Shotgun Eviction – Bring the Police

Posted by Lee Sterling | Posted in Landlord-Tenant, Miscellaneous, Real Estate | Posted on 12-08-2013

  Here’s one way you shouldn’t evict a tenant.

Stan Pate owned a shopping center in Tuscaloosa, Alabama, and one of his tenants, Santa Fe Cattle Co. restaurant,    closed, and the parent company filed for bankruptcy protection. The lease was terminated on September 29, 2009,  and the next day employees of the company showed up at the restaurant in the Center with several police officers to  remove leased equipment. One of the employees alleged that Pate pointed a shotgun at him, which Pate denied. He  was charged with “menacing’ and convicted of a misdemeanor. He appealed the conviction, arguing that  he had lien  rights on the property being removed, and had the right to prevent others from removing the property. The appellate  decision indicated that it was inconclusive that Pate had a landlord lien on the contents of the restaurant, and the  conviction was upheld by the Alabama Court of Criminal Appeals.  Pate plans to appeal to the Alabama Supreme Court. Whether his conviction is overturned or not, this episode has cost him time and money and, undoubtedly, anguish. During his appeal the National Rifle Association Defense Fund filed a brief with the court arguing that “Pate had a right to protect his personal property because police had no duty to protect him or his property.”

The lesson for tenants in this episode is that if you’re going to enter property after your lease has been terminated BRING THE POLICE WITH YOU!

Force Majeure in San Diego Commercial Leases

Posted by Lee Sterling | Posted in Landlord-Tenant | Posted on 11-12-2012

Force Majeure?

 

 

Most commercial leases in Carlsbad and North County contain what is called a Force Majeure clause. It comes from the French meaning a “greater force,” and is invoked to excuse performance of an obligation because of an event uncontrollable by the party invoking the clause. Some of the events used to excuse performance are such things as flood, war, riot,  or act of God. In California, “Acts of God” in public contracts are defined as earthquakes greater than 3.5 on the Richter Scale and tidal waves. It’s important, in commercial real estate leases, to negotiate what will excuse performance in the case there is such an event or in the event of other specified events, such as labor strikes, inability to obtain necessary materials, unexpected soil conditions etc.

For landlords, recent experience around the country has indicated the need for more careful drafting. For example, does the term “act of war” include terrorist attacks or biological warfare agents? What kind of weather or fire event would excuse performance here in Southern California? What if the local economy were interrupted for a period of time, like in New York City after the hurricane? The issue most often comes up in leases when the tenant is unable to move into space when originally planned because construction of the building or the space has been delayed, and the landlord invokes the force majeure clause. The reason landlords are most concerned about the language of the clause is that they commonly draft the initial lease document, and courts usually interpret clauses in favor of the nondrafting party. The one exception is when the court finds that parties have equal bargaining power. Most of the leases I help negotiate are between major land-holding landlords and my clients, small business entities. The difference in bargaining power is evident. However, fortunately, my clients get the benefit of my experience as a real estate lawyer for 27 years, who negotiated leases on behalf of landlords and and developers with major tenants, like Walmart. In order to do so, I had to study and understand the impact of lease clauses.

A tenant should be concerned about the notice provision of the Clause. How soon after the claimed event should notice be given? How should the notice be given, and what kind of detail in the notice should be included? From a tenant’s standpoint, the effective date of the notice should be on receipt; from the landlord’s perspective notice should be effective when sent. What happens if the delivery of the notice is prevented by conditions resulting from the cause of the force majeure?

What happens to the rent due in the event of an interruption in occupancy as a result of a claimed force majeur? What if all or a portion of the leased premises is destroyed? Does the landlord have the obligation to rebuild? If so, how soon after the event will construction have to begin? As you can see, more attention should be paid to the force majeur clause by the tenant and the tenant’s representative. As always, it’s worthwhile to have your lease reviewed by your attorney.

Common Area Maintenance Charges (CAM) Explained

Posted by Lee Sterling | Posted in Carlsbad, Economics, Landlord-Tenant, Legal, Negotiation, North County, Office, Real Estate | Posted on 11-08-2012

 

This is a follow-up to a brief talk I gave to the Business Resource Committee of the Carlsbad Chamber of Commerce about the difference between Rentable Square Feet and the Usable Area of a building and the impact of the Load Factor on evaluating the cost of renting one commercial space compared to renting another  space in a different building.  Because of the Load Factor, the usable sq. ft. of the tenant’s space is lower than the rentable sq. ft. charged to the tenant.    I briefly mentioned the impact of CAM charges on that evaluation. This follow-up is so that I can point out some things that a tenant needs to keep in mind when evaluating CAM charges and the lease the tenant may be considering.

