At the end of every year, every one has a Top 10 list. As 2017 ends and we begin 2018, Florida Real Estate Law and Investment Blog is pleased to present its first ever Top 10.  This is my own Top 10 list of my favorite posts from 2017.  It is not based on number of hits or any other qualitative data that I received over the year.  Rather, it is my own list of favorite postings, the ones that I most enjoyed writing and the ones that I think might have the most impact or meaning.  I did receive a lot of positive feed back on many of these posts and, if you haven’t read them, I encourage you to do so.  They are worth a re-read.  I’d love your thoughts this time around.  Looking forward to 2018!

#10 – Proper Zoning Determines Property Value – Posted March 7, 2017. A simple discussion about the correlation between a property’s zoning and the value of the property and how knowing the zoning prior to entering a contract can help in negotiations.

#9 – Renewal Option Language Often Overlooked – Posted July 24, 2017. Lease renewal option language is important for tenants in planning for the future.  It should not be overlooked when negotiating the original lease.

#8 – Offset Language Puts Lender’s Hands in the Cookie Jar – Posted May 22, 2017. I liked this post because it told a good story about a good client to work for, the Girl Scouts.  We had a problem with the loan documents that could adversely affect thousands of girls and their cookie money which no one intended or wanted – and we solved it.

#7 – Could the Grenfell Tower Disaster Happen in the United States? – Posted July 3, 2017. After the fire, many of us wondered how something like this could ever happen and whether it could happen in the US.  The post looked at US building and fire codes in the projects.  Despite our laws and codes, are we protected?  As I am finishing this post, a tragic apartment fire killed 12 people in the Bronx.  The investigation is just beginning, but I think the answer is that we are not fully protected in older buildings.

#6 – 6 Protections for Real Estate Partnerships – Posted July 31, 2017. We talk about real estate every day.  This post outlines some of the protections that should be included when we form entities with partners to invest in real estate.

#5 – US Withdrawal From Paris Climate Accord Met With Resistance From Local Leaders – Posted June 15, 2017. I have blogged many times about climate change and sea level rise and will continue to do so.  This is a particularly important topic to us in South Florida.  South Florida leaders in particular reacted to the news when President Trump announced the US was withdrawing from the Paris Accord.  South Florida will continue to abide by the Accord as it battles rising seas and climate change.

#4 – House Flipper’s Attempted Purchase Exploits Elderly Woman – Posted December 18, 2017. Posted just a few weeks ago, this article has touched a nerve with many of my friends and colleagues.  We see and read so much about exploitation of the elderly, and this post talks about how the real estate industry is also involved.  Beware.

#3 – Riding Out Hurricane Irma – Posted September 18, 2017. This was the single biggest news event in South Florida in 2017. We were fortunate, compared to the people on the west coast and those in Houston and Puerto Rico and elsewhere in the Caribbean.  Nevertheless, we had our story to tell.

#2 – Smart Houses Make Me Feel Dumb – Or At Least Unsafe – Posted October 30, 2017. Amazon Key was the inspiration for this post, but it encompassed all the products that make your house “smart”.  How secure are these products?  I expressed fear about a loss of privacy, not to mention trepidation about Amazon’s physical access to your house.  A few weeks ago, there were news reports of the first hacks into Amazon Key.

#1 – Email Scam/Wire Fraud Hits Close to Home – Posted July 10, 2017. This post has probably generated the most attention.  Hopefully, everyone in real estate will be more diligent and we can stop the fraud and the scammers.  I should put a note on my calendar to re-post this at least once a year as a reminder.

Happy New Year everyone!

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        I love having a good commercial broker on my team. A good broker is much more knowledgeable about the economics of a potential deal than I will ever be and understands the market better than me. A broker who knows his or her stuff will have done the heavy lifting on putting the deal together, negotiating the essential terms and completing initial due diligence before I am brought into prepare the operative documents and close the transaction. When we get to sticky issues, the best brokers can play good cop to my bad cop or vice versa.

             But sometimes, you get agents, and I am purposefully switching to the term agent here, who get in over their head. These agents should not be handling commercial deals. I am talking specifically the agents who are residential agents who attempt to get involved in commercial deals. Either they see an opportunity for a bigger commission and believe that commercial deals are no different than the house closings they are used to closing or, they are working with a friend or relative “as a favor” (and the commission is an added bonus). When a residential agent is involved in a commercial transaction, I, as the attorney, have to take extra special care with my client because I know that the client has not been represented well before engaging me and is likely not sophisticated in the world of real estate.

