LOS ANGELES COMMERCIAL LEASE LAWS
WHAT DOES A COMMERCIAL LEASE ENCOMPASS?
SALIENCE OF COMMERCIAL LEASES
1. LANDLORD’S CONCERNS TO SATISFY LENDER
SOME OF THE ISSUES OF IMPORTANCE TO LENDERS
- Guaranty a Particular Income Stream
Nonetheless, a common exception to the rather stringent requirements laid out above is the lender would agree to tenant’s reducing rent by costs of repair ONLY IF:
- Landlord under the lease was obligated to pay for such repair; AND
- Tenant provides PRIOR NOTICE to BOTH landlord and Lender of the pending repair
B) EXCLUSIVE RIGHTS
Lenders cautiously and carefully review a lease agreement bestowing certain privileges on a particular tenant. Lenders deem such exclusive rights problematic as they might infringe upon or conflict with other tenants’ lease provisions.
This provision could prove problematic, as lender would not agree to landlord’s covenant not to compete outside the property described in the lender’s deed of trust.
D) PERMITTED USE
Lenders are rightly concerned about the permitted use of a tenant in a shopping center. Lenders seek to ensure permitted use of one tenant is clearly spelled out to foreclose the possibility of tenant changing the permitted use to something violating another tenant’s exclusive right or use.
E) OPTIONS TO PURCHASE
Lenders, often, find an objection to tenant having an option to purchase for several reasons. First, lenders usually would not agree and approve tenant’s option to purchase the leased premises if the tenant can exercise such option prior to the encumbrance out of the fear the tenant could take over the property free of the encumbrance. Understandably, this is because the lender in making the loan relied on the landlord’s credit worthiness and conducted a risk-benefit analysis of the landlord.
F) LEASE TERMINATION
Lenders are generally opposed to a lease granting tenant the right to terminate if the landlord defaults. Tenant’s remedy if landlord defaults would be to sue the landlord for damages or, if possible, cure the landlord’s default and deduct from the rent for expenses incurred for curing such default.
Nonetheless, lenders MAY agree to tenant terminating the lease, if:
- The leased property is totally destroyed.
- The Leased property is partially or completely destroyed, and the property cannot be restored to what its previous situation within a specified time.
- The leased property is condemned.
2. SOME OF THE TENANT’S LEGITIMATE CONCERNS IN A COMMERCIAL LEASE | Los Angeles Commercial Lease Laws
There are several issues tenants need to be cognizant of in negotiating a commercial lease, among which are:
- Not Paying Rent During the Time the Leased Property is Being Renovated or Improved (Fixturing Period). If There Is a Fixturing Period, How Long Would That Last?
- Not Paying Increased Rent Based On Cost of Living Index. Or Negotiate Over Any Increases and Clearly Set Out Thresholds Triggering Such Rent Increases.
- Not Paying for Percentage Rent Unless the Calculation Method, Gross Revenues, etc. Are Clearly Defined. Percentage Rent Refers to Commercial Tenant, Mainly Shopping Center Tenants, Paying a Percentage of Their Gross Revenues to Landlord. Note: Setting Out Clearly a Calculation Method Often Requires a Meticulous Methodical Approach Depending Upon the Sophistication of the Parties and Deal Involved.
B) COMMON AREA
In shopping centers, landlord MUST give tenants the right to use common areas with other tenants. Nonetheless, the following provides SOME of the concerns tenants should be mindful of:
- Negotiate with landlord, to the extent possible, to curtail building on or changing the common areas.
- Negotiate with landlord, to the extent possible, to avoid charging you for parking in the designated parking areas.
- Negotiate with landlord, to the extent possible, to avoid charging you for common area maintenance costs such as depreciation on improvements and equipment and landlord’s administrative costs, etc.
C) LEASED PREMISES
- Negotiate with landlord, to the extent possible, what needs to be done to the existing leased premises to make the premises amenable to you and your business.
- Negotiate with landlord, to the extent possible, as to the length of time needed or required to finish any improvements or alteration by landlord to make the leased premises amenable and acceptable to you.
- Negotiate with landlord, to the extent possible, over any securities or guarantees for the work to be done timely to make the leased premises acceptable to you.
- Negotiate with landlord, to the extent possible, your rights to object to the improvements and alteration done by landlord and what materials landlord may use in the construction and the architectural changes.
This article NEITHER supplants NOR supplements the breadth and depth of such esoteric topic. In fact, this article ONLY provides a rather rudimentary synopsis of such expansive esoteric subject matter.
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