10x Your Real Estate Game with The Right Attorney with Justine Moreau
Searching for an attorney tailored to your commercial real estate investing needs? I'm sitting down with Justine Moreau as she shares how securing the ideal legal counsel can take your business to the next level. We'll talk best practices for conducting due diligence, building a powerhouse advising team, and leveraging lawyer expertise to maximize deal-making success, mitigate risk, and accelerate growth tenfold.
https://www.linkedin.com/in/justine-moreau-07053617/
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Key Takeaways:
It's important to hire an experienced real estate attorney who understands commercial leases and transactions. Referrals from others in your network can help find the right fit.
When reviewing a lease, pay close attention to ensuring the tenant is creditworthy, the lease terms actually make it a true triple net lease, and that there are no early termination rights for the tenant.
Getting an estoppel certificate directly from the tenant is important to verify the status of the lease and rent payments from their perspective.
Assignment and sublease provisions should ensure the landlord retains control over any future tenants in the space.
About Your Host:
Tyler Cauble, Founder & President of The Cauble Group, is a commercial real estate broker and investor based in East Nashville. He’s the best selling author of Open for Business: The Insider’s Guide to Leasing Commercial Real Estate and has focused his career on serving commercial real estate investors.
Episode Transcript:
0:00
This episode of the commercial real estate investor podcast is brought to you by cre launch Pro. This online commercial real estate program is designed to take you from beginner to pro commercial real estate investor with access to all of my courses, our online community, and monthly group coaching calls. Learn how to confidently buy your first commercial property today at www dot c r e launch pro.com. Welcome back to the commercial real estate investor podcast live from the cobble group Studios here in Nashville, Tennessee. And today I'm sitting down with Justine Moreau, who has been handling quite a bit of our own legal issues. She represents my brokers on almost every single triple net lease deal that we do, as well as some of the leasing that we do across our portfolio. And today we're gonna be diving into hiring the right attorney. I have never I was telling Justin this before we went live, I've never seen a deal that would have been better had an attorney not been involved. Of course, we have those moments. And I'm sure you've been across the table with attorneys where, you know, they just try and take a deal. But outside of that actually getting the legal structure right, negotiating things properly on your behalf, attorneys are worth their weight in gold. And, you know, I hear from investors a lot, you know, I don't want to I don't want to spend the money on an attorney, I don't want to spend three to $5,000. If the deal doesn't work with you spending three to five to $10,000 upfront to make sure that your investment is safe and protected and covered for the duration of your investment, then it's probably not a deal. Anyway, Justine is she's an attorney, she worked with a couple of law firms before she landed at a local development group here in Nashville that actually developed nationally. So she was working on national credit tenants and triple net single tenant Net Lease deals across the country, before she left and started her own firm, which is why as soon as she went started her own thing, we hired her to start doing all of our work, because we've got a lot of that business. So Justine, that was a brief background on yourself. But tell us a little bit more about you.
1:55
Thank you, Tyler. Um, that's pretty much it. I mean, I've been practicing for over a decade now. And I don't want to age myself too much. But I went to law school up in Maryland. And then I moved here for a job with a local developer about seven years ago and did you know always represented the developer side, which was the seller and the landlord side of deals all throughout the country, primarily triple met a lot of leasing work. And then I had the opportunity to go out on my own last June, which has been really good. There's something special about being you know, the entrepreneurial bent. Yeah, and having your own clients that are truly yours. And it's a much more interesting, day to day because I represent now the tenant side, the landlord side, the buyer side, the seller side, it's just much more interesting. But it's been good. Yeah,
2:42
it's fun. So let's, let's get into why an investor should hire an attorney. So so like I kind of mentioned earlier, a lot of investors feel like, Oh, I understand negotiations, I can kind of do this myself, or, you know, I've got a, you know, standard Tennessee Association of Realtors. PSA, I should just use that. Yeah. Well, tell us what's wrong with that?
3:05
Well, you're exactly right, a few minutes ago, and you were talking about look, if you don't want to spend the three to 5000 or about about how much you know, that's kind of average, how much it's going to cost you in legal fees to get a deal done. If you don't want to pay that amount, you probably shouldn't be fooling with an investment if you don't want to spend that much to protect yourself. And you know, I, I brush my teeth and I floss but I'm not doing my own root canal like that. So I hired a dentist and I just feel the same with legal stuff, you can be a very intelligent person. But if you haven't been in the in the trenches, so to speak, in contracts all day, every day seeing how things go wrong, understanding all the nuances of the different provisions, I think you're being Pennywise pound foolish because the few 1000 you would pay up front is going to save you a lot of money when things go wrong. I mean, I've worked with several clients who didn't hire a lawyer or hired the wrong ones. And then the lease is signed or the contract is signed, and then it becomes very expensive to get the problem on done.
4:04
Yeah, and it's too late. I mean, as an investor, you know, you might be able to get advice from your broker or a little bit of guidance from your broker, but they're not an attorney. Right. And really, brokers shouldn't be giving that advice because it's it's crossing a very black and white line, they can get them into trouble. That means they're accepting full liability for anything that happens because of what of their advice. The other nice thing is, you get to pass the liability on to the attorney right? I mean, it's the attorneys responsibility to make sure that you are protected. So
4:34
yeah, and it's one of those things when I talk with my clients and they I'm not the business person, and so certain things will come come up in the contract or in a lease and I say that's what you know, the broker is the business person they crunch the numbers they look at the cap rates they look at the NOI they look at all that stuff. I said that I'm not a numbers person, that's that's their responsibility, but like I'm the worst person and I'll make sure you're protected. So it's really just a different level of expertise. And you know, in a perfect world You got your you've got a very good business person. You got a very good lawyer. You have a good CPA. I mean, it takes really a team to do it right.
