DON’T
SIGN
THIS LEASE
SECRETS: TO CASH FREE RENTS AND BONUSES FROM
LANDLORDS IN THIS REAL ESTATE CRISIS
By Jean-Louis Racine, Lawyer, Real Estate Broker
DON’T SIGN THIS LEASE
Racine
www.commercial-lease-expert.com
By Jean-Louis Racine, Lawyer, Real Estate Broker.
Copyright 2011 by Jean Louis Racine
All Rights reserved. No part of this book may be reproduced or transmitted in any form by any means, graphic, electronic or mechanical, including photocopying, recording, taping, podcasting or by any information storage or retrieval system— except in the case of brief quotations embodied in critical articles or reviews-- without permission in writing from Jean Louis Racine.
All brand names and product names used in this book are trade names of their respective holders.
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Edition ISBN: 978-0-9812902-0-1
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Cover photo Copyright 2011 Jean Louis Racine
First Printing
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PREFACE
Notes To The Reader
I am not a writer nor an author but I have worked as a commercial real estate lease negotiator for the last 33 years. I wrote this book in a style that reflects the way I talk to my clients. I could have hired a ghostwriter to write this book, but I did not. Many told me my way of expressing myself is too terse and candid! You will be the judge.
I wrote this book for your benefit without any intermediary between me and you, the reader. I wrote it in the style we use to write on blogs every day—simply, to let you know about the benefits and advantages you can enjoy in commercial real estate transactions.
I am a Commercial Lease Negotiator, accredited as a lawyer by the Quebec Bar, Québec, Canada, in 1978, and as a real estate broker in 1980. If you would like more information on my business and me go to www.commercial-lease-expert.com.
Thank you.
What Does This Book Assume?
I assume that you have two sharp pencils with you, because what you will learn might be worth at least $25,000.00 in savings for you. You will see for yourself. As you rea, a sense of wonder will awaken within you.
Let me know your savings.
I want to read about you, so send me your story : www.jeanlouisracine.blogspot.com
Enjoy and... count your gains.
Thank you for your patronage; you are more appreciated than you think.
Tell two of your friends.
100% Money Back Guarantee.
If my book, doesn't give you at least $1000.00 (more than 50 times what you paid for my book) worth of free rents, bonuses, or incentives from commercial landlords, when negotiating your lease, return it at any time (with explanations) up to a full year from the date you purchased my book. I'll promptly refund the money you paid, no questions asked
To my four children (whom I have raised alone)
"In every success story, you find someone who has made a courageous decision."
Peter F. Drucker
CONTENT
Chapter 1: Crisis Opens Opportunities
-The Greatest Fear of Landlords
-You Will Have To Go to Court!
-The Offer to Lease: Is It Binding?
-Where Are the Hidden Factors?
Chapter 2: Landlord Straight Ahead
-Commissions Paid by Landlords
-Benefits of Doing Business with a Tenant Representative
-How Much Is A Tenant Representative Worth to the Tenant?
-Why Do Some Landlords Jack Up the BOMA Measurements?
Chapter 3: How Many Buildings?
-"Net" or "Net Net" or "Net Net Net" or Gross?
-Are You Worth More Than a Hockey Player?
-Landlords in Competition for Your Business
-Pictures and Videos of Buildings
Chapter 4: Slow Down, You Move Too Fast
-Adjust and Refine Your Requirements
-Tenants Who Pay Their Construction Costs?
-Hidden Provisions That Work Against You
-What's the Difference? ... You Don't Listen!
-Will the Landlord Finance You?
-How To Increase Your Allowance
-Don't Finance Your Allowance for Leasehold Improvements
-You Don't Need Any More Trouble!
-With You, the Landlord Made $$$
Chapter 5: More Bonuses For You
-The Modified Offer to Lease: What Did They Forget?
-Complete Your Financial Spreadsheets
-How Much Free Rent Should You Ask For?
-How to Convert Free Basic Rent
-Construction of a New Building
-Separate Agreement for Free Rent
Chapter 6: Special Allowances For You
-Vacations, Cruises, and Car Allowances
-Industrial and Technological Parks
-Real Estate Brokers' Commissions
Chapter 7: Don't Sign This Offer To Lease
-Are You In Default on Your LC?
-Are You a Risk for the Landlord?
-Do You Want Your Guaranty Back?
-Who Should Hold Your Deposit in Trust?
-The Landlord's Architect Free of Charge
Chapter 8: Operating Costs = Free Lunch For Landlords
-How Can You Hire a Lease Auditor?
