It’s ‘Tenant Beware’ in Vacancy Era : Leasing: With office space going begging, experts advise thorough planning, even when using ‘Plain English’ forms.

Democracy may finally be arriving in the complex and sometimes contentious area of commercial lease negotiations.

Big tenants have always had the money and time to ensure that they get a fair deal out of landlords. Smaller tenants, however, have not always been so fortunate.

Most often, independent operators have been forced to accept leases replete with fine print and obtuse language drafted by building owners and their lawyers.

But landlords anxious to fill vacant space, well-educated tenants and new lease forms are changing the commercial scene.

The Society of Industrial and Office Realtors, for example, has introduced what its calls a “plain English” lease. It’s designed to reduce landlord-tenant disputes with a summary of major lease points on the first page, generous spacing to allow for easy modification and simple, readable language.

Other groups are following suit and attempting to create pre-written leases that give tenants more of a fair shake than they’ve enjoyed before. Tenants looking for commercial space today--be it in an office building or a mini-mall--are also finding that high vacancies nationally and in California have strengthened their hand.

Smart shoppers who ask the right questions stand to benefit. But just what are the right questions? Here’s some advice that applies to big and small commercial tenants alike, courtesy of some of L.A.’s most consulted real estate brokers and attorneys.

Many landlords today are offering free rent or hefty cash rebates for a signed lease. Obviously, these perks carry a price tag that is often buried somewhere else in the lease. What may seem like a good deal in the first year can turn out to be a terribly bad deal in the long run.

Besides some of the more obvious areas of negotiation such as rent, lease terms and number of parking spaces offered, a few overlooked clauses can be particularly troublesome.

* Continuous operation clauses. These may oblige a tenant to stay in business even if he or she is losing money. Landlords like including such requirements, especially in retail leases, because it helps them avoid empty stores. Landlords want more than rent, they want a retail center that looks successful while providing them with a cut of operating income.

While some stores may prefer to close because of net losses, landlords may prefer that a business stay open and continue to generate revenues on which the landlord’s percentage is usually based.

Tenants have to carefully qualify landlords just as landlords qualify their tenants, attorneys caution.

When a building is about to get sold, tenants should beware, for such a change means an increase in property tax assessment. If the lease allows for property tax pass-throughs, the tenant may be left paying the bill.

Similarly, some tenants could find themselves behind a long list of creditors if their landlord fails financially. Promises of improvements to the building hinge on the well-being of the promissor, too.

* Assignment and subletting. This has become another tough area of negotiation for many landlords and tenants. Landlords, obviously, don’t want tenants subletting or assigning their space at will.

At the same time, tenants want the flexibility to move on or move out without a giant, long-term liability. In California, the Legislature affirmed last year a landlord’s right to withhold consent--even unreasonably--on assignment or subletting.

That means that if a landlord puts such a clause into a lease, he or she can refuse under any circumstances to allow transfer of a lease and its obligations. It’s perfectly legal, and can land an unwitting tenant in lots of trouble.

* Escalator clauses. This is another way to make up for cheap rent in the early stages of a lease. Sometimes these are merely increases tied to athe Consumer Price Index. Or, these clauses can significantly change the net cost of the lease by allowing 5%, 10% or even 15% increases in rent or other expenses annually. Such clauses, said office broker James H. Travers, “get buried and tenants later pay for it.”

Added pass-through costs--such as for insurance, cleaning up toxic substances, providing new landscaping or remodeling a lobby--may also be borne by the tenant who signs without doing all his or her homework. The result, warned Travers, is that “the tenants are getting hurt because they don’t understand.”

* Tenant improvement (TI) clauses. Westside attorney Paul Rutter warns tenants that these clauses can make or break a lease. What gets included in tenant improvement allowances? Some landlords provide for fully finished space, while others don’t even throw in such basics as wiring, or heating and air conditioning ducts. Each of these items must be separately enumerated in the lease, he said. To do otherwise is to invite conflict.

Restaurant tenants may be surprised to find that their landlord has written in a right to approve menus. And, many leases restrict the operations of a tenant to make sure there’s no competition within a complex.

