AboutMike Fortunato Expertise Can answer questions on all aspects of commercial real estate management, including lease administration, eviction issues, financial reporting and budgeting, asset valuation/enhancement, marketing & leasing, and site maintenance and repairs. 20+ years of real estate management.
Experience 20+ years in commercial management. Current own and operate property management company in southern California.
Question QUESTION: I currently found a very nice place to open up a retail store and found the landlord to be very good natured and cheery in general. The retail location had 3400 sq. ft of contiguous space available and I requested that I will need 2000 Sq.ft only. The landlord had no problems and we started discussing the merchandise that I will carry. The landlord was very pleased with what I was bringing to his dream premium retail center and yesterday he handed me a copy of the lease for me to go over.
In the lease I see that under exhibit "C", article III, it is mentioned that the landlord's work is limited to exterior wall surfaces, roofing, store front, a single front door and a back door, floor slab and utilities brought up to the perimeter of the demised premises.
Under Tenant's work, it is mentioned, amongst other things, "Demise partitions as required to separate the demised premises from other lease spaces.
Is this correct? I have always seen retail centers lease offer a box (4 walls, roof and a floor) and the tenant is not responsible for constructing roof-to-floor walls, but only for putting on the drywall on the partition walls and flooring carpet.
Is this correct? I do not want to get into the cost of constructing the huge wall on my dollar. The lease rate is 36/sqft/year + NNN and the allowance provided to me is 15/sqft. The allowance would barely cover the drywall and HVAC, let alone the construction of a demising wall with studs running from the roof to the floor.
FYI, there are no brokers involved. There is no seller's broker and I do not have a buyer's broker on my side.
And Yes. I do have a contractor coming over this evening to look at the space so that he can give me a bid for the wall construction.
I need all the good advice I can get. Please help!
ANSWER: Constructing of a demising wall (or modification of any existing one) is usually a negotiated item. In your situation, since you need less space than what is currently demised, it wouldn't be all that unusual to require that the demising wall be included as a tenant improvement cost. However -- everything is negotiable, and there's certainly no harm in trying to get the landlord to pay for that cost.
Incidentally, you probably should be represented by a commercial real estate broker. That person would look after your best interests, and their commission would normally be paid by the landlord (via half of the listing broker's commission).
Best of luck.
Mike F.
---------- FOLLOW-UP ----------
QUESTION: Thanks Mike. As far as getting a commercial real estate broker, since none were involved, I wonder how the LL would react if I signed up one and he refuses to pay my broker. Also what if he refuses to give me space if I do get a broker involved? Can I in that case say to my broker - Tough luck? I do not want my broker turning around and going after me for his money.
Answer If you have already begun negotiations, it could be tough to add your broker into the mix now. The landlord wouldn't have to pay any more -- it's the landlord's broker that would suffer because typically half of his commission would go to your broker. As you might imagine, this won't make that broker happy, and it could affect the negotiations negatively.
Perhaps when you present your counter offer to have the landlord pay for the demising wall, if you don't get the reply you want, you could make mention that you feel your interests aren't being represented and that you're considering hiring your own broker. That might just tip the scales enough to get what you want. Just a thought.
