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SELLING A LEASED PROPERTY

On behalf of Michael Brooks of Law Offices of Michael A. Brooks posted in commercial real estate on Thursday, August 16, 2018.

Whether you are just tired of the responsibility of being somebody’s landlord or you inherited a rental home, you can’t always wait until a rental is empty in order to sell. That makes it important to know your options when it comes to putting a property on the market.

What are your legal obligations to your tenants when you decide to sell?

The answer largely depends on what type of rental agreement your renter is currently under. A renter with a month-by-month agreement generally has fewer rights than a renter with a fixed lease. Here are some guidelines you can use.

1. Determine what type of lease your tenant holds

You may or may not be aware of the type of lease your tenant holds (especially if you just inherited a property). Review the lease to determine whether or not the tenant has a month-by-month contract or a fixed-term one.

2. Decide if you have the ability to clear the property

Selling an empty property is generally easier than selling one with a tenant still living in it. For your purposes, it’s better if you can end the lease and then put the property on the market.

If the tenant is on a month-to-month contract, you need to give a 30-day notice to vacate. If the tenant is on a fixed-term contract, you will have to decide whether you can wait until after the lease expires to sell. Keep in mind, it may be possible to terminate the lease early if your property is occupied by a “problem” tenant. You can review the terms of the lease for violations and initiate eviction proceedings — although that does put you through more effort and expense than simply waiting out the lease.

3. Consider an offer to the resident of cash to buy out their lease

If you don’t have any way to terminate a lease early, you may be able to broker a deal with your tenant. Consider offering two months’ rent plus moving costs — enough for the tenant to start over somewhere else without significant expense. That may be cheaper (and quicker) than an eviction.

If all else fails, you can still sell the rental contract with the property — although that does mean finding a buyer who is willing to assume the lease.

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CELL PHONE TOWER LEASE AGREEMENTS REQUIRE A UNIQUE APPROACH

On behalf of Michael Brooks of Law Offices of Michael A. Brooks on Saturday, August 11, 2018.

It’s unsurprising that the demand for wide-ranging, reliable networks have cell phone companies scrambling for new places to build cell towers. There are reasonable incentives for businesses, property owners and landowners. The additional income and long-term profits make cell phone tower lease agreements tempting.

Despite the upfront benefits, it’s important to consider some issues that may arise. A cell phone tower lease agreement is different than any other standard commercial or residential agreement. Wireless carriers and companies are powerful and well-rehearsed in the world of negotiation.

Cell tower lease agreements request a lot of land

A cell tower company asks for a lot of land, but needing the land is a different story. Oftentimes companies will request 2,500 square feet of land, when it might not be necessary, depending on the cell tower. Over time, they could start expanding into space that wasn’t agreed upon. It’s important to hold your ground and protect those set boundaries.

Additionally, tower companies take as much space as they can get. Crews gradually start to load onto the property, bringing with trucks, lights and loud equipment. The negotiated lease agreement from years ago is now benefiting them more than it is you, or the community.

Cell tower companies can leave at any time

Most cell tower agreements include what’s called an early termination clause. This means they can quit the agreement at any time. On the other hand, you may have signed a 20-year lease agreement with no way out. For this reason, you should avoid providing extended duration on the lease.

In continuation, wireless carriers and tower companies are often able to terminate a lease agreement on short notice. If this occurs, it’s important to negotiate a reasonable termination fee or request a longer notice.

Any type of lease agreement potentially has issues. Cell tower lease agreements tend to have a unique set of dilemmas. They have their own team of experts to help them navigate the complicated process, and so should you. With the right representation and negotiation tools, both parties have an opportunity to come to a reasonable agreement at any stage of the lease.

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VARIANCES, REZONING AND CONDITIONAL USE PERMITS CAN RESCUE A DEAL

On behalf of Michael Brooks of Law Offices of Michael A. Brooks posted in land use & zoning restrictions on Thursday, August 9, 2018.

What can you do when you find the perfect piece of property — except for the zoning regulations that stand in the way of what you’d like to accomplish? Do you just walk away and start your search all over?

That’s always an option, but you don’t have to go that route automatically. There are a number of ways to potentially circumvent zoning issues. Following are a few of those.

A variance

This is a discretionary modification or waiver of the usual zoning regulations. It’s most appropriate when there’s some unusual characteristic of the property that makes a strict application of the zoning requirements a hardship.

For example, imagine that you want to build a home of similar size to all the other homes in the area. However, the irregular shape of a parcel of land makes it impossible to do so and obey the regulation that requires a property to sit back at a specific number of feet from the road. A variance would allow you to build your home closer to the road.

