Real Estate Law

How Home Buyers Lose their Earnest Money Deposit

Jun 26, 2022 | By Avi Sinai | Read Time: 5 minutes

After an accepted offer to buy a home – the first thing you will have to do is to wire an earnest money deposit to escrow. This amount will stay in escrow until the transaction concludes. The earnest money deposit is not an extra amount you pay to enter escrow, it applies to the purchase price at closing. But what happens when you have a sudden change of heart during escrow? How do you get the deposit back? Under what conditions the seller can keep your deposit? The California Residential Purchase Agreement and Joint Escrow Instructions is the standard form most agents use for regulating the terms of the deal. This contract is often misunderstood by almost all buyers, sellers, agents, and even attorneys. What is the Earnest Money Deposit and Why Sellers Demand it Right Away Earnest money deposit is a good faith amount given to the Seller by the Buyer. It is usually wired to escrow right after both parties enter into contract for a sale of a home. It is also used in commercial real estate deals. The earnest money deposit shows the buyer is serious about the transaction, and increases the likelihood the transaction will close. The purpose of the deposit is twofold: It serves as the amount of liquidated damages if the buyer defaults and does not perform at closing. Making sure buyer is ‘invested’ in the deal. By putting money in escrow, buyers are less likely to change their mind. The deposit ensures the buyer is not wasting anyone’s time and is committed to the deal. What is the difference between the earnest money deposit and the initial money deposit? Nothing. They both mean the same thing, just a difference name. Here are some of the possible names for the earnest money deposit used by agents: Deposit Earnest Money Initial money deposit Security deposit “The EMD” Who gets to determine the amount of the earnest money deposit? It’s up to the two parties (buyer and seller) to decide the amount of the earnest money. In most cases, the amount will equal 3% of the purchase price. So if you are buying a $2,000,000 home, the seller will ask the buyer to deposit $60,000 as earnest money deposit in escrow. The earnest money deposit can be any amount agreed to by the parties. However, this does not mean the seller gets to keep the entire deposit in cases of a buyer’s breach. This subtle, yet important point is a very misunderstood part of real estate law. The amount to be reasonable at the time of signing the contract. 3% is considered reasonable by default for single family transactions. Can buyers legally refuse to provide an earnest money deposit? Yes. There is no legal requirement for an EMD to buy a property. However, if your agent uses standard CAR forms – a deposit is required. If the property is listed on the MLS by an agent – prepare to provide a deposit. Is the EMD refundable? Yes, as long as the buyer does not defaults during escrow. The most common case buyers lose their deposit during escrow is getting cold feet at the last minute. Getting cold feet after removing all contingencies is the most common example. If the seller performs their contractual obligations and the buyer backs out, be ready to lose the deposit. What is Liquidated Damages Clause and how is it related to the Deposit? Liquidated damages clauses are a pre-determined cap on damages in case of a legal dispute. It is standard in almost all real estate contracts. They are used to limit the potential exposure of damages in case of a lawsuit between buyer and seller. Liquidated damages are also common in business contracts. The earnest money deposit serves as the liquidated damages amount in real estate contracts. If the buyer defaults, seller can keep the deposit regardless of the actual amount of damages. That also means that if the damages are higher than the liquidated damages – you’re out of luck! There are limitations on liquidated damages in California contracts. The amount has to be reasonable at the time of signing the contract. For home sales, liquidated damages set at 3% of the purchase price are considered reasonable. What is the process of getting a getting the earnest money refunded from escrow? The purchase and sale agreement details the process to get the EMD back from escrow. The buyer’s agent needs to submit a cancellation of escrow form signed by the buyer. After both parties mutually cancel the agreement, escrow is instructed to refund the earnest money deposit to the buyers. If the seller refuses to release the money from escrow, the parties should lawyer up as soon as possible. What happens when the seller refuses to refund the initial money deposit? If you are heading into a legal dispute with the seller, first thing to do is to contact a real estate lawyer. The purchase and sale contract specifies how the parties should mediate disputes related to the contract. In a standard CAR contract, the parties have to start with mediation. Here are the steps you can take to make sure your deposit is refunded as fast as possible: Make sure your agent submits a notice of cancellation to escrow and to the seller as soon as you make a decision not to purchase. Don’t remove the loan contingency before full approval from the lender. Don’t remove inspection contingency before fully inspecting the property and reviewing the contractor’s reports. Make a clear list of timelines of buyer’s responsibilities and abide by them. Understand every single Buyer’s obligation under the purchase and sale agreement. You may need an attorney for this one. Hiring a real estate attorney to get your earnest money deposit back Escrow won’t refund the buyer if the seller does not sign off on the release. This is where your agent will tell you to seek legal counsel and escalate matters with the seller. If you signed […]