-Don't Leave Your Business in the Hands of the Landlord
Chapter 9: Lower Your Construction Costs
-Do You Know the Construction Business?
-Construction Letter to the Landlord
-Erase the Landlord and Contractor's Fees
-He Doesn't Care About You ¼ Until
-For Your Protection: Don't Sign Your Lease Alone!
"Each indecision brings its own delays and days are lost lamenting over lost days... What you can do or think you can do, begin it. For boldness has magic, power, and genius in it."
Johann Wolfgang von Goethe
Mark Twain wrote:
"A man’s intellect is stored powder; it cannot touch itself off; the fire must come from the outside.”
This book is the "fire" you need to reduce your rent!
Introduction
It's time to awaken
You are in a deep sleep. As I count backward from 10 to 1, you will awaken. That's the image you probably get when you think of hypnosis. And you're absolutely right. Hypnosis is about getting you so relaxed that your mind, especially your subconscious, is more receptive to commands.
For the last thirty-three years, I have seen many tenants sign unbelievable leases under the influence of landlords and leasing brokers! Tenants should sign a lease in the name of their business or in the name of their corporation, but I have seen many tenants sign "personal" leases for over three million dollars!
It seems that these tenants have been hypnotized.
Landlords and leasing brokers look them in the eyes, tell them their rent conditions, and tell them to sign a lease, and bingo: the tenant obeys and signs the lease. I have even seen tenants sign this most important contract of the year in an hour!
How could that be possible?
Do You Want a Rent Reduction?
As a tenant, you are not alone. There are over 19 million commercial tenants in America, and all landlords are on the defensive and are more than willing to negotiate their lease agreements.
It's taken me over thirty-three years to figure out all the techniques and strategies that you're about to learn. I spent twelve years of hard work as a lawyer for landlords and then twenty-one years for commercial tenants exclusively.
Halloween
Do you remember all the news circulating about sadists who put razor blades in apples and booby-trapped candies?
During all those years, I, for one, forbade my four children to eat any "Halloween apples." I carefully examined all candy bags and unwrapped and cut into pieces all the candies that my children had picked up. Did you check the apples your children brought back home?
Would you have eaten an "Halloween apple"?
Your Lease Might Be Like an Apple filled with Razor Blades.
Don't sign any Offer to Lease!
Don't sign any lease before reading my book!
Wouldn't you be excited by the prospect of reducing your rent?
This is a very practical book. It might be a textbook. You won't find legal explanations or an incomprehensible discussion of real estate commercial law.
You'll just find plain business strategies that have worked for me for over thirty-three years. This book is also meant to be used as a reference book and a workbook. Nothing's magical. I have improved my strategy for the last thirty-three years, and it has proven to protect the interests of my clients, commercial tenants.
These strategies will teach you how to checkmate landlords and leasing brokers, and how to collect more money from your commercial lease! The best way to use it is to follow me through all my examples. I will show you how you can easily obtain benefits in your negotiations with landlords and leasing brokers.
Many landlords and real estate brokers will say it is impossible to add all these gains that I will show you in my book. And they are right. I do not pretend you will be able to realize all the savings and benefits discussed in this book in your transactions with landlords and leasing brokers. But I believe that this book will enable you:
1) to know what to ask landlords and leasing brokers; and
2) to get concessions and unanticipated benefits.
Proven Strategies
I wrote this book as a textbook for my daughter, who began to work for me two years ago. I wanted her to understand all the processes and strategies, step-by-step, that lead to lower rent and higher allowances for my commercial tenant clients.
As I am more of a negotiator than a writer, I wrote small paragraphs with many examples and stories so as to help her understand as best I could. All the explanations are kept simple to make them understandable and ensure that my recommendations lead to excellent results for my clients.
As you read this book, we will follow the same strategies as though we were negotiating your commercial lease. My road map will unfold before your eyes as we negotiate each element. Should you be asking for money as part of the deal? You might be surprised!!!
Keep your eyes wide open!
For easier understanding of each independent step in this strategy, I have included many spreadsheets as examples. Throughout this book you will be adding "Gains in Your Account," or money you have negotiated from landlords and leasing brokers for your exclusive benefit. I have added many examples of what you should ask for in order to transfer money from the landlords' and leasing brokers' pockets to your own.
As you progress, your spreadsheet "Gains in Your Account" will progress with you, and your "Gains in Your Account" will increase. It will be fun! Feel the excitement!