5:06
Yeah, I've seen. The best way that I've heard it put is that brokers negotiate the numbers, the attorneys negotiate pretty much everything else. Yeah, because it gives me that's kind of what it comes down to. Right. Like I've seen attorneys trying negotiate rats. I mean, way too late in the game, loi has already been executed, everything's agreed upon the attorney gets the deal. And he says, No, actually, I don't like this rent, they should be paying more. Right. And that blows my mind as a broker that an attorney is getting involved, because I don't jump in and tell him well, actually, in your, you know, liability clause right here, you should change this. But But it goes reverse, right. I mean, brokers shouldn't be telling attorneys, you know, who are the expert in these clauses, how to negotiate, you've got to really clearly delineate whose responsibilities or what,
5:48
right, and I actually want to bring up something real quick that I didn't plan on talking about, but it is really wise to have an attorney glance the LOI before it's signed. Yep. Just to talk about that. Why? Well, I mean, you were saying, once the LOI is signed, and then it becomes gets over to the attorney, there's just certain provisions in the LOI that are very legal, right, like, you know, it's very important who's pulling title who's paying follow the cost of title is really a business thing. But there's certain things that you can mitigate or alleviate, at the LOI stage that prevent a lot of heartache. Because even though an LOI will be, you know, not binding, both parties are going to rely on that very heavily during the PSA negotiation. And like we've talked about the broker is going to look at the the LOI with the business terms, like what is the what makes sense for tenant allowance, what makes sense for rent in a lease, or in a purchase, contract the numbers, but the lawyer is going to look at it with like, hey, you know, we got to make sure that says, you know, earnest money is still refundable. After this point, we've got to talk about contingencies and protect your client that way.
6:54
Yeah, it's, it makes a big difference. Because there are things that you can agree to, and I know why that you probably shouldn't. But as soon as that document is executed, even though it's non binding, even though it's non binding, everybody treats it as binding. I mean, it's word of law. I've had I've had, you know, just on the brokerage side, I've had people trying to renegotiate lease terms that had already been agreed upon in the loi, and nobody will budge on them. Because that was already agreed to in the loi, there's no point in renegotiating that. Right. Right. So you gotta stay ahead of it. Right.
7:25
So I always tell my clients, I mean, sometimes it's after the fact, but I say for the next deal, just let me skim it quick before you sign it.
7:31
So So when should uh, should a commercial real estate investor typically bring an attorney into the deal? Was it at the point that they are about to execute the LOI? Or is it before that? I
7:41
think it would be about right when you're ready to execute. I mean, at that point, you would think the broker had negotiated all like the core business terms. You know, in a purchase contract, what's the sales price? What's the due diligence period? Is there a finance contingency? All of that would be negotiated upfront, but just to have a lawyer skim it quick, just to make sure hey, you know, if you're the buyer money is still refundable after this point, and that it just says very clearly, expressly in the loi, who has what right?
8:09
Yeah, and the attorney is going to have to have the LOI anyway, at some point, because they're going to have to use that to make sure that everything is in the waste properly. So you might as well,
8:18
loi is and it just gives me like a heartbeat. Like, oh, man, if you could just let me skim this. I guess, why don't we back up for a second? And we'll just talk a little bit because I think most of your viewers are kind of first timers, right? Yeah, there's
8:32
a fair amount of we got a fair amount of, like, completely brand new to real estate, okay, then we've got a decent amount of, you know, we already own a few properties. We own some residential real estate, we're looking to transition into commercial. And then we do have some, it's, you know, probably fewer than 10%. But, you know, their family offices, their high net worth individuals that was in the podcast.
8:51
Alright, so why don't we talk a little bit about what you should look for when you hire a lawyer? Yeah, I
8:58
have, I've gone through many attorneys. I mean, that's it. Anybody, any commercial real estate investor will have to go through this process. So yeah, let's talk about it. Okay,
9:07
so it's interesting to me. When, when people are interested in engaging me or another lawyer, the first question that they'll ask me is, what is your billable rate? Right. And so that's how lawyers make a living typically, as they build their time. I don't particularly agree with it. But that's just how it works. And so I think the best way to approach hiring a counsel that works for you is to instead of focusing on billable rate is ask for referrals of their current clients, and then ask for similar deals that they've done that are like the deal that you're going to do. And law has become so specialized that you could be the best tax lawyer in the world. But if you're not a real estate lawyer, you don't have any business, negotiating a contract or a lease. I mean, they're so
9:53
special. It doesn't matter. Yeah, we're dealing with a with with some contract or fraud at the moment and We sent a complaint to the Attorney General. The contractor hired an attorney to give us a response, which isn't even typical in a response to the Attorney General. It's a Consumer Affairs complaint. But he hired a lobbyist. Oh, gosh, an attorney that is a lobbyist to respond who has clearly no understanding of contract law, no understanding of construction. I mean, it's, it's the funniest thing in the world. And we're reading this and I could see how to away person, like, oh, there's a lot of legalese in here, like, this looks really good. But I went through and I was like, Man, this guy's so out of his league, he's probably amazing at being a
10:37
lobbyist, right? My heart breaks for that person. Because I mean, I'm sure they got a fat legal bill probably wasn't even very helpful. And so I think a lot of folks get fixated on what's your billable rate? And where it should be really focused on is, is the attorney skilled to their clients respect them? And are they skilled in the area that you want to practice? Because if someone's really good at what they do, even if their rates higher, they're gonna get it done quicker and more efficiently. So you're at the end of the day, the bill might even be less than if you hired someone with a lower billable. But, you know, didn't have that experience or that? I don't know, I guess experience is the best word. Yeah,
11:16
I mean, look, $200 an hour sounds a lot more attractive than $425 an hour. But at the end of the day, you're gonna get billed for 10 hours of education of that attorney, how to go through and read all the documents and read the books and try and figure out how they should properly respond to this and talk to a couple of the bigger partners at the firm to understand you know, how they should actually do this. It never ends up working better. I mean, the the analogy that I like to use and bear with me is that attorneys are like tattoo artists. It's the same thing, right? Like, you're not going to walk into a tattoo studio and say, what's your what's your billable rate? You don't care? They're putting something that will permanently be on your body for the rest of your life? It's the first question is, let me see some of your work. It's
11:58
a good example,
11:59
I need to see exactly how skilled you are doing tattoos before we even talked about that. That's
12:03
a really good example, I learned the hard way with hiring an architect for custom build. And I had never hired an architect before, and I got very fixated on cost. And how quickly can you get it done? And when she gave me the first schematic, I just felt like did you even listen to? Like, did you even listen to like what I was telling designed the wrong thing? Yeah. And I should have, you know, there was someone who I spoke to earlier who I really had a good feeling about who was very experienced, but I got a little bit intimidated by his cost. And I ended up having to cut the other person to check for her time spent and in hiring the other guy. So I was out more. If I had just gone with the person who was more expensive, but had the experience I needed. I was like, Damn, that was an expensive lesson. Yeah.
