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Orange County Legal Blog

Negotiating construction as a commercial tenant

One of your criteria for a rental space here in Orange County may be that you can customize the space to fit your needs. More than likely, this will require some construction, and how this is addressed in your lease makes a difference. As a prospective commercial tenant, you have the right to negotiate the construction that takes place in the space you intend to rent.

Before taking any further action toward signing a lease, you can have your own construction experts assess the current condition of the space and otherwise inspect the site. You could also have him or her review the work the property owner intends to have done on the space. The results could help you determine what you need to discuss in reference to your lease.

Can developers also act as contractors on their projects?

One thing that nearly everyone can agree on is that California is expensive, especially the real estate. Some developers may search for ways to keep costs under control without sacrificing the quality they envision. It may be worth exploring whether to act as both the developer, or property owner, and the construction contractor.

Having more control over the construction process may be on nearly every developer's list, but it is not always a good idea. Wearing these two hats requires finesse. Without establishing some clear lines between the two roles, that monetary savings could quickly disappear.

Flexibility is key for retail rental space

Owning commercial real estate in the Orange County area can be profitable, but only if it attracts quality tenants. When it comes to renting retail space, this could present a challenge since it can be difficult to know what future tenants may want. Some want to build out the space to suit their needs while others want a move-in ready space.

Of course, including as much infrastructure as possible is essential. Any tenant would use utilities, including telecommunications. However, it might be a good idea to leave some of the work in case a tenant wants to customize it. This may seem like a gamble, so understanding the type of retail tenant a certain development would attract could help.

Is a commercial tenant looking for a turnkey rental?

Property owners here in Orange County and elsewhere who intend to rent out space in their buildings may think that leaving the space open for improvements would be the best option. While that may work for certain industries, when it comes to office space, that is not always the right option. A landlord may find that a prospective commercial tenant would prefer a more turnkey property.

When it comes to office space, potential tenants often either cannot or do not want to wait for a build-out to be complete. Rental spaces that are already built, called spec suites, tend to take much less time to rent than those requiring tenant improvements. It can take anywhere from 12 to 36 months to find a tenant for an office space that requires improvements. That time could be shortened to as little as six months for a space that is already built.

U.S. retailers are dropping like flies

Brick and mortar malls -the onetime lifeblood guiding the American consumer - where people went to shop, eat and socialize are in peril. Retailers are closing their doors at an alarming rate.

As of June 14, 2019, U.S. retailers had closed 6,971 stores, while opening only 2,978 stores, according to real estate tracking done by Coresight Research. It is safe to say the tsunami of mall closures may also continue.

Thinking about a development on abandoned property?

It is no secret that land is at a premium here in California. For this reason, it may work to a developer's benefit to consider purchasing a piece of abandoned property that requires revitalization. Doing so could result in an ultimately profitable development.

The Environmental Protection Agency's Land Revitalization Program encourages developers, local government and the public to take on abandoned sites and make them useful again. The documentation on these sites helps eliminate any surprises in the future and let's a developer know what the issues currently are. Some of the locations provide access to nearby communities and already have infrastructure, which makes them good candidates for development.

A landlord may need to give something to entice a tenant

Even when rental properties are at a premium in a certain locale such as Orange County, a prospective tenant may be willing to go elsewhere in order to find the right property with the right lease terms. This could be because a landlord failed to offer the appropriate incentives to attract the desired tenant. It may be necessary to give something in order to get a lease signed.

One thing that commercial tenants would probably appreciate is free rent. Some property owners want to know that they have a property rented out for a good while, so it might be necessary to give up a month or more of rent in order to lock in a tenant for an extended lease period. The free rent does not have to come at the beginning of the lease in order to work as an incentive to the tenant. Instead, it could come at some later point in the lease term -- perhaps somewhere in the middle.

Resolve disputes through ADR, whenever possible

Mediation and arbitration are tools often used to help resolve almost any kind of legal dispute or disagreement. This is often the first option for many people in a legal dispute because it usually will be solved more quickly and with less expense than taking a case to trial. 

When developers are told there is a "cloud on the title" to land

It can take some time for California entrepreneurs to become familiar with all the lingo associated with real estate. One of the phrases that developers do not want to hear, but need to understand, is if there is a "cloud on the title" to a piece of property they want to purchase. Understanding what this means can help determine whether to move forward with the sale.

When there is a cloud on the title to a piece of property, it means that someone else may have an interest in it. For instance, if a previous owner had work done on the property and failed to pay a contractor or subcontractor, there could be a mechanic's lien on the property. The same goes for unpaid taxes, an unpaid mortgage loan and more.

Is a NNN lease really in the best interest of a landlord?

When it comes to renting commercial property, owners have numerous lease options. When determining the best option, an Orange County landlord might consider a NNN lease, also called a triple-net lease. However, some analysis is in order to make sure it turns out to be the best choice under the circumstances.

One of the primary negotiating points in a NNN lease is whether the owner pays for anything. Depending on the potential tenant, the landlord may not be responsible for the payment of repairs and maintenance, among other things. For instance, if the structure is used as a fast food restaurant such as KFC or McDonald's, the tenant will most likely pay for everything. The property owner may end up footing the bill for repairs to the structure and the roof, but nothing else.