Historically, the power of eminent domain has been exercised to facilitate the construction of large public projects such as highways and railroads, schools and housing developments, to name a few.
Eminent domain has been used to clear blighted areas in cities to make way for redevelopment. More recently, the power has also been used to enable municipalities to clear the way for economic redevelopment projects, such as new shopping centers. Indeed, the decision in Kelo v. City of New London, a case that went before the United States Supreme Court in 2004, set a precedent for property to be transferred to a private owner for the purpose of economic redevelopment.
The court found that if an economic project creates new jobs, increases city revenue and revitalizes a depressed or blighted urban area, that project qualifies as a public use.
“Eminent domain is the power of the state to appropriate an individual citizen’s property for the benefit of the citizenry,” says Jay Levitch, a partner with The Stolar Partnership. “Eminent domain is embedded in the federal constitution and the state constitution.”
Smart Business spoke with Levitch about eminent domain, how compensation in a property-taking is determined and how to go about finding a suitable attorney to assist you in an eminent domain case.
How does the process of eminent domain work?
If it’s a state agency — such as the Missouri Department of Transportation — the condemning authority has the power to claim land for a public purpose or public use. This power derives from the constitution.
If it’s a municipality seeking the land, the agency can pass legislation to claim it for a public purpose or public use. In either case, the entity identifies the property and the purpose for which it is to be taken. It then notifies the property owner or owners of the need for the property and makes an offer of compensation.
If the condemning authority and the property owners cannot agree on the compensation for the taking, there is a procedure prescribed by statute that enables the condemning authority to initiate a lawsuit in order to pursue taking the property.
How is compensation determined?
The process was revamped by the Missouri General Assembly in 2007. There is a statute that defines just compensation and says that it is to be determined by a jury utilizing a variety of generally accepted appraisal practices.
This includes, but is not limited to, the sales comparison approach, which looks at sales of similar types of property; the cost replacement approach, which is an evaluation technique based on what it would cost to replace the property with a similar property of similar construction; and the income approach, which looks at the property in terms of the income it generates and translates that into the property value.
These techniques, plus other generally accepted appraisal techniques, may be presented to the jury as a means by which the jury becomes informed as to the fair market value of the property. After evaluating the evidence, the jury then makes a determination and awards the property owner compensation for the taking of his or her property.
How have public views about eminent domain shifted recently?
We have a seen a change in the attitudes of the public over the last several years. It culminated with the Kelo decision by the United States Supreme Court. Ten years ago, people were not opposed to the use of eminent domain to try to foster redevelopment, the rebuilding of cities and the development of roads.
But over time, some people have come to believe that eminent domain has been used to transfer private property from one owner to another who plans to develop the property for their own profit. As a result, in the St. Louis area, you don’t see nearly as much use of eminent domain in connection with redevelopment as you once did.
Can a business be compensated if the government’s eminent domain acquisition adversely affects its operations?
The law in Missouri holds that a business owner is not compensated for the impact an eminent domain taking has upon its business. The view has been that the condemning authority is taking the land; it is not taking the business.
However, there are exceptions. There have been instances of substantial rewards for the partial taking of a business that completely closes off the access to a public street and leaves customers with a convoluted type of access to the business.
There have also been awards for the taking of property that impacts the ability of a business to expand.
What criteria should be considered when selecting an attorney in an eminent domain matter?
As with any legal matter, the person who is seeking an attorney should look for a lawyer with experience in the field. If a person is faced with a letter from a condemning authority saying, ‘We are going to be taking your property,’ it’s important for the property owner to look for a lawyer who has represented property owners and who is familiar with the eminent domain process.
Jay Levitch is a partner with The Stolar Partnership. Reach him at firstname.lastname@example.org or (314) 641-5178.
Disasters, both manmade and natural, can strike at any time, at any place. And if you’re not prepared, your business might be forced to close — which, even if only temporarily, could lead to devastating consequences.
Ravi Sundara, partner and firm manager at The Stolar Partnership, says that a comprehensive disaster recovery and business continuity plan is key to ensuring a business’ survival in the wake of a catastrophe.
