Tag Archives: Lease Management

Landlord Considerations Regarding Virtual Restaurants & Ghost Kitchens

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The relatively recent phenomena of “ghost kitchens” and “virtual restaurants” have flourished during Covid-19. Creating a “virtual brand” that is only available through delivery apps provides various benefits to a restaurant in your property, particularly at a time when governmental orders have restricted the use of dine-in options. These virtual brands still require bricks and mortar locations for the production of their menu items and to serve as pick-up locations by those making the deliveries.

Although the terms ghost kitchen and virtual restaurant is often used interchangeably, the main difference between a ghost kitchen and a virtual restaurant is that a virtual kitchen is usually part of a restaurant or franchise system using their existing kitchens to produce and promote products for delivery only through delivery apps under a brand not associated with the restaurant itself. Conversely, ghost kitchens tend to be brands that rent the use of kitchen facilities. Ghost kitchens may produce multiple brands for the same owner using similar ingredients but packaged in completely different ways. Stand alone ghost kitchens can also be used by more than one company at one time in shared facilities.

Since ghost kitchens are a good way for a new chef or an existing brand to test out new concepts or new items without making the investment into a brick and mortar location, they may share an existing restaurant’s kitchen space.

Here are some things landlords should consider.

Trade Names, Use Clauses and Exclusivity Clauses

Typically, ghost kitchens and virtual restaurants typically have no visible signage and are not promoted in the same way typical restaurants are promoted. Does your restaurant lease specify only one trade name? How are the other brands promoted virtually and to the deliver apps? Will this create confusion in your market when your restaurant also displays and promotes other brands from its physical location?

If as a landlord wishing to allow a restaurant to have a virtual presence then a lease amendment is needed to permit the general use of take-out or delivery and must not be restrictive to a particular brand. Consideration must also be given in these circumstances to whether there are any exclusive use obligations contained in any other lease which might restrict what products can be sold out of a virtual restaurant.

We recommend that the addition of a virtual restaurant or ghost kitchen be temporary and frequently reviewed by the Landlord. Therefore, a time period should be included in amendment, and claw back provisions should be included to maintain merchandising flexibility.

Operating Hours

Care should be taken that the restaurant providing a virtual environment doesn’t simply go dark and only operate virtually. This is particularly true whereby other tenants expect each tenant to contribute to ‘footfall’ and exposure.

Sales Reporting

All sales from the virtual operation should be recorded as sales from the premises, and the tenant sales auditing process should be reviewed and amended as required.

Subletting and Profit Rent

Make sure you have all your subtenancy protections in place, including any so-called ‘profit rent if others are using the kitchen facilities as their ghost kitchen. Make sure that any and all other users of the facilities have a signed subtenancy agreement, and the tenant is liable for the subtenant’s actions.

Numbers of Restaurant Covenants

Some other tenants in a property may include restrictions on the number of restaurants in a property. Ostensibly, this is related to the use of the parking field for dine-in eating where the other tenant doesn’t want to have restricted parking availability affecting their business.

Insurance

Check with your insurance agent if the Landlord needs additional coverage, particularly if the facilities are used by others. Obtain a letter from the tenant’s insurance carrier that the expanded virtual operations are covered and obtain a revised certificate of insurance, if needed.

Each subtenant will also need to provide certificates of insurance if the facilities are used as a ghost kitchen by others.

Permits

Verify that the restaurant offering either a virtual restaurant or ghost kitchen has all the permits required. Additional business licenses and modified health and safety permits may be needed, etc.

These are just a few of the items a Landlord should consider prior to permitting a virtual restaurant or ghost kitchen. These new operating models may prove to be the lifeline your food services tenant needs, but it is equally important for the Landlord to protect its position, by conducting proper due diligence and documentation.

Do You Speak Legalese?

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This article was written by Martin A. Schwartz, Partner at the law firm Bilzin Sumberg, and is reprinted here with his permission. His primary area of focus is Real Estate law and he can be reached at 305-350-2367 or mschwartz@bilzin.com

Peter Morris’ comments: As someone who must read, and interpret, leases and purchase and sale documents daily I agree with him. I add the word “interpret” because of the ambiguity in most documents. In some cases, the drafter of the document inserts words specifically so the true meaning of the concept can be read in multiple ways. I call these ‘wiggle words’, and I root these out for my clients whenever possible. Three (3) Cheers for Martin for his clear thoughts on this matter in his article that starts now.

