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This business coaching episode explains how to sign a commercial lease.

Results-Focused Training, Tools, and Workshops from Expert Business Coaches.

Featured Coaching Excerpt - Notes & Transcript, Part 1
  • The Tenant: The business or person that moves into another person's building, occupies that space, and pays rent.
  • Lesson Nugget: A landlord will usually not allow you to hide behind your llc with your lease, you will have to personally guarantee the payments to the landlord.
  • Lesson Nugget: Know that you have rights in any agreement as a tenant, and you should know what those rights are.
  • Lesson Nugget: Having a healthy and good relationship with your landlord is beneficial to both parties, and especially to your business.

[MUSIC PLAYING] 

 

-My name is Clay Clark. And I'm the visioneer and CEO of Thrive15.com, one of the alternatives for business coaching to lynda.com . Today we're going to be teaching about the four humans that are involved in every commercial real estate transaction. You're going to learn specifically about the role of the broker. You're going to learn about the role of the tenant. You're going to learn about the role of the owner. And you're going to learn about the role of the investor. And as a little bonus, you're going to learn about the commercial property manager.

In my own life and business, I know that I have engaged in multiple stupid real estate transactions. I know that I have leased space from terrible people. I know I have partnered with people to buy properties I shouldn't have bought. I know for me it's been a minefield of issues.

And Braxton Fears is going to help me and people like you hopefully straighten this out so we don't find ourselves leasing space, buying space, and getting in bad real estate transactions that are going to cost us a lot of money. Remember at Thrive15.com, we all come together and believe that knowledge without application is meaningless.

So as you're watching today's business coaching episode, you really want to stop and ask yourself, how can you specifically apply the principles in these real estate trainings in your own life and business? Because if not, today's episode may just turn out to be more meaningless than those parts of the periodic table that we memorized.

All right. We're here today with Braxton Fears. And Braxton, now a lot of people watching this, they'll probably go, this is the guy that has the most incredible hair that an American man has ever had. But despite your hair, or I guess in addition to your hair quality, there are other things you do.

-There are other things.

-You have been a successful commercial real estate broker.

-Yes.

-You have worked in ministry. You have worked in the accounting profession. You have worked in the landscaping industry. You've done a lot of different things in your career. And you're basically at a point in your life where you don't really have a house payment. You're kind of this quasi-retired yuppie guy who lives in the woods, basically. Right?

-Yeah. Kinda.

-OK.

[SOUND OF RUSHING WATER]

 

-And so we're going to really drill down today and pick your business coaching brain about the four humans that are involved in every commercial real estate lease transaction. And if there's five humans too, we'll let you add some humans in here. But let's get into business coaching for human number one. The tenant.

-Yes.

-The tenant. I know when I went to lease my first space, they said, well, what's the name of the tenant that will be leasing this building? And I'm going uh-- what's the name of-- what does tenant mean? So who is a tenant?

-Yeah. The tenant is the business. If you're watching this, you're most likely going to be a tenant at some point, or you already are. A tenant is the business that moves into another person's building, and occupies that space, and pays rent.

-So let's just make sure. The tenant is usually the business.

BRAXTON FEARS: That's correct.

-So if my name of my company is called Clay, LLC. The tenant is Clay, LLC?

BRAXTON FEARS: Yes.

-Is the tenant Clay?

-The tenant is Clay. If you're Clay, LLC, that landlord or the owner of the building is usually going to ask you, OK, Clay, LLC, that's great. But it's really you. You're going to personally guarantee that lease.

-So I have to personally guarantee this.

BRAXTON FEARS: As that owner, most of the time.

-Most of the time. And can you explain to me what a personal guarantee is? Just so we can get into that?

BRAXTON FEARS: Business coaching lesson: That means even if you have a business, if you're the owner, and then you are personally responsible for it. So if you leave in the middle of the night, they're not just going to come after your business, because that's going to do them no good. They're going to come after you. And they're gonna ask you to-- not ask you, they're going to make you pay all of the lease, and invariably you're going to get penalized for it.

-And here's something I see all the time in business consulting. I see a lot of people that have either a degree, or they've read a bunch of books about LLCs and legal. And they say, well I'm going to just guarantee with my company. I don't want to personally guarantee it. And I've read that's better. And you're like, well that's great. But the landlord wants somebody to be accountable to pay for the building.

-And if any landlord is smart-- and most of them are, you're not going to come across somebody who's a dummy most of the time-- they're going to make you do that.

-So I just want to throw it out for you. If you had this mentality, you're going to form an LLC because you've heard about it on some midnight infomercial. Well, get an LLC and just lease space with no liability. Any landlord with a functional mind would not let you do such a thing, unless your company has such strong financials, let's say, Microsoft. They might let Microsoft lease the building. But for the average entrepreneur, they're going to make you personally guarantee that.

BRAXTON FEARS: That's correct.

-OK. Now as a tenant, just getting into this here, what kind of rights does a tenant have? Once I lease the building, what kind of rights do I have?