Imagine . . . Your Gains
Some people might read this book and say "I know this stuff" or "this stuff ain't working." I suggest that you try it my way first, relying on my thirty-three years of experience. Don't assume that if this "stuff" didn't work last time, it's not good! Keep on trying. Keep on asking!
In some circumstances, some strategic elements will be successful and some won't work. But my final results were always in favor of my clients because I knew what to ask. Persistence and asking for what you want are the keys to your success.
"The future belongs to those who see possibilities before they become obvious."
Theodore Levitt, author.
Visualize Your Gains As Already Yours
Close your eyes and visualize each one of your demands as already being yours! Visualize already having a total gain of $25,000.00 or (write your number) $....................... in your spreadsheet, "Gains in Your Account." Imagine improving your financial gains. Imagine diminishing your rent by 20%.
You are more powerful than you think! My goal is to help you understand the exponential power of your lease and, thus, gain immense appreciation of your "checkbook" from the landlord. Because this is what you are: a checkbook for the landlord. Before you become a checkbook, make sure this landlord opens "his checkbook" to transfer many thousands of dollars to you.
Story
I have included real stories that have happened to real commercial tenants like you. These stories are from my clients and other tenants I have known. They are true-life stories and are examples of successes and failures of tenants. As you read these stories, you will gain a practical knowledge ofmany leasing situations.
You might also be astounded at the "gifts" some landlords and leasing brokers agree to give, such as free rent or other allowances, in order to have the opportunity to sign a commercial lease with a small commercial tenant. Imagine what they could offer for your lease!
If you like stories or you wish to have an overview of other tenants' experiences, you might first read all those stories, one after the other, and come back later to read a different subject.
Do my strategies work?
Successfully.
Keep your eyes wide open . . . your proof will be in the pudding. Try them all and see. I can explain all the successes but nothing will be quite as convincing to you as seeing your own financial results!
Pull up a chair. Get comfortable. Relax. Let's talk about increasing your "Gains in Your Account" and achieving the success you want. How much of a rent rebate do you want to accomplish from studying my strategy? When was the last time you felt fantastic?
Landlords and Leasing Brokers
Throughout this book, I use the words "landlords and leasing brokers" to always remind you with whom you are dealing: landlords, and leasing brokers working for landlords. They are not on your side. Never forget that. Keep in mind that the financial goals and objectives of these two professional negotiators are for the benefit of the building owners exclusively, not for your benefit.
Tenant Representative, Commercial Realtor, and Real Estate Broker
Throughout this book, I use these words to show the importance of these professional negotiators who act for the exclusive benefit of the tenants. They act for your benefit. They can be extremely valuable to you.
Warning: Your heartbeat will increase!
One of the secrets of this book is to ASK. During all those years, many tenants told me that they didn't have the slightest idea that they could ask for so many benefits! They didn't know what to ask! By negotiating using the professional strategy that I used for the last thirty-three years, your «Gains in Your Account» will be higher than you ever thought possible.
An Online Feature
To receive my newsletter, just subscribe to my website at www.commercial-lease-expert.com
Don't worry: you won't be overwhelmed. I post only once a month. And sometimes, I take a break and don't post a single note.
100% Money Back Guarantee.
If my book, doesn't give you at least $500.00 (more than 10
times what you paid for my book) worth of free rent, bonuses, or incentives, from commercial landlords when negotiating your lease, return it at any time, up to a full year from the date you purchased it.
I'll promptly refund the money you paid, no questions asked.
Soon, I will add a collection of videos and podcasts to my website. www.commercial-lease-expert.com
If you don't have the time needed to read my book:
1) first, read all those stories;
2) then listen to my audiobook while driving or in traffic commuting;
3) listen to my podcasts
4) look at my videos;
What Does This Book Assume?
I assume that you have two sharp pencils with you, because what you will learn might be worth at least $25,000.00 in savings for you. You will see for yourself. As you read, a sense of wonder will awaken within you.
Let me know your savings: jeanlouisracine@gmail.com
I want to read about you, so send me your story: www.commercial-lease-expert.com/stories-blog
Let me know what you think about this book by emailing me: jeanlouisracine@gmail.com
Enjoy and . . . count your gains.
Thank you for your patronage; you are more appreciated than you think.
"You can achieve anything you want in life, if you have the courage to dream it, the intelligence to make a realistic plan, and the will to see that plan through to the end."
Sidney A. Friedman
N.B. Disclaimer: Legal Notice.
