1. Use of the Premises

Leases dictate how your entire property functions. Strong “Use Provisions” clearly define what activities are allowed within each space. These provisions should work together with the use provisions of other tenants to create a positive environment and to create a strong mix of tenants. Well-drafted Use Provisions can build synergies and help you avoid conflicts between (and also with) tenants.

2. Risk Management: Insurance & Indemnification

Commercial leases allocate risk between you and your tenant. Clear provisions define each party’s responsibilities and help reduce risk, such as requiring both to maintain insurance. These provisions may also include “indemnification,” where one party agrees to cover the other’s losses in certain situations. This applies to both individual premises and overall common areas of your property. Getting this right is crucial for minimizing risk.

3. Optimizing Tenant Contributions

Leases come in many structures. A Ground Lease allows a tenant to build and maintain their own building on your property. In contrast, a common NNN lease means you, the landlord, take on significant responsibility for maintaining the property outside the tenant’s space but then bill most of those costs back to the tenants. Every lease structure has its own considerations to protect your interests. A well-crafted lease makes the property easier to manage, with tenants contributing fairly to the upkeep. Mistakes in this area can leave you responsible for costs you shouldn’t have to bear.

4. Tenant Creditworthiness

Reliable, creditworthy tenants are essential. Thorough tenant screening, including reviewing financials and guarantor qualifications, is key. Leases with poorly drafted “assignment provisions” can create loopholes that allow tenants to escape their financial obligations and possibly leave you with an occupant who is unable to meet its financial (and other) obligations.

5. Clarity on Maintenance: Defining Responsibilities

A well-maintained property attracts and retains quality tenants. Well drafted lease terms outlining who is responsible for what repairs and upkeep minimize confusion and prevent future disputes.

6. Lease Duration and Renewal Options

The length of the lease and the terms for renewal can significantly impact both landlords and tenants. Rent escalation clauses are discussed below.  Tenants also frequently desire lease renewal options and early termination conditions.  Understanding these terms (which are not often beneficial to landlords) is essential in determining whether to include them in a lease and also helps in planning long-term investments and maintaining stable occupancy rates.

7. Rent Escalation Clauses

Addressing how rent will increase over the term of the lease is crucial. This can be based on fixed increases, percentage increases, or tied to an index like the Consumer Price Index (CPI). Clear rent escalation clauses help avoid disputes and ensure the investment keeps pace with inflation and market conditions.

8. Subleasing and Assignment

Tenants might want the flexibility to sublease or assign the lease to another party. Provisions governing subleasing and assignment can protect landlords by ensuring new tenants meet financial and operational criteria. This also helps in maintaining the integrity and quality of tenants in the property.

9. Default and Remedies

It is essential to define what constitutes a default under the lease and the remedies available to the landlord. Remedies can include late payment penalties, rights to terminate the lease, or re-enter the premises. Clear default and remedy provisions provide a legal framework to address breaches of the lease agreement.

10. Environmental and Compliance Issues

Including provisions that address hazardous substances, environmental responsibilities, and compliance with local laws and regulations can help prevent future liabilities. This can be particularly important for properties used in connection with certain industries that use materials or generate waste that might impact the environment.

11. Tenant Improvements and Alterations

Clarifying who is responsible for tenant improvements and any initial as well as subsequent alterations to the leased premises is vitally important. This includes specifying the approval process, standards for construction, and responsibilities for restoration at the end of the lease term.

Crafting effective commercial leases requires a comprehensive approach. Consulting with experienced legal counsel ensures your leases are strong, enforceable, and contribute to the long-term success of your property.

The post Secure Your Investment: Crafting Effective Commercial Leases appeared first on Dawda PLC.

Joseph’s exceptional expertise, experience, and record of success have rightfully earned him this prestigious title. He is an expert in his field, well-versed in the nuances of case law, statutes, and regulations that clients encounter in commercial real estate matters. His extensive experience and successful track record serve as a testament to the quality advice he provides.

Joseph’s reputation extends beyond his own accomplishments, as other lawyers frequently refer clients to him due to his expertise. He is known for his ability to think creatively and identify all options for his clients, ensuring comprehensive and effective legal solutions.

Joseph’s recognition as a Go To Lawyer in Commercial Real Estate is a well-deserved honor that reflects his outstanding abilities and contributions to the legal profession. Congratulations, Joseph, on this remarkable achievement! We look forward to witnessing your continued success and the positive impact you bring to the field of commercial real estate law.

