Commercial Real Estate Law Help

[Nueces River Rat 5539]

I'd like to get a few takes on this from some of you Legal Beagles familiar with  Commercial Real Estate field or  fellow commercial tenants.   Agents can also chime in.

I'm in the middle of a four your lease in a commercial shopping center.  I have exactly two more years left on the lease.   It cost me a fricken arm and leg and the nature of my business has changed so much in part due to Covid and even before, I could really do what I am doing ( P&C and Commercial Insurance)  in a broom closet or at least 600 sq. ft. instead of 1200 sq. ft.  

To cut to the chase,  since I've moved in I've had an issue with the restaurant next door to me with water leaking under the wall into my suite which has resulted in my carpet being damaged in the back part of my suite  and no telling what kind of mold/mildew resides on the base of the drywall. 

From what I understand and what was visible when I moved in and before I did my demo and build out, the prior occupant ( Chiropractor Clinic)  had issues with water as well.   Their  problems were worse as the ice maker and refrigeration would go out and defrost.   When I moved in, they replaced the ice maker and fridge  with new equipment and no issues to date have occurred with water leaking i from where they are located in relation to my office.  So I thought the water issues where fixed, but not too long after this the water start appearing to where they diagnosed it was coming from an additional source   My issue  involves their mop sink on the other side of the wall and water apparently leaking through cracks in the tile when they do a deep clean of their kitchen which in most place if you seen them "mop", they just dump  soapy water all over the floor and spread it out and let it air dry.   My guess it was probably leaking water for awhile  as well, but was being masked by the leaks from the fridge and ice maker and no one noticed a third source was at play.  

The restaurant says they've done enough to fix it.  The shopping center management says the damage on my side is my responsibility and every time I bring it up the issue needs to be fixed, they say they are working on it.  They send someone to look at it and of course nothing gets fixed.   I got an attorney involved and  he wrote a letter over a year ago trying to terminate my lease, but the shopping center management responded of course that we have no cause in claiming they are violating my right to "quiet enjoyment."   He doesn't see it that way, but doesn't seem to want to take it to the next step.  He was recommended by a friend of mine to look at it, but I don't think commercial real estate is his strong points and I've kind of given up on him as noted in the prior sentence.  So I've been pretty much taking pics / video of the leaks  and sending them to  the management myself as documentation along with the usual when and how are things going to get fixed statements.  

I did approach the center about getting out my lease early about a month ago  and the best offer they made is they would remarket my suite and try to find a new tenant for which my response was how are you going to find a new tenant when if they come to see the suite they will see the damaged carpet and wall and immediately leave and not come back.

Needless to say the shopping center has a much bigger checking account balance than I do at this point .   I'm tempted to say the heck with and sit on my rent payments and let them take me to court because I think I have the law on my side, but again the cost.    Where do most of these types of disputes end up if I just quit paying my rent for example?   Would this give me the opening to say they've violated their part of the lease with the lack of resolution to water leak?  

Thanks for your opinions and advice in advance.  I appreciate it!  Yea I'm a tad frustrated.  

Edited July 16, 2021 by Nueces River Rat

[Chewbacca 7785]

Calling @Sbbruin

[Jerry Callo 8727]

I don't care how bad you think it is, you only have the law on your side if the lease is on your side.  I wouldn't make any decision to withhold rent, abandon the property, or anything else that would put you in default without the advice of an attorney.

[Incredulity 11683]

Based on your description it sounds like you could have an argument to get out of the lease.  However, they have shown they are not going to just roll over.

It sounds like you have documented the issues and your communication, that will be critical.

If you choose to stop paying they will likely evict and sue for the lease money and damages.  You could start off the legal fireworks, but it really becomes about your read on the landlord and their likelihood of settling.

 

What is the money left on the lease?  A lawsuit is going to get to 6 figures cost real fast. 

Edited July 16, 2021 by Incredulity

[Incredulity 11683]

nm duplicate

Edited July 16, 2021 by Incredulity

[Nueces River Rat 5539]

1 minute ago, Incredulity said:

Based on your description it sounds like you would have an argument to get out of the lease.  However, they have shown they are not going to just roll over.

It sounds like you have documented the issues and your communication, that will be critical.

If you choose to stop paying they will likely evict and sue for the lease money and damages.  You could start off the legal fireworks, but it really becomes about your read on the landlord and their likelihood of settling.

