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Legal Case: When a Tenant Terminates a Lease Early

I was recently hired as an expert witness to help defend a tenant that terminated their lease early. The landlord sued for millions of dollars and ended up with much less. By California law, landlords are generally required to mitigate a tenant’s lease damages by re-leasing the space using reasonable efforts. “Reasonable efforts” is kind of vague but not to me because I know practically what is needed to re-lease a space.

This type of case was already somewhat common, but COVID-19 really increased the number of these cases, as many tenants were forced to go out of business during this time. As an example, I have been involved in more than 50 of these types of cases since COVID-19 began, from about 2021 to 2023, but had only handled about 20 of these types of cases over the past 10 years before COVID-19 began.

This case was particularly complicated because of COVID-19. The State of California passed an executive order that basically allowed a tenant to remain in their leased premises for 18 months without having to pay rent. But, unless an applicable city or county ordinance also applied, this rent was still due immediately after this 18-month period in full, and most tenants couldn’t afford to pay it all at once while also keeping the rent current moving forward.

Some of the issues that were interesting to deal with were as follows:

a. Is the landlord entitled to late fees and interest during the 18 months rent was paused? The California executive orders didn’t address this.

b. The landlord marketed the property on their own for about 4 months after the tenant vacated before hiring a broker. Would the court accept this even though the landlord was not as experienced or connected as a local qualified broker would be?

c. There was a clause in the lease that basically stated that if the tenant defaulted on the lease in any way, the tenant would have to pay back in full, without proration, all tenant concessions such as abated rent, tenant improvements, and broker fees. Would the court allow this?

d. The landlord could have re-leased the premises immediately to a new replacement tenant but failed to communicate to the exiting tenant (my client) that this replacement tenant required the trade fixtures for the deal to happen. These trade fixtures were permitted to be taken out by the existing tenant (my client) and were worth hundreds of thousands of dollars. Was the landlord at fault for not communicating with the outgoing tenant (my client) about the trade fixtures, which my client would have left in the premises if all parties had agreed upon a deal for the new tenant? If this deal had been finalized with this new replacement tenant, the landlord and my client would not have had to waste time, money, and energy on an expensive lawsuit.

e. When a new lease was eventually signed in 2023, the new tenant received 12 months of free rent for the first year of the term in lieu of any improvement allowance or other tenant concession. Was the outgoing tenant (my client) responsible for reimbursing this 12-month rent amount to the landlord?

The above were just some of the complicating factors of this case. I also conducted a full lease audit and found the landlord was overcharging the tenant for their share of expenses and identified some errors in the lease that favored my client.

Once I wrote my expert report and was deposed by opposing counsel, the case settled about a week before the trial was to begin. I could tell that I knew much more about this type of case than both attorneys involved. My expert report and deposition caused the case to settle, and I’m pretty sure it wouldn’t have settled otherwise, as the parties didn’t like each other much.

If you are an attorney, a tenant, or a landlord with this type of issue, contact David Massie at 805-217-0791 or david@djmcre.com to find out the best strategy to minimize your costs.

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DJM Commercial Real Estate, Hired as an Expert Witness by Local Real Estate Attorney

David Massie, President of DJM Commercial Real Estate, recently was hired as an expert witness by a local real estate attorney in southern CA. The case revolved around the landlord charging the client too much in Triple Net (NNN) and/or Common Area Maintenance (CAM) fees.

David was able to convince the mediator that the landlord had indeed charged fees that are not industry standard and not per the contract between the parties. David’s client prevailed and the case settled in the client’s favor.

David specializes in commercial (office, retail, industrial, flex, medical, etc.) lease disputes of every kind including NNN/CAM audits and reviews like the above matter. If you are a tenant or an attorney or even a landlord that needs an expert witness with over 35 years of experience on both the landlord and tenant side, please contact David at david@djmcre.com or call him at 805-217-0791.

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DJM Commercial Real Estate Represented Firm to Buy an Office Building in Agoura Hills Below Comps

David Massie, President of DJM Commercial Real Estate, recently represented a CPA firm to buy an office/medical building in Agoura Hills, CA for a price below the latest comps.

Originally, David’s client only wanted to lease until David showed him the property which had just been listed that same day.  The CPA client agreed it was too good of a value to pass up and was a better value than leasing.

The sales market in southern CA where David’s primary market is very hot with many more buyers than sellers right now and it is a good time to sell because of this so it’s harder to find a good buy like David did for his client here.  Getting to properties fast for David’s clients is very important and he is usually able to show them the properties the same day they were listed and many times even before they are listed.