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Real Estate Law

Are Non-Refundable Deposits Legal?

Mar 1, 2022 | By Avi Sinai | Read Time: 4 minutes

Non-refundable deposits are everywhere. We see them in business, consumer products, and various reservation systems. But is it legal? From the standpoint of business owners or service providers, it is easy to see why a non-refundable deposit is a great idea. If you have the leverage to ask for it, and the consumer is willing to give it to you, then why not? The basic principle behind a security deposit is to take payment in advance so to avoid a future loss if the other party changes their minds. There are several types of security deposits that we all know: Security deposits in residential apartment leases Earnest money deposit for buyers in real estate transactions Deposit to secure a car order Special event venues and vendors often require non-refundable security deposits in advance Are Non-Refundable Deposits Legal in California? To know if a deposit can be legally ‘non-refundable’ – we need to examine a different legal term called ‘liquidated damages’. Parties to a contract can agree during the time the contract is executed what will be the damages ahead of time. This is what the law calls – ‘liquidated damages’, a pre-determined amount of damages in case a party breaches the contract. Liquidated damages are enforceable as long as the provision is reasonable at the time of signature. That means that if the terms of the liquidated damages are fair at the time the contract is signed, it can be enforced. If the amount charged is not reasonable, then it is not enforceable, even if both sides agreed in writing. Non-Refundable Deposits in Real Estate Purchases A popular example is the earnest money deposit in real estate transactions. In California residential purchases, buyers are usually required to deposit money in escrow to secure the purchase and sale agreement. Usually it’s 3% of the purchase price unless the parties agree otherwise. If the buyer removes contingencies and then does not close the deal, the seller can keep the 3% as a non-refundable deposit. 3% is considered ‘reasonable’ in the context of earnest money deposit as ‘non-refundable’ by law. But anything more than that will have to come at some justification, and sellers/agents should consult an attorney before charging more. There are also special laws in California that require parties to a residential contract to sign liquidated damages provision specifically in the contract for it to be valid When are Non-Refundable Deposits are Actually Refundable? To turn the table against non-refundable deposits, the liquidated damages amount has to be unreasonable at the time of the contract. They are also void, and unenforceable in the case of purchase/service of personal property – for personal, family, and household purposes. What is considered unreasonable? The liquidated damages must be somewhat related to the actual damages suffered as a result of non-performance. That means that if the deposit exceeds or much higher than the actual damage it’s probably unreasonable, and therefore reasonable. This is called the ‘reasonable endeavor test‘. To determine if a liquidated damages clause is valid the court will look at: Is the amount designed to substantially exceed the damages? Is the primary purpose of the deposit is a threat of non-performance? Relative equality and bargaining power of the parties Did each side have an attorney representing them? How Can a Lawyer Help you Recover Non-Refundable Deposits? Sinai Law can help you recover non-refundable deposits, even if you agreed to pay it in writing. Businesses use deposits as an unfair way to exploit consumers and our firm has been successful in recovering deposits that our clients thought were gone forever. Our process is simple – after we compile the evidence and determine viability and liability, we issue a demand to the defendant in less than 24 hours. If the defendant does not comply, we file a lawsuit right away and seek maximum damages, including costs and attorney’s fees (when applicable). The Types of Security Deposits We Help Recover We can help you recover any non-refundable deposit that was illegally taken away from you. Here are a few examples: Deposits for renting an apartment Earnest money deposits in real estate transactions Deposits for event venues Service contract deposits Wedding deposits Contact a Law Firm Today to Get your Deposit Back Losing your security deposit feels horrible. It’s money you are supposed to get back, and sometimes it’s money you are counting on. We believe unfair business practices hurt families, and something has to be done. We help individuals recover non-refundable security deposits with affordable and fast service. If you want know how we can help you recover your deposit back – contact our firm today for a free consultation and case evaluation.

