Tag Archives: Landlord

7 Questions to ask your future landlord

February 3, 2014 By in Archives Tags: , , , , ,

There are 7 questions that a tenant can ask to get a feel for the success of their next real estate deal, yet rarely are any of them asked! The tenant and landlord’s dance through the proposal process is one that is contained to RFP (Request for Proposal) responses and the agents negotiating terms on behalf of the principals. Often, once the lease is signed, it is the first time that a tenant actually meets his landlord. That is one hell of an arranged marriage!

During the great recession, the world for landlords was turned upside down. As a result, form leases that had not been rewritten in 20 years had now been completely overhauled. Leases are much longer now than they used to be and the time and cost to negotiate and approve the documents has increased considerably. In”25 Years of Commercial Leasing: What a Long Strange, Cyclical Trip it has been,” a group of commercial lease transaction lawyers in California point out this new complication.

Page 12 of the article states, “The 10 years preceding the birth of the Real Property Law Section, the State Bar of California saw commercial leases expand from a typical six-page office lease, manually typed with carbon paper, to a 30-page lease with a dramatically increased focus on detail and an attempt to alleviate the unknowns and “what ifs.”  After further review, the article goes on to detail how landlords have shifted to having an attorney on retainer draft leases that are more and more complex as a form of protection from certain issues that may arise with the tenant long after the lease has been signed.

After examining the above text, it would appear that the best landlord tenant relationship is one where the lease is negotiated, then put away, and never pulled-out again. But to have such a relationship with your landlord, you must have a great amount of trust. In Dr. Stephen Covey’s book, Speed of Trust, he addresses this type of trust:

“When trust goes up, speed will also go up and cost will go down.”

The inverse is also true.

“When trust goes down, speed will go down and costs will go up.”

In an industry that is primarily concerned about being faster, bigger, and cheaper, trust is a critical component to any landlord/tenant relationship. But when decisions are made based upon responses to RFPs, how does a tenant know if they are entering into a relationship with a good guy? We suggest that you preface all of your RFPs to your future landlord with the following statement and ask these 7 questions.

First, clarify your expectations by making this statement. “Smoots, Tannerbottom and Felderhosen PLLC envisions a “collaborative/partnership” during the negotiation, upfit, and occupancy of its new office. Please provide the following information with that in mind.

1. Assume that it is three years from now, the tenant chose your building, negotiated a lease, performed tenant improvements and has been a tenant for over two years, and you are looking back over the last three years, what would have to happen for the landlord to feel good about your progress? This is the greatest of all open-ended questions. You will know if the respondent is serious about having you as a tenant as well as their plan for you as their tenant.

2. Please describe the ownership structure of “respondent” and the key personnel who would be involved in the negotiation of agreements and the completion of the project. This question addresses the issue of how they will deliver results and keep commitments.

3. Provide examples of comparable projects completed by “respondent”. This question will give you insight into not only their capability, but also their humility.

4. Confirm that “respondent” be willing to work on an “open book” basis with agreed return criteria at the outset. This gets right to the issue of landlord transparency.

5. Please indicate how respondent expects to access and utilize capital to complete the project (including expansion). Anyone in the debt market knows the value of understanding a landlord’s access to capital.

6. Demonstrate financial capability to complete this project. All landlords had a tough time during the great recession, therefore the respondent should have a very clear idea of how they are going to answer this question.

7. Please share your vision for the neighborhood in which your site is located. I like this question because a landlord who knows and cares about the neighborhood in which it is located, is socially conscious and cares about the relationships with its tenants. Also, this is a great question to raise awareness on soft issues such as transportation, proposed access improvements, crime statistics, and the availability of nearby workforce housing.

 

Signing a Lease? 7 Things to Expect from Potential Landlord

January 17, 2014 By in Archives Tags: , , , , 1 Comment

Often, tenants are unsure of the items that a potential landlord may be looking for. The below list should help you get prepared.

1)   Rental Application. Every landlord will require a tenant to complete a comprehensive rental application. Landlords need to understand whom they are leasing to. Landlords will need to run a credit check to verify the tenant is in good credit standing with other credit agencies, because in reality the landlord is lending you the space for a period of time. All landlords should run a credit check in order to protect their investment.

2)   Two Years of Tax Returns, Income statements, and Balance Sheets. Many landlords want to see the past history of a tenant. This can only be done by looking at the tenant’s past income statements and balance sheets and compare those with what was given to the Internal Revenue Service – also known as their tax return.