If you want creative ideas on how to buy or sell your next office, medical, retail, industrial or other commercial building for more, please contact David at david@djmcre.com or call him at 805-217-0791.

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DJM Commercial Real Estate Sold an Office / Medical Building for 20% Over Comps

David Massie, President of DJM Commercial Real Estate, recently sold an office / medical building in Newbury Park, CA for about 20% over the latest comps representing the seller.
David was able to convince the City of Thousand Oaks to change the zoning to allow medical use in addition to the existing office use because the demand for medical space in this area is strong and supply is limited.
David then targeted a medical buyer to achieve a higher price and was able to get the property to appraise for the buyer’s loan.
The sales market in southern CA, David’s primary market, is very hot with many more buyers than sellers and it is a good time to sell because of this.
If you want creative ideas on how to sell your office, medical, retail, industrial or other commercial building for more, please contact David at david@djmcre.com or call him at 805-217-0791.
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Why Covid Has Made Commercial Leasing Better for a Tenant

If you are an existing tenant or a potential tenant considering leasing commercial (office and retail primarily) space, COVID has created some good leasing benefits in your favor. Many tenants are missing out on these benefits because they aren’t aware of them or don’t know how to get them. They won’t last forever, so the sooner you make a deal the better.

One of the main benefits for commercial tenant leasing space is a lower rent and/or more tenant concessions (free rent, improvement allowance, moving allowance, etc.). Landlords vary quite a bit on how they will give a tenant a credit here and it really many times depends on whether the landlords want quick cash flow or want a higher resale value. You have to find out what the landlord’s goal is before you start negotiating to get your best deal. A landlord that wants quick cash flow will usually give you a lower rent. A landlord that wants a higher property value will usually not lower the asking rent much, but will instead give you free rent and more tenant improvements and other similar types of concessions.

Another COVID lease benefit that favors a tenant is the lease language itself. Landlords are more open to clauses that favor tenants like not having to pay rent if COVID continues to shut down a tenant’s business or even cause less income for a tenant’s business.

I have found that if a lease is carefully and artfully negotiated, a tenant at this time will pay less than before COVID started by a quite a bit. This is especially true in the first year of the lease since the landlord knows the space he has might sit vacant for another year or more without a tenant.

Each situation is unique and needs to be figured out carefully. A tenant will do best if they hire an experienced broker to help them; a tenant should not negotiate on their own. I have negotiated many leases since COVID occurred and in my 35 plus years of negotiating commercial leases, I have not seen such favorable tenant terms. If you would like to find out how you can save money on your next lease, please contact me as follows:

David Massie

DJM Commercial Real Estate

david@djmcre.com

805-217-0791

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Successfully Negotiating the Commercial Real Estate Lease

This is my fourth and final article in a series where I give insight into the world of a California commercial real estate broker. A commercial real estate broker leases/buys/sells commercial real estate (CRE) for the client (tenant/buyer/seller). Commercial real estate is defined for this article as office, retail and industrial spaces.

As reminder from last time, there are four main things a good CRE broker does. They: find suitable locations, negotiate the offer, negotiate the lease itself (the many clauses) and are there when the client needs help thereafter. The first article I wrote was about finding locations; the second about negotiating the major deal points, the third one about negotiating the lease and this one will focus on how I as a broker help my clients after they sign the lease.

What happens if you have a dispute with your landlord after you sign the lease?  Common disputes with landlords that I get involved with quite a bit are a tenant needing to terminate a lease early, HVAC too hot or cold, tenant being overcharged for its share of common area expenses, and many other similar disputes like these.  Shouldn’t you just hire an attorney to help you?  My answer is not right away. If I can settle the dispute, it will save you a lot of money by not having to hire an attorney.

Why can I handle these types of dispute when other brokers can’t and why can I resolve them without usually using an attorney?  Because my experience is mainly from the landlord side of the tenant/landlord equation.  After negotiating over 1,000 leases, handling the property management and legal disputes for large landlords – I’m truly equipped to know how to deal with landlords with disputes like those aforementioned.  It is one of my largest value ads as your broker.  And if you are a landlord, I can even help you also to negotiate these matters with a tenant or the tenant’s attorney because it works both ways with my experience.   I am an expert witness on these matters in court and am used frequently and successfully by real estate attorneys for these types of disputes.

