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Orange County Legal Blog

The primary risk of a triple net lease for a landlord

Renting out commercial space can be a profitable venture for California entrepreneurs. As part of the leasing process, a landlord will need to choose the type of lease to use. When choosing a triple net lease, it would be a good idea to make sure that certain protections for the property owner are built into the agreement.

Owning a building comes with certain expenses and upkeep. Landlords often pass on some of the expenses such as maintenance, taxes and insurance to tenants through a triple net lease. This may seem like a good deal for the property owner, but it depends on the circumstances. With several tenants, the expenses are distributed among the tenants, as is the responsibility.

A commercial tenant may need to provide a personal guarantee

Signing a lease for a business space here in Orange County or anywhere else often requires more than just the renter's word for payment. Since the collapse of the real estate market, more property owners want more than just a lease to ensure they receive their money each month. A commercial tenant may need to be ready to provide a personal guarantee.

Many small business owners choose an entity that limits their personal liability. This makes it counterintuitive to sign a personal guarantee for a lease, but in order to get the space they want it will probably be required. However, that does not mean that a tenant must simply sign the paperwork put in front of them.

Easements may play a critical role in a development

When purchasing a piece of property here in Orange County, the parties must undergo a significant amount of due diligence before the transaction may close. A title search is part of that process. If easements are discovered, they could play a critical role in the progression of a development.

Except for a few unusual situations, easements are the rights that one landowner gives to someone else to use a portion of his or her property. These documents do not transfer ownership of the property in question, but instead provide the other party with the right to use it. Even so, the documentation needed to provide one party with the right to use a portion of that belonging to another party must be executed in accordance with California law, much in the same manner as deeds and other property conveyances.

Responsibilities of a commercial tenant re ADA compliance

Making sure that all customers can access an Orange County brick and mortar location is often a priority for small business owners. This means making sure that the rental space is compliant with the Americans with Disabilities Act. If not, upgrades may need to be made in order to ensure that the building is up to code and that everyone may access the location. This brings up another question that a prospective commercial tenant may want to ask -- who is responsible for what when it comes to ADA compliance?

As a general rule, the property owner is responsible for the common areas and the tenant is responsible for the rental space. This often applies to ADA compliance as well. However, this could be a point of negotiation when discussing the provisions of a lease.

WRAP exclusions could cause problems for developers down the road

Insurance coverage is a large part of California construction projects. No one, from developers to subcontractors, wants to be left holding the bag if something goes wrong. With the increase in the use of WRAP exclusions, a general contractor, owner or developer could end up not having access to a subcontractor's insurance coverage if needed.

The purpose of the exclusions is to make sure that coverage is not duplicated, which could be costly for those involved. For instance, where coverage for property damage or bodily injury is already available through an owner's consolidated insurance program, an exclusion could be in place to prevent duplicative coverage. This may make sense for the subcontractor, but it might not for anyone upstream.

What you should know before signing a pop-up shop lease

The name “pop-up shop” seems to be the new name for what used to be called a short-term lease. Pop-up shops or stores continue to grow because they can be a low-cost way for businesses to offer products at a locale without a long commitment. Many seasonal or new business ventures have gravitated to opening pop-up shops over the last few years because of this.

According to a pop-up service provider, pop-ups have become a $50 billion industry. Even though standard short-term leases are nothing new, both renters and landlords have grasped onto them because they can provide a duel benefit. A landlord can rent space that may not currently be in use and a renter can open a small-business without a long-term commitment. With a short-term lease, leasing arrangements can be simplified and financial considerations such as upfront expenses may be avoided. Even though a pop-up shop lease may be simpler than a standard lease, there are things that should be considered if you are looking to sign this type of lease.

Commercial lease vocabulary: Base rent

Deciding to open a business here in Orange County may require an individual to find a space to rent. If this is his or her first foray into the commercial lease world, a person may find it much different than when renting a first apartment in college. There are numerous differences between residential leases and commercial leases, and understanding the vocabulary involved may help. One of the most important concepts that differentiate between these two leases is "base rent."

The majority of commercial leases begin with a base rent. It represents the basic amount of rent a tenant pays for a commercial space. Ordinarily, this amount is generated based on the square footage of the space that the prospective tenant wishes to occupy. The amount the property owner wants to charge for per square foot may be up for negotiation depending on the circumstances.

Should California developers tap into the hotel market?

It seems that people across the country, including many here in California, are spending more time in hotels. In fact, Marcus & Millichap reports that as of the middle of 2018, the number of occupied rooms across the country has increased approximately 70 basis points. Since hotels seem to be performing well, developers may want to tap into this market.

STR, a research firm, reports that the revenue per available room rose to $98.17 this July. In fact, the revPAR, as it is called, has continued to rise over the last 101 months, and may even break the current record of 111 months reached back in the 1990s. These numbers continue to rise despite fears by some that too many hotels are being built.

Looking for the right commercial tenant? These tips may help

Every investor, owner and developer's desire is to fill a building and have it become profitable. For this reason, the hunt for commercial tenants often begins before a particular Orange County building is even completed, if it is a new development. The problem sometimes lies in finding that last commercial tenant to bring occupancy to 100 percent.

It may help to look to the other tenants since they may know of someone looking for a space. If a property owner provides some sort of incentive to bring in another tenant, filling vacant spaces could be a thing of the past. An incentive could involve a monetary break on the rent one month or a cash reward. A particular building's tenants may appreciate something else as a reward for bringing in a new tenant as well. It just depends on the circumstances, but money is often a sufficient reward.

Be sure that commercial lease is ready to sign

Starting a new business is an exciting time for many Orange County entrepreneurs. The urge to get started can sometimes be difficult to deny, but with so many matters to attend to before opening the doors, patience may be a virtue even if it is not appreciated. This may especially true when it comes to signing a commercial lease since taking the time to ensure that it is ready for a signature may take some time.

For instance, commercial tenants may want to thoroughly read the lease in order to ensure that they understand everything it contains. A lease is a contract, and once signed, the parties are bound by its terms. If something is not clear, it should be explained and dealt with, if needed, prior to executing the document. This includes any of the terminology included in it.