Traps to Avoid

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Certified public accountants (CPAs) don’t work for free. And if you know math, you may not need one to calculate your own real estate tax, cost-of-living increases, operating expenses, and other lease costs you pass along to tenants. However, the money you save on CPA fees by doing your own cost calculations may be more than washed out by the liability costs you incur if your lease requires a CPA to prepare those figures.

Certified public accountants (CPAs) don’t work for free. And if you know math, you may not need one to calculate your own real estate tax, cost-of-living increases, operating expenses, and other lease costs you pass along to tenants. However, the money you save on CPA fees by doing your own cost calculations may be more than washed out by the liability costs you incur if your lease requires a CPA to prepare those figures.

Of course, you want to ensure that all tenants pay full rent on time every month. But you’re not just a landlord but also a businessperson who understands that half a loaf is often better than no loaf at all, especially when times are tough. Why not just cut a tenant who’s struggling with liquidity or other financial challenge a little slack? After all, we’re talking just one or two months. You can always lay down the law later if the situation doesn’t improve.

Right?

Wrong!

Litigation is expensive, but it’s often unavoidable. Consequently, most landlords seek to ensure they can recover their legal costs if they have to take the tenant to court to enforce the lease.

Some types of percentage rent tenants, such as building supply and paint stores, are apt to insist on carving out “wholesale sales” since they make less profit on those sales. You may have little choice but to accept this demand, especially when the tenant is a retail giant like Home Depot or Lowe’s. But if you don’t take the right precautions, you could end up losing much more percentage rent than you expect.

Here’s a suggestion for anyone who uses a standard boilerplate lease: Look through the document and see if it includes a statement like this. If it does, it’s most likely to be toward the end of the lease.

Listing the name of the person or entity that guarantees a tenant’s lease performance in the text of the guaranty seems like a perfectly normal and sensible thing to do. But it can have unforeseen and unfavorable legal consequences. The problem is that adding, subtracting, and changing guarantors at the last possible minute is a common scenario in deal making. In the pressure of the moment, the need to change the guaranty text to list the new names is easy to overlook.

Whether out of neglect or clerical error, you may forget to invoice a tenant for a tax escalation or other charge it owes you. Or, if the tenant is struggling, you might decide to keep the bill in your back pocket and wait for its finances to improve. In either case, you’re taking a risk. The failure to bill the tenant promptly for the escalation may cost you your right to collect it later.

Common misconception: Leasing to a foreign business is no different from leasing to a U.S. business. Truth: Leasing to a non-U.S. business raises special legal considerations. The problem is that standard boilerplate leases aren’t designed for—and thus frequently fail to address—these challenges. Here are five common pitfalls of leasing to non-U.S. tenants and how to avoid them.

Leases are long, complicated documents that only attorneys read word for word. Accordingly, landlords and other lease drafters may use different techniques to draw attention to part of the lease that they think are really important. One example is by having the tenant initial pages containing key provisions. Initials serve as a kind of acknowledgement that the tenant saw the page and understood it carried a degree of gravitas. The problem with this technique is that it can have precisely the opposite effect for pages the tenant doesn’t initial.