In every state, province, and country, laws are always changing. This book does NOT take into account all the laws of every state, province, and country. The publisher, vendor, and author of this book make no representation regarding the outcome of the use of the book. You should not rely on the publisher, vendor, or the author of this book for any advice. Please consult your tenant representative.
To protect the privacy of my clients, names, places, and dates have been changed.
"Studies show telecommuting, for instance, can help businesses cut real estate costs 20% and payroll 10%,"
Laura Fitzpatrick
"We're Getting Off the Ladder,"
Time Magazine
Chapter 1: Crisis Opens Opportunities
During an economic downturn, small and medium businesses work really hard at staying afloat. Given that rent is their second largest expense, it's shocking to see how many commercial tenants fail to see how that can be reduced.
How can this be?
Although a lease tends to favor the landlord, commercial leases are negotiable, and a tenant can always ask for a rent reduction. As much as a tenant wants the property, the landlord needs the tenant, so the power can tilt in favor of the tenant.
This book illustrates how to gain all of the advantages and benefits that commercial leases can offer. Did you know that if your lease is already signed, you can still negotiate a rent reduction of 15%?
Did you know that your landlord's competitors may be interested in buying your lease?
There is an old joke among economists: "A recession is when a neighbor loses his job. A depression is when you lose your job." Some of your neighbors have lost their jobs, and what will happen to you if you don't negotiate a lower rent? The things that can keep you awake are:
1) your income will be lower;
2) your business will have to adapt to new opportunities; or...
3) you could be left bankrupt at the side of the road.
You don't want to be part of the unemployment statistics! You want to join the band of successful businesses, and you want to survive! This book is all about asking for what you want. It demonstrates:
1) What questions you should you be asking;
2) How you should respond to landlords.
Always remember, as in all negotiations, you will win some and lose some. But at least, with this book, you will cast your line so as to bring many fish (gains) into the boat!
Story
Once I was negotiating with the leasing broker of an important landlord. On the wall behind his desk was a sheet of paper with rates written on it in small print. There were two rates:
1) basic rates applicable to tenant representatives; and
2) basic rates applicable for tenants who negotiate their leases without a tenant representative.
Can you guess for whom the basic rents were higher?
Rates applicable to tenant representatives were lower by $1.50 per square foot. You may ask why rates applicable to tenant representatives are lower if landlords have to pay a brokerage commission to your tenant representative.
Answer: Because the tenant representative knows the market and all the rental rates of your specific city, while tenants typically are not aware of these factors. As a tenant, one specializes in his or her business, which is not commercial rental markets. So landlords and leasing brokers assume that you, as a tenant, do not know this secret.
Next time you negotiate your basic rent, subtract $1.50 per square foot by asking for the landlord's basic rent and see what happens!
Because a tenant doesn't know what to ask the landlords and leasing brokers, the tenant will sign a lease and the landlords and leasing brokers will collect more dollars. The surplus, the leasing broker's commission, will be higher because rental rates are higher without a tenant representative.
Who are the actors?
Small and medium businesses and commercial tenants of all kinds are running their day-to-day businesses, sometimes working around the clock to make ends meet. They want to reach their business goals. Since the beginning of our economic crisis, they have witnessed a dramatic decrease in their income. They do not have the time to read fancy books or learn all the technicalities of negotiation.
I am not an economist, and I don't even know all the differences between these depressing words: economic downturn, recession, depression, economic crisis . . . Like most of you, I am a small businessman and an outsider to most economic news I read on the Internet and in newspapers or hear on TV. I am not part of any big decision-making process, and, like you, I am affected by national economic problems.
Like the rest of the 19 million tenants and millions of professionals, when economic times are bad, you suffer. Like all of us, you lose money when a crisis hit. Do you want to survive?
Do You Need a Guide?
For the last twenty-one years, I have been representing tenants only. During all those years, I have developed a road map for my clients because my job is to negotiate the best equation of
a) the lowest possible rent; and
b) the highest amount of allowances for my client.
Have you ever wondered why no other book ever revealed that strategy?
In my book, I will reveal to you ALL my tips. I have set up a roadmap, to show you, step-by-step, all the processes for the maximum rent rebate. Each step has the objective of transferring money from the landlords and leasing brokers to you, the commercial tenant. As we go along, I have included many spreadsheets to show you "how to add gains" from landlords and leasing brokers to your benefit. You will add your numbers throughout these processes.
Seriously, can you do it alone?
You have the power to sign a commercial lease. You have no idea how signing a commercial lease with you is of upmost importance for a landlord and his leasing broker! Do you know that, without your lease, a landlord might forfeit his building to the banks?
