Simkin & Associates, Inc.

Comparison of the AIR vs. CAR Commercial Leasing Forms (With Hints!)

2021-05-27T16:18:19Z

Should I use the AIR CRE Commercial Leasing form of the CAR Commercial Leasing form? The lawyer answer is that they are similar but different! Most of the time the AIR form should be used, but both have pros and cons for landlords and tenants. See this attached memo with snippets of the clauses discussed or read below. Click here: AIR vs. CAR Commercial Leasing Forms Please let me know what you think of my comments. Nine AIR Commercial Leasing Forms vs. One CAR Commercial Leasing Agreement? Most California commercial leasing transactions use one of the AIR CRE Commercial Leases (“AIR Forms”) or the CAR Commercial Lease form (“CAR Form”). The AIR Forms are very inclusive at 20+ pages, are balanced for the landlord and tenant, but may not be the right choice for every commercial lease. The CAR Form is user friendly at 6 pages, but only covers the basics. The AIR CRE forms have specific leases for office, single, multi-tenant, ground leases and for shopping centers. AIR also offers addendums for arbitration, options to extend, rent adjustments, right of first refusal, etc. The primary difference between the AIR and CAR forms are detailed assignment of responsibility. Read more below: Common issues to consider or modify with the leases include the following: AIR Forms Lease: Condition of the Premises. Paragraph 2.2 of the AIR Forms have a common clause for the landlord’s warranty of the premises at the time of leasing. It states that the existing plumbing, electrical, and heating, ventilation and air conditioning (“HVAC”) systems are in good working order and the structural condition of the building in which the premises is located is free of material defects. However, this landlord warranty is only thirty (30) days, except for the HVAC system, which carries a six (6) month warranty. Any problems following the expiration of the warranty period are tenant’s responsibility to repair. A common modification by interlineation on the form, is to extend the landlord’s warranty for all building systems and/or HVAC for at least one year. CAR Form Lease: Condition of the Premises. Paragraph 11 simply acknowledges tenant has inspected and all is good except as identified in the lease. CAR is a broker focused organization, so it also provides before the signature page, in a box, a simple statement that the brokers do not guarantee the condition, zoning or provide legal, tax or any; other advice concerning the premises. AIR Forms Lease: Security Deposit. Paragraph 5 provides that if the base rent increases during the term of the lease, landlord may increase the tenant’s security deposit by the same proportionate amount. This term is fair to the landlord, but some tenants ask to strike that provision. Paragraph 5 also modifies the “default” commercial security deposit law of Civil Code § 1950.7 in favor of the landlord as to how the deposit can be used if the tenant vacates before the expiration of the lease term. CAR Form Lease: Security Deposit. Paragraph 6 also provides that the deposit increases along with the base rent. The CAR Form may also change the application of Civil Code § 1950.7. Paragraph 6(B)(iv) provides for the deposit to be used to “cover any other unfulfilled obligation of the Tenant.” To me that implies the landlord can keep the deposit to pay for future rent if the tenant breaches and vacates before the end of the lease term. However, the last line of paragraph 6(B) could be read that if only the unpaid rent which was due while the tenant was in possession can be kept by the landlord which is consistent with Civil Code § 1950.7. AIR Forms Lease: Utility Installations, Trade Fixtures, Tenant Improvements. Paragraph 7.3 of the AIR Forms allow the tenant to make improvements with the landlord’s consent, or without landlord’s consent, but with notice, if is non-structural or not visible from the outside. Tenant brokers may want to strike the “with notice” part. CAR Form Lease: Alterations. Paragraph 18 simply requires written consent by the landlord before the tenant makes alterations, which consent cannot be unreasonably withheld. AIR Forms Lease: Ownership, Removal, Surrender of Premises. Paragraph 7.4(b) and (c) allow the landlord to require the tenant to remove its alterations at the end of the lease. However, while the Tenant may have the right to remove its trade fixtures when it vacates, often removing trade fixtures or alterations are an expensive and time consuming hassle. The tenant may want to strike part