Southern California Commerical Real Estate Lawyer & Attorney : Aronson Light Law Firm : Los Angeles, San Fernando Valley, California

As with everything else in law, the answer is, that depends. Title insurance protects against (1) any flaw, fraud or other defect in the chain of title on a particular property (i.e., forgery on a deed, incapacity by the person who signed a previous deed, lack of authorization to convey the property, etc.), (2) any unpaid real estate taxes or liens (except those shown as exceptions to the policy), and (3) in the 2006 ALTA title policy, any problem on the property which would be disclosed by a survey (except those specified as exceptions to the policy). Although the likelihood of one of these events occurring is small, the outcome is so catastrophic, including loss of ownership of the property or loss of leasehold, that it is generally a good idea to get a title insurance policy. It is worth noting, however, that title insurance only covers defects in title from the date of your policy backward. If a mechanics' lien is placed on a property after the date of the policy, you will not be covered by the policy.

Large Shopping Center Tenants

Many retail tenants of large shopping centers feel that leasehold title insurance is unnecessary. Particularly in a large shopping center with an owner like Westfield or General Growth (especially if the center is financed) a tenant may reasonably expect that the landlord and lender have done their homework to ensure that title is in order. On the extremely rare chance that there is a defect that did show up on the title policy, the landlord's title company will indemnify the landlord for the cost of fixing it (up to the amount of the policy).

Other Tenants

If, however, a tenant is entering into a ground lease, a lease at a small center or a lease of a single building, it is advisable to get title insurance to ensure that the tenant will not lose the building or other improvements it has invested in or lose out on a good location.

Cost of Title Insurance

It is a common complaint that the title policy premiums are expensive given how rarely a claim is paid by the insurer. The bulk of title insurance costs arise from prevention and research, rather than for paying claims. If a tenant is not interested in purchasing a title policy, it should at least review a recent title report to confirm that their landlord is the current fee owner of the property and that there are no liens, over due taxes or other items which could cause the tenant problems later on. There is usually a small fee to receive a Preliminary Title Report, but it is worth it to know what you may be getting into before a long term lease is signed.

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Most commercial leases require some level of costruction or remodeling to make the leased premises suitable for the tenant.  The following are some key issues to consider when entering into a lease that requires construction or remideling:

• What type of shell is being delivered? Is the Landlord going to demolish the prior tenant's build-out? If so, is the Landlord delivering the space vanilla shell or build-to-suit? Does the lease contain detailed descriptions of the scope of each party's required work?
  
• Tenant Improvement Allowance: How much, how and when is it paid, is it enough? If the tenant does not use the full TI allowance, can Tenant keep the unused amount?
  
• Does the TI Allowance cover architecture and engineering fees, or just contractors, subcontractors and materials?
  
• Can the tenant keep any of the existing improvements of the prior tenant (i.e., the HVAC unit)?
  
• What type of Landlord review of Tenant plans is required? When are plans due to the Landlord? How long does the Landlord have to review them before getting back to the Tenant?
  
• Does Tenant's construction have to be completed by a certain time? If so, are there penalties incurred if not completed by this deadline?
  
• Does the Landlord get paid an administrative fee to review the construction (frequently 15%)? Is the Landlord paid an additional fee to review plans?
  
• Is the Tenant required to use union labor?
  
• Is the Tenant required to get its general contractor approved in advance or does the Landlord get to choose the contractor?
  
• Does the Tenant Improvement Allowance have to be paid back to the Landlord if there is any default under the Lease? If so, is it a full reimbursement or is it amortized over the lease term?
  

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At the beginning of lease negotiations, landlord and tenant are typically enthusiastic about the project and are eager to move forward. Following the conclusion of a successful negotiation however, if construction of either the entire center or tenant's premises is involved, this enthusiasm can quickly turn into animosity. It is often said that construction typically takes twice as long and costs twice as much as planned, yet many parties fail to address that issue in their lease. 

If the landlord is performing construction work before delivering the premises to the tenant, then the lease should clearly set forth benchmark dates by which landlord must secure permits and approvals, commence construction, and complete construction. If any of those deadlines are not met, then tenant should have the right to terminate the lease and to recover liquidated damages on account of the significant time and money spent in due diligence, permitting, tenant improvements and attorneys fees. Deadlines should be subject to extension for events beyond the control of Landlord and for delays caused by tenant or tenant's agents or contractors.

The landlord should also have a termination right if it is unable to obtain all required permits and approvals, or if the conditions attached to governmental approval render the project too expensive, or if the construction project gets bogged down in litigation with opponents of the project. The landlord should protect itself when constructing or remodeling the premises for a specific tenant to be as clear and precise as possible in the lease as to what improvements and finishes are to be used and exactly where they are to be located.

The lease should also provide tenant with the right to terminate if tenant does not receive all permits required to conduct its business within a reasonable time. This right should also include at least a 30 day extension option if tenant is close, but has not received its permits.

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The Los Angeles Planning Commission hopes to bring smarter growth to the City of Los Angeles by providing a clear set of rules for developers to follow and requiring community contribution by developments, including walkability and residential components. The Commission encourages developments which are village-like, include housing, and face outward instead of focusing on a parking lot.

The Planning Commission recently released a list of 14 principles (titled Do Real Planning!) to combat poor quality development in Los Angeles (see www.aialosangeles.org). By releasing these principles, the Planning Commission issues a challenge to developers and Commission employees to:

1. Demand a walkable city;
2. Offer basic design standards (eliminate stucco boxes, blank walls and street-front parking lots);
3. Require density around transit;
4. Eliminate department bottlenecks;
5. Advance homes for every income (every upzoning should include the obligation to provide lower and middle-income housing either on-site or through monetary contribution);
6. Locate jobs near housing;
7. Produce green buildings (provide benefits to any developer who will commit to building a LEED certified project);
8. Landscape in abundance (create an "urban forest");
9. Arrest visual blight (including overhead power lines, careless signage);
10. Neutralize masionization;
11. Nurture planning leadership;
12. Identify smart parking requirements;
13. Narrow road widenings (which undermines walkability goals); and
14. Give project input early (goal is to provide preliminary guidance or rejection within 60 days after an application is filed).

Developers should consider this new approach when seeking approvals in Los Angeles, and should allow for longer review periods, especially since modifications are more likely to be required. The Planning Commission notes "[W]hile we hope the stated goal in item 14 can be realized, we do not expect that it will occur overnight."

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