Articles Posted in Commercial Leasing

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We often have inquiries from clients considering the purchase of a business.  An experienced attorney should be consulted when commencing this process.  Initially, the seller’s attorney will deliver the contract to the buyer’s attorney for negotiation.  Should the business being sold be a franchise, the final contract should be conditioned on approval of the franchisor to the buyer conducting business under the franchise name.

After consulting an accountant to confirm that the business to be purchased is financially viable for the buyer’s future income needs, the financial terms of the deal are to be structured.  There may be a broker who has negotiated the initial terms, which may be modified during the contract negotiation process.  Usually the payments required of the buyer are the delivery of the downpayment to the seller’s attorney to be held in escrow until closing and another payment at closing.  The payment at closing may be the last payment to be made or the buyer may sign a promissory note for subsequent payments to be made after the purchase.

Particular protections need to be in place on behalf of the buyer.  A lien search should be obtained prior to closing, so that the seller obtains lien releases for equipment and tax matters that may have an effect on the buyer.  For example, if a freezer is to be conveyed and the seller has a business loan on such equipment, a UCC Financing Statement is likely to be filed evidencing the loan.  If the loan is not paid at the closing and the UCC remains, the buyer is acquiring the freezer subject to the seller’s loan and will not own it outright.

apartment-300x150Prior blog posts have discussed the difference between the two types of landlord-tenant eviction proceedings.  To summarize, non-payment proceedings occur when a tenant fails to pay rent or other charges due to the landlord.  Holdover proceedings, which will be discussed in this post, happen when a tenant’s lease term has expired, or, in certain situations, when a tenant does not have a written lease.

First, let’s discuss situations when a tenant’s lease term has expired.  Most, if not all, written leases, contain a specific lease term.  It may be expressed in terms of a set period, such as one year, and can also give the specific date that the lease will expire.  What happens when the lease term expires, but the tenant remains in possession?  Under New York law, the tenant now becomes a month-to-month tenant.  This means that the lease terms remain in effect, but the lease has been extended for an additional monthly period, assuming that the tenant continues to pay the rent due, and continues to comply with the other lease terms.

By accepting the rent for an additional month, the landlord is agreeing to an extension of the lease for that additional month.  Let’s say the lease expires on March 31.  On April 1, the tenant pays an additional month’s rent check to his landlord, and the landlord accepts the rent, by depositing the check.  Under the law, the parties now have a month-to-month tenancy, which either party can terminate on thirty day’s notice.

fancyacuppa-300x158The New York Times recently published an article concerning the beloved business Tea & Sympathy, a British-themed store and restaurant located in Manhattan’s Greenwich Village, and the difficulty that it has encountered meeting its lease obligations.  Closure of this business may occur  unless the landlord is willing to amend the lease terms.  Loyal customers of Tea & Sympathy have rallied in support of the business by contributing to a “Go Fund Me” page to assist the business in meeting its expenses.  This post will examine legal strategies to be employed when a tenant foresees difficulty in meeting its lease obligations.

Some of our clients with commercial leases have contacted us when they have encountered difficulty in meeting their lease obligations.  The cause of such inability can arise from various factors.  Perhaps the tenant did not engage the services of an experienced attorney when the lease was negotiated and inadvertently agreed to terms that were not advisable for a tenant.  Unanticipated factors may have come into play that increased tenant obligations beyond those that may be comfortable,  such as increased fees and real estate tax escalations of the municipality where the leased premises is located, or a major capital improvement conducted by the landlord for which the tenant agreed to pay a percentage of the cost.  Although the tenant agreed to the rent increases when the lease was signed, the tenant may have eventually become unable to sustain the rent increases once other business expenses also increased.  The business climate may have changed since the lease was signed.  For instance, the product or service offered by the tenant may also no longer be desired or is now being offered online at a lower price.  Given that most commercial leases are long-term arrangements, many of these factors can cause a tenant to be unable to meet its lease obligations.

Your attorney should first determine whether the tenant wishes to continue to conduct business at the leased premises.  If not, a lease surrender should be negotiated prior to “going dark”.  Should the tenant wish to continue at the premises and even be fortunate enough to have sympathetic customers (like those of Tea & Sympathy) who would be disappointed if the business closes, attorneys for the tenant should conduct a negotiation with the landlord towards the goal of modifying the lease so that the current terms are consistent with the tenant’s current abilities and the landlord’s current needs to cover property expenses.  Negotiation of a lease modification avoids yet another vacancy for the landlord and maintains the landlord’s cash flow.

super-bowl-betting-300x180Scheduled for this Sunday is the Super Bowl between the New England Patriots and the Los Angeles Rams for the championship of the NFL.  Recent news stories in the New York metropolitan area involve the possibility of making legal sports bets on the “big game” at casinos or racetracks located in New Jersey.  The reason for this development is a recent decision by the United States Supreme Court which invalidated a federal law prohibiting individual states from making sports betting legal, with limited exceptions.

