Commercial Property Herald

How Do Tenant's Level the Playing Field to insure that Landlord's Play According to the Lease

Over the last few years, most of my legal practice has been either evicting commercial tenants or collecting rents. Although on occasion I do represent tenants, most of my time is advising and educating landlords and trying to maximize their return on their leases and property. My experience tells me that, unless a tenant has substantial assets to afford good legal and real estate representation, they have been at a distinct disadvantage dealing with an insuring that their landlord's deal with them in a fair way and in accordance with the terms of the lease.

I recently posted this comment on LinkedIn and did receive some comments and discussion, including the following comment from David Massie who wrote:

After working for some of the largest landlords in the US and directing their real estate companies for over 25 years managing millions of square feet and negotiating against hundreds of tenants, I heartily agree with Howard that tenants don't lease smartly. This is one of the main reasons I now only represent tenants.

Here is an article I wrote on the subject: http://www.djmcre.com/articles . Scroll down to the one titled "Commercial Leasing: Never Do It On Your Own.

It amazes me that tenants try to lease on their own or use the landlord's broker (or even same brokerage company) to do a dual rep. It's like going into court to defend yourself or using your opponent's attorney to defend you. Not highly recommended. And then there is the whole subject of why a tenant would not hire their own tenant rep broker since the landlord is paying for the commission, many times even for a lease renewal or expansion, and the landlord doesn't credit the tenant for saving him this commission payment.

In response, I wrote:

It is a common misconception among inexperienced tenants, that they will save money if they do not use a broker to assist them in the lease process and they can handle it themselves.  It is scary how wrong they can be.

That is part of the education process that as a broker, you need to do with your prospective clients.

I am a big fan of team building, particularly for the tenant who often does not have a team behind them when the negotiate a new lease.  The tenant needs an experienced and knowledgeable broker, a good attorney and should consult with a lease administrator to make sure that the lease anticipates common administrative issues that the broker and attorney might not be familiar with.  The lease administrator is the person who keeps the landlord honest over the term of the lease and is likely the one who knows all the little problems that cost the tenant money that don't make it to the broker and attorneys attention.

I will be talking about this team approach as the keynote speaker at the NRTA Annual Convention on October 7th - 10th in Palm Desert, California.  For more information on this topic, go to www.creradio.com

How valuable is a CCIM Designation to an Attorney

I thought I would share with you a recent email that I received inquiring about a CCIM designation could help an attorney.

Hello, Howard. 

I was wondering if you would share your experience with the CCIM designation.  What has it added to your ESQ? I could have been a perpetual student.  I love to learn and the CCIM will of course be fun and informative.  But I am curious whether the designation has made a difference in your law practice (as opposed to your broker practice).  I am a commercial real estate attorney, big firm trained, concentrating in development and finance and with a significant office leasing practice.  As exec, I have run international office, warehouse, call center, retail, data center portfolios.  I am sure I can qualify for and achieve the CCIM, but at what return on the time and money invested? 

I responded by stating:

I have been a member of CCIM but never obtained the designation.  At a few points in my career, I was an active broker, primarily in office and retail leasing. However, I perceive that the value in the designation lie primarily in the area of purchase and sale of real property and in the education received while working towards the designation.  To me, the effort that it takes to obtain the designation positively reflects on you as a real estate professional and means that you put considedrable value in hard work and professional knowledge and competence.  These are attributes that I would be looking for in broker. Unfortunately, I do not think that most buyers and sellers generally recognize the full value of the knowledge and experience that the designation reflects.

If you are looking for more knowledge, by all means pursue the designaton. If you are looking for more titles to put after your name, the designation doesn't hurt and may even help, particularly among your fellow designees, who will fully appreciate the designation.  The knowledge that you gain while pursuing the designation should be invaluable. 

Collaborative Arbitration as an Alternative to Court Litigation and More Traditional Arbitration

As a litigator, I worry about allowing my client to go to arbitration where the rules of arbitration are more focused on quick resolution at the expense of having the parties prepared. Some of the arbitration rules, so short circuit discovery, it is clear that they were written by people who had little understanding of what it takes to get all the information necessary to put your client's best foot forward. I just cannot recommend that my client use arbitration if the rules will not allow me to be prepared to best represent my client.

