Legal Corner

Commercial, MultiFamily, Escrow

Print
PDF

Q: Seems like it’s getting tougher to manage my commercial buildings. Delinquencies are up, and so are vacancies. One of my larger tenants in my industrial complex just came to me and said they may have to close down. I really don’t want to lose them; they’ve been a good tenant for years and are good at what they do. What can I do to salvage them?

A: Increasing delinquencies and vacancies are on the horizon for many owners in the coming months. In markets where it may be tough to find a replacement tenant, many owners are electing to offer rent deferments to tenants. Rather than waiving rent due, or entering into permanent rent reductions, many owners will offer their existing tenants an opportunity to temporarily pay a reduced sum as rent for a cer tain period of time. The “deferred rent” is then amortized over the remaining term and is repaid in the future. Ensure that any agreement to defer rent is placed in writing and signed by all parties.

Q: Most of my rental properties are residential multifamily, but I have one small retail strip center in Los Angeles that I own as well. I’ve never had a problem with my commercial tenants, but I have one who hasn’t paid rent this month. Can I use the same threeday notice to pay rent or quit that I use for my residential properties?

A: Commercial and residential landlord tenant laws differ in many ways. One major difference between the two is the ability to accept partial rent payments after service of a notice to pay rent or quit for a com mercial property, and not for a resi dential property. Provided the necessary language is included in the commercial notice, you may accept a partial payment without waiving your notice, and may proceed with an unlawful detainer action without having to re-serve a new notice. For that reason, all commercial notices to pay rent or quit should contain language stating that in the event a partial payment is made, it will not act as a waiver of your right to commence an unlawful detainer action. If you have served a notice that does not contain the proper language, and your tenant tenders a partial payment, you may immediately provide the tenant with a letter acknowledging the partial payment, but also stating that the partial payment will not act as a waiver of your right to proceed with an unlawful detainer action. Other than that, review the cure periods stated in the default portion of your lease. Typically the cure period for non-payment of rent or other monetary sums due is three days. Failure to provide proof of insurance is typically three days as well. Most commercial leases will allow ten or thirty days to cure a non-monetary breach. Ensure that the forms that you intend to use are consistent with the terms you have negotiated in your lease agreement, as the terms of your lease will control.

Q: I’m in escrow to purchase a small regional shopping center, and am in the middle of conducting my due diligence. I’ve gone through the leases and am having some difficulty verifying the terms of some of the tenants’ obligations. My agent, nice guy but a bit green, isn’t much help. He just wants escrow to close so that he can get paid. The seller appears to be disorganized, but not sure if he is giving me the full story. How can I be sure I’m getting the straight story?

A: Thorough due diligence is absolutely critical to ensuring that the deal is one that makes sense to you. A good real estate agent and his broker will actively assist you in ensuring that your requests for information are properly responded to, and will assist you in conducting your due diligence.

Contact your broker and request that he as sign a more seasoned commercial agent or broker to assist you in the transaction. Depending on the size and complexity of the transaction, you may wish to retain the services of a real estate forensic accounting firm to verify the financials. Ensure that you have complete copies of all existing tenant leases as well as all addenda. Estoppel agreements signed by each of the tenants as well as the owner, affirming all of the terms of the tenancy, including any options are a must. A site visit and individual meetings with each of the tenants is advisable as well. It’s amazing what a five-minute conversation with each of your soon-to-be tenants will reveal.

Q: I have a tenant who just skipped out last weekend. He’s been behind in his rent, but I was working with him and he was catching up. I got an email this morning from him; it confirmed that he was out; it said he left the keys in the unit. Guess I’m kind of glad he’s gone, won’t have to go through the eviction process, but now what? He’s only two years into a five-year lease, and I don’t have any prospects. What is my next step?

A: First thing is to confirm he’s out, pick up the keys and change the locks. Document the condition the unit was left in by taking several pictures of the premises. If there is damage, take detailed pictures of the damage. You will need to provide an accounting of his security deposit within thirty days since it is commercial property. Now that you have possession of the premises, you have an obligation to mitigate your damages; that is, to attempt to relet to minimize the loss that you are sure to incur. Ensure that you maintain a log and document your actions in attempting to relet the premises. If you retain the services of a broker, ensure that he or she does the same. Your former tenant is responsible for the remaining term of the lease as well as any costs that you will incur in reletting the unit. These additional costs might include advertising fees, signage, broker’s commissions, tenant improvements for the replacement tenant, and the difference in rent for the remainder of the term in the event the replacement rent schedule is less than your existing rent schedule.