Do you know that a landlord might gain $1,000,000.00 with your lease?
Look around you. How many office, industrial, and retail buildings are standing? What if you hold the destiny of one landlord in your hand!
How much are you worth?
About Your Power!
Negotiating your lease is more about understanding people and their needs. Negotiating your lease is also about organizing your future gains before meeting your landlord, knowing the arguments of the landlord in advance, and understanding the hidden needs and goals of landlords and leasing brokers. But tenants toss aside their lease to return as fast as possible to "business as usual" because they don't know their hidden power. They don't know what to ask.
Often, the jokes at landlords' and leasing brokers' Christmas parties are about their "best tenant," the one who signed the fastest or the one who let thousand of dollars drop into the landlord's pocket! Landlords all around your city are flexing their financial muscle and working against your interests. But this philosophy may belong to the past.
Landlords and their leasing brokers are very intelligent and astute business people. They have been defining their commercial leases and their business for over a century. The landlords' business is to manage their buildings as profitably as possible. They are very good at extrapolating the maximum return from your lease. They are excellent at increasing the value of their building so they can refinance their building and pocket a huge amount of money with your lease.
How do you compete with this immense knowledge?
Are you thinking about starting your own business? Were you laid off from your job? Have you been through some personal life-changing event and are ready to take off in a new direction? But because the economy took a nosedive for the worse, you are afraid or reluctant to jump on the bandwagon. Maybe this is an excellent time to grab new opportunities! Maybe this is the time to be a contrarian!
For any or all of these reasons, isn't NOW the time to turn your dream into reality? Good and great businesses are made by folks like you. More individuals than ever before will make a living by operating their own businesses. In fact, I doubt that any economic crisis is noble. But one thing I know for sure: people are noble. You deserve it.
The Tenant's Inertia
The costs associated with your next lease may be astronomically high when you add them all together. In this book, I will take, as an example, a tenant leasing 5,000 square feet of rentable area for a term of ten years. You can substitute your rentable area and calculate the numbers for yourself. Total rent for our ten year lease may stretch to $1,500,000.00. Lost gains may stretch to $350,000.00 !
How could these numbers be so high?
Your commercial real estate lease is an important means to economic power and you must make all the odds work in your favor. This negotiation process is all about knowledge of the power of your potential gains. You've got immense power in your hands, but you don't know it yet.
Where Are the Traps?
Mainly, lease traps are usually hidden :
1) within your silence and ignorance; or
2) within your commercial lease.
Commercial leases are very different from residential leases. And commercial tenants don't have the same protection that residential tenants do.
A commercial lease is a contract that, when signed, will be subject to the laws regulating the relationship between and the obligations of the tenant and the landlord. I have heard tenants tell me that they have signed their contracts as quickly as possible. They seem to view the lease as "traps" and they run away from it as soon as they can. How can you avoid traps in your lease? Which traps should you try to avoid?
Yes But . . . Can You Do It Alone?
Venture Capital and Startups
Young entrepreneurs very often don't pay due attention to their commercial leases. They are so focused on their core business that they overlook the second highest expense incurred by their company. They tend to overlook the fact that they may have an excellent business partner in the landlord because they are so entangled in their business that they disregard 80% of the negotiations.
Not knowing that they can negotiate terms and conditions of their commercial lease, they usually accept all the conditions proposed by "older and impressive landlords and leasing brokers." Such landlords and leasing brokers have been in the business for a long time, and they inspire confidence. Let's admit it: they are very professional and intimidating.
The perception of these younger entrepreneurs is that landlords and leasing brokers know almost everything, and their mannerisms reflect their confident attitude, so their advice is taken.
Can investors and venture capitalists offer less investment when a high rent lease has already been negotiated? If you have investors backing you, landlords and leasing brokers will appreciate your commitment. Landlords will view you as a serious and professional tenant! The gains from landlords and leasing brokers can accumulate for your benefit. Look for all the answers throughout your reading of this book. Take your time and read carefully.
Some financial gems are hiding under the sand!
The Greatest Fear of Landlords
Do you know that all landlords around this country need tenants to finance their buildings? You may be a small tenant, but landlords and leasing brokers need you. Sometimes, they are desperate for you to sign their lease! These landlords must also meet their obligations to their bankers!
Whether they are renting space in office buildings, shopping centers, industrial buildings, or strip malls, all these landlords need your lease and your rent to survive. This is the essence of the commercial real estate building business. And you still have the control of your signature at the bottom of your monthly rent check.
