Common use of According to Article Clause in Contracts

According to Article. 4.1, ETG will first pay what is called an Initial Rent, which is basically a certain rent that ETG will pay every month for the first ten years of the original lease. After the first ten years are over, ETG will increase the monthly rent by 10% for the next ten years. After that second decade is over, ETG will increase the monthly rent by 10%—however, this is 10% of the INITIAL RENT, not of the higher rent in the second decade of the lease. This will continue until the original lease ends. 9.1 of the lease template also says that if the original lease is renewed, then the “[t]erms and conditions of such renewed lease agreement shall be consistent with [the original] Agreement but the Rent under such renewed land lease agreement shall be doubled based on the Initial Rent herein.” What this means is that if the lease is renewed, then ETG will pay double the rent for the land that it pays in the first ten years of the original lease (i.e., double the Initial Rent, as discussed above). This may sound enticing for the landowner. However, it is important to note that according to Article 9.1 of the lease template, the landowner CANNOT negotiate a new rental rate and rental payment schedule for the lease renewal period; rather, the landowner is stuck with the doubling of the rent that Article 9.1 prescribes. This means that if ETG pays the landowner, say, $300 a month for leased land during the first ten years of the original lease, then ETG will only have to pay $600 a month for the land in the lease renewal period. If ETG’s activities on the leased land generate over, let’s say, $100,000 per year after the original 99-year lease, then this doubling of the original rent is not so generous. Unfortunately, given the way Article 9.1 of the lease template is worded, the landowner cannot negotiate a higher increase than the doubling provided in Article 9.1. This needs to be emphasized: ETG’s aim in Article 9.1 is to lock in a certain low rental rate nearly 200 years in advance. How does ETG do this? Simple. When ETG negotiates the original lease agreement, ETG will try to make sure that the initial rent paid by ETG will be as low as possible. That way, when ETG triggers the automatic renewal of the lease agreement for 100 years after the original 99-year lease is up, ETG will not have to worry about the landowner demanding much, much higher rents. Instead, the landowner will be stuck with receiving no more than double the Initial Rent that ETG pays during the first decade of the original lease. Unlike with the original lease, there is no 10% increase per decade during the 100-year lease renewal period. Thus, ETG will lock in how much rent it will pay to the landowner 199 years in advance, based on how much ETG’s Initial Rent is during the first decade of the original lease. This is very crafty and beneficial for ETG, and very problematic for the landowner. Furthermore, according to Article 9.1 of the lease template, the terms of the renewed lease agreement must be “consistent with [the terms of the original] Agreement.” What this means is that the landowner cannot alter the terms of the original lease agreement when the lease is renewed. If the landowner does not take care of every contingency and eventuality in the original lease agreement, then the landowner cannot try to insert new provisions in the renewed lease agreement to account for changed circumstances, if those new provisions alter any of the provisions in the original agreement. Those original provisions are locked in. The simplest way to resolve this is to alter Article 9.1 of the lease template, so that the landowner and ETG have to come back to the negotiating table to renegotiate a new lease agreement after the original lease is over, including a new lease rental rate. Also, as ▇▇. ▇▇▇▇▇▇ notes in his comments, the landowner can insist that ETG and the landowner renegotiate ETG’s rental rate periodically—say, every 15 to 20 years during the original lease and during a lease renewal period (if the lease is renewed). This renegotiation is key. It is not wise for the landowner to be stuck with a set rental rate for nearly 100 years (if not nearly 200 years), given the rate of inflation and the possibility that ETG’s proposed Project may become incredibly lucrative—much, much more lucrative than $300/$600 a month for nearly 200 years.27 It is also not wise for the landowner to be stuck with the provisions of an original 99-year lease for an additional 100 years, since so many things can happen during the original 99-year lease that reveal the need to amend the terms of the original lease agreement if the lease is to be renewed.

According to Article. 4.1, ETG will first pay what is called an Initial Rent, which is basically a certain rent that ETG will pay every month for the first ten years of the original lease. After the first ten years are over, ETG will increase the monthly rent by 10% for the next ten years. After that second decade is over, ETG will increase the monthly rent by 10%—however, this is 10% of the INITIAL RENT, not of the higher rent in the second decade of the lease. This will continue until the original lease ends. 9.1 of the lease template also says that if the original lease is renewed, then the “[t]erms and conditions of such renewed lease agreement shall be consistent with [the original] Agreement but the Rent under such renewed land lease agreement shall be doubled based on the Initial Rent herein.” What this means is that if the lease is renewed, then ETG will pay double the rent for the land that it pays in the first ten years of the original lease (i.e., double the Initial Rent, as discussed above). This may sound enticing for the landowner. However, it is important to note that according to Article 9.1 of the lease template, the landowner CANNOT negotiate a new rental rate and rental payment schedule for the lease renewal period; rather, the landowner is stuck with the doubling of the rent that Article 9.1 prescribes. This means that if ETG pays the landowner, say, $300 a month for leased land during the first ten years of the original lease, then ETG will only have to pay $600 a month for the land in the lease renewal period. If ETG’s activities on the leased land generate over, let’s say, $100,000 per year after the original 99-year lease, then this doubling of the original rent is not so generous. Unfortunately, given the way Article 9.1 of the lease template is worded, the landowner cannot negotiate a higher increase than the doubling provided in Article 9.1. This needs to be emphasized: ETG’s aim in Article 9.1 is to lock in a certain low rental rate nearly 200 years in advance. How does ETG do this? Simple. When ETG negotiates the original lease agreement, ETG will try to make sure that the initial rent paid by ETG will be as low as possible. That way, when ETG triggers the automatic renewal of the lease agreement for 100 years after the original 99-year lease is up, ETG will not have to worry about the landowner demanding much, much higher rents. Instead, the landowner will be stuck with receiving no more than double the Initial Rent that ETG pays during the first decade of the original lease. Unlike with the original lease, there is no 10% increase per decade during the 100-year lease renewal period. Thus, ETG will lock in how much rent it will pay to the landowner 199 years in advance, based on how much ETG’s Initial Rent is during the first decade of the original lease. This is very crafty and beneficial for ETG, and very problematic for the landowner. Furthermore, according to Article 9.1 of the lease template, the terms of the renewed lease agreement must be “consistent with [the terms of the original] Agreement.” What this means is that the landowner cannot alter the terms of the original lease agreement when the lease is renewed. If the landowner does not take care of every contingency and eventuality in the original lease agreement, then the landowner cannot try to insert new provisions in the renewed lease agreement to account for changed circumstances, if those new provisions alter any of the provisions in the original agreement. Those original provisions are locked in. The simplest way to resolve this is to alter Article 9.1 of the lease template, so that the landowner and ETG have to come back to the negotiating table to renegotiate a new lease agreement after the original lease is over, including a new lease rental rate. Also, as ▇▇. ▇▇▇▇▇▇ notes in his comments, the landowner can insist that ETG and the landowner renegotiate ETG’s rental rate periodically—say, every 15 to 20 years during the original lease and during a lease renewal period (if the lease is renewed). This renegotiation is key. It is not wise for the landowner to be stuck with a set rental rate for nearly 100 years (if not nearly 200 years), given the rate of inflation and the possibility that ETG’s proposed Project may become incredibly lucrative—much, much more lucrative than $300/$600 a month for nearly 200 years.27 years.26 It is also not wise for the landowner to be stuck with the provisions of an original 99-year lease for an additional 100 years, since so many things can happen during the original 99-year lease that reveal the need to amend the terms of the original lease agreement if the lease is to be renewed.