The Illinois General Assembly has recently amended the Landlord and Tenant Act   to add a new requirement for landlords:  when a unit changes over to a new tenant the locks must be changed or rekeyed.  This applies to dwelling units only.  The Act is not applicable for dwelling units in a building of 4 units or less when the owner occupies one of the units.  Failure to comply will make the landlord strictly liable for all resulting damages from theft suffered by the tenant.  See the Act for specifics.  

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.

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. 

  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. 

Certain aspects of project approval and oversight are revamped under the new budget. Once rules are adopted by the Ohio Department of Development, applicant projects will be required to go through a cost-benefit analysis that will determine whether the project will result in a net revenue gain in state and local taxes once it is placed in service. Any project expenditure over $200,000 must also be certified by an accountant. 

The core Program details and benefits, however, remain unchanged. The Program provides a tax credit equal to 25 percent of “qualified rehabilitation expenditures,” up to a maximum of $5 million per project, to owners of certain historic buildings. The expenditures generally include construction for the building’s structure and interior that meets the U.S. Secretary of the Interior’s historic rehabilitation standards. To qualify as an eligible historic property, a building must either be (1) listed in the National Register of Historic Places; (2) a local landmark designated by a certified local government; or (3) located in a registered historic district.

Eligible owners interested in using the Ohio Historic Preservation Tax Credit should stay tuned for ODOD’s announcement of the next application period.  

In Part I of our series on the particulars of Green Leasing, we discussed Lease Term and Operating Expenses. Now we turn to a robust area for implementing sustainable processes between Landlords and Tenants:

Interior Alterations and Repairs

 

A typical commercial lease will have two separate sections, one on maintenance and repairs, and one on tenant improvements. The green leasing concern is the same in each – what requirements or incentives can be inserted in the Lease to assure that any changes to the premises live up to the parties’ expectations surrounding sustainability and energy efficiency?

 

First, the lease must deal with the minor, day-to-day changes that after move-in are typically the responsibility of the tenant. The perfect example here is lighting. As the landlord, does your third party rating agency require that you maintain certain forms of lighting? If you’re LEED-certified, it likely does. LEED for Commercial Interiors awards points for the percent reduction in lighting power below certain standards. If the tenant were to insert lighting that was not motion sensitive, for example, your lighting power reduction would be reduced and your LEED level of certification jeopardized. A simple insertion in the appropriate lease section requiring tenant to comply with landlord’s sustainability practices and any third-party rating system can give landlord some control of tenant’s actions in this area.

 

Second are those more major renovations undertaken by a tenant. Here, the lease needs to assure landlord and tenant cooperate and communicate to either (a) maintain any sustainable systems or third party ratings already employed for the project; or (b) for an initial build-out, agree on a level of sustainability or certification that is reasonable and desirable for each party. One major concern at this level is the contractors employed by tenant – a green lease should spell out that any professional engaged for tenant’s work must be LEED qualified (or a similar certification assuring the contractor is familiar with sustainable design). The lease may go so far as to specify the specific level of LEED certification to be sought for the interior design, although such a section would need sufficient caveats and waivers to assure neither party was accepting undue risk if the desired certification was not achieved.

Ohio’s Twelfth District Court of Appeals issued an interesting opinion earlier this year that wove together issues of statutory interpretation, expert testimony, property rights and nuisance. The end result? If you have bullets flying off your property, you might be strictly liable for nuisance.

 

Before the court in Batelle Memorial Inst. v. Big Darby Creek was a landowner – Batelle Memorial Institute – that claimed gunfire from an adjacent shooting range was flying onto its property endangering employees and visitors. Batelle sought, and was granted, a preliminary injunction in the trial court. 

 

One interesting issue on appeal was whether a Batelle employee could not only testify as to his first-hand knowledge of the gunfire, but also offer his opinion as to where the gunfire originated from based on bullets found on Batelle’s property. Normally such opinion is reserved for expert testimony – but Batelle was in luck. Batelle is a research facility that, in part, researches national security and “ordnances.”  The employee’s testimony was admitted by the trial court, and upheld on this appeal, as being “helpful in determining the point of origin of that particular bullet.”

