Getting a Fix on Fixtures: Watch Your Language with Improvement Clauses in Commercial Leases

(Say What You Mean, Precisely, or a Judge Will Decide What You Meant - #2)

True or False; all things annexed (attached) to real property (realty) become part of it. At early common law, the answer was true. The general rule was that everything attached to the realty was deemed part of the realty, and therefore deemed irremovable. Friedman on Leases, Sec. 24.1 at 1414 (2005). In modern times, as is the case with many “general rules,” the exception (removability) is now more general rule than exception, at least in regard to commercial landlord/tenant law (versus vendor-vendee and mortgagor-mortgagee law). See Id. at 1414.

The right for a tenant to remove items it installs in a landlord’s premises was recognized early on as necessary to encourage trade and manufacturing. Tenants making substantial investment in someone else’s property (especially when the investment is equipment or other items used in the tenant’s trade or business to further such trade or business [“trade fixtures”]) were presumed to do so for their own use and convenience and not for a permanent addition to the landlord’s property. Typically, a tenant’s interest in realty is relatively brief, and it logically follows that the tenant would prefer not to “give its investment away.” The general rule then regarding improvements made to realty in a landlord/tenant situation is that absent lease language to the contrary, a tenant may remove improvements that it has installed - particularly trade fixtures - if this can be done without substantial injury to the landlord’s property. Id. at 1414.

Ohio law seems to follow these general common law concepts and utilizes various definitions and “tests” when the intentions of the parties are not clearly stated in the lease. “Trade fixtures are not fixtures at all, but improvements that a tenant of realty installs to promote the purpose for which the realty is used rather than the realty itself. Trade fixtures, as a general rule, may be removed by the tenant during its lease term.” Jim Skiffey and Associates, Inc. v. Rosenberger, 1991 Ohio App. Lexis 1468 (11th Dist.). In Household Finance Corp. v. The Bank of Ohio, 62 Ohio App. 3d 691, 694 (1989), the Court proffered a three-part test for determination of a tenant improvement as a fixture: “First, to become a fixture it is essential that the chattel in question be annexed to some extent to the realty; second, the chattel must have an appropriate application to the use or purpose to which the realty to which it is attached, is devoted; and third, there must be an actual or apparent intention upon the part of the owner of the chattel in affixing it to the realty to make such chattel a permanent part of such realty.” As to the classification of a tenant improvement item as a fixture or trade fixture, such determination has been held to be a mixed question of law and fact in Ohio depending on the manner of attachment and the intention of the parties. See Canton Financial v. Pritt, 2002 Ohio App. Lexis 2645 (9th Dist.).

The “question of law” part of the determination is easily answered by the general rule, the definitions and the tests established in cases like those cited above. The problem with general rules, however, is they are just that, general, and not applicable to every specific situation. Consequently, the more difficult question to answer is whether the facts of the particular case meet the general rule and its definitions and/or the tests (the “question of fact”).

If you are thinking that the easy answer is just to use the word “fixture” when the Landlord wants to keep the improvement and “trade fixture” when the Tenant wants to remove the same; it is not that easy. The only universal agreement among courts in this area of law is that whether or not the installation is formally labeled a fixture or a trade fixture is unimportant. See Friedman at 1427. Even buildings erected upon a landlord’s land have been deemed removable improvements in some cases. See Friedman, at Section 24.5 at 1442 and cases cited therein. The predominant criterion in determining removability is the clear intentions of the parties and, as you might expect, intentions are apt to be unclear unless they are expressly set forth in a lease that is custom made for the precise situation.

Certainly there are patterns in these cases. For example, with regard to HVAC systems, equipment which is secondary to the existing premises HVAC, and easily removable without substantial damage (e.g. unbolting from roof) has been held to be tenant personal property or “trade fixtures”, based on “presumed intent.” See Cozmyk Enterprises, Inc. v. Robert L. Hoy, 1997 Ohio App. Lexis 2864 (10th Dist.).

On the other hand, HVAC systems which were primary to the realty, intricately integrated into the realty, and removal of same would cause substantial damage have been held to be non-removable fixtures, based on “presumed intent.” See Rose v. Marlowe’s CafĂ©, Inc. 1994 Ohio Misc. Lexis 66 (C. Pleas, Hamilton Cty.).