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Originally built as the headquarters of Security Bank and Trust, the Southgate Tower on Trenton Road will undergo a remarkable transformation, preserving its rich history while offering exceptional living spaces for residents. Southgate Tower, LLC, owned by members of the Begin family, acquired the building in 2021, with Beztak Property Management taking on the management responsibilities.

The Bank Tower Apartments will comprise 215 exquisite rental units, featuring a range of floor plans from studios to two-story penthouses. The development team recognizes the building’s unique features and has ambitious plans to repurpose original spaces creatively. For instance, the truck-well will be converted into a parking garage, the safety deposit box vault will be restored and transformed into a social area, and the drive-through teller building will be repurposed as an electric vehicle charging station. Additionally, one of the drive-through pneumatic tubes will serve as a distinctive method for residents to pay rent.

Alexander Begin, a seasoned developer who successfully converted the Madison Office Center into The Tremont Apartments in Madison Heights in 2016, expressed his enthusiasm for the project.

“Dawda has been an essential partner in every aspect of this project. Being able to restore this building as well as create a new park and greenspace for the community was important to us, and Dawda’s expertise guided us both in the acquisition of the real estate and development of the building and its surrounding acreage.

In collaboration with Wayne County and the City of Southgate, Alexander Begin is also spearheading the creation of a new park surrounding The Bank Tower. Wayne County will finance the construction of the park and a pedestrian bridge over Trenton Road, linking Kiwanis Park to the property. The new park will feature recreational amenities such as pickleball courts, exercise stations, and putting greens, all open for public use. This addition will complement nearby Kiwanis Park and its miniature railroad.  Begin stated: “We’re immensely grateful for the cooperation and assistance that Wayne County and the City of Southgate have provided to make this project possible.”

“It’s quite exciting that Southgate will have this iconic building restored and also be able to create funding for a park that will join the city park and enhance the value of Southgate. The interesting thing about this project is that the future possibilities are endless,” said Richard Schloss, Member at Dawda and lead attorney on the project. “Our team worked closely with Alexander Begin, the city of Southgate and Wayne County to make the Bank Tower and park project a reality.”

City of Southgate Mayor Joseph G. Kuspa expressed his excitement about the redevelopment, stating, “The redevelopment of this iconic Downriver structure is both historic and transformational. It represents the single largest investment project in the 65-year history of our City. We are both enthusiastic and appreciative of all those who are a part of this amazing development.”

Construction management for The Bank Tower Apartments will be overseen by the Alan Group, with Studio g+G Architecture and Constantine George Pappas Architecture serving as the lead architects. The project is expected to be completed and open to the public in early to mid-2025.

For further information about The Bank Tower Apartments and this exciting redevelopment project, please visit www.thebanktowerapts.com.

About Dawda:

Dawda is a full-service business law firm headquartered in Bloomfield Hills, Mich. With a strong commitment to delivering exceptional legal services and a client-centric approach, the firm has built a solid reputation as a trusted advisor to businesses and individuals across various industries. Dawda’s team of highly skilled attorneys provides comprehensive legal solutions in real estate, corporate law, litigation, employment law, estate planning, and more. For more information, visit dawdamann.com.

The post Dawda Represents Alexander Begin and Southgate Tower, LLC on the Rebrand and Redevelopment of Southgate Tower into The Bank Tower Apartments appeared first on Dawda PLC.

Dawda, a leading full-service business law firm, is pleased to announce that it has once again secured its position among the nation’s leading law firms for real estate practice, as reflected in the 2023 Chambers USA rankings.

This accolade is a testament to the firm’s unwavering commitment to providing exceptional legal services and innovative solutions to its clients in the real estate industry. The firm’s comprehensive expertise in commercial real estate transactions, leasing, land use, zoning, and commercial and residential development matters continues to set a benchmark for excellence.

In addition, two of Dawda’s attorneys, Ed Dawda and Tyler Tennent, have been recognized by Chambers and Partners in the highly regarded Chambers USA rankings for their outstanding contributions to the real estate practice area.

Ed Dawda, a co-founder of Dawda, has once again earned a well-deserved Band 1 Ranking in Real Estate in the Chambers USA rankings. With over three decades of experience in real estate law, Dawda has established himself as a trusted advisor and advocate for his clients. In addition, his exceptional knowledge of real estate transactions, development, and land use matters has consistently positioned him as a leading practitioner.

