By Colin McCarthy, J.D., Robinson & Wood, San Jose, CA

Well, hello there and happy 2012 to you all. It has been a little bit of time since we have had a chance to chat. I will beg your forgiveness for being pre-occupied with year end duties, and a jury trial in Visalia, California that preoccupied my time and has prevented me from indulging in the blogging world. Now that I am able to focus, I want to talk to you about every one’s favorite topic – repairs – from everyone’s favorite perspective – a lawyer.

But before I do, I’ll share with you how I spent my New Year’s Eve. It’s a story that pretty much exemplifies why it is important to have a good handyman at your disposal. And why it is important that you not rely on your father to do repairs at your home or your leased property.

As is the case with a lot of you, my parents came to see their grandchildren for Christmas. They did not come to see me or my lovely wife. They wanted to see my kids while they are still cute, and say and do precious things. I recognize this and accept it. My little brother will soon benefit from this phenomenon. For the first time, my parents will actually go to see him in the cesspool (I mean lovely city) that is Los Angeles*.

As payback for this parental neglect, I frequently use the visits as the opportunity to enlist my father in helping me with home repair. This time, I had a leaking external water spigot in the back yard that was opening the spigot – if you will – on my water bill. So I asked dear old Dad to assist, knowing (but always forgetting) how he does these things.

He waited until December 31, 2011 to start. He waited until 4 p.m. in the afternoon to start. He had a 7 p.m. dinner appointment with friends. After assessing the situation, he decided that we may as well replace the spigot in the driveway because it was the same vintage and bound to fail soon, too. So off to Orchard Supply we went and purchased our replacement parts. We successfully installed the new spigot in the back yard in about 10 minutes.

The driveway spigot proved more challenging. We could not get it off. Not easily anyways. We did manage to get some of it off – the rest remained rusted and in place. The problem with only getting part of the spigot off and not all of it was, in this case, that there was no way to stop the water from escaping. Unless we turned the water off. So we did.

Not a big deal. Except that we did not have the tools to get the rest of it off. Except that OSH was closing. Except that Dad was going to a dinner party in about 20 minutes. Except that OSH was closed on New Year’s Day. Except that we have three little ones that need frequent bathing. Except that we needed to be able to flush the toilets. Etc. So Dad goes under the subfloor looking for a close out valve for this particular water line. Mom is at the doorway wondering when she is going to the dinner party. My wife is wondering what is going on. Dad swears like its 1984 and he’s working on the VW bus. Then throws his hands up and says, “I have to go to the dinner party.”

Lucky for me, my neighbor, who is a handyman, was home and looking for some extra cash. An hour and a $150 later, problem solved. Negligent repair made non-negligent. Water on. Kids clean. Toilets flushable. McCarthy residence, habitable.

And so it is, too, your landlord’s responsibility to make your property “habitable” by competent repairs. A landlord’s failure to maintain and repair the dwelling he has rented you entitles you to, in some cases in California, refrain from paying rent related to the dilapidated condition of the dwelling**. If the failure to repair interferes with the tenant’s ability to live in the dwelling, they may be free from rent obligations until the situation is corrected***.

So clearly, the lesson of this blog post is: do not let your father do repairs at your house or any rental properties.

*He’s actually in Redondo Beach, which is cool. And where John Travolta’s character in Pulp Fiction resides.

** Stoiber v. Honeychuck, 101 CA3d 903 (1980)

***Green v. Superior Court, 10 Cal.3d 151 (1974).

This blog submission is only for purposes of disseminating information. It does not constitute legal advice. The statements in this blog submissions do not necessarily reflect the opinions of Robinson & Wood, Inc. or its clients. No attorney-client relationship is formed by virtue of reading this blog entry or submitting a comment thereto. If you need legal advice, please hire a licensed attorney in your state.

By Salvatore Friscia, San Diego Premier Property Management, San Diego, CA

It was just a few months ago when the tenants were in the office signing the one year lease agreement. The leasing agent followed the office procedures and made sure to review the lease terms and obligations prior to asking for binding signatures. Then with the swipe of a pen the property was considered off the market and occupied for the year.

So, it can be somewhat frustrating when two months later you receive the dreaded call from the tenants stating that for some unforeseen reason they need to move out of the property earlier than expected, consequently breaking their lease agreement. As a property management expert, and owner of San Diego Premier Property Management, I’ve had the opportunity to prepare, execute, and negotiate lease agreements for the better part of a decade, and I can say with all honesty that this scenario happens on a regular basis to the most qualified of tenants.