12:49
So how do you how does someone overcome that fear, right? Because that's, that's something that naturally, just as business people, we're always looking for the best deal, right? Like, I want the best price to get this legal work done. But as somebody that's not in the legal profession, you know, it's tough to understand really the difference of quality between a
13:10
tie, I think, if you're really new at it, and hopefully you have some kind of mentor circle, that's pretty good. You would just really want to get a referral. And actually, that's how my practice has really become a lot stronger and grown a lot. I mean, I've only been working for myself since last June. It's a lot of referral business, because you do a good job for somebody and then they refer you to someone else.
13:33
Yeah, I mean, that's, we've we've probably referred you to a whole bunch of people. I'm sure. I mean, at least working on all of our stuff. I mean, yeah, there's a fair amount of work going on there. Oh, Ron. Ron wrote, he's jumping in Ron, what's going on? Man? I'm saying Great comment to ask about similar clients and outcomes. I completely agree. Still
13:50
kind of hard to hear me. Okay. Okay.
13:53
Yeah, just keep your keep your mouth about like two inches away from the mic. It's kind of a tough habit to get into. Okay. Appreciate it. Ron. Thanks for jumping in man. So yeah, I mean, it's, it's interesting when you're going through that process, and Ron would love to hear your thoughts on this, too. I mean, obviously, you're, you're doing some real estate law down in Texas. You know, how, like, what, what questions should I be asking? Like to understand the skill level of the attorney?
14:18
I think I would just say, you know, in the last year, how many if I'm, if I'm wanting to buy a triple net property, it would just be kind of like, what other deals have you done that are similar to this? Yeah. I mean, just truly as objectively as that, right? And then if if they can give you two examples and kind of walk you through what that looks like, think There you go.
14:40
Are there any gotcha questions that you could ask an attorney like, what's your biggest screw up? Or do you have any clients that are what would your most unhappy clients say about you? I mean, I love asking questions like that because it tells one a lot about somebody's character, if they're willing to say it, like, Hey, here's what happened and here's how I rectified it. But it know if there's anything specifically there? I
15:02
don't know, that's more like a job interview question. Yeah. I think I would be really focused on what similar deals have you done, you know, in the last year and kind of what's the average cost, Ben? Because clients will ask me that or prospective clients will say, like, how much did this cost? And you say, Well, I can give you a range best case scenario. But this is assuming there's no title issue. This is assuming the other party is going to be a reasonable negotiator. Yeah, a lot of assumptions. And, you know, when when the commodity here is time, it just depends.
15:35
Well, let's talk about that too. Because you know, there. Everybody wants to get an estimate, right? It's tough on an hourly basis, right? To even give remotely give an estimate, right? Well, let's talk about why. Because, you know, when you're getting into these deals, you don't know how much negotiating you're gonna have to do. I've gotten some PSAs, where I sent it to my attorney, and we had one redline. Right, you know, and I've had some PSAs, where we got back from the opposing counsel, and it looked like a leprechaun threw up on the page. It was just the craziest thing I've ever seen. Like, okay, this attorney is clearly trying to justify their billing. Right, right.
16:11
I mean, how do you don't know? Yeah, you just don't know. And what I what I always do with my clients, like, once we're under contract, and it's due diligence time, I always say, hey, how involved do you want me to be? You know, you're the one with the checkbook. Do you want me to comb through everything? Do you want the brokers to do some, you know, I kind of let them let me know, like, how much money that they're willing to spend?
16:34
Yeah, I mean, what what do you typically recommend? Oh, let's see Ron's jumping in as well. Let's see, Ron, who is your ideal client, who is not a good fit for your law firm. I like that one, too. You said I like when clients asked me about going full cycle with a single client. That's a good question too. Like, how, what was it? Like? What was your experience? I think that kind of goes into your referral. kind of statement there earlier. It's like, you know, if somebody is satisfied enough with working with you, yeah. To want to refer you. That's
16:59
always the biggest compliment is I'll get a call. No. Like someone so told me about you. And I have this deal. I'm like, yeah, yeah. No, it's great. So that's good. And then, you know, I guess we'll segue a little bit. You know, we're talking about the importance of using an attorney. And then I think maybe that makes sense to talk about in at least in commercial, the importance of doing and why you really need an attorney is to do a custom purchase agreement. Yep. Yeah, let's talk about that as canned ones.