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Real Estate Law

7 Tips for Investors for NNN Single Tenant Properties

Feb 12, 2022 | By Avi Sinai | Read Time: 5 minutes

Real estate investors love NNN single tenant properties for several reasons: Stability – long term leases provide security for investors Security – corporate guarantee ensures rent payments even if the operator vacates Less management – lease structure places most maintenance on tenant, not the owner A popular strategy is to sell management-intensive properties and exchange into NNN properties. Brokers market NNN deals as ‘passive, zero-landlord responsibility’ assets on long term leases. Here are some red flags to avoid. Why it’s Essential to Review a NNN Single Tenant Lease Before you Buy The lease is the most important determination of future value in a NNN property. A good lease will provide you with not only security, but added value as well. A review of the lease agreement by an attorney can verify that you are in fact, buying what is being advertised. For example, our firm reviewed sale of a single tenant, NNN property for sale in California. The tenant was a nationwide cell phone provider. The broker advertised it as a “brand-new construction, NNN, corporate guaranteed lease“. Upon initial review, the name of the guarantor was different than the listed name on the NYSE. Our firm requested clarification from the listing agent. Our own investigation showed the LLC on the lease was a subsidiary of the company. The seller could not produce any evidence to support the credit-worthiness of the tenant. The tenant wanted to shield their liability with a separate LLC in case of a default, which meant the ‘corporate guarantee’ didn’t mean a whole lot. Our client pulled his offer, despite offers from the seller to reduce the price. Here are the seven most common mistakes investors make when reviewing NNN single tenant leases: 1. Focusing Only on the First Page of the Lease NNN leases are long for a reason – all the details matter. Rent and expense reimbursement are important, but it’s also important how they are collected, and what is included in ‘common area expenses.’ Some leases allow landlords to transfer management costs to tenants, and some specifically forbid it. Here are the seven most common mistakes investors make when reviewing NNN single tenant leases: 2. Who is Guaranteeing the Lease? The corporate guarantee the lease is the most important part of a NNN single tenant lease. Technically speaking, a shell company, or a small LLC is still a corporation that guarantees the lease. But if that entity has no assets and is not credit worthy, who will pay the rent once they close down? The first thing we do for our clients is to verify the corporate entity. In examining the credit-worthiness, we match the name of the lease with the publicly available information. When evaluating the strength of a corporate guarantee it is important to take into consideration: Is the entity rated by the S&P or similar rating companies? What is the company’s default rate? Are they expanding, closing stores, or staying put? Is the tenant’s core business resistant to technological disruption? A credit tenant will pay the rent even if the store shuts down. It is part of the reason these properties command a premium. Making sure this is the case is the important role of an attorney in a transaction. 3. Beware of Leasebacks! Leasebacks in NNN single tenant sales are common practice, but have potential issues buyers have to be aware of. In a leaseback situation, the tenant is also the seller in the transaction. Sellers will draft a lease to themselves at a high rental rate, sign it, and then ask an inflated sale price to investors. The high rent might seem enticing, but a low cap rate, you investors are running the risk of being penny smart and dollar stupid. In a leaseback situation, we always recommend our clients to either draft a custom lease, or re-negotiate the existing lease. 4. Options and Escalations Rent Increases – the lease should have automatic rent increase schedule. In some leases the property owner must notify the tenant of a rent increase to activate it. Escalations in rent are important for NNN investors as a protection from inflation. Yearly rent increases are a major factor in protecting property values. Options – any option to purchase the property by the tenant, also known as right of first refusal, is a red flag. These options provide the tenant with very strong leverage in a sale situation. Investors should also note the how the lease dictates options to extend the term. Does the lease term renew automatically? Does the tenant have an exclusive option to extend? 5. Falling for the “Zero landlord responsibility” Trap The phrase “zero landlord responsibility” is common in NNN single tenant listings online. It is also an oxymoron. Investors who want a passive investment are better off buying government bonds or index funds. Any real estate investment requires monitoring and supervision. The structure of the lease determines the time investment required for the property. This is why it is very important to understand the obligations under the contract before buying. 6. Not Reviewing the Triple Net Provision The NNN reconciliation can looks very different from one lease to another. In some cases, the tenant pays the property taxes directly upon proof of invoice. In other cases, the property owner pays the bill and then asks the tenant for payment. Here is a short sample of the type of things we look for before buying a NNN single tenant investment: Property Taxes Under what conditions can the tenant dispute a property tax assessment? In case of a property tax assessment dispute, which party is in charge of the process with the county? Who pays for it? Does the current lease have a property tax reassessment protection in case of a sale? – this is crucial to know. In California, a sale triggers a property value reassessment by the county, and a new tax base to calculate property taxes. Many corporate leases have provisions that prevent large increases of property taxes as […]