Each profession has its own jargon but most professions rely on modern English as their base. Real estate and other transactional lawyers, those who draft legal documents, seem to be the exception. This is a strange phenomenon since most litigators, those attorneys who write only for fellow lawyers (i.e., judges), seem to have little problem writing in modern English. However, most real estate and other transactional lawyers whose work-product involves nonlawyer parties, usually find it difficult to express their thoughts in modern English. Instead, they rely on a strange language referred to as “legalese” to convey their message.

Merriam-Webster defines “legalese” as follows: “the language used by lawyers that is difficult for most people to understand; legal jargon.”1 The Oxford Guide to Plain English describes it somewhat differently:

“Fog in the law and legal writing is often blamed on the complex topics being tackled. Yet when legal texts are closely examined, their complexity seems to arise far less from this than from unusual language, tortuous sentence construction, and disorder in the arrangement of points. So the complexity is largely linguistic and structural smoke created by poor writing practices.

“Legalese is one of the few social evils that can be eradicated by careful thought and disciplined use of a pen. It is doubly demeaning: first it demeans its writers, who seem to be either deliberately exploiting its power to dominate or are at best careless of its effects; and second it demeans its readers by making them feel powerless and stupid.”2

William Safire, a former op-ed columnist with The New York Times, describes it more humorously: “[L]egalese often has the virtue of eliminating ambiguity, and should be read more as a mathematical equation than as prose, anything herein to the contrary notwithstanding.”3

Legalese is a language that relies on archaic language, poor grammar and sentence structure, repetition, surplus language, and legal jargon. The predicate for use of legalese seems to be that the parties will be represented by attorneys, and their attorneys will understand the documents even if their clients cannot. Although such an assumption may assist in promoting legal employment, it appears no more defensible than having legal documents written in Arabic in reliance on the parties using persons familiar with Arabic to explain the contents of the documents to their clients. Since legal documents will govern the rights and obligations of the parties for whom they are written, it seems only proper that such parties should be able to read and understand them. The use of legalese has been criticized by the courts: “[This is a] document checked full of legalese that can make a Byzantine scholar proud.”4

Some legalisms seem to be going out of vogue. Does anyone use “the party of the first part” and “the party of the second part” to reference the parties to an agreement? Use of these terms allows the drafter to avoid identifying the parties throughout the document, but to an untrained reader, it may be unclear which party is obligated to which obligations under the agreement.

Other terms seem to have survived the transition from the age of the bow and arrow to that of automatic weapons. Many drafters continue to use terms like “witnesseth” and recitals preceded by the term “whereas.” Frequently, last paragraphs in agreements conclude with “In witness whereof.” One may well wonder if such drafters think it is essential their documents look like legal proclamations intended to be admissible in the English courts of the 14th century or be in a form sufficient to be affixed to the nearest tree. And what about title affidavits that conclude with the phrase “further affiant sayeth naught”? This last phrase adds nothing to the affidavit that a period at the end of the preceding sentence would add, but it does perhaps provide the drafter with the comforting feeling that the affidavit is a “legal document.”

Attorneys do not seem to question why is it necessary to use language from the age of Shakespeare to express their thoughts. Such archaic language is nowhere else found in modern writing, and it surely does not improve the readability of the document in which it is contained.

Another tenet of legalese involves repeating numbers with Arabic characters and in words. It might not be necessary to provide for “a ten (10) day notice” rather than “a 10-day notice” but a reader seeing both the character and word will appreciate that he or she is reading a legal document. This has been referred to as the “stupid reader syndrome” since it appears to be predicated on the assumption that the reader will not be able to understand a number if it is only mentioned once. A danger, however, of this needless repetition sometimes appears in documents when the character and word do not match, e.g., “ten (15) day period,” which presents an interpretive problem as to which number is correct. This needless repetition is so engrained in the legal vocabulary that a request to a legal secretary to transmit two copies of a survey will appear as “enclosed are two (2) copies of the survey.”

Perhaps the hallmark of a legal document is the inclusion of “h” words. The words “herein,” “hereto,” “hereof,” and “hereinafter” are the staples of drafting in legalease. These words, other than “hereinafter,” defy precision because it is never clear whether they are referencing a particular paragraph, section, or the entire agreement. Typically the use of such language requires the drafter to add a separate definitional section to clarify their meaning because of their latent ambiguity. You will not see these words used in common parlance or even in nonfiction writing except perhaps the use of “hereinafter” referencing an existence beyond the grave. But these words are typically liberally sprinkled throughout a document serving as a beacon to identify the document: “This is a legal document!”

