Welcome to
A.I.R.* Forms Practitioner!
AIR CRE Contracts are excellent contracts! They typically speed up the closing of a deal and lower transactions costs. Parties signing AIR CRE Contracts sometimes have a limited understanding of the terms of those contracts. Some obtain unjustified comfort in signing a document they do not understand because it is a “standard-form” document that is widely accepted in the industry.
This site intends to increase the understanding of AIR CRE Contracts, and explain legal aspects of:
- leasing transactions;
- purchase/sale transactions; and
- landlord-tenant disputes (including commercial unlawful detainer).
*A.I.R. Forms Practitioner is not affiliated with or sponsored by the AIR CRE.
Popular Articles & Resources
Subleasing Tips, Fees, and Requirements of AIR CRE Leases
Subleasing can be tricky, and it is often time-sensitive. Lessee may be paying rent on space it is not using. Potential sublessees often have an immediate need and a delay can cause them to look elsewhere. Before requesting Lessor’s consent, it is helpful to know key provisions of the AIR CRE Lease relating to subleasing. Below is a summary of key points. No Transfer Premium: If Lessee will sublease at a rate higher than it is leasing, does it need to pay any portion of those “profits” or “premium” to Lessor? Under the AIR CRE Lease, the answer is no. While transfer premium provisions are [...]
AIR CRE Expands Contracts To 37 States; All 50 Expected Soon
AIR CRE Contracts continue to gain popularity for a variety of transactions. They are the most widely-used real estate contracts in California for industrial, office, and retail transactions. AIR CRE has expanded the AIR CRE Contracts beyond California. The Contracts are now available in 37 states (the list of available states is below). According to its website, AIR CRE expects to expand to all 50 states in 2023. If you would like to utilize the Contracts in a state other than California, no additional software is required, and there is no additional cost. In order to obtain the Contracts for another state, open the AIR [...]
Buyer’s Disapproval Notice in AIR CRE Purchase Agreements
In a real estate purchase transaction, when the due diligence period is winding down, Buyer has a decision. Typically, the decision is to: (1) waive contingencies and proceed with the purchase, or (2) disapprove of the contingencies, terminate the transaction, and obtain a refund of the deposit. The AIR CRE Purchase Agreement provides Buyer with a different option: disapprove of a contingency without terminating, and provide Seller with an opportunity to cure Buyer’s disapproval. Below is a summary of the disapproval procedure and the back-and-forth procedure triggered by a disapproval: Step 1: Buyer’s Disapproved Item: Prior to the expiration of a contingency, Buyer may deliver [...]
AIR CRE Revamps Option To Extend Addendum
The AIR CRE Option To Extend Addendum has been a staple of California leasing transactions for decades. AIR CRE recently made a number of important changes to further improve the addendum, particularly to the process for determining Fair Market Value (FMV). Below is a summary of key aspects of the new procedure to determine FMV: Timing: FMV determination process begins on the later of (a) Lessee’s exercise of the option, or (b) 6 months prior to the Option Term. 30-Day Negotiation Period: During this initial 30-day period, Lessor and Lessee attempt to agree on the FMV. Submitted Values: If the parties are unable to agree [...]
After Waiver of Contingencies, is Buyer’s Deposit Ever Refundable?
After an AIR CRE purchase agreement is signed, Buyer commences its due diligence. If Buyer is satisfied with its inspections, Buyer may waive Buyer’s Contingencies, and proceed with the transaction. Once Buyer’s Contingencies have been waived, Buyer’s Deposit is often described as “non-refundable.” Question: After waiver of Buyer’s Contingencies, is Buyer’s Deposit ever refundable? Short Answer: Yes, it is refundable in three circumstances: Seller commits a breach. Damage or destruction to the Property of more than $10,000. A “Material Change” occurs. Buyer’s Deposit is Refundable in Three Situations: Paragraph 4.5 of the AIR CRE purchase agreement provides that the Deposit is refundable to Buyer “in [...]
Does Lessee Forfeit its Option To Extend if it Subleases its Premises?
Many lease transactions include an option for the tenant to extend its lease term. The AIR CRE Option(s) To Extend Addendum is frequently added as an afterthought when completing an AIR CRE Lease. This well-drafted addendum does provide that Lessee can lose its option under certain circumstances. Question: If Lessee subleases all (or a portion) of its Premises, does it lose the ability to exercise an Option to extend its Lease? Short Answer: Yes, if the sublease is in effect at the time of exercise of the Option. No, if the sublease has expired at the time of Lessee’s exercise of its Option. Option To [...]