17:23
Let's let's dive into that. So So let's assume you've been engaged, you've reviewed the loi, and you are on the buy side, because it's different when you're on the sell side. What what is the next steps of working with an attorney for real estate investor from the buy side?
17:38
Well, usually the LOI will say which party will be drafting the PSA. And when you're a seller, you don't care. You just want to dump the property. You want seller to buy it as quick, excuse me buyer to buy it as quickly as possible. You don't care about contingency, you don't care. You want the earnest money to go hard, really fast. But the worst is when I get you know, one of those almost like a residential can form.
18:01
Yeah, the tar for the Tennessee Association, or the National Association.
18:06
And I'm like, Look, we can't No way that's that's always bad news. And
18:11
why is that?
18:13
commercial deals, there's just so many different details involved that you can't, it's not like Bobby and Suzi buying a house. Get closer the mic, which is okay. Okay, it is. All right.
18:29
Is this better? Yeah, just let us know if that's better. We'll make sure. Hey, Coach,
18:34
thanks for the feedback. It's just the commercial deals are much more involved. There's a lot more to them between. Due Diligence and timing, and when there's a tenanted property, right, in triple net, there's actually you're buying the lease. It's not just buying, you know, residential home on a quarter acre with a house and maybe a swimming pool, right. Like, there's just a lot more mechanics to it. And so these leases don't anticipate anything like that.
19:02
And no two properties are the same. Yeah, exactly. Right. I mean, it's I feel like it's so it can be so canned when it comes to residential, but it's not remotely the same and commercial real estate, I mean, the same house over and over and over again, track homes, right? There's not really going to be a whole lot that you need to worry about.
19:18
And if and especially because there's a tenant in the property, you know, in a lot of the purchase contract has to anticipate different things like that within estoppel has rent commands, there's different things that really are much more specific to the deal.
19:35
Yeah, so when when we're buying triple net assets, the most important thing to us is the lease. A lot of people think it's actually the property rights, not necessarily the property. The property is nice, right? In 10 years. I'm gonna get that back. But let's talk about why the lease is the most important part of the deal. Now,
19:51
I'm glad you brought that up. And I figured we'd probably talk a lot about that today in the triple net world. And it's interesting because even some of the clients that you've referred to me we've had to have these like, Come to Jesus moments where I'm like, guys, you know, they're upset because the building isn't as pristine. And it's like you're not, you're not really buying the building, you're buying the paper, you're buying the study rent check every month from this tenant. That's the most important thing. In certainly the real estate is important. And maybe we'll do another thing about the basics of title and that kind of stuff. But the most important asset that you're buying in the typical triple net deal is the lease. And so, you know, the most important thing and due diligence to look at of course, is making sure the lease is totally shored up.
20:36
Yeah, it's, I mean, it's a big deal. I mean, I've had I've had clients, you know, again, back in back in my day, when I was a broker, you know, fortunately, now, I've got a team that handles all this for me, but I would have clients that would bring it up and be like, Why am I paying $500? A square foot for this building? Right? It's like, well, you're, you're getting a 9% cap rate. All right, it's a really good deal. Right? You know, if there were, if there were two years remaining on the lease, and yeah, let's have a different conversation, we need to start figuring out how to bring this back to reality as to what the actual price per square foot of the building would be. But you're buying that lease. So so when you're doing a single tenant net lease or a triple net lease investment, what are the first things you start doing? When you're reviewing the leases? Like, right? What do you call out? Okay,
21:20
so So now say we're under contract, we're in the due diligence period, you want to buy a property that has a lease on it. The first thing you want to do, of course, is make sure that the tenant or the guarantor is short up very, very strong, right? So a lot of times certain tenants will have what they call an SPE, a single purpose entity, it's just an LLC, that's kind of a shell. And if you need to make sure that if that's the case, that you have a very strong guarantor.
21:50
How do you check that?
21:52
That's a broker thing, you're gonna want to look at all sorts of tax returns financials, does the guarantor have other properties, but the last thing you want to do is buy property, where the tenant is just kind of this flimsy shell that could go away? And then you're stuck.
22:09
So did the attorneys get involved in a personal guarantee at all outside of the week away
22:13
guarantee? Not really. I mean, even the LOI will sometimes negotiate guarantee. Well, that's, that's for a lease, like crossing hairs right now. Same thing? Yeah, I'm like, well, that's that's actually another thing to kind of jump back, you know, 20 minutes ago, when you're hiring an attorney to do these deals, you also want to get someone who can draft the contract for you, but can also really understands leasing. Yeah. Because at this point, when you're looking to buy the property to lease is already negotiated and signed. And you want to make sure that who's ever representing you in this purchase? That they understand, you know, how strong that lease is? Or is not? Yeah,
22:50
because a real estate attorney should have a pretty good understanding of all aspects of it. I mean, I would imagine, you can correct me if I'm wrong, but I would imagine most attorneys when they first get started, they're probably, you know, the junior attorneys that are working through the leases and actually putting the other other language and that's probably where a lot of real estate attorneys cut their teeth.
