If you’re starting a private equity, venture capital or other investment business, its success and reputation will be dependent on one or more “key” people to make and manage investments. That’s why it’s wise to include a key man (KM) clause in the contracts of your executives and others who are key to your business. 

This clause prohibits the business or any fund manager from making an investment of the designated key person(s) if they won’t be around or able to devote sufficient time to the investment. This could occur not just through resignation, termination or death. A KM clause might need to be invoked if a person takes a leave of absence or simply no longer has the necessary time to devote to their responsibilities.

The key people named in this clause don’t necessarily have to be partners or other executives with the company. However, they are people whose experience, skills and knowledge in sales, product development and other areas are crucial to the business’s success.

A key man clause helps the business and its clients

Having a KM clause can help reassure potential investors that their money will by the people in whom they’re placing their trust. A KM clause also protects the company if one of their primary decision-makers leaves or cannot devote enough time to the business.

Including the clause is just the first step. You need to detail what the business will do if a key person dies, leaves the company or is otherwise unable to fulfill their responsibilities, such as hiring someone new or training someone to take over. A timeline for this transition needs to be included in the replacement plan.

You may also want to invest in key man insurance. This can compensate the company if you suffer losses because a key individual is no longer there. However, it’s much better to have a contractual clause and replacement plan in place so that you don’t have to deal with losses that can significantly affect the success of your company and cause potential investors to go elsewhere. 

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Sometimes, people rent spaces with the goal of making money off of doing so. They may feel that they can sublet parts of the space to bring in an income, saving them money on their rent.

For example, a renter who leases a three-bedroom property for $1,000 may decide to sublet two of the rooms for $550 each. They’ll essentially make money living in the home by subletting the space and remaining in the third bedroom.

This kind of setup can work well for some people, but it’s not always legal or agreeable to the landlord. If a tenant violates their lease, there is a possibility that the landlord may evict them and anyone else who is on the property.

Can tenants legally sublet a property in California?

Tenants cannot legally sublet a property in California if the lease prohibits it. However, if the lease prohibits assignment and not subletting, then subletting is legal. Putting it more simply, if a lease does not specifically prohibit subletting, then the tenant usually can sublet legally.

Tenants who want to sublet a space should review their leases to determine if it has been prohibited before renting out the space. Landlords have ultimate control over who lives in the rental if it has been prohibited, but there are some exceptions.

For example, if the landlord didn’t expressly prohibit subletting, then subletting should be allowed. Additionally, certain cities have provisions that allow some kinds of subletting to occur to make rentals more affordable. For instance, in San Francisco, it’s possible to have roommates legally added or replaced to make living within the city more affordable for everyone.

Landlords normally won’t deny a subtenant without good reason or unless they’ve already refused subletting and are backed by state law. They might refuse a subtenant who has poor credit, is a danger to others, doesn’t provide enough information or provides false information to them.

If a tenant wants to sublet, they should talk to their landlord first to verify that doing so is their right. If the landlord is agreeable with the sublet and the subtenant, then this will help prevent any future problems with the agreement.

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As a commercial landlord here in Los Angeles, you will likely have to deal with the issue of subleasing at some point. Unless you unilaterally forbid subleasing specifically in your leasing contract for your commercial tenants, it’s quite possible that the current economic instability could give rise to requests for subleasing.

How you respond to such requests matters a great deal. Since you don’t want to wind up as a defendant in a civil lawsuit, the following guidelines can be helpful in those circumstances.

What are the tenant’s rights in the matter?

As stated, unless specifically prohibited by the leasing contract, your tenant does have a right to sublease the property. As the property owner, you retain the right to restrict the type of business that the potential subtenant proposes to open. 

However, there is a caveat. A landlord’s consent may not be “unreasonably withheld.” While that clause is open to liberal interpretation, it is always best to err on the side of caution and seek a legal opinion whenever you are in doubt about your position.

The tenant remains liable

When a tenant takes on a subtenant, the original tenant remains liable for all of the financial burden to the property owner. They remain responsible for collecting the subtenant’s share of the rent because they have the role of surety for the original financial obligations. If the subtenant moves out in the middle of the night and skips out on their portion of the rent, that is not the property owner’s responsibility to pursue payment. The tenant absorbs the entire responsibility for paying the full rent according to the terms of their lease.

Is it advantageous to allow subleasing?

While circumstances do indeed matter, e.g., the type of business the sublessee plans to operate, from an owner’s perspective, a sublease tenant can indeed be a positive thing. In an uncertain economy where your original tenant may be struggling to make rent each month, a subtenant’s contributions can make the difference between shutting down and abdicating the tenant’s responsibility to pay rent and continuing to operate their business.

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There are a number of types of commercial leases, as our readers likely know. One that isn’t talked about a lot is a full-service lease. These are most often used when leasing space in large office buildings.