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Real Estate Law

LA County Eviction Moratorium Explained – Updated July 2022

Jan 30, 2022 | By Avi Sinai | Read Time: 8 minutes

LA County’s eviction moratorium, started March 2020, was recently extended by a vote of 4-1. The County sets out a set of complicated rules that affects almost all residential and commercial tenants in LA County, under the COVID-19 emergency powers. COVID-19 related disputes and eviction moratorium protections is a major part of our practice. We help both landlords and tenants understand and enforce these protections. Updated: 07/12/2022 at 8:13PM Quick Questions and Answers – Eviction Moratorium Explaining the LA County COVID-19 Tenant Protection Resolution The eviction moratorium in LA County went into effect March 4, 2020, to protect tenants (residential and commercial) who could not pay the rent due to financial difficulties due to the COVID-19 pandemic. The resolution was extended multiple times, most recently in January 25, 2022 until December 31, 2022. During the first few months of 2020, no evictions were allowed to be filed in LA Courthouses. More recently, tenants have the ability to block evictions via an affirmative defense if they are facing a financial hardship due to COVID-19. While the initial rules were fairly simple and easy to understand, more recent resolutions are much more complex. It is important for both landlords and tenants to understand the implications of multiple emergency power (state, federal, city and county) and how to navigate the quickly changing legal landscape to maximize value and avoid costly mistakes. Who is Covered by the Eviction Moratorium? For residential tenants, all are covered until December 31, 2022. That includes tenants in single family homes, renters in mobile homes, and condos. The resolution covers all unincorporated areas in Los Angeles County, and all cities in the county with eviction rules with less strict or similar rules to the county’s framework. What is Allowed and what is Not Allowed under the Resolution’s Phase I? For commercial tenants: After February 1st, 2022 – there is no protection from eviction for commercial tenants of any size. Some protections will stay even after February 1st, such as harassment protection and prohibition on enforcing personal guarantees on the lease. Unpaid before February 1, 2022 must be paid within 6 months for tenants with more than 9 employees, and 12 months for 9 employees or less. For Residential Tenants: Tenants who are affected by COVID-19 are protected from eviction as a result of non payment of rent through May 31, 2022. Landlords also cannot increase rents for rent controlled units in unincorporated areas of LA County. Landlords are not allowed to evict tenants for: No-fault evictions Unauthorized pets Unauthorized occupants Nuisance Denial of entry to the unit Tenants are also protected from retaliation and harassment from invoking the protections under the resolution. What happens in Phase II? (June 1st – December 31st, 2022) For commercial tenants, nothing changes. For residential tenants: Tenants who make less