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Commercial Lease Agreement: New Goey Woey, LLC and William G. Knight, Exams of Property Law

A commercial lease agreement between william g. Knight as landlord and new goey woey, llc as tenant. The lease outlines the terms and conditions for the rental of premises for the operation of a restaurant. Topics such as rent payment, use of premises, assignment and subletting, insurance requirements, and default and termination clauses.

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2012/2013

Uploaded on 02/23/2013

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EXAM#_____________
Page 20 of 26
Cadgene, Property I, Final, SPRING 2011
PART TWO: Two Essay Questions
QUESTION I
Suggested Time: 45 minutes
Villas West is a common interest development located in County Y, City Z,
governed by State X’s Common Interest Development and Condominium Act (the “Act”)
and consists of 100 residential lots developed by Ridge Properties, Inc (“Ridge). Before
selling any of the lots, Ridge recorded a declaration of conditions, covenants, and
restrictions (the “CC&R’s). The CC&R’s contemplated management of Villas West
through the Villas West Homeowner’s Association (the “Association”) which in turn was
managed by a board of directors (the “Board”). Ridge’s original development plan was to
build townhouses and sell the lots after they had been improved. As Ridge neared the end
of the Project, they decided to sell the last five available lots without improving them.
On April 10, 2005, Ridge sold Lot 98 to Gary Fish (“Fish”). Lot 98 was
unimproved. The Deed to Fish referenced the recorded CC&R’s. About one year after
acquiring Lot 98, Fish moved out of State X because of a change of employment. He
never submitted any plans for the development of Lot 98 and, because of his change of
employment, he decided to sell Lot 98. On April 25, 2009, Lot 98 was purchased by Gary
and Leslie Ford (the “Fords”). The deed from Fish to the Fords conveyed Lot 98 subject
to the conditions, covenants, and restrictions set forth in the recorded CC&R’s. Several
months after purchasing Lot 98, the Fords submitted plans for their proposed residence
for Board approval, as required by the CC&R’s. The Board approved the plans.
After building their residence, Leslie discovered that she was extremely allergic to
various grasses. There was talk of water rationing on the news because State X was in its
third year of a drought. She was also alarmed by her high water bills. The Fords decided
to redo their landscaping employing a landscape technique called “xeriscaping,” which
combines lush plants with Astro Turf. The Fords felt that their new landscaping was
allergy free, environmentally friendly, and substantially reduced their water bills because
all water for landscaping came from a 250 pound rain barrel. No City water was used for
landscaping. Some members of the Association have complained to the Board about their
use of Astro Turf.
Section 5 of the CC&R’s provides in part as follows:
Every Owner shall be responsible for landscaping the front of their lot
with trees, plant material, decorative rocks, hardscape, and other
appropriate material to be in conformity and harmony with the design of
Villas West as may be reasonably determined by the Board. Every Owner
shall maintain the landscaping on their lot in a well kept condition
including but not limited to, keeping the landscaping free of weeds, trash,
and overgrown lawns.
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Page 20 of 26

PART TWO: Two Essay Questions

QUESTION I

Suggested Time: 45 minutes

Villas West is a common interest development located in County Y, City Z,

governed by State X’s Common Interest Development and Condominium Act (the “Act”)

and consists of 100 residential lots developed by Ridge Properties, Inc (“Ridge). Before

selling any of the lots, Ridge recorded a declaration of conditions, covenants, and

restrictions (the “CC&R’s). The CC&R’s contemplated management of Villas West

through the Villas West Homeowner’s Association (the “Association”) which in turn was

managed by a board of directors (the “Board”). Ridge’s original development plan was to

build townhouses and sell the lots after they had been improved. As Ridge neared the end

of the Project, they decided to sell the last five available lots without improving them.