Reliance on case patterns, court definitions and presumed intent is not wise, as a practical matter. There are many more instances between the “case extremes” where courts are misinterpreting intent and landlords and tenants are leaving the courthouse unhappy with a lot of unbudgeted-for costs and expenses. The Landlord in the Cozmyk case presumably thought that the lease provision to the effect that “all fixtures shall become part of the premises and tenant may not remove the same” meant that the building the tenant constructed would stay on the land after the lease was over. Similarly, the tenant in the Rose case presumably thought that the phrase in his lease to the effect that “tenant shall not be prevented from removing its trade fixtures” would allow it to remove its supplemental HVAC equipment that was tied into the existing HVAC distribution system.

The best way to insure improvement items are removable or not removable is to specifically say so in the lease. Adding a simple qualification to a lease improvements clause, comparable to the following example, can easily do the trick: “landlord and tenant hereby intend and agree that the Carrier HVAC compressor and blower equipment installed, or to be installed by tenant on the roof of the Premises shall be [shall not be] removable by tenant at the expiration or earlier termination of this lease, and such Carrier HVAC compressor and blower equipment [shall be considered a fixture and become and remain part of landlord’s premises and property upon installation] [shall be considered a trade fixture, and be and remain the personal property of the tenant].”

The landlord or tenant will particularly want to make sure to specifically characterize improvement items that the courts consistently have held to be fixtures in some cases, and trade fixtures in others, including: HVAC equipment, electric generators and transformers, appliances, lighting fixtures and pre-fab office units.

The moral of this story: “Say what you mean, precisely, or a judge will decide what you meant.”

Commercial Real Estate Forecast: Partly Sunny for Retail and Multi-Family; Partly Cloudly for Office and Industrial

The latest Commercial Real Estate Outlook published by the National Association of REALTORS ("NAR") notes Commercial real estate conditions are uneven across the country and vary notably in some areas.

NAR’s report states that just like residential real estate, performance in the commercial sectors is greatly mixed across the country. Commercial fundamentals are good, but investment has been hurt by the credit crunch – investment in the commercial sectors decelerated in the first quarter after setting a record in 2007.

During the first three quarters of 2007, commercial real estate investment was in excess of $100 billion per quarter. In the first quarter of 2008 it slowed to the range of $35 billion to 38 billion.

The following information is NAR’s forecast in four major commercial sectors.

Office Market
Net absorption of office space in 57 markets tracked, including the lease of new space coming on the market as well as space in existing properties, should decline from 21.2 million in the second quarter of 2007 to 8.7 million in the current quarter.

Office vacancy rates are forecast to average 13.3 percent in the fourth quarter, up from 12.5 percent a year earlier. Annual rent growth in the office sector is likely to be 3.5 percent in 2008, compared with 8.0 percent last year.

Industrial Market
Net absorption of industrial space in 58 markets tracked is estimated to edge down from 35.4 million square feet in the second quarter of last year to 33.3 million in the second quarter of 2008.

Industrial vacancy rates nationally will probably rise to 9.6 percent in the fourth quarter from 9.4 percent in the same period in 2007. Annual rent growth should be 3.3 percent by the end of 2008, compared with 3.6 percent in the fourth quarter of last year.

Retail Market
Net absorption of retail space in 53 tracked markets is seen to rise from a negative 169,000 square feet in the second quarter of last year to 6.4 million square feet in the current quarter.

Vacancy rates are projected to decline to 8.8 percent by the fourth quarter from 9.2 percent at the end of last year. Rents are forecast to rise an average of 1.4 percent in 2008 compared with a 3.2 percent increase last year.

Multifamily Market
Net absorption in the apartment rental market – multifamily housing – is expected to rise slightly in 59 tracked metro areas, from 70,700 units in the second quarter of 2007 to 71,800 units in the current quarter.

Vacancy rates are projected to average 4.8 percent in the fourth quarter, down from 5.1 percent at the end of 2007. Rents are likely to rise 3.8 percent in 2008, up from a 3.1 percent gain last year.

