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For Real Estate Transactions, Get It In Writing!

California Real Estate Agreement

By David S. Olson, Esq.

As a general rule, agreements need not be in writing to be enforced although proof of an agreement, and its terms, are obviously far easier when the agreement is reduced to writing. Some agreements, however, must generally be in writing to be enforced under California’s statute of frauds. Among those are agreements respecting the purchase and sale of real property, real property leases for in excess of one year, and agency agreements respecting purchases and sales of real estate and leases of real property for in excess of one year.  As a recent California case drives home, when it comes to California real estate transactions, make sure any agreement is in writing.

In Westside Estate Agency, Inc. vs. James Randall, the Court held that licensed real broker Stephen Shapiro, the principal of Westside Estate Agency, Inc., was not entitled to a $925,000 commission because the agency agreement between Shapiro and his friends, James and Eleanor Randall, was not in writing.  Shapiro had agreed to represent the Randalls in their quest to buy a home in Los Angeles but failed to obtain a written agreement to that effect.  While the Randalls ultimately purchased a $46.25 million Bel Air property Shapiro had located for them, Shapiro’s lawsuit seeking payment of his commission was dismissed by the courts because of the lack of a written agreement between Shapiro and the Randalls.

There are limited exceptions to the general rule of unenforceability of contracts that fall within the statute of frauds.  As the Westside Estate Agency case underscores, however, anyone entering into an agreement respecting the purchase, sale, or leasing of real estate in California, or respecting payment of a commission for such transactions, would be very wise to memorialize the agreement in a writing signed by the parties.  Otherwise, and as the broker in the Westside Estate Agency case learned the hard way, there is a very good chance the courts will refuse to enforce the agreement.


Thank you for joining us on ClarkTalk!  We look forward to seeing you again on this forum.  Please note that the views expressed in the above blog post do not constitute legal advice and are not intended to substitute the need for an attorney to represent your interests relating to the subject matter covered by the blog. If you have any questions about agreements respecting the purchase, sale, or leasing of real estate in California, or respecting payment of a commission for such transactions , please feel free to contact David Olson by email at dolson@clarktrev.com or telephonically at (213) 629-5700.

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Starting a New Business? Don’t Drop the Ball on Your Lease

By Scott D. Page |

Leasing commercial office or retail space can be one of the most important and complex initial business decisions for startups. While the following are some of the most important issues for startups to consider, they also apply to any commercial tenant entering a new lease.

Length of the Lease – One area of the lease to focus on is the lease term. A short-term lease is almost always to your benefit, especially if your business isn’t particularly location-sensitive and finding comparable space won’t be a problem at the end of the lease term. Shorter leases give you more flexibility if the needs of your business change. On the other hand, a long-term lease ensures that the business will have an affordable space for a predictable period of time, especially if you have found a favorable location for a retail shop or other business where location is critical. Also, landlords are often willing to make more lease concessions (e.g., free rent or more money for tenant improvements) on longer-term leases.

A good solution for most tenants is to negotiate a shorter initial lease with one or more options to extend the term of the lease. If you ask for an option, expect the landlord to want a higher rent for the renewal period. A right of first refusal on other available space at the property can also give you important access to additional convenient space at agreed upon terms if your business quickly expands.

Understand What “Rent” Covers – Another primary issue to consider when leasing commercial space is how much rent you’ll pay and what costs are included in the base rent. When considering options, look carefully at whether the landlord will pay for utilities, maintenance, repairs, security, janitorial services, parking, taxes and insurance, or whether you will be paying for such amounts as “additional rent.” These costs can potentially be significant and increase dramatically over the term of the lease, especially if exclusive systems (e.g., HVAC for IT equipment) are required for your business. Paying higher rent that covers these costs will eliminate expensive surprises down the road.

Tenant Improvements – If significant improvements to the space are required, you may want to use most of your bargaining power to have the landlord provide them at no cost to you. If you’re willing to sign a longer-term lease, the landlord will be more willing to pay for the desired improvements. It is also important to understand the tenant’s obligations to remove any specialty improvements at the end of the lease term before those improvements are installed to avoid unexpected expenses or disputes in the future.

Subleases and Assignments – Make sure you have the right to sublease or assign your leased space. These provisions, along with options to renew or lease additional space, provide flexibility as your business needs change. If you rent more space than you currently need to allow for expansion, you can sublease some of the space until you’re ready to use it. On the other hand, if you need to move out before the lease is over, you’ll have the option of finding another tenant to take some or all of your space and pay the rent, without having to negotiate an early termination or break the lease.

Give Yourself Time – Allow for three to six months to identify a property, agree upon important lease terms and negotiate a lease. The less time you have to make a move, the more leverage the landlord has to dictate terms and avoid the tenant concessions discussed above.

Find a Broker (and an Attorney) – Leasing commercial property can be a complicated process and should never be undertaken without knowledgeable parties explaining each step of the way and working to get you the best deal possible. A commercial real estate broker familiar with your business and locations of interest can help you focus on available and best options for your business, now and for the future.

Startups typically have very little leverage with landlords, but a good broker and attorney can help negotiate the best terms possible. Lease forms are almost always provided by, and favor, the landlord. An attorney can help explain the critical provisions of the lease and identify terms where the landlord will more likely make concessions.