“With proper planning and preparation, a business can place itself in a better position to ensure that it will continue, even in the face of disaster, which is important to a business’s customers, employees, management, owners, business partners and markets,” says Sundara.
Smart Business spoke with Sundara about how to be proactive, the legal issues that may arise if you are unprepared and the importance of having off-site backup.
How can preparing for the worst-case scenario help a business re-emerge from a catastrophe?
Proactive planning and preparation are extremely important in helping to ensure business continuity when disasters or other major business interruptions occur. Everyone is familiar with fire, tornado and other disaster drills. The reason we go through those drills is so that we know in advance how to respond, rather than trying to figure it out on the fly in the middle of a disaster. A disaster recovery and business continuity plan serves the same purpose for the business.
What steps can business owners take to prepare for disaster?
It is important to have insurance coverage for loss of property, liability and business interruption. Also, you should have contracts and alternatives in place to deal with disasters that might happen elsewhere that can affect your supply chain. Take, for example, the recent tornado in Joplin, or the earthquake and tsunami in Japan. Your business may be dependent on other businesses to supply it.
Make sure you have alternative vendor arrangements, or have at least identified where you would turn if a current supplier is unable to deliver shipments. For disasters that directly affect the business, options should be in place for temporary office or plant locations, as well as alternative communication methods. If the phone systems go down or there is no cell phone coverage, how will you communicate? This is important not only for internal communications but external, as well.
What types of legal issues commonly surface for businesses that have been affected by a disaster?
There are a number of legal issues, including contractual issues, regulatory compliance and negligence claims. Contractual issues involve fulfilling obligations to customers in the aftermath of a disaster. If a business is unable to fulfill its goods or services obligations, does it have contracts that require it to come through regardless of the circumstances? If so, it could be in breach of its contract.
If there is a force majeure clause — commonly thought of as an Act of God clause, but broader — the business may be let out of the contract or given an extended period to perform. Even if there is a force majeure clause, however, the business might still be responsible for performing if it could have reasonably planned for foreseeable, yet uncontrollable, circumstances, such as a power outage.
Negligence is a failure to act as a reasonably prudent person would under similar circumstances. Failure to plan for reasonably foreseeable disasters could allow customers, employees or others to bring legal claims asserting negligence based upon the failure to undertake reasonable planning for disasters.
In addition, directors of a corporation have a fiduciary duty of care owed to the corporation, and the failure to undertake reasonable business continuity planning to address foreseeable disasters could be a breach of that duty for which the director may be held liable.
How important is it to back up computer data frequently and keep a backup tape off site?
It depends upon the nature of the business and the type of data that is being stored. In other words, how much data could the business stand to lose and still be able to function? It could be a day for some businesses, and it could be an hour or even just minutes for others.
Off-site backup is very important because if a disaster strikes and disrupts your main systems, and if the backup is located in the same location, the backup could very well be destroyed, as well. This is why many businesses that have good disaster recovery and business continuity plans often use data centers located in other regions of the country for their off-site backup needs.
How do disaster recovery plans and business continuity plans differ?
Disaster recovery — involving data, information and documents — is really one piece of a broader business continuity plan. A business continuity plan includes those essential functions that a business needs to perform in order to continue operating. It covers identifying items such as employees’ roles and responsibilities, systems and data recovery, temporary locations, alternative communications, alternative modes of transportation and funds management. Some companies, such as financial institutions, may be legally required to have both a disaster recovery and a business continuity plan.
How often should a disaster preparedness plan be reviewed?
At least once a year. Contracts change, needs change and technology changes. The last thing you want is to have a disaster occur and when you pull out your data recovery/business continuity plan, you find that most of the items are no longer relevant, making the plan useless when you need it the most. Finally, it should be tested periodically, even if that simply means walking through it with your top management and staff.
Ravi Sundara is partner and firm manager for The Stolar Partnership. Reach him at (314) 641-5143 or email@example.com.
Historically, employers have learned about potential hires through applications, questionnaires, interviews, references and background checks.
