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Legalease
Legalease, Lawyer
Category: Legal
Satisfied Customers: 16333
Experience:  15 years exp all aspects of general law
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One non profit (#1) sold their property and used part of the

Customer Question

One non profit (#1) sold their property and used part of the proceeds to help another non profit (#2) purchase a building with the agreement that #1 would have a exclusive room for their use for as long as they exist and they could use the meeting hall #2 has when they want unless already in use by #2. In addition #2 will obtain insurance coverage as it deems appropriate. #1 agrees to share with #2 the cost of such liability insurance at a proportion to be determined at a later date. This agreement was singed in 1989. The amount paid monthly was $225 and then approximately 15 years ago it was changed to $355 a monthly. #1 now says they don't want to pay anything or they want to see all of #2 bills. Can #1 do this or have they already set a precedent by paying $350 a month for the last 15 years? They have held back their payment last year and this year. #2 is still demanding payment. Can #2 also refuse them the use of the hall until they pay?
Submitted: 1 year ago.
Category: Legal
Customer: replied 1 year ago.
It has been said that #1 is sharing the maintenance cost of the building with #2 but no formal agreement was signed (that is supposedly part of the $355 a month) - that was all when both organizations were on friendly terms. Now individuals in charge in both organizations are not on friendly terms. That is why they are demanding to see all of #2 bills before they pay anything. This agreement was done on a "handshake". Hasn't there been a precedent set by #2 because they have paid that amount for so long. It hasn't increased. Could #2 say they demand the amount be increased?
Expert:  Legalease replied 1 year ago.

Hello there --

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Unfortunately, the language in the original agreement that states that "#1 agrees to share with #2 the cost of such liability insurance at a proportion to be determined at a later date" is what we call an "agreement to agree" and really meant nothing at the time it was put into the agreement and the agreement was signed. Because the parties never actually entered into a written final agreement regarding the proportion of the payment amount and the terms and conditions of when the amount is to be paid, a court will seek to use some other means to determine what the proportion should now be AND how and when that proportionate amount should be paid.

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The means the court will use to make this determination is a combination of (A) past practice and (b) what the current standard in the industry for this type of rental and business is. The judge would then look at these two items/areas through the proof presented by both sides of the argument and will come up with a decision that is reasonably legally fair given the past practices of the parties and the current practices of all of those similarly situation businesses either in the same industry or if no real comparisons exist because they are non profits, then the court will look to what other owners and renters are doing regarding splitting the costs of insurance for buildings where the renter is obligated to pay a proportionate amount of the insurance.

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In such a situation with a commercial building, when the term "proportionate share" is used, the tenant is generally required to pay its pro rata share of any items agreed to by the landlord and tenant in the lease agreement. This was true in 1989 and is still true today (the legal definition of "proportionate share" of any additional costs such as insurance (or any other listed item, like overnight cleaning ladies or utilities) is an amount which is approximately equal to the tenants amount of space used in the building as a whole, with a reduction in the overall amount if the tenant does not use that space at all times and the landlord gets other uses out of the space when that particular tenant is not using that space). Billing for the amount due each year is also an item that should have been set forth in the lease in writing, and since it was not clearly stated in the lease document that #1 has the right to an itemized calculation in writing at any time -- then #1 does not have the right to go back and see copies of all insurance bills for the entire time period of 25 years to prove to itself that it was paying the correct amount.

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At this point in time, what is commercially reasonable is the standard that will be used by the court and a judge can force #2 to provide proof of any insurance charges (or other charges #2 seeks to collect) on a going forward basis (but because the contract does not require the same, the court will not go back and second guess the authors of the original contract documents -- it simply is not done -- but the court can order continuous ongoing disclosures from the point where the matter is set before the judge and going forward).

