Commercial Leases – Keys to Success: for Landlords

Commercial leases can be lengthy, complicated and full of unfamiliar terms. Often, landlords and or tenants are reluctant to incur the cost required for their attorney to complete a detailed review of the lease because the monthly lease payment is small or they are under a time crunch. The aggregate cost of a lease is often very substantial, however. Through years of experience doing commercial lease work on a daily basis we have discerned the following key tips:

1) Letter of Intent (“LOI”)
Most of the key terms of a lease are negotiated at or prior to this stage. By the time a lease gets to the drafting stage, most of the key points have already been bargained for and leverage on many points has all but evaporated. Landlords and tenants need to be aware that if their attorney is not involved prior to this stage (or an experienced broker) their risk of losing much of the control increases significantly. At a minimum, time should be spent with an attorney working through a detailed LOI so that subsequent lease negotiations get off on the right foot.

2) Security
Most of the time, parties to an agreement overlook the importance of negotiating security instruments under the lease, i.e. – a security deposit, a letter of credit, or a personal guaranty. In the heat of early negotiations, this may be taken for granted when it should be considered just as important as the price per square foot. Older LOI forms may lack a section for security or limit the discussion to a security deposit. Make sure that the security requirements are clear and that the terms are negotiated in detail at the inception. Asking for it (or asking to remove it) during the lease drafting period is much more difficult than tackling it early.

3) Financing
Keep a lender’s view from 10,000 feet in mind when negotiating the lease terms, beginning at the LOI stage. Certain terms within leases, especially long term leases, can impact the value of the property substantially by reducing the appeal of the otherwise credit worthy tenant. It is important to keep this in mind as the value of the property is largely dictated by its appeal to lenders for financing purposes. A long term lease with clauses most lenders find objectionable (self-help, overly broad landlord obligations, equitable remedies for tenants, etc.) may have unintended negative consequences on future marketability. There is no worse scenario than being obligated to return to the tenant, hat in hand, years later to ask for a modification to a term that never should have been included in the lease in the first place – and having to pay for it yourself.

4) Battling for 100% Success on Every Issue Is Seldom Worth It
Most skilled negotiators will rarely go to the mat on every last issue. Instead, they prioritize areas of greatest importance to their in order to build good will through concessions in some areas that lead to more favorable terms in other areas. With commercial leases this is especially true. The landlord-tenant relationship is generally long term, with an eye toward establishing a positive relationship for future renewal. Entering a lease negotiation with the goal to “win” each and every point rarely amounts to a “win” for anyone. Generally, this results in the tenant incurring exponentially greater fees and burned up goodwill between the parties. At renewal, or during a dispute over operating costs a few years later, the retribution for this conduct will leave one rethinking whether they truly “won” at the negotiation table. Concessions are the reality of negotiations; understanding the tenant’s priorities and picking the right battles is the key to a successful, efficient, and effective lease negotiation process.

These are obviously just a few tips to keep in mind and are not intended to be a complete guide to commercial lease review. If you have questions about commercial leases in Washington, we regularly negotiate commercial leases ranging from a few thousand square feet of office space to entire buildings of core mixed use space. We would be happy to assist you.


*This article is intended to inform the reader of general legal principles applicable to the subject area. It is not intended to provide legal advice regarding specific problems or circumstances readers should consult with competent counsel with regard to specific situations.*

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Seattle Landlords: Upcoming Rental Registration and Inspection Ordinance (RRIO) deadlines

Under Seattle Municipal Code (SMC) Chapter 22.214, Seattle landlords are required to register their rental properties with the City of Seattle (registration requirements can be found here).  The RRIO has been in place since 2014, however, the deadlines for registration have been implemented over time based on the different area codes within the City of Seattle.

The final set of deadlines for registration are: September 30, 2016 (area codes: 98117, 98118, 98125 and 98168) and December 31, 2016 (area codes: 98101, 98104, 98115, 98121, 98124, 98134, 98154, 98164, 98178, 98181 and 98191). A full list and map of area codes and registration deadlines can be found here. Registration can be done online, in-person, or by mail, and must be renewed every 5 years. (Registration fee is $175 for the first rental unit and $2 for each additional unit after that, penalty fees apply to late registration or failure to register)

It is imperative that Seattle landlords understand the RRIO, register their unit(s) and ensure that the unit is inspected and meets the minimum standards as established by the City of Seattle. Compliance must be confirmed by a RRIO inspector (see RRIO checklist). RRIO requires all registered rental properties to be inspected at least once every 10 years, beginning in 2015.  Landlords have a choice to choose to hire a private qualified rental housing inspector or hire a City inspector.  Upon completion and passing of the inspection, the inspector will issue a signed Certificate of Compliance to the property owner who is then responsible for submitting the certificate to the RRIO program.