Another frequent device for drafting in legalese is the use of the expression “provided, however, that….” This phrase serves to introduce an exclusion to the immediately previously expressed idea. Although one may substitute a period for this entire phrase and follow with the start of a new sentence with the same effect, the use of this term allows the draftsperson to establish his or her credentials as a lawyer and, as a side benefit, permits drafting run-on sentences galore. One can test the elimination of this phrase by substituting a period before “provided, however, that…” and determine its absence has no effect on the meaning of the paragraph but only serves to increase its readability.

Legalese embraces repetition: one word is good; six words are better. Why refer to the “provisions” or “terms” of an agreement when you can mention the “terms, provisions, covenants, agreements, representations, and warranties” of an agreement? Would anyone without legal “training” think that the terms of an agreement would not include any representations, warranties, or covenants in the agreement? I think not, but verbosity is a preferred drafting technique.

Another form of repetition frequently utilized is couplets: two words used in conjunction when a single word will convey the same message. Frequently used couplets include: “terms and provisions,” “good and valuable,” “covenants and agreements,” “free and clear,” “each and every,” and “any and all.” Many attorneys sprinkle these liberally into their drafting so the reader will understand the document was drafted by a lawyer.

Related to repetition is the inclusion of unnecessary extra language. In referring to exhibits and schedules in a document, the drafter will frequently qualify such exhibits or schedules with the phrase “attached hereto and incorporated herein by reference.” It is not clear whether such a phrase has any legal effect. Would a reader think that an exhibit or schedule appearing at the end of a document and referenced in the document might be a stapling error? That is, it was never intended to be part of the agreement. Or that such documents were merely attached to the document to increase its length?

The use of legalese is perpetuated by reuse of form documents replete with legalese. New lawyers instructed to use form documents are inculcated into the use of archaic language, repetition, and run-on sentences. It has been noted that there is no economic incentive to “clean up” these documents by spending extra time merely for the sake of readability.5 Even lawyers conscious of the use of legalese frequently avoid removing such language in the haste to produce a document for distribution. Will Rodgers famously noted, “If I had more time, I would have written a shorter letter.”

There is a perception among new lawyers, and even among seasoned lawyers, that writing in plain English dumbs down the language of the instruments. This is surely the case in some consumer forms in substituting “I” and “you” for “buyer” and “seller.” However, in response, it has been noted that:

“[W]riting in plain English need not mean giving up sophisticated use of language and affecting a chatty informality. On the contrary, it requires sophistication to produce documents that are consistently coherent, clear and readable. By contrast, this “specialized tongue” of lawyers, “legalese,” may even be easier to write because it relies on convention instead of thought. At best, however, the result is wordy, pompous, and dull. At worst it is unintelligible.”6

Does legalese really improve the content? As an example of how legalese affects readability, below are two short paragraphs. The first is written in English and the second re-written in legalese.

Jim had the flu and went to see Dr. Jones. The doctor told Jim he would be better in 10 days if Jim stayed home, drank liquids, and slept for eight hours each night. If his condition did not improve by the end of 10 days, the doctor said he would prescribe antibiotics.”

Jim had the flu (hereinafter referred to as the “Disease”) and went to see Dr. Jones (hereinafter referred to as the “Doctor”) and the Doctor told Jim that Jim would be better in ten (10) days, provided, however, that (i) Jim stayed home, (ii) Jim drank liquids, and (iii) Jim slept eight (8) hours each night (hereinafter collectively referred to as the “Remedial Conditions”) and provided further that if by the expiration of said ten (10) day period and full and complete fulfillment of the Remedial Conditions the Disease was not fully or partially abated to the full and complete satisfaction of the Doctor, in the Doctor’s sole and unfettered discretion, then the Doctor would prescribe antibiotics.

In a survey in 1988 sent to 1,116 Florida judges and lawyers selected at random that contained six phrases written in two different styles without identifying legalese but only a “test of language trends in the legal profession,” the preparer of the survey received 628 responses: 352 came from judges and 279 from lawyers. The judges preferred plain English in 86 percent of their responses and the lawyers in 80 percent.7

The courts have been critical of the use of legalese.8 Is there any downside to use of such language? If ordinary individuals not represented by an attorney are intended to be bound by legal instruments not otherwise decipherable as written in the English language, courts have refused to enforce such agreements to the detriment of the drafters.9

Beyond the issue of enforcement, why is it necessary to draft documents far removed from common English? Why does the poor use of the English language with run-on sentences and unnecessary repetition make a document legal? In surveys of judges and attorneys, the overwhelming percentage of respondents opted for plain English over legalese.10

Any real estate attorney believing use of legalese is benign should be ordered to review and decipher language appearing in many securitized financing documents. There are numerous examples in such documents when one sentence can run an entire page.11 It is frequently impossible to understand the content of any provision with a single reading.