Basically, a full-service lease is similar to a gross lease. The costs of just about everything involved in maintaining the building are factored into each tenant’s monthly rent. This includes property taxes, insurance, utilities and common area maintenance (CAM).

Advantages and disadvantages for tenants

Many tenants prefer this kind of lease because it’s simpler. They have a rent payment every month that covers just about all of the expenses associated with the property they’re using. This can be a big advantage when budgeting. They can also avoid some monthly rate fluctuations – particularly if gas and electric costs are included.

However, if you’re considering a commercial space with a full-service lease, be prepared to pay more than you would for other types of leases. Another disadvantage for tenants is that these leases don’t typically have a lot of transparency. You’re trusting that the landlord isn’t charging you more than they’re paying for various services – or charging you for services you barely use.

Why property owners can benefit from these leases

These leases can be advantageous to property owners. For example, aside from the consistency of rental payments, they may be able to invest in energy-saving improvements to the building if the lease covers these utilities. The tenants are paying the same amount as they were at the beginning of their lease while the building owner is saving money. These savings can subsidize the improvements.

Whichever side of the full-service commercial lease agreement you’re on, it’s crucial to understand the advantages and disadvantages, what is required of you and how it will affect your bottom line.

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A business partnership benefits you and your partner. The two of you bring your own experience, resources and expertise to the company that you start or purchase.

You have someone else that you can rely on to remain as dedicated as you are to the company, which can help when you need to focus on other matters, like your family.  The two of you can also help keep each other motivated and dedicated to the business you’ve built together.

Still, like most human relationships, business partnerships often don’t last a lifetime. They may not even last for the entire life of your business. How do you identify the warning signs that you need to consider ending your partnership?

Something destroyed the trust between the two of you

Like a spouse, your business partner has a strong impact on your financial circumstances. You need to be able to trust that they will behave. When your business partner steals from the company or lies to you, you may no longer be able to trust them with access to your resources and control over major business decisions.

One of you is ready to retire or move on to a new business

Maybe after two decades of working together, one of you is ready to retire and enjoy their golden years. It’s also possible that headhunters from a bigger company or a start-up have made one of you an offer that is very hard to refuse.

If there are personal or financial reasons for one of you to end your involvement in the company, it may be time to dissolve the partnership or have the partner who wants to stay buy the other one out of the business.

You no longer agree on the big picture for the company

The less you negotiate and outline in your initial business partnership contract, the more uncertainty there may be for the future of your relationship. For example, when the revenue reaches a certain level, one of you may want to sell the company while the other doesn’t.

On the other hand, one of you may want to push to become a publicly-listed company with traded stocks while the other wants to keep things small and partner-owned. When your visions for the business start to diverge, you may have no choice but to resolve the matter by parting ways.

Recognizing the signs that your partnership is no longer as beneficial as it once was can be the first step toward a better business relationship in the future.

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As a California landlord, you have certain obligations to keep your tenants safe and advise them when certain conditions in the building you rent might become compromised. When these issues arise, the question of landlord and tenant responsibility may come into question.

One common problem that might affect you and your tenants is a bedbug infestation, and according to the California Legislature, Assembly Bill 551 now outlines your responsibilities if an infestation should occur.

Landlord responsibilities

According to the bill, you must ensure that any building you rent out to tenants is suitably safe and clean and that if you had the building treated for bedbugs, you must supply any prospective tenant with a copy of the pest control report. This may assist a tenant when making rental decisions and protect you as the owner of the building.

In accordance with the bill, if you know a unit or building has a bed bug issue, you may not show or rent that space until you have it treated and inspected by a qualified pest control company.

Fostering tenant cooperation

As a landlord, much of the responsibility of bed bug control falls upon you. However, you can foster cooperation with each of your tenants so you can work together to lower the risk of future infestations. Provide your tenants with information about how to prevent bedbugs and how to identify signs of an infestation, including:

• Small brown fecal marks on sheets
• Itchy bites on the legs and ankles
• Visible molted shells in bedding

You can encourage tenants to report these signs to you as soon as possible so you can treat the area.

A bed bug infestation can be difficult to treat, but early detection can help you fulfill your responsibilities as a California landlord before the problem spins out of control.

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Businesses and private investors in California know the value of commercial real estate holdings, thus prompting many to look for whatever opportunities become available to build up such properties. As is the case across all real estate segments, often the key to a property’s value is “location, location, location.” Yet when it comes to commercial real estate properties, zoning restrictions often bar them from certain locations.

That may not stop a developer from falling in love with a particular location. Should one want to pursue the chance to develop a commercial property on a particular location, a zoning variance may be a possibility.