-Yeah. I mean, you've got lots of rights. The leases that are in place in every state, they're favorable for the tenant. You just got an interesting dynamic with your landlord. You're going to have a relationship with them. Regardless of what type of lease it is, you're going to have a relationship with them.

But you have the right to do what the use of that building is. And you have a right to have that space where they can't just come in whenever they want. Unless you're in an office building. But that's your space. And even if they sell that building, if you have a five-year or three-year lease, they can't just kick you out even though they've sold the building.

-I want to bring this up for a second, cause this is big. We're in a building here that you helped us find. And the landlord and I have a very good relationship.

We might not agree on every single subject. Who does? But he's a great guy.

And so if the landlord is over here, and you're over here. So if this is the tenant, and this is the landlord, starting off the deal here. If you guys don't agree with each other right away. I mean, if you just do not see eye-to-eye from the very beginning when you first interact with this person, is it a good idea to lease?

-It's not a good idea. Because even though you've got it on paper, that paper is worth about as much as what it is. It's paper. And yeah, there's some enforceable stuff on there. But nobody wants to go through the whole legal process of stuff.

So having just a good personal relationship with your landlord, like you said, you don't have to be best buds, you don't have to invite him over to your house for coffee or whatever. Business coaching advice: But you do want to have a good working relationship. You know, hey, there's a buy-in. They're going to treat you fairly. You guys are going to figure it out one way or another. Because there will be

issues.

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Featured Coaching Excerpt - Notes & Transcript, Part 2
  • Lesson Nugget: It is important to ask for references on the landlord or the management company of the building, this could help you stay out of trouble in the future.
  • Lesson Nugget: Property management companies are usually hired by the building owner to manage the operations of their property.
  • Lesson Nugget: Many times, the landlord is not the same person as the property manager. Find out who it is you will be dealing with directly and try and build a good relationship with them.

 

-Now I know a guy, knew a guy. And this guy, hypothetically for business coaching purposes, not me, but this guy, he leased a ton of space. And then the landlord just said, and hey, by the way, we know we used to give you free parking. But now you need to start paying for parking. We've changed our mind.

And the tenant on paper says, well, this is not what you agreed to. But it really comes down to who has the bigger wallet and who can sue who, right?

-Right.

-So, in that situation, this person had to start paying $7,000 a month for parking that they never agreed to pay because the landlord changed their mind.

Another person I know, they used to have a restaurant. And the landlord said, we will definitely pay for any repairs related to the roof and related to the building, the ventilation, whatever. Well, a couple months into moving in, the ventilation system goes out. Landlord says, I'm not going to pay. You can't make me, whatever.

But in both situations, both people discovered a little bit a of sketchiness with the landlord between the time they first down the property and when they leased it. And I know that I've done this in my career before as well. Business coaching advice: It's always better if you just don't see eye to eye with the landlord, philosophically, functionally, if you just don't like them, you got to move on.

-You got to move on, because it's going to cause you headaches. They're going to ask for references for you. And I would suggest, even if you're a new business and you've got the money to pay the lease, you're ready to go. You're ready to sign a lease, and you think is great. But go ahead and get references on them.

And don't necessarily ask them for their references, but ask around. Maybe some neighbors or some people, maybe people that have leased there before. The most likely, that landlord owns multiple properties. And find out about them. Business coaching tip: If you don't know them or you don't know their reputation, do a little research and figure it out.

Because there are, not to scare you, but there are lots of situations like this where the landlord's saying, this doesn't work for me anymore. Well, I've got a five year lease here and I'm going to sue you. Well, go ahead and sue me. That happens quite a bit. And you end up going, it's not worth it for me to sue them. What do I do here?

And so, you know, you're going to have issues. But do some research, even when you're moving into a space.

-One of the things about real estate I've discovered too, is that, I went into business being naive. Believing that if the law says this, then this is what will happen. I'm telling you, you're going to contract all you want. But if you don't trust that person, doesn't matter. I'll give you two other business coaching examples that have happened.

I know that one particular landlord that I had to work with, you Google the guy's name-- I should have done it before-- and you find out that he is going to jail for fraud. And had I had known that, had I had used Google, would have discovered that before entering into some kind of engagement. And that, I mean, those are things that should all do. We should do our due diligence on them like what you said.

-And the property management company as well. If there's a property management company working for the landlord, figure out, even just if they're-- just because they're a big company doesn't necessarily mean that it's going to work out well. But just do some research, figure out who are these people that are behind this, who is the property manager, meet with the project manager that you're going to be dealing with on a regular.

This happens a lot, where the broker helps you out, the landlord, they do the deal. And then they pass you off to a property manager who you've never met and you don't know. It's nice to ask up front, hey, who's the property manager on this? And owner might say, it's just me. That can work. But most of the time it's another company, and you would want to meet with them before you sign a lease.

-And another example, I'm just trying to give you some business coaching examples that'll save you some heartache later. The other example that I can think of is recently I worked with a guy who he insisted that he had called and done references on the landlord. And when we talked about this, like what you said, it's not like you have to be a sleuth. Just call the people who lease space in the building. So I called--

[BEEP]

Hey, I was curious, do you enjoy leasing from this guy? No, he's very difficult to work with. Never comes out and does the landscaping. If something is a problem, he never fixes it. Constantly raising our rates, no. Next person I call.