Whether the breach occurs one month or six months into the one year lease agreement it is important to understand that the lease agreement, and the terms agreed upon and signed by both parties constitute a legally binding contract that when breached can carry monetary and legal consequences toward the tenant. With that said, the situation doesn’t have to escalate to a legal issue since it can be mitigated to the benefit of both parties. If the lease has an opt out clause then advise the tenants of the cost associated with that clause and make arrangements to cancel the existing lease agreement in writing. If not then I suggest reminding the tenants that they are legally responsible for the loss of rental proceeds for the remainder of the lease term until the property is re-rented. However, with their willingness and cooperation to assist in finding a replacement tenant they could minimize any potential out of pocket cost and help find a solution that limits rental losses in exchange for an early lease termination.

If the tenant agrees to assist with finding a replacement occupant there are many things they can do that will minimize or completely avoid out of pocket expenses for both parties. Having the existing tenant pay for advertising and marketing of the property (craigslist, newspaper, etc), conduct daily showings, allow easy access for potential applicants, and keep the unit spotless for showings are all ways they can assist with re-renting the property. If the existing tenant is successful in finding a new applicant which meets all of your office criteria and written rental requirements then a solution may have been found.

There is no guarantee for success in this situation but offering the tenants an option that includes paying for advertising and marketing, keeping the property spotless, and even conducting showings with potential applicants might make for a winning solution that minimizes rental proceed losses and allows the tenant to move on without incurring costly fees and blemishes on their credit and rental history.

By Linda Day Harrison, theBrokerList, Chicago, IL

Today more than ever, many people do not have traditional sources of employment income. With the job market shrinking, many of us are working for ourselves and are creating jobs by starting businesses and new ventures. With that being said, how does a self-employed individual purchase a residential or commercial location with the stringent financing requirements currently in place?

Simple! Look at properties with owner-financing. What is owner-financing? Owner-financing is when the seller of a property is in a position to act in the capacity of a lender. The seller accepts a down-payment and an agreement for repayment.

The advantages are tremendous and can be a win-win for both parties. Advantages include:

1. More favorable rates and terms.
2. Easier qualification process.
3. Able to sell a property in a depressed market.
4. Seller can get a much higher return than other vehicles such as a CD.
5. Seller can receive a substantial down payment.
6. Tenant can now become an owner.
7. Less closing costs.

Now like anything, there are many pros and cons depending on each seller and buyer’s tax consequences and personal financial situation, including whether or not the property is held free and clear. Owner-financing should definitely be a serious avenue to consider when selling a property and when evaluating your lease vs. purchase decision on residential or commercial property.

An attorney is needed to assist in the process and as a buyer, you should still do your homework, via a due diligence period. Whether buying or selling, always evaluate the pros and cons of owner-financing and its impact on your next real estate opportunity.

By Jo-Anne Oliveri, ireviloution intelligence, Brisbane, Australia

Sadly, when carrying out due diligences many agents buying a rent roll are not sure what they are looking for. This lack of understanding means most pay a hasty glance over files and computer reports. On the surface they all look fine, but it’s a bit like an iceberg, we need to understand what looms below.

We are all in the industry because we are good sales people. Ultimately, isn’t this industry all about our ability to sell? Yes, we promote the best features and benefits of our products and services, but as selling specialists we also need to understand that whilst it looks good on the surface, there may be landmines below. I’m not saying don’t buy rent rolls, just be aware of what it is you are purchasing.

So, the first thing is to understand due diligence. There are two kinds of due diligence – financial and operational.

When purchasing rent rolls, financial due diligence is undertaken by a valuer. In many instances, the valuer is engaged by the bank to conduct an evaluation of the business prior to lending. If you are not borrowing for the business, I recommend a financial due diligence be conducted nonetheless.

Operational due diligence is the second type. This is just as critical as the financial due diligence. Not having an operational due diligence prepared would be like buying shares in a company that is on the verge of bankruptcy and hoping a healthy bottom line and large profit are miraculously going to be uncovered so you make a mint (not going to happen!). Buying a rent roll and believing that all is just as they say it is, is usually not the case. There are risks and with these risks the stakes are high!

So, what are we looking for in an operational due diligence? We are seeking information on what I refer to as the “critical data” – critical numbers, critical factors, and critical measurements. For example, historical information about the business processes, and client loyalty such as the average number of years a client has had their property managed by the selling agency.