Tyler Tennent, a member at Dawda, has been recognized by Chambers and Partners for his exemplary work in the Real Estate: Land Use area. Tennent’s keen understanding of complex land use matters and his ability to navigate intricate legal issues have earned him the respect of clients and peers.

“We are thrilled to be recognized by Chambers and Partners for our firms’ contributions to the real estate practice area,” said Dawda. “Our inclusion in the 2023 Chambers USA rankings is a testament to Dawda’s dedication, extensive knowledge, and outstanding client service. We are immensely proud of our attorney’s achievements and the recognition of our firm as a leader in real estate law.”

Chambers and Partners, a renowned global legal research and ranking organization, conducts an extensive assessment of law firms and attorneys based on various factors, including legal expertise, client service, technical capabilities, and notable achievements within specific practice areas. As a result, the Chambers USA rankings are widely regarded as a prominent benchmark for excellence in the legal industry.

About Dawda:
Dawda is a full-service business law firm headquartered in Bloomfield Hills, Mich. With a strong commitment to delivering exceptional legal services and a client-centric approach, the firm has built a solid reputation as a trusted advisor to businesses and individuals across various industries. Dawda’s team of highly skilled attorneys provides comprehensive legal solutions in real estate, corporate law, litigation, employment law, estate planning, and more.

The post Bloomfield Hills Law Firm, Dawda, Recognized by Chambers in the Prestigious Chambers USA Rankings for Real Estate Practice Area 20+ Years appeared first on Dawda PLC.

This ruling means that persons who object to a particular land use development could find it easier to appeal those decisions. Developers will need to be cognizant of this ruling in determining how to apply for land use entitlements and in establishing an appropriate record when doing so.

This decision clarifies and overrules past case law that has evolved over time placing what some term as “judicially created constraints” on appealing land use decisions under the Michigan Zoning Enabling Act (MZEA). The issue of who has legal “standing”, or the right to make an appeal, has been the topic of numerous decisions and the Michigan Supreme Court has now clarified how the doctrine is to be applied.

However, this decision does not reduce the burden of proof that an appellant must meet to convince a court to overrule land use decisions. Persons appealing land use decisions will continue to have the burden of proof in establishing their claims, including showing under the MZEA that the decision: (a) did not comply with the constitution and laws of the state; (b) was not based upon proper procedure; (c) was not supported by competent, material, and substantial evidence on the record; or, (d) did not represent the reasonable exercise of discretion granted by law to the zoning board of appeals.

Dawda’s land use practice group has advised developers for decades in navigating the complex land use entitlement process and mitigating the risk of successful appeals.

The post Appealing land use decisions becomes easier under new Michigan Supreme Court decision appeared first on Dawda PLC.

The Michigan Lawyers “Go To Lawyer” honor program was established in the last couple of years and for 2022 focused on Real Estate and Condominium law.

Dan Halprin is an active leader in Dawda’s Real Estate Practice Group, and he is a trusted and knowledgeable legal advisor in all types of real estate transactions representing purchasers, sellers, lessors and lessees and developers in other real estate transactions but with a special focus in sophisticated commercial leasing transactions. Dan also has significant experience in the acquisition and disposition of hotels and motels, shopping centers and other land-based transactions.

Dan received his Juris Doctorate from the University of Michigan Law School and received a B.A. from the James Madison College at Michigan State University.

The post Attorney Daniel Halprin recognized as a “Go To Lawyer” in Real Estate and Condominium law by Michigan Lawyers Weekly appeared first on Dawda PLC.

LIBOR has served as the benchmark interest rate for over 30 years and is currently tied to over $200 trillion in contracts and debt obligations. LIBOR serves as the underlying interest rate for multiple types of contractual obligations including business loans, mortgages, and even student loans. However, given the recent LIBOR rate setting manipulation scandal and its declining reliability, the United Kingdom’s Financial Conduct Authority has agreed to stop publishing the LIBOR, and banks will no longer be obligated to make LIBOR submissions, after December 31, 2021. SOFR is calculated daily based on overnight cash lending between banks collateralized by the United States Treasury in the repurchase agreement market. According to the Federal Reserve, SOFR is much more resilient than LIBOR is numerous ways including its transparency and the fact that it is more representative of the way financial institutions fund themselves today. The Federal Reserve began publishing daily SOFR rates on its website on March 2, 2020.