The Supreme Court, by a seven to two vote, held that it was a violation of the Constitution to prohibit states from making their own decision regarding the legalization of sports betting.  The result is that every one of the fifty states can now legalize sports betting (or decide not to legalize sports betting), and may determine where, when, and how such bets will be made within their state.  The details of such legalization are left up to each state, including whether to allow online betting.

New Jersey, which brought the case before the Supreme Court, has already passed legislation permitting sports betting in racetracks and casinos, such as the Meadowlands Racetrack located just a few miles from New York City.  New York State has lagged behind, and has not yet legalized sports betting or decided on a structure for such potential legalization.  For the time being, New York State residents who wish to bet against the Patriots in the Super Bowl must travel to New Jersey, or to another state such as Nevada, which has authorized legal sports betting.

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Our readers who follow the news are aware that the Federal government has been partially shut down for several weeks.  President Trump has taken the position that he will not agree to re-open the government unless a wall is erected along our southern border.  The Democratic leadership has responded that it will absolutely not agree that a wall is to be installed.  It is not the goal of this author to side with either of these positions.  Rather, we find it striking that neither side is negotiating effectively.  By stating an absolute, such as there must or must not be a wall, both sides are preventing a satisfactory resolution; which requires agreeing to terms that inherently will be neither of these positions.  Presenting an “all or nothing approach” is not how matters are successfully concluded.  This post will address one of the tools that experienced attorneys have at their disposal- strong negotiating skills.  We will explore how these skills are utilized in various legal matters.

Negotiation strategies can take the following course in real estate transactions.  We recommend that parties to a proposed deal let their attorneys “do the talking” and thereby prevent themselves from showing emotion or desperation to sign the contract.  Otherwise, such a party is vulnerable to agreeing to issues in the contract that may not be beneficial and result in regret.  For instance, a seller who needs to sell for financial reasons or who may be facing foreclosure, without other viable offers, may agree to excessive demands from the buyer like making repairs, credits for inspection issues, etc.  On the flip side, a buyer “in love” with a particular house that has multiple offers in a strong Spring market may agree to risky decisions such as waiving the mortgage contingency, allowing violations to remain and the like.  The more prudent negotiation move is to allow only a qualified attorney to be aware of these factors, not display feelings and allow the attorney to be the only one to negotiate on a party’s behalf.

Commercial lease negotiations  contain their own strategy.  A tenant may want to be in a particular location and find it necessary to tolerate the unreasonable expectations of a landlord.  For instance, a landlord may wrongfully impose snow removal obligations on the tenant.  The tenant’s attorney can get more leverage in this negotiation if the tenant is willing to walk away and find another location instead.  Such flexibility may help to achieve better results for the client.  Perhaps the landlord has an opportunity to rent to a “big box” nationally known tenant.  In such a case, the tenant will require that its form of lease be signed and will not be amenable to many landlord requirements.  Locating another tenant who is willing to accept landlord demands could be best in some situations.

anchorNews outlets have recently reported that numerous Sears locations will be imminently closingOur readers are most likely aware that Toys R Us has closed all of its locations due to its bankruptcy filing.  Both Sears and Toys R Us would be considered anchor tenants by commercial landlords.  An anchor tenant leases a large square footage space or is of the nature of a large and influential company such as Starbucks or Apple.  Anchor tenants such as department stores and movie theaters draw customers to the mall or shopping center, so that the same customer continues to shop at the premises and patronize its other businesses.  Once an anchor tenant closes, the landlord should seek to locate another anchor tenant to fill the vacant space, so that the shopping mall will draw customers to the anchor location and benefit the other businesses in the mall by drawing shoppers.  This post will examine the provisions that a potential anchor tenant will ask its attorney  to have included in a lease.

Exclusive use can often be demanded by an anchor tenant.  Should Bed Bath and Beyond be the proposed tenant, it may require in its lease that the landlord may not lease another space in the shopping center to a tenant that sells home décor, bedding, kitchen equipment and the like, so as to minimize competition that may hinder its business.  Should the landlord violate such an exclusive use provision, the tenant’s lawyer may have negotiated a rent abatement and right to terminate the lease.  In addition, many anchor tenants present their own form of lease to the landlord, rather than sign the landlord’s version of the lease.

Signage is very important to anchor tenants.  Anchor tenant leases may include a provision that the anchor tenant must always be the first name on mall signage and be of the largest font size.  Visibility of signage is also important, so that the anchor store’s name is listed on internal building directories, directional signs throughout the mall and the like.

deli-300x200Recently, New York City Council Speaker Corey Johnson proposed a new law called the “Small Business Jobs Survival Act.”  The Mayor of New York City, Bill de Blasio, has questioned the legal underpinnings of the proposed law.  The law has also been described as legalizing commercial rent control in New York City.  What are the legal issues involved in commercial rent control, and how will it affect small business owners with commercial leases in New York?  This blog post will address these questions.