Over the last few years, I have been contemplating ways to resolve disputes without aid of the court system.  Now with limited civil services available and increased delays in the courts due to budget cutbacks I am even more motivated to find alternatives to the court system to resolve disputes and best represent my clients.  

The rules of civil procedure in the courts also promote an adversarial nature among lawyers rather than an attitude of collaboration among the lawyers and the courts, which I beleive would be of greater benefit to the clients.  Most cases involve major game playing, just to get information that is obvious that we are entitled to. I am confident that much of the cost and time consumed in court litigation is spent trying to avoid providing evidence, facts and documents to the other side, at least, on average, increasing the client’s costs by more than fifty percent. It is for this reason, I like the Federal Rules of Civil Procedure and the attitude that everyone must just start, right off the bat turning everything that is material to the dispute, over to the other side. 

I have coined the phrase, "Collaborative Arbitration." Collaborative Arbitration is a method of dispute resolution whereby the arbitrator is actively involved in all aspects of the dispute resolution process, including the conduct of discovery, the gathering and evaluation of the evidence and issues, all right from the get-go. Any problems with discovery, all the attorneys need to do is pick up the phone and conference with the arbitrator, who should be able to resolve the issue within a week, if not immediately.

All evidence, issues, arguments and documents are exchanged via an online database, such as CaseMap, that organizes the evidence by person, party, issue, time, etc. and all parties and the arbitrator get to see and analyze the case, evidence and issues as they are exchanged and put into the shared database. The arbitrator is as familiar with the facts and issues of the case as the attorneys, within a month of commencement of the arbitration and can start evaluating the case at the earliest stages. I would expect that within a month, the arbitrator should be able to let the parties and their attorneys know, through the arbitrator's eyes, where the case is heading and very early on, even let the attorneys know of the weaknesses in their case. I suspect that if the parties knew within a month or two what the shortcomings of their case was, they would act quickly to shore up their case or settle quickly.  

This very active involvement of the arbitrator is very different from typical court litigation or other arbitration methods where the judge or arbitrator doesn't really get to focus and analyze the evidence and issues until the conduct of trial or arbitration hearing. I believe that the earliest involvement of the arbitrator gives the arbitrator the best opportunity to to make the best decision possible.

What I am suggesting is not mediation.  However, armed with the knowledge of the facts, evidence and issues, in a very non-traditional sense, the arbitrator should be in a position to quickly mediate the dispute and get the parties to settle.

Collaborative Arbitration would make heavy use of the internet, allowing parties and attorneys and arbitrators full opportunity to present their side of the argument from thousands of miles away from each other. Hearings, conferences and depositions, can all be conducted online with video or in-person, cutting travel costs.  The online technology is so affordable now that there are very limited reasons to conduct hearings in person.

Admittedly, there is an added cost of having a very active arbitrator as a participant.  Hopefully, however, that added cost would be more than offset by the quick resolution of the matter and the parties should be satisfied that they had the best and quickest opportunity to settle the dispute.

 

California Courts Continue Cutbacks and Rights to Civil Justice Continue to Suffer

As previously reported, Los Angeles, Ventura and Alameda Counties and San Francisco will no longer provide court reporters on civil matters, hearings and trials.  San Diego County is reported to be planning the same. Orange County is cutting back hours of clerk operations as well as reducing hours of operation of each branch.

Significant changes in the clerks office of each branch has already affected how our office files documents and plan the effective conduct of our cases.  While we can count on our attorney services to deliver documents to the court on a same day basis, shortages of clerks and changes in policy usually mean that the documents are now "received" but not filed immediately.  Heaven forbid the clerk rejects your filing for some perceived minor flaw and we wouldn’t know that the documents weren’t filed for weeks.

So, before I repeat my standard, "private arbitration is beginning to look better and better to me," I have to ask some questions:

1. Why can't the courts go to a audio/video recording system for hearings and trials.  The technology is available and no longer than sophisticated.  It seems that this can serve as a very practical solution to the cost factor of court reporters.  If you still want a transcript of the recording, the audio or video can be transcribed by a certified court reporter both during and after the hearing or trial.
2. I do have a concern that civil resolution of disputes is becoming more and more a privilege of the wealthy.  For many years, I have recognized that obtaining adequate representation of civil disputes is available only for those who can afford to hire a good lawyer.  It's not just a good lawyer, but a good lawyer who can spend the time; attention and detail to the client's best interest to fully and adequately represent the client.  When the client can't afford to pay you, which is easier said than done.  Now with court services and availability being cut back due to budgetary shortfalls, civil process is less available, even to those who can afford a lawyer. Now, while arbitration has always been an alternative, now it will become a more sought after venue in which civil trials will be conducted in private courts, paid for by the more, well to do parties.