The greatest fear of the landlord is that one of his competitors will sign a lease with you!
It's no secret that one of the ways of making money in the commercial building business it to fill the building up with tenants who pay as high a rent as possible, then to sell the building for a higher price and collect millions of dollars.
Your landlord's business is to collect thousands of dollars with your lease. He might be very grateful if you negotiate only a small portion, say, 19% of his "hidden agenda." Your lease might increase his building valuation by many thousands of dollars!
For Your Protection Only
Are you a corporation or an individual? Who is the legal owner of your business? What is the name of your business? You are intimately associated with your business, but your business is not "you." If you don't yet have a corporation for your business, seek the help of a lawyer and incorporate it. There are definite benefits to it. Go see your lawyer immediately.
"I will study and get ready and some day my chance will come."
Abraham Lincoln
Let me state that the main advantage of your business being incorporated is that your business is like another person. Not you. Another person. This new person, a corporation we'll call "Newco," will be responsible for all obligations and responsibilities incurred in the course of your business.
Example
Newco signed a lease for your restaurant. You did not sign this lease personally. If someone falls on the floor of your restaurant, Newco will be sued. Not you.
When Newco signs a commercial lease to operate your business and an economic crisis occurs, then Newco will bear all the responsibilities and financial obligations of this unexpected situation.
In my website, you can check how easy it is be to negotiate a rent reduction if Newco signed the lease. www.commercial-lease-expert.com/rentreduction
In contrast, if you "personally" have signed the lease, it will be nearly impossible to negotiate any rent reductions!
You might argue that the landlord will ask you to co-sign your commercial lease because you have no track record or you didn't prove the success of your commercial operation yet. The purpose of Newco is to limit your "personal responsibilities." In some cases, this might save you from losing your home, thereby keeping your head on straight in front of your children and wife and family!
Story
The director of a bank's main branch had negotiated the commercial lease on his own and presented it to the leasing committee of his bank.
This director was a very energetic and competent banker and was seen as a star in this big bank. After getting his approval from the bank, he was so excited that he rushed to sign this lease. He signed it "personally" instead of in the name of the bank. The lease was for a ten-year period at an annual rent of $225,000.00.
Three years later, he was promoted to vice-president and moved on to the regional head office of this bank.
Four years later, this bank was shaken by the financial crisis and underwent reorganization; his branch had to be closed.
The lawyers of the bank decided not to pay the rent because the bank had not legally signed this lease. Instead, the bank instructed their lawyer to negotiate a small lump sum to be paid to the landlord to settle and terminate this lease.
The landlord's lawyer opposed it and insisted that the remaining lease amount should be paid. The landlord went to court and won an injunction that forced this bank to keep the branch open for the rest of the term of the lease. The landlord's lawyer sued the signer of the lease, our vice-president, for over one million dollars, and seized his home and vacation cottage for unpaid rent. This case was settled three years later and the bank paid the landlord a lump sum to terminate the lease. The vice-president was fired.
During this three-year period, this vice-president went through a personal hell.
Never sign your lease personally.
In our case, I assume that you have a corporation running your business. You may be the President or Secretary or Vice-President, of the corporation, and this corporation will be "another person," not you!
Newco is alive. It's your new corporation. But Newco cannot speak and can only express itself through writing.
Abracadabra! You are a medium for Newco! Newco can undertake two sorts of decisions:
1) day-to-day decisions in the course of business; and
2) important decisions that require an important commitment and are usually not taken in the course of your day-to-day operations.
Example
Each week, when you do your grocery shopping, you don't visit five grocery stores and take notes about foods and prices and buildings and the people working in each grocery. No. You go buy your groceries and bring them home.
You may go to the grocery every day. This decision is taken in the normal course of your life. Even if you forget to buy some lettuce, you can go back later. To make this decision, you are not obliged to consult your husband or wife.
On the other hand, when you wish to buy a house, you will visit many houses, consult people, check details, write an offer, apply to obtain a mortgage, hire an investigator to check the house of your dreams, and sign the contract to buy the house.
You don't buy a house every week or every month. The decision to buy a house is an important and isolated decision.
Newco acts the same way. You don't need a written resolution to buy three pencils for Newco, but you ABSOLUTELY need a written resolution from Newco to sign a lease. You must write this resolution. I will show you later how to write this resolution.
Don't Leave Home Without It!