Consumer groups have been struggling for years to require consumer documents to be written in plain English. Since the world outside of the legal profession operates using plain English, it is difficult to justify using a different language to create enforceable legal rights and obligations. In some cases, the reward for using legalese is an unenforceable agreement.12

1 Merriam-Webster’s Learner’s Dictionary, “Legalese.”

2 Martin Cutts, Oxford Guide to Plain English (3d ed. 2009).

3 William Safire, Safire’s Political Dictionary (Rev. ed. 2008).

4 In Re Benninger, 357 B.R. 337 (Bankr. W.D. Pa. 2006). See also Gelinas v. State, 398 S.W. 3d 703 (Tex. Crim. App. 2013) (Cochran concurring opinion) (“These instructions are 100 [percent] legalese. They make no sense.”).

5 See Hills, Why Contracts are Written in “Legalese,” 77 Chicago-Kent Law Rev. 58 (2001).

6 Barbara Child, Language Preferences of Judges and Lawyers: A Florida Survey, 64 Fla. B. J. 32 (Feb. 1990).

7 Id.

8 State of Wisconsin v. Eason, 629 N.W.2d 625 (Wisconsin Sup. Ct. 2001) (dissenting opinion) (“The warrant and affidavit replete with terms normally found in attorney-drafted documents including “whereas,” “curtilage,” “to-wit” and other such similar terms. . . . Indeed law students have been taught for at least the last 50 years to avoid this kind of legalese.”); But see Bo Bingham, Lawyers Speak “Legalese” for a Reason, The Legal Lowdown (Oct. 6, 2015), http://www.thespectrum.com/story/life/features/mesquite/2015/10/06/lawyers-speak-legalese-reason/73460860/ (discussing the virtues of legalese).

9 See In Re Benninger, 357 B.R. 337.

10 See Kimble & Prokop, Jr., Strike Three for Legalese, Michigan B. J. 40 (Mar. 2014); Barbara Child, Language Preferences of Judges and Lawyers: A Florida Survey, 64 Fla. B. J. 32 (Feb. 1990).

11 For example: “‘Certificateholder’: With respect to any Certificate, the Person whose name is registered in the Certificate Register (including, solely for the purposes of distributing reports, statements or other information pursuant to this Agreement, Beneficial Owners or potential transferees of Certificates to the extent the Person distributing such information has been provided with an Investor Certification by or on behalf of such Beneficial Owner or potential transferee); provided, however, that, except to the extent provided in the next proviso, solely for the purpose of giving any consent or taking any action pursuant to this Agreement, any Certificate beneficially owned by the Depositor, the Master Servicer, the Special Servicer, the Trustee, the Certificate Administrator, the Operating Advisor, a manager of a Mortgaged Property, a Mortgagor or any Person known to a Responsible Officer of the Certificate Registrar to be an Affiliate of the Depositor, the Master Servicer, the Special Servicer, the Trustee, the Certificate Administrator, the Operating Advisor, a manager of a Mortgaged Property or a Mortgagor shall be deemed not to be outstanding and the Voting Rights to which it is entitled shall not be taken into account in determining whether the requisite percentage of Voting Rights necessary to effect any such consent or take any such action has been obtained; provided, however, that for purposes of obtaining the consent of Certificateholders to an amendment of this Agreement, any Certificate beneficially owned by the Depositor, the Master Servicer, the Special Servicer, the Trustee, the Certificate Administrator, the Operating Advisor or an Affiliate of the Depositor, the Master Servicer, the Special Servicer, the Trustee, the Certificate Administrator or the Operating Advisor shall be deemed to be outstanding, provided that if such amendment relates to the termination, increase in compensation or material reduction of obligations of the Depositor, the Master Servicer, the Special Servicer, the Trustee, the Certificate Administrator, the Operating Advisor or any of their Affiliates, then such Certificate so owned shall be deemed not to be outstanding; provided, however, if the Master Servicer, the Special Servicer or an Affiliate of the Master Servicer or the Special Servicer is a member of the Controlling Class, it shall be permitted to act in such capacity and exercise all rights under this Agreement bestowed upon the Controlling Class; provided, further, if an Affiliate of the Depositor, the Master Servicer, the Special Servicer, the Trustee, the Certificate Administrator or the Operating Advisor has provided an Investor Certification in which it has certified as to the existence of an Affiliate Ethical Wall between it and the Depositor, the Master Servicer, the Special Servicer, the Trustee, the Certificate Administrator or the Operating Advisor, as applicable, then any Certificates beneficially owned by such Affiliate shall be deemed to be outstanding.”

