Texas Real Estate Blog

Exhibit “C” Says What?

May 17, 2011
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Yes, I have heard this lament many times by unsuspecting contractors who agree to perform tenant improvements but fail to coordinate the terms of their construction agreement with the work letter. Oh, and yes, I have heard the same lament from landlords and tenants who failed to consult with the contractor before they signed the lease. As you can imagine, it raises some real interesting issues and conflicts; hence, my children are fed for yet another day. This is just one example of why I continually preach  about the complexity of all real estate transactions let alone those involving construction. In this scenario, either the landlord or the tenant has simply agreed,under the terms of the “work letter” (attached as a long forgotten addendum to the lease)  to take on the construction of the tenant’s leasehold improvements. Simple, right? Well, the problem is that neither the landlord or the tenant is going to perform the actual work. The party agreeing to perform the task is going to hire someone (the contractor) who actually knows how to construct something. Ergo, it makes perfect sense to let the contractor in on just what work , and under what terms and conditions, it is going to perform. Simple things like time of performance, price, scope, change orders and the like, are things the contractor may want to know about. You would be surprised how often we have to try and revise the work letter post execution of the lease. Depending on who has the leverage in the transaction makes for a lively discussion! So, this articleSP-#3396770-v1-COORDINATING_WORK_LETTERS_WITH_CONTRACTOR–… deals with the key provisions that landlords, tenants and contractors must address in the context of  tenant improvements. It gives a retail scenario as an example but it applies to every lease that has a work letter. Oh, did I mention that these mistakes are expensive?

Speaking of expensive–on this date in 1918, the US Postal Service issued it’s first “airmail stamps”. They came in 6,16 and 24 cent denominations. On the second day of the sale, a man by the name of Bill Robey bought a 100 sheet of the 24 cent variety and noticed, as he headed for the door, that the Biplane-Curtiss Jenny that was on each stamp was printed upside down. Robey knew he had a hot item and assumed hundreds of similar sheets would be shortly running off the presses. (In fact, the USPS caught the mistake and destroyed the faulty ones leaving Robey with the only sheet). He quickly sold his sheet to a stamp collector for $15,000 who had already pre-sold it to another stamp collector for $20,000. About 60 years later, one single stamp sold for $198,000 which would make Robey’s sheet worth $19.8 million. Even more interesting, when airmail service actually started, the inaugural flight featured a Curtiss Jenny Biplane with the same markings as the stamp. Shortly after take-off it crashed—-upside down.  Coincidence–I think not!


Building Something?

May 10, 2011
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Clearly one of the most complicated documents in the area of real estate law is the construction contract. Besides the very nature of the transaction, namely, building something, it incorporates numerous terms and conditions which are generic to the construction industry as well as touching upon or incorporating certain other contracts and construction disciplines (architecture, engineering etc..) As such, there are very few disasters more complicated than the situation where, for a myriad of reasons, a construction project is abandoned. The procedures and processes that must be implimented upon the abandonment of a project are far beyond this scope of this blog edition. In fact, I could blog every day for a solid month and probably not cover every scenario. So, instead, I will focus on some of the terms and conditions an owner should address in every construction contract with a view to the remote possibility it were to go bad. This article outlines those terms and conditionsSP-#3396789-v1-The_Incomplete_or_Abandoned_Construction_Pr…  On the one hand, an owner must recognize that the usual forms presented to the owner by the contractor, architect and engineer are typically standard format contracts developed over the years and distributed to the disciplines for use by their respective professional organizations. Ergo, the forms tend to favor the contractor, architect, engineer etc..(surprise-surprise). Nevertheless, all in all, these are good forms. They just need to be modified to give some latitude and control to the owner and be coordinated so they don’t have conflicting provisions.  However, at a minimum the owner should insist on some of the suggestions set forth in the article to be assured of protection in the event the project falls apart.

Speaking of a failed construction project—on or about this date many moons ago there was a man who was so adept at story telling that people came from miles around to hear his marvelous tales and buy his work. So, this man decided to kick it up a notch and develop a theme park. He solicited money from friends and decided to buy up some property in Hollywood. Now, as we all know, the theme park was a huge success–at least it was when Walt Disney did it several years later. But this was not Disneyland and it flopped. This financial fiasco was the brainchild of L. Frank Baum who created the Wonderful Wizard of Oz. Now, even more weird, this financial fiasco may have led to one of the great odd coincidences in movie making. When the filming of the Wizard began in the late 1930’s the costume folks could not find the right design for the shabby coat worn by Professor Marvel when he and his horse Sylvester are visited by Dorothy. Then, one of the costume crew found just the right coat in a secondhand clothing store in LA.  One day while filming, the actor, Frank Morgan, noticed a label on the inside of the coat. It said “Baum”. Could it be? Yes, it was, the old coat was originally owned by L. Frank Baum. The Wizard would have like that!

