Friday, August 22, 2014

I signed a #CRE lease for a new location...now what?

Image Attribution: www.richfieldmnchamber.org
You, on behalf of your manufacturing or distribution company just signed a commercial real estate lease for a new location...congratulations!

Many believe that the deal is now done (including many in my profession), we can move-in, cue the band, alert the media...and let's get the party started...hmmm, not so fast as there are a multitude of issues to address...some seen and some unseen and not the least of which is the physical move!

This post is designed to provide a list of items to consider....after the lease is signed. Before we delve into the list, let me pause for the formalities...

I provide Location Advice to owners and occupants of industrial buildings in Southern California...AKA...I sell and lease commercial real estate for a living and have since 1984. That qualifies me as some sort of an expert...I believe?

The list below is intended to be a list of issues to consider as opposed to an "end all be all" moving checklist...which if I published would make your eyes bleed.

Inspection of the building: Normally, this step is accomplished prior to signing the lease, in case there are latent issues that the landlord should handle prior to occupancy. In the off chance that this was not done, you may still be OK as the lease that you signed should contain a provision for an inspection to be conducted within the first thirty days post lease signing. Generally, the owner must fix anything that is broken. ADA upgrades are typically an exception to the owner's responsibility. I would recommend you engage someone to do two things...inspect ALL of the systems within the building...fire system*, truck doors, plumbing, electrical, roof, HVAC, etc. AND prepare a report including images of the condition of the building pre move in. You will be able to use the report when you move out of the building to recall this condition. *Take a look at the most recent fire sprinkler certification and make sure that is up to date. If not, request that this be done.

Warranties on the building systems: I will assume that your lease provides a mechanism for the owner of the building to make things right if any repairs to the above referenced systems are needed. In Southern California, assuming you signed an AIR lease, this warranty is 30 days for non HVAC items and six months for Heating, Ventilating and Air Conditioning. Use the report I recommended that you create and place the owner on notice to accomplish whatever repairs are needed.

Permits and licenses: Once again, I will assume that the necessary permits and licenses were obtained prior to lease execution...or at least some serious due diligence was accomplished on what was needed. If not, shame on someone! Please don't just move in to a building without talking about your use with the city to make sure the zoning is correct for the use, no special permitting is needed for high pile storage, storage rack permitting (in SoCal seismic testing is needed for new rack installs). You also should consider machinery that will be moved and any UL rating that may be needed.

The physical move: I would highly recommend that you engage a moving and storage company familiar with moving  your operation. Some careful vetting and planning here can really save you time and aggravation.

Lease administration: Most location advisors will prepare a lease abstract of the key dates of options to renew, options to purchase, rent amounts and rent increases. I would suggest making two copies of your lease and place one in your top desk drawer or in an easily accessed digital file for ease of reference and the other with your payable department. Make sure the lease is signed by all parties...sounds silly but I've encountered many situations where the occupant is never given a fully executed lease copy. Also, make sure you know where to send your rent check and whether your new owner prefers direct deposit vs. mailing a check.

The transition: Where practical, I recommend having a face to face meeting with the owner. Chances are, your negotiations were conducted through commercial real estate brokers or attorneys and you never have met the owner. Make sure you exchange name, address, and contact information...email and mobile phone. Who will tell your customers and suppliers that you moved? How will you deal with plant shut downs and production interruptions? When and how will you tell your employees that you are moving?

Planning your next move: Wait a minute...I JUST MOVED! Precisely. There is no better time to reflect on the move, what you will do at lease expiration, what went well...what didn't go well, etc.