Monthly Archives: July 2014

Tight Housing Market Spurs Changes in Negotiations by Jeff Stewart, CCIM

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Executive shot wilIt has been occasionally interesting, and infuriating at other times. Whenever a housing market gets as overheated as ours has been, people begin to take extreme approaches to get what they want.  Some of these extreme measures push the limits on what has been accepted, ethical practice in the past.  Unfortunately, one such extreme may become the normal practice.

 

Due to the overwhelming demand for new listings, it is becoming common practice to wait until Thursday or Friday to put a new listing in the MLS.  The second part of that equation is that the seller will not review any offers until the following Monday. One can imagine the outrage of a buyer who has written a cash, full-priced offer with no contingencies.  If the buyer has met all of the seller’s requirements, why not sign it and get on with the transaction? The answer is simply that the listing agent and their client are hoping for multiple offers to bid the sales price up. This becomes a slippery slope to be sure.

No law requires the seller to respond in a certain amount of time once a written offer has been made.  In the past, an ethical sense of fair play and common courtesy usually required a response by the next day.  With today’s digital advances, it is now possible to present offers and have them signed digitally even if the buyers or sellers are overseas.  Yet instead of responses getting faster, many are dragging on for days.  While arguably beneficial for a seller, longer response times foster hard feelings and concerns that the listing agent might be “shopping” the early offers. Truly shopping an offer would mean that the seller or listing agent gives hints or indications of how a subsequent party could out-bid a party with an earlier bid.  I have seen this quite a bit recently to varying degrees. 

 

 Listing agents have a fiduciary relationship to the seller, therefore they are supposed to do their very utmost to get the best deal possible for the seller . . . within certain legal and ethical restraints.  It can leave a listing agent walking a very fine line.  It is easy in the rush of a market like ours for a listing agent to cross that line without ever realizing it.

 

 The question that this issue brings to my mind is, “Is this the way we will conduct business even after the market returns to balance?”  The market cycle will swing at some point and it will be interesting to see if sellers return to quick responses or if the waiting game will continue.

 

Jeff Stewart, CCIM  Broker/Associate

 

Stanberry & Associates, Realtors

 

jstewart@stanberry.com

 

Key Issues in Commercial Leases by Jeff Stewart, CCIM

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A week or so ago, I promised a better discussion of what issues I often see as a tenant representative, or tenant rep as we are usually called.  I will address several items that we usually have to negotiate when doing most commercial leases in the Austin area. It is important to state at this point that there are no state promulgated commercial contracts – for sales or leases. Also, everything is open to negotiation as long as both parties agree and the contract terms are legal.  As a licensed broker, I am allowed to negotiate business points at the instruction of the client, but I recommend that the actual written terms of the transaction be written or at least always reviewed by a knowledgeable real estate attorney.

Here are five key terms every commercial tenant should know:

1) Non-disturbance clause – If the lender forecloses on a property, they have the right to force the tenants to vacate . . . even if they had never missed a rent payment.  A non-disturbance clause is a written agreement attached to the lease whereby the lender agrees not to evict the tenant in the event of a foreclosure as long as the tenant in not in default.

2) After-hours HVAC – Most larger office buildings maintain certain hours that the lobby will be open and that the HVAC is operating.  Many of those same buildings provide the option of paying for air conditioning after hours at some price such as $25 per hour.  This is often a problem for IT support companies who work late hours.

3) Parking ratio – Prospective tenants are often pleased when they see that a building has designated parking.  Many specifically ask for it.  What they do not realize is that the parking ratio (number of parking spots per 1000 sqft) must be bad or tenants would not have insisted on designated parking spots. If the building has a few empty units, just looking at the parking lot may be very deceiving. Knowing the ratio is critical.

4. Right to cure – Checks get lost in the mail. Emergencies happen.  It is important to have the right to cure a mistaken default by late payment of rent.  A typical clause would say that the tenant has the right to cure the default within 3 days of written notice from the landlord.

5. Estoppel certificates – A written lease creates a leasehold estate on a property.  If the owner wishes to sell or refinance the property, the new lender will want to make sure that 1) they have the superior lien and 2) that they are fully informed about the terms of the lease.  Almost all leases state that the tenant will complete and sign an estoppel certificate when the landlord requests it.  In some cases the tenant can negotiate some small paperwork fee for their effort, especially if the tenant has some large corporate office and it is no simple matter to get such documents signed quickly.

Jeff Stewart, CCIM     –     Broker Associate     –     Stanberry Commercial

jstewart@stanberry.com

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The Need for Commercial Tenant Representation by Jeff Stewart, CCIM

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The Need for Commercial Tenant Representation   by Jeff Stewart, CCIM

So what exactly is involved in commercial tenant representation?  I get asked that a lot.   Generally speaking, most tenant reps are hired to help clients find commercial space such as office or retail.  Ordinarily the tenant rep’s commission is paid by the landlord (or the landlord’s agent), but not always. Of course locating a suitable lease space for the client is the goal, but a good tenant rep does much more than that.  A good tenant rep needs to have a good enough business background to provide helpful insight to the client in regards to location and possibly demographics.  The perfect office is of little value if it is so far removed from the company work force that employees begin to look for other work opportunities.

A good tenant rep has a full understanding of what is customary in the market.  Such knowledge helps to prevent missteps and communication problems during the negotiations. Once a suitable location is found, the tenant rep usually prepares an LOI or Letter-of-Intent, which is used to open negotiation with the landlord.  Correctly written, LOIs are non-binding, letters of understanding that allow the parties to negotiate the big items without getting bogged down in the minutia of a 30-40 page lease.  If the parties feel they are in agreement on the big items, then they can move to a written lease draft.

Once the parties have drafted a preliminary lease agreement, the tenant rep may assist the tenant client in negotiating the terms and wording of the business details.  Commercial brokers are allowed to negotiate business points, but not legal points.  Legal points and legal advice are outside the scope of our real estate license and require an attorney.  It is important to point out that a lease review requires an attorney with a great deal of experience with lease contracts.  It is quite specialized and most attorneys do not practice this type of law.  From a practical standpoint, when one side involves an attorney, the other side should as well.  Surprisingly enough, I have found that most attorneys who do lease reviews work well with their counterparts on the other side and can generally reach a satisfactory outcome for both parties.

The draft lease is sometimes batted back and forth for several renditions.  Most lease reviews are tracked in a redline version of Word with the “Track Changes” function.  While most parties are very honest, it is always important to review each rendition for changes that may have not been tracked.  I was very surprised to learn that one national firm had their own font.  They secretly used a font that looked like a common font, but was ever so slightly different so that they could tell if the other party had tried to make unauthorized changes to the lease.

In my next blog, I will explain some of the common issues in commercial leases as we see them in Austin, Texas.

Jeff Stewart, CCIM  Broker Associate  jstewart@stanberry.com

Stanberry Commercial, REALTORS