REAL ESTATE TRANSACTIONS : COMMERCIAL LEASING – Los Angeles Commercial Leasing Attorneys, Orange County Commercial Leasing Attorneys 2018-09-28T02:52:46+00:00

COMMERCIAL LEASING

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, fraudunlawful 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.

When real estate taxes, insurance, and operating expenses (sometimes referred to as Common Area Maintenance, or CAM, charges) are passed on to tenants, the amount passed on is based on the increase in these expenses as compared to the Base Year (the initial rent already takes into account these charges). 
Organization of building owners and managers, engaged in lobbying and producing publications, including the BOMA standards.
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.

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 amongst 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.

© 2018 ANAND LAW PC

Refers to the buildout a landlord will deliver.  a Grey Box includes the bare minimum: e.g. just walls,  no HVAC, no wiring.  A Vanilla Box may have: electrical wiring, flooring, dropped ceiling, HVAC and air ducts.  What the Landlord has agreed to buildout is critical.  Detailed plans and specifications are ideal.
In general, the limits are:

  • 10% interest on a loan primarily for personal, family or household purposes;
  • For loans that are not for for personal, family or household purposes, the higher of 10% or 5% over the amount charged by the Federal Reserve Bank of San Francisco on advances to member banks on the 25th day of the month before the loan (including loans to be used primarily for home improvement or home purchase).

There are, however, exceptions to these limits including the “broker-arranged” exception. Click here to view the Office of the Attorney General’s web site for more information.

If you have been charged a usurious rate, you are entitled to all amounts you have paid in excess of the principal. Call Anand Law, PC today to discuss your rights with a qualified attorney – 323-325-3389.

A LIQUIDATED DAMAGES CLAUSE in a contract specifies an amount of damages that party is entitled to for a particular breach of that agreement. The purpose is to streamline, or even deter litigation altogether by setting a fixed amount for the breach. They are very useful in eliminating unpredictability, and ultimately costs. However, there are several rules that must be followed, or the clause will be invalidated by a Court.

First, the liquidated damages cannot be a penalty—the amount specified must be reasonable under the circumstances, and cannot be “designed to substantially exceed the damages suffered, and…to serve as a threat to compel compliance through the imposition of charges bearing little or no relationship to the amount of actual loss.” Utility Consumers’ Action Network, Inc. v. AT&T Broadband, 135 Cal. App. 4th 1023, 1029 (2006); Cal. Civ. Code § 1671(b). A guiding principle is that any number picked cannot be arbitrary, and instead must be based on a reasonable attempt at determining a fair amount of compensation for the breach.

There are further rules if the clause is contained in a contract for the purchase or rental of personal property; a service used primarily for personal, family, or household purposes; or a residential lease. In those cases, a liquidated damages clause is allowed only when “it would be impracticable or extremely difficult to fix the actual damage.” Cal. Civ. Code § 1671(c) and (d).

Every situation is different, and should be evaluated by a qualified attorney. After all, if the clause unenforceable, it won’t save time, and may even ultimately cost more. It is always better to prevent problems before they occur, rather than waiting, and a well-crafted liquidated damages clause can be very effective in doing so.

Click below to schedule a consultation.

CALL US
CONTACT US ONLINE