than 80% of median household income are still protected by the eviction moratorium if they self certify a COVID-19 hardship. Residential tenants making more than 80% of MAI can now get evicted for non-payment of rent. All protections mentioned above (rent freeze, no fault eviction, pets, etc…) remain for all residential tenants. What expires – protection against eviction for denying landlord entry, and allows evictions due to some owner move-ins. When Should Tenants Pay Rent? As soon as possible. There is no language, in any city, county, state, or emergency power that provides rent forgiveness to tenants. There are some city programs that pay missing rent for tenants by filling up hardship applications. But if you owe rent – you have to pay it back. Landlords and tenants are encouraged to come up with a payment plan to facilitate a payback. If you are not sure how to engage your landlord, you can hire an attorney to help you. For example – some tenants successfully paid less than what they owed to the landlord by offering to pay the owed amount right away at a discount. How Can Landlords Collect Rent from Non-Paying Tenants? This is a question asked by many clients who come to our firm. The answer is always complicated, since the county recently extended the moratorium through December 31, 2022 and provide 12 months for residential tenants to pay back the rent. Even that date might be extended and landlords cannot evict tenants for not paying back that amount. Collecting this from indigent tenant might prove a tough task. Starting November 2021, landlords are allowed to bring a lawsuit for damages for unpaid rent during the pandemic. In some cases, the lawsuit can be heard in small claims with no caps on damages. This means that landlords can get a judgement against a tenant in a couple of months due to the fast proceedings in small claims. With a judgement against the tenant, landlords can garnish wages, levy bank accounts, and seize assets. It is recommended that you hire an experienced attorney to assist you in understanding the County’s rules in collecting rent and evicting tenants. Failure to follow the rules can result in harassment lawsuits and severe fines against property owners. Can Tenants Still Get Evicted for Other Reasons? Yes. Residential tenants can still get evicted breaking the lease – such as using the premises for an illegal activity. Eviction moratorium is not a blanket ban on all evictions. Tenants who do not declare a COVID-19 hardship and don’t pay rent run the risk of eviction. Starting June 1, 2022 – illegally denying entry to the landlord in Los Angeles County is valid grounds for eviction. Is the Pandemic Moratorium Apply to Tenant who Came in During COVID-19? Yes. It may seem unfair, but there is nothing in the rules that exempts tenants who came in knowing the pandemic risks. It is important to hedge your risk during the application period with new tenants in order to mitigate that risk. Ask us how and we’d love to assist you. Can Landlords Charge Tenants Late Fees for Unpaid Rent During the Pandemic? No. Tenants who invoke COVID-19 financial hardship during the […]