You are acting as an officer for your company. In some countries, the company law states clearly that signing a lease is a decision that must be approved by the board of directors. In your case, the board of directors might be only you. But you are not Newco.
You must sign as an officer, (a president or vice-president, or secretary) of your company, duly authorized by a written resolution from your company. You will attach this written resolution of Newco to your lease as Schedule A.
This written resolution of Newco will authorize:
1) the acceptance of the lease; and
2) the ability of the president, or any other officer of Newco, to sign the lease.
If the resolution were to be missing from the lease, implying that your company did not authorize you to sign the lease in its name, you could be held personally responsible.
Example
CERTIFIED COPY OF
RESOLUTION OF THE DIRECTORS OF
NEWCO LTD
(the "Corporation")
Lease with landlord corp.
RESOLVED THAT [Your Name] is hereby authorized and directed for and on behalf of and in the name of the Corporation to:
A) negotiate, accept, and acknowledge a lease for not more than fifteen years with not less than five years termination options for a property in Los Angeles known as the ABC Building lease (the "Lease Agreement");
B) execute the Lease Agreement and all other agreements in connection therewith on behalf of the Corporation and to affix the corporate seal of the Corporation thereto, if required;
C) agree on behalf of the Corporation to such amendments thereto as he in his sole discretion deems appropriate and the approval of the Corporation to any such amendments shall be conclusively evidenced by his signature thereto;
D) do on behalf of the Corporation any and all acts and execute such other documents and instruments as may be necessary and desirable to carry out and give effect to the intent of the Lease Agreement.
The undersigned officer of the Corporation hereby certifies that the above is a true and correct copy of resolutions duly passed by the directors of the Corporation effective January 22, 2009, and that such resolutions are in full force and effect amended.
Dated: January 22, 2009
----------------------------------------------
Signature of the Secretary
If you don't have a written resolution, go back home. Don't leave home without your written resolution from Newco. You can find this resolution on my website : www.commercial-lease-expert.com
Story
I once represented a law firm of seven partners. Four partners were in their sixties and seventies. Three partners were leaving this law firm. All of these partners had personally signed their business lease. The four remaining partners asked me to negotiate a new lease with their landlord because they now required less space.
I met them in their austere conference room and told them that I had a client who was about to sign a new lease and what would their suggestions be to protect my client? Their first suggestion was that my client should incorporate his business so as to limit his personal liability!
I asked them why they did not protect themselves while signing their commercial lease! They told me that they were in a hurry to just sign the lease to get back to their business as quickly as possible.
These lawyers had signed a $2 million lease in a hurry to get rid of it so as to get back to their daily routine and charge their hourly fees to their clients!
If knowledgeable lawyers can forget, can you be expected to remember?
No excuses. Now you know.
Don't sign this lease.
What about the first page of your lease? Again, the name and address of Newco should be written clearly. From now on, all written communications with landlords and leasing brokers (such as emails, faxes, letters, and all documents) should include the name of your corporation and your name and your official title. Following this advice will ensure that the landlords are aware that they are doing business with a corporation and not an individual.
Otherwise, you may be one of those tenants who drags around a ball and a chain.
You Will Have To Go To Court!
A commercial lease is a binding contract between two parties: the landlord and the tenant. This contract can be verbal or written. A verbal contract is usually left to the good faith of each party as to the interpretation of what both parties have agreed to.
Remember this adage : "Everything that is not written has not been said!"
In a verbal lease, a disagreement will have to be settled in court and a judgment can take many years. It is expensive to have a lawyer represent you, and usually, the landlord is financially stronger than you are during this process. For these reasons, I don't recommend a verbal commercial lease. I consider it to be non-existent because it does not protect the tenant. Of course, many dignified jurists will argue that a verbal contract is a contract, and I understand their legal viewpoint, but I don't endorse it. As Sam Goldwyn said, "A verbal contract is not worth the paper it's written on."
Take the time to read the Table of Contents of the commercial lease on my website www.commercial-lease-expert.com. I want you to understand why it is humanly impossible to have a verbal agreement on all these clauses without some misunderstanding.
Do you understand why it is better to have it in writing?
And even if you agree verbally on all these aspects of your commercial lease, property managers and leasing directors can be transferred, fired, or promoted, and they may be absent when a litigious question arises.
Would you want to waste your hard-earned dollars on lawyers just to save on time spent in having a written lease in the first place?
Eighty percent of commercial tenants are uncomfortable with their commercial leases. Reading a commercial lease is comparable to watching a dog sleep. Unexciting! The language of a commercial lease is foreign language to most tenants. Every landlord writes his lease so as to put many financial obligations on the tenant's shoulders, freeing himself of any default.