             Just the other day, I got a call from an agent who was referred to me by a friend of a friend. She was representing a client who was going to open a new café in the Edgewater area of Miami and needed a lease reviewed. Of course, this was an “urgent” matter and the lease had to be signed by the end of the week. The agent wanted to know if I could review the lease by the end of the day. My alarms started ringing. I asked the agent why the rush. She told me that the landlord had a lot of interest in the space and the shopping center was very desirable. I told the agent that I could begin reviewing the lease that day, but there was no way that I could finish it by the end of the day. Without asking, I told her that I could surmise the length of the lease and that to give it a thorough review, I could not read it that quickly. But more importantly, I asked the agent if she had done any due diligence on the property. She was befuddled. What did I mean? I asked her if the space was zoned for a restaurant. She told me that it was previously used as a Papa Johns so zoning wasn’t an issue. When I told her that because Papa Johns generally had no seating and that because the client’s café likely would, zoning might be an issue. In addition, if any alcohol was going to be served, zoning and use issues could also be an issue, not to mention liquor licensing. Had she checked any of those questions? The agent said she had not. I asked her who was going to be paying for the TI and how long the TI would take. Did the client need the pizza oven? She had no answer.

             We chatted a little longer about other issues that might come up in the lease and I explained that these were just a few of the reasons why it might take me longer than the day to review the lease. She thought that these were very good reasons and that she would definitely give my name to the client for her to call me to discuss my fees. I never heard from the agent again, nor did I hear from the client. I can only wonder whether the agent ever related my concerns or whether she was too embarrassed to let the client know that if she signed the lease, she was setting herself up for big time failure.

             It is nice to be able to throw business to your friends and family. But it is more important to have the right people working for you. Your friends, if they are really friends, should refer you to someone with the proper experience to help you properly. In the case I just mentioned, the agent should have referred her client to an experienced commercial broker who specialized in restaurant leases. A good broker not only would have steered the client into a proper property and lease and at least done some preliminary due diligence, but he would have likely paid the agent a referral fee. Everyone wins in that situation.

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        Commercial leases contain many important dates that trigger landlord’s and tenant’s obligations. Three important dates that are related to each other that are sometimes confused, but are separate and distinct, are the commencement date, the delivery date and the rent commencement date. In a very simple lease, all 3 of these dates can fall on the same date – perhaps the date that the lease is executed. However, in many leases, these are separate events and have important meanings to both landlord and tenant and should be carefully considered during lease negotiations.

             Commencement Date: The date that the lease becomes a legally binding obligation of landlord and tenant. Usually, this is the date that the lease is fully executed by both landlord and tenant. The commencement date can be used as an anchor date for many dates going forward. But, do not confuse the commencement date with the rent commencement date unless the lease specifically states that tenant’s obligation to begin paying rent begins on the commencement date. Further, determine whether the term is calculated from the commencement date or the rent commencement date. This will affect when rental increases occur and when renewal terms begin.

             Delivery Date: The date that landlord delivers possession of the premises to tenant. While this date can be the commencement date or the rent commencement date, it does not have to be either date because in many leases, landlord has to finish building the premises or the tenant has improvements to complete or approvals or permits to obtain before its obligations commence. Where tenant is responsible for obtaining approvals or completing buildout, the delivery date is generally the triggering date for the completion of tenant’s obligations and ultimately, the rent commencement date.

             Rent Commencement Date: The date that tenant is obligated to begin paying rent. Here, landlord and tenant have different goals. Tenants want as much flexibility as possible in establishing the rent commencement date in order to account for the delivery of the premises from landlord, landlord’s work, landlord’s approval of tenant’s plans, governmental approvals for commencement of tenant’s work (including building permit) as well as completion of work (including C.O.) and, tenant’s opening for business. On the other hand, landlords prefer that the rent commencement date be a set date. Landlord must consider timing, prior occupancy of the premises, likelihood of success of obtaining permits and how desirable the tenant is and tenant’s bargaining power.

             In a recent negotiation on behalf of a tenant, my client was obligated to do 100% of the buildout at an estimated cost of $600,000. Landlord insisted that the rent commencement date occur 1 year following the commencement date, which was also the delivery date. In our due diligence prior to lease execution, we determined that the zoning was not correct for the client’s intended use and landlord’s assumptions for the time required were therefore incorrect. As a result, completion of the space would take at least an additional 3 months past the rent commencement date. I argued that the rent commencement date should be 30 days following C.O. and offered to shorten the construction period by 90 days following completion of zoning. We anticipated this would put the rent commencement date at about 14 months instead of the original 12, but it would be a floating date and give us comfort. And, the time table would be less than the 15-16 months that would be required because of our discovery. Unfortunately, Landlord refused to make the change and my client, anxious to lock up the property, buckled and will likely pay rent for 90-120 days prior to opening for business. Clearly, this is not the perfect situation but it is an excellent example of the importance of understanding the difference between commencement date and rent commencement date. When negotiating these dates, understand your needs and do your due diligence prior to signing your lease.

