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Author: Matthew Harrison

Common Pitfalls of Commercial Leases

 

How Commercial Tenants Can Protect Themselves

When it comes to renting space for your business, location is key. Whether your business thrives or fails depends largely on where you choose to initially operate your business. What many business owners fail to realize, however, is that the terms of your commercial lease are just as important as the location. Before a business owner enters into a commercial lease, it is important to understand how commercial leases are different from their residential counterparts. It is also useful to take a look at some standard commercial lease terms and what they mean for your business.

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Commercial Leases Are Different from Residential Leases

If you are a long-time apartment-dweller or you’re simply familiar with residential leases, it is important to recognize that commercial leases are far different from residential lease agreements. Whereas most residential leases are for short terms – typically for one year – commercial leases tend to include much longer terms, with some commercial lease contracts spanning several years. With so much money tied up in a single lease agreement, you could find yourself in a financial bind if you need to end your relationship with your commercial landlord before the expiration of your lease.

Additionally, commercial leases also offer none of the consumer protection guarantees of residential leases. However, commercial leases generally offer a tenant much more leverage, flexibility, and negotiating power than a residential lease. Commercial landlords want to rent their space to a profitable business – they know they have a better chance of receiving their rent if your business succeeds. Hence, commercial landlords are generally more inclined to negotiate lease terms with their tenants and offer concessions to draw the right commercial tenant to their location.

Important Commercial Lease Terms

When it comes to commercial lease agreements, boilerplate legal documents are rarely a good solution. Your business is unique; your legal documents should be unique as well. There are, however, several standard provisions that generally appear in every commercial lease. Knowing what these terms mean will help you feel more confident when it is time to negotiate your own commercial lease agreement.

Use Provisions

You have probably seen a busy intersection with two or more gas stations sitting directly across the street from one other. This is an example of business “clustering”, which is something certain types of businesses do in an attempt to capture a larger portion of a specific market share. Clustering is not a good idea for all types of business, and it might spell disaster for yours. For example, a small mom-and-pop pizza shop is unlikely to last long if a major fast food pizza chain moves in right next door. Use provisions within commercial leases are designed to prevent these scenarios from happening. They define how the tenant intends to use the premises as well as limit the types of tenants permitted to occupy adjoining spaces.

Property and Facility Maintenance

When drafting a commercial lease for your business, it is critically important to define which party is responsible for maintaining the building and its interior. Although it may seem obvious that a landlord is in charge of repairing things like broken HVAC systems and leaking roofs, other items aren’t so clear-cut. What happens when a tenant conducts an extensive build-out? If a tenant bears the cost of new carpeting, shelving, and electrical wiring, is the landlord still obligated to fix these items if something fails? What if the tenant installs new signage? Who is responsible for repair costs pays for broken neon in one of the sign’s letters? These are all items that have the potential to create serious and costly conflicts if not addressed in the commercial lease agreement.

Personal Guaranties

Commercial landlords commonly require a commercial tenant to provide a personal guarantee in the lease. If you have organized your business as a corporation, this completely obviates the personal liability protection of your corporate business entity and exposes personal assets, like your home, to your landlord and your other creditors should you default on a commercial lease. If the business defaults on the lease, the owners can be personally liable for all the damages incurred to the commercial landlord for the entire term of the lease—including the commercial landlord’s attorneys’ fees, costs and defenses.   An owner should be careful in agreeing to provide a personal guarantee unless absolutely necessary or negotiate limitations to the potential damages the commercial landlord can obtain if a default occurs.

Landlord’s Breach and Default

Occasionally, a commercial landlord will end an agreement before the end of the lease term.  This can seriously disrupt a business and interrupt a business owner’s income stream as he or she scrambles to find new space and bears the cost of relocating and advertising a new location.  Tenants can protect themselves by including generous grace periods in their lease agreements and requiring landlords to mitigate any tenant damages incurred as a result of the landlord’s breach.

© 2014 Matthew W. Harrison and Harrison Law, PLLC All Rights Reserved

This website has been prepared by Harrison Law, PLLC for informational purposes only and does not, and is not intended to, constitute legal advice. The information is not provided in the course of an attorney-client relationship and is not intended to substitute for legal advice from an attorney licensed in your jurisdiction.

