Jeremiah Lee, a California commercial real estate attorney and Chief Financial Officer with TriCord Advisors, has been teaming up with Joe Stance for several years to help business owners and entrepreneurs achieve their goals. What started as a personal friendship with the Stances has now evolved into a professional relationship geared towards serving the Riverside community and neighboring cities.
We recently asked Jeremiah to offer his expert advice on all things purchasing and leasing when it comes to commercial real estate. Between discussing purchasing agreements, reviewing leases and negotiating legal documents, Lee offered a plethora of information that any business owner, entrepreneur, or investor could benefit from.
What are some examples of common pitfalls individuals should consider when entering into a commercial lease?
The first item to clarify is usually, “What is included in rent?” Are property taxes or insurance or similar items included in the rent, or will those be costs the tenant needs to pay in addition to monthly rent? Another common item to consider is how to get out of a lease. If you need to leave, what happens? What do you owe? When can you leave? What liabilities continue after you leave the property? An additional pitfall relates to tenant improvements. Very often when someone moves into a new commercial lease, the landlord would say, “ok you want to build out an office space to fit your needs, I’ll provide $40,000 as an allowance to build out the space for you.” The questions to ask would be, what are the strings attached? How does that work, if you leave the lease early? Do you have to pay that sum back? Whose contractors will do the work and what fees will the landlord receive for managing the work? These are a few common issues to be negotiated in a lease.
Once a lease or purchase is finalized, where might an attorney offer further advice or expertise?
A purchase and sell transaction will generally include representations and warranties. If the landlord or seller represents that the property is in a certain state, but that ends up not being the case, the tenant or buyer can make a claim to be compensated for the discrepancy- this can often lead to a lawsuit…Another common situation where additional assistance is needed is if the tenant needs to get out of a lease or extend a lease. At that moment (my role) is reviewing the lease and advising the client on their rights stated in the lease as well as their general rights at law. Good advice discusses not just their legal rights, but also what is the most reasonable path forward to accomplish their goals.
What are some of the mistakes people tend to make on their own?
Coming to an attorney is about avoiding mistakes and protecting the future. Often people think they can just get out of a lease if their business needs to move, but they need to acknowledge that the business of a landlord is to collect rents. So, when you sign a lease, you have to understand that a lease is a legally binding contract. If you fail to pay it or just decide to leave, there will be legal consequences…People at times take what they understand of their personal experience of renting, (such as) renting apartments, and apply that to their business and renting commercial buildings. The two are very different, especially in California.
How have things changed since the Covid-19 outbreak?
Everybody is trying to put in their lease agreements or amendments some kind of language relating to Covid-19. What’s fair, what’s reasonable? It’s a unique situation and many landlords and tenants are scrambling to try to protect their interests.
Any final advice for those looking to lease or purchase commercial property?
Include professionals early in the process, because they can really help you avoid wasting time. Nothing is standard in real estate and everything is negotiable. To really understand what you are signing is key, and usually, to do that, you need someone who understands the language….no one likes to spend money on professionals, but “an ounce of prevention is worth a pound of cure.”
—
Ready to talk to a commercial real estate professional? Call us at no cost, we would love to get to know you and your business better.
Looking to connect with a Certified Public Accountant? Jeremiah Lee can be reached through TriCord Advisors.
View our blog archive for more resources.