Ch16. When You Find a Property
You've found the property of your dreams. Now, it's time to evaluate the property, and make an offer. This chapter helps you to do that.
If you've identified your needs, ask yourself the following questions as you assess the space:
What fixtures, appliances and/or equipment are included in the price: mirrors for dance studios, welding tables, vent hoods, refrigerator, stoves, lighting, etc.?
Have there been any problems with the property in the last 2-5 years? If so, what? The Department of Planning and Development can provide you information on the permitted use of the space and reported code violations. You can also use the property research GIS tool on the King County website at: http://www.kingcounty.gov/operations/GIS/PropResearch.aspx. On this site you can research property information by searching the parcel number. Under the "where to get more information" section you can fund information about comparable sales, easements, property tax, property surveys, etc. Even if there are no violations, that doesn't mean that the property is in tip-top shape.
What were the heating and utility expenses during the last year?
How much are property taxes and insurance costs for the space? If you are buying, this information is often contained in the agent's listing information. If you are leasing, ask the building owner/manager. The King County Department of Assessments can provide you with the previous year's property taxes.
Has the seller removed lead paint and pipes from the property? If so, is there a de-leading certificate from a government agency?
How much does the current tenant pay for the space, and what costs are included/excluded in their lease?
How long has the property been on the market and/or vacant?
How long has the current owner owned the property?
How long has the current tenant leased the property?
What have other spaces of comparable size and character in the neighborhood sold/rented for?
What major repairs or improvements have been made in recent years? Is there a warranty for the products or materials? If so, what does the warranty cover, and for how long?
When do major repairs (i.e. replacement of the roof, new boiler, etc.) need to occur?
Get a Multiple Listing Services (MLS) printout of the property (residential).
If you have children, visit the area schools.
If you have other needs, special requirements or concerns, ask about them.
Now that you have found and assessed the property, you have two choices:
Keep looking, or
Make a move to claim the space as your own.
If you are purchasing a space, you'll write an offer and complete the Purchase and Sale Agreement. If you are leasing, let the negotiations begin.
Whatever route you decide to take . . . good luck!
Negotiations involving residential spaces are usually pretty straightforward: You pay what is quoted, though you might try for a price reduction. Ultimately, your main concerns with a residential lease are:
The landlord's type of insurance for the building. Does it cover your art activities? Do you need to get more insurance coverage? If so, what type? See Chapter 20: Insurance for more information.
Get any approvals the landlord gives you for using the space in writing. Do not accept a verbal agreement.
For more information about residential leases, see Chapter 6: Residential Leases.
Commercial / Industrial
Negotiations begin when the landlord presents you with a draft lease. Read it, ask questions, and request changes, deletions or additions before you sign. Never sign unless you have read the entire lease.
Before you begin the negotiations, list rental priorities and terms on which you are flexible. Each clause has an associated value, and some will be more valuable to you than others. For example, if you want a gross lease in order to know your monthly expenses in advance, and the landlord is willing to give you one, be prepared to make concessions in other areas. Because this clause has some value to you, maybe paying a higher rent or signing a longer lease are points you can use as leverage during negotiations.
The draft lease might go back and forth between you and the landlord several times, with changes made on each occasion. Your real estate agent and/or attorney will be very helpful in the negotiation process. If you have undertaken a thorough search, and know market values, you will know when you have reached a fair deal.
Unfortunately, not all lease negotiations work out. If you cannot reach an agreement within your budget, or with clauses that meet your needs, be prepared to walk away from the space. Find an alternative space that can work as a back-up: Knowing that you have other options will give you confidence during negotiations.
Below are questions to ask your potential landlord when reviewing the space. Note the replies. When reviewing the draft lease, make sure that the landlord's verbal answers are consistent with what is written. Depending on the complexity of your lease, get assistance from your attorney or real estate agent (at the very least).
What uses will the landlord allow or not allow in the building? This gives you a sense of the other users. If the landlord wants no noise, and you are a pianist, you need to consider whether the space is appropriate for your use. Likewise, if you are considering living in the space, and the landlord specifies no residential use, keep on looking.
Who is obligated to maintain the premises and repair damage? You don't want to be responsible for damage caused prior to your tenancy.
Financial questions to ask:
What is the rent?
Is this a gross or net figure?
Who is responsible for property taxes, utilities and other charges? If it is the tenant, what are the additional charges above and beyond the rent?
If this is a net lease, what are the property taxes in the area?
What portion of the common areas are you paying for, and what are you allowed and not allowed to do in the common areas?