 

What is the money left on the lease?  A lawsuit is going to get to 6 figures cost real fast. 

About 60K which about 12k of this would be the Triple Net.  

For which you are correct about the lawsuit cost.

[TwiceHorn 31536]

20 minutes ago, Nueces River Rat said:

I'd like to get a few takes on this from some of you Legal Beagles familiar with  Commercial Real Estate field or  fellow commercial tenants.   Agents can also chime in.

I'm in the middle of a four your lease in a commercial shopping center.  I have exactly two more years left on the lease.   It cost me a fricken arm and leg and the nature of my business has changed so much in part due to Covid and even before, I could really do what I am doing ( P&C and Commercial Insurance)  in a broom closet or at least 600 sq. ft. instead of 1200 sq. ft.  

To cut to the chase,  since I've moved in I've had an issue with the restaurant next door to me with water leaking under the wall into my suite which has resulted in my carpet being damaged in the back part of my suite  and no telling what kind of mold/mildew resides on the base of the drywall. 

From what I understand and what was visible when I moved in and before I did my demo and build out, the prior occupant ( Chiropractor Clinic)  had issues with water as well.   Their  problems were worse as the ice maker and refrigeration would go out and defrost.   When I moved in, they replaced the ice maker and fridge  with new equipment and no issues to date have occurred with water leaking i from where they are located in relation to my office.  My issue involves their mop sink on the other side of the wall and water apparently leaking through cracks in the tile when they do a deep clean of their kitchen which in most place if you seen them "mop", they just dump  soapy water all over the floor and spread it out and let it air dry.    

The restaurant says they've done enough to fix it.  The shopping center management says the damage on my side is my responsibility and every time I bring it up the issue needs to be fixed, they say they are working on it.  They send someone to look at it and of course nothing gets fixed.   I got an attorney involved and  he wrote a letter over a year ago trying to terminate my lease, but the shopping center management responded of course that we have no cause in claiming they are violating my right to "quiet enjoyment."   He doesn't see it that way, but doesn't seem to want to take it to the next step.  He was recommended by a friend of mine to look at it, but I don't think commercial real estate is his strong points and I've kind of given up on him as noted in the prior sentence.  So I've been pretty much taking pics / video of the leaks  and sending them to  the management myself as documentation along with the usual when and how are things going to get fixed statements.  

I did approach the center about getting out my lease early about a month ago  and the best offer they made is they would remarket my suite and try to find a new tenant for which my response was how are you going to find a new tenant when if they come to see the suite they will see the damaged carpet and wall and immediately leave and not come back.

Needless to say the shopping center has a much bigger checking account balance than I do at this point .   I'm tempted to say the heck with and sit on my rent payments and let them take me to court because I think I have the law on my side, but again the cost.    Where do most of these types of disputes end up if I just quit paying my rent for example?   Would this give me the opening to say they've violated their part of the lease with the lack of resolution to water leak?  

Thanks for your opinions and advice in advance.  I appreciate it!  Yea I'm a tad frustrated.  

You probably have grounds to terminate, but it depends on the language of your lease.  There are almost no "default" protections for commercial tenants in Texas.

Don't stop paying rent and continue to occupy, that undercuts your claim of "quiet enjoyment."

If you're going to, GTFO.

What's the balance of the lease payments?

ETA:  ok, $60k cut down by the duty to mitigate puts this probably right on the edge of suing.  I'm guessing that's about two years?  A landlord is probably going to have some trouble collecting more than about half that in a suit because of the duty to mitigate.  Leasing conditions are weird, though, so maybe not.  Also, as an NNN lease, the landlord is probably going to have some ability to claim that the leak issue is a "maintenance" issue and thus not a breach of the lease.  Again, all depends on the language.

Edited July 16, 2021 by TwiceHorn

[Nueces River Rat 5539]

1 minute ago, TwiceHorn said:

You probably have grounds to terminate, but it depends on the language of your lease.  There are almost no "default" protections for commercial tenants in Texas.

Don't stop paying rent and continue to occupy, that undercuts your claim of "quiet enjoyment."

If you're going to, GTFO.

What's the balance of the lease payments?

See above.

[Incredulity 11683]

I would also say don't ever count on collecting attorney fees if you win a lawsuit.  