Thank you for joining us on ClarkTalk!  We look forward to seeing you again on this forum.  Please note that the views expressed in the above blog post do not constitute legal advice and are not intended to substitute the need for an attorney to represent your interests relating to the subject matter covered by the blog.  You should certainly consult legal counsel of your choice when considering this or any other real estate issue.  If you wish to consult with the author of this post, please contact Scott Page by email at spage@clarktrev.com or telephonically by calling him at (213) 629-5700.

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AIR Lease Forms – Good for the Goose or Good for the Gander? A View From the Tenant’s Perspective

By James S. Arico

Despite what a landlord may tell a prospective tenant, there is nothing “standard” about any lease form.  This is true even for pre-printed leases labeled as “standard,” like the AIR Commercial Real Estate Association lease forms (collectively, the “AIR Form”) for both net (where tenant pays a base rent amount plus its share of taxes, maintenance and insurance) and gross (where tenant pays a base rent amount plus its share of increased taxes, maintenance and insurance over a base year amount) lease transactions.  Traditionally, the AIR lease forms have been landlord orientated and designed to protect the commercial real estate brokerage community.  While the AIR lease forms have become more tenant-friendly in recent years, tenants should take care in reviewing an AIR Form prepared by either landlord or landlord’s broker.  Preferably, tenant should seek the assistance of commercial real estate counsel to review and negotiate the AIR provisions, since the form itself is generally favorable to landlord.

With respect to changes to the AIR Form made by landlord, any revisions using the copywrited AIR Form or AIR software are easily recognizable.  Form language landlord wishes to delete will appear as strike throughs and additions or revisions will either appear in the AIR Form in conspicuous type (i.e. different from the form type font) or will be addressed in a separate lease addendum.

The following are some examples of lease items that you, the prospective tenant, should be aware of that are in both the net and gross AIR lease forms:

Condition of the Premises.  In paragraph 2.2 of the AIR Form, landlord warrants that, among other things, the existing plumbing, electrical, and heating, ventilation and air conditioning (“HVAC”) systems are in good working order and the structural condition of the building in which the premises is located is free of material defects.  While this landlord warranty is a benefit for tenant, the warranty period is only thirty (30) days, with the sole exception being the HVAC system, which carries a six (6) month warranty.  Any problems incurred with these items following the expiration of the warranty period are tenant’s responsibility to fix at tenant’s sole cost.  Since a prospective tenant needs to “live” in its new premises for some to determine which building systems may be defective, tenant should request that, at a minimum, landlord’s warranty for all building systems and the building structure be extended to six (6) months.

Security Deposit.  The security deposit section of the AIR Form (paragraph 5) provides that if the base rent increases during the term of the lease, landlord has the right to increase the amount of tenant’s security deposit to maintain the same proportion as the initial security deposit bears to the initial base rent amount.  To avoid surprises, tenant should seek to strike this provision of the lease.

Tenant Improvements and Surrender of Possession.  Paragraph 7.3 of the AIR Form provides for tenant’s right to make alterations/improvements to the premises.  Tenant should keep in mind that, except for movable items of personal property used in tenant’s business (called trade fixtures), landlord has the right to keep or require removal of any other alterations or improvements tenant makes to the premises at the end of the lease term.  Since some alterations may be as expensive to remove as to install, tenant should request that all tenant improvements (other than trade fixtures) remain with the premises or, alternatively, that landlord make the “remove or remain” decision on all tenant improvements prior to installation.

Partial Damage that is an Insured Loss.  Under paragraph 9.2 of the AIR Form, if damage to the premises occurs that is insured and the cost to repair is $10,000 or less, landlord has the option to give tenant the insurance proceeds and have tenant undertake the repairs.  Two immediate issues arise with this concept.  First, tenant is usually not in the construction business and undertaking repair responsibilities, even if of minor nature, is a distraction to the ability of tenant to conduct its business.  Second, tenant may be responsible for any gap between the insurance proceeds received by landlord and the actual cost of the damage repair.  Tenant should carefully review its responsibilities in the event of damage or destruction and make sure that the provisions are “even handed.”

Accessibility ADA.  The last numbered paragraph of the AIR Form (Paragraph 50 on the net form and Paragraph 49 on the gross form) identifies three important things.  First, whether the premises has been inspected by a Certified Access Specialist (a “CASp”); second, that landlord makes no guarantees that the premises is ADA compliant; and third, that any ADA modifications required by tenant’s use will be the sole responsibility of tenant.  Tenant should consider the following:  First, if the premises have not been inspected by a CASp, tenant may want to retain its own CASp to inspect the premises; and second, tenant should negotiate a fair resolution of the allocation of costs related to any required ADA modifications.  For example, tenant should be responsible for only those non-structural modifications related to the unique nature of tenant’s use of the premises (as opposed to any other use of a tenant in the building, or a general office/warehouse use) and landlord should be responsible for all other modifications.

NOTE: THE ABOVE LEASE ITEMS ARE ONLY EXAMPLES OF POTENTIAL PITFALLS A TENANT MAY ENCOUNTER.  For this reason I reiterate the suggestion to seek the assistance of a commercial real estate counsel.

Good luck!

Thank you for joining us on ClarkTalk!  We look forward to seeing you again on this forum.  Please note that the views expressed in the above blog post do not constitute legal advice and are not intended to substitute the need for an attorney to represent your interests relating to the subject matter covered by the blog.  You should certainly consult legal counsel of your choice when considering your real estate needs.  If you wish to consult with the author of this post or another attorney at Clark & Trevithick, please contact Jim Arico by email at jarico@clarktrev.com or telephonically by calling the author at (213) 629-5700.