During what hours will utilities and services be provided? Many commercial leases specify that electricity, heat, water and elevator service will be provided during business hours only. You might need these services 24/7. Make sure if you work during "off" hours, that the services you need will be available.
How many years is the landlord willing to rent the premises? Usually, the longer the lease, the greater your stability. In addition, longer leases may provide you with more leverage in negotiations.
What will the rent increases in each year of the lease be? Will there also be increases in the additional charges (CAM, property taxes, insurance, etc.)?
How will additional charges (CAM, property taxes, insurance, etc.) be divided between the different tenants?
Will the landlord grant you the option to renew the lease when the term expires? This option is advantageous, and should be included in the lease.
Are you allowed to sublet or assign the lease to another party if you decide to leave before the tenancy terminates? If you sublet your space to another party, you are still responsible to the landlord for rent and all other charges should your tenant leave without paying. In an assignment, you transfer your rights and obligations under the lease to a new tenant and are released from these responsibilities - legally and financially. The lease should give you the right to do either of the above, and deny the landlord the arbitrary power to withhold consent for a replacement tenant.
What other options are open to you should you need to terminate the lease, and are not interested in subleasing or assigning the space? Perhaps include a clause that stipulates that, with a certain number of days' notice and possibly a termination payment, you will be allowed to end the lease. Make sure any agreement you make is clearly described in the lease.
If you are leasing the space as a business or nonprofit, does the landlord expect you to guarantee the lease personally? This addresses whether you are going to co-sign individually for the lease, which would entail you becoming personally and financially responsible if the business or organization defaults on the lease.
For more information about the ins and outs of commercial and industrial leases, see Chapter 7: Commercial and Industrial Leases.
You have decided to move forward and make an offer on the space. Think about what you are willing to pay, and under what conditions and terms. Also, ask the following:
How soon do you want to take possession of the property?
What compensation should you get if you can't take possession of the property by the stated date?
What repairs do you require?
If you are purchasing a multi-unit building, do you want the tenants to move by the time you take possession of the building, or can they stay?
What equipment or appliances would you like to purchase with the property? Do you want a washer and dryer, welding tables, dancing bars, etc.? If so, how much are you willing to pay? Or do you not want these items at all, and how much do you want knocked off the price?
Who will pay which closing costs?
For residential properties, review the seller's disclosure form (called Form 17) and look for problems. By law, sellers are required to disclose in this form any latent or hidden defects or problems with the property that s/he knows exists and will affect the property's value. Your real estate agent and/or attorney should review this document as well. Click here for an example of a disclosure form.
Once you have thought about what you will and will not do to obtain the property, you will then sign and detail your offer. Once the seller signs your offer, it becomes a legally binding contract called the Purchase and Sale Agreement, or P&S. This contract is a legal agreement between you and the seller that binds both parties to the sale of the property and prevents the seller from selling it to someone else while the contract is in effect.
After you've made an offer, and the contract has been signed by both parties, the seller's agent will require you to make a deposit in order to hold the property. These funds are known as Earnest Money, and -- depending on the stipulations of your contract -- might be forfeited if you fail to live up to the terms outlined in the agreement. Failure to fulfill the contract's terms can also result in you being liable for damages incurred by the seller if you fail to meet your obligations.
The P&S contract is one of the most important documents you'll sign during the entire purchasing process. Failure to live up to its terms can have serious financial and legal consequences. Your agent should assist you so that you can make an offer you can fulfill. Have your attorney negotiate the terms of the contract as well.
When drafting the contract, address the following to protect your rights to either void or renegotiate it:
The building inspection does not meet your requirements. Define your standards, and what you will not accept. For example, you'll lower your offer if the roof needs to be replaced in the next 2-5 years.
You are unable to secure financing to purchase the property by a set date.
Damage or vandalism to the property occurs, or is discovered after the P&S is signed.
The appraisal of the property is below the selling price (this might affect your ability to secure financing for the property).
The survey of the property does not meet your requirements. For example, the survey reveals the lot is 100 square feet smaller than quoted.
The deed has liens or other problems.
Include an attorney approval period, during which both sides can make changes to the contract on almost everything except the price, dates and real estate agent's compensation (if applicable).
Any additional issue that would prevent you from purchasing the property.
Buying a property is one of the most expensive purchases you will probably ever make, so take your time to think about what you can and cannot compromise on before making an offer. Once the property is yours, so are the payments and any problems that come with the space.
For more information about purchasing properties, visit the purchasing information chapters 8 - 12.