Does Buyer’s Disapproval of a Contingency Terminate the AIR CRE Purchase Agreement?
In many purchase agreements, at the expiration of the due diligence period, Buyer is required to make a decision. A buyer decides whether it will: (1) disapprove of a contingency (and terminate the purchase transaction); or (2) waive its contingencies, causing its deposit to become non-refundable, and proceed to purchase the property. Question: Under the AIR CRE purchase agreement, if a Buyer disapproves of a Buyer Contingency, does the agreement and escrow terminate? Short Answer: Generally, no. The disapproval of a Buyer Contingency triggers a process where (a) Seller elects whether to cure the disapproval, and (b) if Seller does not elect to cure, Buyer [...]
BREAKING: Prop. 15 Defeated
The Associated Press projects that Prop. 15 will fail with 52% of Californians voting against the measure. The Associated Press article is here. The LA Times article on Prop. 15’s defeat is linkedhere. If passed, Prop. 15 would have created a “split” property tax roll. Many commercial and industrial properties would have lost “Prop. 13 protection,” and would have been re-assessed and taxed based upon market value. Residential and agricultural properties would not have lost “Prop. 13 protection.” Commercial properties would have been reassessed as early as the 2022-23 fiscal tax year, as discussed in California’s Controversial “Split Roll” Initiative (Prop. 15): The Basics.
Mixed-Use Properties are Partly Exempt From Prop. 15
In general, Prop. 15 requires commercial properties to be re-assessed to market value, but excludes residential properties from re-assessment. Mixed-use properties are unique in that they are used for both commercial and residential purposes. Question: Will mixed-use properties be re-assessed to market value if Prop. 15 passes? Short Answer: There are three key rules for mixed-use properties: The portion of a mixed-use property which is used for residential purposes will not be re-assessed to market value. The commercial portion is subject to re-assessment. However, if 75% or more of the property is used for residential purposes, the California legislature is authorized to exclude the commercial [...]
Should Brokers Add “Prop. 15 Protection” to LOIs?
Background on Prop. 15: On November 3, 2020, California voters will decide whether to adopt the “Split Roll” Initiative, Prop. 15. If passed, many commercial and industrial properties would lose “Prop. 13 protection,” and would be re-assessed and taxed based upon market value. Residential and agricultural properties would notlose “Prop. 13 protection.” Commercial properties can be reassessed as early as the 2022-23 fiscal tax year, as discussed in California’s Controversial “Split Roll” Initiative (Prop. 15): The Basics. Question: Should Brokers Add “Prop. 15 Protection” to LOIs? Answer: Leases entered into in 2020 will likely require tenants to pay any Prop. 15 tax increases. A tenant’s [...]
The Hidden Small Business Tax Cut in Prop. 15
Background on Prop. 15: On November 3, 2020, California voters will decide whether to adopt the “Split Roll” Initiative, Prop. 15. If passed, many commercial and industrial properties would lose “Prop. 13 protection,” and would be re-assessed and taxed based upon market value. Residential and agricultural properties would not lose “Prop. 13 protection.” Commercial properties can be reassessed as early as the July 1, 2022 – June 30, 2023 fiscal tax year, as discussed in California’s Controversial “Split Roll” Initiative (Prop. 15): The Basics. Although Prop. 15 increases property taxes on many commercial properties, Prop. 15 also contains a provision that reduces taxes on business [...]
Many Owner-Users To Pay Increased Property Taxes Under Prop. 15
Background on Prop. 15: On November 3, 2020, California voters will decide whether to adopt the “Split Roll” Initiative, Prop. 15. If passed, many commercial and industrial properties would lose “Prop. 13 protection,” and would be re-assessed and taxed based upon market value.Properties can be reassessed as early as the July 1, 2022 – June 30, 2023 fiscal tax year, as discussed in California’s Controversial “Split Roll” Initiative (Prop. 15): The Basics. Question: Under Prop. 15, will an owner-user of a commercial or industrial property in California have its property re-assessed (and pay property taxes based on the market value of its property)? Answer: Yes, [...]
“Split Roll” Initiative (Prop. 15): Will Tenants Pay the Increased Property Taxes?
On November 3, 2020, California voters will decide whether to adopt the “Split Roll” Initiative, Prop. 15. If passed, many commercial and industrial properties would lose “Prop. 13 protection,” and would be re-assessed and taxed based upon market value. Properties can be reassessed as early as the July 1, 2022 – June 30, 2023 fiscal tax year, as discussed in California’s Controversial “Split Roll” Initiative (Prop. 15): The Basics. If a tenant enters into an AIR CRE lease today, would it be required to pay the increase in property taxes resulting from the potential passage of Prop. 15? Short Answer: Yes, except under the rarely-used [...]