So, with an obvious concern that we are moving more and more to an elitist civil justice hierarchy, why am I suggesting that real estate parties seriously consider resolving the disputes by arbitration?  Well, the answer is simple.  Time is money and if you want your disputes resolved in the quickest fashion possible, you have no choice but to consider arbitration.

Now before all those trained mediators get all up in arms over this post, I really don't mean to leave out mediation as a reasonable alternative to litigation or arbitration.  I think all reasonable means should be explored by the parties to resolve their dispute, which means should include informal settlement efforts or formal mediation.  However, not all disputes can be resolved amicably, which is why there are courts and arbitrators.

For more discussion on this topic, go to my post, California Courts Take Another Budget Blow - Time for Collaborative Arbitration, Finally?

Credit should be given to my favorite court reporter, Jilio-Ryan in Tustin, California.

 

CrowdFunding to Raise Capital for Real Estate Investments is Still Not a Done Deal

From my guest blogger, Gene Trowbridge, "The Expert" on syndication issues.  Gene writes:

To keep you up to date! Two items posted as alerts to syndicators that I thought would be interesting to you.

• First, the SEC and the North American Securities Administrators Association (NASAA) posted these warnings about crowdfunding: 

• Information Regarding the Use of the Crowdfunding Exemption in the JOBS Act “On April 5, 2012, the Jumpstart Our Business Startups (JOBS) Act was signed into law. The Act requires the Commission to adopt rules to implement a new exemption that will allow crowdfunding. Until then, we are reminding issuers that any offers or sales of securities purporting to rely on the crowdfunding exemption would be unlawful under the federal securities laws.” 

• From the SEC “Reports about small business owners who are trying to solicit investors before regulations are written were among the concerns that prompted the North American Securities Administrators Association (NASAA), an organization of state securities regulators, to issue an advisory about crowdfunding for small businesses on Wednesday.” 

• From NASAA State regulators are also concerned about the threat of potential con artists, claiming to be crowdfunding brokers or to represent online portals through which future deals must be conducted. "Be aware of unscrupulous persons offering to take fees from you now to help you raise capital over the Internet," the alert reads. The offers could be a scam because the law has not been implemented yet, said regulators. 

• From NASAA As we had said in previous messages, crowdfunding is a long way from being implemented. Some writers are now projecting April 2013 as the earliest date. 

• SEC to Miss Deadline for Reg. D, Rule 506 Regulations In prepared testimony, Securities and Exchange Commission Chairman Mary Schapiro told a U.S. House oversight panel that certain rule writing deadlines imposed by the JOBS Act "are not achievable." "The 90-day deadline (for the Reg. D, Rule 506 changes) does not provide a realistic timeframe for the drafting of the new rule, the preparation of an accompanying economic analysis, the proper review by the commission, and an opportunity for public input," she said The legislation had set July 4, 2012 for the date the rules regarding the ability to advertise in Reg. D, Rule 506 offering would be published. That day has come and gone. As we had suggested, based on the practice of publishing proposed regulations, accepting comments during a review period and then issuing the final regulations, there was little likelihood that all work would be completed according to the dates stated in the legislation. In the past month I have seen several authors tell the public that they can now advertise for investors in Reg. D offerings and even advertise for them on the internet! Perhaps, someday, but that day has not come yet. 

www.groupsponsor.com has the information on the workshops and our self-study DVD program. Gene Trowbridge, Esq., CCIM [email protected] Trowbridge & Taylor LLP 25422 Trabuco Rd., #105-244 Lake Forest, CA 92630 949-855-8399 Voice 949-855-4013 Fax CA DRE 756977 CA BAR 170570

CRE Radio Gives Birth to a New Graphic Comic Strip, "Howard"

My daughter, a 15 year old graphic artist has proven to me that she is far more talented than me. Thank goodness. Now, with her help and artistic flair, she has helped me fulfill a dream of creating our own comic strip, dedicated, priimarily to Commercial Real Estate.