[TwiceHorn 31536]

4 minutes ago, Incredulity said:

I would also say don't ever count on collecting attorney fees if you win a lawsuit.  

Troof.

[Nueces River Rat 5539]

8 minutes ago, Jerry Callo said:

I don't care how bad you think it is, you only have the law on your side if the lease is on your side.  I wouldn't make any decision to withhold rent, abandon the property, or anything else that would put you in default without the advice of an attorney.

I agree...   Just thinking out loud.   The last thing I want to do is to fall into a legal rabbit hole.   My error was slowing down my initial thirst to get into a location and not going for some of the alternatives .  Part of this was my insurance cluster wanted us in store fronts and later they revised it to allow office park or even Regus style offices, but I can't reinvent that wheel.  

[Nueces River Rat 5539]

7 minutes ago, Incredulity said:

I would also say don't ever count on collecting attorney fees if you win a lawsuit.  

Agreed.  

 

[Nueces River Rat 5539]

31 minutes ago, TwiceHorn said:

You probably have grounds to terminate, but it depends on the language of your lease.  There are almost no "default" protections for commercial tenants in Texas.

Don't stop paying rent and continue to occupy, that undercuts your claim of "quiet enjoyment."

If you're going to, GTFO.

What's the balance of the lease payments?

ETA:  ok, $60k cut down by the duty to mitigate puts this probably right on the edge of suing.  I'm guessing that's about two years?  A landlord is probably going to have some trouble collecting more than about half that in a suit because of the duty to mitigate.  Leasing conditions are weird, though, so maybe not.  Also, as an NNN lease, the landlord is probably going to have some ability to claim that the leak issue is a "maintenance" issue and thus not a breach of the lease.  Again, all depends on the language.

Yep...  Two years.

Trying to pin point though where they could claim it's maintenance issue.    I could understand let's say the water from wind driven was coming in through the front or back door or window through the frames due a structural issue like maybe due  the foundation shifting.   I come back to this and what I stated in one of my many letters is if my  toilet valve popped a leak, and caused damage  to  my neighbor on the other side close where my bathroom ,  how fast would they nail me for being obligated to fix it and remediate the damage both on my side and their side?

[Sbbruin 21887]

1 hour ago, Chewbacca said:

Calling @Sbbruin

Couple of issues at play here.  You should read your lease closely and see if you have a right of offset- that is, notify the landlord that the damage is being caused by the adjacent tenant and should they fail to assist in rectifying it, and costs you incur will be deducted from the rent.  But the better play I would say would be to contact your insurance company, explain the situation, file a claim with them, and then have them subrogate against the other tenant's insurance company.  An insurance company is going to make sure the repairs are done correctly so no future claim may arise.

I know it's a PITA, but I would definitely find an attorney who specializes in real estate law, of which there are many.  I'm sure someone on here can point you to someone.  It's cost money, but you gotta do it.  And no, I wouldn't just unilaterally break the lease.  They will enforce it and they will likely prevail.  But on that front, take direction from an attorney.

[TwiceHorn 31536]

49 minutes ago, Nueces River Rat said:

Yep...  Two years.

Trying to pin point though where they could claim it's maintenance issue.    I could understand let's say the water from wind driven was coming in through the front or back door or window through the frames due a structural issue like maybe due  the foundation shifting.   I come back to this and what I stated in one of my many letters is if my  toilet valve popped a leak, and caused damage  to  my neighbor on the other side close where my bathroom ,  how fast would they nail me for being obligated to fix it and remediate the damage both on my side and their side?

Again, depends on the language of the lease.

 

What I mean is, broadly, that, because you are liable for maintenance under the lease, that absolves them from responsibility for "quiet enjoyment" issues that arise from premises problems that might fall in the category of maintenance, regardless of who is paying for them (you, them, or the other tenant).  It's an argument.  May or may not hold up, but blurs the situation some.  As you are probably aware, there are some issues that give rise to a claim for damages and some that result in a breach of the lease.  They may use the maintenance provisions to argue that they didn't breach the lease, but may owe you some money.  When tenants start engaging in "self help" by withholding rent or vacating, they turn it into a breach issue, with you breaching.

Edited July 16, 2021 by TwiceHorn

[South Austin 52604]

3 hours ago, Jerry Callo said:

I don't care how bad you think it is, you only have the law on your side if the lease is on your side. 