 

On the fundamental issue — whether the trial court properly granted an injunction against the shooting range’s alleged nuisance (bullets flying onto the neighbor’s property) – the Court again ruled in Batelle’s favor. The nuisance finding required that the shooting range failed to exercise “due care” in preventing gunfire from leaving its property. The trial court referred to an Ohio Administrative Code section governing shooting ranges, that states shooting ranges should substantially comply with NRA safety guidelines. Those NRA safety guidelines, in turn, state that all projectiles must be confined to the shooting range property. Thus, the shooting range was “negligent” for the bullets leaving its property, regardless of how or why they left, and regardless of any precautions taken by the shooting range. The court’s incorporation of the NRA manual essentially converted nuisance to a strict liability offense, more along the lines of trespass. 

 

A very apropos case if you happen to own a shooting range: Make sure bullets don’t leave your property, because you can be negligent regardless of how extensive your precautions. Outside the shooting range world, it’s simply an interesting example of how common law and statutes can interplay to create an unexpected result.

Has modular construction finally come of age ?  The Modular Building Institute thinks so.  Modular construction is no longer just for preparation of walls and roof joists.  Today, contractors are using prefabrication and preassembly in construction of steel framed structures, multi-story structures, health care and education facilities.  The benefits of modular construction positively affects:  

  • labor and employment rates as the work on components can proceed in any weather conditions, no bad weather days and increased work place safety;
  •  job site environmental conditions (less waste and scrap materials to dispose of);
  • work crew scheduling;
  • increased speed of construction and project completion; and
  • reduce need for certain on-site storage of materials.

Efficiency and green, modular construction is coming of age.  See the video below to see the process. 

 

In the late 1960’s and 1970’s the retail industry clustered under a common roof in controlled 72 degree conditions.  As consumer tastes changed and populations shifts, the "life-style" center became the next new thing.  The problem being addressed today is what do we do with all of the covered malls around the country ?  One mall under going a "de-malling" is Randhurst Mall in Mount Prospect, Illinois by Casto Lifestyle Properties once the largest covered malls in the country. Follow this link to view the video of the redesign rendering.  The locations of older covered malls are prime today as many were originally built at the fringes of city limits or around close in suburbs; over the years new suburbs developed and completely surrounded these retail centers.  As developers and municipalities consider what to do with their tired covered malls mixed use opportunities abound.  

 

 

YoChicago.com recently interviewed Alan Lev, CEO of Belgravia Group.  Alan discusses his company’s recent performance and strategies in this challenging market and his thoughts on the future of the Chicago residential real estate market and its ability to absorb the current inventories. What struck me as insightful and telling are Alan’s insights (at the video 10:40 min. mark) about the demographics and risk appetite of the developers and lenders as the industry comes out of the recession.  

 

 

If you thought the earth beneath your feet was solid; think again.  Land owners and energy industry prospectors are busy in Eastern Ohio, West Virginia, New York and Pennsylvania looking for pockets of natural gas embedded in the Marcellus Shale buried deep beneath the surface.  Named for the town where it all started, Marcellus, New York, a once difficult shale to drill has been transformed by advances in drilling technologies making it possible to drill and capture the natural gas deposits hidden within.  A virtual natural gas rush has ensued and energy companies are leasing mineral and subsurface rights from land owners throughout the Marcellus Shale region.  

As we all know "there is no free lunch."  The technique used to force the natural gas out of the shale and up to the surface is called "fracking."  It is a process by which water, chemicals and sand are pumped into the earth.  In the process, claims of contamination of the underground water resources are being raised.  Be vigilant and do not just sign the form lease the energy company presents to you.  Make sure you give attention to the potential damage and future costs the drilling can cause.  Everyone is entitled to benefit, including the environment !