5 things on your real estate checklist in January – Orange County Register
Well. Here we go! It’s 2021, a new baby of a year with tremendous promises, an abundance – hopefully – and a clear path to success.
Today I want to spend a moment discussing with you a few things that you should focus on this month so that your commercial property is in sync with other priorities.
Your rental agreement: As a commercial property resident, your tenancy falls into one of two categories. You either rent from a related party – known as owner-occupied space. Or the rental checks are sent to an independent agency – you do not own the building. Hmmm. So if the owner and the resident are synonymous – why would a lease be necessary? After all, the rent flows from one pocket – the resident to the other – the owner. Essentially the same.
It is highly recommended that you have a written agreement between the parties. Sure, as the owner and resident, the terms of your lease – rate, number of years, etc. – can be flexible. But make sure you have one. With an independent owner, a signed rental agreement is of the utmost importance! So I encourage you to find a copy, scan it in digital form and save it where you can easily access the document.
When does the term expire? When 2021 there are some decisions you will have to make. Are there any renewal provisions – renewal options, rights of first refusal, initial offer rights? Most have time slots from which to train. Finally, arrange a ZOOM or a personal meeting with the owner of your building. Annually, it’s great to discuss your company’s plans, concerns, and latent issues regarding your space.
Insurance coverage. I have to admit – to the delight of my friends in the insurance business – I’m really not prepared to discuss insurance matters. Suffice it to say that your coverage is generally renewable annually and should be carefully reviewed every year to ensure that leasing requirements are met.
Property taxes. These increase annually by at least 2%. Regardless of the form of your rental agreement, payment is your responsibility. Typically, gross leases are baked for the amount, but you pay increases, and triple net leases are billed to you as due. Was your business address sold last year? If so, expect a little surprise in the form of an invoice.
Maintenance fees for the common area. The cost of running a commercial property site – excluding property taxes and insurance – is sometimes summarized as common area maintenance costs – also known as CAM fees. Landscaping, parking lot sweeping, property management, trash, common areas, etc. are the likely categories. If your owner bills these monthly, you probably got an estimate last year and new bills will start this year. Reconciliation should follow. If something seems mysterious, ask for assistance.
Building systems. Winter is a great time to check your air conditioning before the warm months hit us. HVAC contractors aren’t that struck either. You should also check the fire safety of your warehouse. Certifications are required every year and more robust certification every five years. Who mows the grass and cuts the trees? A review of price and services may be appropriate.
Loans. Owned and used properties that bear debt are subject to lender agreements, potential interest rate adjustments, due dates, balloon payments, and prepayment penalties. See “Your Rental Agreement”. All loan documents should be with physical and digital copies. Is Refinancing In Your Future? You may want to compile tax returns, balance sheets, profit and loss statements for the company and in person.
Allen C. Buchanan, SIOR, is a Principal at Lee & Associates Commercial Real Estate Services, Orange. He can be reached at [email protected] or 714.564.7104.