CASE STUDIES

Commercial Leasing

 

A Business Solution to a Lease Dispute

 

The Challenge.  A pre-litigation dispute among three parties – a Property Owner/Lessor; National Chain Franchisor/Lessee; and Franchisee (who was to become the lessee when the current lease expired) – centered on which party would be responsible for paying the substantial cost of remediating uninsured property damage caused by forces outside of  the parties’ control.  It was in the parties’ mutual interest to resolve the dispute before the local government shut down the business for safety reasons and sued. 

 

Overcoming the Challenge.  The parties had originally set up the session as an early neutral evaluation to be followed by mediation.  On reading the parties’ written statements, I became concerned that an evaluation in front of all three parties would be counterproductive.  I then conveyed my evaluation in private sessions with each counsel. Although my overall assessment did not change, I was able to tailor my remarks most candidly to each party’s strengths and risks.

 

Most contract breach disputes involve ambiguous terms – if the contract were clear there would not be much to fight about.  Here, each party had a risk of losing the battle over how to interpret an arcane and poorly drafted lease.  And the estimated cost of litigating (each side would have to pay not only its lawyer, but also an expert) would almost pay for the remediation work.  This reality was another powerful incentive to reach a deal.  But it was important to both Owner/Lessor and Franchisor/Lessee that Franchisee pay for part of the remediation work despite his cash flow limitations.

 

This mediation was one in which “mixing up the players” was important.  In addition to a joint session and individual caucuses in three different rooms, I met with the Owner/Lessor and Franchisor/Lessee to facilitate negotiations between them, and with Owner/Lessor to discuss going-forward terms of the new lease with Franchisee.  

 

The Result.  The case resolved with an agreement on splitting the remediation costs among the property Owner, Franchisor and Franchisee. The agreement included financing the Franchisee’s portion throughout the life of a new lease, enabling the Franchisee to stay in business and the property Owner to retain a tenant.