5 Things to Do in January 2021

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Well. Here we go! 2021. A new babe of a year with tremendous promise, an abundance - hopefully - and a clear path to success. Today, I want to spend a moment and discuss with you some things to focus upon this month so that your commercial real estate is in synch with your other priorities. 

Your lease. As an occupant of commercial real estate, your tenancy falls into one of two categories. You either lease from a related party - known as an owner occupied space. Or, the rents checks are sent to an unrelated entity - you have no ownership in the building. Hmmm. So, if the owner and occupant are synonymous - why would a lease be necessary? After all, rent flows from one pocket - the occupant, to the other - the owner. Essentially the same. Strongly encouraged is that you have a written agreement between the parties. Sure. As the owner and occupant - the terms and conditions of your lease - rate, number of years, etc. - can be flexible. But, make sure you have one. With an unrelated owner, a signed lease is paramount! So, I’d encourage you to locate a copy, scan it into digital form and save it where you can readily access the document. When does the term expire? If 2021 - you’ve some decisions to make. Are there extension provisions - options to renew, rights of first refusal, rights of first offer included? Most have time windows from which to be exercised. Finally, schedule a ZOOM or face-to-face   with the owner of your building. Annually, it’s great to discuss your company’s plans, concerns, and any latent issue relating to your premises. 

Insurance coverages. I must admit - to the delight of my friends in the insurance trade - I’m really unprepared to discuss insurance matters. Suffice to say, your coverage generally is annually renewable and should be carefully reviewed each year to insure - sorry - the lease requirements are met. 

Property taxes. These increase annually by a minimum of 2%. Regardless the form of your lease - payment is your responsibility. Typically, Gross leases bake in the amount but you pay increases and Triple Net leases bill you as due. Was your business address sold last year? If so, expect a little surprise in the form of an invoice. 
 
Common area maintenance charges. The cost of operating a parcel of commercial real estate - exclusive of property taxes and insurances - are sometimes lumped together as common area maintenance expenses - also known as CAM charges. Landscape maintenance, parking lot sweeping, property management, trash, common area unities, etc. are the likely categories. If your owner bills for these monthly - you probably got an estimate last year and the new billings start this year. Reconciliation should follow. If something appears mysterious - ask for back up. 
 
Building systems. Winter is a great time to check your air conditioning before the warm months hit us. HVAC contractors are not as slammed either. You’ll also want to check on your warehouse fire protection. Certifications are required each year and a more robust certification every five years. Who mows the grass and trims the trees? A review of price and services could be in order. 
 
Loans. Owned and occupied real estate that carry debt are subject to lender covenants, potential interest rate adjustments, maturity dates, balloon payments, and pre-payment penalties. See “Your Lease”. Located should be all loan documents with physical and digital copies. Is a refinance in your future? Might want to assemble tax returns, balance sheets, statements of income and expenses for the company and personally. 
 
Allen C. Buchanan, SIOR, is a principal with Lee & Associates Commercial Real Estate Services in Orange. He can be reached at abuchanan@lee-associates.com or 714.564.7104. His website is allencbuchanan.blogspot.com.