Commercial lease negotiations can be complex. California Attorney and Real Estate Broker Chris Adishian answers the question, “What are some common commercial lease negotiating points?” at the South Bay Association of Realtors’ event, “Commercial Attorney Panel-Hot Legal Issues for Commercial Real Estate” on March 5, 2014.
Transcript
Question: “Can I negotiate CAM charges?”
Adishian: “Yeah, we touched on that a little bit earlier, and there are certainly other questions that go with commercial leases, but CAMS, it comes up so often. You can certainly negotiate and you should if you’re a tenant moving in. But just some other things while on the topic, since we’ve kind of covered CAMS, is think about the lease duration, think about your options. Usually, if you’re the owner, the leasing agent is going to try to get you a longer term. Why is that? Well, more commission. But it’s a risk for the Landlord, market conditions change, and if you don’t have a high-quality tenant, you might mistakenly believe, ‘Oh look, I got a 10-year lease at these great rates.’ Well if the tenant moves out in 2 years, how good is that lease? And you just paid a 10-year commission on it. Then you could say, ‘OK well, I’m going to get my attorney and I’m going to take this tenant to court in unlawful detainer or sue for breach of lease and get all 8 years.’
Well yeah, but that’s only if the tenant cannot go bankrupt, and more often than not, that sort of tenant will probably go bankrupt and you’ll never see a dollar of recovery.
So lease negotiations are really important on both the tenant and the Landlord’s side because for the tenant, you don’t want to open your business then go bankrupt 3, 4, 5 years later, that’s not part of the plan probably. But a lease obligation is a serious obligation. A commercial lease obligation is a serious obligation. We’ve seen it in the last 7 years, of course there was the great recession in ’08, ’09, ’10, but we’ve seen a handful of tenants go from having a viable, or apparently viable, business to ending up bankrupt because their business model didn’t survive the recession and they couldn’t pay for the balance of the lease without the business.”
About Adishian Law Group, P.C.
Adishian Law Group is a California law firm with a statewide practice in the areas of Corporate law, Employment law, Real Estate law and Mediation Services. Adishianlaw.com is one of the oldest continually operating law firm websites on the Internet. The firm serves its clientele via three offices located in the major business hubs of El Segundo, Palo Alto and San Francisco. As of March 2013, Adishian Law Group, P.C. has represented individual and corporate clients located across 20 California counties, 4 States outside of California and 9 foreign countries — in over 340 legal matters.
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