This article was reproduced with permission from co-authors Chris Bell, Assistant Director of CABOR (Cleveland Area Board of Realtors) and Howard Lichtig, Vice President of CB Richard Ellis, Commercial Real Estate (Cleveland, Ohio Office). CABOR ( is a professional organization for real estate professionals and for businesses that work in or with the real estate industry. CABOR provides a variety of services to its members including education, insurance, and legislative representation. CB Richard Ellis ( is a global leader in real estate services providing local expertise within its world-wide network. Its highly regarded services include Brokerage, Facility Management, Development/Investment, Valuation and Appraisal, Market Research and a litany of miscellaneous corporate services. Mr. Lichtig has over 20 years of experience and a long list of professional accolades including multi year "Top 5 Producer" , "Tradition of Excellence" and "Finalist, Industrial Transaction of the Year" awards, Industrial Broker of the Year, and CABOR Commercial Realtor of the Year. Mr Lichtig can be reached at

Commercial Retail Development -- Think Big, Go Small

Think Big – Go Small
The value of small format development in an evolving retail and mixed-use environment.

By John Lateulere, AICP

For some time now, commercial development has been dominated by large format retail centers, which have largely evolved from the enclosed malls of the late 20th Century into the mixed-use lifestyle and town-center developments of today. Traditionally, the “Bigger is Better” theory has driven that more than 10 acres of land are required in order to secure the critical mass needed to make a retail project successful. However, the “bigger is better” paradigm is proving to no longer always be the case. Changing economic, social and development realities are helping to spur increased interest in a newer and potentially exciting development concept: small format retail. These smaller scale developments are frequently redevelopments, infill projects that transform an old corner gas station or dilapidated dry cleaners into a vibrant new space. Simply put, the industry is quickly evolving to realize that big presents are sometimes “smaller than a bread-box.”

The growing appeal of small format retail development can be attributed to a number of influences, not least of all the unpredictable nature of what has become, in some markets, a very challenging real estate and residential development outlook. In questionable economic times, financing has become both more difficult and more complex; large land parcels and big-money loans are harder to come by and generally represent a much more significant investment of risk.

Small format retail has previously been viewed as a niche concept, with a number of potentially troublesome logistical, procedural, financial and design headaches that many developers viewed as simply “too much trouble.” The projects themselves, like the perceived potential profit margins, were seen as too small to be worthwhile. Challenging national economic circumstances and a competitive commercial real estate market have helped refocus attention on the exciting potential of these kinds of spaces, and many developers are discovering that these neighborhood centers frequently present a range of situational advantages for developers, retailers, and consumers alike.

A thoughtfully designed neighborhood center is able to offer great amenities and a desirable location, a compelling design, and a convenient level of accessibility for retailers and guests, all with a degree of financing and development flexibility that is appealing to developers. Small format retail might indeed be a niche offering, but that niche is proving that it can occupy a valuable and important space in the development landscape.

retail store front
Defining Small Format Retail
What exactly is small format retail? The label is not so much a formal category of development as it is a catch-all phrase that can be used to describe any small or mid-scale retail development that brings some of the same appealing amenities, spatial relationships, and architectural detail of larger mixed-use projects into a redevelopment context, all on a scale that fits naturally within the community context of the site. These infill projects can be anything from a single-tenant enterprise to a multi-tenant neighborhood center that provides a diversified investment profile and a broader range of attractive retail, dining or service options. Instead of traditional big box anchor tenants, the “anchor” of a neighborhood center might be a coffee shop, bookstore, specialty market, or other small-to-mid-level retailer.

Infill redevelopment on this scale typically consists of a small assemblage of land – generally no more than 2 acres or so – that must be razed and rebuilt with a facility that meets modern retailer standards. Assemblage can present its own issues and complexities, but it can also represent a high reward – synergy; high quality infill development is structured such that the value of the assembled parcel is greater than the sum of its parts.

Unlike larger retail projects, which are frequently dependent on a large number of outside factors and uncertain variables and therefore present an inherently more unpredictable development process, neighborhood centers have the advantage of presenting somewhat of a known quantity. The traditional “chicken or the egg” retail/residential conundrum faced by so many developers when assessing a site’s potential – that homes will not sell in an area where there are no conveniences, and commercial options will not go where there are no rooftops – is a non-factor. The number of rooftops (a key indicator for value of tenancy) is already known and present, and speculation as to the potential positive or negative impact of future adjacent development is minimized.