Finally, there is the question of how disputes will be resolved? Some contracts have built-in arbitration and/or mediation clauses, the former imposing a third party’s decision and the latter obliging the landlord and tenant to find some middle ground. Depending on the circumstances, these options may or may not be particularly attractive.

The lesson in all this is caveat emptor--buyer (or in this case lessee) beware. What tenants and landlords don’t take the time to discuss now, say veteran negotiators, is an open invitation to confusion and acrimony.

DEVELOPMENTS: Parties Sign Lease for Civic Center Project Developers of the much-delayed First Civic Center office tower (formerly called One Civic Center) in downtown Los Angeles moved a step closer to realizing their plans by signing a 66-year ground lease for a land parcel at Broadway and 1st Street.

Raffi Cohen Industries and Melvin Simon & Associates plan to build the Civic Center’s only private commercial building--a 21-story, 610,000-square-foot structure--on land leased from the county and state. Ground breaking is expected between late 1990 and mid-1991.

The project’s 4.6-acre site was that of the Los Angeles State Office Building from 1931 until 1971. Damaged in the Sylmar earthquake, the state building was demolished in 1976.

Just a few blocks away, at Spring and 3rd streets, workers are completing the new Ronald Reagan Building--a fortress-like 850,000-square-foot behemoth that will bring together 30 currently dispersed state agencies. Work is also under way at Temple and Alameda streets on a new 1.28-million-square-foot federal building, and the city of Los Angeles has office building plans in the works in the civic center area too.

Besides developing First Civic Center, RCI and Melvin Simon are partners in Figueroa Plaza, a 600,000-square-foot office project just north of 1st Street on Figueroa. The project’s south tower, which is home to Imperial Bank, is being joined with a twin north tower, set for completion late this year. The developers are also negotiating with the city for rights to build the 58-story RCI Tower at the southeast corner of 9th and Figueroa in the area of downtown known as South Park.

As part of yet another 66-year lease executed by Los Angeles County, Fremont Development Co. will soon begin construction on the 35-acre Rancho Business Center industrial development within the Rancho Los Amigos Medical Complex in Downey. The $22 million project will include 640,000 square feet of commercial space, including a facility leased by Kirk Paper through leasing agent the Charles Dunn Co.

Los Angeles County officials estimate that this project will generate between $600 million and $800 million in public revenues over the term of Fremont’s 66-year lease.

Bunker Hill is soon to be home to a new $100-million InterContinental Hotel at 251 S. Olive St. Work on the 17-story, 469-room building started this month and completion is expected in the fall of 1992.

The hotel is being developed by California Plaza Hotel L.P., a limited partnership consisting of Bunker Hill Associates and Toboshima Development Co. as general partners and Nippon Landic USA Inc. and Seiyo Corp. as limited partners, in collaboration with the city’s Community Redevelopment Agency.

Bunker Hill Associates is backed by Metropolitan Structures West Inc., developers of the 11.5-acre California Plaza, which when completed in the mid-1990s, will include three office towers in addition to 750 residential units and the Museum of Contemporary Art.

Also under way is the $80-million World Trade Center Hilton in Long Beach. The 15-story hotel, featuring 393 rooms, is scheduled for completion in about 18 months.

IDM Corp., Kajima International Inc. and Matsushita Real Estate Ltd. are developing not just the hotel but a total of 2.5 million square feet of mixed-use space, including an existing 27-story office, retail and conference center.

The Concourse, a $70-million, 39-acre business park in the City of Industry held its official opening recently, with 40% of its 660,000 square feet of industrial, office and retail space pre-leased. The project is a joint venture between Trammell Crow Co. and Copley Real Estate Advisors. The developers have also sold a contiguous 4.9-acre parcel to Kaiser Permanente, which will soon begin construction on a medical office building.

The 83-year-old Seventh Street Market has a new look as part of massive neighborhood redevelopment project under way by Lowe Enterprises Inc. in what’s known as Center City East. The company bought the 485,000-square-foot wholesale produce market in 1988 as part of a purchase of 112 acres from Southern Pacific Railroad. Lowe has spent $5 million on its face-lift of the market and is developing several nearby parcels for commercial use.