Failure to adhere to these inspection requirements and failure to meet the minimum standards for a rental unit exposes landlords to violation notices and penalties. Of greater significance, landlords may not evict residential tenants from a rental unit if the units are not properly registered with the Seattle Department of Construction and Inspections as required by RRIO.

If you have any questions or would like more information, please contact an attorney at Holmquist and Gardiner, PLLC.

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New Overtime Rules

In May 2016, the Department of Labor (“DOL”) issued its revised overtime rule, which increased the overtime salary limit from $23,660 to $47,476. The final rule can be found here. The rule is specific to employees who are considered exempt under the executive, administrative and professional exemptions. The new rule will become effective December 1, 2016.

For most businesses, this will potentially affect your administrative employees such as receptionists or office managers. If you currently have salaried employees who make less than $47,476, we recommend you review their job description to determine whether they are still considered exempt under the new DOL rule. Up to 10% of the base salary can be met through payment of nondiscretionary bonuses or commissions if they are paid at least quarterly.

If you need assistance determining whether your salaried employees remain exempt under the new DOL rule, please contact the attorneys at Holmquist & Gardiner to discuss your specific situation.

*This article is intended to inform the reader of general legal principles applicable to the subject area. It is not intended to provide legal advice regarding specific problems or circumstances readers should consult with competent counsel with regard to specific situations.*

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The Changing Future of Non-Compete Agreements in Washington, Part 2

We previously wrote about House Bills 2406 and 2931, which would significantly change the use of non-compete agreements in Washington.  At the end of the session, both bills went to the House “X” file, which made it likely that neither would be passed this session.  At the beginning of the Special Session both bills were reintroduced.  However, the House adjourned the special session without taking further action.

In related news, on March 16, 2016,, Inc. (“Amazon”) filed suit against Arthur Valdez, a former executive, in King County Superior Court.  The action seeks injunctive relief to prevent Mr. Valdez from taking an executive position at Target Corporation (“Target”). Amazon is seeking to enforce the Confidentiality, Noncompetition and Invention Assignment Agreement signed by Mr. Valdez. During Mr. Valdez’s employment by Amazon, it is alleged that he worked in supply chain operations in a variety of positions, most recently as Vice President of Operations North America.  Target recruited Mr. Valdez to serve as its Executive Vice President, Chief Supply Chain and Logistics Officer.  Amazon alleges that Mr. Valdez’s new role at Target violates his non-compete agreement, breaches his duties of confidentiality and loyalty to Amazon and violate statutory restrictions on the misappropriation of trade secrets. This case will provide a very visible and public test of the enforceability of non-compete agreements in Washington State.

If you have questions about whether your non-compete agreements are enforceable or wish to discuss including them as part of your hiring documents, please contact Holmquist & Gardiner, PLLC.


*This article is intended to inform the reader of general legal principles applicable to the subject area. It is not intended to provide legal advice regarding specific problems or circumstances readers should consult with competent counsel with regard to specific situations.*

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The New Washington Limited Liability Company Act

On January 1, 2016, the new rules governing Washington State Limited Liability Companies (RCW 25.15; “the Act”) went into effect. The Washington legislature’s passed a major revision to the Act in an attempt to make LLC’s more flexible and user-friendly for businesses. The primary goal was to eliminate confusing portions of the Act and promote uniformity in the laws that apply to the state’s business entities. At Holmquist & Gardiner PLLC, we highly recommend that you learn these changes and revisit your operating agreement, as they may affect your LLC. Although there were numerous changes – a few highlights are discussed below.

Non-waivable provisions (RCW 25.15.018). One of the main attraction to creating an LLC’s is the flexibility provided to the businesses. Normally, the operation of the LLC is memorialized in an operating agreement which controls where the Act is silent or is inconsistent with the Act. The new rules modifies this prior flexibility in designating fifteen (15) provisions as non-waivable, meaning that the Act and not the individual LLC operating agreement will control regardless. Click here to see the full text of RCW 25.15.018.