Rezoning

Rezoning asks the city to change the allowable use of a property altogether. For example, say that you want to build a shopping center on a spot that’s currently designated for agricultural use only. If the city agrees to rezone the area for commercial use, you could move ahead with your project.

Conditional Use Permits

Somewhat like a variance, these permits allow a property to be used in a way that it normally wouldn’t without a change in zoning. This type of permit is most likely to be granted when your plans for the property would benefit the city or the public.

For example, you might seek a conditional use permit to operate a small business out of your home, like a bed-and-breakfast, in an area that’s strictly residential. You could argue that your business encourages tourism to the area and thus, indirectly, benefits the public as a whole.

Overcoming a zoning restriction can help you achieve your dreams. Consider getting help from a California attorney experienced with real estate transactions as you decide which of these methods will work best for your needs and how to approach the zoning board with your request.

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WHAT LANDLORDS SHOULD KNOW ABOUT BANKRUPT COMMERCIAL TENANTS

On behalf of Michael Brooks of Law Offices of Michael A. Brooks posted in commercial real estate on Thursday, August 2, 2018.

For most commercial landlords, a tenant’s bankruptcy hardly comes as a huge surprise. More than likely, the rent payments have been getting later and later — or they’ve gone missing a few times. It isn’t uncommon for tenants in financial trouble to stop communicating — usually because they’re trying to figure a way out of the situation or are unsure of their next step.

So, what happens when you finally get the notice that a commercial tenant has filed for bankruptcy protection?

When the automatic stay is in place

An automatic stay goes into effect as soon as the bankruptcy is filed. You can’t collect back rent, enforce a judgment or put a lien on their business equipment during that time. You also cannot immediately apply the security deposit to the unpaid rent without the bankruptcy trustee’s permission.

When you have already terminated the lease

You can be subject to sanctions and fines if you violate the terms of the automatic stay, but that doesn’t necessarily mean you are without rights. If you terminated the lease due to nonpayment prior to the bankruptcy, you can ask the trustee in the case to lift the stay so you can proceed with an eviction.

When the tenant has skipped out

If the property was vacated before the lease was terminated, you can usually gain access to the property quickly. Be careful, however, about how you treat anything the tenant left behind. Material goods, equipment and the like may all be subject to liens and part of the bankruptcy estate. It’s always necessary to get the trustee’s permission to dispose of anything — even something that has no obvious value.

When the tenant wants to continue

Your tenant can usually continue the remainder of the lease only if he or she can satisfy the unpaid rent and provide you with a reasonable assurance that you’ll continue to be paid. You may be able to require an additional security deposit or a guarantee of credit from the tenant’s backers as part of that reasonable assurance.

Because bankruptcies are so complex, it’s wisest to seek legal advice regarding a commercial tenant who goes bankrupt. There are often remedies available to help your situation — but it takes some experience to know when and how to press your case.

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DUE DILIGENCE AND MULTIFAMILY PROPERTY PURCHASES

On behalf of Michael Brooks of Law Offices of Michael A. Brooks posted in commercial real estate acquisitions & dispositions on Friday, July 27, 2018.

Buying a multifamily property can be a fantastic investment — but only if you make sure to perform your due diligence first. That’s the only way to make certain that your money is wisely managed.

Don’t get sidetracked by the excitement of the venture. Something that seems like a great deal may not be all that special once you dig deeper. Here’s where you need to start your due diligence on a multifamily property:

1. Interior unit inspections

You need a thorough inspection of each rental unit, including appliances, floors, bathroom fixtures and ceilings to check for needed repairs or replacements.

2. Environmental hazards

A detailed environmental inspection should include information on any asbestos or lead paint on the premises. Hidden hazards can make getting financing difficult and expose you to litigation.

3. Tenant information

What are the demographics of your tenants? Can you expect long-term leases to continue? You also need copies of all of the leases in order to understand exactly what agreements have been made. A schedule of rents is also important so that you know how much rent is due — and how good the tenants are at paying. That helps you avoid hidden issues that could lead to evictions and a lot of expense for you later on.

4. Market analysis

Look into what is happening with the economy in the area, the real estate taxes, the population growth and any big changes in demographics. Who are the major employers in the area? If one major company employs most of the tenants, your economic health is tied to the company’s health once you invest. Make sure that’s something you’re willing to do.

5. Litigation

The last thing you want to do is purchase someone else’s legal headache. Make sure that there’s no litigation pending regarding safety, structural problems or management issues. If there is, you need to protect yourself against liability before you agree to buy.

Remember, you can’t trust the seller to warn you about any risks you are taking with a commercial property acquisition. It’s always, “Buyer beware!”