PRO RATA SHARE

This is another time that the Rentable Sq.Ft. and Usable Area are important for the tenant to evaluate. The ratio between the tenant’s Rentable Sq.Ft. and Usable Area results in the percentage of the CAM charges that are going to be paid by the tenant. If the Usable Area in a building is 100,000 sq. ft. and the tenant’s rentable sq. ft. is 10,000, the tenant would be charged with paying 10% of the CAM charges as the tenant’s pro rate share.

WHAT OPERATING EXPENSES

Unfortunately, some landlords have tried to use CAM charges as another profit center! It’s important for the tenant to review what is going to be included in the CAM charges. They should not include capital charges, upgrading to comply with laws, or repairs and maintenance,  which are topics we’ll cover in another blog post.  A good way to evaluate the CAM charges is to request the records for the last three years of the CAM charges. That will allow the tenant to see what kind of increases have been charged to existing tenants.

THE BASE YEAR

If a tenant enters into a gross lease (in which the landlord includes all expenses in the base rent for the first year) the tenant has to make sure that it is not charged for any expenses during that base year. In evaluating expenses, it’s also important to make sure that expenses are “grossed up,” which is another topic to be covered in a separate blog post.

COMPARISON TO OTHER PROVISIONS

The tenant should always check the CAM charge provision against the repairs and maintenance provision, the real property clause, and the compliance with laws provision to make sure that the landlord doesn’t try to include any of those costs in the CAM charges that the landlord may have agreed to pay in these other provisions.

WRAP UP

These are just a few hints on evaluating the CAM charges provision of a proposed lease. It’s important for the tenant to have a good broker helping to evaluate the lease, and to have the lease reviewed by a competent licensed real estate attorney.

 

Lee Sterling is a retired Colorado real estate attorney  and California real estate broker working with commercial tenants looking for space to buy or lease. He can be reached at 760-230-1492 and at lee@leesterling.com    

DRE Lic.# 01319489

 

 

 

 

 

 

 

Tenants – Who’s Fixture Is It? Check Your Lease!

Posted by Lee Sterling | Posted in Economics, Landlord-Tenant, Legal, Miscellaneous, Negotiation, Real Estate | Posted on 08-06-2012

Did your tenant representative  reminded you to review what happens to your fixtures at the end of the initial term        of your lease, and what happens if you renew the lease? And did your representative describe what might be a trade fixture and what might be a fixture? California has described fixtures as “a fixture is a thing that is so attached to realty as to be considered in law a part of the realty itself,” and a trade fixture as a “[fixtures] placed on leased premises for the purposes of trade.”  Absent specific language  in the lease, a tenant has no right to remove fixtures at the end of the lease term, but MAY remove trade fixtures during the term (and for a reasonable time after the end of the term) “if the removal can be effected without injury to the premises…”

 Another complication arises if you holdover, renew or extend your lease. California has determined that if you holdover, that means staying in the premises after the term of your lease has ended, absent specific language to the contrary, the fixtures AND the trade fixtures become the property of the landlord.  And if there’s nothing in the renewal of the lease that allows you to remove the fixtures or trade fixtures that were installed during the initial term you may have lost the right to remove them at the end of the renewal term.

What’s obvious is that a seemingly simple provision in a lease may be more complicated than the average tenant may understand.  That’s why you need to  make sure that you review your lease carefully, get good advice from your tenant representative, and have your lease reviewed by a competent California real estate attorney. There are lots more of these “gotcha” clauses in a typical “standard” lease.

 

McArt Studio Opens in Carlsbad

Posted by Lee Sterling | Posted in Carlsbad, Landlord-Tenant, North County, Office, Real Estate | Posted on 03-03-2012

Amy McArthur has gone from being a British warrior in Helmand Province, Afghanistan, to a successful Art teacher-entrepreneur here in Carlsbad at 3183 Roosevelt Ave. I was fortunate to find her this great space right across the Boys & Girls Club of Carlsbad,. with plenty of free parking.