This.  In Texas, it usually begins and ends with the lease.  There are some statutory protections for commercial tenants, and a duty to mitigate that sometimes can reduce a landlord's claim for rent through the remainder of the lease term.  But courts largely leave it up to the terms of the lease, and usually the landlord's duty to repair and the tenant's duty to pay rent are independent covenants in the lease. 

There's a common law claim for constructive eviction that can eliminate a tenant's obligations under the lease.  But conditions rarely rise to the level needed to support a claim (for example, a fairly recent case involving a months-long rodent infestation in a physician office did not constitute a constructive eviction), and if a tenant is still occupying and operating its business in the space but just not paying rent, then that's not a constructive eviction. 

I've been representing commercial landlords most of my career, and the deck is almost always stacked in my favor.  On the other hand, I can count on one hand the number of times that I actually collected on a claim against a tenant, whether by settlement or on a judgment after a trial.  Most landlords understand that when they need to call me in to chase a tenant on failure to pay rent, there's most likely going to be a solvency issue, unless it's a chain tenant or there's a personal guarantor that might actually have sufficient non-exempt assets.  Unless it's a landlord who just wants to spend money in a lawsuit against a tenant on principal (and unfortunately I don't come across too many of those), most landlords will recognize that they'll be throwing good money after bad.

Edited July 16, 2021 by South Austin

[Nueces River Rat 5539]

Really do appreciate the input.    I'll continue to try to make lemonade out of the lemons. 

[torre 1286]

4 hours ago, Nueces River Rat said:

To cut to the chase,  since I've moved in I've had an issue with the restaurant next door to me with water leaking under the wall into my suite which has resulted in my carpet being damaged in the back part of my suite  and no telling what kind of mold/mildew resides on the base of the drywall. 

 

 

Are there any signs of mold in the area,  dark spots on wall, carpet, odor, etc  ?

May want to have a mold inspection by the City Health Dept, or another agency.    Would force the landlord to make repairs if mold is found.

[Updawg 2286]

If you do stick out the lease be sure to post when they are charging you for the water and mold issues after you vacate

[Bernard 879]

Just thinking out loud...

1. Are you in a high demand location? Maybe just walking and letting them sub-lease isn't such a bad idea.

2. Did you personally guarantee the lease? How judgement proof are you / the entity that signed the lease? How important is your credit score to your personal / professional life?

3. Can you offer them a buyout? $10-15k cash now to break your lease, otherwise they can get their judgement and hope to collect someday. Trust me, they are well aware that many of their collection efforts go nowhere.

4. Do you know anyone who might be interested in sharing / subleasing all or a portion or your space?

5. Do you have ANY other leverage over the landlord? Is there any way you can make the landlord's life miserable. All negotiations are about leverage. Sometimes you can find it in unexpected places. 

Bernard

 

[troph 24906]

I rep mostly tenants when I work commercial leases, it sucks. you’re basically screwed and have to use threat of insolvency to negotiate out. There is less than a 3% chance you have much of anything in the lease to help you. If you have a PG on the lease that’s much harder, but still doable.  Best approach is to straight up negotiate an out. Play hard, know you have no real argument and sweat it out. Make all the arguments you would normally want to make even if they are dead end losers, whine, complain, blame the landlord, talk about the problems, business went to shit, LL duty to mitigate, etc.  or if like me, business didn’t go to shit but I wanted out of my lease and no way I had a single credible argument, I asked to sublease it out, they agreed to put it on the market and we found a tenant 6 months later. Those really are your two most likely outs.

I had 5-6 workouts due to covid and only one had to pay and even that client was able to negotiate the lease buyout way down. I had one straight up walk out of a $24k/month lease. 
 

most LL’s know they are on the winning side but they don’t want to spend $50k or more in a suit to chase money they don’t really think is there.  And if they press hard enough even a solvent business can go under. 