Currently, unlike certain residential properties, commercial properties are not subject to rent regulation such as rent control and rent stabilization.  Many residential apartments in New York City, as well as Westchester County, are subject to rent regulation under the rent control and rent stabilization statutes.  What this means is that tenants living in apartments subject to these regulations, under certain conditions, are entitled to perpetual renewal leases which cannot increase rent more than a certain percentage as set by the New York City Rent Guidelines Board.

However, these regulations do not currently apply to commercial properties.  If a store is being rented to a tenant, only the free market regulates the amount of rent to be paid, and whether the lease will be renewed.  Let’s give an example.  A grocery store signs a commercial lease for 5 years with the rent set at $4,000.00 per month.  At the end of the lease term, if the parties have not signed a new lease, the tenant would be considered a holdover and subject to eviction.  Absent any specific provisions in the current lease relating to a lease renewal, the landlord is under no legal obligation to offer a new lease to the tenant.  The landlord is also free, at the end of the lease term, to request a rent increase to $7,000.00 per month.  If the tenant does not agree to the new rental rate, again, they would have to vacate the premises or be subject to eviction.

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Landlords who lease commercial space typically concern themselves with the quality of a proposed tenant so that such character is consistent with that of other tenants occupying the property.  Such concern is reflected in particular provisions found in a commercial lease.  This post will discuss some of the more common tenant “character” provisions.

Signage is important to commercial tenants so that the store’s location is visible and identifiable to potential customers.  Because landlords are concerned that certain signage may look physically unpleasing or be harmful to the reputation of the property, landlords typically specify signage requirements in the lease.  The landlord will reserve the right to approve the signage sought to be used by the tenant and will usually not allow a sign that appears to be too large or has too much neon compared to other signs already used at the property.  Of course, signs containing vulgar words will not be permitted.  When negotiating your lease, your attorney  should also negotiate an exhibit to the lease which will contain a drawing of exactly how your sign will look with specific dimensions referenced.  That way, the parties will have already decided on the approved signage before the lease is signed.

Landlords also want to control store hours.  Many leases have provisions to that effect.  In a shopping mall environment, most leases will require stores to be open for the same number of hours.  Such a provision benefits all tenants, as the mall is more likely to be a thriving place in which to do business if shoppers can visit more than one store.  On the flip side, landlords may demand that a public storefront be closed after a certain hour so that visitors do not “hang out”, impairing the reputation of the property or creating too much noise, impacting neighbors of the property.

walmart-300x181Recent news in Westchester County is that the Wal-Mart store in downtown White Plains is scheduled to close on August 10 of this yearOur blog  has recently explored the legal issues relating to a store closing for good, especially where there is an existing lease.

An interesting point regarding the Wal-Mart closing is that it is been suggested that the store be replaced with a residential building or be converted as exists into apartments.  Many area residents who decide to move out of New York City are seeking homes in Westchester County.  However, Westchester has a limited housing stock, and many of the current homes in Westchester date from the immediate post-war period, or are even older, and the lack the amenities many new home buyers are seeking.

In addition, the economics of supply and demand mean that due to the low current supply of housing stock in Westchester, housing prices are quite high and will likely continue to rise over time.  Since demand is unlikely to decease, the only way to lower prices would be to increase the supply of housing.  Other areas in the United States are experiencing similar housing shortages.  Further, recent changes to the federal income tax laws concerning limits on the deduction of real estate taxes have affected the real estate market.

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News outlets recently reported on the demise of retailer Toys R Us in bankruptcy.  Initially, it was thought that the famous chain toy store would continue operations under its bankruptcy plan.  Then, those in charge of the company found that it was necessary to close all locations.  Such a decision has profound ramifications on the commercial property and leasing market throughout the United States.  This post will address the legal issues raised by the closure of Toys R Us locations.

Most likely, the locations occupied by the stores were not owned by Toys R Us, but were leased under long term leases. Commercial leases typically are long term arrangements, for about ten years with potential options to renew.  Of course, during such leases, the economy or style of doing business may change, leading to a lease arrangement that is no longer viable or sensible for the tenant.  For instance, with the rise of online shopping in recent years, the need for tenants to have large locations in relative proximity to one another no longer makes sense.  It may become necessary for the tenant to renegotiate a lease when times change and the business model along with it.   Experienced counsel should be involved in any such lease renegotiation for a modification or amendment as the case may be.  In exchange for an amendment or modification, the landlord may ask for concessions from the tenant.

In considering Toys R Us in the area served by our firm , one may be familiar with a location on Central Avenue that was built specifically for the store.  The owner of the property may have issues with the store abandoning the property, as it may be suited only to this tenant.  The landlord may need to become creative in considering the future use of the space, as did the owner of Lord & Taylor’s flagship location.