The next article is a training transcript that features Braxton Fears (Venture Capitalist & Co-Founder of Fears & Clark Realty Group) and America's Palest Man Clay Clark (US Small Business Entrepreneur of the Year) talking about the commercial real estate industry and what you need to know on Thrive15.com, one of the best business schools in Florida!
Clay: My name is Clay Clark, and I am the visioneer and COO of Thrive15.com. Today, we're going to be teaching about the 4 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. 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. Braxton Fears is going to help me and people like you, hopefully, straighten this out so that 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.
All right, we are 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.
Braxton: There are other things I do.
Clay: You have been a successful Commercial Real Estate Broker.
Clay: You have worked in Ministry. You have worked in the Accounting profession. You have worked in the Landscaping industry. You have 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, your kind of this quasi retired yuppie guy who lives in the woods basically, right?
Braxton: Yeah, kind of.
Clay: Okay. We're going to really drill down today and pick your brain about the 4 humans that are involved in every commercial real estate lease transaction and if there's 5 humans too, we'll let you add some humans in here. Let's get into human #1: The Tenant
Clay: The Tenant, we hear a lot ... 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?" I'm going, "What does tenant mean?" Who is a tenant?
Braxton: 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.
Clay: So let's just make sure, the tenant is usually the business.
Braxton: That's correct.
Clay: If my name of my company is called, "Clay, LLC." The tenant is Clay, LLC?
Clay: Is the tenant Clay?
Braxton: The tenant is, Clay. If you're Clay, LLC, that landlord or owner of the building is usually going to ask you "Okay, Clay, LLC that's great, but it's really you, you're going to personally guarantee that lease."
Clay: So, I have to personally guarantee this.
Braxton: As that owner most of the time.
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Clay: Most of the time. Can you explain to me what a "Personal guarantee" is just so we can get into that.
Braxton: That means, even if you have a business, if you're the owner, than you are personally responsible for it. 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 going to 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.
Clay: 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 LLC's and legal and they say, "Well, I'm just going to guarantee with my company. I don't want to personally guarantee it. I've read that's better." You're like, "That's great, but the landlord wants somebody to be accountable to pay for the building."
Braxton: 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.
Clay: I just want to throw it out for you. If you had this mentality that you're going to form an LLC because you've heard about it on some midnight infomercial. "Well get and 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 are going to make you personally guarantee that.
Braxton: That's correct.
Clay: Okay. 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?
Braxton: Yeah, 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. 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. That's your space, and even if they sell that building, if you have a 5-year or a 3-year lease, they can't just kick you out even though they've sold the building.
Clay: I want to bring this up for a second, because this is big. We are in a building here that you helped us find. 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. 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, 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?
Braxton: 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, but you do want to have a good working relationship. You know, hey, if there's a bind they're going to treat you fairly, you guys are going to figure it out one way or the other because there will be issues.