If you are the owner of a commercial rental property, there are a number of things you should consider. Mistakes could result in you being sued or losing an eviction actions. At other times, you might miss some great opportunities. Charles Phoenix is a Florida Bar Board Certified Real Estate Lawyer who specializes in commercial real estate.
Not Including State and Federal Disclosures in Your Leases
Every state will be a little different regarding required disclosures, but there are a few that you will certainly need to include – the presence of lead-based paint and mold. Many disclosures only relate to residential properties, like disclosing a recent death that occurred in an apartment or registered sex offenders in the area. Nonetheless, including disclosures, even ones that might not even apply, is a good idea. For one thing, you want to be prepared for a clean eviction if needed. Some tenants may be able to sway a court that you omitted a disclosure, which the tenant can use as leverage in the eviction case. Be sure to look at your state’s disclosure laws to learn more.
Drafting Leases that Run On and On:
If you said it right, you only need say it once. Charles Phoenix has seen so many leases thrown together by lawyers, real estate agents, and landlords. These leases often include conflicting provisions – some even include multiple sections covering the same topics in different ways. For example, one section on page 4 might say the tenant must have $1,000,000.00 of Commercial General Liability insurance, while a section with a similar title on page 7 might say the tenant must have $2,000,000 of Commercial General Liability insurance. These inconsistencies will work against the landlord and they often run the full range of topics – everywhere from who maintains the air conditioning system (the landlord in one section, the tenant in another section, and the landlord if the tenant has a service contract in place in another section). A lease, like many documents, goes without a thorough reading until … there’s something to fight about. A good lease has logical topical headings, uses fewer words than more, has a definition section that is logical, and is organized from most important topics (like the rent amount and due dates) to the least interesting (like that clause at the back that says a court should interpret the lease to make sense, unless there is no way to read a particular clause in a way that makes any sense). A landlord sells her most important right (possession) to a tenant for money (rent), so the landlord must write a lease that best provides her the ability to evict a bad tenant and retake possession.
Ignoring the Opportunity to Reduce or Defer Rent in a Bad Economy
In bad economies, tenants typically suffer significant revenue loss. As a result, tenants will struggle to make rent payments on time or at all. Ultimately, many tenants go out of business and the shopping center or office building starts to look bleak. The landlord, of course, has obligations to banks to pay on loans and to governments to pay property taxes, neither of which goes away when a rental unit goes dark.
Landlords, like all humans, tend to insist their tenants honor their agreements. The reality, however, is that many tenants cannot. The landlords, then, must choose between insisting on what they agreed upon and watching the lights go out or taking some less intuitive approaches.
One landlord Charles Phoenix once represented during the Great Recession actively engaged his tenants and offered to re-negotiate leases to temporarily reduce rents. His thought process was that his shopping centers would be more desirable to tenants and customers if they were full than if they were empty – he was protecting against the spiraling effect that was seen all over the country. He was an accountant by nature and concluded that each shopping center wasn’t about each individual tenant, but about the shopping center as a whole. The survival of the shopping center was rent. He concluded that he would receive more rent in both the long term and the short term by temporarily easing lease burdens on struggling tenants than he would get with vacancies.