3) Current Financial Statements. Landlords will also want to review the “most up to date” balance sheet and income statement of a client to make sure the tenant is performing in an acceptable matter.

4) Articles of Incorporation. Landlords would want to see the Articles of Incorporation should the company be incorporated. The landlord wants to make sure it is a viable entity and can enter into a lease.

5)  A visit from your landlord to your current property. Many landlords like to swing by a client current office to get an idea of how he or she might treat the property. It’s important to make sure the tenant’s “current” property is in a neat and tidy fashion in order to give the landlord the necessary comfort level that you will take care of his or her property as well.

6) Potential references. Some landlords will require references should the company financial not be as strong as they would like them to be. If you are unable to provide references, this might be considered a potential red flag to the new landlord.

7)  Conversation with your current landlord. Many landlords will contact your current landlord to verify your payment history. This can be a tricky situation because if your current landlord would prefer you out of “his” property, he or she may provide inaccurate information. Most landlords complete their due diligence before entering into a lease. Landlords would prefer to have a tenant that they feel comfortable with, than to sign a lease with a tenant who could be a potential nightmare for years to come. As a tenant, it is important to live up to your obligations when you say you will live up to them.

I heard of a story where a tenant and landlord come to an agreement and the next step was for the landlord to cash the tenant first month rent and security deposit. The tenant kept stalling and asking the landlord to wait until some specific contingency had expired; the tenant kept moving the date where the landlord could cash the check, which inevitably frustrated the landlord enough to where he canceled the lease. The tenant was in a world of hurt after that circumstance. We believe the reason the tenant did not want the check cashed was that the company was cash poor until a specific date, however no one ever confided in the landlord to tell him the real situation and because of that lack of communication, the company lost the space which dramatically affected its future business operations.

Being prepared and knowing what to expect will greatly speed up the negotiations and everyone will win.

“Signing a Lease? 7 Things to Expect from Potential Landlord” is original content from Mr. Randy Mason, CCIM, SIOR of Commercial Realty Specialists and was posted in the Commercial Property Executive on January 15, 2014.. The Strategic Tenant Advocate has permission to use the article.

Mr. Mason is the Managing Partner for Commercial Realty Specialists. With more than twenty-six years of real estate brokerage experience, Mr. Mason specializes in leasing and selling of office and industrial properties throughout the Orange county Marketplace. He specializes in representing the tenant and buyer side of the transaction, which has allowed him to focus on his client’s needs by being their fiduciary.

Please check out Mr. Mason’s website by clicking HERE.

The allowance that disappeared – where did it go?

November 25, 2013 By in Archives Tags: , , , , , , Leave a comment

Say you’ve found the perfect office space and are ready to commit to a lease.

When it comes time to negotiate tenant improvements, however, you’ll need to pay close attention and have sage counsel at hand because tenant improvements–including how much and who pays for them–can be the most important part of the deal.

When a tenant moves into new space, it’s common for improvements to be done to make the space fit the new user’s unique needs. Tenant improvements can range from new paint and fresh carpet to knocking out walls to building out a shell.

But exactly how this work is done, such as who hires the contractor and how the money can be spent, can have a huge impact on how good a deal you ultimately secure with your lease.

Savvy tenants often want to do the work themselves so they can control the quality and be assured their tenant allowance is stretched as far as it can be. They also don’t want to lose sleep at night worrying about whether the landlord will pay bills for the contractor and architect when they come due.

The landlord, meanwhile, wants to keep the money and earn interest on it. They are motivated to control the build-out process and retain fees that cut into the money that goes to the contractor. Landlords also like to restrict what the money can be spent on, preferring it pay for changes that improve their property versus items such as furniture and cabling, which benefit the tenant.

Recently we were representing an advertising firm that was moving into a renovated, 1930s warehouse. The other tenants in the building were similar “creative” companies and my client was eager to make a deal. The landlord’s tenant improvement allowance offer was 25% above market, but during our due diligence our contractor found improvements needed to the sprinkler, HVAC and bathrooms to meet ADA requirements that would have used nearly 50% of our tenant improvement allowance. We were able to negotiate with the landlord to make the improvements at his cost, and the deal was made, but without the help of a good GC, the tenant would have spent the equivalent of 3 months rent on bringing the bathrooms up to ADA code!

Throughout the years, I’ve heard from tenants who became unhappy with their tenant improvement allowances after they signed their leases. They’d share with me how the number tossed out by their landlord sounded good at first but once construction bids were in they realized they didn’t get such a good deal after all.