Reasons for a zoning variance

A zoning variance allows for the construction or development of a certain type of structure or property outside of the standard set by a parcel’s zoning laws. According to the website Bankrate.com, on top of gaining permission to build a new property in contrast of local zoning codes, another common reason for requesting a zoning variance include altering an existing property in a way that would change its current zoning classification.

The zoning variance process in Los Angeles County

With zoning ordinances set at the local level (specifically at the county level), a developer must seek a variance from the same authority. Per Section 12.27 of the Los Angeles County Municipal Code, the county’s Zoning Administrator can only grant a variance in the following scenario:

• Special circumstances seemingly warrant the variance
• A variance allows for the preservation and enjoyment of a substantial property in the zoned area
• Granting the variance would not adversely affect public welfare or the county’s General Plan (the policy informing future land use decisions)
• A lack of variance would impose a hardship contrary to the intent of zoning regulations

If the issue of the variance affects public interests, the Zoning Administrator may make the variance hearing public.

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If you own or rent a commercial unit in a building with other owners or renters, there is a good chance you have at least one party wall. Party walls are simply the walls between two or more separately owned properties.

Keeping party walls in good condition is in the interests of all property owners. This is especially true when party walls act as fire barriers or provide structural support. Still, if a property owner on the opposite side of your party wall wants to renovate, you may encounter some conflict. Here are three ways to avoid party wall disputes.

1. Have a comprehensive party wall agreement

Arguably, the best time to address party wall disputes is before they arise. With a comprehensive party wall agreement, all property owners understand their rights and responsibilities. Before you purchase a property that has an existing party wall agreement, your due diligence should include reading it.

2. Ask for professional help

If you suspect another property owner may be damaging or neglecting the party wall, you may want to ask for professional help. A structural engineer may use laser technology to gauge the stability of the wall. He or she may also attach monitors that send automatic alerts when there is a problem.

3. Pursue alternate dispute resolution

While you can probably sue to enforce the terms of a party wall agreement, you may not ever have to go to court. After all, your party wall agreement may include a provision for resolving disputes. If the agreement is silent on the matter, meeting with a neutral mediator may help you reach common ground with the other property owner.

Alternate dispute resolution does not always work, of course. Ultimately, to safeguard your investment and your property, you may need to pursue all available options to protect your party wall.

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Commercial tenants that outgrow a rental unit may find larger areas and move their operations there. Under an existing lease agreement, however, a tenant may still face liability for monthly rent payments.

To avoid paying double rent, a tenant may find another business willing to take over the lease. As noted by the Los Angeles Daily News, when commercial tenants sublease, they remain responsible for the rent if a sub-tenant fails to pay. Landlords may also have some alternative options to consider.

A property owner may reduce the risk of default

A rental agreement may specify when a landlord may begin marketing a space to attract a replacement tenant. Depending on the amount of time left on the lease, a landlord may modify the unit to meet market demands and appeal to a long-term tenant.

Rental units, for example, may become smaller to accommodate a number of different commercial tenants sharing what was once a much larger space. By offering less square footage at attractive rates, a landlord may find it profitable to terminate a lease rather than rely on a single tenant. Dividing the area may also reduce the risk of financial losses if any of the new tenants’ businesses fail and cause them to default.

Creativity could result in new types of tenants

As reported by CNN, some vacant shopping mall owners looked beyond traditional retail tenants and began offering empty spaces to different types of growing businesses. Doctors, schools and storage facilities have all signed lease agreements for space located inside shopping malls.

The terms of a commercial lease may require some flexibility when market conditions appear uncertain. A lease may proactively highlight the conditions for modifying or terminating an agreement amicably. Avoiding landlord and tenant disputes could result in workable solutions that mitigate the risk of loss to both parties.

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Commercial leases differ quite a bit from residential leases. If you are new to commercial property investing, it is a good idea to become familiar with common provisions found in commercial leases.

According to REoptimizer, commercial lease provisions are a way to include some conditions on the agreement that may differ from the standard terms. There are several common provisions you should know about.

Use clauses

Use clauses can allow you to restrict how the renter uses the space. It can allow you to also place restrictions on the use of the property, such as hours of business. An exclusive use clause benefits the renter in that it ensures no other similar business will operate in the same building.

Rent escalation clause

A rent escalation clause allows you to increase the rent legally according to a schedule or based on triggers, such as an increase in property taxes. It provides you with the ability to avoid misunderstandings or have renters abandon their lease due to an increase.

Renewal clause

Commercial leases generally contain a renewal clause. Residential leases will often automatically renew unless the renter gives notice of moving out or you decide to end the lease, but commercial leases often require some type of confirmation and lease renewal at the end of the term. This clause will spell out the requirements to renew or end the lease.

Improvement clauses

Improvement clauses or alterations clauses cover what improvements are changes you or the tenant will make to the space. It outlines responsibility for costs as well. It may cover if the tenant must get permission before making changes.

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