Tenant Representation – Commercial Leases

Los Angeles County – Ventura County

What is a Tenant Broker – Agent

TenantLeasingReps.com

Pacific-Realtors.net - Established in 1987

 

 

Meet Our Team

 

A tenant broker-agent or tenant representative is a commercial leasing agent that represents tenants, not landlords. Tenant agents or representatives (reps) inform their clients about the availability of suitable commercial space, current market conditions, and negotiate on behalf of their clients with landlords or landlords' leasing agents. It is important to differentiate between agents that represent the interests of tenants from leasing agents that represent the interests of landlords.

Tenant broker-agents or representatives with Pacific-Realtors.net can be relied upon to provide our clients with objective advice because our commission income is not tied to any one particular commercial property. In short, we protect our clients. We are on your side.

 

Reasons to Use Tenant Leasing Representatives

  • Tenants avoid dealing directly with a leasing agent that represents the interests of the landlord. Even if the landlord's leasing agent represents that he or she will act as a dual agent, the leasing agent continues to represent the landlord. You can be certain that a landlord's leasing agent will never direct a tenant to a building where the lease terms are more favorable for the tenant. A tenant rep will show a prospective tenant all suitable commercial space. This can save a tenant thousands of dollars over the term of a lease.
  • The services of a tenant representative costs nothing because the listing agent that represents the landlord will divide the listing commission with the agent representing the tenant as part of the normal brokerage fee sharing arrangement. The landlord pays us to represent you.
  • As the exclusive agent of a tenant, we can disclose information to our client, the tenant, that the landlord's agent could and would never disclose.
  • As the exclusive agent of a tenant, we will not "inadvertently" disclose your confidential information to the landlord.
  • Tenant reps will almost always save prospective tenants money because leasing agents that represent building owners (the agent named on the sign) are motivated to satisfy their clients.
  • Tenant representatives make it their business to be familiar with current market conditions and which building owners are most likely to offer the best lease terms.
  • Tenant reps make it their business to understand the complex provisions usually included in commercial lease documents and often have access to in-house or retained real estate attorneys when legal advice is required.
  • The space you lease will be measured accurately.

 

Commercial Leasing - Tenant Representation

Frequently Asked Questions

How long has Pacific-Realtors.net been in business?

The firm started doing business in 1987, but the owner of the firm, Michael Chulak, became licensed as a real estate broker in 1971.

 

What are the differences between leasing agents and tenant representatives?

Leasing agents represent the interest of the landlord. Tenant representatives or tenant reps, represent the interests of tenants, not the landlord. The identity of the landlord's leasing agent will generally be found on a sign located on the owner's building. Tenant reps will not have a sign on the landlord's building.

 

What is the difference between an assignment of a lease and sublease?

There is a great deal of confusion between the differences which are quite substantial. See: Assignment of Lease or Sublease?

 

Do I need a tenant rep to locate a suitable building for my business?

Finding buildings for lease is relatively easy. Negotiating the best available lease terms is where the knowledge and experience of a tenant rep becomes valuable. Remember, landlords and leasing agents representing building owners negotiate leases every day. You probably don't which is why we can protect you and also save you money.

 

What is the importance of tenant mix?

The concept of tenant mix applies primarily to retail properties. It involves the owner of a commercial property assembling a group of complementary tenants who are likely to help each of the individual tenants maximize their revenues. The goal is to create an easy and pleasant shopping experience in order to attract shoppers. The object also involves avoiding duplicate services such as two pizza restaurants and avoiding services that don't contribute much value to the other tenants such as an office use in the middle of a retail property. An ideal tenant flJ.ix benefits each of the tenants as well as the landlord. A strong tenant mix will always include at least one anchor tenant.

 

What is dual agency?

A dual agency occurs when one agent works for two opposing parties such as a landlord and prospective tenant in the same transaction. At one time, dual agencies were not permitted in California. They are currently permitted if both parties who have conflicting interests agree to accept the dual agency relationship. Dual agencies can be very risky for tenants.

 

If the landlord uses an agent from a commercial leasing firm and the prospective tenant uses another agent from the same firm, does a dual agency still exist?