California’s Controversial “Split Roll” Initiative (Prop. 15): The Basics
The “Split Roll” Initiative recently qualified for the November 2020 ballot, and is numbered Proposition 15. If passed, many commercial and industrial property owners would lose their “Prop. 13 protection,” and their properties would then be assessed at market value. This article is the first in a multi-part series discussing Prop. 15. In this first part, we will start with the basics of Prop. 15. When is the Vote on Prop. 15 and is it Likely to Pass?: Californians will vote on Prop. 15 on November 3, 2020. In order for Prop. 15 to pass, only a simple majority is required. It is unclear whether [...]
BREAKING: SB 939 Fails To Advance
On May 13, 2020, a bill numbered SB 939 became a lighting-rod in California. It proposed that certain Covid-impacted tenants could terminate their leases. Authored by Senator Wiener, SB 939 gained momentum when it passed the Judiciary Committee by a vote of 5-1 in favor of the bill. It then moved to the Appropriations Committee of the Senate. During the June 18, 2020 Appropriations Committee hearing, SB 939 failed to advance. Amendments Not Enough: According to Senator Wiener’s office, before the June 18 hearing, Senator Wiener proposed amendments to SB 939, but it was not enough to generate the required support. Based on prior comments [...]
SB 939’s New Controversial Provision: Eviction Protections For Covid-Impacted Tenants In ALL Industries (Not Limited To Restaurants, Etc.)
SB 939 was recently amended to provide additional eviction protections for Covid-impacted tenants in all industries. To be clear, this provision is not limited to restaurants, bars, places of entertainment, etc. This updated section of SB 939 provides, in part: 12-Month Repayment Period: “Covid-impacted” tenants have 12 months after the state of emergency ends to repay rent that became due during the state of emergency period. No Eviction For Unpaid Rent Accrued During State of Emergency: “Covid-impacted” tenants cannot be evicted for unpaid rent that accrued during the state of emergency period. Note: It appears that this unpaid rent could be pursued by landlords in [...]
SB 939 Lease Termination Right Narrowed To Restaurants/Bars and Places of Entertainment
On May 13, SB 939 became a lightning rod in California – if passed, it would give certain Covid-impacted tenants a right to terminate their commercial leases. It initially applied to all California small businesses. However, SB 939 was just amended and the termination right was narrowed substantially. SB 939's Termination Right Now Applies To Only Eating Or Drinking Establishments, Places of Entertainment, and Performance Venues: The most significant change to SB 939 is that the lease termination right would apply only to the following businesses: Eating or drinking establishments Places of entertainment Performance venues These businesses do not automatically qualify for this termination right. [...]
SB 939 Update: Key Hurdle Passed; Obstacles Remain
SB 939 provides certain Covid-impacted tenants with the right to terminate their leases if they experience 40% monthly revenue declines (for details on the bill, see California Proposes Lease Termination Right For Covid-Impacted Tenants). Below is an update on the current status of SB 939. SB 939 Approved By Judiciary Committee By 5-1 Vote: Last Friday, SB 939 faced its first key test when it was reviewed by the Senate Judiciary Committee. It passed by a 5-1 vote in the Committee. All five members who voted for the bill were Democrats, and the one vote against came from a Republican. The 5-1 Vote Masks Some [...]
California Proposes Lease Termination Right For Covid-Impacted Tenants
Under a proposed California law, certain tenants that experience declines in revenue as a result of Covid-19 can terminate their lease if their landlords do not agree to a rent reduction. This Senate Bill 939 (SB 939) has been introduced in the California Senate, but has not been enacted. Does this termination right in SB 939 apply to AIR CRE Leases? Short Answer/Summary: Yes, it applies to all commercial leases, including AIR CRE Leases. It applies only to tenants that experience 40% monthly revenue declines. For restaurants/bars and places of entertainment to qualify for this termination right, they must also experience a 25% decline in [...]
Can Lessee Pay Rent “Under Protest” in the AIR CRE Leases?
Some tenants are asserting defenses to the obligation to pay rent, particularly where their businesses are closed entirely because of the Covid-19 pandemic. However, if a tenant does not pay rent, it may lose the ability to exercise an option to extend, it may lose future rent abatement, or there could be other repercussions. Under the AIR CRE Leases, can Lessee pay Rent “under protest” and retain its right to reimbursement? Short Answer: Yes. Lessee can pay “under protest,” however, it must file a lawsuit within 6 months, otherwise it waives its right to protest such payment. Lessee’s Right To Pay “Under Protest”: If there [...]