of the paragraph so that it can just leave its tenant improvements or trade fixtures when it vacates. CAR Form Lease: Tenant’s Obligations Upon Vacating. Paragraph 24 requires the premises to be cleared of the tenant’s personal property and “deliver Premises to Landlord in the same condition as referenced in paragraph 11.” All improvements revert to the landlord, but the landlord may also require the tenant to remove any improvements. As with the AIR lease, the tenant may want the last sentence stricken as to removal of any improvements and or ownership of installed tenant improvements. AIR Forms Lease: Partial Damage — Insured Loss. Paragraph 9.2 of the AIR Forms provide that if damage occurs that is insured and the cost to repair is $10,000 or less, the landlord has the option to give the tenant the insurance proceeds and have tenant undertake the repairs. I would strike the phrase about the lessor making the proceeds available on a “reasonable basis” to the lessor shall immediately pay those proceeds. Additionally, this can be changed to have the landlord make the repairs even if the cost is less than $10,000. Further, the tenant may be responsible for any gap between the insurance proceeds received by the landlord and the actual cost of the damage repair. More importantly, the landlord may have a loophole to cancel the lease if only partial damage occurs and there is a gap in the insurance payments due to the “unique nature of the improvements”. The tenant should modify that provision. That portion of 9.2 where it begins “If such funds or assurance are not received, Lessor may nevertheless elect by written notice to Lessee within 10 days thereafter to modify the provision stating “… or (ii) have this Lease terminate 20 days thereafter.” Paragraph 9.3 also provides the landlord with a way to cancel the lease if the partial damage is uninsured and caused by the tenant. Particular attention should be given to the AIR Form at paragraphs 9.1, and 9.4. Paragraph 9.1(b) defines total destruction as requiring repairs that cannot reasonably be repaired in 6 months or less from the date of the damage or destruction if the Lessor provides written notice of this intent within 30 days from the date of the damage or destruction as to whether or not the damage is partial or total. The AIR Forms at paragraph 9.4 adds a line that automatically terminates the lease if there is “Total Destruction” as defined in paragraph 9.1(b). This automatic termination should eliminated, modified or at least require notice from either the landlord or tenant required and the ability for the innocent party to seek damages. Perhaps something along the lines of “if Total Destruction occurs, then either party may provide notice within 30 days of the destruction as to whether or not they intend to terminate this Lease.” Commonly, the “reasonably repaired within 6 months or less” is the litigated issue. CAR Form Lease: Damage to the Premises. Paragraph 26 provides that if the premises cannot be repaired within 90 days, then either the landlord or tenant can terminate the lease. Compare that to the AIR Forms, at paragraph 9.3, providing only the landlord can terminate the lease if the repairs will take at least six months! AIR Forms Lease: Real Property Taxes. Paragraph 10 deals with real property taxes that are passed through to the tenant as part of the common area operating expenses. Paragraph 1.6, 4.2 and/or Paragraph 10(a) should be modified to eliminate the tenant’s responsibility to pay increased taxes due to a sale or transfer of ownership of the premises causing a real estate tax increase (re-assessment). Related issues, or other clauses, may include a Landlord Proposition Tax 13 Tax Buyback or Proposition Tax 13 Protection clause. This clause may be used alleviate the potential tax burden upon the tenant: “Notwithstanding anything to the contrary, Real Estate Taxes shall not include any increase of Real Estate Taxes and assessments due to any change in ownership including, but not limited to, the sale or any other form of full or partial transfer of title of the Building or any part thereof, or due to the transfer of title of any leases in the Building/Project, or due to any renovation or new construction in the Building or related facilities.” AIR Forms Lease: Default –Time to Cure. Paragraph 13 of the AIR Forms provide for most breaches to be cured counting “business days” as opposed to calendar days. Paragraph 13.1(e) allows for more than 30 days to cure if the tenant has begun the curing process. This is an example of a tenant friendly AIR Forms lease