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Breaking lease is hard to do.

Across the nation, a vast majority of tenants on the upper floors of prominent buildings are undeterred by the Sept. 11 attacks. They will remain where they are, though recent reports suggest otherwise for some others who lease space on high.

And the reports indicate that several of these tenants are hoping to break their leases on this basis. To be sure, that is easier said than done according to several Manhattan-based real estate attorneys.

So how serious is the issue of frightened tenants attempting to do just that?

A broker who asked not to be named said that "there's a flight from the tops of buildings" in Manhattan. He cited "buildings that have made themselves stick out" as likely to have the most trouble with frightened tenants.

A few scared tenants are one thing--a legally binding lease is another.

One attorney suggested that our new reality could force the creation of new laws, though it isn't likely to happen overnight.

He said that there is one element of a commercial lease that could be explored by those seeking to capitalize on Sept. 11 as a legal basis for leaving.

essary. This is aggressive thinking, and at a time like this it is necessary. This is a unique moment that requires unique thinking," said Steve Wagner, managing partner of Wagner, Davis & Gold PC.

In contractual terms, "quiet enjoyment" is the right of an owner or any other person legally entitled to the use of property without interference. The "quiet enjoyment" right is a consideration--in other words, something of value, is given to the tenant in exchange for rent. He suggested that this could become problematic for landlords, with respect to the side effects of Sept. 11.

"Some people have suggested that the new conditions may not allow for quiet enjoyment. If a building is receiving bomb threats often, the act of evacuating the premises could become disruptive," said Wagner.

Yet landlords can hardly afford to ignore threats made on their property. To do so would be irresponsible and potentially lethal in the event of a credible threat. The goal of terrorism to cause terror, so frequent evacuations are a symptom of the problem--but not an accessory to the crime. It may be disturbing to walk down 70 flights of stairs during a bomb scare. It is, however, necessary.

"Our laws have not been attuned to these new conditions," said Wagner, adding that there is a chance that new laws could be created (or old ones reinterpreted) because of Sept. 11

A tenant must convince a judge that its quiet enjoyment of the space was compromised. That would be difficult to prove and--even if it were--it's doubtful that a judge would side with the tenant.

The real problem from from an owner's perspective is precedent. If a judge allowed one tenant to break a lease on this basis, it could open the floodgates for more tenants to flee the building, said Wagner.

"You have to remember that the lease is a specific document. The psychological fear of tall buildings is not really grounds for a tenant to break a lease," said real estate attorney Jeffrey Moerdler of Mintz, Levin.

As for frequent evacuations of the building, he does not believe that this would constitute a "disruption" of the quiet enjoyment consideration.

"The imposition of additional security requirements is not a basis for breaking a lease," he said.

One real estate lawyer cited the opposite scenario--a landlord ignoring a bomb threat--as far more disturbing.

"If they didn't evacuate the building, imagine what could happen when the threat was real?" said the attorney, who asked not to be named.

Another real estate lawyer agreed with Moerdler.

"I don't think I'd be swayed by the events enough to grant a tenant the right to break their lease," said the attorney, who asked not to be named.

"I can never predict what a judge will do, but anyone who sided with a tenant on this one would be undermining the capitalistic system," he said.

In the past, only a deep-pocketed capitalist could even consider leasing top floor space in a prominent office tower. With the new fears, however, that trend could be ending.

"Back in the 1950's, when they started building skyscrapers, the view has commanded a premium," said Peter Pattison, a real estate consultant.

"But that concept is being challenged now," he said.
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Author:Chapman, Parke
Publication:Real Estate Weekly
Date:Nov 7, 2001
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