On April 10, 2005, Ridge sold Lot 98 to Gary Fish (“Fish”). Lot 98 was

unimproved. The Deed to Fish referenced the recorded CC&R’s. About one year after

acquiring Lot 98, Fish moved out of State X because of a change of employment. He

never submitted any plans for the development of Lot 98 and, because of his change of

employment, he decided to sell Lot 98. On April 25, 2009, Lot 98 was purchased by Gary

and Leslie Ford (the “Fords”). The deed from Fish to the Fords conveyed Lot 98 subject

to the conditions, covenants, and restrictions set forth in the recorded CC&R’s. Several

months after purchasing Lot 98, the Fords submitted plans for their proposed residence

for Board approval, as required by the CC&R’s. The Board approved the plans.

After building their residence, Leslie discovered that she was extremely allergic to

various grasses. There was talk of water rationing on the news because State X was in its

third year of a drought. She was also alarmed by her high water bills. The Fords decided

to redo their landscaping employing a landscape technique called “xeriscaping,” which

combines lush plants with Astro Turf. The Fords felt that their new landscaping was

allergy free, environmentally friendly, and substantially reduced their water bills because

all water for landscaping came from a 250 pound rain barrel. No City water was used for

landscaping. Some members of the Association have complained to the Board about their

use of Astro Turf.

Section 5 of the CC&R’s provides in part as follows:

“ Every Owner shall be responsible for landscaping the front of their lot

with trees, plant material, decorative rocks, hardscape, and other

appropriate material to be in conformity and harmony with the design of

Villas West as may be reasonably determined by the Board. Every Owner

shall maintain the landscaping on their lot in a well kept condition

including but not limited to, keeping the landscaping free of weeds, trash,

and overgrown lawns. ”

Page 21 of 26

On March 5, 2010, the Board sent the Fords a notice asking them to remove the

Astro Turf that they installed. The notice indicated that 1) Astro Turf was not specifically

approved by the Board, 2) no other Owner uses Astor Turf, and 3) the Board has made a

determination that the use of Astro Turf as a landscape material is not in conformity and

harmony with the external design of Villas West.

The Fords met with the Board. They explained Leslie’s severe allergy to grasses,

the reduction of their water bill, and the environmental advantages of “xeriscaping”. They

also explained that without Astro Turf their entire landscape would be jeopardized

because Astro Turf kept the soil moist and protected the other trees and plants.

After meeting with the Fords, the Board held a subsequent meeting and pursuant

to a provision in the CC&R’s that authorized the Board to amend and/or adopt new rules

and regulations, the Board by a majority vote adopted the following new rule:

“ Astro Turf and/or other artificial lawns and/or artificial plants shall not

be an acceptable landscaping material because such material is not

harmonious with the surrounding community. ”

The Fords got a number of their neighbors in Villas West to write to the Board

and tell them how much they loved what the Fords had done. When the Fords refused to

substitute another material for Astro Turf, the Board caused the Association to file a civil

suit against the Fords seeking to have the plastic grass removed and for the Fords to pay

the Association’s costs and legal fees.

Leslie works for an environmental nonprofit entity called “Green Planet.” As a

result of lobbying efforts by Green Planet, the legislature of State X passed the following

amendment to the Act on May 30, 2011 while the litigation between the Association and

the Fords was still pending:

“ (a) The Legislature finds that the use of State X-friendly landscaping and

other water use and pollution prevention measures to conserve or protect

the state's water resources serves a compelling public interest and that the

participation of homeowners' associations is essential to the state's efforts

in water conservation and water quality protection and restoration.

(b) Homeowners' association documents, including declarations of

covenants, articles of incorporation, or bylaws, may not prohibit or be

enforced so as to prohibit any property owner from implementing State X-

friendly landscaping.

(c) “Xeriscape” or “State X-friendly landscape” means quality

landscapes that conserve water and protect the environment and are

adaptable to local conditions and which are drought tolerant. The

principles of Xeriscape include planning and design, appropriate choice

of plants, soil analysis which may include the use of solid waste compost,

efficient irrigation, practical use of turf, appropriate use of mulches, and

proper maintenance. ”

Page 23 of 26

QUESTION 2

Suggested Time: 75 minutes

You work as an associate for the law firm of Sain, Sainer, and Sainest. The partner

for whom you work represents “New Goey Woey, LLC (“New Goey Woey”), which has

identified a stand alone retail building located in the downtown of City Y, State X, which

they would like to lease and renovate into a first class restaurant. They expect to spend about

two million dollars to create their unique vision in order to compete with other new

restaurant venues. The identified building known as “Knight Building” was built in the

1920’s and is currently owned by William G. Knight (“Knight”). Knight wishes the

principals of New Goey Woey, LLC, who have a substantial net worth, to execute a

Guaranty Agreement in which they would personally guarantee the obligations under the

lease.