Edited July 18, 2021 by troph

[Chewbacca 7785]

I rep mostly tenants when I work commercial leases, it sucks. you’re basically screwed and have to use threat of insolvency to negotiate out. There is less than a 3% chance you have much of anything in the lease to help you. If you have a PG on the lease that’s much harder, but still doable.  Best approach is to straight up negotiate an out. Play hard, know you have no real argument and sweat it out. Make all the arguments you would normally want to make even if they are dead end losers, whine, complain, blame the landlord, talk about the problems, business went to shit, LL duty to mitigate, etc.  or if like me, business didn’t go to shit but I wanted out of my lease and no way I had a single credible argument, I asked to sublease it out, they agreed to put it on the market and we found a tenant 6 months later. Those really are your two most likely outs.
I had 5-6 workouts due to covid and only one had to pay and even that client was able to negotiate the lease buyout way down. I had one straight up walk out of a $24k/month lease. 
 
most LL’s know they are on the winning side but they don’t want to spend $50k or more in a suit to chase money they don’t really think is there.  And if they press hard enough even a solvent business can go under. 

Why would a point guard help the lease? I'll hang up and listen. And i might be drunk.

[troph 24906]

3 hours ago, Chewbacca said:

 

 

Why would a point guard help the lease? I'll hang up and listen. And i might be drunk.

 

You can’t win shit In the tourney without quality play from your point guard I personally guarantee it. 

[Nueces River Rat 5539]

On 7/18/2021 at 6:51 AM, troph said:

I rep mostly tenants when I work commercial leases, it sucks. you’re basically screwed and have to use threat of insolvency to negotiate out. There is less than a 3% chance you have much of anything in the lease to help you. If you have a PG on the lease that’s much harder, but still doable.  Best approach is to straight up negotiate an out. Play hard, know you have no real argument and sweat it out. Make all the arguments you would normally want to make even if they are dead end losers, whine, complain, blame the landlord, talk about the problems, business went to shit, LL duty to mitigate, etc.  or if like me, business didn’t go to shit but I wanted out of my lease and no way I had a single credible argument, I asked to sublease it out, they agreed to put it on the market and we found a tenant 6 months later. Those really are your two most likely outs.

I had 5-6 workouts due to covid and only one had to pay and even that client was able to negotiate the lease buyout way down. I had one straight up walk out of a $24k/month lease. 
 

most LL’s know they are on the winning side but they don’t want to spend $50k or more in a suit to chase money they don’t really think is there.  And if they press hard enough even a solvent business can go under. 

 

On 7/16/2021 at 9:59 PM, Bernard said:

Just thinking out loud...

1. Are you in a high demand location? Maybe just walking and letting them sub-lease isn't such a bad idea.

2. Did you personally guarantee the lease? How judgement proof are you / the entity that signed the lease? How important is your credit score to your personal / professional life?

3. Can you offer them a buyout? $10-15k cash now to break your lease, otherwise they can get their judgement and hope to collect someday. Trust me, they are well aware that many of their collection efforts go nowhere.

4. Do you know anyone who might be interested in sharing / subleasing all or a portion or your space?

5. Do you have ANY other leverage over the landlord? Is there any way you can make the landlord's life miserable. All negotiations are about leverage. Sometimes you can find it in unexpected places. 

Bernard

 

Thanks to everyone who chimed in...   Really appreciate it!

[NeverMarryAStripper 21921]

I read somewhere that water leaks can cause shorts in the wiring that could possibly burn the entire building down.  You might want the alert the landlord that that possibility

[HornOnTheBayou 8946]

3 hours ago, NeverMarryAStripper said:

I read somewhere that water leaks can cause shorts in the wiring that could possibly burn the entire building down.  You might want the alert the landlord that that possibility

Or tell that to the arson investigator after the terrible "accident".

[Nueces River Rat 5539]

23 hours ago, NeverMarryAStripper said:

I read somewhere that water leaks can cause shorts in the wiring that could possibly burn the entire building down.  You might want the alert the landlord that that possibility

Really not sure the landlord gives a flip if the place went up in flames.  To them it might give them the money they need to remodel the center as it's pretty much a 1980's style center which needs some structural updating (which I think the existing issue is related) along with cosmetic update  other than slapping new paint on it every so often like they've done since they bought it a few years ago.

My A/C guy was out here the other day looking at the unit up on the roof.  He said the roof is sad shape as well.  We've had a lot of rain over the last two months and no leaks in my suite. We have about 8 or so weeks where we are in the peak of the  hurricane season for the Texas coast, so we will see if it holds up if we get hit with a meaningful storm if we get one which I hope does not occur this year or the next several years in order to stabilize our insurance market.