A common horror story I heard after the economic downturn hit was how landlords refused to pay tenant improvement allowances, and even broker commissions, after a deal was cut. This can expose the tenant to expensive litigation. Some tenants also discovered that their space was missing critical systems that were promised (and should be standard) and they had to finish the job out of pocket.

Adding insult to injury, some tenants were shocked to learn that they couldn’t benefit from unspent portions of their tenant improvement allowance.

To avoid these disastrous scenarios, the tenant and landlord should agree during negotiations (before the lease is inked) on what the total cost of the project is and understand how much, if any, the tenant is expected to contribute.

The tenant should fight to make sure there are liberal and flexible provisions on what the tenant allowance can be spent on. Sometimes landlords will allow items such as cabling, depending on market conditions.

If the landlord is reimbursing the tenant for the construction, there should be periodic times (perhaps monthly) when the landlord pays the allowance. We recommend they pay early and often, ideally at least once a month. The landlord will push to pay less frequently.

Other caveats to include or watch for when the landlord is reimbursing the tenant for its construction:

– Landlords will insist on lien waivers before being paid. Make sure you protect yourself against minor contractors who could insist on not signing.

– Don’t let landlords withhold tenant improvement payment if the tenant is in default. If you default for a defensible reason, you don’t want the landlord stopping your construction.

– Decide with the landlord ahead of time on the form and substance of the requisition form that will be required.

– If the amount of work in a given month is less than the landlord feels is appropriate, don’t let them pay less. The tenant improvement reimbursement is a set amount, not one based on work progress.
Agreeing to a tenant improvement allowance is most definitely a buyer-beware situation. But with the right guidance, you can feel confident that the tenant improvement allowance that was negotiated for will be spent as promised. You’ll have confidence the landlord won’t disappear in the middle of the night with the cash and will instead escrow the funds in the event they are going to sell the building. And you’ll rest assured knowing that money will be available when the contractor is wanting to be paid.

What is the difference between Usable SF, Rentable SF and Sneaky SF? A lot! And something stinks in NY.

May 20, 2013 By in Archives Tags: , , , , , ,

Recently a landlord’s usable space calculations caused a great deal of agitation with a deal we were completing. How did I know if landlord’s erroneous floor plans were are mistake, or a sneaky profit center? It turned-out to be both, and a bit of negotiation posturing. This particular landlord thought he had a lot of leverage. Our architect discovered that the plan was about 12.2% smaller than the landlord represented. When we pointed it out to the landlord’s agent, she quickly retorted: “it is what it is – don’t waste your breath and you architect’s time. We will not allow tenants remeasure the space.” Negotiations with stonewalls like this can be handled easily and we eventually got the deal closed.

However, comparing SF in proposals can be a tricky business. It points to the reason why business owners and corporate decision makers alike have come to rely so heavily on architects and space planners to ensure their office space needs make sense. If you’re in the market to lease space, it behooves you to outsource the planning process to a professional architect, planner or agent-advocate who understands the substantial differences that exist between things like “usable square feet” and “rentable square feet”. If you’re going it alone, here are a few tips to help guide your way.

The usable square footage of a commercial space, while not always straightforward, is the most simplistic in terms of understandability. Usable square footage relates to the exact* number of square feet that you’ll have sole access to. If the usable square footage of a commercial property that you lease is 2,000 usable square feet, this means that your office space will be precisely that – 2,000 usable square feet. Confusion sometimes comes into play, however, when a landlord markets the exact same space claiming it to be 2,500 “rentable” square feet. In this case, the owner has included in the description of the commercial space those common areas of a building that you’ll have shared access to – or the “rentable square footage.”

You’re probably thinking: Hang on a second – why do I need to concern myself with the definition of “rentable” square footage? Here’s why: That definition comes heavily into play if you’re leasing a block of space in a building occupied by other tenants. Ultimately, the amount of money you’ll pay for the commercial space won’t be determined solely by the square footage of the offices you inherit, but also your pro-rata share of any common areas such as lobbies, hallways, stairways, and elevators. Landlords might also add other items such as overhangs and exercise rooms that you want to negotiate carefully.

If you’re thinking that you might be better off having your interests served by hiring an attorney or agent/broker, there’s reason to believe your mental processing tools (your brain) are in good order. Choose your attorney and brokers carefully. Make sure that they are well trained and have your best interest at heart.

*There’s nothing “exact” about the methods employed by landlords to measure office space in major markets like New York City, Los Angeles, or Chicago. Interested parties will likely be told to leave their measuring tape at home and send their architects to their rooms with no dinner. In other words, in such major markets, the space “is what it is.”