Absolutely.

 

We are a tenant in an office building and have outgrown our space. Since we still have two years to run on our existing lease, we need to sublease our space. Should we let the leasing agent for the building handle the sublease or should we utilize the services of a tenant rep?

You will be better served by using a tenant rep who will represent your interests. The leasing agent for the building must protect the interests of the landlord. Our firm represents tenants and can assist with all areas of business-corporate relocation.

 

Will I need the services of a real estate attorney to review a lease document before I sign it?

It is always a good practice to have a real estate attorney review a complex document such as a commercial lease before signing it.

 

Personal Guarantee of a Loan or Lease to a Business Entity

A personal guarantee is an individual's contractual promise to repay credit issued to a business entity in the form of a loan or a lease. The business entity mayor may not be related to the proposed guarantor. Not all personal guarantees are the same. Most are unlimited guarantees; some are limited. Some are continuing while others are not. Most personal guarantees allow the creditor to take collection action against the guarantor as soon as a default occurs. The creditor is not required to exhaust their legal remedies against the debtor or lease before taking action against the guarantor.

Signing a personal guarantee has great risk and should not be done without carefully considering the risk. Any person considering providing a personal guarantee should review the proposed document with a qualified attorney.

Very often a creditor, such as a bank, will not make a loan to an entity without the personal guarantee of the significant owners of the entity. Likewise, many building owners, or lessors, will not lease commercial space to a business entity without obtaining the personal guaranty of the significant owners of the tenant or lessee. This is a term to be negotiated by the parties. Signing a personal guarantee may have tax ramifications which should be discussed with your CPA or Enrolled Agent.

Loan applicants should be aware that the Small Business Administration (SBA) requires the principals of all borrowing entities that own 20% or more of the company, to sign a personal guarantee.

 

What is a continuous operations clause in a commercial lease and why are they sometimes required by landlords?

A continuous operations clause in a lease is a requirement that obligates the tenant to continuously operate its business throughout the term of its lease. These clauses or provisions are often found in the leases of anchor tenants in shopping centers such as large food markets and drug stores, but they are sometimes found in other leases.

The rationale for requiring continuous operations clauses is that vacant anchor stores materially reduce the number of visitors to a shopping center which reduces sales for other tenants and makes it far more difficult to lease or renew leases in the center. Reduced sales affect tenants and encourage them to vacate as soon as possible. Reduced sales volume reduces the rent paid on percentage leases which affects the landlord's revenue and profit.

Before leasing space in a shopping center with major anchor tenants, a prospective tenant should determine whether the anchor tenant lease has continuous operations provisions.

 

What is a go-dark provision in a commercial lease?

A go-dark provision is a clause often included in retail leases that permit a tenant to vacate a space while continuing to pay rent prior to lease maturity. The opposite is a continuous operations clause that requires a retail tenant to maintain standard hours and operate the business until the lease expires.

 

Is a letter of intent legally binding?

Letters of intent are usually not binding but it depends on the specific language. If you are in doubt, have a real estate attorney review it.

 

What are some of the provisions that landlords attempt to include in their leases that should be of concern to prospective commercial tenants?

There are too many to list and there are new traps constantly being created by landlords, their attorneys, and their leasing agents. Following are a few examples:

  • The unrestricted right to relocate the tenant within the property;
  • Severe limits on the tenant's right to sublease or assign his or her lease;
  • The pass through of excessive expenses such as future leasing fees and real estate tax increases resulting from the transfer of title to  the building, large management fees, and expense reimbursements paid to the building owner;
  • Unreasonable hold harmless and indemnification provisions;
  • Severe restrictions on signs;
  • An unlimited personal guaranty for the obligations of the business leasing the space;
  • An unreasonable or inaccurate formula for measuring the amount of space being paid for by the tenant;
  • Strict limits on how the space may be utilized by the tenant;
  • Requirements that the business remain open for business during specified hours; and
  • Large holdover penalties that apply at the end of the lease if you don't vacate on time.

 

What is an estoppel certificate?

