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UNDERSTANDING THE CAM FEE IN YOUR COMMERCIAL LEASE

On behalf of Michael Brooks of Law Offices of Michael A. Brooks posted in blog on Friday, December 29, 2017.

Before signing a commercial lease, understand that you may be paying for more than just the square footage your facility will occupy. Your lease may have common area maintenance (CAM) fees. These can also be referred to as load factor.

CAM fees are common when you lease in a multi-tenant business park. You are not leasing the whole property, just a portion, so the CAM fees represent the cost of a portion of the building to be maintained. The only guaranteed way to avoid CAM fees is to lease a single tenant property, but then you can be responsible for all the operation expenses instead of just a portion.

What do CAM fees cover?

CAM fees can cover all kinds of expenses that the landlord must pay for basic upkeep and to maintain premise functionality. These can include repairs, insurance, property maintenance, trash removal, lawn care, and any utilities not separately metered. The fees can also be used to create reserves for future large scale maintenance and repairs, such as repaving a parking lot.

How are CAM fees calculated?

CAM fees are pro rata, meaning the allocation of fees is proportionate to the amount of space. If you rent more square footage, your CAM fees will be higher to correspond with the larger space.

There are two types of CAM fees, flat and variable. A flat CAM fee will be a fixed amount, whereas with variable CAM fees the amount the tenant must pay increases with different factors. CAM fees can be paid monthly, quarterly, annually or other ways depending on the lease agreement.

When considering a commercial lease with CAM fees you may want to make sure to ask what you will be paying for and request an itemized list of the expenses if possible. Any expenses you will be paying for in CAM fees need to be verifiable, so asking for an inventoried breakdown of the expenses is reasonable. Also, you may want to ask about potential CAM fee increases. Having all the facts upfront can allow you to make an informed decision before signing a lease.

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CALIFORNIA TENANTS WIN CLASS-ACTION STATUS OVER LATE FEES

On behalf of Michael Brooks of Law Offices of Michael A. Brooks posted in commercial real estate on Thursday, December 28, 2017.

Equity Residential is the name of the company that controls numerous rental properties throughout California. Nationally, it’s the third-largest rental company in the United States.

Now, the company faces a class-action lawsuit in federal court from both former tenants and current ones. Considering that the company owns around 36,000 apartments, the number of litigants involved is bound to be sizable.

At issue is Equity’s policy of charging “stacked” fees to tenants who missed their rent-due dates.

Equity charges tenants who are late on their rent either 5 percent of the late rent or a $50 late fee. These fees are not defined in the leases renters sign. In addition, even if the rent is paid, unpaid late fees are assessed additional late fees. Tenants are allegedly charged these fees automatically and not notified.

In other words, if a tenant forgets to pay his or her rent by its due date, the tenant could incur a 5 percent penalty. If the tenant unwittingly drops the rent off the next day, the landlord cashes the check and then charges an additional $50 penalty for the missing late fee. If the tenant isn’t aware of the late fee and penalty or can’t afford to pay it on top of the following month’s rent, another penalty is assessed.

This sort of action is, at least according to the plaintiffs and some legal experts, a violation of anti-profiteering regulations in the state of California — although attorneys for Equity insist that late fees are the industry norm and legit.

While it remains to be seen how this case will play out, the class-action status will help plaintiffs pool their legal expertise and firepower — which may not bode well for Equity. A single tenant, or even a handful of tenants, might be overpowered in court by the rental giant. An entire class of tenants, including those who no longer live on the properties, could prevail.

This is one of the reasons its wise to have good legal advice regarding your contracts with tenants in any commercial real estate transactions. Clear leases often lead to less litigation.

Source: The Real Deal, “Equity Residential faces class-action suit in California for “unlawful” late fees,” accessed Dec. 28, 2017

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HOMEOWNERS’ ASSOCIATIONS: WHAT YOU NEED TO KNOW BEFORE YOU BUY

On behalf of Michael Brooks of Law Offices of Michael A. Brooks posted in commercial real estate acquisitions & dispositions on Friday, December 22, 2017.