All landlords will say their lease is non-negotiable. This is a remnant of traditional leasing laws of the 18th and 19th centuries. Traditions are hard to break. Don't believe those landlords.
Usually, landlords sign leases every week, and they don't want to read a new lease every week. Like all of us, they are lazy and choose the shortest and best route. So they will suggest a standard lease, which is usually written in their favor.
Don't sign this lease.
The Offer to Lease: Is It Binding?
The Offer to Lease is another contract binding the landlord and the tenant. It is an agreement that can run anywhere from two to 30 pages covering the basic terms and obligations of your commercial lease. Many will say that the Offer to Lease is a matter of convenience for the parties. Why should you spend your time reading and annotating a commercial lease agreement of ninety pages if you don't agree to the basic points?
Most of the time, the Offer to Lease is an incomplete contract that favors of the landlord.
Example
When I work with an Offer to Lease, I will always add a clause stating: "All clauses of the commercial lease of the landlord will be negotiated by both parties, and if one of the parties does not agree with the final lease, then he or she can get out of the Offer to Lease without any penalty."
The power of this clause is to oblige the landlord to make concessions on the obligations of the tenant included in his lease but not discussed in the Offer to Lease. All the negotiating elements discussed in this book should be discussed and negotiated before an Offer to Lease is signed by you.
Story
I represented a medium-sized accounting firm of five young partners. They had bought the business from four older partners of the firm.
All of them had personally signed an Offer to Lease to move their office to the tenth floor of a newly erected building. They assumed that the Offer to Lease was not binding between the parties. Were they right?
Their understanding was that they might change their collective mind any time before the signing of the commercial lease. They assumed that signing an Offer to Lease was not binding. They were wrong.
They asked me to negotiate the final lease.
Can you understand the difficulty I had in negotiating the release of their personal responsibility and replacing it with a management corporation?
But reputable and highly responsible tenants are gold for a landlord. I succeeded on the basis of their incredible reputation of excellence and the fact that their firm was one of the older accounting firms in the city. The firm had never missed a rent payment in 72 years!
You understand that a retail space will not have the same location as an office or industrial premises. For a retail location, you will want to consider many factors that are different from an office's location. You will consider factors such as proper storefront, availability of parking, a good mix of tenants, exposure to other tenants, exposure of this building to other buildings, local competition, building image, availability of toilets, security, etc.
You can check all of these factors with a tenant representative specializing in retail leasing. They typically have a list of these factors available for you to consult for your specific business. For example, a retail sporting goods store would have to be readily accessible and with ample parking spaces, while a retail store selling products required by an elderly customer base will be able to do good business in a less accessible location because their customers hear of such business through advertising and referrals. Many of the elderly in the US are handicapped and need parking spaces reserved for the handicapped. They have special permits to use these spaces.
On the other hand, office tenants might want to be situated in the financial districts where the action is taking place. Their corporate image may be important, and they might need to display their logo on the building or on the office building. Some tenants will want to retain a low public profile. Other tenants will want luxurious premises. For some office and industrial tenants, location is less important.
Does the landlord care about those pertinent details for your success? Not at all. It is your responsibility to enquire about these details.
Story
I represented a Canadian bank. These banks are not like American banks; they are more traditional and must maintain huge financial reserves.
A landlord knows that Canadian banks don't fail. But these behemoths take time to sign a lease. It may take many months to go through all this process with such a prestigious client.
In the course of my negotiations with one leasing broker, his landlord signed a lease with another tenant and rented the last signage space on the office tower. No signage was available on the building for my Canadian bank.
This was a major deal breaker. The bank told me that they absolutely needed signage on the building. No signage meant no lease.
Finally, the landlord bought out another tenant's signage to secure a place on the podium because he would have lost out on a seventeen-year lease with this excellent tenant.
Where Are the Hidden Factors?
Many people will say that no two businesses are the same. You are unique. Unfortunately, you are not so unique. Many other businesses are the same as yours. Other businessmen have taken the same road you are taking. Some have made mistakes that you can benefit greatly from knowing! Don't take the word of landlords or their brokers.
All commercial leases are always written in favor of the landlord. They are intelligent and professional. Behave in the same way. Be professional. Double-check everything yourself.
Example
Imagine you are walking on the beach and you know that there is a check of $100,000.00 under one of the many shells and rocks.
Will you walk slowly and check every shell and rock on this beach?