Why Write About SSDI Benefits?

             Stay with me a few moments and I’ll answer that question.

             The Fair Housing Rights Center in Southeastern Pennsylvania received a complaint regarding the denial of a request for “reasonable accommodation” by an individual seeking residential housing. FHRC dispatched testers and checkers to three properties in the greater Philadelphia area to determine the validity of the complaint. Not satisfied with the results of the tests, FHRC filed a federal lawsuit against the professional management company – Morgan Properties.

             Morgan manages over 35,000 residential rental units in 130 communities in 10 States. As policy, Morgan refuses to adjust rental payment dates for tenants with disabilities who receive Social Security Disability Insurance – SSDI – later than the rent due date.

             The average monthly rent for a one-BR in a Philadelphia-area Morgan property is $1,200. Rent is due on the 1^st. If rent is not paid by the 5^th day of the month, a 10% late fee - $120 - is charged.

             More than 20 years ago the Social Security Administration changed the SSDI monthly payment dates from the 3^rd day of the month to the second Wednesday, third Wednesday or fourth Wednesday of the month, depending on the birthdate of the recipient.

             Since the second Wednesday of any month can be no earlier than the 8^th and may be as late as the 14^th, all SSDI recipients in the last 20 years receive monthly checks at least three days past the due date for Morgan’s properties.

             SSDI benefits vary according to contributions the worker made during her / his working life. Two years ago the average SSDI check to a disabled worker was $1,166 per month. More than 10 million Americans receive SSDI benefits; many rely on it as their sole source of income.

             FHRC’s testers asked Morgan for an accommodation by adjusting the rent due date to coincide with the receipt of a Social Security payment, so that Social Security recipients could pay rental on time without monthly late fees. FHRC alleges that each tester was told that their refusal to grant the accommodation was due to Morgan’s company-wide policy.

             In 2016 FHRC sued Morgan to challenge its policy, claiming it discriminated against residents with disabilities by imposing financial hardships on them because of their disabilities and their need to receive Social Security benefits to pay rent.

             Morgan denies that it discriminates by requiring all tenants to pay rent by the 5^th day of the month, or be liable for late fees (and possible court fees and eviction). Morgan further claims that FHRC’s challenge to Morgan’s rental policy is not a request for an accommodation based on SSDI recipients’ disabilities, but is rather a purely economic accommodation and would pose a significant monetary hardship on Morgan.

            Morgan also claims that such an accommodation would place an undue burden on them and is therefore not reasonable by definition.

             The Court hearing this matter has concluded that the financial circumstances of disabled tenants may be considered in determining the legal need for a HUD “reasonable accommodation.”

             Through this date, 79 documents have been filed in the lawsuit. More are coming. The Court has ordered a settlement conference which, if not delayed, will take place on December 10, 2018. If not resolved at mediation, this case could set new national precedent requiring residential Landlords to adjust their rent payment schedules to coincide with the receipt by tenants of governmental benefits.

             Key this case name into the search engine of your choice after December 10, 2018: Fair Housing Rights Center In Southeastern Pennsylvania v. Morgan Properties Management Company, LLC; US District Court, Eastern District of Pennsylvania, Eastern Division, Case 2:16-cv-04677-RBS; https://www.disabilityrightspa.org/spotlights/pennsylvania-federal-district-court-rules-that-altering-rent-due-date-can-be-a-reasonable-accommodation-under-the-fair-housing-act-for-tenants-who-receive-disability-benefits. If you have own, finance, lease or manage residential properties, you will [should be!] keenly interested in this case.

 

            Lessons Learned / Questions Asked:

1.      Residential Landlords have mortgages and bills to pay that are due on the first day of the month. Landlords don’t have the ability to threaten their creditors with a lawsuit if the creditors fail to offer Landlords a “reasonable accommodation” merely because the tenants aren’t making payments between the 1^st and 5^th day of each month. If this case results in a new requirement that residential Landlords must adjust rental due dates to match the date that tenants receive governmental benefits, then there will be an economic cost to Landlords that will be passed on to all residential tenants including those same tenants who are requesting the accommodation.

2.      Even if this case is settled and we hear nothing further about it after December 10, the fact that it has been filed and that the Court seems receptive to the position asserted by the plaintiff means that other similar cases will also be filed.

3.      Yes Virginia, this is indeed my 100^th blog article. Congratulations to me, and Happy Holidays to all my readers.

 

                                                                             Stuart A. Lautin, Esq.*

* Board Certified, Commercial (1989) and Residential (1988) Real Estate Law,

Texas Board of Legal Specialization

 Licensed in the States of Texas and New York

 

Higier Allen & Lautin, PC

2711 N. Haskell Avenue, Suite 2400

Dallas Texas 75204

P: 972.716.1888

E: slautin@higierallen.com

W: www.higierallen.com

Boo Bradberry and the San Francisco Rose

Our Supremes (Texas Supreme Court, that is) never get involved in eviction cases. Certainly not in commercial evictions. Not that I can recall, anyway.