That is changing, however, as more companies are beginning to use social media outlets to vet candidates. But while such sites can provide a lot of information about a candidate, it is important to understand the legal ramifications of researching a candidate online, says Jennifer Raymond, a partner with The Stolar Partnership.
“Employers are reporting that they’re making all sorts of employment-related decisions based on social media,” says Raymond. “But most employers don’t have targeted, written policies addressing what they’re doing with, and how they’re collecting, social media information.”
Smart Business spoke with Raymond about what is permissible when using social networking sites and credit checks to screen applicants, how to keep up to date with hiring practices and how to minimize legal risks.
What are the pros and cons of using social networking sites during the hiring process?
The pro is that you get information that you wouldn’t otherwise get from an interview or a resume. The con is that you get information you wouldn’t otherwise get from an interview or a resume.
You can find inaccuracies in a resume and information regarding a candidate’s judgment by screening social networking sites. But you also might learn information that is protected and wouldn’t normally be accessible to you as an employer, such as a person’s religious beliefs or someone’s health conditions.
You might also find information about someone who drinks alcohol or smokes cigarettes. However, some states, such as Illinois, have laws protecting legal recreational activities, and you can’t make a hiring decision based on that type of information.
What steps should employers take to minimize the legal risks associated with using social networking sites to screen potential employees?
Employers should have written policies governing the screening process that include, among other things, exactly which sites will be searched and who will be doing the searching. It’s critical to develop policies that include examples of what is, and what is not, permissible hiring criteria, acceptable conduct and appropriate information to consider in making hiring determinations. All personnel who will be participating in interviews or participating in hiring decisions should be trained on these policies.
These guidelines must be applied to every candidate. Employers may want to avoid sites such as Facebook because of the risk of finding protected information that a candidate might say was used impermissibly in making a hiring determination. Employers may wish to limit their search to professional sites such as LinkedIn, where they can verify resume information, as opposed to finding out personal, and possibly protected, information about candidates. And whoever is conducting the screening should never misrepresent his or her identity to gain unauthorized access to a candidate’s social networking information, such as by ‘friending’ the candidate or creating a fictitious profile.
Can an employer also reference a candidate’s credit report when making hiring decisions?
This area is in flux due to the downturn in the economy. It has become more of an issue because, for example, the credit score of someone who was laid off could have changed because of unemployment.
The Equal Employment Opportunity Commission (EEOC) and a number of states have been cracking down on an employer’s use of credit reports to make hiring decisions. And while looking at a credit report itself is not discriminatory, it can have a disparate impact on specific categories of people that are protected, such as African-American or female candidates, who may have lower credit scores based on social circumstances.
Not only has the EEOC been increasing its enforcement, but four states have enacted laws to prohibit employers from using credit reports in making hiring decisions, except in certain situations. And Missouri is considering legislation that would curtail the use of credit screenings in hiring decisions. There is even federal legislation that’s been introduced that would amend the Fair Credit Reporting Act and prohibit the use of credit reports, except in certain situations. A good rule of thumb is that if the position requires the candidate to handle money or other financially sensitive information, or if it’s a managerial or executive level position that involves signatory power, then it may be permissible to look at credit report information and use it to make determinations. However, for rank-and-file employees, making decisions on the basis of credit information can be very risky. And it’s going to become even more risky as other states, and potentially the federal government, pass this type of legislation.
If a candidate claims discrimination during the hiring process, how can a company protect itself against a lawsuit?
You’re not going to be able to stop someone from suing you, but you can demonstrate to the courts that you have written policies, that you’ve trained supervisors and decision-makers to follow them and that you have a documented screening process for candidates. This preparation will go a long way toward defeating claims that may be brought by a disgruntled candidate who feels that he or she was treated unfairly.
How can employers make sure they stay up to date with legal hiring practices?
There are human resources publications and websites that post updated information, such as the EEOC and the Department of Labor. But the best way to stay up to date and protect your company is to conduct a regular audit of your written employment policies — including hiring policies — and use the services of a qualified employment lawyer who can make sure you are in compliance.
Jennifer Raymond is a partner with The Stolar Partnership. Reach her at (314) 231-2800 or firstname.lastname@example.org.