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Developers have long fought local governments, the media and neighborhood groups in getting new projects approved. On the housing front, everyone complains that rents and home prices are too high. But from the developer’s point of view, the math is simple, particularly in urban areas. Height restrictions, parking requirements, zoning, density requirements and neighborhood opposition, not to mention land costs all make the cost of doing business high and therefore, the cost to the end user, expensive. Local governments aren’t willing to push back too hard because higher prices and rents means a higher tax base. Neighborhood groups inadvertently add to the problem. Organized efforts to limit scope, size and density of projects forces costs up and limits the housing inventory in communities thereby further pushing up rents and prices.

Activists across the country understand this and are taking a more prominent role in support of development, particularly smart growth. “YIMBY” groups (“Yes In My Backyard”) have formed across the country to speak in favor of development. These groups support mass transportation and pedestrian  and bicycle friendly corridors, affordable housing, modern urbanization and redevelopment. They blog and they coordinate grass root efforts to support candidates and elected officials who will promote legislation in these areas and who facilitate these issues as part of the public discourse.

A YIMBY organization in the San Francisco Bay Area. The San Francisco Bay Area Renter’s Federation (SFBARF, yes, I am serious) has taken a cutting edged position in Lafayette, California to promote affordable housing. SFBARF recently filed a lawsuit against the city of Lafayette to block plans to build 44 single family homes on a tract of land which was previously planned for a 315-unit apartment complex. The plaintiff has based its lawsuit on the California Housing Accountability Act, a law which has been used by affordable housing developers who have had projects denied. This is the first time an advocacy group has used the law to block a project and advocate for greater density. In essence, SFBARF is taking a pre-emptive strike on behalf of a developer who is not named and who has not submitted an actual plan.

YIMBY groups are good partners to work with governments and developers to advocate for affordable housing projects and policies and to counteract opposition groups and the usual gadflies. With this type of support, perhaps developers will be able to save on one category of development costs that adds to rising rents and purchase prices – extortion fees paid to opposition groups in exchange for support of the “undesirable use” in the neighborhood.

 

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The Arcata, California City Council recently approved the creation of a “Medical Marijuana Innovation Zone”. The 5-0 vote requires further study and the preparation of a zoning ordinance. If finalized, Arcata, a small town in Northwest California, would create what could be the first ever land use designation which would promote and regulate medical marijuana sales and production.

Arcata has not gone so far as to offer any economic or other incentives to attract medical marijuana businesses. But, it hopes that the new innovation zone will cause lease rates to increase as new businesses come into the market because of the industry friendly market. In addition, the city believes that a new type of tourist, a medical marijuana tourist, might begin to visit the city.

But has Arcata gone far enough in creating this innovation zone? The city could have followed the lead of other cities who have created innovations zones, or “I Zones” and offered other economic benefits and incentives to encourage the results that city leaders seem to be seeking. I Zones are used to provide real benefits to businesses to grow and therefore, a community reaps real economic development. For example, a city will create an I Zone for a specific purpose and offer tax increment refunds to encourage businesses to locate within the I Zone. As projects are built within the I Zone and businesses open, jobs are created, tax bases increase, ancillary service businesses arrive and new housing is built or existing housing is leased.

Gainesville, Florida has successfully established the University of Florida Innovation Square, a 40 acre research and business innovation zone. This I Zone is self-described as a “community that brings research and business together to inspire people to think bigger.” Research, business and residential space is located on site and over 15 companies have moved to Innovation Square.

Chicago has created Broadband Innovation Zones. Located in commercial and industrial corridors, these I Zones are created for private provision of gigabit broadband speed for business, universities, schools, hospitals, research institutions and other community organizations. The purpose of the Broadband I Zones is to foster innovation, job creation and economic growth through ultra-high speed internet services at below market rates.

If Arcata truly wants to promote marijuana and related products in order to achieve economic growth, lower rents and increased tourism opportunities for its city, it can use the innovation zone designation for more than a land use classification. It could offer tax credits and other incentives to encourage the medical marijuana industry to locate in Arcata and create, research and develop different uses for medical marijuana and other products. The city could put businesses and researchers together to collaborate cost efficient processes for growth, harvesting and distribution. And, a residential component could be added so that the “work, live, play” feature would be available in the I Zone to draw leading experts in the marijuana field to Arcata, making Arcata the cannabis capital of the United States.

 

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