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Real Estate Law

Cash for Keys Buyouts in Santa Monica

Jan 22, 2022 | By Avi Sinai | Read Time: 6 minutes

A Cash for Keys agreement is a contract where landlords offer tenants money in exchange of leaving the unit. The dollar amount is left up to the parties – landlord and tenant. Cash 4 keys provides a legal way for landlords to vacate tenants from the property. These agreements are popular especially for rent controlled tenants, who can often cash in for large amounts. As property value soared in recent years, cash for keys agreements became popular as well. In 2021, a total of 23 buyout agreements were reached in the Santa Monica.  Cash for keys could be beneficial for both parties. Landlords are able to increase the rent price to reflect the current market rate. As the market rises, landlords can make a greater profit on new potential tenants. On the other hand, renters can receive cash for vacating the property if they find it difficult to pay rent, or if they were already thinking about moving anyway. Quick Q&As Why Would Property Owners Offer Cash for Vacating a Unit? Property owners are able to adjust the rent to the current market rate for new tenants. With market rent in place, property value increases as well. In situation where tenants are protected by a Rent Stabilization ordinance, like in Santa Monica or Los Angeles, occupants can only be evicted for cause. This means that renters can stay in the apartment indefinitely, paying very little rent. There’s little alternative to property owners to vacate units. Ellis Act evictions are expensive and long, and once invoked the unit can no longer be rented again to tenants. In addition, once the tenant is paid and vacates the premises, a higher rent can mean higher property value. Why Should Tenants Consider Cash for Keys buyouts? When properly negotiated, cash for keys buyouts can be substantial. It is not unusual for some tenants to get over $20,000 in buyouts, sometimes even more. Tenants who already want to leave or are having difficulty paying the current rent can take the cash and more somewhere more affordable, pay bills, or satisfy credit card debt. What is the Legal Process in Santa Monica? Before a buyout offer is made – the landlord needs to provide the tenant with a special written notice to the tenant. You can find the notice on the Santa Monica Website. Second, the tenant and landlord will negotiate a buyout agreement. Both parties must sign a written agreement. Third the agreement should be sent to the City Counsel of Santa Monica for filing. Buyout agreements must be filed 31 days to 60 days from the agreement date. Who can Qualify for a Cash 4 Keys Agreement? Tenants and landlords qualify for cash for keys agreements. Also, banks and homeowners can execute buyouts. What Rights Tenants and Landlords have under the Cash 4 Keys Laws? City rules provide the tenant with strong protections in cash buyouts. The right to refuse a cash for keys agreements (all buyouts have to be voluntary). Right to cancel the agreement and return to the unit within 30 days after signing a cash for keys agreement. Tenants have a right to consult an attorney or the rent control board. Do You Need a Lawyer to Draft and Sign a Cash for Keys Agreement? A lawyer is not required but highly recommended for cash 4 keys agreements. Tenants should not only know the full extent of their rights but have someone on their side to negotiate a payment that is fair. Landlords should always hire an attorney to coordinate the cash for keys process to make sure they are legally protected from any liability. Why is it important to hire a lawyer to negotiate a cash for keys agreement?  Moving out of your home is already strenuous enough. Hiring a lawyer will ensure you get the most value for your property. Tenants may not realize the leverage they have with their unit. Having a lawyer on your side will decrease your troubles in obtaining the best deal possible.  For landlords, most of the compliance falls on the landlords when it comes to cash for keys agreements. The legal framework in Los Angeles and Santa Monica place strict requirements on the property owner alone to follow. Failure to follow the rules can subject you to fines and cancellation of the buyout agreement. Hiring an experienced attorney can mitigate this risk. Steps you should take before getting into an agreement Whether you are a tenant or landlord, negotiation can be difficult between the two parties. Before getting into an agreement, it is crucial to contact a lawyer to walk you through the process. If you want to go through the process yourself, make sure to follow the local rules in your city for cash for keys agreements. In Santa Monica, you will have to comply with: Regulation 9011 Santa Monica Municipal Code 4.56.050(b) Contacting our team at Sinai Law will ensure an easy process.  What Provisions Must be Included in a Cash for Keys Agreement in Santa Monica? The agreement must be in writing. The contract must include a statement of the tenant’s rights similar to the rights mentioned in the form provided by the city before the negotiations begin. If the agreement does not have these mandatory requirements – the buyout is not enforceable and the tenant can rescind it at any time. What is the Average buyout for a Tenant in Santa Monica? Buyout for Cash for Keys will vary in respect to the area and makeup of the home. A large factor is the difference between market rent and the current rent for the unit. Buyout agreements can range from as low as $1,500 to as high as $75,000 (or more in extreme cases).  The Rent Control Board in the City of Santa Monica provides data on Cash 4 Keys buyouts. In 2021, the average buyout in Santa Monica was a $38,037. While in 2020, 22 buyout agreements averaged to $35,693. If your Landlord Offered you a Buyout what should you do? […]