An estoppel certificate is a legally enforceable document in which a residential or commercial tenant makes certain representations that are expected to be relied upon by the landlord, often a new buyer. Buyers of residential and commercial properties almost always request signed estoppel certificates from all tenants in connection with the acquisition of an income producing property. Landlords want assurance that:(1) the lease is in full force and effect, (2) no prepayments have been made, (3) the landlord is not in default, and more.

 

What is an attornment clause in a lease?

An attornment provision in a lease requires that a tenant recognize a new owner of the property regardless of whether the property is sold in the customary manner or by means of a foreclosure sale. Most commercial lenders require that all commercial leases include an attornment provision in order to protect the lender. Without an attornment provision, a foreclosure would ordinarily extinguish most commercial tenant leases.

 

What is a non-disturbance clause?

A non-disturbance clause is a provision in a mortgage or deed of trust ensuring that a lease between a landlord and tenant will continue under any circumstances including the foreclosure of the property. It guarantees that a tenant cannot be evicted due to a foreclosure. While always important, it is especially important in situations where a tenant has made substantial tenant improvements.

 

What is a co-tenancy clause?

A co-tenancy clause is a provision in a commercial lease that allows a tenant to make his or her lease obligation conditional on the opening or continued operation of one or more co-tenants in a commercial property. Co-tenancy provisions are commonly required by small commercial tenants that rely on the traffic generated by an anchor tenant.

 

What is a recapture clause in a commercial lease?

A recapture clause gives a commercial landlord the right to reclaim the leased premises prior to the expiration of the lease subject to defined conditions called triggering events. Common triggering events are: (1) The tenant has failed to achieve sales revenue of a certain amount over a defined period of time, (2) The tenant has requested the landlord's consent to a sublease or assignment, and/or (3) The tenant has been late in paying his rent more than a defined number of times.

 

What is a pop-up shop or store?

A pop-up shop or store is a shop or store set up intentionally on a temporary basis in order to achieve a specific goal. Pop-up shops are becoming more common in large malls because vacancies have increased dramatically since the pandemic started in early 2020. Pop-up shops allow retail landlords to fill space that would otherwise be vacant for a long period of time and allow retailers to test locations before making a substantial investment in tenant improvements.

 

What is shadow space in commercial leasing?

Shadow space is leased space that is not currently being utilized by the lessee. Sometimes a commercial tenant will lease space they currently can't utilize but want to be in a position to grow into it. Shadow space may also exist because a commercial tenant is downsizing. They may want to sublease the unused space.

 

How are FICO scores determined and how can a FICO score be improved?

A FICO score is a credit score created by the Fair Isaac Corporation (FICO). Lenders and lessors use the scores to make credit granting decisions. See: FICO Score - Credit Score for detailed answers to your questions.

 

We are currently leasing a commercial condominium. Can you represent us in purchasing the property from the owner?

Absolutely.

 

We are interested in selling our business. Can you assist us with a sale?

Yes. Our affiliate, PacificBusinessAdvisors.net has been representing sellers and buyers of businesses since 1987.

 

Does Pacific-Realtors.net represent tenants who want to procure a ground lease for the construction of an office building and assist us in the negotiation of lease terms?

Absolutely. We can assist you in procuring sites to be leased or purchased for office buildings, hotels, retail properties, and apartments.

 

What is agglomeration in business?

Agglomeration is the tendency of businesses to locate and concentrate in a given area due to the advantages gained by being near other businesses. Garment districts and large shopping centers are examples of agglomeration.

 

Does your firm represent the sellers of cannabis in lease negotiations with commercial building landlords?

No.

 

May we distribute your articles to others and add them to our website?

Yes, provided we are given credit for writing the article. Every one of our articles includes our identifying information at the bottom which must be included. There is no cost for using our articles.

 

Cost Segregation Analysis

Cost segregation consists of a process whereby building components that can be depreciated over a relatively short time (5 to 15 years) are identified and reclassified so that accelerated depreciation can be calculated and claimed by the building owner, resulting in the significant deferral of state and federal income taxes and greater cash flow. See more.

 

Glossary of Commercial Tenant Leasing Terms

Checklist for Commercial Leases

Tenant Representation – Commercial Leases
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