2015 Is The Year For Commercial Leasing, Apparently

Retail Space AvailableAt least, it has been for me so far. I have been doing a lot of tenant representation so far this year … reviewing and negotiating commercial leases. For some reason my transactional work (loan closings, purchase/sale closings, etc.) has been lagging since the end of 2014, and I’m not sure whether it’s a trend for real estate in general or is specific to my clients and my practice. In any event, the commercial leasing work has helped take up the slack and I enjoy the work and the clients for whom I do it. Generally, it’s fast-paced work … once an LOI has been agreed to both parties want the lease negotiated and executed as soon as possible: the tenant, because they want to get in, get their tenant improvements installed and get revenue flowing in as quickly as possible, and the landlord, because they want the rent to start flowing in as quickly as possible. That sometimes puts stress on the attorney(s) involved because we’re called upon to do our our work in short order, often with the client or their broker in our ear continually asking (or repeatedly emailing) “have you gotten to that lease, yet?” That, in turn, requires an experienced practitioner who is skilled at focusing on the most important issues to his client and is discerning enough not to waste time haggling over terms that aren’t material or that, even if they are material, are very, very unlikely to be changed by the landlord even if objected to. I am glad to have several tenant clients with whom I’ve worked long enough, and for whom I have negotiated enough leases, that I know what is important to them. It is one of the (few, perhaps?) pleasures of this demanding profession to have long-standing clients who trust you and are appreciative of your work and with whom you are knowledgeable enough to know what is important to them and what is a waste of their time and money.  If you need an attorney like that, I know where you can find one!  BH

Good News Keeps Coming …

good-newsWow. I think the (seemingly mythical) “turnaround” in the commercial real estate market is actually going to stick this time! After many years of up and down and sideways market conditions, GOOD news about the Orlando/Orange County/Central Florida commercial real estate market is being consistently observed and reported. For example, see this article entitled “9 things that may surprise you about Orange County real estate” by Anjali Fluker, writer for the Orlando Business Journal. Local market indicators are the best they’ve been in at least 5 years, new construction and new commercial activity is booming throughout the area (have you seen the construction (and traffic) on International Drive lately? It’s insane!) and deals are being made! Here in Winter Park things are very active along the 17-92/Lee Road/Denning Drive corridors, which I think is fantastic. I WILL be checking out the new Trader Joe’s on 17-92 as soon as it opens! On a larger scale, my clients who attended the recent ReCon/ICSC convention in Las Vegas came back with pleasantly optimistic reports. Sure, everyone in real estate has been burned enough the past several years that they remain at least slightly wary, but that’s good business judgment in all market conditions and is also healthy for the industry. Nobody I know wants another real estate “bubble” to blow up in our faces. But, despite all the false starts and cautionary tales of the past few years, we finally seem to be in the midst of a consistent, upwardly trending, pattern of recovery. Thankfully, it feels good to read the commercial real estate news again, in the OBJ Commercial Real Estate News and other publications.

Too Busy To Blog! But that’s no excuse …

writing-life-300x200Sorry for my absence, lately! I understand now what marketing professionals mean when they tell me that the key to a successful blog is consistency, as in consistently providing new, meaningful content on a regular basis. Trust me, it’s a really hard thing to do, especially if you demand to personally write all of your own material, as I do. If I don’t write it myself I just don’t “feel” it, it’s not “me”, and that’s not the type of blog I want mine to be.

Unfortunately, the result is that I sometimes fall into the predictable pattern of many bloggers, which goes like this: (1) I find myself not as busy as I’d like to be or I’m busy with pretty mundane or unprofitable work; (2) I write articles to fill in any time gaps I may have, hoping to build business and find meaningful, profitable work; (3) I get busier with good work and feel (almost always wrongly) that I don’t have time for anything else; (4) I neglect to write articles because I’m so busy; (5) Suddenly, I finish a project or wrap up a big closing and realize I’m once again not as busy as I’d like to be; and (6) It occurs to me that I haven’t written an article in a long time and I think “Hey, I really need to write an article.” But it is SO hard to get those wheels turning again once they’ve stopped.

Successful blogging is very much like exercise. To get the greatest benefit one must exercise consistently and regularly because once you slow down or stop, it is 10 times harder to get going again. Same with the blog. Once I’ve slowed down or stopped, getting started again is akin to starting all over again with the proverbial “blank sheet of paper” that just stares back at you while all the great ideas for articles you used to have seem to have just evaporated.

