The purpose of this report is to provide key tips that have proven to be effective over twenty seven (27) years representing Landlord’s and Tenant’s, which may minimize the probability of a lawsuit or costly repairs.
Dual Agency-Representing Both Parties.
The law permits a broker to work with both the Landlord and Tenant upon their mutual written consent. This arrangement requires the broker to act in good faith with honesty and loyalty to both parties. Working as a “Dual Agent” has its advantages with the easier transactions and problematic in instances where there are “sticky issues” to work out or when the Landlord and Tenant have different negotiation styles.
Physical Inspections
Prior to occupying the building have licensed experts inspect the property to make sure there are no issues with environmental contamination, zoning limitations, structural components, roof repairs, building size, un-permitted improvements, mechanical systems, or other physical aspects of the property. The inspection fees are minimal compared to discovering a problem after the fact.
The Fire Department
The Fire Department can be a tremendous help in determining the physical requirements needed to occupy the property, which includes whether or not the existing fire sprinkler system is suitable for the Tenant to fully utilize the building as intended. For the larger projects, a fire consultant is recommended. They will rate your inventory according to class and advise you on how to retrofit the building in order to meet code.
Working with Lawyer’s
Most Lawyer’s are brought into the transaction after the fact. Use a Lawyer effectively by bringing them in on the front end of the deal and by clearly defining their role in the transaction. This will save time and minimize the risk of a lawsuit with unnecessary legal fees. A good Lawyer can add value to your team of professionals.
Securing the Lease.
Typically stronger Tenant’s can secure a lease with a security deposit equivalent to one (1) month of base rent. In cases of weak credit history or start-ups companies, Landlords may ask for either the deposit to be as much as six (6) months of monthly base rent and or an equivalent irrevocable letter of credit. Also it is common practice to achieve credit enhancements with a personal guarantee from the principals of the company.
Tenant’s Vacancy of the Property
It is highly recommended the Landlord and Tenant conduct an inspection of the property about sixty (60) days prior to the expiration of the Lease. This will provide plenty of time to obtain accurate estimates of the repairs needed to be done and to work out an equitable cost sharing plan between the parties based upon the requirements of the Lease.
Gross Versus Net Lease
A Net Lease means the Tenant pays for the property taxes, property (fire) insurance for the building, and maintenance of the roof exterior walls and foundation. In addition to the base rent, a Tenant can figure to pay between .10 to 20 cents per square foot for these items. A Gross Lease means the Landlord is responsible for the property taxes, property insurance, and roof replacement. On the other hand, the Tenant maintains the roof, and pays property tax and insurance increases. In both leases the Tenant maintains the interior of the building, including doors, windows, air conditioning, and plumbing, plus is responsible for exterior maintenance. On the multi-tenant projects, Landlord’s prefer to maintain the exterior of the property themselves and charge the Tenant’s a pro rata monthly common area maintenance (CAM) fee. Some Landlord’s will include the HVAC and parking lot expense as part of the CAM charge. Despite the type of Lease, the Tenant will be required to carry a General Liability Policy. The aggregate amount for this insurance is usually 1 to 2 million dollars. Negotiate the contract to meet your needs.
Notices to the Landlord or Tenant
Important Notices to the Landlord or Tenant should always be in writing, and sent registered mail. Following this simply principle may reduce the risk of a costly lawsuit or unnecessary conflict. Make sure you create a file with the lease, letters, notes, conversation log, and any other documents, assuring a good “trail of paper work” for later reference.
For Assistance with your Commercial Real Estate
Please Contact
Dan Weil, CCIM
310-792-9400
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1 comment:
Good post! Thanks for sharing this information I appreciate it. God bless!
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