Book Review: Extraordinary Popular Delusions and The Madness of Crowds—Avoid Following the Herd

 

In the 2011 film Salmon Fishing in the Yemen, a life-changing decision by the character, Dr. Alfred Jones, is symbolized when he turns himself around and walks against the current of a crowd that is all traveling the same direction on a sidewalk. Often success in business comes from avoiding the follies of the group and independently developing a different plan. The first and still considered one of the best, books on this subject is Extraordinary Popular Delusions and The Madness of Crowds by Charles Mackay. Its principles and examples of group behavior are just as important today as they were when they were first published in 1841.

The author, Charles Mackay (1812-1889), was a Scottish journalist and author.   While a journalist, he researched and compiled the accounts that form the basis of the two volumes known as Extraordinary Popular Delusions and The Madness of Crowds. Unlike the popular sensational journalism of the time, Mackay provided several heavily-researched and detailed historical anecdotes of the pitfalls of group behavior. His examples of the problems that occur with group behavior have been used by modern social psychologists and economists to describe the dysfunctions of following “the crowd.” It is also often cited by analysts to explain the boom to bust behavior that perpetuates in stock markets.

A general theme found in Mackay’s book is that humans have the tendency to develop a herd mentality. The individuals in the herd then act and react to one stimulus after another in similar and predictable ways.  Mackay theorized when the herd develops “a madness” it can lead to a downward spiral of behaviors that often have very negative consequences. In addition, once this madness occurs it is usually takes individuals, with great difficulty, to break with the norm in order to stop the behavior.

Mackay narrates several historical events to illustrate the negative (and sometimes bizarre) effects that can arise out of a group mentality. These events include the Mississippi Company bubble, the Witch Mania (It wasn’t just in Salem, Massachusetts.), and the South Sea Company bubble as examples of when a group of seemingly rational individuals developed irrational thoughts and behaviors that led to very negative consequences.

The often-cited example in Extraordinary Popular Delusions and The Madness of Crowds is the Tulip Mania, which arose in Europe in the 1600s. The tulip, a simple flower, with its origins in Constantinople, was at first a novelty item for the very wealthy in Europe. Tulip bulbs then evolved from novelty item to status symbol for the upper and middle classes where they became the concentration of serious financial speculation. As the mania amplified, tulip bulbs began being purchased by investors and merchants who utilized most (if not all) of their assets. Producers sold the bulbs for property, gold, and monetary amounts that still seem exorbitant by today’s standards. This pattern of “madness” devolved into wild speculation and hoarding which tainted the region’s economic markets. As often occurs, the speculation then piloted a downward spiral that depressed markets and negatively affected producers for years.

The power in the message of Extraordinary Popular Delusions and The Madness of Crowds is in its timelessness. These same fits of “madness” can be seen today by simply opening the newspaper.   The modern-day observer need only look as far as Cabbage Patch Doll fever in the 1980’s, the Beanie Baby craze of the 1990’s, or the real estate market crash of the last decade as modern-day “tulips.” Other recent examples which appear a few times a year are the crowds of people who camp out for days in order to purchase the newest technological gadget, which can be purchased a couple of weeks (sometimes only days) later by simply walking into the store. Then there are examples of the tensions which dissolve into fights seemingly every Black Friday over a $25 toy at the big-box store, the stock market tech bubble, the successful fraudulent financial schemes orchestrated by Bernie Madoff and similar individuals. The list goes on…

The primary goal as an individual and businessperson is to notice when this herd mentality occurs and to avoid being swept up in the “madness” that can often have disastrous results.  As in Salmon Fishing in the Yemen, going against the current of a crowd will serve your personal and business interests well. Success will often come from avoiding the follies of the group and independently developing a different plan.

© 2014 Matthew W. Harrison and Harrison Law, PLLC All Rights Reserved

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This website and article have been prepared by Harrison Law, PLLC for informational purposes only and does not, and is not intended to, constitute legal or financial advice. The information is not provided in the course of an attorney-client relationship and is not intended to substitute for legal advice from an attorney licensed in your jurisdiction.

 

Articles of Incorporation: Getting Your New Business Off the Ground

Articles of Incorporation

 

 

If you’ve chosen to organize your business as a corporation in Arizona, there are a number of steps you must take to launch your new enterprise. The Articles of Incorporation is one of the first – and most important – legal documents you must prepare and file with the Arizona Corporation Commission.