Business ownership succession planning means different things to different business owners.
Succession generally involves the transfer of ownership to family members, to employees or to third parties. But, it also involves identifying and balancing the emotional and financial needs of the owner, the owner’s family and key executives with the needs of the business itself. It means developing a plan that satisfies everyone’s needs to the greatest degree possible.
When conducting business ownership succession planning, there are two key aspects the business owner must address, says Tom Venker, chair of the Business and Tax Department at The Stolar Partnership LLP.
“First, the plan must allow the business owner to exit the business at retirement, death or disability according to his or her plans,” he says. “Second, it must provide a means for the business to continue and prosper after the owner’s departure.”
Smart Business spoke with Venker about how to establish goals for a succession plan, the importance of addressing the issue now and not when you have an immediate need, and why you cannot just create a plan and put it on a shelf.
What elements should a succession plan include?
Depending on the needs and goals of the individuals involved and the complexity of the business, business ownership succession planning can be as simple as developing a plan to give voting and nonvoting ownership interests to family members. At the other end of the spectrum, it can be very complex, involving the business’s attorneys, accountants, appraisers, bankers, insurance agents, business brokers and psychologists, and resulting in various legal documents such as shareholders agreements, employment agreements and deferred compensation agreements.
Planning also involves identifying potential roadblocks, such as an inability to find capable management talent among the new owners, pay for new outside management, provide adequate cash to the departing owner, or split the business among family members.
What types of goals should business owners set when creating a succession plan?
Business ownership planning begins with the business owner setting goals. Personal goals may include retiring versus working for life, financial security in retirement, support of a spouse after the owner’s death, provisions for family members not in the business, a buildup of assets outside the business, preservation of the family business for family members who are in the business, purchasing the interests of other owners, establishing charitable goals and facilitating a family member taking over the business.
There are also business goals, including enhancing management capabilities, building financial capacity to implement the succession plan and establishing the business’s future growth goals.
What is the most common mistake that business owners make when it comes to succession planning?
The most common mistake that business owners make regarding succession planning is ignoring it altogether. Too often, business owners think they will control their businesses forever, and, because it can be a difficult topic to address, they defer the planning.
When tackling the planning process, it helps to have all of the advisers at the table, such as accountants, life insurance agents, investment advisers and attorneys. These advisers have the interests of the business owner at heart and can help the business owner understand the benefits of putting a plan in place.
The key is to get a plan started and then modify it over time.
Baby boomer business owners should take particular note and start business succession planning now if they do not yet have a plan in place. As boomers begin to reach retirement age, sales of businesses will likely pick up, which could, in turn, drive down business valuations. Baby boomers whose plan includes selling the business will want to monitor the business sale market to detect any potential downturns.
What estate tax considerations should be taken into account with multigenerational businesses?
If the business is going to be transferred down through the family, business owners need to focus on how to provide liquidity for estate taxes. If the business is going to be retained in the family, owners can use some estate tax deferral rules that are available under the Internal Revenue Code. Other times, if the business has enough cash, stock may be redeemed. Sometimes business owners must rely on life insurance to help provide liquidity. Another option is to sell some of the interests to employees or a third party to provide liquidity.
How often should a succession plan be reviewed or updated?
A plan should be reviewed every three years and updated as circumstances change — when there are changes within the business owner’s family, changes of employees in the company, or changes in the growth of the company.
With any major change, the plan should be reviewed and perhaps updated.
Recently, there have been some succession plans that were contingent upon new owners buying out the departing owner. They assumed that bank financing would be readily available. In today’s banking environment, however, loans are more difficult to secure, so some plans have had to be tweaked to provide flexibility on the financing side.
Tom Venker is chair of the Business and Tax Department at The Stolar Partnership LLP. Reach him at email@example.com or (314) 641-5151.
A company’s reputation is critical to its prosperity. In developing this reputation through advertising, businesses need to be mindful of the complex and ever-changing body of laws that regulate advertising in myriad forms of media.