The ARRC has created the Paced Transition Plan to give guidance and encourage the adoption of SOFR here in the United States. The ARRC has recommended that contracts stop referencing LIBOR as the benchmark interest rate starting as early as this year in order to facilitate a smooth transition to SOFR by the end of 2021. Some financial institutions have already begun the transition process to SOFR, such as Freddie Mac, which will no longer purchase LIBOR Adjustable Rate Mortgages beginning January 1, 2021.

In addition to providing a transition timeline, the ARRC recommends that LIBOR contracts should, as soon as possible, include ARRC recommended, or substantially similar, fall back language. Two approaches for fallback language have been enumerated by the ARRC for those instances where a contract is still using LIBOR as an interest rate or for those previously executed contracts that do not provide for an alternative to LIBOR. The first approach, the “hardwire approach”, specifically sets forth a replacement benchmark interest rate that will be applied at the end of LIBOR and indicates the procedures that will be used to calculate and institute the new interest rate within the contract. Alternatively, the “amendment approach” permits the parties to a contract to amend the agreement at a future date, once LIBOR is phased out, and determine the new interest rate then, while still outlining the procedures that will govern selecting the replacement index. The hardwire approach eliminates the need for an amendment down the road for LIBOR based contracts by including language that addresses the potential replacement, while the amendment approach may work best for those older contracts that may not have anticipated the end of LIBOR. Either way, it is imperative that both approaches address how the new interest rate will be determined.

Whether it be assistance amending an executed contract or current debt obligation that does not include replacement language for LIBOR, or assistance navigating new contract negotiations and loan agreements, our experienced team of attorneys here at Dawda are ready to advise and help guide you through the transition away from LIBOR.

Written by Associate, Kathryn Kaleth.

The post Transitioning Away from LIBOR: What’s Next? appeared first on Dawda PLC.

The landlord-tenant relationship is at the core of the commercial leasing business. In an uncomplicated world, a landlord and a tenant would enter into a lease for a term of years, and at the lease’s expiration, the tenant would either vacate the premises or the parties would agree to continue their relationship. Unfortunately, experience dictates that the world of commercial leasing is anything but uncomplicated. At a national level, trends in brick-and-mortar stores continue to cause broad upheaval in the overall makeup of shopping center tenants, and the personal, more human concerns of specific tenants can affect the landlord-tenant relationship on an individual level.

Given these circumstances, it is in each landlord’s best interest to understand that the tenant with whom they enter into a lease may not be the tenant for the entire duration of that lease’s term. Accordingly, it is crucial that commercial landlords that primarily lease to smaller tenants retain control over the assignment process, and the easiest way to obtain and retain this control is at the outset of the lease negotiation process. This article is a landlord’s perspective on key concepts involved in the negotiation of tenant assignment provisions in a small-tenant commercial lease.

When it comes to negotiating assignment provisions in small-tenant commercial leases, landlords and tenants usually have completely conflicting objectives; while a tenant generally desires the ability to freely assign its interest in the lease without input from the landlord, the landlord wants to limit the tenant’s right to assign its interest in the lease as much as possible. With this in mind, the landlord’s initial position with respect to tenant assignment should be that the tenant cannot assign its interest in the lease without the landlord’s prior written consent, which consent shall be granted or denied in the landlord’s sole and absolute discretion.

Depending on the prospective tenant and the amount of leverage held by the landlord, negotiation on the tenant assignment provision may end here. However, in situations where the tenant is more sophisticated or has more leverage, a landlord may need to compromise its position. In this situation, the landlord’s first “fallback” position would be to retain sole and absolute discretion over tenant assignments to unrelated third parties, but allow the tenant to make certain “corporate” assignments (e.g. an assignment from a corporate tenant to a franchisee, or an assignment from the original tenant to an entity that purchased 100% of the original tenant’s assets) by giving the landlord prior written notice of such a “corporate” assignment.

Each tenant and lease negotiation is unique, and accordingly, it is common to see assignment provisions be negotiated beyond this point. Larger tenants with more leverage may be able to negotiate language in the assignment provision of a lease that, while still requiring landlord consent to a tenant’s assignment to a third party, limits the landlord’s discretion to grant or withhold its consent to the landlord’s “reasonable discretion, not to be withheld, conditioned, or delayed”. Although this language reduces a landlord’s ability to block a potential assignment, the landlord can retain some level of control over the assignment process by inserting criteria for a proposed new tenant that would create guidelines for a landlord’s “reasonable” discretion to consent to an assignment. Some examples of this criteria include a new tenant’s tangible net worth, the level of operating experience of a new tenant, and the business reputation of a new tenant. This type of compromise allows the landlord to retain a level of control over any tenant assignment while still giving the tenant the ability to assign to a strong replacement tenant, and gives the parties a level of certainty regarding what types of assignments will be permitted.

