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.

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.

S Does Not Stand For Superman

Posted by Lee Sterling | Posted in Economics, Landlord-Tenant, Legal | Posted on 10-09-2009

green-shopping-centerIn the past I’ve written about the SNDA clauses typically found in commercial leases: Subordination, Non-Disclosure, and Attornment.  I’ve described the importance of the Non-Disclosure clause.  The terms of the Subordination clause and the Attornment clause are equally important. Today, I’m just going to discuss the “S” of the SNDA, the Subordination clause. I’ll save the Attornment clause for another blog post.

If a lease is recorded or a tenant takes possession of property before a lender records its lien, the lease will have priority.  A Subordination Agreement changes that priority.  Landlords typically will include a subordination clause in the lease because they know that their lender will not lend them money unless tenants are junior to the lien of the lender’s trust deed.  Often the Subordination language imposes subordination not only for existing loans, but future loans and for modifications, extensions, increases, renewals, and modifications etc. of those loans (for ease of reference, let’s call these the “mortgage”).

The lender’s subordination agreement may provide that your lease is subject to the terms of the mortgage.  You definitely don’t want that!  You don’t know the terms of the mortgage, and don’t want to be bound by what you don’t know. You can agree to be subordinate to the lien of the mortgage.

A tenant has to be concerned about the terms of the Subordination Agreement because it may give rights to the lender without corresponding obligations.  For example, if the landlord had agreed to pay for certain tenant improvements prior to a foreclosure, and the Subordination Agreement is silent on the obligations of the foreclosing purchaser, the foreclosing party may not be obligated to pay for those improvements.  The Subordination Agreement should give you the right to terminate the lease if such obligations are not met.

In the event of insurable damage or condemnation prior to a lender’s foreclosure there may be a dispute as to who is entitled to proceeds resulting from those events.  That’s another issue that should be covered in the Subordination Agreement.

We’ve covered just a few of the issues to be considered in reviewing a Subordination clause and the lender’s Subordination Agreement. Be sure you have the right advisor helping you review the lease terms.

The Subordination clause has to be considered in conjunction with the Non-Disturbance and Attornment clauses of the lease.  The terms of the SNDA are often overlooked by anxious tenants, and often accepted without negotiation by the unsophisticated.  Don’t fall into that trap.  There’s interesting California case law pertaining to SNDA Agreements, and you don’t want to become known by being cited in appellate cases!  For questions about these issues always see your counsel before signing a lease.

Tenant Protection When Landlord’s Property Is Foreclosed!

Posted by Lee Sterling | Posted in Landlord-Tenant, Legal | Posted on 20-05-2009

evictionnotice
I’ve mentioned the SNDA in previous posts (Subordination, Non-Disturbance, and Attornment). The ND portion refers to non-disturbance of the tenant’s right to have its lease recognized as valid in the event of the foreclosure of a senior trust deed. The S refers to the Subordination clause and the A refers to the Attornment clause. I’ll discuss the Subordination and Attornment clauses in separate blog posts. From the Tenant’s standpoint, the non-disturbance clause (“ND”) is most important.

The use of the Non-Disturbance Agreement depends on the timing of the recording of the trust deed and the recording date of the lease (or the recording of a Short Form Notice of Lease) ,collectively “Notice”. Usually neither the Tenant nor the Landlord want the whole lease recorded. The lease may or may not provide for the recording of a Short Form Notice of Lease. As a Tenant you may want a Notice recorded. Check with your attorney for advice.

California follows the race-notice theory of recording. The first legitimate document recorded has priority over subsequently recorded documents. If a trust deed is signed on January 2, but not immediately recorded, and the lease is signed on January 10 and its Notice is recorded on January 11, while the trust deed has not yet been recorded , the lease would have priority over the trust deed. If the trust deed were subsequently foreclosed, it would NOT have the right to evict the Tenant so long as the Tenant was not in default under the terms of the lease.

However, if the trust deed were RECORDED first the lease would be subject to the priority of the trust deed. If the trust deed were foreclosed, the foreclosing party could evict the Tenant! The reason most Tenants want the ND is that they usually have spent quite a bit of money on leasehold improvements, moving costs would adversely impact their bottom line, they may have spent substantial amounts branding their location, and they may be out of business while moving to a new location. A Non-Disturbance agreement should protect the Tenant in those circumstances.

Before entering into a lease, or when renegotiating a lease, the Tenant should determine whether or not there is a recorded trust deed encumbering the property. If there is, the Tenant should make it a condition of the lease that the Landlord provides a Non-Disturbance agreement signed by the lender. Obtaining a Non-Disturbance Agreement often depends on the negotiating position of the parties. A tenant leasing 1,000 square feet of retail space in a mall probably won’t be able to obtain the lender’s consent to a Non-Disturbance agreement. However, a major Tenant in a development should insist on an ND agreement. Merely having the ND clause in the lease will not protect the Tenant if the lender has not provided the signed agreement. The ND clause may provide that the Landlord will use its best efforts to obtain the lender’s Non-Disturbance Agreement. In the standard lease used by commercial brokers in Carlsbad and the rest of San Diego, the lease ND clause provides that if the landlord doesn’t obtain the ND agreement within 60 days, the Tenant may go directly to the lender to try to obtain the Agreement. Without the lender’s signed agreement, the Tenant is at risk. There are various forms of ND clauses and agreements. Be sure to have the language reviewed by your attorney if you want to protect your rights to retain your lease rights in the event of foreclosure.