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Real Estate Law

Negotiating a Billboard Lease in Los Angeles

Jan 18, 2022 | By Avi Sinai | Read Time: 5 minutes

Commercial property owners in Los Angeles often have alternative streams of income in the form of long term leases from billboard companies, such as Outfront Media, CBS Media, or Lamar. When it comes time to renegotiate those leases, landlords have a unique set of challenges against the billboard companies. In 2001, the City of Los Angeles put a 25 year moratorium in place on all new billboards licenses. Existing signs can stay under a ‘grandfather’ exception, but property owners and billboard operators cannot erect new commercial signs or even replace existing ones. This means that if the negotiation falls apart, property owners lose the monthly income forever (or at least until the moratorium ends and more signs can be built, which is unlikely). How Can Landlords Make Money from Billboards? Billboard income works just like any other tenant in the building. The profile is usually a large media company that owns many billboards, and then leases out the sign to advertisers on monthly contracts. The billboard operator pays monthly (or yearly, depending on the lease) rent and nets the difference between the rent and the ad revenue. Some leases have extra rent to the landlord in the form of CAM payments or excess revenue based on traffic counts. How is Rent Calculated in Billboard Leases in Los Angeles? The rent in a billboard lease is usually calculated based on location of the property, traffic counts, and prior ad revenue in that location. It can range from $100 to $5,000 a month, depending on what was originally negotiated between the original parties. Billboard leases are often 1 page, and last for 20-30 years. So when it comes time to renew and extend – it is important to get the new rental rate right. What are the Current Laws on Billboard Licenses in Los Angeles? There are almost no new billboard advertising licenses issued in the City of Los Angeles, with some very narrow exceptions (on the Sunset strip, for example). Caltrans Website – offers the current regulations and process regarding those licenses and existing ones. City Planning Summary – and proposed changes to the current license requirement. Challenges in Negotiating Billboard Leases and Extensions Property owners have less leverage in negotiating with billboard operators. Push too hard, and they might walk away and you lose guaranteed income that is very hard to replace. In almost every scenario, it is the tenant/operator that owns the physical sign and the license to it. And if they take it out after the lease expires – you cannot build a new one to replace it. It is important that the negotiation is controlled along realistic lines of pricing, term, and open communication. It is unlikely that a billboard operator will accept a short term lease (less than 5 years). Remember, if the negotiations fall apart and they tenant leaves, you cannot get a license for a new billboard to replace it. Tips in Negotiating a Billboard Lease or Extension Review the existing lease – use a lawyer to explain and break down the lease completely so you are aware of any limitations or timelines that are in place to protect the tenant or gain some advantage. Get Comparable Rents – find what other billboards are paying in your neighborhood. It is important to take into account location and traffic numbers Get updated Traffic Numbers – car traffic is the lifeblood of a billboard. It is what advertisers care about and it is the largest factor in determining the monthly rent. What to Know Before Buying a Property with Billboard Income – a Checklist If you are buying (or looking to buy) a shopping center in Los Angeles, and it was built in the 1980s – it probably has a billboard on it. There are a few steps you should take before closing in order to verify this income, especially if you are purchasing the property for its income, and the revenue from the sign is priced in: Review the existing lease and all amendments for the billboard. The details in addition to the rent is important – when the lease expires, is there an automatic renewal and who pays the expenses? Verify the existing license for the billboard with the city – this is a crucial point because there are many existing billboard without a license or an expired license. If there any issues with the license, the income on the property may be in question. Ask if any rent concession were given to the operator during the COVID-19 pandemic. Verify if there are any rent increases in the lease, and who is responsible for paying utilities or maintaining the sign. What are the Possible Fines for Violating the Billboard Ordinance in Los Angeles? Any sign or billboard that is unlicensed or not according to code could be subject to a violation and fines from the City of Los Angeles. In fact, if the sign on your property does not match the dimensions that are provided in the city license – it is considered illegal. The fines on non-conforming billboards and unlicensed signs are hefty. A 14×48 sign will carry a $10,000/day fine for the first offense, and $20,000 for the second offense. How Hiring an Attorney can Help you Negotiate a Better Extension on your Billboard Retaining a lawyer to negotiate an extension to an existing billboard lease is an excellent way to make sure you maximizing the leverage you have and protecting your investment. Due to the extremely long term nature of billboard leases, property owners often get to negotiate one or two times each lease in their lifetimes. By hiring Sinai Law, you get an experienced transactional real estate attorney to represent your interest. Our staff will review the existing lease, verify the license of the billboard with the operator of sign, get you updated historical traffic counts, and find you several rent comparable in your area. Negotiating a new lease with little leverage means you need to use any advantage presented […]

