February 10

When you have a new landlord

Recently I read an article about a shopping center and change.

A shopping center has existed at this particular spot for at least forty years. I used to live close to this center and shopped there often. Over the years the center became old; the stores that were there closed and nothing reopened. The center was slowly wasting away.

New developers bought the center, tore down the existing buildings and constructed a new “village” of up-scale shops and restaurants. Tenants came back. New leases were signed.

I doubt that any of the new tenants were concerned about whether moving to this vibrant new center was a move they would later regret. Customers would come to the restaurants and while waiting for a table to become available would wander the village and spend money in the specialty shops. The original developers sold the center to a new entity and things changed. The new owners weren’t responsive to the tenants. Common Area Maintenance or “CAM” charges that were part of every tenants lease suddenly soared, increasing the cost of rent. Anyone who had a lease term ending but who had not built in renewal options at a specific rental rate found demands for much higher rent.

There are three things that these businesses could have done that could blunt these changes. All of them required negotiation before they signed their current leases and in most cases that means having a lawyer review the lease and ask for these changes. The question is how many of them did that? How many thought, the only thing I’m interested in is how much rent do I have to pay right now? I don’t need a lawyer to find that out.

What could they have done?

Have current CAM charges set out specifically and have increases limited.

Have options for additional lease periods with specific rent for each extension to prevent massive rent increases.

Negotiate a buy-out clause which states that for a payment of a fee (e.g. three months’ rent) they can get out of the lease.

Why would the landlord agree to this? Because the landlord is trying to rent the property and wants it filled with particular types of businesses. Like anyone else, the landlord really doesn’t believe that these problems will ever come up so why not agree to these clauses.

The money you spend to have the lease reviewed will be a mere fraction of the money you will save if you need these provisions. The tenants in the center in the news article didn’t think they would need these clauses but now they do and hopefully they have them to fall back on.

February 1

Don’t assume anything

I just talked with a client who has an unoccupied building that he is currently trying to sell. With the recent cold snap, his pipes froze and burst. He previously had insurance coverage which covered a similar claim (even though the premises was closed and was not being used at the time). He changed insurance to save money on his premium, for what he understood was identical coverage. Turns out that was an incorrect assumption. The same claim is not covered under his new policy and to make it worse, he was specifically notified, in writing, that the specific coverage was not included. Unfortunately, this is not a rare occurrence. It is an example of a busy small business owner who is focused on providing the service that brings in his income and not so much on details like reading a new policy to see if there is a change in coverage and making the informed decision that I will or will not save money on the premium and accept the risk of not having coverage. He “assumed” he had the same coverage and didn’t have time or the desire to wade through the policy and compare coverages. He received a notice but considered it nothing he really needed to take the time to read or question.

If you don’t have time to read the policy or you don’t understand what it says, ask your agent or consult an attorney. If you already have the policy, read it now. If there is something in it that causes a problem, change it or cancel it now and get what you need, before your “pipes burst.” Your unearned premiums will usually be refunded. Don’t assume anything.