Chapter 18: Business Sale, Property Management and Leasing Summary

Sale of a business

According to California law, any type of business that is for sale is considered a business opportunity.

Components:

• Sale or lease of the real property.
• Personal property. Tangible assets - inventory, fixtures, and equipment.
• Goodwill is an intangible asset that results from the reputation of the business.

Other components of a business opportunity:

• Bill of Sale - gives title to the personal property involved in the sale.
• Balance Sheet - shows the financial status of the business.
• Profit and Loss Statement - shows the profit and loss amounts of the business during a specific period of time. 

Uniform Commercial Code (UCC) - body of law that standardizes a number of business practices. It requires the buyer to:

• Demand that the seller provide a schedule of all the tangible property involved in the sale.
• Demand the list of all creditors.
• Give notice to the creditors of the impending sale.

There are some unique problems involved in selling a business, so a broker would be wise to seek the counsel of an attorney or other experienced business counselor.

Property management

Property management deals with the leasing, managing, marketing and maintenance of property belonging to others. It includes apartments, condominiums, industrial complexes, etc.

Institute of Real Estate Management (IREM)

• Keep separate accounts for personal funds and client funds and avoid commingling.
• Carry a bond on all employees who handle client funds.
• Fully disclose all discounts, commissions and other fees received due to property activity.

Certified Property Manager^© (CPM^©) for individuals who meet a certain level of education and experience requirements.

Accredited Residential Manager^© (ARM^©) for resident managers who have a lesser degree of training and on-site experience.

Accredited Management Organization^© (AMO^©) is reserved for companies who meet certain IREM guidelines and employ at least one CPM^©. 

Types of property management

• Individual property manager - a real estate broker who manages properties for one owner or a number of owners.
• Individual building manager - usually manages a single large property.
• Resident manager - lives on the property and may be employed by a real estate broker, a managing agent or an owner to manage a property on a part-time or full-time basis. 

Property management duties

Dual responsibility to the owner and to the tenants of a property.

• Renting the units promptly at the highest market rent possible.
• Keeping operational and other costs within budget.
• Preserving and enhancing the physical value and prestige of the property. 

Specific property management duties:

• Merchandise the space and collect the rent.
• Create and supervise maintenance schedules and repairs.
• Set up payroll system for all employees and supervision.

Additional duties outlined by the DRE include the following:

• Hire, instruct and maintain satisfactory personnel to staff the buildings.
• Audit and pay bills.
• Inspect vacant space frequently.

Setting up rent schedules

Rent levels are determined on the basis of scarcity and comparability of area values. When establishing a rental schedule, a property manager must make a thorough analysis of comparable properties in the neighborhood, which includes:

• The character of the buildings and amenities of the neighborhood.
• Economic level, family size and age groups.
• Trends in population growth and the number of occupants per unit.
• Availability of transportation, recreation, shopping, churches and schools.
• Growth and expansion of the community and growth of local industries.
• Condition of the housing market in terms of inventory on the market, sales price range, new construction and vacancy.

Marketing methods include billboard advertising, brochures and fliers, business cards, ads, etc.

Maintenances and purchasing 

Establish and maintain detailed policies for a building's maintenance and for purchasing supplies and services:

• Routinely inspect the building and know its current and future maintenance needs.
• Maintain a list of skilled specialists for repair and maintenance work.
• Correct the building's repair or maintenance problems as soon as they are discovered.

Ongoing preventive maintenance - to reduce the need for large maintenance expenditures.  

Dealing with tenants - a property manager should set policies which will give tenants the most benefits that they can get while still ensuring a good return to the owner.  

The Property Manager is responsible for the instruction and supervision of each employee. A property manager should provide the owner with monthly account statements and a detailed annual statement.

Property vacancies - the space may be vacant because:

• Rent is not right - too high or too low for a prospect.
• Ineffective advertising/Inattentive manager.
• High vacancy factor in the area.

Property management fees can be a flat monthly amount, a percentage of the gross rents collected or a combination of the two. A property manager can receive additional compensation for renewing leases and for supervising major repairs or alterations.

The management contract

A property manager should have a written contract with the property owner whose property he or she will be managing. The agreement outlines the responsibilities of both parties including:

• Terms and period of the contract.
• Policies pertaining to the management of the premises.
• Management fees.
• Authority and powers given by the owner to the manager.

Property management records

A property manager should have a working knowledge of accounting procedures and cost accounting. The broker will need to keep complex trust account records and make regular reports to the owner.

