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Effective Essentials of Subleasing Commercial Real Estate

Almost all preprinted commercial real estate lease forms in the state of California provide the tenant the ability to sublease the premises with the landlord’s prior written consent. The landlord cannot unreasonably withhold the consent to sublease. However, there are legitimate reasons to withhold consent for example change of use of the premises, financial ability and the tenant’s prior experience in the stated business.

A recommendation for the tenant is to have a meeting with the landlord to notify them of the intention to sublease the property. The landlord may be able to work with the tenant in releasing them from the lease early. Listed below are 3 reasons to meet the landlord:

1. The landlord may have a replacement tenant for the premises.
2. A less expensive financial settlement may be worked out between the parties rather than trying to sublease the premises which could be costly.
3. Provide the Landlord with evidence of decreasing revenues that demonstrate the Tenant’s lack of ability to continue to pay the rent.

The list below should be considered by the tenant if the landlord does not oppose subleasing the premises:

1. The tenan...

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The Commercial Real Estate Lease


A Lessor’s Perspective on the Option to Renew

 The option to renew a lease in a commercial real estate contract provides the tenant the right to continue leasing the property for extended periods of time.  This promise of continued occupancy has continued for many centuries; however, a landlord has no obligation to grant an option to extend the lease for any period of time.

There are times when the option is good for the landlord.  Below are examples of when an owner should consider providing language to extend a commercial lease in a contract to the tenant:

1.    The economy is bad and there is a high vacancy rate resulting in a slow leasing market
2.    The tenant wants to make significant costly improvements to the building
3.    An highly credited national company who attracts major tenants to the area is the te...

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Earthquake Insurance for the Commercial Real Estate Owner

The recent 7.3 magnitude earthquake in Iran on Sunday, November 12th was tragic. Pasadena based Jet Propulsion Laboratory (JPL) predicted a 99.9 % chance of a 5.0- magnitude or higher earthquake in Los Angeles by April 2018, according to a Los Angeles Times article dated October 22, 2015.

The commercial real estate owner usually carries the burden of paying for earthquake insurance if he is covered at all. The majority of commercial real estate owners don’t carry earthquake insurance, according to Erez Golomb an insurance agent at InTouch Insurance Services in Lake Balboa. Golomb said property owners don’t carry the insurance because it is normally expensive and the deductible is high.

Many insurance companies don’t cover earthquake insurance, because the risk is too high, Golomb said. Losses caused by earthquakes are usually excluded in typical commercial property insurance policies. The companies that do carry earthquake insurance usually use a “Difference in Conditions Coverage (DIC) form.”

The DIC can be used to write coverage for flood or earthquake insurance if the primary insurance carrier doesn’t cover it or to add more coverage if the primary insura...

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Why a Commercial Real Estate Attorney Should Work with an Expert Witness on a Litigation Case

An attorney dealing with a complex commercial real estate litigation case has to look at all angles of the case. He has to approach the matter from different sides to find the best way to fight the opponents and win the lawsuit. This is where the expert witness comes into the picture.

The opposing council may hire an expert witness first. As a result, the other side should immediately consider employing an expert provided the deadline has not passed. There are many areas of specialty in commercial real estate. Below are just a few examples:

• Development
• Finance
• Brokerage
• Valuation
• Construction
• Appraisal

One should only look for a forensic consultant experienced in the particular area of commercial real estate he or she is handling in the lawsuit. It is essential to locate a few expert witnesses who specialize in that particular area of commercial real estate. This may be challenging, because many experienced people don’t have websites. In addition, pinpointing their specialty could be difficult. There are some websites on the internet that may be helpful in finding the right expert witness for the case. Below are a few ex...

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Tenant’s Concerns Prior to Signing a Lease-Material Disclosures

A tenant should always perform his or her due diligence in gathering the facts on any material defects seen or unseen in a building they plan to lease.  The facts may not be disclosed by the owner’s broker or by the owner. 

The concealment of material facts may cause further serious damage to the property that the tenant may inherit after signing a lease.  A business owner investigating property for future decades of residency should have his/her broker inquire to the broker or the owner regarding unforeseen material facts.  Simply ask, if there are any possible material defects that may cause the company concerns in the future.

Zoning or deed restrictions may prevent the tenants use or future use of the property.  As a result, the prospective tenant should always research the history of the property’s zoning laws.  The restrictions could eventually cause government authorities to order a cease and desist of the business.

The landlord may not be aware of any deed restrictions on the property. Consequently, a new title report can always be obtained from the title company.  In addition, a tenant planning on making changes to the property must always consult th...

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Homeless Population Affects Commercial Real Estate, Vigilant Property Management is a Necessity

 

Investors are spending tens of millions of dollars in commercial real estate in West Los Angeles.  A person driving through Santa Monica, Playa Vista, Venice and Westwood will see buildings under construction and cranes everywhere.  In addition, they can also see homeless people everywhere.

The increase in the homeless population is becoming a serious security issue to these properties converted into office and retail space.  Further, property management companies are finding it difficult to remove the homeless people from the property.