With one recent exception.

Shields Limited Partnership owns commercial property in Dallas, which was leased to Boo Bradberry and subleased to 40/40 Enterprises, Inc. Boo and 40 have operated the San Francisco Rose there, which has been a Dallas-area Greenville Ave fixture since the 1970s.

Boo was not timely with his rent payments, and regularly violated the Lease terms by paying late. Without fail, Shields accepted the rental when tendered without protest or assessment of late fees.

In May 2012 Boo was late again with the rental payment, which was not tendered until June 13. The late rent payment was, again, accepted without protest.

If Boo had properly exercised a lease option, his rate starting June 1 would have increased to $3,340 per month. Instead, Boo continued to pay $3,000 per month. And Shields continued to accept it.

In November 2012 Shields’ broker sent Boo an email notice that Boo had incurred late charges, and declared that Boo was a month-to-month tenant.

Since no further rent payments were received, Shields’ broker sent Boo a notice of default in December 2012.

Almost one full year later – October 2013 – Boo received additional default notices and Shields offered Boo a new lease with a rent rate of $9,700 per month. When Boo refused, Shields started an eviction lawsuit.

The JP Court ruled in Boo’s favor, as did the Dallas County Court. The Texas Court of Appeals affirmed, finding essentially that Shields’ actions in constantly accepting late rental payments without protest is inconsistent with the assertion that Boo had failed to fulfill the lease obligations.

The main point before the Supremes turned on the non-waiver provision in the Lease, which said exactly what you think it would say:

“Landlord’s failure to enforce any provisions of [the] Lease or its acceptance of late installments of Rent shall not be a waiver and shall not estop Landlord from enforcing that provision or any other provision of [the] Lease in the future.”

So the issue is only whether Shields could, by its conduct in continually accepting late rent, waive the non-waiver provision of the Lease.

After pages of discussion and case citations from 1945 on (let’s not forget this is the Texas Supreme Court), the Supremes held that Shields’ constant acceptance of late rent payments does not waive the non-waiver clause. Meaning: Shields could still claim a Lease default and evict Boo.

Wow. Got to be honest with you – I did not see this coming although I should have. Since the Texas Supreme Court accepted review of the case, that meant that new laws were headed our way. Because, see above. Our Supreme Court never reviews commercial eviction cases.

See Shields Limited Partnership v. Boo Nathaniel Bradberry and 40/40 Enterprises, Inc.; Case No. 15-0803; Texas Supreme Court; May 12, 2017: http://docs.texasappellate.com/scotx/op/15-0803/2017-05-12.guzman.pdf.

Lessons learned:

1.      If a Texas landlord has been accepting late rents without protest, perhaps there is still a means to evict a tenant for non-payment. Maybe.

2.      But rather than litigate the case to the Supreme Court, a Texas landlord would be wiser to reject the late rental, or accept it “under protest” and consistently enforce late provisions. In that manner, appellate litigation should not be needed.

3.      There’s a procedural point I don’t understand. Texas laws only allow residential evictions to be appealed past the county court level. See TPC 24.007: http://www.statutes.legis.state.tx.us/Docs/PR/htm/PR.24.htm. This has been our laws since at least 1983. I need to read this case again and figure out how / why this commercial eviction was appealed, twice, past that level.

**Reprinted with the permission of North Texas Commercial Association of REALTORS®, Inc.

Fun with Percentage Rental Clauses

In 1993, Ralphs Grocery Company signed a 20-40 year lease with Midtown Shopping Center Associates for 53,000 square feet in a Los Angeles shopping center. Under the lease, Ralphs is required to pay an annual base rental rate of almost $1 million per year, plus 1.25% of gross sales over $31 million.

The lease defines “gross sales” as the amount of the sales price, whether or not for cash or upon credit, of all merchandise and goods, and the charges for services sold on or delivered from the shopping center property. The lease excludes 15 items from gross sales, including sales tax, deposits on returned items, refunds and credits for defective items, sales from other stores, interest and credit card charges, sales from lottery tickets and coin-operated devices, coupons, commercial sales of scrap materials and bulk sales consisting of inventory, fixtures and equipment.

Also excluded are “. . . discounts allowed to any customer pursuant to any customary and reasonable policy adopted by Ralphs . . .”

Ralphs created a Rewards program in 1997 intended to encourage and reward customer loyalty. In this program, Ralphs charges two prices for merchandise: (1) a higher price paid by customers who do not participate in the Rewards program; and (2) a lower price paid by customers who sign up for the customer loyalty program.
 