12 See Paladino v. Avnet Computer Techs, 134 F.3d 1054 (11th Cir. 1988); Nicosia v. Wakefern Food Corp., 136 N.J. 401, 643 A.2d 554 (N.J. 1994).

This article was first published in the April 2017 issue of The Florida Bar Journal, Volume 91, No. 4.

Proptech in 2019 & Electronic Contracts

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What-Is-Proptech-and-Which-Players-You-Should-Follow-in-Asia-1440x564_c“Proptech” is a new term that stands for property technology. It encompasses all types of technology used in commercial and residential real estate, from chatbots used by Realtors®  on their websites to smart devices to control property functions, such as building access, to software used to analyze and manage a property, tenant relations and leases.

The Proptech industry has seen accelerated growth in the past few years growing from $4 Billion to almost $8 Billion, and advancements continue to be made in many areas.

At the same time, the laws around the use of these technologies continue to develop as law makers craft regulations around the incorporation of new technologies in real estate. Nowhere is that more apparent than in the use of electronic signatures and contracts.

The first and most fundamental question is this: Are electronic contracts valid?

The UN Model Law on Electronic Contracts was first adopted in 1996 and has been embraced by most jurisdictions in the Western World. Generally speaking, electronic contracts are valid where there is an explicit offer and acceptance to the contract. One notable exception as it pertains to real estate is when the contract must be registered. For example, electronic signatures and contracts are valid on leases that are not registered in the land titles office and on purchase and sale documents (including offers and counter offers). However, to register the transaction on title requires original signed documents rather than an electronic signature.

There are other instances where electronic contracts are not valid, such as wills, powers of attorney, certain business and financial documents, etc. so it is best to consult with your lawyer to determine your use of electronic contracts and signatures.

Is there a requirement to maintain electronic data for a certain time period?

Since electronic contracts are often viewed the same as paper contracts, the retention guidelines for electronic contracts (and electronic signatures) would be the same. Therefore, it is important to ensure proper back-up and retention of all electronic documents, and the keepers of these documents must be aware of the retention requirements.

The best practices for using electronic contracts and signatures include:

  • an explicit understanding and prior notification between the parties that an electronic contract and electronic signatures (“e-signatures”) will be used.
  • That all privacy regulations are upheld regarding the contract and the gathering of e-signatures, and
  • maintaining accurate records concerning the use of the contracts.

How does all this apply in commercial real estate?

Obviously, the convenience of being able to conduct a wide variety of activities and transactions electronically can speed a transaction. The use of electronic signatures also means that the parties are no longer desk-bound. They can conclude a transaction anywhere, and at any time.

One frequent downside inherent in electronic contracts is that they are not tactile.  Many times the contract is misfiled, deleted or simply forgotten since it can easily reside inside an email or a misnamed computer file.  On less sophisticated systems, such as stand-alone computers, laptops and mobile devices, system failures or upgrades and result in the complete data loss of the contract.

Large organizations, such as landlords and occupiers with multiple locations, may have entire departments dedicated to the retention, management, and safekeeping of all their contracts, including electronic contracts.

Entrepreneurs and smaller operations, such as many tenants, often do not have these types of systems and policies in place, and are at a greater risk of losing data, or – more importantly – losing track of important contract information, such as important lease obligations and rights.

This is understandable, since the ‘virtual’ contract is often out of sight and out of mind.  Many times, the tenant’s lease and commercial space is taken for granted as something that was completed previously (perhaps the lease was signed years ago) in order to allow the tenant to operate daily, today. It simply is not top of mind. The risks of this can be devastating however. Imagine that you have an option to renew the lease, for example. If you miss the time to exercise that option you could lose your space – and that could mean the end of your business.

To solve this very real and prevalent problem it is important to keep track of lease milestones, obligations and rights as well as maintain a back up of your lease contracts – or have someone do that for you.

We offer our clients a simple and affordable lease management service to handle all this for you, and more; for less than 50 cents per day. To learn more CLICK HERE.