Amy has come up with some unique ways to teach people how to create their own canvasses, and how to make it a fun time. One of her promotions is “Creative Sips,” open for the whole family, where you can bring your own beverages to enjoy while you learn to paint. Another successful program involves teaching kids to paint and enjoy art through cooperation with schools. That has led some parents to organize birthday parties at the Studio, which, in turn, has led other parents to organize fund raisers combining charity and learning to paint!

Amy is not only a great teacher, but a wonderful artist in her own right. Make sure to ask her to show you some of her work! To get more information about how great programs and classes, you can reach Amy at 760-889-6904 or by email at:    contact@mcartstudio.com

Here’s Amy taking a well-deserved break during her tour in Afghanistan.

Great Carlsbad Office Opportunities

Posted by Lee Sterling | Posted in Carlsbad, Economics, Landlord-Tenant, North County, Office, Real Estate | Posted on 01-02-2011

One of the great buildings available today

I just received a special promotion on four great office buildings here in Carlsbad. If you know someone  looking for office space in North County now is a terrific time to be negotiating. Take a look at these four wonderful opportunities by clicking on this link:  Great Office Locations

Then have them give me a call to discuss their specific needs. For 27 years I represented landlords and developers in the leasing and sale of commercial property as a real estate lawyer. Today i just represent tenants and never landlords in the leasing of space!

Do You Have to Pay CAM Insurance Charges?

Posted by Lee Sterling | Posted in Landlord-Tenant, Legal, Negotiation | Posted on 25-03-2010

A Typical ShoppingCenterThe Common Area Maintenance (CAM) charges paragraph of a lease is always important. It should detail what charges are included, and, by implication, what charges are not included.

In a recent New York case *, the lease CAM paragraph didn’t define all the charges, but did indicate that they included annual property taxes. After paying CAM charges for two years, including the tenant’s proportionate share of insurance on the property, the tenant realized that, perhaps, it wasn’t liable for insurance under the terms of its lease. The tenant sued to be reimbursed for the insurance portion of the CAM charges it had paid.

The court noted that the lease didn’t define the CAM charges, other than that it included the property taxes, and that the lease did have an insurance clause obligating the landlord to maintain insurance. That insurance clause did not mention a tenant’s obligation to pay its share of those costs.

Based on the lack of definition in the CAM clause, and the lack of requirement for the tenant to pay a proportionate share in the insurance clause, the court determined that the landlord would have to reimburse the tenant for its payment of those insurance charges.

What this points out, once again, is the need to have good counsel review your proposed lease to make sure you understand your obligations as a tenant. A well-qualified Tenant Representative and your real estate attorney should be able to tell you exactly what your obligations will be under your lease.

*I review the Commercial Tenant’s lease Insider, a monthly newsletter I receive, and this case was mentioned in the February issue.  The shopping center photo is from the Merriam-Webster Visual Dictionary Online.

Who Pays When Your Customer Gets Hurt and Sues? You Or The Landlord?

Posted by Lee Sterling | Posted in Economics, Landlord-Tenant, Legal, Miscellaneous, Real Estate | Posted on 06-03-2010

slipandfall

You have leased space in a Carlsbad office/warehouse building, and your lease provides that you are responsible for interior maintenance of the premises and the landlord is responsible for the roof, exterior walls etc.

The Accident

Last year a customer walked into your office, and slipped in a puddle of water caused by a roof leak that you had complained about to the landlord, which had not been repaired at the time of the accident. The customer suffered a broken back, had major medical bills, loss of work, and possible long-term disability.

The lawsuit

Guess who gets sued!  Right, both you and the landlord. Fortunately, your insurance company settles with the accident victim, and your insurance company proceeds with the claim against the landlord. It becomes a battle between your insurance company and his insurance company. Your insurance company is claiming that the landlord should pay your insurance company for the money it paid out to the accident victim to settle the matter.

The landlord argues that the lease required you to obtain insurance, which you did, and that the Indemnification clause of the lease meant that you had to cover any damages resulting from an injury in your leased premises.

The Indemnification

So you look at your lease, and you find the indemnification clause that reads: “Tenant hereby indemnifies and agrees to save harmless landlord from and against all claims, unless such claims are caused solely (my emphasis added) by the acts or omissions of landlord, which either: (1) arise from or are in connection with the possession, use, occupation, management, repair, maintenance, or control of the Premises or any portion thereof; (2) arises from or are in connection with any act or omission of Tenant’s or Tenant’s agents; or (3) result from any default, breach, violation or non-performance of this lease or any provision of this lease by tenant.