If you have general questions about commercial leases, please send us a note at Lee@leesterling.com

Tenant Protection When Landlord’s Property Is Foreclosed

Posted by Lee Sterling | Posted in Carlsbad, Economics, Landlord-Tenant | Posted on 10-05-2009

foreclosure-extiAllan Koljonen, a fellow member of the Carlsbad Chamber of Commerce, and a knowledgeable real estate investor, read our blog about what happens to tenants when landlords file bankruptcy, and wondered about the effect on tenants when a foreclosure is filed against a landlord’s property.

It depends…isn’t that a typical lawyer’s response. California follows the rule that a properly recorded lien or interest in real property is superior to any subsequently recorded lien or interest in real property. So, if a lease is recorded before a trust deed is recorded then the lease is superior, and the foreclosure of the deed of trust does not affect the previously recorded lease.

If, however, the trust deed is recorded prior to the recording of the lease, then the foreclosure of the trust deed will extinguish the lease and the tenants and landlord of the property will be relieved of their respective obligations under their leases. However, the parties may change the effect of the law by a special agreement in the terms of the lease. Very often tenants want to retain their lease rights after a foreclosure. They may have built up a local market for their location, they’ve spent thousands, perhaps, making leasehold improvements, and they certainly don’t want to incur all the expenses of having to move. In some cases, it’s the foreclosing party who may not want to have the lease automatically extinguished by the foreclosure. The rents may be at market or higher than current market rents, the tenants may be well-financed and well able to afford the current rent even if it is now higher than current market rent, and the foreclosing party doesn’t want leases to be extinguished, which would result in vacancies. So, it may be in both parties’ interest to have an agreement in the lease that changes the effect of the automatic extinguishment of a subordinate lease in a foreclosure.

The protection available to tenants and foreclosing parties changes the California law in the lease agreement by using subordination, non-disturbance, and attornment clauses. These are commonly referred to as SNDA. If you’re a tenant, determine whether your lease was recorded prior to or after the trust deed affecting your leased property, and make sure you read and understand the SNDA because the consensus is that there are going to be increasing commercial foreclosures affecting lease rights. I’ll cover each of the clauses of the SNDA in separate blog postings. Check back often for updates or subscribe to the RSS feed above. If you any general questions about the SNDA or commercial tenant’s law please email me at lee@leesterling.com. As you know, I was a Colorado real estate lawyer for 27 years, but I’ve retired and I’m not licensed to practice law in California. For specific legal questions you should always consult a lawyer licensed in the state in which the property is located.

By the way, if you like the image at the beginning of this post you can click on it to go the web page of Donald Teel, a commercial real estate broker in Prescott, AZ for information about what’s happening in that part of the country! You can also go to Donald’s web site by clicking here.

What To Do When Your Landlord Goes Bankrupt

Posted by Lee Sterling | Posted in Economics, Landlord-Tenant, Legal, Miscellaneous, Real Estate | Posted on 23-04-2009

bankruptcyGeneral Growth, the owner or manager of more than 200 malls in 44 states, which also owns office buildings and is involved in the management and development of master planned communities, filed the LARGEST real estate bankruptcy in U.S. history. So, what happens to its thousands of tenants in those malls and office buildings?

The bankruptcy code (Code) allows the debtor-in-possession (the landlord, for example) or the trustee of the bankrupt estate (hereinafter we’ll use Trustee to indicate either) to accept or reject executory contracts and unexpired leases (Sec. 365). As a result, the Trustee will usually affirm leases that are at or above market rent and reject those that are below market rent. Of course, the lessee of a below market rent would like to make sure it continues to have the right to occupy that space, and the lessee may want to retain the space even if it’s at market rent because of significant improvements the lessee may have made or the cost of moving may be prohibitive. Fortunately, if the lease is rejected, Section 365 provides that the lessee’s possessory rights are protected. However, the Trustee may be relieved of other provisions of the lease, such as the duty to provide services to the lessee.

What if the Trustee wants to sell the property that you have leased? Section 363 of the Code allows the Trustee to sell the real property “free and clear” of any “interest,” in the property, and a lease has been held to be an “interest.” One case, in the Seventh Judicial Circuit, with its particular facts, has held that the right of the Trustee to sell the property free and clear of the lease under 363 of the Code trumps the rights under section 365 of the Code that gives the lessee the continued right to possession. The lessee, for some reason, had not objected to the sale; perhaps counting on the provisions of Section 365. The lessee lost the possessory rights to a warehouse they had built on the bankrupt’s property. In the First Circuit, in a different case, where the lessee had objected to the sale, the Court held that the lessee’s right to retain possession was not trumped by Section 363! If you’d like more information, an interesting discussion of the cases can be found at: http://is.gd/u8Sm and http://is.gd/u8qA

As soon as you hear that your landlord has filed bankruptcy or is contemplating filing bankruptcy, immediately contact competent bankruptcy counsel to protect your rights!

Don’t Spend Money Until You’ve Read The Lease!

Posted by Lee Sterling | Posted in Economics, Legal, Real Estate | Posted on 05-04-2009

Read the lease before you spend any money on the new space you’ve found! It’s not uncommon to start spending money on inspections, space and decor planning, communications planning, furniture planning, and your time and staff time planning for the new space. Landlords sometimes count on your becoming so invested you’ll be forced to accept lease terms that you might not otherwise agree to. After there is agreement to the basic terms of a Letter of Intent (subject of another post to come) be sure to ask for a copy of the propsed lease! Then you can be sure that the terms are acceptable before you’ve spent your time and money!