Is the answer affected if the footage is reported as “approximate” or “more or less”?
c. Suppose b. is that a court would find a landlord obligation here, but the tenant never bothers to verify the footage—shame on whom, in that case? In New York, the courts say that if there’s no protest over the measurement prior to lease commencement, the parties “deem” the footage to be as set forth in the document, regardless of the actual measurement—shame on tenant, I guess. Well, unless the premises are larger than what is set forth in the lease. Then, demerits to the landlord.
d. What if the parties discover some time into the lease that the size was misreported/mis-measured? Does that mistake of fact entitle either of the parties to rescind the lease deal? What happens, in that case, to the doctrine of “course of performance,” since rent and CAMs have been billed and paid on the mutually-erroneous assumption?
e. What if the lease says, without reference to size, that tenant is renting “Suite 185”? Does that mean the tenant has no basis to object to the size of the space, so long as the suite as delivered was the same configuration as the premises visited by the tenant prior to signing the lease? Does the pre-leasing conversation among the parties on the rate per-square foot affect this, if there’s an integration clause in the lease (meaning, one that expressly states that no prior or contemporaneous oral agreements are pertinent)? What about if the landlord says that the tenant’s triple nets should average $XXX per month? Does the tenant have, at any point, the right to rely on the landlord’s [or broker’s] representations about any item of lease cost as a promise of a certain sized premises?
f. Under what dimensions (measured, say, by percentage of space “lost” to the tenant) can a tenant sustain its claim for violation of implied lease covenants of good faith/fair dealing? At what magnitude of mis-measurement of square footage does the difference become unconscionable (point for the distressed party) as a matter of law?
g. How long can the distressed party wait to protest/sue before it can be said that the equitable doctrine of “laches” applies (you sat on your hands for too long)?
h. If “size matters,” to either party, why wasn’t someone measuring the space? I mean, how hard is it to get a tape measure through the suite doorway? Should there be a general “rule” that there’s a “duty to measure” [like the old duty to read]–or forever hold your peace? How many times does the tenant require the last 5% of the square footage promised?