PERIODIC REVIEW OF YOUR LEASE IS A PRUDENT MOVE

Thankfully the fires from a few weeks ago are out but I fear it’s going to be a long fire season. Take a look at the accompanying picture I took of a building along Palomar Airport Road in Carlsbad damaged by the fire. Clients in that area who witnessed the fire commented on how awe inspiring and destructive the power of nature can be.052014 Carlsbad wildfire damageWhy am I showing you a fire damaged building? Events of this type should make us pause and reflect on how prepared our businesses are to handle catastrophes. As it relates to your commercial lease it’s a good idea to periodically review the document for two reasons; one, make sure you have the appropriate level of insurance protection, and two, compare your situation to the current market conditions to see if there are areas to potentially reduce occupancy costs.

At Botticelli Realty Advisors we provide lease review services whether you are an existing client or not, and it is free of charge. This is a good idea to do if you’re more than half way through a long term lease, and definitely after an event like the recent fires.

How many of you remember the insurance clause in your lease stating the type of coverage you need to carry during the term? Usually right after the insurance clause is the section addressing damage or destruction of the property. This clause describes what happens in the event of destruction of premises by fire (or other cause) and details what happens to the lease if a certain percentage of the premises has been destroyed or is not habitable.

If you have an insurance agent, I would also suggest reviewing your coverage with them. Based on a conversation I had with a friend in the insurance industry, you should review the following:

  • business interruption insurance: do you have enough to cover lost income for the time it takes to repair your space?
  • has your insurance provider readjusted their current fire zones: some companies are doing this in response to the most recent fires so this could affect your coverage if you are/were near one of the designated zones
  • utility interruption insurance: maybe your building was not in any danger but the firefighters did purposefully turn power off in certain areas to help fight the fires. What would happen if your business was without power for a several days?

Again, you and your agent will be able to determine if your current coverage provides enough protection.

Keep in mind the landlord will carry insurance as well. One type of coverage is rent interruption insurance, whereby the landlord’s rental stream from the property is covered for a period of time while they repair damage. In the future you should review the type of insurance the landlord has on any new building you move to, especially if it’s near a fire hazard area. You want to know if they have enough coverage to protect against damage like we saw in Carlsbad. Knowing how much time they have for their rental insurance coverage will help you ensure you have enough business interruption coverage to avoid any costly delays.

As part of our lease review service we help you understand what your options are in the event of damage to your space as its stated in your lease. An attorney can also tell you about any recourse you may have in the event of total destruction or major delays in repairing your space.

The second reason a review makes sense is to benchmark your current lease with market conditions. At Botticelli Realty Advisors we are experts in helping our clients find potential areas of savings and then utilizing negotiating strategies to help cut costs. As a business owner or someone responsible for the company’s budget, a lease review is a great way to see if there are areas where cost cutting is possible, and also insure the appropriate levels of protections are in place for your business.

It took a negative event like the recent fires to make me want to promote this free service, but it is important. If you have any questions or wish to have your lease reviewed, please contact me at (760) 445-9908, or brian@bradvisors-sd.com.

Thank you for your time and I wish you continued success.