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What is commercially reasonable is that #2 must calculate what percentage of the building that #1 is using and then give a reduction if the room is used for any other purpose by #2 when #1 is not using the room (if it is vacant and no one else uses the room then # ***** is not entitled to a reduction for time usage -- #1 gets that benefit only if the room is being rented to another party OR the room is being used by #2 when #1 is not there). For example, if the entire interior square footage of the building is 10,000 square feet and the room rented by #1 is 2,500 square feet, that represents 25% of the buildings useable space and thus #1 should be required to pay 25% of the liability insurance for the building (and any parking lot or parking garage if #1's attendees use such parking lot or parking garage) and should be added to the insurance certificate as a covered entity/business in the building for liability insurance. Now, if the room is only used by #1 for 50% of each month and #2 either rents out the room to another party OR uses the room itself for the other 50% of the time, then the insurance amount due from #1 for the building and parking should be reduced again by that percentage of when the room is used by other parties.

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I have many years experience in writing and negotiating commercial leases and can confidently tell you that the court will leave the past in the past because the written document controlling the situation is no help other than the fact that it uses the correct term "proportionate share" which is the legal standard used to determine the outcome in these cases. Leases today are written with each tenant paying their proportionate share of insurance AND cleaning, and plowing and maintenance and taxes -- so it seems to me that #1 has actually gotten off the hook for many years for anything other than liability insurance charges when it was actually commercially reasonable for #1 to be required to pay their proportionate share of ALL of the items I listed here (utilities, snow plow, etc).

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Finally, if the matter gets into court, the court will not go back 25 years -- there are statutes of limitations regarding contractual agreements and breaches of contract and for the breach of a written contract in CA, the statute of limitations is 6 years -- meaning that the court will not go further back than that regarding any claimed monetary damages. So, if the court does entertain "opening the books" of #2 to show #1 what was actually paid out for insurance and for other charges for the building, even though the contract does NOT require such an accounting and the contract does not even state that #2 must present a written invoice or statement to #1, the court would not go back further than that 6 years under the statute of limitations rules. But again, because the contract does not require any accounting or anything similar to it, I do not think the court will entertain such arguments at all and would focus on the future relationship between the parties and either getting the two parties to finally enter into the final agreement as noted in the original document OR issuing a court order and telling the two sides what that final agreement will be going forward using current commercially reasonable standards of the practices of commercial landlords and tenants in the area, county, state.

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I hope that was not too confusing and that it helps you to sort out these arguments between the parties. Please let me know if you have any further questions. If not, can you please press a positive rating before leaving the website so that I will be paid for my time assisting you this morning. I am paid nothing unless you press either the middle star or the fourth or fifth star on the right side of the ratings section (above). Doing so will not cost any additional money -- it simply acts as the trigger to Just Answer to pay me for my time. Bonuses are always appreciated and are paid out in a greater percentage to the expert than regular question costs and can be entered after pressing a positive rating when a bonus dialog box will appear on screen.. THANK YOU VERY MUCH !!

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MARY

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Expert:  Legalease replied 1 year ago.

Hello there --

-

Unfortunately, the language in the original agreement that states that "#1 agrees to share with #2 the cost of such liability insurance at a proportion to be determined at a later date" is what we call an "agreement to agree" and really meant nothing at the time it was put into the agreement and the agreement was signed. Because the parties never actually entered into a written final agreement regarding the proportion of the payment amount and the terms and conditions of when the amount is to be paid, a court will seek to use some other means to determine what the proportion should now be AND how and when that proportionate amount should be paid.

-

The means the court will use to make this determination is a combination of (A) past practice and (b) what the current standard in the industry for this type of rental and business is. The judge would then look at these two items/areas through the proof presented by both sides of the argument and will come up with a decision that is reasonably legally fair given the past practices of the parties and the current practices of all of those similarly situation businesses either in the same industry or if no real comparisons exist because they are non profits, then the court will look to what other owners and renters are doing regarding splitting the costs of insurance for buildings where the renter is obligated to pay a proportionate amount of the insurance.