Don’t get me wrong; I value good real estate attorneys highly and use and recommend them often, but only when needed.  I have clout with a landlord because I bring tenants to their property; an attorney does not have this clout.  If a landlord upsets or is unfair to one of my clients, and I share this information with a new potential client, there is a good chance my new client won’t want to lease at this landlord’s project.  I don’t know of any other brokers that offer this service to their clients like I do and have such a high track record of negotiating acceptable settlements between the parties for these types of disputes.

Pick a broker that can help you properly in all areas including these types of landlord/tenant disputes and you will sleep much better at night while saving money and time. When searching, you will find that the list of brokers with this type of expertise is very narrow. Picking the right broker is the key to getting your best deal. You can never do as well, or even come close, if you try and negotiate the deal without a good broker.

If you have questions about any of the above topics or have any CRE needs, please contact David Massie at david@djmcre.com or 805-217-0791.

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Want to Lease a Prime Location? It Might Be Best to Buy The Business First

Many of my retail clients, especially restaurants and other food types of users, want to lease a great location with lots of visibility and quality foot traffic.  The main problem is that most of these prime locations are already leased.

So, what if your broker found you a prime location where the business owner might be willing to sell at a very inexpensive price?  Many businesses will accept an unsolicited offer to buy them out inexpensively because they simply aren’t doing that well, are tired of the hours, want to retire, are ready to try something else and for many other reasons.   If you bought the business, you would then have the option to either assume the existing lease or, at times, the landlord will agree on entering a new lease with you instead if he likes your business and/or financial strength better than the existing tenant.

As both a business and commercial real estate broker, I have been successful in doing the above for my clients.  For as little as $20,000, I have been able to secure many prime locations for my clients to lease.  (The price varies for many reasons, such as the worth of the existing improvements in the space, inventory, existing lease terms, perceived value by seller, etc.)

There aren’t many brokers that successfully perform both business sales/buying and commercial real estate leasing/buying/selling like I do, and the combination serves my clients well.  Unless they are very experienced at both, you should never let your leasing broker also represent you on your business sale or your business broker represent you for your lease. They might be good at their main expertise, but won’t be good at the part they don’t do much of; and it won’t end well for you if you do.

If you want to find out more about how to lease a prime location, buy/sell a business or commercial real estate, please contact me at 805-217-0791 or david@djmcre.com or visit our business brokering page.

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Retail Spaces Offer a Fix to the Medical Space Shortage in Southern California

Recently, I wrote about the shortage of medical space and an increase in retail vacancies in Southern California right now. My suggestion was to have medical tenants lease space in retail centers as compared to an office or medical building that they traditionally leased space in. This may seem like an unusual suggestion to solve the problem, but recent news suggests that this issue is beginning to grow.

According to CoStar Group, the gaining US population is expected to drive demand for medical space with more than 200 million square feet of medical office space needed in the next decade:

Driven by an aging U.S. population, within 10 years the amount of medical office space needed is projected to be 16 percent more than today, based on current trends. That’s greater than the combined medical office space in New York, Los Angeles, Chicago, and Dallas–Fort Worth, the nation’s four largest medical office markets. This undeniable demographic trend in the U.S. is both a headwind for traditional office demand and an incredible tailwind for medical office demand in the coming years.

So, what are medical tenants to do with this shortage? Lease space in retail centers.  When you lease in a quality retail center, your business has good parking, signage, and retail visibility from shoppers at the retail center.  The main criteria for any business is usually the bottom line so, if being in a retail center increases your net income, wouldn’t you want to be there?  This is rule #1.

Retail space in southern California is undergoing a change.  The smaller to medium sized retail centers in particular are starting to become more restaurant/food and service focused as opposed to other types of retail uses.  Customers at retail centers want to enjoy their experience and be able to do as much as they can at one location.  So, with the foregoing in mind, wouldn’t many medical tenants fit in with this new retail trend of a retail landlord leasing to service providers like doctors and providing a better experience for the retail customer?  I think so.

Read more on this fix for Medical Space Shortage & Retail Vacancies in Southern California.

David Massie specializes in buying, selling and leasing office, medical/dental, retail and industrial buildings -especially off market ones that are hard to find in Southern California that only his clients are made aware of first.  Contact David now if you have interest in finding one for you:  david@djmcre.com or 805-217-0791.