You have been provided with the following sections of a proposed lease drafted by

Knight’s attorney. Please prepare a memorandum explaining the following sections so that

your firm’s client understands those provisions as well as any suggested changes,

modifications, and/or advice you may have with respect to the selected sections.

“Draft Lease

KNIGHT BUILDING LEASE

THIS LEASE is made as of the 3rd day of May, 2011 by and between William G. Knight, as Landlord and New Goey Woey, LLC, a State X limited liability company, as Tenant.

  1. TERM. The term of this Lease shall commence when Tenant has completed its improvements but no later than six months from the execution of this Lease (the “Commencement Date”) and shall end twenty five years from the Commencement Date (the “Expiration Date”), unless sooner terminated as hereinafter provided.
  2. POSSESSION.

(a) If Landlord, for any reason whatsoever, cannot deliver the right to possession of the Premises to Tenant on the Commencement Date, this Lease shall not be void or voidable, nor shall Landlord be liable to Tenant for any loss or damage resulting therefrom, but in that event rent shall be waived for the period between the Commencement Date and the time when Landlord can deliver possession.

  1. USE.

(a) Tenant shall open a restaurant as soon as possible and use the Premises on a continuous basis for such use and shall not use or permit the Premises to be used for any other purpose without the prior written consent of Landlord.

(b) Tenant shall not commit or suffer to be committed any waste in or upon the Premises.

  1. COMPLIANCE WITH LAW. Tenant shall not use the Premises or permit anything to be done in or about the Premises which will in any way conflict with any law, statute, ordinance or governmental rule or regulation now in force or which may hereafter be enacted or promulgated.

Page 24 of 26

Tenant shall, at its sole cost and expense, promptly comply with all laws, statutes, ordinances and governmental rules, regulations or requirements now in force or which may hereafter be in force.

  1. REPAIRS. By acceptance of the Premises, Tenant accepts the Premises in their “as is” condition. Tenant shall, at all times during the term hereof and at Tenant's sole cost and expense, keep the Premises and every part thereof in good condition and repair. Tenant shall at the end of the term hereof surrender to Landlord the Premises and all alterations, additions and improvements
  2. ASSIGNMENT AND SUBLETTING.

(a) Without Landlord's written consent, Tenant shall not assign this Lease, or any interest in this Lease, or sublet the Premises or any part of the Premises. The performance by Tenant of any of the acts described in this Section without Landlord's consent shall be void, shall confer no rights upon any third person, and shall, at the option of Landlord, terminate this Lease. Landlord's consent to one assignment or subletting shall not constitute a waiver of the necessity for such consent to a subsequent assignment or subletting nor shall such consent constitute a release of Tenant from the full performance by Tenant of all terms, provisions, conditions and covenants of this Lease.

(b) Upon written notice from Tenant to Landlord of Tenant's desire to assign this Lease or sublease all or any portion of the Premises, Landlord shall have fifteen (15) days following Tenant's written notice within which Landlord shall have the option to terminate this Lease and retake possession of the Premises, or any portion thereof and enter into a lease directly with any proposed Assignee or Subtenant.

(c) Should this Lease be assigned, or should the Premises or any part thereof be sublet or occupied by a person or persons other than the original Tenant hereunder, Landlord may collect rent from the assignee, sublessee or occupant and apply the net amount collected to the monthly rent herein reserved, but no such assignment, subletting, occupancy or collection of rent shall be deemed a waiver of any term of this Lease, nor shall it be deemed acceptance of the assignee, sublessee or occupant as a tenant, or a release of Tenant from the full performance by Tenant of all the terms, provisions, conditions and covenants of this Lease.

