Some Real Life Tenant Adventures:
Believe It or Not
Often you hear stories that seem incredible at first, but the teller is so convincing that you kind of shrug your shoulders and say, “Maybe that's true.” Every time there's a fire in California, we hear stories of the diver found in the middle of a burnt out field with all his equipment on. Everyone assumes he got there by being scooped up by one of the helicopters that brought water from the local lake to fight the fire. If you believe that, I have a bridge to sell in Brooklyn (for you guys in LA, that's where the real Dodgers played).
Here we go. Throughout "What They Forgot To Teach You At Tenant School", we have tried to highlight the pitfalls we've seen regarding every one of those incredible topics. Whenever we think we’ve seen it all, some inventive landlord comes up with a new angle.
Did you read the chapter where we told you about making sure your broker (or you, if for some strange reason you're not using a broker) tracks the deal in a clear, written sequence? It helps to avoid “some-timer's" disease. It's that disease landlords tend to get around deal consummation time—sometimes they remember something important, sometimes they don't. Here's a deal where everything was going fine and we had more documentation than the national budget. Then, Murphy’s Law showed up.
One for the books: For the past two years we have been working on an expansion and extension of a small space. Sounds like it should be a no brainer, right? Wrong.
Just after we started the negotiations, the building went into foreclosure. The bank (a large California based institution) hired a broker to represent them both in the sale of the property and in our deal. Wait—it gets better.
We struck a deal and memorialized it in no less than four written documents. The critical issue was the tenant improvement allowance. The landlord approved a $51,000 allowance to cover hard costs (actual materials) and further agreed to pay all “soft costs" (permits, architectural, etc.) that are above and beyond that. We thought we were set to go to leases. Not so fast.
First, the brokers found a buyer for the building who agreed to all the terms of our negotiated deal. We only needed to finalize what we were getting for our $51,000 in hard costs. Then the bank fired their asset manager, and the new guy (his former boss) took over and blew apart the sale. Then he fired the broker. Amazingly, our deal still looked good at that point. That didn’t last terribly long.
Remember a previous chapter about signing the landlord's standard lease? Well, the landlord and their attorney tried to modify an NNN lease form into a bastardized version of a modified gross lease—what a challenge (the attorney really tried). Unfortunately, there was a big error that actually had nothing to do with the NNN, FSG, MG, PGA, or NFL. The attorney stated in the lease that the $51,000 included all TI costs, both hard and soft. Oops.
Did the banker say admit the mistake? No. With both hard and soft costs now around $74,000, his response was to split the additional $25,000 and amortize the tenant's overage at 9% over five years, adding about $.10 PSF per month—thanks a lot.
OK, all you attorneys out there—they made an offer and we accepted. The memorializing of that agreement in the form of a lease was incorrectly documented. Then the banker claimed there never was any acceptance and told us to take it or leave it.
We're still fighting for our client.
What’s the lesson? Nothing’s over until the check clears. If that doesn’t sound doable, find a building that will never be sold, make sure the bank won't fire their asset manager, then fire their broker, renege on a sales agreement, then renege on a lease agreement, then have their lawyer memorialize the lease incorrectly in their favor. Hopefully, that shouldn't be hard.