Security deposits in real estate transactions are often overlooked until the last minute.  On larger buildings however, security deposits in real estate transactions can often be tens of thousands or hundreds of thousands of dollars.

Here, California Attorney and Real Estate Broker Chris Adishian answers the question, “When buying a multi-unit property do the security deposits transfer from Seller to Buyer?” at the South Bay Association of Realtors Commercial Attorney Panel on June 2, 2015.

Transcript

This is one of those issues. It’s not a big issue, but it’s a frequent issue. And it’s one of those issues at the margin in a transaction.

Say you’re going to buy a nine or ten unit building, you’ve negotiated all the deal points, you’re into escrow, and all of a sudden you’re like, “All the tenants paid security deposits, where are those?” It might swing 30 to 100,000 to one side of the table or the other.

So, I think the answer to the question is, it’s a negotiating point, but make sure that you do negotiate it and you factor it into your offer of your purchase price. And again, depending on the dollar amount, depending on the nature of the parties, once the transaction closes, even if you were supposed to get the security deposits but you didn’t focus on it and make sure they crossed the table – well now you have a claim. Okay, well then what’s it going to take to enforce that claim?

Probably not a huge percentage of the deal, but then again you’d rather have the money than not have the money. And you don’t want to get into a situation where you’ve made an offer presuming you’re going to get the security deposits, only to find that the seller’s going to keep them. So it’s sort of a fine point in negotiating a sale.

What happens at the end of the lease?  At the end of the does the tenant move out automatically?  What if the tenant does not move out at the end of the lease?  California Attorney and Real Estate Broker Chris Adishian answers the question, “If the lease ends, doesn’t the tenant have to move out?” at the South Bay Association of Realtors Commercial Attorney Panel on June 2, 2015.

Transcript

One, the gentleman back there said, “Well, what if the term of the lease has ended?” And, that’s sort of the distinction in our society and our system of justice between your contractual right and what you need to do to actually enforce this contract. There’s the contract, and then there’s enforcement. So that’s one distinction I wanted to call your attention to. You may have all the rights in the world, but you still need to enforce them – and that enforcement involves costs and time and risk.

California Attorney and Real Estate Broker Chris Adishian answers the question, “What are some of the major deal points with transactions involving residential rent control building?” at the South Bay Association of Realtors Commercial Attorney Panel on June 2, 2015.

Transcript

If you’re going to go into a rent control transaction and you’re not well-versed in rent control, you could be opening up some liability for yourself as an agent.  This is me switching over to the litigation track and trying to give you some advice to protect yourselves.

You might get far along in the transaction and you might see that commission hanging out in the distance and the gentleman out there says “Well, the tenants are not going to sign it”.  What if my – it’s a disaster, right – it’s a disaster if the owner buys under those circumstances, but you as the agent might be thinking, “This is a disaster.  I’ve put five months into this.  The tenants aren’t signing – now what?”

Well, I think you have to swallow hard and see if you can work out the situation.  Get an acceptable estoppel, or for your client, get a disclosure specifically to the owner and say, “Hey look!  I’m telling you – we asked for the estoppels.  The tenants are not signing them.  If you want to go forward with this transaction that is your business judgment – your decision based on this knowledge.  But I told you that.”

That’s a much better place to be as an agent, versus hiding that fact or not being knowledgeable about the risk that you’re putting your client into.  That’s a point, as you cross over into some of these rent control transactions to be very aware of that, from an agent perspective as well.

What is a tenant indemnification clause?  Is a tenant indemnification clause helpful to the commercial landlord?  California Attorney and Real Estate Broker Chris Adishian answers the question, “Should I have my tenant indemnify me?” at the South Bay Association of Realtors Commercial Attorney Panel on June 2, 2015.

Transcript

On the indemnity piece, it’s something that’s often talked about quite a bit in a lot of different contractual contexts, including leasing.

As you’re negotiating those things though, you also want to back up and just look at “Does this person that we’re asking or does this entity that we’re asking indemnity from, do they have the capability to pay for that indemnity if it came to pass?”

Very often, landlords have superior resources, superior bargaining power and the tenant can sign off on an indemnity and say “sure I’ll indemnify you if this happens,” but then that happens and the tenant goes “I don’t have any money to pay you that indemnity.” So, that’s just something to keep in mind, is how hard you’re going to negotiate on that point.

