Archive for April, 2010

Commercial Property Sub-Lease is Responsibility of Tenant not Landlord

April 27, 2010

Does a sub-tenant have any right to stay in an office building if the lease owner has been evicted? A real estate brokerage firm has been the sole tenant of a small office building in the Scottsdale Air Park. Due to the weakening real estate economy, they were able to sub-lease three office spaces from this real estate brokerage firm several months ago. Under the commercial property lease between the owner of the office building and the real estate brokerage firm, the owner was required to consent in writing to this sub-lease. The sub-tenant has a copy of this written consent signed by the owner. The real estate brokerage firm is now delinquent on the rent, and the owner has instituted eviction proceedings. The owner does not want to honor our sub-lease because the owner wants to find a new tenant who will lease the entire office building.

Any sub-tenant under the lease, or any assignee of the lease, basically “stands in the shoes” of the tenant. Therefore, if the landlord is entitled to evict the real estate brokerage firm for delinquent rent, then the sub-tenant will also be subject to eviction. Although the owner consented to the sub-lease, unless there was a novation, i.e., new contract, (“nova” is Latin for “new”) between the sub-tenant and the owner regarding the three office spaces, the sub-tenant has no right to enforce against the owner of the sub-lease. However, the sub-tenant would have a claim against the real estate brokerage firm for breach of the sub-lease.

Combs Law Group was organized as and continues to be a highly specialized, boutique real estate law firm. For more information please contact us at info@combslawgroup.com or by calling 602.957.9810.

Owners of Commercial Properties Not Protected by Anti-Deficiency Statutes

April 26, 2010

Is it better to do a short sale foreclosure or let a building go into foreclosure? The loan on a small office building in Gilbert is $850,000. The bank has approved a short sale of $700,000 to a buyer from California. As a condition of approval, however, the bank is requiring a promissory note to pay the $150,000 short sale deficiency in monthly payments over three years. The bank says that, if the seller does not agree to make these payments, the bank will simply do a short sale foreclosure and sue for the $150,000 deficiency. The bank knows they can collect because they have the loan application which lists personal assets. Do anti-deficiency statutes protect owners of office buildings?

The anti-deficiency statutes do not protect owners of office buildings after foreclosure; and only protect homeowners that own a home located on 2 ½ acres or less that is utilized as a dwelling. In this instance it is recommended to close the short sale transaction because that will “stop the bleeding.” If there is no short sale, the bank is under no obligation to immediately institute foreclosure proceedings, and many banks are postponing foreclosure sales indefinitely because they don’t want to have to pay the property taxes, association dues, repair/maintenance, etc. In other words, if the foreclosure is not held for another year, the value of your office building could decrease to $600,000 with a deficiency of $250,000. And after the short sale transaction closes, one might be able to negotiate a one-time cash payment for less than the $150,000 promissory note, provided funds are available.

Combs Law Group was organized as and continues to be a highly specialized, boutique real estate law firm. For more information please contact us at info@combslawgroup.com or by calling 602.957.9810.

Failure to Enforce a Commerical Property Leases Contractual Provision May be a Waiver of that Right

April 24, 2010

Even if a lease provides that the landlord can charge for annual increase in the operating expenses, can a landlord start to make the company pay this annual increase after three years? A company signed a signed a five-year lease for some Central Phoenix office space and are currently three-years into that lease. The company has paid the same monthly rent for three years. Recently the landlord sent the company a bill for the monthly rent plus an additional charge for an increase over the previous year in the operating expenses for the office building. The company reviewed their commercial property lease, and the lease says that each year the landlord can bill the tenant for any increase in the operating expenses (such as insurance and repairs/maintenance) over the operating expenses for the previous year. When the company complained to the landlord about being billed for the increase in the additional operating expenses, the landlord said that the former bookkeeper simply failed to bill them each year for the increase in the operating expenses, and that they should be thankful they were not being billed retroactively for the increases in the operating expenses for all of the prior years. Has the landlord waived the right to collect for increased operating expenses because they waited three years to charge for them?

If the landlord’s former bookkeeper simply made a mistake in failing to bill for the increased operating expenses for three years, the landlord is entitled to bill you now for the increase in operating expenses over the previous year. In fact, the landlord is probably correct that the company could be billed for the increase in operating expenses for the prior years of the lease.

Note: In this gloomy commercial leasing climate, some landlords are happy just to get the base rent from commercial tenants, and intentionally do not require payment for increased operating expenses. This failure, with knowing forbearance by the landlord of the right to collect for increased operating expenses, may be a waiver of any claim by the landlord for those increased operating expenses.

Combs Law Group was organized as and continues to be a highly specialized, boutique real estate law firm. For more information please contact us at info@combslawgroup.com or by calling 602.957.9810.

How to Evict Tenants After Foreclosure

April 24, 2010

In Arizona Landlord and Tenant law, does it make a difference if a lease was month-to-month or that the lease was a one-year lease with seven months remaining on the lease? An investment group purchased a home in Gilbert, Arizona at a bank foreclosure sale. The home was in very poor condition, and the plan was to “flip” the home to another buyer for a profit after there were $20,000 worth of improvements and repairs made to the home. There was a tenant in this home, but the bank’s agent said that the tenant was only in the home on a verbal month-to-month lease. However, when the tenant was furnished with a five-day notice to move out, the tenant showed a one-year lease signed by the former owner of the home and the lease still had seven months remaining. The investment group went back to the bank’s agent with a copy of the one-year lease and the bank’s agent said that the tenant had forged the signature of the original homeowner on the one-year lease, and that there is only a verbal month-to-month lease. What is the best way to get this tenant out of the home?

Prior to May, 2009, the purchaser of a home at a bank foreclosure sale was entitled under Arizona law to furnish five days’ notice to the tenant, and thereafter begin eviction proceedings. Under the new federal law enacted in May, 2009, however, tenants under a bona fide lease with the former owner of the home generally have the right to stay in the home after foreclosure for the remaining months of the lease. Therefore, if there is a bona fide one-year lease with seven months remaining, the tenant after the foreclosure sale is entitled to stay in the home for the remaining seven months, provided that the tenant now makes the rental payments to you as the new landlord. If there is no bona fide one-year lease, the tenant by Arizona law is only a month-to-month tenant. The new federal law requires ninety days’ notice after foreclosure to terminate a month-to-month tenant. Therefore, based on the fact that the one-year lease may be a forgery, the investment group should furnish ninety days’ notice now and begin eviction proceedings after ninety days. If the tenant can successfully contest these eviction proceedings on the ground that the one-year lease is not a forgery, the tenant will be entitled to stay in the home for the remaining months of the one-year lease.

Combs Law Group was organized as and continues to be a highly specialized, boutique real estate law firm. For more information please contact us at info@combslawgroup.com or by calling 602.957.9810.