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Commercial Real Estate

10 Tips for Commercial Lease Agreements

May 4, 2021 | By Avi Sinai | Read Time: 6 minutes

10 Things Every Landlord Needs to Know About Commercial Lease Agreements Commercial lease agreements between property owners and the tenants is the most important aspect that will dictate the dynamic between the parties. The vast majority of landlords and tenants focus on the term/rent, and resort to boilerplate leases provided by commercial brokers. But it is the other parts of the lease that often result in nasty disputes, like assignment clauses. We want to focus on 10 important items you should pay attention to when signing your next commercial tenant – and why an attorney can help you create more value getting you there. Brokers provide a valuable service to landlords, but it’s always important to have an impartial lawyer review the lease terms. Sinai Law Almost all Disputes can be Avoided with a Strong Lease (almost) Almost 100% of clients who come to us after a dispute started with their tenant did not have a lawyer review the lease before they signed it. The leases are often prepared by the listing broker and negotiated by the parties. In most cases it works out – but standard leases don’t always have the personalized touch that your property needs. This dynamic creates an incentive to ‘close the deal’ and ignore potential pitfalls that could hurt you in the future. We believe a strong commercial lease agreement can do much more than collect rent: Provide protection against unnecessary lawsuits and disputes Increase the value of your property Reduce disputes between tenants Reduce your overhead and expenses Preventative clauses can reduce your legal fees 1. Controlling for Assignments and Sublets Most long term commercial leases do not reach the expiration date, and this is where the language in your contract matters. Most commercial leases prohibit assignments and sublets with out authorization from the landlord. While this is standard practice, every landlord will face requests to terminate early or request to sell a business to a new operator. A good assignment clause can help you improve your leverage in a potential dispute with the leaving tenant (and the new one as well) – not just grounds for eviction. For example, we protect our clients in tying lease incentives to assignments. If rent incentives are given to tenants (like Tenant Improvements) over the term of the lease, we terminate them once an assignment is signed. 2. Beware of corporate leases provided by national tenants Most accredited national tenants (like a large pharmacy or fast food chain) will want to use their own lease forms to standardize their operations as a condition to sign. The major issue with that – they are written to protect the tenant only. Always have an attorney review a lease form provided by the tenant. Always! To name one example, a client came to us after his national tenant stopped a pending sale during escrow after threatening to exercise an option to purchase the property. Unfortunately the owner did not even know the option exited – it was buried deep in the bottom of the lease he signed 7 years ago. The sale never happened and he lost out on a great buyer. 3. Insurance Insurance is the lifeblood of all liability lawsuits. If you own property, someone will at some point will get injured and their lawyer will name everyone in a lawsuit – the tenant and the property owner. Nothing in the lease can prevent this from happening. Instead, we help property owners make sure there is enough of the right coverage in place, by the tenant and the owner, to protect against these kinds of pitfalls. Certain insurances can also help you recover lost rent and property damage. 4. Reporting and Financials Adding another task to your yearly checklist might seem like a hassle, but the financial success of your tenants is a major key to your success as a property owner. Successful tenants renew leases, expand operations, and pay rent on time. With this data you can reward successful tenants and phase out struggling ones. More importantly, this data can make or break a negotiation when it comes time to extend the lease. A tenant with 10% increase in sales year-over-year is much less likely to leave. You can also gauge if the tenant can absorb yearly rent increases. 5. Triple Net/Modified Gross Management Most commercial leases, especially in strip malls, have some kind of reimbursement of cost in the form of NNN lease. This means tenants pay the landlord’s property taxes, insurance, and common area maintenance in proportional share. A good lease will make sure the collection/reporting of NNN expenses work for the landlord’s system. Things to consider: Is your new lease agreement consistent with NNN reporting like other tenants? If all tenants get yearly reports, new lease should be the same. Does the tenant has the right to contest the costs? What does the process look like to do so? Does the lease have property tax protection in case of a tax reassessment? These are just some of the issues that can come up. The devil is in the details when it comes to NNN reporting and collection. 6. ADA Compliance The American Disabilities Act, or ADA, has sprung a whole industry of lawyers who file sham lawsuits to enforce ADA rules, even if the violation is a few inches off. Under the ADA, attorney’s fees can be collected, which could make these lawsuits very lucrative (for the lawyer, that is). If you own a retail center or office building – it is just a matter of time before you will be used by one of these lawyers. You won’t be able to prevent ADA lawsuits in California. But you can minimize them! With a proper lease, make sure to include ADA compliance to the tenants as well, along with an indemnification provision. 7. Signage Compliance laws behind signs in almost any city is quite complicated. Cities like Los Angeles have extensive regulation and permit process on which size is allowed on windows, how much […]

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