These neighborhood centers are not only positioned within a known and quantifiable existing market space, but they also offer a highly customizable product that lends itself to a more diverse and flexible development approach. For developers, the advantage to that kind of flexibility is twofold. Smaller projects are easier to position, and possess a design and leasing flexibility that facilitates their ability to slide into a select market niche. There are only so many mega-retailers that a region can support, but there is always room for a neighborhood-level resource that satisfies a local or regional market demand. And from a practical standpoint, the diversity of these projects is an attractive financial proposition for developers who might balk at the idea of putting all their capital into one market segment.

Additionally, commercial redevelopment in these infill locations typically supports an increase in residential land values, ultimately magnifying the “value added” nature of the property assemblage. There are additional public relations benefits and opportunities that can stem from these kinds of projects, as well. Developers who work to form productive partnerships with communities to upgrade or eliminate blighted properties can sometimes benefit from relaxed development standards or possible public/private partnership financing.

From a design and functionality perspective, infill development on this scale confers a range of advantages over strip malls, which can look and feel somewhat outdated over time. These projects are architecturally more flexible, and can fit in a wide range of parcel configurations and layouts. Smaller buildings can provide for a higher percentage of tenants to offer drive-through services; they allow the center to be closer to the street, providing greater visibility and marketing potential; and they provide greater individual identity for each tenant. Thoughtfully designed small box retail is generally more accessible to visitors, providing multiple points of vehicular access and a high degree of walkability.

For all of its potential appeal, small box retail and infill redevelopment (particularly in aged urban areas and first-ring suburbs) presents a handful of potentially complicating factors. The tradeoff for building in what can be superb locations is sometimes dealing with properties that carry a lot of baggage. From aging infrastructure to environmental and political unknowns, infill development sometimes must overcome its own set of unique challenges. Older zoning codes sometimes have no provision for modern advancements, such as drive-through layouts and 360-degree building signage, and sometimes fail to account for the presence of mass transit and issues like stormwater management. Connecting with and relating to existing infrastructure can also be a hurdle, if existing roads, intersections, adjacent properties and traffic patterns are not updated, or the site presents existing cross-access easement obstacles.

big box store
Small Boxes To The Back
Until recently, many developers have adopted a mentality that the approval requirements, design process, and leasing initiatives needed to get a large project off the ground were equally complex and required a similar amount of effort as those needed to make a smaller project successful. With larger projects also generally cheaper to build on a per-square-foot basis, and typically carrying a higher public profile (and therefore greater potential for the developer to secure enhanced notoriety) small box retail and infill development has traditionally taken a backseat.

For all of their “headline” potential, however, larger projects have their own obstacles to overcome. They require dealing with larger, typically more demanding tenants, demand larger amounts of capital (sometimes a deal-breaker in the current climate), and ultimately, generally yield a smaller return on overall development. Savvy developers are learning how to be more flexible and are no longer turning up their noses at the chance to explore new opportunities and market segments. The industry as a whole is becoming more aware of the potential of neighborhood centers, and these niche opportunities are booming.

The logistics and coordination necessary for the successful design and development of larger numbers of small projects deviates greatly from that required to develop a handful of larger projects. For developers who wish to incorporate neighborhood centers into their development portfolio, it makes sense to assemble a team of experienced experts; development consultants and partners who understand the nuances of infill development and have experience meeting the needs of small format retail tenants. Assembling the right team can enable developers to efficiently and profitably negotiate the gauntlet of issues facing infill redevelopment, spur potential for public/private financial partnerships, and successfully transform neglected or underutilized spaces into vibrant new neighborhood destinations.

John Lateulere, AICP, serves as project manager of Land Development Services for Atwell-Hicks and can be reached at 440.349.2000 or Atwell-Hicks is an award-winning land development consulting firm provided services for residential and commercial real estate developments. With more than 400 employees in 15 offices throughout the United States and Asia, Atwell-Hicks focuses on provided real estate and development solutions via land planning; civil engineering; land surveying; environmental consulting; and water resource services.