Attached is our first collaborative drawing. 

My intention is to focus on issues of interest to the commercial real estate professional.  A little bit of humor, some education and information all, hopefully in a very palatible format.  Something different that you can learn and laugh from.  But most important of all, I finally get to take advantage of that kid so I get some payback for all of the grief and frustration that she causes to her parents. :)

Seriosuly,  I am proud beyond words

US Attorney and Cities are Going After Landlord's Who Lease to Marijuana Collectives

A few months back a shopping center property manager doing work for a client of mine called me to advise me that they received a letter from the city attorney informing them that a lawsuit was filed by the city against a marijuana collective.  The collective was a tenant in one of my client's shopping centers.  The letter went on to state that unless the "property manager" evicted the tenant “immediately”, the city would add the property manager as a defendant in the suit.  Obviously, this letter caused both my client and the property manager considerable distress, particularly since my client inherited this client and was not the original landlord to the lease.

In California and a number of other states, it is not contrary to state law to sell marijuana for medicinal purposes.  This past sentence was very carefully worded. So there is no confusion, it is illegal, per federal law, to sell marijuana anywhere in the United States, including, if there be any doubt, the state of California. 

This discrepancy and conflict between state and federal law has caused quite a bit of confusion among the purveyors of marijuana and landlords who choose to lease space to these medical marijuana dispensaries.

An interesting twist to this story and one that landlords and property managers should pay close attention to is that a few weeks after hearing from the city attorneys office, my client received another letter, this time from the US Attorney. In this letter, the US Attorney threatened to file criminal charges against the landlord and the property manager and confiscate the shopping center since they considered the center an asset that was being used in the commission of a crime in violation of federal drug laws.

Looking out for the best interests of the client, I daftly avoided action by the US Attorney by figuring out a legal way to evict the tenant per California law. Notwithstanding the city and US attorney’s demand that I remove the tenant, seemingly without process of law, I had to research the law to figure out an adequate legal basis per both California and federal law to evict the tenant.  Upon deciding upon the legal basis to proceed commence an unlawful detainer action, and immediately upon the filing of the eviction suit, I contacted the city attorney and the US Attorney for their evidence of violations so that if the suit progressed to trial, I would have adequate evidence to prove my case.

Now, you have got to know where I am going with this, right?  You guessed it; the US Attorney refused to provide any evidence, claiming a privilege and that there was an ongoing investigation.  The city attorney could only provide meager evidence from about 1 - 1 1/2 years earlier.

My following post will fill in the blanks to this story, such as, the legal basis I used to evict the medical marijuana collective and how I planned to get my evidence.

 

How Does a Consultant Differ from an Attorney?

Every day I get some quote of the day.  These quotes are often promoted as funny, intelligent or whatever.  Today I received a quote that was tagged as a, funny quote from Arnold H. Glasgow 

"A consultant is someone who saves his client almost enough to pay his fee."  

The funny thing is that I don't think of the quote as funny.  It did give rise, however, to some thoughts about what my intentions are when I am retained by a client to either collect money that is owed to my client or defend them from someone who thinks that my client owes them money.  As an attorney, doing high value collections, I prefer the following quote:

"An attorney is someone who collects much more for his client than his fee."

When my client retains me to collect money, my primary and immediate goal is to collect every penny that is owed to my client, including every penny that they spend trying to collect the money owed to them.  100% on the dollar.  Furthermore, the word collect is an extremely important word. Getting a judgment is only a step in the possible process and certainly is not considered the end game.  My job is to put the money in the client's pocket and get everyone else’s hand out of that pocket.

In order to reach the ultimate collection goal, I do have to deal with reality. Along the way to my ultimate goal for the client, I have to pay close attention to what my efforts, or lack thereof, are costing the client and remain super diligent to make sure that we will collect more than the client will spend on our efforts.  This is where the rubber meets the road.  As our efforts proceed, the situation is continuously changing.  There is a constant balance between my effort and cost.  The more I do to produce results, the more it costs the client and hopefully the closer we get to collecting more of what is owed.  If I limit my efforts to collect in order to pay attention to the client's costs, it may often affect my results and reduce the amount that I collect.