Paper transaction receipts generated at the check-out stand detail what Rewards customers would have been charged without the program discounts, and calculates their “savings.” The program has been quite successful: transactions by Rewards customers account for 97% of all transactions at Ralphs.

Ralphs provided Midtown yearly statements reflecting what it believed constituted “gross sales” from the Midtown store, using the amount Rewards customers actually paid rather than the amount they would have paid for the same items had they not participated in the loyalty program. When Midtown expressed its view that Ralphs was under-reporting “gross sales” by excluding the amounts Rewards customers could have been charged, Ralphs filed a lawsuit against Midtown.

The trial court concluded that “gross sales” was based on sales prices Rewards customers would have paid absent the program discounts. Accordingly, the court awarded Midtown $305,000.

Ralphs appealed.

The Court of Appeals determined that a reasonable, fair and just definition of “gross sales” is one that looks to the amounts Ralphs actually charges its customers, as opposed to the hypothetical amount Ralphs opts not to charge them.

The Court of Appeals also found that the Rewards program is a discount pursuant to a “customary and reasonable policy” adopted by Ralphs, as specifically contemplated by the lease even though it was created four years after the lease was signed.
        

The Judgment of the trial court is reversed. The term “gross sales” in the Ralphs – Midtown lease does not include amounts Ralphs never charged its Rewards customers. Consequently, Ralphs owes no additional rental.

See Ralphs Grocery Company v. Midtown Shopping Center Associates; No. B252292; California Court of Appeal, Second Appellate District, Division Two; June 17, 2015.

Lesson learned: It is difficult in commercial leasing to anticipate every issue that will occur over a 20 or 40 year lease term. Gross sales clauses are constantly being  probed and tested, as are CAM triple-net pass-through clauses of taxes since Texas franchise and margin taxes didn’t exist seven years ago. Be extra careful when you are addressing percentage-of-gross-sales and expense reimbursement provisions.

 

Reprinted with the permission of North Texas Commercial Association of REALTORS®, Inc.

Ipse Dixit!

DZM, Inc. leased retail space in a shopping mall to a tenant, to operate a poker room and social club. The tenant paid DZM rent from August 2005 to October 2005, but did not pay rental in November. So DZM changed the door locks.

Richie Garren asserted that he leased poker tables, chairs, poker supplies, electronics, decorations and other items to the social-club tenant for $1,000 per month. And that DZM effectively converted Garren’s property by changing door locks and refusing to return the items to Garren.

So Garren sued DZM. The jury determined that DZM had indeed converted Garren’s property, and awarded $12,500 in damages.

DZM appealed, not really to protest the issue of conversion, but instead to assert that the evidence was insufficient to prove an exact damages amount.

The appellate court found a recent Supreme Court case allowing a property owner to testify to its value. The owner in this unique situation doesn’t have to be a qualified expert to furnish an opinion. But rather the theory is that no one would know value better than the owner whose property was just wrongfully taken.

However, the owner’s testimony is judged by the same standards as expert testimony. States the court: “. . . an owner’s property valuation may not be based solely on the owner’s ipse dixit [emphasis in the original case opinion].”

Ipse dixit. Yes the court wrote that. You can’t make that up. My assumption is that all my loyal readers know the meaning. Well, for the one new reader who doesn’t (and yes I had to look it up too), I won’t keep you waiting: “he, himself, said it.”

That strikes yours truly as a rather arbitrary, dogmatic statement. Much like “well that’s just the way it has been so that’s the way it will be.” Sorta.

Anyway, back to the case. A property owner must provide the factual basis on which her / his opinion rests. It is not enough to simply claim “that’s what my stuff is worth because I just told you that’s why my stuff is worth."

Garren submitted some invoices and purchase receipts as indicia of fair market value. But this property was hardly new; it had been used by the poker room for some period of time. Evidently depreciation was not a factor, at least not to Garren anyway.

Because Garren was unable to furnish legally sufficient evidence that the property had any fair market value at the time of the conversion, the Judgment of the trial court was reversed. DZM, Inc. (real property landlord) wins; Richie Garren (personal property lessor) loses.

See DZM, Inc. v. Richie Garren; Cause No. 14-14-00040-CV; Texas Court of Appeals, 14th District - Houston; June 25, 2015.

Lessons learned:

1.  I offer much free advice at www.avvo.com. It’s my pro bono efforts. There are questions almost daily about property conversion. For those who have similar issues, this is an important case to understand that property valuations offered by the owner can be challenged.

2.  The NTCAR Expo is September 2 this year. I plan to make a new sign. Look for me there under the banner “IPSE DIXIT.”

3.  Practice Point: When you go home tonight, tell your spouse / significant other / dog IPSE DIXIT. Then send me an email and let me know how that went for you. I’m going to try it too. If there’s another Counsel Corner from me next month, I either lived or someone is ghost-writing.