This is our latest installment regarding evictions.  In this video about evictions, California Attorney and Real Estate Broker Chris Adishian answers the question, “Is there an expedited legal procedure for evictions?” at the South Bay Association of Realtors Commercial Attorney Panel on June 2, 2015.

Transcript

I want to call attention to the fact that the eviction process, whether commercial or residential, is a totally different track than standard civil litigation. Standard civil litigation in LA County, you’re looking at probably 2 years to trial, plus or minus a little bit. A lot of cases settle, you just don’t know where they’ll settle in those two years.

To your point of well, the term is up, and our society says, we’re going to give you – this is life liberty property, this is property – we’re going to give you an expedited procedure in civil court. Now, I don’t know James, how often is it actually 20 days? And then, even if it is in 20 days, James is still telling you “It’s really expensive”.

So, I just want to call that out: there is an expedited procedure for evictions and it runs differently than standard civil litigation.

Real estate contracts come in many varieties.  The California Association of Realtors provides a standard package of real estate contracts.   AIR also provides a standard package of real estate contracts.   Attorneys of course have their own favorite custom real estate contracts.  

In this video, California Attorney and Real Estate Broker Chris Adishian answers the question, “Is it better to use custom contract or an industry form contract, like the AIR form?” at the South Bay Association of Realtors Commercial Attorney Panel on June 2, 2015.

Transcript

Looking at your transaction, there’s got to be a good reason

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for me to advise my client to start with something other than the CAR or the AIR form.

If I want to maximize my billable hours, I’ll say “Let me design a custom contract for you that you will not believe! It will be brilliant and well-written, and have all the punctuation correct. It will cost you a fortune, but you’ll be happy.”

In all seriousness, you gotta start with the AIR form, and even when we’re doing it as lawyers we say “Look, let’s start with the AIR form. Most of this stuff’s been thought through, and then we can tweak it at the margins.

If it’s 80% of what we want and what we think we’re going to run into, why create a document that’s 100% custom and new? I always advocate starting with a form – but be open to modifying where you can.

Evictions can be drama-filled, but they don’t have to be.  Most often an eviction is simply the outcome when the tenant cannot afford to pay the rent.  However, in some cases, the Landlord is being over-aggressive in an effort to get out of an unfavorable lease.

In this video, California Attorney and Real Estate Broker Chris Adishian answers the question, “Are commercial and residential evictions commonplace?” at the South Bay Association of Realtors Commercial Attorney Panel on June 2, 2015.

Transcript

If you look across the county, for example, in LA County, I know there’s not a lot of visibility into the legal system from laypeople, and I’d like to provide that.  Unlawful detainers are a significant percentage of what’s actually in court.  I’ve seen estimates as high as 30%, 40%, 50% of a judge’s case volume in a civil court, is unlawful detainer.  And now, they’ve even made, in LA County, as an attempt to organize it, they’ve made specialty courts where that judge, all day every day, all he hears is unlawful detainers.  So, you are entering into a business, and that business does involve litigation.

Environmental issues in real estate transactions are critical, and can be a source of significant financial liability.

California Attorney and Real Estate Broker Chris Adishian answers the question, “How important are environmental issues when purchasing a commercial property?” at the South Bay Association of Realtors Commercial Attorney Panel on June 2, 2015.

Transcript

This is in the larger context in the topic of due diligence. They call it inspections for residential, but for commercial properties they tend to call it due diligence. There’s a whole slew of factors to look at as you’re investigating the purchase of the property, but absolutely, you should look at environmental issues. For example, we’re in El Segundo – almost every property transaction in El Segundo has environmental issues. Why? Well, the Standard Oil refinery used to operate before there was Chevron and before there were environmental regulations, so a lot of the ground in El Segundo has environmental issues under the current laws.

So every time a property trades you should know what you’re getting, and often times that involves hiring an environmental consulting firm. They have reports – if you’re not familiar – they’re called “Phase 1’s”. That’s sort of an initial inquiry to see if they are any issues.
As a buyer, you want to know that because you might have to pay to have it remediated. And as a seller you want to know that because the buyer is going to ask, but also so when you close the transaction both parties have the same information and you don’t have a claim coming back to you. Most of these issues can be remediated. There’s a whole industry out there and there are consultants available on the state of California Website.