I do not focus on the volume of my work.  It is the achievement of the maximum effectiveness of my work that guides my efforts and there is no set formula to accomplish this.  In this regard, there is no substitute for intelligence, organization, experience, awareness, diligence and attention to detail.

Thank you Kevin for reminding me of this.

How Much Notice Should a Landlord Give When a Commercial Lease Requires More Than 3 Days Notice

While this issue rarely arises in residential leases, it is not uncommon for a commercial tenant to negotiate into a lease the requirement that the landlord provide more than 3-days notice, statutorily required by law to evict a tenant.  Typically, language that I see is:

"Any failure by Tenant to pay any Rent or any Additional Rent and any other amounts due Landlord under this Lease, where such failure continues for a period of five (5) business days after Tenant's receipt of written notice thereof from Landlord"

To begin with and as an example, the California eviction laws are statutory in nature.  California and most other states provide for a shortened legal process to remove a tenant from real property.  This quicker or faster process is provided by statute only and is often referred to as an unlawful detainer process. What I mean by statutory in nature is that there is no a "common law" or "natural" legal right to remove a tenant from property other than as provided by statutory law and usually, as in California, the statutory requirements must be strictly complied with.  For a landlord, there is very little margin of error allowed.  Nearly all reasonable inferences will be drawn in favor of the tenant so the landlord better have its "i"'s dotted and "t"'s crossed.

California, as in most other states require the landlord to serve a "3-Day" notice to the tenant, to pay rent or quit in the event of a rent default in order to remove the tenant from the property.  Only a 3-day notice is statutorily required.

The question is, based upon the typical language provided above:

"If the lease requires a 5 day notice and statute only requires a 3-day notice, how long should the notice be when serving the tenant after a default?"

 The California cases are split on the answer, but there is a safe way to proceed.

Some California cases insist that a landlord need only follow the statutory 3-day procedure to obtain the benefit of the eviction statutes and allow you to evict a tenant.  These cases distinguish the statutory rights to evict from the contractual rights set forth in the lease, but do not resolve the issue of landlord liability for failure to follow the lease terms.

Other cases allow the landlord to serve a notice entitled a "3-Day" notice but wait the necessary 5 days.  In this case, the courts usually will consider the notice satisfactory to comply with both the lease and statutory obligations of the landlord.

Unless time is extremely of the essence, my office usually would serve a notice entitled "5-Days" and wait the 5 days required by the lease, thus satisfying both the statutory and lease obligations.  No point in tempting fate or the court.

There is something special or not typical about the example rent default language that I provided earlier in this post, which, if you haven't noticed, is highlighted in bold; the phrase, "business days." There is another lesson here, which is:

Just when you thought that it was safe to go into the water......... no, just when you thought you knew what every lease says, a tenant throws you a curve ball.  

If I were to serve a rent default notice based upon the above language, I would, at the very least, wait 5 business days and I start counting those business days from the day after service, before I would file an unlawful detainer complaint.

 

Are You Old Enough to Know Where Your Going?

Before Father's Day, I always get these wise statement via email from friends, I hope intended to give me a chuckle.  Most of these wise sayings, I call "truisms." They are just right, born from knowledge and experience.  This year has been no exception and I thought I would share one of the truisms.

Mike Durnerin, my friend and the producer of CRE Radio, recently sent me a whole set of these truisms.  However, I take exception to one, and at least as it relates to Mike and I, could be said better:

"The irony of life is that, by the time you're old enough to know your way  around, you're not going anywhere."

 I think a better truism is:

"The beauty of life is that, by the time you're old enough to know your way around, you can still get there."

or, how about:

"The beauty of life is that, by the time you're old enough to know your way around, the more your want to get there."

I can honestly say that now, at the age of 60, I am more creative and constructive than I have ever been.  Instead of envisioning doors closing I see them opening to the most beautiful ideas.  

I can't really explain it.  I thought that by this age, I would be more closed minded, but I am just the opposite.  Instead of seeing tree branches, I see trees covered with beautiful flowers.  Instead of words, I hear songs and, in true Mike tradition, instead of pictures, I now wee cartoons.  Now I understand why they call it the "golden age."

CRE Radio was born from my many years of experience, but is fueled by our ever expanding vision of what can be. This is the most exciting time of my life and I wish the same for all of you out there reading these words.