23:08
Yeah. I mean, there's, yeah, that would be fair, because sometimes those are like lower dollar things going on. And a lot of it's monotonous. Yeah, it is some of those provisions like indemnity. Yeah, it's bad. But, um, but right, you want to have an attorney who can negotiate the contract for you to purchase but also can really read the lease. So when I'm working for a client who's buying and then I'm combing through the lease, you know, the big question is one, is this tenant very strong? Because when you own the property, and you're the landlord, and you're collecting rent, is this tenant going to be around for a long time? Is there a guarantor that's going to step up to the plate if tenant defaults? Yeah,
23:44
cuz the lease is the most important thing, right? And the lease does not matter at all, if there's no business there to pay it. Right? Right. So it all comes down to the to the guarantee the credit of the tenant. And of course, that's on your broker, right? I mean, that's, that's why you're paying them the big bucks to pull these deals together. So what what clauses in a lease would you consider to be the most important or what what stands out to you the most when you start reviewing these? Sure.
24:10
So I think that the first step would be to make sure that the tenant is very strong, and that's kind of that's a mix between the broker and sort of the lawyer but mostly the broker. The second is really kind of combing through the entire lease to make sure it's truly triple net, because a lot of times you'll have an out of state buyer, who lives in Nevada who wants to buy a gas station in Florida to collect the rent. And if you're an out of state landlord, you want zero maintenance responsibilities. And as you know, triple net lease means the rent paid to landlord is income is completely net, right? There's generally very few obligations and if it's a single tenant lease, as opposed to like a shopping center where there's cam and all that. It's it's easier that's a little bit easier to understand when you're combing through Um, there's much less landlord responsibility rather. So, triple net means that tenant either pays directly or reimburses landlord for real estate taxes, landlord's insurance, and then any maintenance for the property. So it's a little bit tricky. I had a client who we weren't working together on this deal, but he had made a mistake and didn't I think it was Aspen dental has some leases that are actually a double net lease. And they didn't understand that. Yeah. And so he ended up buying an aspen dental thinking it was triple net, and it wasn't it was double. So then the landlord is required to be more involved and I think it was landlord had some pretty significant significant maintenance responsibilities. I think Aspen reimbursed for landlords real estate taxes and insurance. But you know, if you're doing triple net, you want to make sure that lease says everything. Absolutely everything is on tenant to do at tenant so cost and expense.
25:59
Well, I have an attorney in here. Oh, gosh.
26:02
I have to be I need to like this qualifier. This is not legal advice. This is not legal advice. disclaimers, yep.
26:09
Right. So I had somebody jump into one of my videos and start commenting and arguing with me over what a triple net lease Well, no. So can you explain what a double net a triple net and an absolute Net Lease are? Differences from from a legal perspective
26:27
absolute. Now, I've not really heard that so much. I've always heard triple net and absolute net, I think are the same. I mean, triple is, you know, when I think of triple it's real estate taxes, landlord's insurance, and maintenance obligations. Those are kind of the three buckets of cost. And when you talk about triple net, those three things are rent is net to landlord, when he talked about double net? I don't know if double net specifically, I think you can fluctuate. Yeah, either two of the three, right? That's what I thought to us it was single net, like it could be any one of the three, right, right. And then you never see single data, right? And then there's also gross and modified gross and all of that stuff. But if it's truly triple net, you need to comb through that lease and make sure as hell it is. And sometimes there's really expressed language, a good lease will say expressly there will be a provision in there that says this lease is triple net all rent is net to landlord. So there's, there's Yeah,
27:27
yeah, keep an eye out for that one. That's helpful, because that's the other thing. There's a lot of people that look through these leases. And I wouldn't say it's a triple net lease anywhere in here. But well, it's not going to just explicitly say sometimes
27:36
it does. But sometimes you got to look at the insurance provision and it'll say tenant is to reimburse landlord or tenant is to pay directly. It's basically how
27:43
the provisions are set up for the tenant to pay for all that. Right. Absolutely. That means that the tenant is responsible for roof and structural maintenance as well. Oh, it does. Yeah. Okay, cool. So you might see that sometimes, and because I mean, again, these leases aren't always as cold out as this is triple bad or this, or this is double mat. But yeah, I guess maybe that's more of a
28:02
brokerage term. Well, in a single tenant, that makes sense, because I do a lot of shopping center to if it's a multi tenanted property landlord is going to be in charge of the roof because it's many tenants share that roof. Many Yeah, it's
28:13
tough to kind of justify Yeah, because food Mart's roof started failing that tenants next to him have to pay
28:19
for it. Yeah, yeah, exactly. Exactly.
28:22
So how do I know if I've got a bad attorney? Like, going through the process? You know, because I mean, again, like, I get calls from people that are like, Well, my attorneys telling me that I should do this. I'm like, Well, I'm not an attorney. But that didn't sound right.
28:35
I think a lot of times, you have to go with your gut. Yeah. I think a lot of times you have to go with your gut. And it's hard. Because when you are when you're buying an expensive property, say like a $1.5 million deal. I mean, you already have anxiety. So it's hard to know, is this just is this anxiety? Or is this like my gut in just kind of being on point. And I think this is the, you know, probably were people who are involved in your classes and who pay attention to your stuff. And there's like, a mentor network where you can ask questions, I think that's really helpful, if you don't know.