This article originally appeared in Shopping Center Business, May 2008. ©2008 France Publications, Inc.

Columbia Pictures Contest to Pay Off a Family's Mortgage

The new Will Smith film, Hancock, is about a misunderstood superhere who is encouraged to improve his public image when he meets a good-hearted public relations executed. In keeping with the spirit of the movie's theme, Columbia Pictures has launched the Hancock's Helping Hand Mortgage Payoff contest. The grand prize winner will have his/her mortgage paid off up to $360,000. There is an annual income limitation and the contestants must submit a brief online essay explaining why they are deserving of the grand prize. The movie Hancock opens in theaters on July 2, 2008.

For more information check out the official contest web site.

CLE Update- Using a Mechanic's Lien to Get Your Money

NBI (National Business Institute) is presenting a basic level seminar designed for professionals who use (or want to learn how to use) mechanic's liens to settle construction claims. Drafting "no lien provisions", understanding the basics of mechanic's lien law, preserving lien rights, enforcing the lien and effectively settling lien claims are among the subjects to be covered in this full day seminar. Those attending will be eligible for the following continuing education credits: AIA-6.0; CLE-6.0; State Bar College-6.0; Engineer-6.0; IACET-0.6; NASBA-7.0.

Date: 8/04/08. Time: 9:00 AM to 4:30 PM. Fees: $329. Location: Cleveland (Holiday Inn Independence, 6001 Rockside Road). For More Information: Contact NBI at (800) 930-6182;

CLE Update - Legal Issues in Real Estate Foreclosure

NBI (National Business Institute) is presenting a basic to intermediate level seminar designed to provide practical and legal solutions to the problems associated with foreclosure and repossession. Current case law, legislative updates, judicial foreclosure procedure, the effect of new bankruptcy rules, ethical considerations and a panel discussion covering hot topics and common problem areas are among the subjects to be covered in this full day seminar. Eligible for Six (6) CLE and State Bar College credits.

Date: 9/10/2008. Time: 9:00 AM - 4:30 PM. Fees: $329.00. Location: Cleveland (Doubletree Hotel, 6200 Quarry Lane, Independence) For More Information: Contact NBI at (800) 930-6182;

Paralegal Teleconference -- Real Estate Closings

The Institute for Paralegal Education (IPE) is offering a one hour teleconference entitled "Real Estate Closings: Timely Tips and Techniques for Paralegals." The teleconference is scheduled for Thursday, June 26th, at noon EST. The agenda includes how the economic condition has changed the pace of closings, liens, clouds on title and breaks in the title chain, plus curing title issues. For more information and/or to register, contact IPE at 1-800-930-6182 or click here.

CLE Update: Boundary Law

CLE Update
PESI is sponsoring a seminar called "Ohio Boundary Law & Landowner Disputes" in Independence, Ohio on Thursday, August 14, 2008 and in Columbus, Ohio on Friday, August 15, 2008. The seminar reviews the survey process, surveyor in court, title insurance claims, adjoining landowner disputes, rights of way, resolution of disputs and the attorney/surveyor relationship. Ohio attorneys and land surveyors who attend will be eligible for continuing education credit. For more information, contact PESI at 1-800-844-8260 or

CLE Update: Commercial Ground Leases

CLE Update
The National Business Institute is sponsoring a seminar called "Commercial Ground Lease Fundamentals" on September 17, 2008 at the Holiday Inn Independence, in Independence, Ohio. The seminar, which focuses on structuring and financing land leases, provides continuing education credits for CLE (6.0), State Bar College (6.0) and Real Estate (6.0). For more information, call NBI at 1-800-930-6182 or visit their web site at

Atwell-Hicks: Specialized Solutions for the Real Estate and Development Community

Vendor Spotlight
Whether you’re acquiring acreage in Akron, converting condos in Cleveland or working on wind farms in West Virginia, the Northeast Ohio office of Atwell-Hicks can help.

With over 40 specialized professionals located in Solon, and 400 across the country, land development consultants Atwell-Hicks offer real estate and development professionals the cutting-edge consulting services, technical expertise and industry resources to get the job done.

