ANAND LAW brings a broad knowledge base and a practical approach to commercial lease transactions. We draft and negotiate contracts focusing on cost and efficiency, and with the experience of having litigated, on behalf of plaintiffs and defendants, breach of contract, fraud, unlawful detainer (eviction), and avoidance of lease actions. We also represent parties with lease disputes in bankruptcy courts. Our involvement in a variety of arenas provides us with intimate knowledge of how situations play out in the real world, in addition to understanding the legalese on the paper.
We represent landlords and tenants with drafting, negotiating, and complying with a variety of commercial leases, including:
- Retail
- Office
- Industrial
- Mixed
- Vacant land
AUDIT RIGHTS OF CAM EXPENSES
In addition to a flat monthly rent, commercial leases often contain provisions which pass on to Tenants a portion of the Landlord’s taxes, insurance and/or operating expenses. As one can imagine, these amounts fluctuate, and tenants must scrutinize these terms to understand what they are signing up for, and then negotiate these terms aggressively to limit the increases.
A “Triple Net Lease” passes on to tenants a portion of the (1) Real estate taxes; (2) Insurance; and, (3) Operating Expenses (sometimes referred to as Common Area Maintenance, or CAM, charges, but often include maintenance outside of just “common areas”). Other variations are Double Net (typically no operating expenses are passed through), and a Gross Lease.
Pass-throughs may be assessed at different times (per the lease), and often commercial leases will allow a landlord to retroactively apply assessed charges. Sometimes a landlord will not assess any charges for years, but then choose to. Negotiating the exact provisions is critical to predicting expenses and running a successful operation. The extent of rights to audit is also a negotiable and important issue.
Tenants must demand these rights, and if the landlord is not willing to give the tenants reasonable audit rights (and the right to recover expenses for a successful audit), a tenant should walk away. It is that important for tenants.
It is vital to hire an experienced attorney in order to negotiate the best deal given the leverage you have. Spending a relatively small amount now often saves tens if not hundreds of thousands of dollars down the road.
THE IMPORTANCE OF THE ESTOPPEL CERTIFICATE FOR LANDLORDS
An Estoppel Certificate is a document typically used in performing due diligence prior to the purchase of tenant-occupied property. The purpose is for a lender and purchaser to have written confirmation from tenants of certain terms. Important among these are: the rental amount; security deposit; duration of lease; and, as discussed further below, a “subordination” clause.
The subordination clause is used to confirm that the tenants have agreed, in their lease, that their interest is subordinate to future mortgages. Without such confirmation, the tenants’ leases have priority over mortgages that are subsequently obtained. Furthermore, only a tenant whose interest is subordinate to the mortgage can be evicted. A purchaser (and their lender) may be stuck with tenants for an indefinite period without the ability to earn market rental values. A tenant may be locked in for years, and potentially even forever—courts have upheld provisions giving the tenant the right to perpetual renewal of leases.