Your insurance company’s attorney argues that the puddle on the floor was caused by the roof leak that had not been repaired after your reported the problem, and that the landlord was liable.  The landlord’s attorney argues that there was a roof leak, but you failed to maintain the premises properly and that you should have dried up the puddle so the landlord was not solely responsible for the accident.

Who wins?

You be the judge. The lesson is that one word, out of the thousands, in the lease can dramatically affect your rights and obligations. Be sure you have a knowledgeable real estate agent helping guide you, and have your lease reviewed by your real estate attorney before signing it!

World Trade Center Arbitration – What It Might Mean To You

Posted by Lee Sterling | Posted in Economics, Landlord-Tenant, Legal, Negotiation, Real Estate | Posted on 27-01-2010

World Trade Center Site

World Trade Center Site

The New York Times reported recently that Larry Silverstein, who leased the trade center complex six weeks before it was destroyed in the 2001 terrorist attack, and the Port Authority of New York and New Jersey just received the results of an arbitration hearing, with both of them claiming victory. Silverstein complained that he had been delayed in the construction of three new office towers by the actions of the Port Authority, and the Port Authority claimed that Silverstein had to begin construction immediately or he would lose the right to the lease. Silverstein lost on his claim of delay asking for damages, and the Port Authority lost on the demand that Silverstein commence construction. The parties were ordered to work out a reasonable construction schedule.

The reason I raise this issue is that the standard lease used by many commercial brokers in Southern California is the AIR COMMERCIAL REAL ESTATE ASSOCIATION standard Industrial/Commercial, Multi-tenant Lease, which gives the parties the choice of including or not including mediation and arbitration as part of the lease. If chosen, an Addendum pertaining to those clauses has to be attached to the lease.

As a tenant, you have to determine whether or not you want to provide for Mediation and Arbitration. This important decision is often dealt without much thought. YOU SHOULD DISCUSS THIS WITH YOUR COUNSEL.

Arbitration was once thought to be less expensive than litigation, but today as much expensive discovery and pre-arbitration work is involved as in litigation. You need to evaluate, with the help of counsel, whether mediation and arbitration will resolve matters more quickly, or be less expensive. Arbitration is usually private as opposed to public trial. Is that a consideration?

There are many other issues to be concerned with if you choose mediation and arbitration. Don’t agree to mediation and arbitration without careful consideration of the many issues that your counsel should review. If you’d like to discuss what issues you might want to raise with your counsel, I’m available at 760-230-1492 or at Lee@LeeSterling.com.

A is for Apple And Also Attornment

Posted by Lee Sterling | Posted in Carlsbad, Encinitas, Landlord-Tenant, Legal, Miscellaneous, Negotiation, North County, Oceanside, Real Estate, San Diego | Posted on 30-10-2009

leaseform

We now get to the A of SNDAs (Subordination, Non-disturbance, and Attornment Agreements in leases.) First a brief recap of Subordination and Non-Disturbance. You may remember from our previous articles that if you’re a tenant, and you’ve agreed to subordinate your interest in the lease to any mortgage, trust deed of other security device, and the holder of one of those security devices forecloses, your lease may be terminated. Leases usually provide for that subordination to security devises even if they are created after the lease commences. The non-disturbance clause protects you in the event of a foreclosure (or in the event the property is sold to another owner) by providing that if you’re not in default you’ll be able to keep your lease in effect.

The attornment clause stems from the old feudal law that there was a personal obligation between the lord of the manor and his tenants, and that those obligations were reciprocal. The consent of the lord was required for a sale of the tenant’s interest, and the consent of the tenant was required for alienation (sale/transfer) of the reversion or remainder interest in the property. Thus, the lord could not alienate his reversion or remainder interest without the consent of the tenant. The consent was called an attornment. The necessity for an attornment was abolished before the American Revolution by the English Statute of Anne. In California, the common law rule eliminating the requirement of attornment has been confirmed by statute. However, just to be sure, leases contain an attornment clause that provides that if title to the property is transferred by the Lessor or if title is acquired through foreclosure or termination of a Security Device the tenant will attorn to the new owner.

The language of the SNDA in each lease has to be examined carefully because there are differences that may result from the specific language of the three inter-related clauses. There are some interesting California cases involving the interpretation of SNDAs. Be sure to have the lease reviewed by California counsel before signing any lease.

Lee Sterling was a real estate lawyer in Colorado for 27 years. He is not licensed as an attorney in California. He does have a California real estate license # 01319489.