 

This article is presented in a general nature to address typical landlord tenant legal issues. Specific inquiries regarding a particular situation should be addressed to your attorney. The Duringer Law Group, PLC, one of the largest and most experienced landlord tenant law firms, and has collected over $155,000,000.00 in debt since 1988. The firm may be reached at 714.279.1100, toll free at 800.829.6994 or 877.387.4643. Please visit www.DuringerLaw.com for more information and to sign up for our periodic newsletter.

Maintenance Logs & John Doe

Print
PDF

Q: I can’t seem to keep my apartments maintained so they are not falling apart. I do the best I can by fixing most things myself or contract out some of the work. I feel like some of my tenants are sabotaging the apartments. I’ve replaced the smoke detectors in one of my rentals three times in the last year. I know something’s up—what do I do?

A: It’s more important now than ever before that you establish and follow an operations and maintenance plan when managing and maintaining your rentals. Not only is it just good business sense to maintain your rentals properly, but also the law mandates your prompt response to complaints of serious habitability defects. It is critical to identify tenants who engage in damaging and destructive conduct. Although the code specifically precludes a tenant from benefiting due to his inflicting damage to the apartment, often it is difficult to prove the tenant caused the habitability defect.

A good practice to enact is to create a maintenance log of repairs for each unit. Many owners will require a tenant to “sign off” when the repair is completed; other owners photograph the repaired item upon completion as proof of completion. These practices will support your claim that the “self-destructing” smoke alarm is being damaged by the tenant.

Several pieces of legislation have been enacted to crack down on the small minority of landlords who fail to properly maintain their buildings. Depending upon the severity of the defect, and providing that it is not tenant caused, a landlord may be cited by one of several governing agencies and given a period of time (ten to 35 days) to make the repairs. If the repair is not completed as required, there are provisions that would allow the governing agency to make the repair, and add the fees and costs of correction as a lien against the property. Additionally, legislation eliminates the tax benefits to the owner during the period of noncompliance, and in extreme circumstances, precludes an offending owner from demanding or accepting rent. Now more than ever before, it is critical that you document your repairs and identify the residents who are engaged in sabotage or other destructive conduct.

Q: I recently purchased a small apartment building near the beach from an older couple who had managed the building themselves for many years. Nice folks, but lousy bookkeepers. The rent roll I received in escrow appears accurate, but the names on the roll and the names of the tenants in their records don’t match. I think I’ve figured out who is where simply by talking with and asking the tenants directly, but there are two apartments with very uncooperative tenants. They refuse to give me their names or answer any questions at all. They just say, “Call my lawyer”. The first of the month came and went and everyone paid except these two units. What do I do? Can I evict if I don’t even know their names?

A: Sure. Since your rent roll is apparently accurate, and you know the terms of the agreement, you should immediately serve a three day notice to pay rent or surrender possession.

Simply list the names as John and Jane Does 1 through 10. The amount demanded would be the amount reflected in your rent roll as the rent due for that unit. When the rent is not forthcoming within the three days, then the eviction may be filed. Your attorney will simply name the defendants as “Doe” defendants. You will want to serve a “prejudgment claim of right to possession” notice along with the complaint to “flush out” any and all occupants and avoid the third party claim of right to possession (the old Arietta claim). The court will generally require a complete physical description of each “Doe” defendant judgment that is entered. Your attorney’s process server takes care of that for you. The eviction itself is no different than any other ordinary eviction. If you ever do learn of the tenants’ correct names, the judgment may be emended to replace the Doe name with the defendant’s true name, which will allow you to collect the money owed. Make sure you take a picture of the soon-to-be ex-tenants and keep it in your file. It will aid you in collecting from them when you learn their true identity.

Parking, Towing & Security Deposits

Print
PDF

Q: Street parking spaces are few and far between near my building. My apartment complex has just enough parking spaces for my residents to each have one space. If a resident has more than one car, they must try to park it on the street. It has been working out fine for years but now I have this one tenant who refuses to follow the rules. He is constantly parking his second car in someone else’s assigned spot. I’ve told him several times but he just ignores me. What do I do?