From traditional print ads to social media postings, advertising is pervasive and important to every business. How you protect yourself and your business from running afoul of the laws and protect yourself from attacks by your competitors can get tricky, says John Greenberg, chair of the Intellectual Property and Advertising Law practices at The Stolar Partnership LLP.
Smart Business spoke with Greenberg about how to promote your business, comply with the law and protect your brand.
What is advertising law?
Advertising law is an umbrella term that is often used to refer to legal issues relating to the trillion-dollar industry that consists of advertising, promotions and marketing.
It covers a multitude of important areas of the law: traditional advertising and trade disparagement; more cutting-edge advertising such as behavioral or targeted advertising, interactive advertising and advertising over the Internet; social media marketing; sweepstakes, contests and promotions; and even the use of gift cards, coupons, rebates and other incentives.
Why should businesses care about advertising law?
There has been a significant increase in the number and seriousness of lawsuits in this area over the past several years. The Federal Trade Commission has been active in challenging advertising campaigns that the FTC perceives to be a problem for consumers.
Plaintiffs’ lawyers have become increasingly aggressive in bringing class-action lawsuits. Businesses have also come to recognize that litigation, or at least the threat of litigation, is a powerful weapon to use against competitors whose advertising campaigns impugn their brands or otherwise make false or overly aggressive claims.
How can a business work with a partner to avoid litigation?
Businesses should work with their legal counsel in the early stages of the development of their campaigns so that they can avoid litigation later. By involving a law firm at this early stage of the process, businesses can have an attorney run an ad clearance early and provide preventive advice before the costs and stakes get higher — whether that means having the piece of mind that the campaign is on the right track legally or becoming aware of areas in which the campaign may run afoul of the law in some respect.
What types of issues should a business’s legal partner be looking for when running an ad clearance?
The attorney should look at a wide range of issues which, of course, vary from campaign to campaign. The attorney should consider whether there is factual support for the material ‘claims’ that are being made at the heart of the ad, and whether the claims and other elements of the campaign will violate the rights of others in terms of intellectual property rights, publicity or privacy rights, or third-party contract rights.
The attorney should also consider whether the claims and other elements violate applicable law on a federal, state, county and/or local level. This is of particular importance in some specific industries. The food and restaurant industry, for example, is highly regulated at a number of levels of the government.
The attorney also should look at whether a whole host of ancillary, but still very important, issues are in play, such as whether the campaign is likely to be distributed through proprietary social media sites, or is to be directed at children, or involves endorsements or testimonials, or affects privacy rights or data security.
These kinds of issues are particularly tricky under current law.
You also mentioned that companies are using advertising law as a weapon against competitors. How so?
When we discuss an ad clearance, we are talking defense. Yet, litigation in this area is increasingly being viewed as an offensive weapon, as well. Companies today are more sensitive to the value of their intellectual property and the potential to exploit it to their advantage against their competitors.
Whereas in the past, litigation was typically filed over only egregious conduct — an outright lie about another’s product — now there are an increasing number of lawsuits over more nuanced issues, such as whether implied claims about the superiority of another product’s performance are overreaching, or even whether too much of another’s trademark is used.
Underlying these lawsuits is the notion that the plaintiff company sees litigation as a worthwhile avenue for improving its competitive positions over competitors. Turning back to the issue of defense, the prospect of such litigation obviously brings into better focus the importance of conducting a thorough ad clearance up front.
John Greenberg is chair of the Intellectual Property and Advertising Law practices at The Stolar Partnership LLP. Reach him at (314) 641-5199 or firstname.lastname@example.org.
It’s still early in the current Missouri legislative session (which started Jan. 5 and runs through May 13), and those in the business world are closely following the activities in Jefferson City. This is shaping up to be an interesting year, and many pieces of legislation, if enacted, could redefine how companies and consumers approach business.
And if businesses aren’t aware of what’s happening at the state capital, they may miss some significant changes.
“There’s a lot to watch in 2011, both in Missouri and across the U.S.,” says Dale E. Hermeling, an attorney with The Stolar Partnership LLP. “With a significant Republican majority in both the House and the Senate in Jefferson City, the Republican agenda supporting business and smaller government will be pushed forward. It will be interesting to see how it all plays out.”
