Real Estate Advisor Law Blog : Ohio Real Estate Lawyer & Attorney : Ulmer & Berne Law Firm : Columbus, Cleveland OH

Protecting this planet’s natural resources for future generations is a moral obligation; unfortunately, moral obligations do not pay the bills.  Coal is a nonrenewable resource that causes pollution. But it’s cheap. Renewable energy is often a more expensive alternative to using coal, oil, or natural gas to produce energy. Recognizing that renewable energy must be financially viable for individuals and businesses to shift away from nonrenewable sources, the Federal Government has bridged the financial gap by implementing a 30% tax credit for renewable energy projects. As an additional incentive, for 2011 only, installers can opt for a grant instead of a tax credit, and the Federal Government will simply cut a check to the installer for the eligible expenses. Eligible projects include solar power, wind energy, biomass, among other types of renewable energy.Coupling the renewable energy tax credit with other federal and state incentives, people have the opportunity to dramatically reduce the break-even period for renewable energy equipment and increase the profit potential. One example is new market tax credit, which offers installers the opportunity to obtain an additional 39% tax credit. Not all projects are eligible for both credits, but utilizing them together for eligible projects will substantially improve an installer’s return on investment. Because of these benefits, tax laws play an important role in financing renewable energy projects.

Renewable energy projects pay for themselves in a couple of ways. First, the projects will produce “free” energy for the user. Once the equipment is in place, the only cost for the energy will be maintenance expenses to keep it in good repair. Alternatively, installers that do not want to use the renewable energy can enter into Power Purchase Agreements (PPA) with other users for the sale of the renewable energy. An example of this scenario is an entity that owns solar panels leasing roof space to install the solar panels and then selling the energy produced by the solar panels to the owner of the building pursuant to a PPA. Since PPAs often last from five to fifteen years, they create the equivalent of an annuity for the installer.

Second, renewable energy produces an intangible, transferable benefit called a Renewable Energy Credit (REC). A REC represents the environmental benefits of 1 megawatt hour of electricity that can be sold to Ohio utilities and service companies, which can satisfy their legal requirement to produce certain amounts of renewable energy by purchasing RECs. RECs are thus a second source of revenue from renewable energy projects.  

While many people recognize the value of renewable energy, cost remains an important consideration in choosing a source of electricity. Tax credits are a powerful tool to enable people to have the best of both worlds: higher profits and a healthier planet.

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I may be over-selling this post a bit, but not by much. There’s no doubt for most small businesses and start-ups that the first, and perhaps only, real estate transaction the firm will enter into is a commercial lease. Whether it is for a retail store, manufacturing or studio space, or a restaurant, there are a few things the small business owner should keep in mind while reviewing that first lease.

There is no such thing as a form lease. In all likelihood the Landlord will present you with a lease, pre-printed with your business name and other details inserted, and say it’s his typical form lease. Do not hear the word “form” and assume you can’t negotiate. No doubt the landlord presents the same lease to all prospective tenants – but you know your business, the landlord doesn’t. Read every provision as if it’s open for discussion, and keep in mind the particular needs of your business that are likely not reflected in the form. 

“Base Rent” isn’t the only rent. The term that will rightfully be most heavily negotiated in your lease is the base rent – i.e. the fixed amount you pay each month. Even if you get a great deal on base rent, the lease in totality may not be a good business value based on other charges. First, most commercial leases will be “triple net,” a fancy way of saying that the tenant is also responsible for taxes, insurance and operating charges. The most flexible of these are the operating charges. Make sure you’re not being charged for expenses that don’t benefit your space, and that you pay a proportionate amount to other tenants if the space is in a multi-tenant center. Also keep an eye out for “percentage rent.”  In leases with percentage rent provisions, the tenant will pay a percentage of its revenue over a certain dollar amount to the landlord. This isn’t necessarily bad for the tenant, as it provides a mutual incentive for landlord and tenant to want the business to succeed, and it may be coupled with a lower base rent. Percentage rent provisions must be reviewed with care though.

Notice the notices. Once you sign your lease and move in, keep the lease in a place where it’s easy to reference. Consider drafting a quick lease summary, possibly with the assistance of your attorney, which reminds you of critical dates and costs under the lease. Many sections of the lease will have requirements for the tenant to give notice to the landlord. For example, if you have the option of renewing your lease a notice will undoubtedly be required, sometimes as much as a year in advance of lease expiration. The tenant must follow the notice requirements precisely to avoid forfeiting its right to any option periods. 

Of course these brief provisions are not the only things to keep in mind when reviewing your small business’s first lease. It’s always advisable to make the small investment to have your attorney review the lease before signing. But by keeping the above advice in mind you can avoid some of the most common leasing mistakes made by small businesses. 

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  Ohio’s legislature recently approved, and Governor Kasich signed, a fiscal year 2012-2013 budget that includes a renewal of the Ohio Historic Preservation Tax Credit Program(the “Program”) for coming years in perpetuity. The new budget provides for annual credits to eligible projects worth up to $60 million, which matches prior years’ funding allowances. Several modifications to the Program promise to make it more appealing to eligible building owners. For the first time, foreign and domestic insurance companies can take advantage of the Program, and projects may now be completed in “phases.” Also, whereas ODOD was previously required to rescind approval to projects that fail to move forward within 18 months of approval, it now has discretion over whether to sustain the project despite such delays. 

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