Over the past 20 months most industries have seen a lot of change and the law industry is no different when it comes to commercial real estate. This week Cory And Matt welcome Tim Lack of Redpoint Law to discuss the ever changing world of the legal side of commercial real estate. Tim shares his insight on how COVID has changed how commercial real estate is leased, sold and financed. If your looking to add to your portfolio, have space you need to find a tenant for, or looking to expand your business into another leased space this is an episode you don’t want to miss.
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Who is Tim Lack?
I’m a Founding Partner at Redpoint Law LLP. I work in residential and commercial real estate, and do a lot of work in private lending. I’ve been at this game for 28 years and don’t mind kicking down the walls to get the job done.
What has changed in real estate law since covid began?
In March 2020, the whole world was scared. But in BC, the real estate market only stalled for a day or two. Things have been going gangbusters. The thought is that some people were sitting on cash and looking to put it into something safe, so they turned to real estate.
Working remotely has been the biggest change for solicitors and litigators during covid. It’s still a “hurry up and wait” in the litigation world, but now it’s on Zoom. A lot of lawyers have embraced the new technology by seeing clients online.
But it’s still a personal relationship with your clients. It’s hard to get that connection when you’re working with your clients remotely. I tell my clients to ask the hard questions and not be afraid to inquire about rates. You want to know what your lawyer costs will be when buying or selling.
People are scared to pick up the phone and ask questions. But I’m on the phone all day because that’s what it takes to alleviate the concerns that people have.
What impact will the Bank of Canada raising interest rates have on the lending market?
It’s a real fear, especially for young people dealing with runaway pricing. If you add a higher interest rate to that, it pushes a lot of people out of the market.
What are the biggest risks for people purchasing commercial real estate?
Tenant arrangements are the biggest risk. The kind of tenants you’d usually want have really been hurt by covid. Hospitality has been hit really hard. And ecommerce has changed a lot of things in the retail world. So as a purchaser, you have to think about what industry your tenants are in.
Has covid impacted commercial lease agreements?
In spring 2020, everyone was scrambling to put in the best force majeure clause that would cover pandemics. Force majeure, or an “act of god” clause, is meant to cover things like floods or wildfires that would blindside an entire community. So people wondered if a pandemic fit into that category. And it all came down to the language in your lease. Generally, these clauses protect the tenants because it’s their business that is being affected.
People always wonder why their lease needs to be 65 pages long and tell me that tenants don’t read every page. But that language is important. If your lawyer is giving you a 65 page lease, it’s because they’re trying to cover every eventuality.
With covid, tenants are trying to see if they can push back against their landlord because business is down. But generally, that isn’t possible. Sometimes you might have a good-natured landlord who can give their tenant a break or there’s a federal program to help out a small business tenant. But that’s not law – that’s just good business.
Have there been disputes during covid between tenants and landlords over what is covered in the lease?
I’ve heard there have been a lot of issues between tenants and landlords during covid. I don’t have any case law about how that has played out.
Has covid changed commercial real estate lending? Have lenders changed how payments will be dealt with?
No. I work with many lenders and no one has come to me and said they want to help out their borrowers. Larger lenders are running some feel good ads but at the end of the day, they’re lenders and this is their business. Sometimes it’s good business to cut people some slack but the fact still stands: I lent you money, pay me back.
How can the government help the real estate sector?
We need the government to step up and provide a plan of action. They can’t keep availing themselves of emergency orders and renewals. If things happen that they aren’t planning for, they need to get busy. They need to start caring for people. It’s not about what you can’t do but what you can do.
Why is it important to look into your commercial real estate title and charges?
It’s rare that there will be a problem but it does happen. It doesn’t cost much to pull copies of charges. If you’re spending millions on a commercial property, spend $25 more to see the title and charges.
There’s been a change in BC about what needs to be disclosed and some of that responsibility has been shifted to the existing owner. An environmental check is fundamental in a commercial real estate purchase. People are scared of the unknown and want to know what’s lurking underground. Your lenders won’t lend to you if you don’t have these things in place.
Besides tenancy, title and due diligence, what’s another risk for commercial real estate purchasers? What advice would you give commercial real estate investors?
Getting some good accounting and tax advice about how to structure the ownership is key. If you’re bringing in partners, you need to have a plan in place for what happens if someone wants out. And that’s where your corporate lawyers come into play.
A lot of people don’t want to do this alone, so they bring in their buddies to do the deal with them. But if someone’s lifestyle changes and they want out, you need to have a proper structure for how you’re doing this deal. And you want to do this early in the game when everyone is still smiling. Money can sour relationships and you may want to part ways down the road.
What advice do you have for someone looking to purchase commercial real estate?
I give this advice to every purchaser: Make sure you answer every request from your lender promptly. If your lender wants something, get it to them. I’ve seen so many lenders pull the plug right before the closing date because something is missing.
You’re dealing with so many different people at these banks and lending institutions. So the person you’re dealing with might not be the person who is making the decision.
Find out more: https://www.redpointlaw.ca/ or 604.757.3032