If you’re thinking about buying property that comes with a homeowners’ association (HOA), there are some things that you need to think about before you buy.

HOAs form what are known as “common interest” communities that are designed for everyone’s benefit — but you may not feel particularly “benefited” if you don’t like the rules.

Before you let a dream home turn into a nightmare, this is what you need to know:

1. Homeowner association fees are not optional. Whether you want to take part or not, the HOA is a package deal — along with the fees. You need to find out if they are paid annually or monthly and factor them into your budget.

2.You can be charged more. If something that’s available for common use — a pool, gym, roof or parking deck — goes up, the HOA can level an assessment. This could set you back thousands when you least expect it.

3. HOAs are designed to protect the community’s quality and style of life. That means it may restrict anything from the type of fence you put up to the color of paint you use on your doors.

4. You want to examine a copy of these important documents:

  • The HOA’s bylaws, which tell you how the HOA operates
  • Any subdivision map or plan, which illustrates common areas and easements
  • The HOA’s Covenants, Conditions and Restrictions (CC&Rs), which are binding documents even if you didn’t sign them. They set the tone for the entire HOA.
  • Association rules, which can be modified by a vote of the HOA’s rules.
  • Delinquency policies, which tell you what happens if you fall behind on your HOA fees.

5. It’s important to remember that the HOA can foreclose on your property for unpaid HOA fees just as easily as a bank can foreclose for an unpaid loan.

HOAs can be wonderful — if you like your world orderly and predictable and enjoy the benefits they bring. However, you need to carefully review all of the HOA’s governing documents, especially the CC&Rs. It may even be wise to seek legal advice before you commit to the real estate transaction.

Source: The San Diego Union-Tribune, “HOA Homefront: What governing documents do (and why you should care),” Kelly G Richardson, Dec. 07, 2017

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SHOULD YOU LEASE TO A CANNABIS BUSINESS?

On behalf of Michael Brooks of Law Offices of Michael A. Brooks posted in commercial real estate on Friday, December 15, 2017.

Are you thinking about leasing some property to a business that deals in cannabis?

If so, there are a few key points that you want to keep in mind when dealing with this potentially lucrative business:

Mitigate your risk

Since cannabis is still illegal under federal law, you want to put a clause in any commercial real estate contract that will allow you to terminate the lease if there is any federal action or interest in the renter’s business.

The goal is to prevent you from losing your property in a federal raid, should that happen.

You also want to include a clause that requires the tenant to notify you if there is any federal involvement, investigations or interference in the business of which you are unaware.

Otherwise, it may be too late by the time you find out to keep your property from being seized.

Enforce policies regarding insurance and licenses

Depending on the type of cannabis business (grower vs. dispensary) you want to make certain that the business is properly insured. You also want to make sure that the tenant carries additional insurance that will reimburse you if your property is damaged as a result of their grow operation or other activities.

Weed killer and pesticides, for example, can become explosive under the right circumstances. If stored improperly, they can damage the water table. You don’t want to be financially liable for any environmental or hazardous cleaning that has to be done.

You also want written into the lease a requirement that the cannabis business have all the state-required licenses for its operation. Include a requirement that they have to provide you with the documentation of those licenses and any updates.

This is merely the tip of the complex world involving cannabis businesses. It is a high-risk kind of deal, but it can also be a very lucrative one. If you have property that hasn’t been profitable in a while but happens to have the right makeup for the cannabis market, it is definitely something you should explore. Just keep good legal and financial advisers at your side to help you do a thorough examination of the deal before you commit.

Source: cascadebusinessnews.com, “Cannabis Commercial Leases: Not Your “Run-of-the-Mill” Commercial Lease,” Jennifer J Clifton, accessed Dec. 15, 2017

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5 COMMON ZONING ORDINANCES EXPLAINED

On behalf of Michael Brooks of Law Offices of Michael A. Brooks posted in blog on Tuesday, December 12, 2017.