Well, I’m back now and away we go. I’ll try to do better. The good news is that as I write this I am actually pretty busy. The commercial real estate market is clearly heating up, if not to the “hot as the sun” levels of the bubble years 5 or 6 years ago, at least to a nice, steady simmer, and maybe even a gentle boil. New buildings and shopping centers are going up all around the Central Florida area, and I have been working on quite a few commercial leases, purchase and sale transactions, and loan closings, but of course could always do more! Just down the street (17-92 in Winter Park) the new Trader Joe’s is going up fast, as is the new ABC Fine Wine & Spirits across from Winter Park Village, and it looks fantastic. Other parts of the Metro-Orlando area appear to be just as busy. Clients of mine who are commercial tenants report that they are having a more difficult time finding available space and shopping center owners are actively shopping for new centers. All of this bodes well for Central Florida’s economy and I’m glad to see things picking up.

Remember, if you are involved in commercial real estate, buying, selling, leasing or financing, get an experienced commercial real estate attorney (I hope it’s me!) involved early in the transaction. If you’re leasing, have your lease reviewed before you sign it. If you’re buying, have your contract reviewed before you sign it. Hopefully, we’ll all be busy with meaningful, profitable work for a long time to come AND I’ll do a better job of adding new, interesting content to the blog at the same time. And exercising. Mustn’t forget to exercise.

Thanks for reading!

BH

Exclusive Use and Non-Compete Clauses in Commercial Leases

Orlando Real Estate Lawyer Offers Caution When Using Exclusive Use Clauses

Picture of a commercial lease signingWhether you’re a shopping center landlord or a would-be commercial tenant, consider – but use caution – adding an “exclusive use” clause or a “non-compete” clause to your commercial property lease in Orlando. These terms are sometimes used interchangeably but make more sense to me defined as follows:

“Exclusive use”

Exclusive use provisions are typically requested by the tenant and are intended to prohibit the landlord from leasing space in the shopping center to businesses similar to the tenant’s. The obvious reason is that the tenant wants to limit to the greatest extent it can competition from competing businesses. Thus, the landlord grants to the tenant the right to some “exclusive use” within the shopping center.

“Non-compete” clause

A non-compete provision is typically requested by the landlord and can limit the activities of the tenant in at least two ways. First, the provision can be used to prevent the tenant from selling products or services that compete with other tenants in the shopping center who may have exclusive use provisions in their leases that would be violated if such activities were allowed. Second, particularly where the tenant is going to be paying percentage rent (i.e. a portion of the rent is based on the amount of the tenant’s sales), the provision can be used to prevent the tenant from establishing a competing business or franchise within a certain geographic area that may cannibalize sales from the subject property, thereby reducing the percentage rent payable to the landlord. Thus, the tenant agrees that it will forego certain activities so as not to compete with other tenant’s sales or, in the percentage rent scenario, its own sales.

These provisions are sometimes difficult to negotiate (depending on the relative bargaining power of the parties) and are difficult to enforce in the event of a violation unless they are very clearly drafted by an Orlando real estate lawyer. For example, the use or service that is at issue is often hard to define, making it the subject of a potentially protracted negotiation on the front end or a potentially disputed matter later on. For instance, let’s say that you want to lease space to operate a cupcake shop. You certainly wouldn’t want a competing cupcake shop next door, but what about a chocolate shop? An ice cream store? Do you have the negotiating power to require the landlord to exclude all businesses selling desserts of any kind? Probably not, but you get the idea. The important point is that it’s an issue that has to be addressed when the lease is negotiated and the more clearly the use or service is defined the easier it is to categorize excluded or permitted competing uses.

The same issue arises in the context of non-compete provisions. Suppose you enter into a lease for the operation of a yogurt shop, you are paying percentage rent and your lease prohibits you from opening a competing store within two miles. The landlord certainly wouldn’t want you to open a competing yogurt shop close by, but could you open an ice cream shop? Snow cones? Italian ice? The same analysis could apply to electronics (which could include computers, computer games, computer parts, computer accessories, etc.), spa services (which could include spa treatments, skin treatments, manicures, pedicures, massages, maybe even a hair salon that offered some of these services) or any other broad category of uses or services. The answer depends on what was negotiated before the lease was signed. In the event of a violation and resulting litigation, the Court may ultimately have to decide what was intended to be excluded and what was intended to be permitted. Not a position you want to be in.

Another difficult issue to address is what happens when a violation occurs. How do you calculate damages if the damages are the amount of sales lost to a competing business if sales are also dependent on numerous other factors? If the landlord violates the exclusive use provision and allows a competing use, should the tenant’s rent be reduced? By how much? Should the tenant be entitled to terminate the lease and move elsewhere? Could the tenant obtain an injunction against the other tenant to stop the competing use? Could that tenant then sue the landlord? Sure they could. Almost anybody can sue almost anybody!

These and other concerns should be addressed and negotiated before the lease is ever signed. By involving your attorney early in the lease negotiation process you can improve your chances of obtaining an exclusive use provision or non-compete clause that you can live with, at minimum, or that protects your interests and maximizes your business prospects long term, at best. In addition, a clearly drafted exclusive use provision minimizes confusion and conflict when the question arises as to whether a particular use is excluded or permitted or an alleged violation occurs.