Just a Thought – But Can You Imagine?

This post will probably generate replies from the legal profession (I do not want anyone to think he/she must be a lawyer to continue, however) but might also from insurance company claims personnel, as well. Why? Read on – and I promise not to bore anyone with this thought!

 

I was enjoying a phone conversation with a prospective client and long-time acquaintance of mine (yes, I’ve known him for 15+ years but really never pursued his business until now). This prospect is wishing to expand his business by opening other locations. I will call him “A” so that you can readily identify him. What is “A’s” business? A licensed pub is what it is and one of the locations we discussed is a former pub site that I have known well for 15+ years, too. The reason it became vacant is that the landlord/property manager increased rents to such an extent that the tenant decided to close up their business. What I enjoyed about the discussion with “A” is that he mentioned an idea that gave rise to my mind thinking of potential lawsuits – now, is that not a great way for a Risk Manager/Insurance Broker to begin 2011? At the minimum, it will encourage growth of my business, right?!

 

“A” suggested that a landlord might have a rental escalation clause after an introductory period that might be significant and could result in a tenant being forced into bankruptcy. I started to think that potential creditors might receive counsel that the landlord/property manager may have contributed to the demise of a tenant’s business; if that were the case, would it not then be possible the landlord/property manager might then be named in any lawsuit? I am curious to know if anything like this has ever happened or whether my expert and learned readers might agree with me that there is a chance that lawyers might be drawn into this type of arrangement?

 

Example – introductory rents for 6 months of $15/sf (OK, I’m not really serious about the amounts but I’m using this for ease in working with) which then escalate to $25/sf of a long-term lease? This example means an increase of approximately 65% which is quite sizable. Would this not be significant enough to cause default if incomes were not increasing, especially if the landlord/property manager had a prior tenant with the same style of business occupying their properties previously and/or if the increased amount was out of line with comparable real estate in the area? Could this not be a cause for a creditor to then sue the landlord/property manager or include its Directors and Officers (D&O) in a claim for payment of a defaulted contract? I propose that it could be, especially with the circumstances I am proposing here. We all know that lawyers’ fees can be significant so is this not another reason to purchase D&O Liability Insurance?

 

Your thoughts are most welcome and encouraged!

 

Happy New Year to all.

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3 Responses to “Just a Thought – But Can You Imagine?”

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