Again, if you have a good team as you’re going through your acquisition or your sale, your attorney will point out, from his or her checklist, this is something to really be aware of: environmental risk of the actual land. It will also go into your leases, and usually there is a baseline that says “landlord knows of this as of today.” Then when the tenant comes in, they reference that baseline so when the tenant leaves they can say “this is a preexisting condition” or “the tenant caused this to happen” – and if the tenant caused it to happen then it is their job to remediate.

California Attorney and Real Estate Broker Chris Adishian answers the question, “When buying a commercial property, who should be on my team?” at the South Bay Association of Realtors Commercial Attorney Panel on June 2, 2015.

Transcript

When you go into a transaction, like buying a commercial property, you want to make sure you have your team together.  You might say “that’s great, who should be on my team?”  Well, the people you want are a really good brokerage firm and/or an agent if the broker is not a selling broker actively out there in the marketplace.

You want an excellent insurance person:  there are a lot of insurance issues and a lot of different ways that run through managing and owning a commercial property.

The third person you want is an attorney – stuff will come up.  The fourth person you probably want is perhaps a property manager.

There are a lot of different roles.  Sometimes they can all overlap, sometimes they’re distinct, and there are reasons why you may want them to overlap and reasons why you may want them to be distinct.

A property manager, at their core – they run the property sort of like a CFO or a trustee for the owner.  They collect all the rents, pay all the vendors, generate financial statements, and hopefully if the property is running well, they distribute checks to the owners at the end of each month.

The leasing agent handles if there’s a vacancy.  When a property has some spaces that turn over, the agent will be called into market that space and lease it.  In that situation, you’re having those roles separated out.  Often times, property managers may want to lease it, but they’re kind of different skill sets.  We often separate those out.  If there’s a vacancy, we have the leasing agent handle it.  We’ll consult with him or her.  This person knows the market, knows how to market, has the databases – that’s not really the business we’re in.

The third piece is real estate brokerage.  Brokerage is really about buying and selling property, not so much about leasing.  And again, all those things can be blended together in a firm, but brokerage is really focused on you’re ready to sell your building, you’re ready to buy a building – we’ll help you do that.

California Attorney and Real Estate Broker Chris Adishian answers the question, “When can a residential Landlord access a Tenant occupied unit?” at the South Bay Association of Realtors event, “Commercial Attorney Panel-Hot Legal Issues for Commercial Real Estate” on March 5, 2014.

Transcript

What are the general rules governing a residential Landlord’s ability to access a Tenant occupied unit?

Question: “In a six-unit multi-family building, one of the units was tested for mold and in the bathroom there was a spot that tested positive. It wasn’t a toxic mold, but nonetheless, it’s mold. So the landlord wanted to go in to replace it to fix the problem. He served notice to the tenant; said, ‘48 hours we’d like to come in to repair that area.’ The tenant responded by saying, ‘No one may enter this unit without my permission and I do not grant permission until this has been re-tested by a third party.’ And that kind of created a bit of a stalemate. So the Landlord does not know how to proceed.”

Answer: “Well I’m sure we’ve all probably had some variation on this over the years and a lot of this stuff, the attorneys become desensitized to it and the inflammatory nature of it. But people learn things whether by the news or Internet or Oprah or whatever, and they’re like, ‘Oh!’ and they raise, and the big one’s mold, but oftentimes mold is just something they know will get the Landlords on the defensive, because ‘Oh God, mold,’ million dollar verdicts, and stuff.

So first thing and foremost, the landlord should have insurance that covers mold remediation. It’s common enough, it’s out there, it’s available. Getting that insurance will give you a lot of peace of mind.

Second thing is: most leases, again you have got to look at your lease and the law I think supports this, that if it’s an emergency condition, the landlord does not

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need the tenant’s consent. So that’s what I would say.”

Question: “And if it’s not an emergency because this is not a toxic mold, evidently does that mean that they’d have to…”

Answer: “Hold on, well, frankly I’d have to go look at the case law to see if there’s been a case as to whether or not the existence of mold is an emergency condition and has it been litigated? Maybe it’s not been litigated. And if the tenant has asked that the work be done, then that would be evidence that obviously the landlord has permission to go in.

It’s a very easy argument though, due to the nature of mold, to say, ‘Look, a little old may be nontoxic today. But over time, dripping, dripping, dripping and mold’s characteristics, it could easily become toxic or widespread, so it is necessary.’”

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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