-

In such a situation with a commercial building, when the term "proportionate share" is used, the tenant is generally required to pay its pro rata share of any items agreed to by the landlord and tenant in the lease agreement. This was true in 1989 and is still true today (the legal definition of "proportionate share" of any additional costs such as insurance (or any other listed item, like overnight cleaning ladies or utilities) is an amount which is approximately equal to the tenants amount of space used in the building as a whole, with a reduction in the overall amount if the tenant does not use that space at all times and the landlord gets other uses out of the space when that particular tenant is not using that space). Billing for the amount due each year is also an item that should have been set forth in the lease in writing, and since it was not clearly stated in the lease document that #1 has the right to an itemized calculation in writing at any time -- then #1 does not have the right to go back and see copies of all insurance bills for the entire time period of 25 years to prove to itself that it was paying the correct amount.

-

At this point in time, what is commercially reasonable is the standard that will be used by the court and a judge can force #2 to provide proof of any insurance charges (or other charges #2 seeks to collect) on a going forward basis (but because the contract does not require the same, the court will not go back and second guess the authors of the original contract documents -- it simply is not done -- but the court can order continuous ongoing disclosures from the point where the matter is set before the judge and going forward).

-

What is commercially reasonable is that #2 must calculate what percentage of the building that #1 is using and then give a reduction if the room is used for any other purpose by #2 when #1 is not using the room (if it is vacant and no one else uses the room then # ***** is not entitled to a reduction for time usage -- #1 gets that benefit only if the room is being rented to another party OR the room is being used by #2 when #1 is not there). For example, if the entire interior square footage of the building is 10,000 square feet and the room rented by #1 is 2,500 square feet, that represents 25% of the buildings useable space and thus #1 should be required to pay 25% of the liability insurance for the building (and any parking lot or parking garage if #1's attendees use such parking lot or parking garage) and should be added to the insurance certificate as a covered entity/business in the building for liability insurance. Now, if the room is only used by #1 for 50% of each month and #2 either rents out the room to another party OR uses the room itself for the other 50% of the time, then the insurance amount due from #1 for the building and parking should be reduced again by that percentage of when the room is used by other parties.

-

I have many years experience in writing and negotiating commercial leases and can confidently tell you that the court will leave the past in the past because the written document controlling the situation is no help other than the fact that it uses the correct term "proportionate share" which is the legal standard used to determine the outcome in these cases. Leases today are written with each tenant paying their proportionate share of insurance AND cleaning, and plowing and maintenance and taxes -- so it seems to me that #1 has actually gotten off the hook for many years for anything other than liability insurance charges when it was actually commercially reasonable for #1 to be required to pay their proportionate share of ALL of the items I listed here (utilities, snow plow, etc).

-

Finally, if the matter gets into court, the court will not go back 25 years -- there are statutes of limitations regarding contractual agreements and breaches of contract and for the breach of a written contract in CA, the statute of limitations is 6 years -- meaning that the court will not go further back than that regarding any claimed monetary damages. So, if the court does entertain "opening the books" of #2 to show #1 what was actually paid out for insurance and for other charges for the building, even though the contract does NOT require such an accounting and the contract does not even state that #2 must present a written invoice or statement to #1, the court would not go back further than that 6 years under the statute of limitations rules. But again, because the contract does not require any accounting or anything similar to it, I do not think the court will entertain such arguments at all and would focus on the future relationship between the parties and either getting the two parties to finally enter into the final agreement as noted in the original document OR issuing a court order and telling the two sides what that final agreement will be going forward using current commercially reasonable standards of the practices of commercial landlords and tenants in the area, county, state.

-

I hope that was not too confusing and that it helps you to sort out these arguments between the parties. Please let me know if you have any further questions. If not, can you please press a positive rating before leaving the website so that I will be paid for my time assisting you this morning. I am paid nothing unless you press either the middle star or the fourth or fifth star on the right side of the ratings section (above). Doing so will not cost any additional money -- it simply acts as the trigger to Just Answer to pay me for my time. Bonuses are always appreciated and are paid out in a greater percentage to the expert than regular question costs and can be entered after pressing a positive rating when a bonus dialog box will appear on screen.. THANK YOU VERY MUCH !!

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MARY

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