Smart Business learned more from Hermeling about possible legislative actions in Missouri and how they could affect businesses.
What is happening with tax credits in Missouri?
Last year, Gov. Jay Nixon commissioned a group of 25 business, community and legislative leaders to study the various tax credits that exist in Missouri. This Tax Credit Review Committee held public hearings and generated a report with various recommendations relative to the efficiency and effectiveness of the state’s 61 tax credit programs.
There has been a lot of concern over the budget in Missouri and the impact that the tax credits have on state revenue. A number of bills have been introduced in the Senate to restructure or eliminate some of the tax credit programs. Other bills call for establishing annual caps or requirements for legislative appropriation on the amount of the tax credit.
The most significant focus has been the challenges to the historic tax credit program and low-income housing tax credits that have been used so effectively on local projects here in St. Louis.
What other issues should employers be watching?
The first bill filed in the Senate this year involves an effort to establish Missouri as a right-to-work state. Right-to-work laws prohibit agreements between labor unions and employers that make membership or payment of union dues or fees a condition of employment, either before or after hiring.
Proponents of right-to-work feel that it would increase business opportunities in Missouri and make Missouri more competitive relative to some of our neighboring states. Opponents of right-to-work feel that these laws weaken unions, thus creating lower wages and endangering worker safety and health. They also argue that establishing Missouri as a right-to-work state would reduce the quality of the local work force.
If the bill passed, it likely would force a showdown with the governor, who opposes the measure.
There are also efforts to try to amend portions of the workers’ compensation law to eliminate what were likely unintended consequences of certain reforms passed in 2005. For example, courts have interpreted some of these changes to allow a worker who suffers a work-related injury to sue a fellow employee for negligence in a civil action. This exposure presents risk to supervisors, who may then look more and more to their employers to provide indemnity or some other protection.
In addition, there is a proposal to eliminate the state income tax and replace it with an expanded sales tax. No one knows how much revenue will be gained or lost if a sales tax is used instead of an income tax, and the sales tax will likely impose a greater burden on lower-income taxpayers than higher-income taxpayers. Businesses should be concerned that consumers could just avoid the sales tax altogether by shopping out of state.
Another concern is that the sales tax could be imposed on services that are not currently taxed, such as professional services and insurance premiums. I am not sure this kind of reform will gain a lot of traction. Proponents argue that replacing the income tax with a sales tax would help create jobs, promote economic development and make state revenue less volatile. Opponents feel that it could hurt the middle class and force cuts to government services.
What other legislation should be monitored?
Another item to watch in Missouri is whether the legislature will return control of police departments to the cities of St. Louis and Kansas City. There is a bill that has passed through the House and is currently in the Senate that would return control of the police departments back to the cities. Currently, police boards, whose members are appointed by the governor, control the operation of these police departments. This is a big issue if the city of St. Louis is ever to be reinserted into St. Louis County.
How will the makeup of the House and Senate impact pending legislation?
We all recognize the majority that Republicans have in both houses of the legislature, but one thing that isn’t talked about much is the level of experience that these legislators have. With the term limits that have been put into place in Missouri, there are a lot of legislators in both the House and the Senate who haven’t been there before and need to learn the ropes.
It’s a Catch 22: No one wants career politicians, but, at the same time, everyone wants politicians with experience. The bottom line is that we need cooperation among all of the legislators if any progress is going to be made.
Dale E. Hermeling is an attorney with The Stolar Partnership LLP. Reach him at (314) 641-5135 or email@example.com.
Most retail tenants are subject to the whims of the economy. When the economy goes bad, business slows down, and there’s less money to pay the rent. And when the rent doesn’t get paid, landlords suffer, says Henry F. Luepke III, a partner in the litigation department at The Stolar Partnership LLP.
“A commercial landlord depends on the rent that is to be paid for all of the space that it leases out,” says Luepke. “If a retail or commercial tenant won’t or can’t pay the rent, the landlord may have to evict that tenant and replace it with one that will pay the rent. But finding a reliable replacement tenant can be a challenge. If a new tenant is not available to fill the space, the landlord may hesitate before pursuing an eviction that won’t do much more than create another empty space in a property, such as a shopping center, where each tenant relies on the traffic generated by the other tenants.”