provision and is logical given the time required by certain commercial repairs. AIR Forms Lease: Jury Trial Waiver. Paragraph 48 waives rights to jury trial. Such a provision is void as against public policy and is unenforceable. See Code of Civil Procedure § 631 and Grafton Partners L.P vs. Superior Court (2005) 36 Cal.4th 944. Waiver of jury requires a signed arbitration agreement. AIR Forms Lease: Arbitration Clause. Paragraph 49 requires the parties to check and attach a separate arbitration addendum. The parties and brokers can also choose to all be bound to arbitration. AIR Forms Lease: ADA Accessibility. AIR Forms Paragraph 50 or 51 require notification if the premises have or have not been inspected by a Certified Access Specialist (“CASp”) and states in subsection (b) the landlord does not warranty that the premises are ADA compliant and any ADA modifications required by the tenant’s use are the sole responsibility of tenant. The tenant should never agree to make anything other than its own non-structural tenant improvements ADA compliant. For those unfamiliar with basic ADA requirements check this out https://www.adachecklist.org/doc/fullchecklist/ada-checklist.pdf CAR Form Lease: ADA Requirements. Paragraph 19 places responsibility for any “alterations required by Law as a result of Tenant’s use shall be Tenant’s responsibility.” That is fair. However, the landlord also has some responsibility for required government alterations. The last line of Paragraph 19 provides that “Landlord shall be responsible for any other alterations required by law.” I believe that would include ADA improvements to the building to be the obligation of the landlord. The CAR Form Lease at paragraph 34 is a little sneaky. It omits the ADA phrase which would highlight the issue, rather, it states that the property has or has not been CASp inspected with checked boxes. However, CAR provides an optional ADA Notice form called the Commercial Lease Construction Accessibility Addendum that should be attached providing similar information as the AIR Forms paragraphs 50/51. This addendum should be used as it clearly satisfies the Lessor’s disclosure requirements. CAR Form Lease Anti-Fraud Provision. Paragraph 33 is unique because it provides that if the tenant lied on its application, then at any time, the landlord can “cancel this agreement”! My feeling is a court will not permit a forfeiture or eviction based upon that type of fraud, but it provides a negotiation point. AIR Forms exclude many matters from arbitration. While the AIR Forms Arbitration Addendum allow the parties (and their brokers) to choose to arbitrate any disputes, the AIR arbitration clause excludes more than it includes! For example, it excludes torts, bad faith, punitive damage actions, unlawful detainer and small claims actions. It even excludes disputes about “options” to extend the lease (paragraph 39 of the leases). The AIR Forms arbitration addendum significantly differs from paragraph 22 of its AIR Forms Commercial Purchase and Sale Agreement. I prefer the AIR Addendum and suggest adding that the arbitrator follow Code of Civil Procedure § 1280, et seq. Take care reading the AIR Forms arbitration addendum provides as to exclusions to make sure you are comfortable with a limited arbitration clause. E.g., a limited arbitration clause may benefit a tenant who wants to sue a landlord. CAR Form Lease uniquely requires mandatory mediation. CAR at Paragraph 35A requires mediation even if the arbitration clause is not signed but also has many exceptions to mediation before filing a lawsuit. You may want to enlarge which disputes require early mediation. The penalty for not mediating is severe, the party refusing to mediate may lose its right to recover attorney fees even if ultimately prevailing in the dispute. CAR Form also has many arbitration (and mediation) exceptions. Paragraph 35. B of the CAR Form carves out exceptions to arbitration. These include foreclosures, unlawful detainer actions, bodily injury, wrongful death and latent defect lawsuits. However, a lis pendens or writ of attachment can also be filed as part of a Superior Court action without invoking the no mediation attorney fee penalty. Which form should I use? Both sets of forms work for almost every leasing situation and modified as needed. For example, neither provide for payment of Key money to avoid the consequences of Civil Code § 1950.8(b) The AIR and CAR forms should handle 95% of your real estate transactional needs. Both AIR CRE and CAR offer excellent courses and guidance as to how to use their forms.

