Industrial tenants need to be vigilant in their compliance with any and all regulatory requirements. This can include OSHA, the FDA, municipal fire and safety requirements, operating permits, and municipal restrictions such as truck parking and outside storage. Besides the obvious, why is compliance so crucial?
Since the end of the economic recession of 2008-2011, industrial rents have risen significantly and continue to rise. From 2013 to 2016, industrial rents grew by an average of 4.5% per year! If you were lucky enough to have signed or renewed a long-term lease during the recession, you may be paying a rental rate well below market value. If this is the case, you may have an invisible target on your back.
In previous blogs, we’ve discussed landlords who are champing at the bit for your lease to end if you happen to be paying below-market rent. The moment your lease expires they can raise your rent or lease your space to another tenant at a higher rate.
In some instances landlords are impatient and unwilling to wait till expiration. Here’s where compliance comes into play; on a few occasions, we have seen situations in which landlords may have deployed unsavory tactics in an attempt to force existing tenants out of the space before their lease expires. In these instances, landlords or the building’s management company have been suspected of notifying agencies of non-compliance for minor health and safety standard violations.
Your landlord ideally will want to find a reason in which you are in default of your lease or in which the restrictions or costs make the building insufficient for operations and you would willingly vacate.
The last thing any company needs is the headache of bureaucratic meddling. So, while the violations are often minor, and tenants are willing to rectify them, the violations can be a Pandora’s Box that leads to additional, expensive fixes.
In some cases the fixes may be extremely expensive, or even prohibitive given the physical restrictions of the building. In those cases, the only option for the tenant may be to shutter operations and move elsewhere. Or, maybe in order to stay in the building, they would need to extend their lease (at market rent, of course) in order to justify the capital expense.
Compliance is important in any case, but even more so when tenants are paying below market rent. Always be informed about where you stand, rent wise, in comparison to the market. If your rent happens to be below-market (good for you by the way!) be vigilant in ensuring compliance in your operations. This way, a surprise inspection won’t ever be much of a surprise and you won’t be at risk of defaulting on your lease.
Please understand, that in most cases, most landlords operate with honesty and integrity; however, like all business, there are always those who are looking to benefit via questionable means. So, if you notice that your landlord or the building’s management representative are snooping around—or asking questions that seem to be out of the purview of their role—be cognizant of what they may really be asking.