“New” California Bureau of Real Estate Now Has Teeth!

     Commercial real estate has always been the stepchild of the California Bureau (formerly “Department”) of Real Estate. In years past, most of their oversight was focused on two areas, residential real estate and mortgage brokers. Why?     Because protecting general consumers was foremost. The complaints typically came from individuals who felt they were wronged by a deceitful residential agent or their funds were misappropriated by a mortgage lender. Commercial disputes usually involved in leasing most often went right to the courts for settlement.
Now, there’s a new Sheriff in town.
Commissioner Wayne Bell has turned over a new leaf and is now pursuing ALL unlicensed individuals with new authority to cite, fine and even issue Cease and Desist orders. In the last two months alone, over 30 C/D orders were issued. No stats have been made public that I am aware of as to the fines that were levied but a non-licensed individual can be fined up to $2500 PER INCIDENT due in thirty days. Do the math…a person does 100 leases while not licensed….hummm!!!
These C/D orders mostly come under violations of Section 10131 of the Business and Professional Code. That code states as follows:
     10131. A real estate broker within the meaning of this part is a person who, for compensation or in expectation of compensation, regardless of the form or time of payment, does or negotiates to do one or more of the following acts for another or others:
(a) Sells or offers to sell, buys or offers to buy, solicits prospective sellers or purchasers of, solicits or obtains listings of or negotiates the purchase, sale or exchange of real property or a business opportunity.
(b) Leases or rents or offers to lease or rent, or places for rent, or solicits listings of places for rent, or solicits for prospective tenants, or negotiates the sale, purchase or exchanges of leases on real property, or on a business opportunity, or collects rents from real property, or improvements thereon, or from business opportunities.
(c) Assists or offers to assist in filing an application for the purchase or lease of, or in locating or entering upon, lands owned by the state or federal government.
(d) Solicits borrowers or lenders for or negotiates loans or collects payments or performs services for borrowers or lenders or note owners in connection with loans secured directly or collaterally by liens on real property or on a business opportunity.
(e) Sells or offers to sell, buys or offers to buy, or exchanges or offers to exchange a real property sales contract, or a promissory note secured directly or collaterally by a lien on real property or on a business opportunity, and performs services for the holders thereof.

     There are some clear violators in the commercial segment. Many of these companies or individuals believed they were acting within the parameters of the code based on their responsibilities. They are now finding out the hard way how wrong they are.
For example, many commercial landlords have their property managers negotiate renewals. Other landlords hire salaried “Leasing Managers.” Still other investment companies, usually in the form of LLC’s have a staff person such as an Asset Manager handle either new or renewal leases.
The most common rationales heard are 1) we don’t pay our people commissions or 2) we own our own property so we don’t need to have a licensed person doing our leasing or sales.
Quite the contrary. “Regardless of the form or time of payment” if the employee or property manager as part of their responsibilities does anything related to leasing or sales they MUST be licensed. With regards to “owning your properties,” if you are an individual selling your own home, no problem. However, if you are a corporation such as an LLC the person handling the transaction must be licensed.
And by the way, the designated person must have a Broker’s license and not just a salesperson’s license.
There has been much confusion about this over the years. Consult with an attorney but I will state that based on my conversations with Commission Bell’s office in Sacramento it is pretty clear who needs a license. Don’t find yourself or your clients facing stiff penalties or worse. If you are in the business of leasing or selling commercial properties, hire a licensed broker. On many levels, you’ll be glad you did.

Let the Landlord Know Up Front

One of the most lively discussions I have seen on any social media or listserve has been a recent one on Linkedin by Ira Meislik who asked the question, “Can a Detailed Letter of Intent Speed Up a Transaction?”.

What I was most intrigued by was the clear split between those who thought more was better verse those who thought less was better…simply…it was the brokers representing tenants or the corporate real estate executives on one side and the listing agents or landlords on the other. The former wanting as much detail in the LOI, typically 28-35 issues or deal points while the latter wanted short forms which usually meant limiting the LOI to 8-12 terms.

The discussion was most revealing and ranged from how the length or detail of the LOI could or couldn’t save either time or money. Both had their own talking points and were convince their position was right. Personally, I looked at the discussion as if it were a political referendum like we so often have in California. I look for who is supporting which side of the ballot. Too often the referendums are so complex and confusing it’s best to see what the experts think. A tax on cigarettes failed because of a great marketing campaign supported by the big tobacco companies while the American Cancer Society and others just couldn’t raise the capital to run counter adds. I voted with the ACS.

So many times we negotiate a deal with the broker then provide the final LOI to the attorneys when we (along with the tenant’s attorney) negotiate the lease only to have the implementation of the transaction including installation of the TI’s, managing the lease during the term or other issues are then turned over to a third party property manager who was not involved in the initial negotiations.

While one might say the Lease should have covered all the negotiated items it never fails that someone along the line looks at the Lease and tries to interpret it in a different way. The more detailed the better.

While that is always our goal, it never seems to amaze me how interpretation of items normally accepted as standard in a market is misconstrued after the deal is signed.

Recently we completed a transaction for a client where our 32 item LOI contained general information concerning the tenant improvements. While the LOI had some workable parameters and a drawing of the proposed improvements it clearly stated the Tenant would meet with the Landlord or his agent prior to executing the Lease in order to clarify the scope of work. One item that was specifically called out in our walk through was that the blinds in the front of the suite (the entire length of the front entry was windowed sections) would be “Repaired or Replaced.” As we did our pre-lease walk through it was determined the blinds could not be repaired and needed to be replaced. What the Landlord attempted to do was take blinds from other suites some of which didn’t even match and install them in the suite noting that by doing so they were living up to the “or replace” mandate of the Lease. Next time we write (for the first time in over 25 years), “Repair as new or replace with new.”

We don’t have all the answers and things we never expected seem to come up on every deal. However, the more detailed your LOI is, the clearer it will be for the folks that are helping to manage the lease but, as mentioned earlier, were not directly involved in the negotiations.

We’ll talk more about what goes into an LOI in future blogs. Feel free to contact me if you have immediate questions at jerryn@inhousecorp.com.