All Forum Posts by: Andy B.

A lease can be terminated due to a foreclosure, but you state that the bank extended the lease. So, it appears that the lease was between owner and tenant and then owner lost the house to bank. Bank then extended the lease thereby making it a lease between bank and tenant. You are now buying a piece of property with a valid lease in place - this is almost always going to pass with the sale of the property due to its existence at the time of the sale.

This is the not similar to your previous tax foreclosures because the owner (Bank) entered into the agreement with the tenant after the foreclosure.

I have seen deals where the purchase is contingent on the tenant (Walgreens in your case) exercising it's renewal option. I do not think it is uncommon to ask for this sort of contingency and tenants will usually work with it (my clients usually ask for a little bit of help with rent, but the rent set out in the renewal option is usually higher than the market rent so there is wiggle room there). But, the seller is probably not going to jump through the hoops to get it done if he does not have a buyer - it is a bit of a headache.

Plus, the options to renew are totally within the tenant's control and usually they have to exercise the right 6 months prior to the end of the term and they will usually wait for the last moment to do so (once the exercise, they cannot go back).

All good reasons - thanks for some other input. This deal just bugged me (been a bad deal all around) and I wanted some outside view and maybe learn some things in the process.

Usually, the leases I see have language stating that Landlord has the right to provide utilities and I delete that and say that Tenant will go directly to the utility provider and we then add language to say that the utilities will be paid and pipes will not freeze and all that protective stuff -- or, the Landlord says that there is only one meter and we either state that Tenant will pay to separate or some other "sharing" language.

However, in this recent deal the Landlord states that the utilities are separately metered but Landlord wants the right to force Tenant to buy the utilities from Landlord instead of the utility provider and even agrees that the cost will not exceed what Tenant would have paid the utility provider -- but Landlord has expressed on no uncertain terms (rather rudely in fact) that he will not change the language and will walk from the deal if we require the change.

My client will drop the issue so it is not holding up the deal or anything, but I just do not understand the stance at all and wanted to see if some fresh eyes or other frame of mind could show me the reason behind this stance.

My belief is that Landlord is saying no simply because I am asking for it and they want to "win" or the Landlord has that language in all his leases and thinks that because I am asking for a change it is bad for him (though he doesn't know why). But, I'm trying to give him some credit - maybe he has a reason that he just doesn't want to share with me.

Why would a Landlord want to buy utilities from the utility and then bill Tenant for the cost? I am asking mostly in relation to office/retail property but answers on apartment and even single family might help.

I can understand if the individual units cannot be separately metered, but I keep running into the situation (I represent retail tenants) where a Landlord wants the right to sell utilities to the tenant even though the building is already individually metered. I just don;t see the benefit for the Landlord since the Landlord has to set up the utility account, pay the bills and then calculate how to charge the tenant (or read the appropriate meter) and send a bill to the tenant and pursue collection.

Can anyone help me see what I am missing?

I usually assume they are typos or they are for rent and they were accidentally inserted into the for sale section

I always recommend to steer clear of using Quit Claim deeds - they have the potential to create problems down the road. Also, there should be no noticeable cost difference between a Quit Claim and a Warranty Deed (or whatever term is used in your area). They are both pieces of paper with generic words on them that need to be recorded and a real estate attorney can take their form deed (Quit Claim or other) and insert the property information in just about the same time (no real time difference, so no real cost difference) and both types of deeds are approximately the same length, so the recording costs will be just about the same.

The difference comes down to the language in the deed. In the most simplistic terms, a Quit Claim Deed says "I'm giving you whatever it is that I own, but I'm not saying that I own anything" whereas a Warranty Deed says "I warrant that I own this and I am giving you my ownership rights". There is really no difference to you when transferring from personal to corporate ownership since you know exactly what is owned; however, in a few years when you go to sell the property, the Title Company doing a review to grant title insurance to the purchaser will see a line item that says property transferred from Bob Jones to Property Holding, LLC and if it is a Quit Claim that did the transfer, they put up a red flag and then have to dig to determine what ownership Bob Jones had and how he got it and from what I have heard, many title companies do not like doing this sort of research and do not feel comfortable (even with the research) in insuring title.

Will this prevent a future sale? Probably not, but for no extra time and no extra money, go ahead and do the Warranty Deed and avoid the potential issue.

my law firm does all of that stuff, but we normally charge at an hourly rate.

I don't know about standard operating procedure (every one is different so there is really no standard), but we do prefer to get involved at the offer stage. We tend to encounter problems when we come in and try to paper the deal after it is negotiated - if we are involved in the LOI, we can sometime iron out potential issues easier than trying to fix issues that were specified in the LOI.

As for who eats the difference, it depends on where the property is located. Some states are "recourse" and some are "non-recourse". There is also the possibility of a loan agreement being draft as non-recourse or recourse (when the law allows).

So, if the debt exceeds the value of the property and the state is a non-recourse state, the bank will not be able to pursue the borrower personally (barring a separate agreement like a personal guaranty). In a recourse state, the bank can go after the borrower for any remainder due after the foreclosure sale.

As for the attractiveness of the property, that all comes down to comps. Just because someone owes much more than the reported value does not mean that the property is worth that much. You would have to do your due diligence to see if the purchase price was attractive -- plus, Zillow is not the best reference in checking actual value.

Slightly different idea -- I recently helped a client purchase a vacant Sam's Club building in Phoenix and they are going to create office space there. Their plan is to get with a solar company that is going to install covered parking in the parking field with solar cells on the roof of the parking.

From what I understand (this wasn't part of the deal, just conversation while we were working on other aspects), the solar company would install and maintain the structure at no cost, but the power generated would all belong to the solar company. The benefit to my client would be the free covered parking in an otherwise wide open parking field.

Could be a good idea for office or retail owners who want to make their building more attractive for little cost.