Table of contents:

I. Security Deposits

How much Security Deposit should you expect when making an industrial lease?

Two months is an accepted norm, but sometimes one month is satisfactory to an owner.

If the company is new, or if the assets are in a foreign country, the tenant should expect to pay up to 4 or 6 months of security deposit, some of which can be refunded when its financial statement has been improved.

The Security Deposit is held by the owner until the tenant has vacated the property and surrendered the property as required in the Lease. The Lease will normally require that the tenant repair the building BEFORE the end of the Lease. This means that there should be a preliminary walk through by the owner and tenant a couple of weeks prior to the end of the Lease, and a check-list should be created.

If the owner is a professional property owner, or has a property manager, they may provide an estimated price for repairs, make the repairs, and deduct the cost from the Security Deposit. This relieves the tenant of the responsibility of managing the repairs, and any problems with the quality of the work.

Otherwise, the tenant should get those repairs done before vacating the building, because the lease will normally hold the tenant responsible for the rent until the repairs are completed.

II. The Value of a Sprinkler System

An owner is always better off if his building is sprinklered. Insurance rates are lower, and most businesses prefer a sprinklered building.

The tenant is better off with a sprinkler system because the insurance rates for his product will be lower, and because the business is likely to suffer a shorter interruption if a fire is extinguished early.

However, if the tenant stores metal materials that would suffer more from the water damage, he/she may prefer not to have a sprinkler system.

It is important for the tenant to speak with its insurance company about this before beginning the process of looking for a building, in order to determine the difference in insurance rates for its particular product. We have seen a difference in insurance that amounted to as much as 5 cents per sq. ft. additional cost for certain companies if they did not have a sprinkler system.

Also important to note, some buildings will have a fire sprinkler monitor that indicates water flow – which in turn indicates a possible fire. This water flow triggers an alarm system, and the fire department can be immediately dispatched.

III. Gross vs. Net Lease

Net Lease

A Net Lease means that the tenant pays for the property taxes, property (fire) insurance for the building, and all maintenance including the roof. A tenant can figure that, for typical buildings in Southern California, these costs can add from 3 cents to 6 cents per sq. ft. to his rent.

Gross Lease

A Gross Lease means that the owner pays for the property taxes, property (fire) insurance for the building, and roof maintenance. The tenant pays for increases in the property tax and property insurance over the life of the lease.

The tenant maintains the interior of the building, including doors, windows, air-conditioning, and plumbing.

IV. Earthquakes

You should be aware of seismic earthquake faults, but you should also have knowledge of "liquefaction." This is a process in which the soil becomes soft and liquid-like during strong ground shaking. The soils where this is likely to occur are loose, water saturated, fine grained sands and silty sands that lie close to the ground surface.

It is really not possible to accurately predict when a specific earthquake fault will have movement. However, we can be informed about the liquefaction component that will most certainly affect property regardless of which nearby fault creates the earthquake.

We have maps available for our clients that will show them the seismic faults and the liquefaction-susceptible soil conditions.

We will help you to be informed about this most important factor in owning and leasing real estate.

V. When is a Lease "Really" Over?

A lease has a beginning and ending date. This seems simple enough.

However, I was recently advised by my attorney that the owner needs to give the tenant a 30 day notice prior to the expiration date to insure that the lease is, indeed, over. This is extremely important if either the owner or the tenant does not plan to continue the lease.

If the owner is marketing the property to obtain a new tenant, he needs to have a definite date on which the new tenant can occupy the property. Therefore, our advice to owners who we represent is to give that 30 day notice before the end of the Lease, and again give a written notice if a new lease is entered into before the expiration date of the old lease. In both letters, the owner may want to include some legal admonition of the legal dangers if the tenant does not vacate on time.

We schedule reminder calls to our owners so that this important detail is not missed.

VI. Insurance Requirements

Under a Gross Lease, the owner is required to carry property insurance, for fire and other perils, and liability insurance. Any increase in insurance cost will be paid by the tenant. (See "Gross vs. Net" article)

Under a Net Lease, the tenant is required to carry the property insurance.

Under both Gross and Net leases, the tenant is required to carry liability insurance.

Limits of liability and grade of insurance carrier should be spelled out in the Lease.

Proof of insurance coverage that the tenant is required to carry must be provided to the owner.

The tenant should also have personal property insurance to cover its fixtures and inventory.

VII. Truck Loading

First, some definitions:

Truck high (or dock high) loading: The warehouse floor is approximately the same as the height of the truck bed, which eliminates loading from the truck down to the ground, or loading from the ground up to the truck. A pallet jack or tow motor can be used to pull material from the truck to the floor of the warehouse.

Ground level loading: The level of the warehouse floor is the same as the level of the ground.

Turning radius: This refers to how much room there is in front of the loading doors for the trucks to position themselves for loading and unloading.

Dock height: The height of the warehouse floor, from the ground to the floor of the warehouse.

Who should have truck high loading? For some companies, truck high loading is absolutely essential. The savings in labor, and the ability to load and unload quickly is especially important to warehouse and distribution operations. However, if flat bed trucks are used, ground level access may be necessary.

Some buildings offer dock high loading through the use of a "truck well", which means that the ground is excavated, and then sloped down below the level of the building. This can allow a truck bed to be level with the floor. The slope of the truck well can sometimes be too steep, allowing material to fall over or slip as it is being loaded or unloaded.

How high should the dock be? How many inches from the gound to the warehouse floor? The modern truck high building will be constructed with the floor approximately 48 inches above the ground, and this will accomodate most trucks.

The dock height of many older buildings varies from 24 inches and up.

Smaller trucks may have a truck bed that is less than 48 inches above the ground.

Conlcusion: Measure the truck beds’ length and height (the standard width is 8′, so this usually presents no problem). Consider using load levelers to adjust the floor to the truck beds; this is especially important when trucks with various bed heights are being used.

1531 E. Washington Blvd.,  Los Angeles, CA 90021    Tel: 213-765-8488    Fax: 213-765-8480    
E-mail: info@reavisrealty.com