Frustration of Purpose as Defense to Commercial Tenant Covid-19 Breach of Lease

2020-08-24T06:16:15Z

There are several legal doctrines to examine to determine if a commercial tenant’s lease obligations are excused. The start is Civil Code §1511 and Civil Code §1514 This post examines the doctrine of “frustration of purpose” which is close to the related “impossibility of performance” doctrine, but frustration more properly relates to the consideration for performance. (Autry v. Republic Productions (1947) 30 Cal.2d 144) Frustration of purpose requires supervening events, unknown at the time a contract is made, so that without fault, a basic assumption on which the contract is made, cannot be performed. (FPI Development, Inc. v. Nakashima, 231 Cal. App. 3d 367 (3d Dist. 1991) If the debtor’s performance is excused by these causes, the debtor may owe part of the consideration according to the benefit which the creditor receives from the actual performance. (Civil Code, § 1514)

Attorney Fee Award to Person Found Not to Be a Party to Contract (alleged as alter ego) MSY Trading Inc. v. Saleen Automotive, Inc., G057093

2021-05-27T13:17:48Z

Saleen cars look awesome! Too bad the one in this case (not as pictured) only drove for 50 miles than died. Civil Code §1717 has a mutuality component. The defendant was added as an alter ego of a debtor under a Riverside Superior Court judgment, but was found to NOT be the alter ego. Therefore, he was entitled to an award of attorney fees although he was not a party to the contract sued upon in the former action which contained an attorney-fee provision. The case is here: MSY Trading Inc. v. Saleen Automotive, Inc The logic is if the person sued as an alter ego had been found to be the alter ego, he would be liable for attorney fees under the contract so, if the person is found not to be an alter ego it’s only fair to grant fees in favor of that defendant.

The appellant MSY Trading Inc. imports and exports vehicles. It obtained a stipulated judgment in Riverside against SMS Retail Corona and SMS Signature Cars, Inc. regarding its purchase of a defective Saleen brand automobile. Unable to collect on the judgment, MSY filed with the Riverside Court to add the famous business executive and former race car driver Steve Saleen and Saleen Automotive as judgment debtors, arguing that they are alter egos of the defendants. The court declined to add Steve Saleen, however, it added Saleen Signature Cars as a judgment debtor. (The lesson is don’t through around alter ego without sufficient facts).

The reason Saleen Automotive was added is because a stipulated judgment was agreed to including Saleen Automotive. The Court stated that whether by inadvertence or otherwise, Saleen Automotive was not a signatory to the settlement agreement. So that was a pretty easy call for the courts to add the entity. I find it amazing how lawyers make false arguments. 1st, the appellate court pointed out that the respondent MSY argued that Saleen was late filing his notice of appeal. The Court pointed out that “Somewhat ironically, if plaintiffs are correct, their own appeal (filed December 3, 2018) is untimely too.” 2nd, the Saleen defendant opposed the award of fees against the Saleen entity. The court pointed out the glaring floaw. Saleen Signature Cars was added to a judgment that contains an award of contractual attorney fees. The amended judgment did not eliminate the prior judgment, it simply added a party. Thus Code of Civil Procedure section 685.040 applied which allows post judgment fees for enforcing a judgment! Moral, sometimes you do not want what you ask for! Or maybe what is good for the goose is good for the gander. Or pay your debts! I also think for the size of the judgment, both sides spent more on attorney’s fees than the ultimate judgment so don’t waste judicial resources.

