CREJ

4 / 32

Page 4 — Property Management Quarterly — April 2017
T here are many ways a com-
mercial tenant may find
itself in a nonmonetary
default. Violations of the
“use” clause; failure to main-
tain the premises; violation of rules
and regulations and prohibitions
contained in the lease; violation
of any prohibition on subletting or
assignment; providing false or mis-
leading financial statements; fail-
ure to take occupancy, vacation or
abandonment of the premises; fail-
ure to continuously operate; making
alterations without consent; and
failing to obtain the requisite insur-
ance are but a few.
With so many potential defaults,
varying grace periods and cure
rights, I called Amanda Halstead to
help clarify the complicated legal-
ese.
• Sessions: Why do most leases
contain so many different default
clauses with various triggers, grace
periods, deadlines, notice require-
ments, cures and remedies?
• Halstead: Defaults come in all
shapes and sizes, some material,
others less material, some that
can be promptly cured, others that
require additional time.
From a landlord perspective, a list
of enumerated defaults with vari-
ous grace periods provides the land-
lord with some flexibility. For exam-
ple, a landlord might prefer not to
put a tenant in formal “default”
for something immaterial if he is
marketing the property for sale or
attempting to refinance.
From a tenant perspective, enu-
merating specific types of defaults
and providing
for different cure
periods offers pro-
tection by provid-
ing a tenant with
the opportunity
to avoid termina-
tion of a lease
in the event of a
minor breach. The
timeframes for
cures are specific
to the nature of a
default.
By way of exam-
ple, the time period for curing a
default that might cause damage to
the leased premises, result in harm
to a person or cause the landlord’s
insurance to be cancelled typically
would be very short.
Generally there is no contractual
cure period for an unauthorized
assignment because landlords want
to know who is occupying their
spaces. A generic default provision
(for example, any failure to perform
hereunder constitutes a default)
could be detrimental to a landlord
and tenant, both of which may have
a vested interest in preserving a
lease.
• Sessions: What is the difference
between a monetary default and a
nonmonetary default in a lease?
• Halstead: A monetary default
is the failure to pay any monies
required under a lease. A nonmone-
tary default is the failure to perform
any other obligations under a lease.
Examples of nonmonetary defaults
are provided above.
• Sessions: Why are any own-
ers reticent about
pulling the non-
monetary default
trigger?
• Halstead: A
landlord might
be hesitant to
make demands
on a tenant that
could cause a
breach to ripen
into a “default”
for a number of
reasons. By way of
example, in a slow
market, a landlord
might prefer to
keep a tenant who is in default in
an immaterial way as opposed to
terminating that tenant’s right to
possession and having to locate a
new tenant. With any new tenancy
comes additional expenses includ-
ing brokerage commissions and
improvement allowances. Although
these items typically are recover-
able from a defaulting tenant, it
may be difficult, if not impossible,
to collect.
A landlord also might have con-
cerns that a technical default under
a lease could interfere with a poten-
tial sale or refinance. Moreover, as a
plaintiff, a landlord would have the
duty of establishing the default by
the tenant. Certain nonmonetary
defaults, particularly violations of
rules and regulations, are difficult
to prove and might involve testimo-
ny of a reluctant witness (i.e., the
neighboring tenant).
• Sessions: Do grace periods favor
the tenant or the landlord?
• Halstead: Grace periods undoubt-
edly benefit a tenant, giving her
additional time to meet the obliga-
tions, but also grace periods can be
beneficial to a landlord who may
prefer that a tenant not be immedi-
ately in default.
• Sessions: Who needs to receive
notice of default?
• Halstead: Before sending any
notice of default, a landlord should
review the notice provisions of a
lease. In order to be effective, a
notice may need to be sent to one
or more addresses in a specific
manner, such as overnight, certified
mail, return-receipt requested or
hand delivery.
• Sessions: What does it mean to
“diligently pursue” the cure?
• Halstead: This term is a bit
ambiguous and, in the legal world,
ambiguity leads to litigation. For
this reason, it is important that the
lease require that the tenant com-
mence the cure on or before a cer-
tain date, complete it within a cer-
tain timeframe (providing an out-
side date for the cure) and diligently
pursue the cure in the intervening
period. The concept of diligent pur-
suit suggests that a tenant should
not sit idly on his hands but instead
should undertake diligent efforts to
cure the default. This can be tough
to prove.
• Sessions: Can a tenant invoke a
force majeure provision in a lease?
• Halstead: Depending on how
the force majeure provision is writ-
ten, a tenant may be able to invoke
Legal
COLLIERS INTERNATIONAL MANAGEMENT?
COLLIERS INTERNATIONAL
4643 S. Ulster Street, Suite 1000 · Denver, Colorado 80237
303 745 5800
Why
OWNER
Trusted by Owners:
Same Clients for over 20 years
New Assignments
Every Year
Over 12M Square Feet
35 Satisfied Owners
TENANT
Trusted by Tenants:
98% Retention of
Management After Sale
Over 600
Satisfied Tenants
High percentage of
renewals
Because we create value.
Trust
Reliability
Commitment
Integrity
Steven S.
Sessions
CEO, Sessions
Group LLC, Denver
Amanda H.
Halstead
Member, Mills,
Schmitz, Halstead,
Zaloudek LLC,
Denver