29:12
Yeah, I mean, you gotta have that. Right. Like, that's, it's so important to have a partner or somebody with experience in it. I mean, I tell people that are getting started
29:22
on someone that you trust someone that has time to listen, it's been there, done that. Yeah. But I mean, I don't know if you've a bad attorney. I think someone who's very risk, you know, communicates clearly and timely is very important. And who, you know, gets along pretty well with the adverse party even, you know, even when it gets bumpy, but going with your gut is important. And also having people that in your circle that you trust that you can ask,
29:51
what's what's kind of circled back to a little bit earlier in the conversation because I want to talk about this too. There are some deals that are flat rate and Some that are hourly, can you talk about when it would be appropriate for somebody to be flat rate versus hourly? Like, you know, right off the top of my head negotiating a PSA is gonna be hourly, you have no idea what's going on. But drafting a lease, yeah, be a flat rate to just get the lease template, and then it's hourly, based on negotiations. I
30:16
don't in my practice, right now do anything flat. The only time I would do something flat is if I was working with a client who say they were a tenant, and they were going into all these different shopping centers, and like it was very routine, you know,
30:32
or if you're just like a monthly retainer. Yeah,
30:35
I just I don't do any flat stuff. Because I don't think it's truly fair for either party. Because if it's, someone's gonna lose, because it's either like, Oh, I'll get paid the same amount, even if I do less time. You know, it just, I don't love. I hate that time is my commodity here, but I actually don't do anything flat. Yeah, and some other attorneys do. I just don't. I feel like it's not fair for both. I
30:59
think that's a pretty good way looking. Yeah. Yeah. What do you think about AI getting involved in legal? Because I've seen so many people saying, Oh, I don't need to hire an attorney. I can just have chat. GBT and I will get that I'm like, oh, man, that person's gonna be in a lawsuit.
31:14
I don't know, just chat, whatever it is have like malpractice.
31:18
malpractice insurance?
31:19
I don't know. I don't know. I just kind of I wrote down just a couple other things during the lease. Yeah, to pay attention to. But I don't know about honestly, I'm such a lot. I like I regret that I just updated my iPhone. I'm like, I would just go back to like old school everything. Like,
31:38
I talked about this. This is so off topic. I talked about this all the time. I think that if somebody comes up with a car company that remakes cars from the 70s and 80s. Yeah, with manual roll up windows really manually, like stick shift cars. Yeah. There's no bells and whistles. Yeah, I would. I would love that. Because I'm so tired of the computers. I've started seeing videos on Reddit now of people walking outside of somebody's house using an antenna to get their key to unlock the car. Oh, my God started the car driving off. What? Yeah, Mike, you couldn't do that in my 1978? f3? 50? Oh,
32:13
my God. Yeah. I mean, I I read the journal almost every day. And I know there's a lot about AI and everything. But like, I just I just took a break off Instagram for a while because I'm like, I'm just the noise gets to be too much. It's
32:25
good to do. I mean, it's it's weird, like how fast things are moving? Yeah. Then you also have to put it back in perspective. I mean, everybody thought a few years ago, Blockchain was going to completely change real estate. Right? Do you remember that? Like, oh, Blockchain is gonna completely change title and blockchain is gonna completely change the way that we buy real estate. We're not gonna buy real estate, you know, anymore. We're gonna buy these tokens. And that's all. Yeah. And I was like, maybe it may be kind of nice. It would be nice to have a an unbroken chain of title through the blockchain, so that you don't really have to run title searches anymore. Like it's just independently verified by hundreds of different programs, or whatever it is. Right. But it's not even remotely close to getting implemented. I don't
33:06
know. I mean, there's always room for improvement, no doubt. And some of the stuff we do, especially in law is very antiquated. But at the same time, it's like, it's going to be standard for a while.
33:15
Yeah, I can't see it changing. Now, practice alone is worth it. Yeah.
33:19
Like if you want to do your AI thing. It's just, you know, Legal Zoom and all that. I mean, good for you, like you do what you want, but
33:26
it's only good as the prompts. Right? And if Yeah, if you don't legally understand enough to prompt it in the right way, right, and then critique it, right. It doesn't matter. It's probably not going to cover you. Yeah,
33:36
probably not. I don't know if I would fool with. Let's,
33:40
let's get back to other other things in the week. Okay. Sure. Okay, so
33:43
we talked about the strength of the tenant and or guarantor, then we talked about ensuring that the lease is truly triple net. And then the third, I just kind of put five points for us to think about, yeah, the third would be right, that there's no, you know, are there any termination rights for tenant in the lease? Okay, so yeah, right. So like, you have a really strong tenant and a really strong guarantor. And you're sure that it's triple net, well, is there embedded somewhere in this lease, right for tenant to terminate? And hopefully not, but I mean, it could, you know, that's one thing to pay attention to. And if you have a savvy broker, they should be, you shouldn't be buying anything until all contingencies have waived, like if it's new construction. Tenant should already have their permits, tenant should already be open and paying rent. Those would be contingencies under a lease where a lot of times tenants would have the right to terminate if that didn't come through, like getting their permits and opening.
34:38
Yeah, we've had one client before that was in a in a 1031 exchange. And they wanted to close before the tenant had commenced rent I already occupied. Yes. And I was. I mean, you know, as long as you have some sort of clawback in the PSA, which you can do, yeah, you could do a whole back
34:57
post closing rollback or something like that, but I had Uh, I was actually representing the developer landlord. And we couldn't believe it. But we we sold this, I think it was like a Dunkin Donuts in South Carolina. And it was a 1031. They just needed it real bad. And I mean, they bought it and like, it was like the wet. The paint was still wet on the walls, like, I mean, and they didn't care. They didn't even like ask about anything like that. But did he go okay, I get the result it we were the seller. We Yeah, sure. So you never like if you're buying, if you're buying property, you better make sure that the tenants open paying rent rents commands, do you get a clean estoppel? That there's no right to terminate in the lease? I
35:38
was gonna say estoppels? Yeah. Can you explain what that is? Because that is probably one of the most misunderstood. Sure. And
35:43
that's something that should if you're buying that needs to be in the LOI. Okay, so estoppel I forget the actual how the word it's kind of a weird word. And I forget, in legal terms, how it was explained. But it's something like you would be this, this default, the estoppel is a certificate signed by tenant that verify certain things in the lease. And I think that means when tenant makes the statement, they're stopped from saying otherwise. That's that's what I'm trying to like disfigured. Remember back to like real
36:17
is it Latin is I don't know, matter.