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INVESTING IN AN EARTHQUAKE ZONE MEANS MONITORING INNOVATIONS

On behalf of Michael Brooks of Law Offices of Michael A. Brooks posted in commercial real estate on Thursday, July 19, 2018.

California is trying to build up rather than out. It makes sense to make use of tall buildings in most California cities. It’s the only way to stop moving the suburbs out farther and making commutes longer.

However, is it a smart idea? Is it even safe, given the fact that future earthquakes are not just a possibility — but a certainty in some areas? If they aren’t already, investors need to be conscious of their risks.

Los Angeles and San Francisco offer some prime real estate investment opportunities. Both are inside Class Four seismic zones, where earthquake preparation is necessary. Historically, the cities have limited the height of their buildings. However, San Francisco recently allowed a building to go about 100 feet taller than is normally allowed due to its exceptional “seismic performance.”

Structural engineers who have studied the way that buildings perform in earthquakes have come up with some amazing innovations. In the case of San Francisco’s tallest skyscraper, computer modeling was used to help design the building and make sure that it met all required codes. It also helped determine the way the building would react to various seismic events in the region.

Engineers also drove the skyscraper’s foundation 200 feet underground, into the bedrock below. Its walls are also made with a type of specially-reinforced concrete and steel frames. The floors are also designed using a unique support system. These are the type of innovations investors should see before they decide to put their money into a California skyscraper.

So, are skyscrapers simply a bad risk in an earthquake zone? The experts say that the technology in use actually makes the newest skyscrapers — which are also the tallest — among the safest buildings in the city during an earthquake. Many older buildings were retrofitted to meet earthquake-readiness guidelines after a major quake hit back in 1994. New buildings are designed with the possibility in mind from the very start.

As always, it’s important to perform due diligence in all commercial real estate purchases before you decide to invest. That means taking into consideration the unique natural characteristics of the region as well.

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WHAT TO KEEP IN MIND FOR EXCLUSIVE USE PROVISIONS

On behalf of Michael Brooks of Law Offices of Michael A. Brooks on Tuesday, July 17, 2018.

Whether a business is looking to establish a name for itself or is a well-known brand, one important contract that owners look to make with the area’s landlord is an exclusive use provision. The point of this agreement is so landlords cannot lease any businesses that might be competition to the tenant.

As a small shop owner in a specific field, avoiding competitors is crucial towards your business’ survival. If you were to own a store that specializes in office supplies, the last thing you would want is an OfficeMax just a few doors down. Therefore, it is essential that you successfully negotiate with your landlord about a potential exclusive use provision that can benefit your location in the long run. Before you do that, there are a couple of aspects to keep in mind about the landlord’s role in the deal.

Convince the landlord the provision helps both of you.

Most landlords are understandably skeptical when it comes to exclusive use agreements because it can limit their potential tenants in the future. If you were to sell something widely popular that has several big-name competitors, then the landlord is more likely not to sign it. It may not be something that you are able to sign right away if you have a small or newer business.

If your business is profitable prior to or during your lease, then the landlord might be more open to the agreement. If they know that you are successful, they want you there to have guaranteed rent payment for a long time.

Be specific about your competitors.

If you have a small shop or are planning a new business type that is new to the landlord, you must give them the details about what your company does and what companies could hurt your business. You know the field better than they do, so you have to make sure they understand which companies pose a threat.

However, you do not want to be too strict with the request. For example, if your small business specializes in healthy smoothies, you do not want to restrict any restaurant that might have smoothies on their menu. You instead want to restrict places that specialize in smoothies, such as Jamba Juice. Having a wider range of places you consider competition can make the landlord turn down your provision.

What to do if they break the agreement.

Commercial real estate purchases are made to benefit both the tenant and the landlord. If your business slows down, the landlord might be tempted to violate the agreement. They could place a competitor near your location. Make sure your provision is specific in terms of competition and how long an exclusive provision will last. A possible workaround allows lease termination or lower rent if the landlord violates the agreement. This can potentially make the landlord more cautious in their decision to place competition near you.

If that workaround is not in there, you should consider pursuing legal action against the landlord to receive the proper compensation for lost business.

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THREE QUESTIONS TO ASK BEFORE ANY COMMERCIAL PROPERTY PURCHASE

On behalf of Michael Brooks of Law Offices of Michael A. Brooks posted in commercial real estate acquisitions & dispositions on Wednesday, July 11, 2018.

Commercial property is one of the most solid investments you can make over time, but only if you invest wisely.

How can you make sure that you’re putting your money where it will do you the most good? Ask questions about the indicators of investment success before you buy any piece of property.