 

 

 

 

 

All states require new corporations to file Articles of Incorporation with the appropriate state authority. Although the requirements vary slightly from state to state, Articles of Incorporation generally serve the same purpose in all jurisdictions:

  • Create the corporation
  • Set forth the corporation’s basic purpose
  • Establish a corporate name (and prevent similar names)
  • Identify shareholders, members, and a Statutory Agent
  • Authorize stock and/or provide authority

Like most states, Arizona gives prospective business owners access to a downloadable Articles of Incorporation form found on the Arizona Corporation Commission’s website. New business owners should be mindful, however, that the choice of entity is a huge decision that involves much more than filling out a form or two. Significant tax implications and business planning issues are just two of the decisions that require the help of an experienced business attorney. In fact, the Commission’s website explicitly advises potential business owners to consult with an attorney before completing any of the forms available on its website.

Articles of Incorporation: Required Information

The Arizona Articles of Incorporation form is a three-page document that requires business owners to submit rudimentary information about their corporate entity. This form requires the following information about your business:

Entity Name

Giving your corporation a name may seem like a straightforward exercise, but it’s very important to secure the exact name for your new business. Your business name must be unique – otherwise, the state will reject your Articles of Incorporation. You can check the availability of your desired business name on the Arizona Corporation Commission’s Electronic Document Filing website.

Character of Business

Include a brief, general statement describing your business’s purpose.

Shares

List the class and total amount of each class of stock your corporation is authorized to issue.    With a limited liability company, instead of issuing shares you will provide the names of the members of the company.

Arizona Known Place of Business

This is the corporation’s principal place of business – in other words, where the business conducts its daily operations, sales, and/or functions. Also, the form requires you to list whether the known place of business is the same as the address of the Statutory Agent.

Directors’ Names and Addresses

As the heading suggests, listing the name and business address of every corporate director is required. For a limited liability company, you will provide the contact information for the members.

Statutory Agent

A Statutory Agent is an individual, attorney, or business authorized to accept official communications on a corporation’s behalf. In most cases, communications are limited to mail; specifically, Statutory Agents receive lawsuits, subpoenas, and other court documents on behalf of the corporations they serve.

Certificate of Disclosure

For a corporation, any corporate officer, director, trustee, or incorporator with at least a 10 percent share in the corporation or a 10 percent ownership interest must complete a Certificate of Disclosure form. This form asks questions about an individual’s record of any criminal convictions or financial misconduct.

Incorporator’s Name, Address, and Signature

For a corporation, you must list the name and address of every incorporator. In many cases, there will be just one incorporator. Additionally, each incorporator must sign the Articles of Incorporation form.

© 2014 Matthew W. Harrison and Harrison Law, PLLC All Rights Reserved

This website has been prepared by Harrison Law, PLLC for informational purposes only and does not, and is not intended to, constitute legal advice. The information is not provided in the course of an attorney-client relationship and is not intended to substitute for legal advice from an attorney licensed in your jurisdiction.

The Richest Man in Babylon: Part 2—Seven Cures for a Lean Purse

 

As was outlined in part one of my book review, I am frequently asked about my recommendations for inspirational books for business success and personal finance. My first recommendation is often for a book that was first published over 85 years ago – The Richest Man in Babylon by George S. Clason. You can read part one of my book review here.

The Richest Man in Babylon by George S. Clayson

Clason utilizes the background of the Kingdom of Babylon as the setting for the story to introduce several fictional characters (from both ancient and modern times) to explain the principals of money, responsibility, and personal finance. One of these characters is Arkad. Arkad’s journey is a “rags to riches” story where he begins life as a slave. Over time, he is able to buy his freedom, and eventually becomes the richest man in Babylon. The king of Babylon requests that Arkad teach what he has learned to a group of citizens. In a group of lectures Arkad introduces Seven Cures for a Lean Purse.

The Seven Cures for a Lean Purse

  1. “Start thy purse to fattening”                                                                                                                                 

The first cure, Start thy purse to fattening, demonstrates the need to recognize that no matter the amount of income you receive, a portion should be set aside for saving. The Richest Man in Babylon emphasizes that everyone should save a least ten percent of their income every month. The act of saving allows you to view money from a different perspective – money is not just for instant gratification or to be used to react to one alleged crisis or another. Instead, money becomes a long term instrument for your benefit.