As a consultant to our firm's clients, Atwell-Hicks offers aggressive, yet realistic, environmental consulting and transaction services to ensure full knowledge of potential site challenges before purchase. Once the full scope of environmental concerns is known, Atwell-Hicks also offers creative, tailored remediation strategies for new construction, redevelopment projects and existing facilities.

“Environmental consultants assisting the property transaction process should bring perspective to the project,” says Connie S. Carr, an attorney with Korhman Jackson & Krantz PLL. “With Atwell-Hicks, we receive both the technical facts required per our intended use as well as valued consulting on feasibility, options and costs associated with the proposed transaction.”

While the environmental consulting team is often first on the scene, Atwell-Hicks can take clients from concept to completion with urban design and land planning, site development, entitlements and permitting and construction support services. In essence, clients can come to the organization for one particular project need or enjoy the benefits of combined services through a dedicated project manager. In either case the goal is to represent the client’s best interests and support their overall development goals.

One unique aspect of the firm, aside from their full-service capabilities, is their focus on private-sector development markets. This allows the technical staff and managers to deliver results to the commercial, homebuilding, industrial, healthcare and related industries through an understanding of their market drivers, requirements and potential obstacles. Many consultants service a largely municipal audience, which dilutes the ability to specialize on the private markets and often presents a conflict of interest.

Since opening its Northeast Ohio office in 2004, Atwell-Hicks has strengthened its relationships in the region and has been recognized as a three-time Weatherhead Award winner, a Team Neo Success award recipient and has been recognized through client and project success at the Greater Cleveland HBA Cleveland Choice Awards.

Success in Northeast Ohio has also generated project activity in Nashville and Pittsburgh, resulting in regional locations in both cities. Clients in the region can enjoy project or program support in these markets, as well as on a national level through additional offices in Michigan, Illinois, Florida and Arizona. For more information about Atwell-Hicks, please visit or contact Erin Ryan at 440-349-2000 or .

Training Event: Industrial Hygiene Monitoring is conducting a training event on the Fundamentals of Industrial Hygiene Monitoring on July 21th - 25th in Akron, Ohio. The training provides 4.5 CM points. This course will show an attendee how to collect valid, representative samples to evaulate employee exposure to airborn chemicals, and noise, in the work environment, how to interpret results based on current exposure standards and how to conduct routine monitoring required by OSHA standards and good practice. For more information, please click here.

Top 10 Commercial Lease Negotiation and Site Selection Mistakes [6-10]

The following presents tenant mistakes 6-10 from the International Tenant Representative Alliance’s “Top Ten List” (provided by Tenant Rep. Gregory P. Schenk, SIOR; CCIM of the Schenk Company in Columbus, Ohio) as well as additional lease items for tenants to look out for.

Most Common Mistake


Tenants should use architects, general contractors and legal counsel under their control to create and review the various space plans, specifications, costs and documents. Otherwise, Tenant may receive inferior designs and/or fixtures that are less efficient and may dramatically increase yearly operating costs.

Most Common Mistake


Business owners who are inexperienced with commercial real estate are often unable to perform true “apples to apples” analysis when comparing different facility choices. It can be complicated, even for the pro, to compare the different lease types such as: Full Service, Gross, Semi-Gross, Net, Triple Net, etc. Additionally, each Landlords interior finish levels, Tenant Improvement (TI) contributions, lease incentives and a myriad of other factors need to be part of the comparison equation.
This confusion leads many owners to make less than optimum decisions.

Most Common Mistake


Companies which do not obtain accurate, current market research may pay too high a rental rate. Landlord “flexibility” changes constantly depending upon many factors including current occupancy rates in their building and the competition, lease length, tenant’s use, parking requirements, financial strength of tenant, etc.
Negotiations are especially important with lease renewals, since Landlords are most competitive when the space is placed on the open market.

Most Common Mistake


Due to a lack of experience, Tenant did not obtain as many incentives as they might have been able to negotiate. Typical incentives include periods of free rent both before and after lease commencement; discounted rent for various time periods, Landlord contributions to tenant’s build-out costs, landlord improvements to the space, limits on future rent increases, etc.