1. What is the neighborhood like?

Take care to evaluate both the current condition of the neighborhood and the things that are likely to change its shape in the near future. For example, a property that’s in an area that’s gradually being gentrified could bring about significant returns if you buy early.

Look at the changes in the area and try to determine the general direction that the neighborhood is moving. Plans around hospitals, public transportation, roads and zoning can all affect your investment’s value.

2. Is the seller motivated?

You want to get a deal for your money, which means you need a seller who is motivated to let go of his or her property at a price that gives you room for profit. There are plenty of them out there, especially as owners age and decide to move on to other places, but you need to be willing to walk away from any property where the seller isn’t ready to deal.

3. What will your net operating income be?

This is a critical question. You can’t tell how valuable (or affordable) a commercial property is going to be unless you have some idea of what your net operating income will be. Calculate the value of the property’s gross income and subtract the cost of your anticipated operating expenses. This will give you the net figure you need to determine if you can make a profit.

The more familiar you are with the language of commercial real estate investment, the better you’ll be at picking out a good deal when you see it. Take plenty of time to familiarize yourself with the process. Commercial real estate purchases are something that you never want to rush if you want the most reward for your money.

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USE THESE TIPS TO PREPARE A VARIANCE REQUEST TO ZONING

On behalf of Michael Brooks of Law Offices of Michael A. Brooks posted in land use & zoning restrictions on Friday, July 6, 2018.

Zoning regulations rule everything about building. Whether you’re trying to build an addition onto your home or you want to build a whole new factory for your business, zoning can be either a blessing or a bane.

This is one of those times, however, where the old adage about how “it’s better to ask forgiveness than permission,” definitely doesn’t apply. When you run into a zoning problem, deal with the issue before you start to build. It’s far more expensive to do it the other way around.

In other words, ask the zoning board for a variance before you go through with any of your plans. It isn’t unusual for variance requests to be approved, but the right approach can still make the task a lot easier. Here is some advice on how to prepare your variance request:

1. Talk to the neighbors.

Whether your project is residential or commercial, the attitude of the community toward what you’re doing can directly affect the zoning board’s decision. The more support that you have from residents in the area, the easier it will be. If your project is residential, talk to your neighbors about how it will improve the looks or value of your property. If your project is commercial, stress the benefit a thriving business like yours will bring to the area.

2. Attend the meetings.

There’s no harm in attending a few zoning board meetings — and a lot to be gained. You can introduce yourself and let members know that you’re there to gain a better understanding of what they do and how to proceed before you put your application for a variance in. You’ll also gain a good sense of how the board is likely to respond — which can clue you in on whether or not you’re going to need legal assistance with your request.

3. Hire a local expert.

The odds are good that you’re going to hire a contractor for your project — so, make it one from the local area. Zoning is a highly local issue. That means that local builders are most familiar with what will and won’t get approved in any given district.

While dealing with zoning can be a hassle, the end result is worth it — especially once you see your dream project completed!

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WHAT CLAUSES SHOULD YOU HAVE IN YOUR COMMERCIAL LEASE?

On behalf of Michael Brooks of Law Offices of Michael A. Brooks posted in commercial real estate on Friday, June 29, 2018.

One of the most valuable clauses you can get in a commercial lease is a “go-dark” clause. However, many commercial tenants aren’t even familiar with the term.

If you’re trying to figure out a good way to protect yourself in case the iproperty turns out to be a money pit, this is what you should know.

What’s a go-dark clause?

Most commercial leases require you to operate your business continuously for the duration of the lease. If you’re in a unit with multiple stores, like a retail mall, that means adhering to the mall’s hours of operations — even if it isn’t profitable for you. It also puts you in default and can make you subject to penalties if you have to close down entirely.

A go-dark clause gives you the right to shut down your store without penalties as long as you pay your rent.

What else can they do?

In conjunction with a co-tenancy clause, you can also gain the right to close your store down or take a significant reduction in your rental obligation if one of the anchor stores in the mall goes out of business.

For anybody who has witnessed what can happen when the anchor store in a mall suddenly fails, this clause is an obvious life saver.

What other options are there?

You can also negotiate a “right to recapture” with the landlord. This will give the landlord the ability to take the space back if you decide you can’t keep up with the hours. This is often seen as a win-win for both parties. However, it can become a problem for tenants if they need to close for a short period. An overeager landlord can leap onto an opportunity like that to recapture the space when there’s another tenant waiting.

It’s important to consider the possibility that your store isn’t going to be profitable — even if it isn’t pleasant to consider. That’s the best way to manage your losses before they happen.

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