36:20
But what the estoppel certificate is, and most leases will have a provision in there that requires tenant to give an estoppel. And there's a certain time period, for example, I was just working on, I was working with a seller who was selling a Jack in the Box, and the Jack in the Box fast food chain, you know, you have to look through the their lease, and they have an estoppel provision. And I think it was they needed a 15 day notice period. And there were certain statements that they agreed that they would make in their estoppel. Like, rent commenced on whatever day rent has not been paid more than 30 days in advance. To my knowledge, neither Tenant or Landlord are in default of the lease, etc. So when you're buying property, you want to make sure that estoppel certificate from tenant is what you call clean, that it doesn't say yeah, by the way, landlords in default. Yeah, by the way, we're all we're owed this offset rent, we're owed all of these different. Don't
37:15
take the landlord's word for it. No, because the landlord is motivated by selling you the property, they don't want you to think there's any problems. How to Talk to the tenants.
37:24
Yeah, you need to get that estoppel from tenant. And that should be up in the LOI that says, closing, you know, when you negotiate the closing day, it's either like, the later to occur of X amount of days from the expiration of your due diligence, or, you know, whatever days from receipt of a clean estoppel from tenant clean estoppel meaning that it alleges new defaults, etc. Yeah,
37:45
cuz I've seen typically most tenants will have up to 30 days to respond to an estoppel. Yeah,
37:50
so you got to think about that early. Right. You got to think about that early. And if you're working with a lender, I mean, they're gonna want to stop Oh, yeah.
37:57
Is it a red flag to UFO landlord says, No, I'm not going to provide an estoppel for this tenant. Oh,
38:02
yeah. I mean, the leases should have a requirement in there. And during due diligence, you're going to be looking at the lease any? Yeah. But rent roll and
38:13
different things from an estoppel.
38:15
Right. And if landlord wasn't going to ask tenant, I mean, that's a big problem. Yeah, that's when you walk away.
38:21
That's when you walk. Yeah. Cuz you have no idea what's going on, especially if they're like, No, you can't talk to my tenants. We've had that before. Well,
38:28
landlord is the one that would request the estoppel. Right. You know, and if they're not trying to request it, I mean, that's a big red flag. quicksand. Yeah. Yeah. So, right. So estoppel, czar, important. Making sure that tenant has no right to terminate in the lease, you know, but for like, if there's a event of casualty condemnation, that's very typical ones, right? Like if the building burned down or eminent domain happened, that's fine. But if there's like
38:57
a kick out clause, so I can use it. I mean, Starbucks is notorious for sales kick again, in two year two or year three of sales haven't hit X, then they can just terminate their lease and walk away. Right, right. So yeah, that is painful. I mean, it's crazy to me that they would go through all the effort, but I guess it makes sense to them to buy gals just, well, they're like, we're good money after bad.
39:20
I've worked on a couple of Starbucks leases. And it's miserable. It is because I mean, they're, you know, the gorilla in the room.
39:26
Yeah. They understand their power. Yeah, they do. They do. Yeah, I've worked on a couple of deals with them. And man, is it tough? It is, yeah. But you know, it's like Amazon, like they come in, they get what they want, or you don't you don't get it, they'll go to the next property. That's true. What's it What else did you have in your West? Okay,
39:41
so making sure that tenant has no termination rights contingencies have expired. The fourth thing is to really pay attention to the default provisions. And so if it's truly a triple net or absolute rent, absolute Net Lease landlord is going to have very few maintenance obligations, which means landlord would have very, very few instances where a landlord could be put in default by tenant. Now, when you buy the property, of course, you become the landlord, and you want to make sure best case scenario is that there's no landlord default provision in the lease. So if you're a landlord, and you don't do something you're supposed to all tenant can really do as sue you. You want to watch out for language where tenant has the right to self help, where a tenant can just go in and fix whatever it is that they think is wrong. That's supposed to be landlord's responsibility. So then they're self help. And then the other side of that would be offset rent. So tenant, for example, would go in and fix the roof, and then say, hey, you know, it's 10 grand repair, and we're actually going to just offset our rent for that 10,000 until it's paid back. So pay attention to default. And then, you know, if you want a really beefy tenant defaults section where you basically can go in, you don't have to give a ton of notices, if tenants late paying rent, you can just put them in default, quickly. Short cure periods, you can accelerate rent, you don't really have any obligation to mitigate damages, that kind of stuff. What are your
41:12
thoughts on rent abatement from tenants going dark in a shopping center? So it's rare and I've only seen it in bigger tenants leases, yeah. But you know, somebody you know, that's occupying 1020 30,000 square feet will say, hey, if the occupancy of the shopping center ever goes below 80% Oh, yeah, go down
41:35
and see my rent gets cut in half. CO tenancy is a really tough provision, because then that's for like a multi tenant shopping center lease where they say, Look, if whatever Well, there's usually opening co tenancy and what you're talking about ongoing co tenancy, which tenants will say, hey, we made this lease with the expectation that these anchors are going to be here open and operating. And if they're not, our rent is going to be cut until you get a suitable replacement. And that's really tricky, because in the last, you know, Bed Bath and Beyond, it's happened to why should we think about like these big, you know, anchor tenants that have gone under AC? Yeah, and trying to think of there's, there's plenty and I always like, kind of think about that, which Oh, yeah,
42:23
well, because those landlords are already getting hit hard by Toys R Us filing bankruptcy and they have their tenants are not paying what they should be because they've got co tenancy clauses.
