Karbank Blog

I have a lease proposal on my desk, presented by a broker, a “Senior Vice President” of a national brokerage company, on behalf of a prospective tenant, an international food company.  The proposal states “Lease Type:  The Lease type will be NNN.” 

NNN or “Triple Net” in real estate parlance means that the tenant would pay all occupancy costs including taxes, insurance, utilities and maintenance (as opposed to a “gross” lease in which landlord pays some occupancy costs).  Yet the so-called “NNN” lease proposal includes this language:

“…provided that Landlord agrees to be responsible for general building structure, foundation, 
plumbing/electrical, roof and parking lot.” 

Moreover: 

“Controllable operating expense passthroughs…shall be capped in subsequent years at
an annual increase of 5% over prior year's controllable operating expense cap." 

Further: 

“Landlord shall warrant [the HVAC equipment] for sixty-six months [the entire lease term].”

In the spirit of the broker’s concept of a “NNN” lease, I would describe the broker’s work on the transaction over many months as CCC...with "gross" shortcomings.   

Steven Karbank

In a recent New York Times article entitled,“Class-Consciousness in the Office Building Market”, the description of what constitutes Class A office space begins with “well maintained, with stellar ownership…”.    

When looking for office, industrial or retail space, companies should always inquire about the landlord quality.  Landlord quality incorporates many aspects, among them: responsiveness to tenant needs and problems, financial capacity to fund tenant improvements and to maintain the property, quality and attitude of landlord’s employees and contractors who interact with the tenants and work on the property, quality of record keeping and documentation, and so on.  

Sometimes the landlord quality is apparent when touring buildings.  In office buildings, are the building exterior and public spaces well maintained, HVAC grills and restrooms clean, building interior temperature comfortable and consistent, parking areas well lit, etc.?  In industrial buildings, are there indications of roof leaks and are the floors, parking lots, dock doors and equipment well-maintained, etc.?   If a space doesn’t show well, often (but not always) it’s indicative of a landlord who is not proactive, or at least responsive, in maintaining its properties and solving tenant’s needs and problems.

Throughout a tenant’s lease term, many issues will come up that will test the landlord quality, including maintenance and construction issues, tenant space expansions or contractions, subleasing or lease assignments, landlord waiver documents, safety, and many, many other matters.  Lease documents may codify the legal relationship between the tenant and landlord, but landlord quality can make enormous difference to a tenant’s satisfaction and prosperity during the lease term.     

Steven Karbank

Numerous times in the past five or six months, I’ve driven past a commercial building that has a real estate sign in the front yard.  Each time the building and grounds have looked more and more dilapidated and untended. 

Out of curiosity, a few weeks ago I called the telephone number on the real estate sign.  The number was not in service.  Puzzled, I called 411 and asked for the telephone number of the real estate company.  It turns out that the sign had the wrong area code.  It was astonishing that neither the agent, whose name was on the sign, nor anyone else from his company (a franchise of a national real estate company), realized that the sign had the wrong telephone number. 

I called the agent whose name was on the sign.  He agreed to meet me at the building a few days later. 

When we met, he was 20 minutes late.  He had no brochures on the property, no plans, no tax information.  He looked like he had spent the last few days fixing an oil leak under his car. 

As bad as the property looked on the outside, it looked a lot worse on the inside.  The place was filthy.  Apparently the heat hadn’t been on all winter.  There were squatters living in the basement.  The agent, who was also serving as the property manager, looked dumfounded, as if he hadn’t been in the building in a long, long time (and he probably hadn’t been).  

It turns out that the owner of the property was an out of town financial institution that had foreclosed on the property last year.  Unfortunately, they hired the wrong agent (with the wrong number) and the wrong property manager.

The owner deserves better.  The property deserves better. 

Steven Karbank