As long as the tenant is trying to pay the rent and there is a good chance it will be able to catch up on past-due amounts, it may be in the landlord’s best interest to hold off on an eviction and instead try to work with the tenant, until it becomes clear that the rent won’t be paid.
Smart Business spoke with Luepke about problem tenants and what landlords can do to deal with them and continue to get paid.
What makes a good landlord/tenant relationship go bad?
In the beginning, the landlord/tenant relationship is an amicable one — the tenant wants to succeed so that it can pay the bills and make a profit, and the landlord wants the tenant to succeed, because if it does, the rent can be paid, the space is filled and the increased level of commercial traffic will benefit all the neighboring tenants. It’s a win-win.
But if the business starts to struggle and misses a rent payment, the relationship can quickly become adversarial. At first, some landlords may be sympathetic to the tenant’s issues. The tenant may be allowed to pay late, or the landlord may forgive a portion of the rent.
Landlords, however, have to protect their rights under the lease. When the tenant gets behind on its lease obligations, and the rent and late fees begin to add up, further efforts to accommodate the tenant are likely futile, and the landlord must take prompt action to take back the space and collect as much of the past-due amounts as possible.
What other tenant issues should landlords be on the lookout for?
One issue is building maintenance and repair. A struggling tenant who has failed to pay the rent may try to turn the tables by claiming its failure to pay rent is due to the landlord’s failure to repair some part of the occupied premises.
While such a claim generally will not relieve the tenant of its obligation to pay rent, it will complicate an action to evict and collect the amounts owed. The landlord can avoid this complication by promptly responding to tenant complaints and maintaining its premises.
Sometimes it is the tenant who has caused damage to the premises or that is conducting activities in the premises that may be hazardous or cause damage. In these instances, the landlord often must seek immediate court intervention to close the tenant’s business, prevent further damage and collect the costs of repairing the damage.
Another issue, particularly in the context of a shopping center, relates to tenant mix. One tenant may disapprove of another tenant in the same commercial center. For example, say a shopping center landlord rents commercial space to a chiropractor. The landlord then leases space in the same center to a physical therapy business. The landlord doesn’t see the two businesses as being competitive, but the chiropractor does and feels its business is being hurt as a result.
From a legal standpoint, the landlord is within its rights to lease to the physical therapy business, but from a landlord/tenant relationship standpoint, it’s an unfortunate situation for all involved. If the landlord had known that the chiropractor would object, it might not have leased to the physical therapy business. But once a lease is signed, it’s an iron-clad contract, putting the landlord between a rock and a hard place.
This is why tenant mix — and knowing your tenants — is so important.
Short of eviction, how can problem tenants be dealt with?
The threat of court-ordered eviction is a powerful tool to make tenants pay and live up to their lease obligations. Landlords can use the court system to obtain settlements and consent judgments that, if not complied with, will result in the immediate eviction of the problem tenant.
Such settlements and consent judgments are effective because they create mutually acceptable terms under which delinquent tenants can become current on their lease obligations and, at the same time, grant landlords the ability to recover immediate possession without the costs and delays of filing another lawsuit.
What preemptive actions can landlords take to avoid these problems in the first place?
A thorough, well-drafted lease will anticipate and address most problems. The lease should spell out in detail what circumstances will constitute an event of default under the lease and should state the remedies that are available after an event of default, including immediate eviction and the recovery of damages, attorneys’ fees and other costs of enforcing the lease.
Beyond that, the best thing a landlord can do is find and sign solvent, reliable tenants. Landlords should conduct proper due diligence and get detailed financial statements from prospective tenants. To help ensure payment from corporate tenants, landlords also should require written personal guarantees from the individuals and their spouses who own the corporation or other entity that is the named tenant.
Henry F. Luepke III is a partner in the litigation department at The Stolar Partnership LLP. Reach him at (314) 641-5128 or firstname.lastname@example.org.