When conducting the due diligence the true story about the business unfolds. How much should you really pay for managements that have been secured within the past 12 months? Why pay top dollar for clients who, by this stage, are generally not loyal to the selling agency?

By conducting due diligence we are seeking information on the history of the longevity of the current properties under management. This information is essential to understanding the risk factor in relation to retention of the purchased managements. Why? It is important to understand why these clients have engaged the services of the current agency to manage their property. Did they go through a thorough selection process? They may have interviewed the buying agency and decided against them. How likely are they to transfer across if this is the case? The client may be annoyed that they have signed up their management with the selling agency. Or they may feel deceived that they were not advised that selling was an option in the near future.

When purchasing a rent roll, the due diligence needs to have information in relation to the history of the average number of years the properties have been under management along with a breakdown of the percentage of number of years managed. If the highest percentage is in the 12 months or less percentile then the risk factor is high. Remembering though that operational due diligence provides information on risk factor and is not a valuation. In saying that though, following your due diligence you are in a position to re-evaluate your current offer and either collapse the offer if the risks are too high or decide the initial offer is far too much.

It is important to remember that a due diligence is carried out as part of the conditions of the contract to purchase. The purpose of the due diligence is to provide factual information as to whether the purchase is a sound investment. Due diligence forms part of the conditions of the contract and needs to be finalized within a certain time period. This means that just like a property purchase that is subject to a building inspection, if the due diligence uncovers areas of concern you have the option to crash the contract. Likewise, taking into consideration the information that the building inspection has uncovered, you could renegotiate another price. A due diligence on a rent roll is no different.

I look forward to uncovering more of the story behind the operational due diligence in upcoming blog posts. In the meantime, if you are considering purchasing a rent roll, don’t get caught up in the hype of purchasing as quickly as possible or the need to buy out your “opposition”. Tread carefully, diligently, and at a pace that you set and not the broker selling the rent roll to ensure you avoid the landmines!

By Linda Day Harrison, theBrokerList, Chicago, IL

If you like to read great business books and gobble up terms that help managers get the job done, there is one I want you to never forget, MBWA! Not only is it effective and powerful, but it is also good for your health! Here are variations on its commonly known names:

The Acronym: MBWA
Management by Walking Around
Management by Wandering Around
Management by Walking About
Manage by Walking Around

My own version and personal favorite is – Property Management by Walking Around (PMBWA). It is not easy because you have to push yourself away from the desk. Get out and just start walking around. Do nothing but walk. That is all you have to do. Start at the top, the bottom, the outside, the inside, or any part you would like. If you push yourself away from the office you will be out there in the thick of things. Walk around the parking lots, mechanical rooms, corridors, vacant spaces, other departments of the company, but just walk. Or as a former, very successful boss of mine said, “Get out there in look ‘em in the eye!”

While you are walking ask questions, talk to people, make inquiries, and introduce yourself to strangers. Ask technicians what they are working on and ask contractors what project or task they are performing for the property? Do not have a plan or carry anything with you but your smartphone. If you must take a note, just use the camera feature, call yourself and leave a voicemail, or a record a message. Do not carry notepads or anything else at all, because the notepad might make you think you need to find things to write down. It can also be a intimidating if you’re taking notes during a conversation with a colleague that is supposed to be casual. Let your mind be free and just walk. Wherever you go, information will be gleaned. There is insight to be had from the properties you manage, as well as your own property. It is talking to you, you just have to listen.

It is not easy, but consider doing PMBWA regularly. Nobody expects a property manager to just walk around with no plan, direction, or destination! It will puzzle your staff, intrigue your customers, and create interest from your contractors. Remember, this is NOT a building inspection. You are managing your property just by walking around. It sounds unbelievable, but I bet you that you will learn so much and find out so many things that it will spark enthusiasm, excitement, or bring resolution to a matter you have contemplated or been challenged by.

Try it and let us know how it worked for you!

By Linda Day Harrison, theBrokerList, Chicago, IL

As property owners and managers we need to change our thinking about marketing. For instance, do you have a B2B (business to business) marketing message or do you just focus on B2C (business to consumer) marketing? I would guess that many of you have B2C messages down pat, but fail to focus on B2B. The reason the real estate management industry does not look at itself as playing in the B2B world is due to a myriad of things, but the most pertinent being our training and how we’ve been taught to present ourselves to the marketplace.