Leases,Workletters and Tuesday Morning Quarterbacking

February 8, 2011
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Well, it’s Tuesday morning after Super Bowl Sunday and the news is filled with wonderful highlights from the big game.  However, who would have guessed that real estate issues would dominate the discussions. Yes, as fans and Cowboy haters all over the country blame and threaten Jerry for the ticket disaster, little does everyone know that the devil (no-not Jerry) is in the details (contracts and legal status) as opposed to the obvious fact that the stadium is owned by Jerry’s partnership. When you boil this down, I believe we will be focused on two sections of a lease which are commonly overlooked– the “alterations” paragraph and the “workletter” addendum.  It is my understanding from talking to lawyers close to the Cowboys that the parties in the Superbowl set up this way: Landlord: Cowboys (Jerry’s ownership partnership), Tenant: NFL,  and Licensees of Tenant: Fans. Based on what I can surmise from the serious crawfishing by the NFL, I am assuming that the NFL had control over the construction of those stands and simply realized way too late that, due to the enormity of the job and some unexpected weather problems, the record attendance was not going to happen. This high-profile screw up is going to put a magnifying glass on the interplay (or lack thereof) of the basic construction and alteration paragraphs of a lease. Normally, the Landlord will have complete discretion and consent over all alterations or construction done to its premises. However, even though it may have such consent, it may, nevertheless give to the Tenant control over the actual construction subject to the protection  and indemnification of the Landlord. The infamous “workletter” which is buried as an addendum to the Lease is of major importance here because it addresses the scope, authority and liability of the various parties (including the contractor) in connection with  the construction. I have always maintained that the most complex area of real estate law is in the construction area as, in this area, we have to delve into, and understand, other disciplines (engineers and architects) that are integral to the process. I am guessing from the way this is shaking out is that the NFL got Jerry’s consent (leave them there for next year!)to build the stands with the proper consent and indemnification back to Jerry. That’s just one simplistic reason the, the NFL, is taking the lead on resolving the issue.

Now, what about the poor fans?As you can tell they are not happy http://newsfeed.time.com/2011/02/08/super-bowl-ticket-scandal-are-fans-planning-a-suit/?hpt=T1 and the NFL seems to be cratering like a cheap Super Bowl tent http://www.cnn.com/2011/SPORT/football/02/08/super.bowl.seating/index.html?hpt=T1# My opinion here is that the NFL  (a) is trying to do the right thing for the fans and (b)is bracing itself for a huge image problem with the lockout on the horizon. Because, I believe the NFL has little exposure and, potentially, several defenses (force majeur??!)to the claims of these fans.  The next time you attend a sporting event, read the back of your ticket and see what legal status you hold under that agreement. Generally by purchase of the ticket, you are purchasing a revocable license to enter upon the premises of the owner of the property. Sounds kind of screwy doesn’t it? All along we thought we were buying the ticket to support our team when, in reality and legally, we are buying a ticket for the privilege of watching their team. Ugh–the truth hurts. As a “licensee” (quote-Black’s Law Dictionary)-we have the privilege to enter upon land arising from the permission or consent, express or implied, of the possessor of the land but we go on the land for our own purpose rather than any purpose or interest of the possessor”. Make sense? Yeah, I didn’t think so. The only duty the possessor (Jerry and the NFL) owe us is the duty of reasonable or due care. Ergo, the reason the NFL pulled the plug (with the help of the City of Arlington) on the stands is that their liability for an injury to someone (because they knew of the dangerous condition of the stands from the fire marshal and the contractor) was much higher than denying access. Of course, everything I have just expressed is purely my opinion based on a ton of assumed facts and without seeing any of the documentation on this event; however,  if I am a fan who got hosed on this deal I take my triple refund and tickets to next year’s bowl and run!!

Nevertheless, a big thanks to all Steelers and Packer Fans for making this a great event. I have been to several Cowboy/Steelers/Packer games (Remember SB XXX!) and can attest to the class and quality of the Green Bay and Steelers faithful. (sorry about the weather-we were just trying to make you feel at home). Also, much thanks to the Bowl Committee for their tireless work and the citizens of the Metroplex for their Texas hospitality. It was a great time and super experience.

Final thought—-see this situation where Jerry might have some exposure  http://superbowlblog.dallasnews.com/archives/2011/02/jerry-jones-facing-lawsuit-fro.html Yeah right-get in line!

    Steve Watten

    Real Estate News& Views

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