A: Your community rules and regulations should specify your parking rules, specifically stating that only one vehicle may be parked on the premises, and that all parking is assigned. Ensure that you have the proper signage at the entrances to the parking area. Most cities require the sign to contain certain restrictive parking language, plus the local police department tele phone number, and the California Vehicle Code section that provides for towing of unauthorized vehicles. Contact your local police department for their specific require ments, as they vary from city to city. Next if you know the offender, then provide a written warning of the violation. Attempt to serve it at his residence, post it on his door if he’s not in, and also put the warning on the windshield of his car. If practical, take and save a photograph of the warning on the vehicle’s windshield, because the offender will always claim that you did not give prior notice before towing. If he fails to remove the offending vehicle, the car maybe towed.

Q: I rented an apartment to four roommates quite a while ago. One of the four is now moving out, but the other three want to stay. The one moving out is demanding that I return his portion of the security deposit; he says that he paid it, so he should get it back. Do I have to?

A: No, the security deposit remains with you as long as any of the roommates remain in possession of the rental unit. Often, owners and residents will enter into an agreement replacing one resident with another, thereby removing the one original resident from the lease. The agreement will further provide that the “new” roommate pay the “old” roommate his portion of the security deposit. Absent a written agreement to the contrary, the owner should retain the entire security deposit, then when all the remaining roommates vacate, the refund check should be made payable to all four of the original roommates named in the rental agreement.

Tenant Info, Rent Increase, Sublets

Print
PDF

Q: I’ve owned my buildings for several years and many of my residents are long-term tenants. I don’t seem to have any current contact information for most of my residents. The applications in the files are way out of date, and many files don’t contain any at all. Even the applications that are in the files have old and outdated telephone numbers. Do I have the right to request this information?

A: Of course. It is a good management practice to maintain current information on all of your residents. Put in the original lease that information has to be updated yearly. Prudent landlords will update the resident’s file annually with current telephone numbers, employment informa tion, vehicle license plates, email and emergency contact persons and phone num bers. Current telephone numbers should include home, work and cell numbers. Rather than asking your residents to complete a new application, the better method is to prepare a resident information form requesting this information, and ask the resident to fill in the blanks. Of course, it is also a good practice to photocopy rent checks as they are tendered to you. Most residents will not object to providing this information to you and will gladly complete your form. This simple exercise will identify the cooperative residents and those residents who are not. Although California law does not require that the resident provide the requested information, it does not prohibit your asking.

Q: I just sent out my annual rent increases to all of my residents. Because times are tough, I delayed sending them out and I kept the increases minimal. Well, I just got home, checked my messages, and got an earful from one of my more “vocal” residents. She claims that I was retaliating against her, and that the rent increase notice was not valid. She says that she won’t pay it and that I violated the law by even giving it to her. Something about her deducting $6.50 from her rent three or four months ago for a leaky faucet. I remember that she shorted the rent, but I didn’t really mind because she took care of the dripping faucet herself. What does this mean? What is “retaliation?” Did I do something illegal by serving my annual rent increase notice?

A: No. Although there are protections in place for certain tenant conduct, your resident is confused. A landlord cannot punish a tenant for exercising a “legal right.” The law offers tenants certain pro tections from retaliatory evictions and retaliatory acts. California law will infer or “presume” that a landlord has a retaliatory motive if he seeks to evict the tenant or take other retaliatory action within six months after the tenant has exercised cer tain protected rights including: using the repair and deduct remedy; complaining about the condition of the unit to a public agency after giving the landlord notice; or after filing a lawsuit based upon the condition of the unit.

The tenant must prove that she exercised one of these rights in the past six months and that her rent is current. The landlord may counter or “rebut” the tenant’s claims of retaliatory conduct by establishing that he did not have a retaliatory motive. If the landlord’s actions were based on a valid reason and not in response to the tenant’s exercise of a protected right, then a court would find that the landlord did not retaliate. If your annual rent increase was consistent with past practices, didn’t solely target this individual tenant, was based upon objective business reasons, and was not meant to “punish” this resident, then your rent increase would most likely not be deemed retaliatory. It is a good practice/policy to serve rent increases regularly taking into consideration the market. For example, under-market residents should be served first.