Zoning is a means of dividing up land into separate areas for specific purposes or development types in a way that keeps the individual areas detached, meaning it would be improbable that land zoned for schools would be next to property zoned for aircraft manufacturing.

Zoning originated in New York City in 1916 as a way to help with urban planning and development in such a densely populated city. The practice has been widely adopted throughout the nation, particularly in large urban locations.

Residential Zoning

This category includes single family dwellings, duplexes, townhomes and land planned for future residential development. Residential zoning can overlap with commercial residential zoning in areas designed for rental properties. Keep in mind that land will typically only be zoned for one type of residence, meaning land zoned for single family residences would be unlikely to support townhomes. An exception would be land planned for future residential development where single family homes, duplexes or townhomes could be next to one another.

Commercial Zoning

Commercial zoning includes land designated for business and related services. Commercial retail, such as shopping malls and big box stores, is most prominent. Scattered throughout are plots for community and financial services, including city centers and banks. Tracts designated for commercial manufacturing and assembly plants are frequently regulated to an industrial park. Golf courses, tennis courts and amusement parks would fall into this category.

Industrial Zoning

Land selected for manufacturing is considered industrial zoning. This includes light and heavy manufacturing. Light manufacturing includes food, beverage and products for personal and home care. Heavy manufacturing includes steelmaking or chemical production. Industrial zoning also includes land for curbs, parking lots and general landscaping.

Agricultural Zoning

While self explanatory, there are subcategories for agricultural zoning with distinctive differences. Light agriculture refers to crop land and raising any animal except hogs. Heavy agriculture is allocated for hog ranches, feed lots and fertilizer plants, which have a significant ecological effect, and may have a home on site.

Special Purpose Zoning

Properties with this designation can be used for institutions, such as a school or university, or even for public art, like a sculpture garden. Plots in this category are often used for civic and municipal purposes, like watersheds and drainage reservoirs.

Purchasing property can be exhilarating, but before jumping headfirst into a new prospect understand what you are buying.

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CELL TOWER LEASE AGREEMENT ISSUES

On behalf of Michael Brooks of Law Offices of Michael A. Brooks posted in commercial real estate on Tuesday, December 5, 2017.

If you agree to rent your land out to be used by a cell tower company, you’re signing a very unusual sort of lease. For one thing, you’re going to sign a lease that the tenant is writing, instead of the other way around.

That means that you want to be particularly careful that you don’t fall into certain traps that are commonly slanted to favor the company over time. It’s often wise to have a lease reviewed by someone experienced in commercial real estate before you commit to any agreement.

Whatever you ultimately decide, here are some tips to follow:

1. Watch out for low payments for the “option” to rent.

Sure, the land may be sitting there doing nothing, but do you really want to take $100 or even $1,000 to let someone have the “option” of leasing your property for the next five years? Some other opportunity could come along worth far more, but you’d be stuck waiting out the option.

2. Remember that expenses go up over time.

As living costs increase, the value of the dollar goes down. What cost $1 five years ago might cost $2 now. You want to build a cost-of-living increase into the lease so that what you are being paid for the use of your land remains at current market value (CMV) over time. Otherwise, you’re cheating yourself out of money in the future.

3. Don’t lease more than what they need.

It’s unlikely that you need to lease all of your land, so don’t. You probably didn’t anticipate finding this use for your land, so you have no way of knowing what other uses you may find for it in the future.

While it’s exciting to get paid for the use of land that’s doing nothing for you, don’t cheat yourself by not keeping an eye on the future. Make sure the lease you sign leaves you plenty of options if your situation changes.

Source: Airwave Advisors, “Cell Tower Lease Agreement 7 Items To Look Out For,” Nick Foster, accessed Dec. 05, 2017

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