  1. “Control thy expenditures.”

Under the principle, Control thy expenditures, one learns that the amount of income earned is not important to long-term wealth.   Instead, the importance is to concentrate on how that money is actually spent. A proactive plan and budget for expenses will have the greatest long-term impact on your financial success. We often see examples of this concept on the news in the stories of individuals who win millions of dollars in a lottery, only to have it spent within a few years. Compare this to the story of the person with a low yearly income who lives frugally and is able to retire comfortably and provide a multimillion dollar endowment to a charity. The primary difference between these two examples is the perspectives on how the individuals to spend the money they have—not the amount of money that is available at any one time.

  1. “Make thy gold multiply.”

Saving money does not mean to hide it in a mattress, in mason jars in the back yard, or inside the covers of books in your personal library. Instead, make your savings work for you by developing a reasonable financial plan to allow your money earn a return on investment.   Creating an investment plan that can provide a consistent return over time is essential to make thy gold multiply.

  1. “Guard thy treasures from loss.”                                                                                                                                                     

Cure number four – Guard thy treasures from loss, works in conjunction with the third cure. Success comes from the consistent application of an investment plan over time. It does not come from attempting to chase the newest financial trends or from a salesperson with claims of high rate returns with no risk. Financial success also does not come from following someone who promises a new money-making scheme that no one has ever thought of before.   Instead, these are more often than not ways to lose your treasures (often on a large scale). Concentrating on a consistent well-proven approach will help one avoid these salespeople and truly guard your money.

  1. “Make thy dwelling a profitable investment.”

Looking at the home you live in as an investment is the concept that purchasing a home can assist in long-term wealth accumulation.   There are financial advisors that teach quite the opposite view of real estate, and the financial crisis of the last few years dampened the enthusiasm of purchasing a home. However, the fact remains that once a mortgage is paid, the largest monthly expenditure for a family is usually eliminated and can then be utilized for other purposes. A renter will never be able to achieve this level of monetary freedom.

  1. “Insure a future income.”

An individual needs to look beyond saving and accumulating wealth in the present to the possibility that the ability to accumulate wealth may diminish or end at some point in the future. A retirement plan is essential to prepare for that future date. In addition to a basic retirement plan, contingency plans need to be in place to help insure an income if an unexpected event happens. These future plans should include addressing health, disability, life, and long-term care insurance needs.

  1. “Increase thy ability to earn.”

Frequently, when one reads books or articles written about successful individuals a common thread emerges. No matter the amount of wealth, prestige, or power obtained, successful individuals never lose their desire to learn and better themselves. The desire to better ones self and to accumulate knowledge prevents stagnation, allows an individual to understand new concepts, and become both a better earner and a better investor.

Although The Richest Man in Babylon is approaching 90 years in publication, the principles it teaches are just as important today as they were before the Great Depression.   The longevity of Clason’s book demonstrates that the principles outlined are timeless and have brought financial success to the generations of people who have applied them. In addition, if these principles had been more widely applied by individuals and businesses at the time of first publication, it would have lessened the impact of the Great Depression. Their further utilization would have made the most recent spate of financial troubles less catastrophic as well.

Also, I often think of my paternal grandparents’ philosophy of personal finance. As a young married couple, they lived in and faced the brunt of the Great Depression. Despite personal and financial setbacks, they developed a similar set of financial principles to the “cures for a lean purse.” That fiscal mind set led them to financial security that they were able to maintain throughout their lives.

To read Part One of the book review for The Richest Man in Babylon click here.

© 2014 Matthew W. Harrison and Harrison Law, PLLC All Rights Reserved

This website and article have been prepared by Harrison Law, PLLC for informational purposes only and does not, and is not intended to, constitute legal or financial advice. The information is not provided in the course of an attorney-client relationship and is not intended to substitute for legal advice from an attorney licensed in your jurisdiction.