[BEEP]

Would you work with this person? No, I would never work with this person again. I'm stuck in this lease.

[BEEP]

Well, I don't want to get in trouble, but no. And you hear that. And I go to the guy, and I said guy, we do not want to be here. And he says no, all those people are just upset. I will tell you that I have a great relationship right now with my landlord. And I've had great relationships with other landlords.

And I can tell you, it's not like a landlord and tenant have to just fight. If there's a friction, it's usually because it's based on something. So, just do your due diligence and do some-- apply some wisdom here. Business coaching tip: But you really need to check.

Featured Coaching Excerpt - Notes & Transcript, Part 3
  • Lesson Nugget: Most of the time, owners are just investors in the building who see it as a source of revenue. They will hire out a management company to deal with tenants and building maintenance.
  • Lesson Nugget: For a new property lease, find out who you will be dealing with on a daily basis.
  • Lesson Nugget: An actual investor of real estate does not usually solicit tenants. be careful if you come across these types of people.
  • Lesson Nugget: It's beneficial to have a broker that wants to build a relationship with you and be someone you can trust.

 

-Moving on to business coaching for human number two that we have to interact with on every commercial real estate. So you have the tenant. Now we move into the owner, which we obviously have talked about the owner. But I think it's important that we really mine into the owner and the role that they play there. This is the man or woman who owns the property.

Now, owns-- you get a lot of fluff in commercial real estate. Oh, I'm a partner. Oh, I'm an investor. On, I'm a-- who owns the building here? When the problem happens, where does the buck stop? Who's the owner? And the entrepreneur who's typically leasing the property, you probably won't interact too much with the actual owner. But it's important to know something about him. So why is it that the entrepreneur who is leasing space typically does not interact much with the owner?

-Well, usually the owners of buildings are entrepreneurs themselves. And maybe it's a group of them. And they've figured out that real estate is a good core business to be in. But it's not a good position for them to be meeting with tenants ever on a regular basis. So they hire a property management company. If you're in the real estate business, this is a good strategy to take. Now, if you're the tenant, you need to understand, who is this owner, what kind of reputation they have. But really important business coaching advice, it's important to know the property manager that you're going to be dealing with because that's the person that can make your life difficult or not difficult.

Sometimes the owners are out of state. Or they're investors that are just putting money somewhere in an investment, sort of like a stock or a business of some sort. And that's the way they see the building. And then they don't want to be reachable. And they don't want to be held liable for anything that they've said. So they hire that property manager. That property manager can make it very difficult or easy on you. But you need to have a good relationship with them as well.

-Now, just something that might blow your mind. I know it blew my mind just starting out, when I was first leasing space. But one owner, one of the first guys I leased from, I think the guy had something like 50 properties. He owns 50 buildings. Just boom, boom, boom, boom, boom, boom, boom. And this guy's worth like $50 million. Craziness.

Well, so as a general rule, the owner might have 50 properties. And if he were to even just take one call a week from each tenant, he might get 300 calls a week because every building he might have multiple tenants. Business coaching lesson: So he'll hire a property manager for each building or maybe for a few buildings to try to create a buffer between him and the tenant?

-That's correct. And then, again, this is different from the broker. It might be the same company. But that broker that you like, they're usually not also the property manager. It can happen. But it's more rare. So it's a good question to ask in every building. Who is going to be the person that I'm going to be dealing with on a regular basis. Sometimes owner will say, it's just me. I'm a local owner and it's just me. But the majority of the time, it's going to be a property management company. And you want to meet that person before you sign a lease.

-So I'm just going to throw out some weird stuff that could happen that's happened to me. Business coaching truth: It might happen to you. If you're leasing a property from an owner who you find out through Google or through research or whatever who has bad financials, is in a bad financial situation, I have had situations where the owner has actually not made their own mortgage payments for a building, or has not paid their utilities, or has not paid. So literally, I, as a tenant over here, have been told, hey, we're going to turn off your water. We're going to turn off your electricity. Not even we're going to, but we just did. I've literally had it happen where the water or the electricity has been turned off in my building because this person here did not make their payment.

So when I call this person, I have to have faith that this person here is a quality person and that this person is a quality person. And it really comes down to the quality and the integrity of these people is a big deal.

-Yeah, I think it was Ronald Reagan who said trust, but verify. And you don't want to just look for the devil around every corner. Business coaching advice: But you do want to verify that these people are humans that want to have a reputation that is viable and good. And I'll tell you, most people want that. But you still have to be ready for the worst. And in this situation, you probably called up and had to pay for your own water and electricity for a while, and eventually figure it out.

But but you had a deal that said you were not going to pay for your own water and electricity. And so that happens. What are you going to do? Are you going to sue or are you going to pay the water and electricity bill for a little while? Business coaching tip: Be ready for that kind of thing.

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