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DJMCRE Closes Escrow in 30 Days on a Medical/Dental Property in Oxnard at Premium Price

David Massie of DJM Commercial Real Estate recently closed escrow on a medical/dental property in Oxnard, CA at 1600 W Gonzales Rd. This was a building in need of work that David was able to sell at a premium price for the seller he represented. In addition, the escrow was only 30 days compared to the normal 4 months or more. This is a prime example of why a seller or buyer should hire an experienced broker like David to successfully sell or buy a commercial building.

Remember, because of David’s experience directing some of the largest real estate companies in the US, he can help both tenants and landlords with any of their commercial real estate needs for any type of commercial real estate for leasing, buying, selling and acting as a legal expert witness.

So, why should a seller hire a broker and pay him a commission when a seller can do it on their own?

  • Simply put, the seller will not be able to get the maximum price that a good broker can. Many brokers have clients waiting in the wings to buy a property and these clients will pay top dollar if they are allowed to make the offer first.  Also, the price a broker is able to sell a property for more than pays for their commission.
  • Sellers don’t have the same marketing ability as a broker. The world has become international and your reach has to be international.  The dollars are flowing into the US from other countries right now and international buyers are willing to pay more many times.  Brokers also know what is needed in terms of a marketing package to interest buyers. It’s complicated, expensive, and time consuming to put this package together properly.
  • The timing of when to put the property up for sale is critical. When is the market peaking?  Is there a lot of competition on the market for sale now?  Good brokers will usually know what is for sale on the market as well as off market, but sellers won’t.
  • The repairs that you need to make to the property before you put it on the market are also important. Some are worth making and some aren’t.  A good broker usually knows what to recommend.
  • What should the asking price of the property for sale be? What if there are no comparable prices for the sales price because the sales price is higher and the property won’t appraise for the sales price and therefore might not sell for this price and waste everyone’s time?
  • There are many other factors in selling a commercial real estate property; but, in our opinion, it starts first and foremost with the right broker. Doing it on your own is always a mistake.  If you don’t hire the right broker or if you do it yourself, it will cost you.  We have seen it many times.

If you want to learn more about leasing, buying and/or selling any and all types of commercial spaces in California or if you have questions about any subject related to commercial real estate, please contact David Massie of DJM Commercial Real Estate at david@djmcre.com or 805-217-0791.

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Most Important Factors to Consider When Buying Commercial Real Estate

If you’re like most commercial real estate (CRE) investors, you probably receive deal packages from brokers with CRE properties (defined here generally as multi-family, office, retail and industrial) for sale. Often, these packages contain executive summaries that position the deals as excellent investment opportunities. This should come as no surprise, as the job of the real estate broker is to present their property in the best light.

In many cases, sellers exaggerate the potential opportunity and don’t usually reveal the bad stuff. Instead, they’re just giving you the good points of their property. The due diligence is up to you, the investor, to determine whether what they’re telling you is accurate. The key, of course, is to know how to perform the due diligence so you have a true and accurate reading on what’s being offered. It’s important to understand the key metrics to always look for in any real estate investment and I am always surprised at the most obvious metrics that I see the majority of investors miss.

When you look at the potential of a CRE property, you’re really looking at how much income or profit it is generating for its owners. What should you be evaluating to determine that? Start with all the basic purchase information. This includes the price and any additional costs involved in renovating or repairs that need to be done.

You should also look at factors that might make you pass on the deal like: the condition of the area in general, crime, surrounding job market, property and other governmental taxes (Example:  High business tax is a big one in the City of Los Angeles that can cause a tenant not want to lease in this city) and the age of the property. These are often deal-breakers if they reveal too much potential risk.

The loan is another key metric: What type of loan will you have to finance the property? This will spell out the loan totals, down payment, interest rate, closing costs and other fees. Make sure you are comfortable with the loan structure (fixed versus floating rate, long-term versus short-term, etc.). You should also receive a detailed expense report on the property including: property taxes, insurance, maintenance costs, property management costs and others.

To buy a property correctly, I always recommend you have proper representation.  This first and foremost means using an experienced CRE broker and a good CRE attorney.  Most CRE brokers can refer you to a good CRE attorney because they have to use them all the time.  But a good CRE broker can also usually find better properties that are better values. They can also negotiate better than you can and your broker is paid by the seller. So really, it’s a no brainer to use a good CRE broker.

If you have any further questions about buying CRE or just want to make sure you do it right, contact David Massie at david@djmcre.com or 805-217-0791 or look us up at www.djmcre.com.