(d) It is the intent of both Landlord and Tenant that the purpose of any assignment or subletting is to aid Tenant in meeting its obligations under this Lease and not to allow Tenant to gain financially from any such assignment or subletting. Landlord and Tenant agree that Landlord's consent to any assignment or subletting may be conditioned upon reaching mutual agreement upon a modification of the Base Rent set forth herein.

  1. LIABILITY INSURANCE. Tenant agrees to carry and keep in force during the term hereof, at Tenant's sole cost and expense, bodily and personal injury liability insurance with limits of not less than the amount set forth in Exhibit A per occurrence, and with the coverage set forth in Exhibit A insuring against any and all liability for injuries to or death of persons occurring in, on or about the Premises or arising out of the maintenance, use or occupancy thereof and property damage liability insurance with a limit of not less than set forth in Exhibit A per accident or occurrence.
  2. SUBROGATION. Landlord and Tenant each shall use every good faith effort to obtain from their respective insurers under all policies of fire and extended coverage insurance maintained by either of them at any time during the term hereof insuring or covering the Properties or Premises or any improvements, fixtures, equipment, furnishings or other Property including saleable goods, merchandise and inventory in, on or about the Premises, if any, a waiver of all rights of subrogation which the insurer of one party might have against the other party.

Page 26 of 26

  1. ESTOPPEL CERTIFICATE. Upon not less than fifteen (15) days' prior written request by Landlord, Tenant shall promptly execute, acknowledge and deliver to Landlord a fully executed Estoppel Certificate on a form prepared by Landlord. Any such certificate may be relied upon by Landlord and by any prospective purchaser, mortgagee or beneficiary considering the purchase of or a loan on the Project or any part thereof or interest therein. Tenant shall indemnify and hold Landlord harmless of and from all costs, damages, expenses, liabilities and fees, including reasonable attorneys' fees and any consequential damages of lost profits, arising from or in any way related to or connected with Tenant's failure to deliver any such certificate within the time specified in this Section 27.
  2. QUIET POSSESSION. Upon Tenant paying the rent reserved hereunder and observing and performing all of the covenants, conditions and provisions on Tenant's part to be observed and performed hereunder, Tenant shall have quiet possession of the Premises without disturbance due to acts of Landlord.
  3. SUBORDINATION, ATTORNMENT. Without the necessity of any additional document being executed by Tenant for the purpose of effecting a subordination, this Lease shall be subject and subordinate at all times to: (a) all ground leases or underlying leases which may now exist or hereafter be executed affecting the Project or the land upon which the Project is situated or both, and (b) the lien of any mortgage or deed of trust which may now exist or hereafter be executed in any amount for which said Project, land, ground leases or underlying leases or Landlord's interest or estate in any of said items is specified as security. Notwithstanding the forgoing, Landlord and its successors and assigns shall have the right to subordinate or cause to be subordinated any such ground leases or underlying leases or any such liens to this Lease. In the event that any mortgage or deed of trust is foreclosed or a conveyance in lieu of foreclosure is made for any reason, Tenant shall, notwithstanding any subordination, attorn to and become the Tenant of the successor in interest to Landlord, at the option of such successor in interest. Tenant covenants and agrees to execute and deliver, upon demand by Landlord and in the form requested by Landlord, any additional documents evidencing the priority or subordination of this Lease with respect to any such ground leases or underlying leases or the lien of any such mortgage or deed of trust.
  4. OPTION TO PURCHASE. Provided Tenant is not in default at the time Tenant exercises its rights under this Section 30, and has not been in default for a period of more than thirty (30) days at any time during the term of this Lease, Tenant shall have the option to purchase the Property at any time after the Fifth Anniversary of this Lease and before the Twenty Fourth Anniversary of this Lease on the terms set forth in Exhibit B.

LANDLORD


William G. Knight

TENANT New Goey Woey, LLC, a State X limited liability company

By: _____________________________ name Its: Manager”

END OF EXAM