Q: My rental agreement states that the resident cannot sublet the apartment or assign the lease. I’m not sure I know the difference, can you explain? And why is that provision even there?

A: Often times a tenant wants to move in a roommate during the term of the lease or may wish to replace a recently departed roommate. When a resident wants to remain in the unit and allow another to reside with him, he wishes to “sublet” a portion of the unit to a third party.

When the resident gets a job transfer and wishes to move out, but wants to transfer the tenancy rights to another, he wishes to “assign” the lease to another. It is important that landlords know who their residents are and that proper screening techniques are utilized to ensure only qualified persons reside in the unit. That is why rental agreements prohibit residents from subletting or assigning the tenancy without the landlord’s prior written consent.

This article is presented in a general nature to address typical landlord tenant legal issues. Specific inquiries regarding a particular situation should be addressed to your attorney. The Duringer Law Group, PLC, one of the largest and most experienced landlord tenant law firms, has successfully handled over 235,000 landlord tenant matters throughout California, and has collected over $140,000,000.00 in debt since 1988. The firm may be reached at 714.279.1100, toll free at 800.829.6994 or 877.387.4643. Please visit www.DuringerLaw.com for more information.

Commercial Leases

Print
PDF

Q: Most of my challenges come from my residential tenants. I have a question about handling a commercial property situation. I am about to enter into a ten-year term lease for an industrial unit in Southern California. The unit has been vacant for quite some time now and I don’t want to lose this deal. It seems like good tenants are few and far between lately. We’ve agreed on just about all of the deal points except a couple. At the last minute the tenant requested the lease be prepared with a subsidiary of his company rather than the parent company, saying it is for “tax reasons.” Additionally, he wants to make the use provision extremely broad rather than specific, allowing him to do just about anything in the premises without having to get my permission. He knows I need to lease the space, but I’m not sure I want to give in on these points. What are my options?

A: Negotiating commercial leases involves a bit of horse trading. Often, terms that are very important to your tenant may not be so important to you, and vice versa. Knowing the pros and cons of each deal point allows you to knowingly accept or reject certain risks when considering certain requests. Generally, parties meet somewhere in the middle of a request, allowing certain concessions, but protecting the interests of the Lessor. The tenant’s last-minute request to substitute a subsidiary in its stead is an attempt to shift the risk away from the financially stable parent company and obligate a less financially qualified entity, often times a mere shell with relatively few assets. Screen the proposed replacement tenant as you would any proposed tenant to determine if it meets your rental criteria. Is it an existing concern or a new entity recently formed solely for the purpose of signing this lease? Is it an independent business concern, generating its own revenue stream? Does it have assets of its own? Or is it merely a subsidiary of the parent with no independent means of sustainability. There are many options to offer that would allow the tenant to satisfy his “tax reason” while still protecting the Lessor’s interests.

You may allow the replacement tenant but require the parent company to guaranty the lease. The guaranty can range from an unconditional full-term guaranty to a limited guaranty based either on a certain period of time or a certain maximum exposure. An increased security deposit adds protection as well. Options such as an irrevocable declining letter of credit issued by a reputable financial institution allows parties to salvage deals that might otherwise fail.

“Use” provisions are important for a number of reasons. It is important that the tenant’s use does not overburden the facility or interfere with the neighbors. Certain unacceptable tenant uses may involve high levels of noise or the use of corrosive or carcinogenic materials or other toxic byproducts. As your facility is an industrial complex, parking is no doubt limited. It is important that the approved uses do not overburden the limited available parking. Rather than approving a very broad undefined use, it is better to identify the allowed use, but allow the tenant to request approval for a change of use in the event its operations change in the future.

This article is presented in a general nature to address typical landlord tenant legal issues. Specific inquiries regarding a particular situation should be addressed to your attorney. The Duringer Law Group, PLC, one of the largest and most experienced landlord tenant law firms, has successfully handled over 235,000 landlord tenant matters throughout California, and has collected over $140,000,000.00 in debt since 1988. The firm may be reached at 714.279.1100, toll free at 800.829.6994 or 877.387.4643. Please visit www.DuringerLaw.com for more information.

Contact AACSC

Apartment Association,

California Southern Cities
333 W. Broadway St., Suite 101
Long Beach, CA 90802
(562) 426-8341

This e-mail address is being protected from spambots. You need JavaScript enabled to view it