Small offices- require simple records

Larger offices -usually require more elaborate record-keeping methods.

Leasehold estates

1. Estate for Years - continues for a definite fixed period of time.
2. Estate from Period to Period - lease continues from period to period (periodic tenancy)
3. Estate at Sufferance - a tenant takes legal possession of the property but then remains on the property without the owner's consent after the lease terminates.
4. Estate at Will - has no time limit. Can be terminated by either party at any time, with proper notice (30-day notice in California). 

Types of leases

Net Lease: depending on how much additional responsibility the tenant assumes, the lease can be a:

• Net lease - The tenant pays maintenance and taxes only.
• Net-net lease - The tenant pays some, but not all, of the maintenance, insurance and taxes.
• Net-net-net lease - The tenant agrees to pay all taxes, insurance, maintenance and repairs.

Gross Lease: the tenant pays a fixed rent and the owner pays the taxes, insurance and other normal ownership expenses.

Percentage Lease: a lease whose rental is based on a percentage of the monthly or annual gross sales made on the site.

1. Recapture clause - indicates that if the tenant does not obtain the desired gross sales, the owner has the right to terminate the lease.

Graduated Lease: the rent payments start at a fixed amount but increase as the lease term matures.

Residential leases

Residential lease applications require a significant amount of financial data on a prospect. A manager should:

• Get a copy of the prospect's last pay stub to verify income.
• Verify present employment with the current employer.
• Gather information from current or previous landlords.
• Make a copy of the prospect's driver's license. 

A manager should collect the same type of information on ALL prospective tenants to avoid the potential of being in violation of the fair housing laws.

Landlord Responsibilities

The tenant expects the landlord (via the property manager) to:

• Keep the plumbing in good working order.
• Maintain the condition and safety of the heating and electrical systems.
• See to it that floors, stairways and railings are clear, safe and in good repair.
• Maintain pest control.
• Fix any roof leaks or broken windows promptly. 

If a landlord fails to correct a problem that is within his or her responsibility, a tenant may take any of the following actions:

• Move out and not be liable for back rent or the unexpired portion of the lease.
• Refer the problem to mediation, arbitration or small claims court.
• Give the owner written notification of an emergency situation. May call a professional repair person and deduct the cost from the next month's rent check (up to the amount of one month's rent). Note: A tenant may take this action only twice in any 12-month period. 

The landlord must retain some right of entry into the premises. The landlord may enter a premise only when one of the following conditions exists:

• An emergency requires the landlord to enter.
• The tenant gives consent to enter.
• The landlord enters during normal business hours and only after giving 24 hours' notice to either make repairs or to show the property to prospective tenants, purchasers or contractors.
• The tenant has abandoned or surrendered the property.
• The landlord has a court order allowing the entry. 

Tenant responsibilities

• Keep his or her living unit clean and sanitary.
• Dispose of all rubbish, garbage and other waste in a sanitary manner.
• Use fixtures properly and refrain from damaging the property.

A tenant also owes these responsibilities to the landlord:

• Pay rent on time.
• Follow the rules and regulations set out by the landlord.
• Give a 30-day notice when terminating a month-to-month lease.
• Return all door and mailbox keys when leaving the property.

Lease termination

The landlord may terminate a lease by giving a 30-day notice in writing to the tenant or a 60-day notice to a tenant who has lived in the unit for longer than one year.

It is against the law for the landlord or property manager to:

• Change locks, intending to lock out the tenant.
• Remove outside doors or windows.
• Turn off utilities.
• Remove a tenant's property or furnishings from the premises without the prior written consent of the tenant.

Any landlord who violates this law can be liable to the tenant in a civil action for either actual damages to the tenant or up to $100 per day for each day or part of a day that the landlord remains in violation of the law. 

Evictions

A landlord can evict a tenant and bring an unlawful detainer action against a tenant for failure to pay rent, violation of the lease agreement or failure to leave after receiving the proper written notice.

The landlord must follow this procedure:

• Serve the tenant with a three-day notice to either quit the premises or pay the rent due.
• If the tenant takes no action, the landlord can file the unlawful detainer action in court.
• The court will award the landlord a judgment and the landlord can authorize the sheriff to evict the tenant.
• The sheriff serves the eviction notice on the tenant. If the tenant refuses to leave, the sheriff can physically remove him or her from the premises. 

Congratulations! You've completed this chapter! Once you complete the quiz for this chapter, you'll be ready to move on to take the Practice Course Review.