42:31
Yeah, co tenancy is really tough. I mean, obviously, in the single tenant, triple net, you wouldn't deal with CO tenancy because there's no more tenants. But in the shopping center world, that's really tricky. And that's something like on the landlord side, like if my client was a landlord, and we're negotiating against a tenant, the CO T language is really important. And it's very nuanced. I mean, people have to get very clever with when does rent and Bateman start? And what is suitable replacement mean? And yeah, oh, yeah, you
43:00
gotta get really creative sometimes. And
43:02
that's why you can't you can't rely on legals. No,
43:05
no. Well, because the thing is, like, this is what I tell everybody. One word, in one sentence. Yeah. And one paragraph can completely change the meaning of the lease. That's all it takes. No. And I mean, that's the wild thing to me about, about the legal world. And I'm so grateful. I don't have to be in it all the time.
43:25
Sometimes. I'm like, why did we go down this path?
43:29
That was good. I mean, hey, it helps you with everything that you want to
43:31
do outside of it. Yeah. That's true. That's true. It's good job security.
43:36
What's what's number five. Okay,
43:38
so the fifth, right is the assignment and sublet provision, okay. And this is really important because as a landlord, you always want to retain control over who is the tenant in your lease. And if you have an assignment provision in there, you want to make sure that one you have to give your approval first tenant is not able to just assign it or sublet it to whoever they want. You want the right to assign.
44:06
And why is that let's let's give these real estate investors some ammo, because they may be dealing with a tenant at some point that wants that. So let's let's talk about why we don't want yeah,
44:16
you would just say look like we made the deal at the you know, at the commencement date, like we made the deal with you as tenant for your goodwill for your net worth for everything else, like we're gonna use, right? We made the deal with you. We didn't make the deal with whoever you decide you want to sublet it to, to become tenant. I mean, that gives tenant complete control. And I've seen the landlord really, you know, I've
44:38
seen buildings completely go downhill because of that. Oh really like not having a proper like sublease or assignment clause in there. And the tenants will just say, they'll just give it to whoever's willing to pay them rent and sometimes they're like, I don't care. I'll take a 10th of the rent or a fifth of the rent, whatever I just want to get I just want to get out Yeah. And you'll have a vape shop, move in or you'll Have something unsavory move add that none of the other tenants in the area want, right? And that's the only way that that right
45:05
there used to they cannot have as good, you know not be high credit. So landlord always always always wants to retain control over any assignee or sublessee. And then if tenant comes back and says look like, well, I want to be able to assign it to my franchisor I want to be able to assign it to a bonafide franchisee franchisor you can kind of get down with but then you have to make sure that whoever franchisor then assigns to is also credit worthy. And I would I would be very reluctant to allow for an assignment in the lease to a franchisee because that franchisee maybe that may deal with their financials and maybe the franchisee is good enough for the franchisor but not for landlord. Um, you want to make sure that the permitted use stays the same, you want to retain control over your approval rights, you want to make sure that even if you let tenant assign that they remain liable, and that guarantor remains liable. The only time you would ever let a tenant off is if they assigned it to an another tenant with like an insane amount of like minimum net worth. And you'd have to go and vet their financials like you did in the beginning. But other than that, like you should not, you know, your your whole asset goes downhill.
46:20
Yeah, we don't want we don't allow that to happen on any of our properties. What are your thoughts on the clauses that landlords are putting these where they get to retain 50%?
46:30
Another mic thing?
46:33
Said adjust the volume on her mic.
46:35
I'm pretty much in it. I mean,
46:38
yeah, I'm not sure what's going on.
46:40
This is me talking. Yeah,
46:41
I'm looking at the monitor, you're hitting the same volume picks I am. Okay. We'll figure it out later. All right. So so where the the landlord has the right to take like 50% of the profit above and beyond the base rent if a tenant is subleases it resize it. What are your thoughts on those clauses?
47:00
When I'm representing landlord I always make sure that lightly because it's it's the lease is not there for tenant to like make money off of yeah right it's not an arbitrage right? It's not like you know Airbnb where a tenant lease his own apartment in Manhattan and then Airbnb ease it out and like nets all of this above whatever rent they would be paying landlord, you know, it's not a commercial lease is not like that. So yeah, a landlord is there should be a provision in there that says like any, any rent, that the assignee would pay above rent do landlord landlord gets, I mean, tenant shouldn't be able to it's not a profit center. Yeah. So
47:40
Exactly. Yeah. Well, Justine, this has been a great conversation. Yeah, hiring the proper real estate attorney. Yeah. anybody listening in the audience want to get a hold of you? Where can they find you?
47:49
Um, well, I don't have a website, and which I need to do reach out to me.
47:54
I'll give you a referral.
47:56
I know. I need to like I'm taking a break off Instagram, but your LinkedIn. Oh, yeah. Okay, I'm on LinkedIn. And then my, my email address is Justine at J. M. O R E. Au law.com. Pretty simple. Yeah. Yeah. We'll
48:11
put that in there as well. Thanks for joining us today. All right. Thank you all for jumping in and for all of your comments, and we'll see y'all in the next one. This episode of the commercial real estate investor podcast is brought to you by cre launch Pro. This online commercial real estate program is designed to take you from beginner to pro commercial real estate investor with access to all of my courses, our online community and monthly group coaching calls. Learn how to confidently buy your first commercial property today at www dot c r e launch pro.com
This conversation explored how Neighbor.com helps commercial real estate investors unlock hidden value in their properties through self-storage and vehicle parking solutions. It also discussed trends in the storage industry and opportunities to generate new income streams from underutilized spaces in offices, multifamily, and other commercial asset types.