Malicious prosecution requires a favorable termination that ALSO reflects on the innocence of the party. (Roche v. Hyde (6/30/2020)

2020-08-24T06:16:20Z

I see this case more as a discovery matter and a lesson for lawyers and clients not to lie. But it also stands for malicious prosecution, a favorable termination requires more than a dismissal of the underlying action. The person wrongfully sued who has prevailed must show a favorable termination on the merits that reflects on his innocence of the alleged wrongful conduct to support a subsequent action for malicious prosecution. This matter turned on a discovery issue, and Rams Gate hiding information in discovery. This case involved the purchase of a Sonoma County winery by the defendant (Rams Gate Winery). For me, I especially liked the 1894 law pointed out by the Court stating: “…under Wittenbrock v. Parker (1894) 102 Cal. 93 (Wittenbrock), Ram’s Gate must be constructively charged with information in the hands of its transactional counsel,…” I love this because the transactional lawyer in the underlying purchase and sale transaction had possession of the information his client asserted it did not have. It is critical that lawyers send all documents and convey all facts about a transaction to their client! Roche v. Hyde – filed June 30, 2020, First District, Div. Four Cite as 2020 S.O.S. 3283 Full text click here > Further, this hotly litigated case had a unique issue involving Rams Gate winning a summary adjudication motion. While only part of the case was decided, Rams Gate only won due to its withholding of discovery. Therefore, the exception to the interim adverse judgment rule recognized in Carpenter v. Sibley (1908) 153 Cal. 215 (Carpenter) applied for judgments procured by fraud or perjury applies. The Court held that “As a matter of first impression, we hold that egregious discovery misconduct—here, the withholding of a critical piece of evidence in willful violation of multiple court orders, including a sanctions order, where the suppressed evidence likely would have resulted in a summary judgment victory for Roche—may provide a basis for applying the fraud or perjury exception under Carpenter.” I am continually amazed how lawyers and their clients lie and withhold information in discovery. Courts are not idiots, and when they discovery a lie in discovery, they tend to not believe anything the party (or their lawyer) say and the case is lost. P.S. The initial transaction was in 2005, this case is still not over and its 2020! However, the prior owners of the winery have both passed away. The opinion n is 95 pages long, but has a nice discussion of the facts and law.

Best Google University School of Law Website for Self Help

2020-08-24T06:16:22Z

The best source for those of you insisting on attending Google University School of Law click here: Sacramento Law Library Website The Sacramento Law Library has an amazing website. The only thing lacking are “attorney secrets”!!!!

LA County Accepts Electronically Notarized Documents!

2020-08-24T06:16:24Z

Los Angeles County now accepts online notarization. LA County Recorder Accepts Electronic Notarization Essentially you Facetime the notary, provide your ID and they email you the notarization certificate and document notarized. It is the absolute best way to notarize. I’m sure its only a matter of time for the fraudsters to exploit it. I have used www.notarize.com. They have an app, it costs $25 and is simply amazing! I believe Virginia, Texas, Minnesota and others directly allow for electronic notarization. See also here:States allowing online notarization

Los Angeles Superior Court Status Update April 24, 2020: No Civil Trials Until September or Later!