For instance, a typical business report about the economy focuses on consumer spending, retail, housing starts, home buyers, and the stock market. There is no mention of the terms we are familiar with, such as number of units, total square feet, vacancy, occupancy, tenants, building improvements, and leases signed. There is no connection to our industry metrics and benchmarks. Our data and statistics are not tracked due to the nature of our business model. It is as if our industry is a forgotten piece of the economic pie.

For this reason, I think there is a disconnect in how we really fit into the picture. My intent is to turn the tables and give you some tips on how to improve your B2B marketing messages by giving you the confidence to realize that we are vital to our communities.

The B2B marketing message you create should have to do with the value delivered to your nearby communities. Our properties purchase supplies and products from local merchants, as well as provide jobs to service industries such as painting and plumbing. Our properties deliver massive opportunities that are necessary to complete the community. Do you know the economic impact that your property provides? Do you know where your residential customers work or where commercial customers live? These are vital insights that will help you to understand your customer base and can help you create a strong B2B marketing message when you are communicating with potential clients.

As a property manager, you are a business. Not only should you market your property to the end customer, but also to the businesses of that customer. For instance, build a relationship with the store manager of the local grocery store. Feel proud, confident, and shake hands with that B2B professional. Even offer to show them the property if they’d like. Sounds strange doesn’t it? Use this interaction to explain how you fit into the community, and what value your property provides. This relationship could also help make the difference when a property owner is trying to decide between your property management company and another because it shows that you are an active member of the community and that you understand the property needs to function as part of a whole. It demonstrates that you know who your perspective tenants are, and what their needs will be.

Property managers are part of the larger community and we must tailor our marketing message to the obvious B2C customers, as well as the less obvious B2B beneficiaries.  Make a list of all of those businesses that benefit from your property. Develop a plan to attend local meetings or just visit the locations to leave a business card. If possible, offer incentives or setup cross promotions with the other businesses in order to reach out to your community. Open up a line of communication with that business. Get creative, have fun, grow your customer base, and network with other business leaders. It is vital that you create your own B2B marketing message in order to show that you are a key element of the community!

By Linda Day Harrison, theBrokerList, Chicago, IL

When managing your property staff, encourage them to ask as many questions as possible. In general, people are afraid to ask questions because they think it makes them look less qualified. However, you must listen and treat each question like a nugget of gold. As a property manager you need to train your staff on the ins and outs of your business, but if they are not sure about something, encourage them to ask questions. Otherwise, acting without direction may have serious ramifications!

Hearing questions before an action is taken should be like music to your ears, when compared to hearing about a mishap or a mistake made because they didn’t ask. For example, would you want to risk to an employee’s safety because a team member failed to ask a question about proper safety procedures? Also keep in mind that when something takes longer to do or makes your staff work harder, don’t scream at them for asking, “Why must it be done this way?” and respond with an “it’s my way or the highway” type response. Instead, explain that it is for the greater good of the property, the building ownership, or that it is a requirement of the insurance policy. Make it clear to everyone involved why there are certain processes and procedures in place. In so many cases, if people do not understand the reasons, it can create confusion and problems. Life is hard enough without being caught in the trap of not dotting those I’s and crossing those T’s. Not only does it hurt the individual, when the issue catches up to them, but it causes hardship to the building owner, the company, the customers, and all of your coworkers as well. If people are not sure, they need to be trained to ask! Also remind them to think about every decision they make and visualize all of the outcomes.

Encouraging questions also helps to iron out any miscommunications. If one person is not clear, maybe nobody is clear, but they too, were afraid to ask. By encouraging questions everybody learns. In turn, this allows communication to improve across the entire organization. For example, the failure of staff member to ask a question pertaining to the interpretation of a vendor contract or a clause on a certificate of insurance can cause serious financial hardship to the property owner.  The outcome of this example could be very serious and completely avoided if your staff stops, thinks about the value of a question, and asks!

In my career, the most destructive employees I have ever encountered were those that did not ask questions. If someone stops asking me questions, it is a “Red Flag.” As property managers, it is our job to be available to the team, but we must also recognize those employees who are failing to question or inquire when conditions or situations are not typical. It is no different when you need to ask a question of your supervisor or building owner when you are not crystal clear about a subject or issue. Every issue property managers come upon have so many variables that it is almost impossible to know everything. Keep an open line of communication and embrace the nuggets of gold that come from your employees. The motto should always be “If you aren’t sure? Ask!”