The Richest Man in Babylon—a Pioneer Book in Personal Finance

 

As a business/commercial law attorney, I am often asked about my recommendations for inspirational books for business success and personal finance. Often times, people assume this genre of self-improvement books has a history within the last 20-30 years when the subject gained popularity. However, my first recommendation is often for a book that was first published over 85 years ago – The Richest Man in Babylon by George S. Clason. The principles it teaches are just as important today as they were before the Great Depression.The Richest Man in Babylon by George S. Clayson

The author, George S. Clason (1874-1957), was owner of the Clason Map Company and Clason Publishing Company one of the first companies to publish a road atlas of North America.   However, he was better known for publishing a series of pamphlets on thrift and financial success, which first appeared in 1926. These pamphlets became very popular and were bought by insurance companies and banks for distribution to their respective clients/account holders. The Richest Man in Babylon is a compilation of these pamphlets. You will also notice the principles outlined by George Clason are consistently utilized by current financial and self-help authors today.

This book is an examination of how the Kingdom of Babylon was transformed from a small village on the Euphrates River to become one of the wealthiest and most powerful kingdoms in the ancient world. To explain this transformation, Clason introduces several fictional characters (from both ancient and modern times) to explain the principals of money, responsibility, and personal finance. The Richest Man in Babylon highlights that personal wealth and success do not occur overnight– with fast solutions and through get-rich-quick schemes. Instead, wealth accumulates by applying a consistent set of principles over time.   The book introduces both the Seven Cures for a Lean Purse and the Five Laws of Gold. For purposes of this post, I will concentrate on the Five Laws of Gold.

The Five Laws of Gold

  1. “Gold cometh gladly and in increasing quantity to any man who will put no less than one-tenth of his earnings to create an estate for this future and that of his family.”

The first law is to become a saver and make saving a priority in every financial decision. In a world that emphasizes immediate gratification and the “buy now, pay later” mentality, shifting a focus to the initial thought of saving helps eliminate the need for immediate gratification and results.

  1. “Gold laboreth diligently and contentedly for the wise owner who finds for it profitable employment, multiplying even as the flocks of the field.”

 A successful financial plan is developed by finding a process where one can consistently make a positive financial return over time. We need to avoid the extremes between hiding money in a mattress to wild speculation and day trading. Instead we are looking for the consistent return. The baseball example I use is that we want a high batting percentage of singles and the occasional double—not always swinging for the home run.

  1. Gold clingeth to the protection of the cautious owner who invests it under the advice of men in its handling.” No individual can have all the answers.

If we attempt to do it all, our focus and priorities are often watered down in the process. Instead, we must seek men and women around us whom we can trust to provide us sound advice and counsel.

  1. “Gold slippeth away from the man who invests it in businesses or purposes with which he is not familiar or which are not approved by those skilled in its keep.”

This principle reminds me of the old saying “Dance with the one that brought you.” Often individuals want to follow the newest trend or fad even though their personal knowledge of this potential opportunity does not exist. Instead, the goal should be to find investments that we (through the course of our everyday work, hobbies, and interactions) have developed a practical experience and knowledge. That experience and knowledge can be utilized to our advantage.

  1. “Gold flees the man who would force it to impossible earnings or who followed the alluring advice of tricksters and schemers or who trusts it to his own inexperience and romantic desires in investment.”

There are no quick answers and you cannot become “rich overnight.”   A lot of the financial catastrophes we have observed in the past 20 years (from the tech bubble bursting in the 1990s to the financial meltdown of 2007-2008) are based on the notion of quick results. New schemes are found that, in the long run, do not work and cause more harm than good. We need to avoid the quick decisions based on feelings and personal dreams. Instead, we should focus on a practical empirical approach that takes emotion and popularity out of our financial or business decisions.

I first read The Richest Man in Babylon soon after graduating from law school. As an attorney starting my legal career and first post-degree job, accompanied by typical law school student loan debt, I wondered how I would be able to tackle my new career along and establish myself for future financial success. The down-to-earth examples provided in The Richest Man in Babylon highlighted the fact that obtaining financial success is a marathon and not a sprint. Consistent application of basic financial principles is what leads to success.

To read Part 2 of the review of The Richest Man in Babylon click here.

© 2014 Matthew W. Harrison and Harrison Law, PLLC All Rights Reserved

This website and article have been prepared by Harrison Law, PLLC for informational purposes only and does not, and is not intended to, constitute legal or financial advice. The information is not provided in the course of an attorney-client relationship and is not intended to substitute for legal advice from an attorney licensed in your jurisdiction.