Usually, it is a good thing when an anchor tenant decides that it is time for a massive renovation that requires Landlord to totally renovate and redesign the shopping center. It should mean a good face lift and upgrades for the local tenants. However, there will be some challenges and pain suffered along the way, particularly if the tenant does not have protections built into its lease up front, but also if the tenant doesn’t seek and obtain protections prior to the commencement of construction.

This scenario is playing out for a local restaurant client of mine. The restaurant, a popular deli located in a Publix anchored shopping center is suffering through Landlord’s renovations of the Publix and the shopping center. To call the work “renovations” is an understatement as Publix, like it so often does with its older, smaller stores, is in the process of a total rebuild. Only the exterior walls remain. The interior has been totally gutted and the roof above the store is gone. Like so many old Publix centers, Publix sits in the middle of the shopping center, with small, local retail, including my restaurant, on either side. From the street, it looks as if Publix is not just closed, but demolished. Therefore, it looks as if the entire shopping center will also be demolished.

During the demolition work, the contractors have cut water, gas and electric lines multiple times causing my client to close down for several days. The client has suffered lost revenue and expenses including paid wages for closed days to employees, not to mention spoiled food and other lost expenses. Vibrations from construction activities, unclean work site (such as nails in the parking lot), unsafe sidewalks and no signage, have also adversely affected business. The client has contacted the Landlord through the property manager and so far, the property manager has deferred to the general contractor, arguing that all cuts in utility services are general contractor’s liability.

Client contacted me for help. The first thing to look to is the lease. The lease should have protections for disruption of utilities and services caused by Landlord, in this case through its contractors. It should have provisions regarding construction and renovation of the shopping center, maintenance of the common areas, access to the shopping center and Tenant’s premises, quiet enjoyment. signage and multiple other like provisions. Needless to say, I have seen better leases than this one.

The next question is whether Landlord approached Tenant prior to construction started. Landlord should have discussed its plans with all of the tenants and the accommodations Landlord would make to minimize disruption to each of the tenants’ businesses. Tenants could then outline their concerns so that Landlord could adjust. Expectations could be set and met. In this case, despite the fact that everyone knew Publix’ plans, work just started without any converations.

Now, here we are with loss of business damages to the client. This is a good reminder as to why it is important to consult with an attorney prior to signing any document. A properly drafted lease probably would not have stopped this Landlord from doing thing that disrupted Tenant’s business. But it sure would have given Tenant leverage and remedies when things got bad.

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        After negotiating a good rental rate on a commercial lease, new tenants in Florida often get sticker shock when they calculate their monthly bill after factoring in sales tax. F.S. 212.031 assess sales tax on the consideration paid to occupy the premises. The consideration includes rent, CAM, utilities, real estate taxes and insurance. Florida is the only state in the nation to impose a state wide sales tax on rents. Tenants who have never leased in Florida previously can generally grasp the concept of tax on the rent, but they are puzzled by the tax on CAM and outraged when they are told that they pay tax on real estate taxes. Clearly, this is a double tax. Even the tax on CAM and utilities is a double tax. However, the legislature has determined, and courts have upheld, that the sales tax is a tax on the occupancy and not on the underlying goods. Therefore, there is no double tax.

             There is an exemption to payment of sales tax on utilities. If the landlord is paying taxes on the utilities, invoices CAM separately, has a separate line item for utilities on the invoice and does not mark up the price of the utilities, then there will be no sales tax due.

             Why does Florida tax rent? Simply stated, Florida has no personal income tax and its corporate income tax rate is among the lowest in the United States. Florida needs to look under every cushion to find sources of tax revenues. The state has always preferred to tax tourists and businesses as much as possible. The lease tax is aimed at business and generated $1.5 billion in 2015 and is projected to generate $2 billion in 2020. Yet there are calls to eliminate the tax. Governor Rick Scott (R) proposed a 1/2% reduction in the rate in 2014. The proposal failed. The governor tried again this year, offering a 1% reduction. Again, Governor Scott’s proposal failed. However, other bills were filed. One such bill required the total elimination by phase out of the tax by 2025. The bill never got out of committee.

             The critics of the tax are getting louder. Many business and real estate groups are calling on the legislature to take action in 2017 to phase out the tax. Leading the charge are BOMA, Florida Realtors, CCIM, Florida Gulf Coast Realtors, ICSC, Florida Restaurant and Lodging Association, Florida Retail Federation and NAIOP.

             Proponents of eliminating the tax argue that out of state companies won’t relocate to Florida because of the tax. However, their argument does not address the income tax reasons to come to Florida which could more than offset the sales tax issues, and often do. Also, opponents to elimination of the tax counter that to offset the lost revenue, real estate taxes would go up, which would be passed on to tenants. Landlords might also see the tax savings as an opportunity to raise rents.

             Perhaps a better solution to complete elimination of the rental tax would be to limit the tax to rent only and eliminate it from CAM and other charges. Tenants and industry groups would find it less offensive as the feeling of paying double tax would be off the table. The state would continue to collect the bulk of the tax and the taxpayer would receive a significant tax break. The state could more easily afford to make up this tax cut and Florida could continue to be an attractive place for companies to relocate to.

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