For example on July 5th, a security guard asked two homeless men to purchase food or leave McDonalds on Colorado and 2nd Street in Santa Monica.  The two men were sleeping in the restaurant at about 4:30 am.  They started hitting the guard and it turned into a fist fight.  Santa Monica’s homeless population jumped 26% this year compared to 2016.  There are about 1,000 people living on their city streets.

The Los Angeles County homeless population increased 23% this year compared to 2016. About 60,000 homeless people live in Los Angeles County, according to the Los Angeles Homeless Services Authority (LAHSA).  The LAH...

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Landlord's Recommended Role to Mitigate Damages for Leases

Once a 3-day notice to pay or quit that is for past due rent is served to a tenant, the landlord may anticipate a vacancy.  In some cases the default of the lease is corrected and the lease goes on.  However, the vacancy will most likely be imminent if the tenant does not answer the complaint or pay the back rent.

The list below is my expert recommendation to landlords, as a result of a default notice to pay or quit.  This list is to provide the necessary steps to release the premises in the shortest time possible and reduce the damages in a potential lawsuit.

1.    Inspect the premises as soon as possible to assess any damages to the property.

2.    Contact contractors and obtain at least two bids for each service to cleanup if access is gained into the building.

3.    Make the place suitable for showing to prospective tenants.

4.    Find the real estate agent who is most familiar with the market area.  It is essential that the agent is a specialist in the area.  Don’t make a mistake and employ a friend who is a broker unfamiliar with the local market.

5.    The commercial real estate agent must create a written marketin...

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AIR Rebrands Itself to AIR CRE

AIR Commercial Real Estate Association has rebranded itself after 57 years in business.  The member-owned platform now branded AIR CRE provides commercial real estate professionals in Southern California with the critical tools they need to be successful.  Their members have access to a system of market research, listings services, contracts and legal resources, networking and education.

The new branding and logo doesn’t change their sterling reputation.  The commercial real estate network has Multiple Listings that serve seven countries.  It sells thousands of its commercial real estate contracts nationwide.

Every two years AIR CRE has a Contracts Seminar to unveil all of its forms including:

•    Purchase and Sale Agreements
•    Purchase related forms
•    Detailed discussion and comparison of Lease Forms
•    Listing Agreements
•    All related addenda

The sold out seminar on May 19, 2017 was led by AIR’s legal editor, Bryan Marshian and Broker John Pagliassotti.  They modify these forms continually in order to provide the best possible contracts in the industry.  These contracts serve the industrial, office and retail commerci...

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California Assembly Bill 1059 Dual Agency Brokerage for Commercial Real Estate Transactions –Dual Agents Beware!

AB-1059 is a new bill introduced to the California State Assembly this year.  It was written by California Representative Lorena Gonzalez Fletcher D – San Diego.  The bill aims to outlaw dual agency brokerage representation in California commercial real estate transactions.  This bill was written in a response to the recent California Supreme Court ruling on the residential real estate case Horike v. Coldwell Banker where the Supreme Court stated that dual agents have an inherent conflict of interest.

This bill is being opposed by the AIR Commercial Real Estate Association which is a non-profit representation of all parties, and I am a former president of the organization.  Tim Hayes is the AIR Executive Director leading the fight for the opposition with a petition on the MoveOn.org website.  He states in the petition that AB-1059 will negatively impact the overall economy, especially small business owners who lease or buy real estate.  

According to Hayes, the bill may increase fees paid to the brokerage industry for small business owners.  The tenant/buyers will no longer be able to work with any broker they choose.  The tenant buying commercial real estate will...

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The Timing For The Industrial Effective Breach of Contract Is Now!

The industrial real estate industry is on fire with no signs of slowing down.  The vacancy rates in Los Angeles are in the low single digits with high rental rates.  This is due partly to the shift from retail to ecommerce and the demand for warehouse space.  As a result, breach of lease litigation cases have dropped compared to the recession era in 2009.

In the 4th quarter of 2010 Los Angeles vacancy rates were about 6%. Landlords had extreme difficulty finding a tenant to fill a space then.  As a result, the landlord lost several months of rent when a tenant breached a lease.  Litigation costs were extremely high for landlords trying to recoup rents from tenants.  In contrast, Industrial vacancy rates today are at a historic low around 1%.

The landlord must mitigate the damages and continue to collect rent as it comes due under the law section 1951.4 if a tenant breaches the lease for abandonment or nonpayment. The first plan of attack is to simply file a 3 day notice and then a lawsuit. 

The landlord always...

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"Lee Segal was employed to assist our company in the acquisition of two industrial manufacturing facilities in Mexico.  I worked with him closely for several months, and I came to depend heavily on Lee for his technical knowledge and business acumen in commercial real estate.  He is absolutely my first choice as a consultant when I am faced with similar acquisitions.  In addition, he is the first person I recommend to colleagues and clients.Lee‘s capability and professionalism in commercial real estate matters make him the best addition anyone can have as a lead member of a critical team."
Sheldon Campbell, Corporate Facilities Manager, Compass Plastics Technology/AB Plastics; General Manager, Quality Laminates de Mexico, S.A. de C.V.