Most Common Mistake


When a company relocates it may be possible to obtain substantial economic incentives from local government. These incentives include tax rebates, relocation assistance, payroll subsidies during employee training, infrastructure improvements and others.
Many times the statutory incentives can be negotiated up very substantially, and an inexperienced company may leave millions of dollars on the table. Recently we helped a fast growing company get an additional half million dollars in city and State incentives that they wouldn’t otherwise have received.
Suggestion: Use an experienced “location analyst & incentive negotiator” to make sure you obtain the best incentives possible.


It may be better to have the Landlord perform actual build-out work, so that unexpected problems or delays will be the Landlord’s cost.
When it is appropriate for the Tenant to perform the build-out, have the lease provide for an extension if delays are encountered which are not the fault of the Tenant, and extra Landlord monetary contribution if unexpected repairs are required (termites, code violations, etc.).

Many times it is possible for the Personal Guaranty to expire “x” months after lease commencement, or provide a specific dollar amount of guaranty. Although not as beneficial, it may be possible to use an “Evergreen Guaranty” which provides that Tenant will personally guaranty a set number of months or years, commencing upon default by Tenant. Your professional will know what is typical for your market.

How fast is the company going to grow? Will it be necessary to downsize? How likely is a new partner or merger? These situations, and more, indicate the Tenant’s need for as much flexibility as possible. Tenants should work with experienced professionals to insert language into the lease which will allow a cancellation or modification of the lease under certain circumstances.

Will the company want to carry a new product line or install a new technology? Will a neighboring Tenant vacate (or move -in) which impacts the business? Tenants should be cautious with their “Use Clause” since these clauses can be very specific as to what goods and services the Tenant will provide, and may prevent a Tenant from offering a very lucrative product or service in the future which has not yet been invented!

Tenants who do not know the local market may locate into a declining area, making it impossible to hire and retain the highest quality employees.

Retail tenants who choose locations in unanchored properties to obtain lower rental rates. Traffic and subsequent sales volumes are dismal, and tenants fight a loosing battle.

The office building is not set up with the newest in telecommunications and data cabling, such that Tenant cannot benefit from today’s technology. Business is lost to competitors which can offer better service to clients.

Tenant did not use their own space planner and leased offices which were too large or had an inefficient floor plan.

Tenant did not verify the Landlord’s dimensions and figures and paid rent on “phantom” space.

Landlord asks for Security Deposit as standard procedure, but does not require one depending upon Tenant creditworthiness and/or build-out requirements.

Tenant limits its geographic area of interest too severely, and does not complete adequate market education resulting in lost opportunities.

Standard hold-over penalties in first draft lease agreements are typically far higher than necessary.

Tenants miss notification dates, resulting in automatic renewals, loss of option period, or other penalties.

Tenant made poor choices during interior design stage because of focus on “least initial cost” instead of “lifetime operating costs”. Many times upgraded lighting, windows; insulation, etc. can make very dramatic improvements in employee productivity, operating costs, and business security. Your professional should be able to discuss the latest in facility design, materials and technology.

Natural catastrophe occurs and electric power is lost for an extended period of time. Tenant is out of business, and loosing clients at a rapid rate. Proper planning and/or design can lessen the impact of potential business disasters.

Thanks again to Gregory P. Schenk, SIOR, CCIM. The Schenk Company’s “Competitive Edge” puts on seminars and courses, nationwide; authors articles which have appeared in many national publications; and has been the featured speaker at conferences for National SIOR, National Assoc. of Realtors, Ohio Society of CPA’s , Bar Associations, various banks, law firms and medical associations. Greg holds many honors in the industry, including: the 2006 Micro Entrepreneur of the Year award for real estate in Central Ohio; featured broker in Costar Magazine’s “Top Power Broker of 2004”, and “Midwest Real Estate News “ 2003 & 2002 top 50 Midwest Brokers”. For more information, Greg can be contacted at: The Schenk Company, Inc - 1350 W Fifth Ave,- Ste 224- Columbus, Oh 43212 - Phone: 614-487-1972 - E-mail:

Teleconference: Due Diligence in the Real Estate Process

CLE Update
MortgageWatch Seminars is presenting a teleconference on Due Diligence in the Real estate Process, June 12, 2008 from 1:00 EST. The teleconference lasts for 1 hour, 30 mintues and is sponsored by Lorman Education Services. Learn more about this teleconference.