4.  Bonus Lesson: ~ 10 years to litigate a case with a value of $12,500? Really?

Reprinted with the permission of North Texas Commercial Association of REALTORS®, Inc.

Commercial Leasing (times two)

1.  Arbitration

On March 15, 2001, 175 Broad Street LLC (landlord) entered into a five-year lease with The Nead Organization, Inc. (tenant) for 12,017 SF in a commercial building. The lease was amended and extended in September 2005.

The holdover provision stated that if Nead continued occupancy after March 31, 2011 without the Landlord’s consent, then Nead would pay double the amount of base rent.

Nead was evidently not ready to vacate by the end of the stated lease term. Nead actually paid double rent from April through July 2011, but then stopped paying rental altogether. Nead ultimately vacated the premises on August 16, 2011.

175 Broad sued Nead for breach of the lease. 175 Broad alleged that Nead vacated the premises without proper notice, failed to pay rental and other charges, neglected to remove fixtures and failed to restore the premises to its original condition. 175 Broad alleged total damages of $224,468.

Shortly after 175 Broad filed its lawsuit, Nead asked the court to dismiss the complaint, citing a mandatory arbitration provision contained in the lease. 175 Broad defended by claiming that the arbitration provision was not intended to cover money disputes.

The court agreed with Nead and dismissed the lawsuit. 175 Broad appealed.

The Court of Appeals reviewed the arbitration section closely, which stated: “All disputes under this Lease, other than those relating to the payment of rent or other charges by Tenant, must be submitted to arbitration.”

Concluding that a part of the dispute related to rent but other claims did not, the Court of Appeals agreed that, regardless, the case must be dismissed to allow the parties to pursue arbitration.

The tenant Nead won and the lawsuit was dismissed. See 175 Broad Street, LLC v. The Nead Organization, Inc.; Docket No. A-3600-11T4; Superior Court of New Jersey – Appellate Division; January 10, 2013.

The results of the arbitration were not publicized.

2.  The Pain of Non-Payment

N. Providence LLC leased property to The Great Atlantic & Pacific Tea Company, Inc. Some of you will recognize the tenant as “A&P.” In the Lease, A&P promised to construct a new grocery store for itself in the shopping center, and Providence agreed to pay A&P a construction allowance of $1.9 million within 90 days following the date that A&P opened its store.

A&P opened for business on September 24, 2010, thereby giving Providence 90 days or until December 23, 2010 to pay the construction allowance. Providence secured a loan from UBS and advised A&P that it was ready to fund the $1.9 million allowance.

All was proceeding well. Until A&P filed bankruptcy on December 21, 2010. UBS informed A&P it was prepared to fund the construction allowance as soon as A&P assumed the Lease in the context of the bankruptcy proceeding.

A&P then assumed the Lease. Six months later. On June 22, 2011.

The first obvious result was that the construction allowance wasn’t funded within the 90-day window. The second not-so-obvious result was that A&P withheld all rent and other charges from December 23, 2010 (the last day to properly fund the construction allowance) until September 29, 2011 – being the date the allowance was finally paid.

Providence filed a lawsuit against A&P, claiming that the $1.9 million allowance must be reduced by the amount of rent withheld. The court ruled for A&P in holding that the Lease plainly stated no rental was due until the construction allowance was paid.

Providence appealed.

It took 20 pages for the appellate court to decide that indeed A&P had the right to withhold rent payments to Providence. And that A&P’s bankruptcy filing and delayed receipt of the construction allowance had saved A&P a substantial sum. See The Great Atlantic & Pacific Tea Company, Inc. . N. Providence, LLC; Case No. 13-CV-5588 (CS); United States District Court – Southern District of New York; April 28, 2014.

And this makes me wonder if the A&P bankruptcy filing was followed by Providence’s bankruptcy filing. How many landlords can survive without rental payments for nine months relative to a ‘big box’ lease?

Lessons learned:

1.      I am not a big fan of arbitration and usually I work to delete the provision regardless of the side I am representing. Yes a case can be resolved faster in arbitration, but at significantly greater expense and then the winner receives an “Award” which is unenforceable without filing litigation too. I prefer litigation over arbitration. But even when arbitration is appropriate, be careful how the provision is drafted to avoid unintended results.

2.      The A&P case involved two uber-sophisticated parties, yet the offset / abatement language wasn’t as clear as it might have been to prevent this catastrophic result. Lawyers and parties cannot think through every possible scenario. Such as the tenant’s bankruptcy that delayed the landlord’s construction allowance payment and the unintended results that followed.

3.      Do you see the relationship between these two cases? I should have captioned this article *Unintended Consequences*.

Reprinted with the permission of North Texas Commercial Association of REALTORS®, Inc.