While negotiating the tenant’s ability to assign its interest in the lease, landlords should also be sure to address the assigning tenant’s post-assignment liability under the lease. Ideally, a landlord wants an assigning tenant to remain fully liable with the new tenant, jointly and severally, for the remainder of the term. Not only does this language create a “backstop” against a potential default by the new tenant, but it also encourages an assigning tenant to more thoroughly vet a prospective assignee; if a tenant knows it has continuing post-assignment liability under the lease, it is more likely to pick an assignee that is competent to fulfill its obligations under the lease.

Again, depending on the particular tenant and the level of leverage enjoyed by the landlord, a prospective tenant may be able to negotiate away from post-assignment liability for the entire duration of the term. In any event, landlords should strive to ensure that they are not left “holding the bag” with an assigning tenant relieved of liability and an uncollectible new tenant in default. Common compromises in this language include an assigning tenant remaining liable for a period of time that is shorter than the duration of the lease’s term (e.g. tenant liability for 5 years post-assignment on a lease with 10 years remaining on the term), or the assigning tenant being relieved of liability if it assigns the lease to a tenant that has a sufficient tangible net worth (e.g. a mom-and-pop coffee shop assigning its lease to Starbucks).

While not usually contained within the assignment section of a lease, if the lease is guaranteed by the tenant (or a representative of the tenant), that guaranty can have an effect similar to when a tenant remains fully liable for the obligations of the tenant under the lease. In order to avoid personal liability in the event of a new tenant default, the guarantor (or guarantors) will generally strive to find a strong and competent replacement tenant.

As noted above, this article was written from a landlord’s perspective, and a tenant’s lease negotiation goals will be in stark contrast to most of the suggestions above. However, a landlord acquainted with the takeaways contained within this article is set up for success, and should start lease negotiations from a strong and educated negotiating position.

The post Drafting Assignment Provisions in Small-Tenant Leases: A Landlord’s Perspective appeared first on Dawda PLC.

The Changing Face of Retail

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Requests for estoppel certificates can arise in many contexts during the course of a commercial real estate transaction. The most common scenario occurs when a landlord is selling or mortgaging its property and the prospective purchaser or lender desires confirmation from the tenant of the status of the existing lease.

As part of its due diligence process, a lender or a prospective purchaser who intends to take an assignment of the lease will ask the tenant to certify certain items, such as:

• The rental amount;
• The term;
• The amount of the security deposit; and
• Whether the landlord is currently in default.

Typically, the lease will provide a time frame for the tenant to respond to such a request so the prospective purchaser or lender can evaluate the transaction. If the estoppel certificate discloses any red flags, the prospective purchaser can address them. For example, this can be done by asking for a credit from the seller/landlord at closing for any items the seller/landlord owes to the tenant or is responsible for curing, or the purchaser can terminate the transaction.

Estoppel certificates can also be given by a landlord in the event a tenant wants to sublease its premises so the proposed sublessee understands the status of the underlying lease before signing a sublease.

A landlord may also provide an estoppel certificate during a corporate transaction. If the seller is a business that leases the property where it operates, the prospective purchaser of the business will want confirmation that the seller/tenant has been complying with the terms of the lease before it steps into the shoes of the seller/tenant.

A prospective purchaser of property may request an estoppel certificate if the property is encumbered by an operating document, such as a reciprocal easement agreement or declaration governing maintenance at the property. A prospective purchaser should ask the party responsible for collecting the payments due under the operating document, such as an association, to certify the current property owner has been making all the required payments so the prospective purchaser is not saddled with past-due payments when it closes on the property.

Although less common, estoppel certificates can also be used when a purchaser assigns its interest in a real estate purchase agreement to a third party. The proposed assignee may want confirmation that the purchase agreement is in effect and the existing purchaser is not in default under the terms of the purchase agreement.

Estoppel certificates can be useful in a variety of situations and are vital during the due diligence process to limit a party’s risk in a commercial real estate transaction.

Interested in learning more about the effectiveness of estoppel certificates and how they can help ensure a smooth commercial real estate transaction? Contact Kylie Bergmann today.

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