Does Lessee Lose its Extension Option if it Did Not Pay Rent During COVID-19 Pandemic?
Many businesses did not pay rent or paid partial rent in April 2020, because of the COVID-19 pandemic. Under certain circumstances, a Lessee that is not complying with the AIR CRE Leases can lose the right to exercise its Option To Extend the Lease term. If a Lessee failed to pay rent for April 2020, does Lessee automatically lose any Option To Extend it may have in its Lease? Short Answer: No, there is no automatic forfeiture of the Option To Extend for failure to pay rent. If Lessee becomes current at the time of exercise, it retains its ability to exercise an Option. After [...]
Late Charges And Interest Under the AIR CRE Leases
Many businesses in California are struggling to pay April 2020 rent as a result of the impact of COVID-19. Under the AIR CRE Leases, is Lessor entitled to late charges and interest if Rent is not paid on time? Short Answer: Yes. A late charge of 10% (or $100, whichever is greater) is due if Lessor does not receive Rent within the 5-day “grace period.” Interest at 10% begins to accrue on the 31st day after the Rent was due. 5-Day “Grace Period” Before 10% Late Charge: Under Paragraph 13.4 of the AIR CRE Leases, if Lessee does not pay Rent on time, a late [...]
Can Lessor Demand Financial Statements From Lessee Under the AIR CRE Leases?
In light of COVID-19 closures, many Lessees are requesting rent relief from their Lessors, in the form of deferral or abatement. Lessors are more curious than ever to understand the financial situation of Lessees. Under the AIR CRE Leases, is Lessee required to provide financial statements upon Lessor’s demand? Short Answer: Yes, but only in connection with a sale, finance, or refinance by Lessor. In such cases, Lessee is required to provide financial statements “reasonably required” by the lender or purchaser. Only Required For Finance, Refinance or Sale: Pursuant to Paragraph 16(c), financial statements can be requested from Lessee only in connection with a “finance, [...]
Does the “Force Majeure” Event of COVID-19 Excuse April 2020 Rent Payment Under AIR CRE Leases?
Publisher’s Note: We are experiencing difficult times in California with the Coronavirus. I hope all is well with you and your loved ones, and our best wishes in the recovery of any of your businesses that have been impacted. Many California businesses have temporarily closed as a result of COVID-19. Does the closure of a business as a result of COVID-19 constitute a “Force Majeure” event under the AIR CRE Leases that excuses payment of Rent? Short Answer: No. There is no Force Majeure provision in the AIR CRE Leases. Force Majeure provisions in many custom leases would also not excuse (or even delay) the [...]
AIR CRE Leases Require Business Interruption Insurance. Will it Cover Losses for Coronavirus Closures?
Publisher’s Note: We are experiencing difficult times in California with the Coronavirus. I hope all is well with you and your loved ones, and our best wishes in the recovery of any of your businesses that have been impacted. California businesses have been suffering and many have closed, either by direct mandate of the government or “voluntarily” for health/business reasons. Most AIR CRE Leases require Lessees to obtain “business interruption” insurance. For Lessees whose businesses are interrupted or closed as a result of the Coronavirus, does their “business interruption” insurance cover them for their loss of income? Short Answer: Business interruption coverage typically requires “physical [...]
Usman Mohammed, Esq.
About Me:
Real estate is my passion, and it is in my genes. In addition to owning commercial real estate, my family co-founded IDS Real Estate Group.
I represent landlords and tenants in office, industrial, and retail leasing transactions, and have used the AIR CRE Contracts in hundreds of these transactions. I’ve also represented purchasers and sellers of properties in the various asset classes, and also frequently use the AIR CRE Contracts in those situations. My practice includes representing landlords and tenants in lease disputes, including unlawful detainer litigation.
Brought to you by
Disclaimer
A.I.R. Forms Practitioner is not affiliated with or sponsored by the AIR CRE. This site is intended for educational purposes as well as to give you general information and a general understanding of the law, not to provide legal advice. Neither I nor Consensus Legal provide legal advice through this website or by messages directed to or from this site. By using this website, the reader agrees that the information on this website does not constitute legal or other professional advice and no attorney-client or other relationship is created between the reader and Consensus Legal or its attorneys. This website is not a substitute for obtaining legal advice from a qualified attorney. The information on this website may be changed without notice and is not guaranteed to be complete, correct or up-to-date.