2020-08-24T06:16:26Z

LOS ANGELES (Updated April 24): “All civil trials scheduled to begin for the period March 17 through June 17 have been or will be continued by General Order. Because civil jury and non-jury trials are not included in the enumerated time-sensitive essential functions set out in these General Orders, they will be continued, or advanced and vacated and a trial setting conference will be scheduled. The parties will receive individual minute orders issued by the trial judge to whom the case is assigned continuing these trials to a date after June 17 or advancing and vacating the trial dates and scheduling a trial setting conference on or after June 22. The length of the continuance will be determined by reference to a number of factors, including most critically, the ongoing need to protect the public, potential jurors, attorneys, witnesses, court staff and judicial officers through the use of social distancing. Many courtrooms, jury boxes, jury deliberation rooms, audience seating and size and counsel table locations may not be well-suited to maintain the social distancing measures that we assume will continue even after our court moves into hearing non-emergency matters. Thus, our total available supply of jury trial-ready civil courtrooms may remain constrained for some period of time. The length of the continuance will also be influenced by the ability of our criminal courts to summons and secure a sufficient number of jurors to enable them to meet all constitutional speedy-trial requirements. Given that any pool of potential jurors must first be allocated to those criminal matters with constitutionally mandated trial dates, civil jury pools will be restricted for the foreseeable future. Further, limiting the ability of civil courts to resume civil jury trials immediately upon reopening of the courts to non-essential matters is the need to comply — to the greatest extent possible — with the statutory preference schemes articulated in CCP section 36, and the statutory mandates for unlawful detainer trials. The same considerations requiring the court to continue civil jury trials for the period from now until June 17 apply to those trials currently scheduled to begin on or after June 22. While the continuance orders may not be immediately issued, counsel should be prepared for the possibility that courts will find good cause for further continuances of non-preference civil jury trials throughout the summer. Because our courtrooms and courthouses are very likely still to be operating under social distancing requirements when we resume operations, counsel are strongly encouraged to appear telephonically for all calendar matters. In fact, our ability to resume calendars of any substantial size, is wholly dependent on counsel’s willingness to appear telephonically. The electronic filing system for non-complex civil matters continues to accept filings. Motions for Complex courts can be filed using drop boxes. Civil law and motion matters are not enumerated as time-sensitive essential proceedings under the Court’s existing and future General Orders. The Court at this time must direct its resources to ensuring that the constitutionally and statutorily mandated time-sensitive essential matters in criminal, dependency, delinquency, mental health, probate and family law can be timely heard and decided. Also, please keep in mind that more than 75% of the court staff is away from the courthouses during this emergency period. The court simply cannot process civil law and motion matters at this time.” More “All courtrooms will remain closed for judicial business through May 12, except time-sensitive, essential functions. All other matters will be continued by the Court. Access to all Los Angeles County courthouses remains restricted at all times to judges, commissioners, court staff, co-lessees, Judicial Council staff and vendors, and authorized persons.” More “Los Angeles Superior Court Presiding Judge Kevin C. Brazile, in a webinar on Friday…speculated that civil trials will start up again in August or September, and said civil trials now scheduled for late June will probably be continued.” More “Effective March 23 and until further notice, the Superior Court of Los Angeles County will close the Clerk’s Offices at all 38 courthouses.” More

Simkin’s Published Real Property Journal Article on the New Statewide Rent Control Civil Code §§1946.2, 1947.12

2020-08-24T06:16:28Z

California’s new statewide residential rent and eviction control laws change almost 150 years of legal precedent. The new rent control rules are contained in Civil Code section 1946.2 concerning termination of tenancies which now require “just cause” and Civil Code section 1947.12 concerning limitations on rent increases. Landlords must also be cognizant of additional new laws including, but not limited to, changing the content of leases, counting business days, not calendar days, for expiration of notices to pay or to perform or quit, and not inadvertently creating a rent-controlled property out of a rent-control exempt property. One of the best attorney’s I know wrote an article on these laws. Check it out: Simkin 2021 Rent Control Article CLA

Non-Profits may sell ADU’s Separately from the Primary Structure! — Government Code §65852.26

2020-08-24T06:16:29Z

Government Code §65852.26 states that if local laws permit, then a non-profit may sell ADU’s separately from the primary property to low income persons. The property must also be sold as a tenant in common interest. I am not sure how useful this will be.

HOA’s cannot prohibit ADU’s Civil Code §4751

2020-08-24T06:16:31Z

CC&R’s cannot impose restrictions on the addition of ADU’s, including Junior ADU’s. Civil Code §4751 states that CC&R’s can impose “reasonable restrictions” so long as they do not interfere with Sections 65852.2 or 65852.22 of the Government Code. This probably means submitting plans for approval to their design approval board and paying a small fee for that review.