The improving economy offers a tremendous amount of opportunities for commercial landlords. With low interest rates and more business looking for space, commercial landlords are beginning to take advantage of acquiring new properties, refinancing, developing sites and marketing their properties. However, with this opportunity also comes the need to address issues with sound and competent legal counsel. Although the list of items to address with counsel can be considered endless, following are a few that you may want to raise with your legal counsel.
Estoppel Certificates. Have all estoppel certificates been complied with and up to date? As everyone knows, an estoppel certificate provides third parties information on the relationship between the landlord and tenant. Third parties may be a prospective purchaser of the property, a lender or some other party. The estoppel certificate is used by the third party in its "due diligence" for the property. It is important to know if your estoppel certificates are up to date. For instance, when was the last time you checked to see if the tenant’s lease is has been assigned, modified, or amended? Further, have all landlord contributions on account of the tenant’s improvements have been received? Also, have you ensured that there are no claims, defenses or offsets which the tenant has against the landlord?
Insurance. When was the last time you reviewed your insurance policy? It is always best to check your policy periodically and review with your counsel to ensure that you have the appropriate coverage. For instance, does your policy cover both flooding and wind damage in the event of a storm? A few years ago, Hurricane Irene wrecked havoc in the state. Some landlords were only able to recoup because of the correct coverage, whereas other landlords were left without coverage.
Renewals. Does the lease have a renewal option? If so, what needs to be done by the landlord? Often commercial lease will provide renewal periods with specific instructions on how to exercise those rights. As the market continues to improve, it may be more advantageous for landlords to allow the lease to terminate to ascertain market based rents. If a tenant attempts to renew or extend an option after the time has passed, it is important that the landlord address the issue immediately. Failure to do so could be deemed a waiver or novation of rights – meaning the tenant may get to stay even though they did not exercise their rights in time.
Non-Monetary Defaults. Has the tenant committed any non-monetary defaults? If so, have those defaults been remedied? Tenants regularly incur a non-monetary default, such as failing to provide landlord with certain documents, using space that they are now allowed or some other issue. Often, these defaults are cured and correct once noticed. But if the defaults persist, the landlord may want to enforce its contractual rights by bringing suit to declare a default and have the tenant either correct or have the lease terminated. Usually, these non-monetary defaults will require a longer notice period and must be a bit more detailed to be successful. If an issue like this arises, it is advisable to consult your legal counsel immediately to ensure you have the right strategy to address the issue in place.
These are just a few legal issues for commercial landlords to think about in this improving market. However, no matter what the commercial real estate issue, Stark & Stark’s Commercial Real Estate Group can help.
For more information on issues to address in this improving real estate market, please contact Thomas Onder, Shareholder at Stark & Stark (609) 219-7458 or tsonder@Stark-Stark.com. Mr. Onder writes regularly on commercial real estate issues and is a member of ICSC.