Oral LLC Agreements can now be Valid: Under the prior rules, the definition of an LLC company agreement required the document to be in writing. The new rules will no longer be limited to only “written agreements.” An LLC operating agreement or specific terms of an LLC operating agreement may be oral or implied. The allowance of oral or implied agreements can create inadvertent complications. While the legislature’s goal was to allow small LLC business to run more efficiently, the new rules could create more complications and litigated disputes relating to individual member’s recollection of the oral LLC agreement. With these revisions to the Act, a written agreement now becomes even more important. The terms governing the LLC can be laid out and signed by all so that each member has a clear understanding of their respective roles and the overall operation of the LLC. If necessary, the written agreement will provide clarity in the event of a dispute between the members. Otherwise, with an oral agreement, any dispute on the terms of the agreement will likely end up in a complicated game of “he-said, she said” requiring court involvement.

More Records Available to Members: Another goal of the legislature was to ensure transparency of LLC operations. With that goal in mind, the amendments expanded LLC members’ rights to inspect and copy LLC records. Similar to the rules that apply to corporations, LLC members will have a right to inspect and copy a wider category of records than under the existing law. However, there are limitations placed on such requests contained in the Act. To request records: (1) the member must have a valid purpose for requesting the records, (2) the member must make a proper demand, and (3) the records must be directly connected to the member’s purpose.  If these three things occur, the LLC is given 10 days to respond to the member’s request. An LLC is free to place reasonable restrictions on the access of records in the operating agreement, but they cannot “unreasonably restrict” any member’s right to copy and inspect records.

One Member = One Vote:  A drastic change in the Act is found in the default voting scheme of members. Previously, the voting defaulted to votes based on equity ownership (unless otherwise set forth in a written LLC agreement). The legislature felt that this default provision created confusion and uncertainty and amended the default to a “per capita” vote (i.e. one vote per head). With this new provision, it is imperative that a written LLC agreement clearly sets forth how voting is conducted. Otherwise, a business can end up in a situation where a minority owner has the same voting power as the majority owner.

Manager-managed specification in Certificate of Formation. Under the new rules, the LLC’s certificate of formation will no longer be required to specify if the LLC is manager-managed.  This was previously required and led to many questions and confusion as to how the LLC was managed (manager-managed v. member-managed). The hope is that this will resolve the numerous discrepancies found in LLC certificates of formation and annual reports.  It will also create more flexibility because an LLC will be able to change its management type without requirement of filing with the Washington Secretary of State. To avoid any confusion, we recommend that these terms remain specified in both in the certificate of formation and in your LLC operating agreement.

Fiduciary ObligationsFiduciary obligations for LLC members are now included in the new rules, including duties of loyalty and care. The Act previously did not explicitly contain a provision for fiduciary obligations which required the courts to recognized fiduciary obligations of LLC members similar to those of a partner in a partnership. Taking this out of the hands of the court, the new rules codify fiduciary duties under RCW 25.15.038.

Board as a Manager: The previous provisions of the Act gave the LLC the power to place the management of the LLC into the hands of one or more “Managers,” however, it did not expressly allow for a corporate approach of allowing a traditional board of directors (committee or other group of persons) to manage the company. Importantly, if a board will serve as manager of an LLC, the LLC operating agreement should be revisited and revised to account for how elections are run, the required qualifications of board members, clearly identifying conflicts of interest, the terms of the board, how vacancies are treated, a quorum requirement for conducting business, and voting powers of Board members.  The Act does not set forth default rules for these matters; they should be contained in the LLC operating agreement if this is a management style that your LLC is interested in pursuing.

Are there more Changes?

Yes – this article is not intended to cover every change being made to the Act, it only focuses on a number of noteworthy changes.  Click here to access a full version of the LLC Act.

If you have any questions or concerns about what the changes to the LLC Act means for your existing LLC, please feel free to contact Holmquist & Gardiner PLLC at 206-438-9083. Given the many changes in the Act, existing Washington LLCs may want to consider modifying their LLC operating agreement to take the new law into account. Our firm works with a wide range of businesses — we are happy to discuss the details with you!

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The Changing Future of Non-Compete Agreements in Washington

In Washington, many employers use non-compete agreements to protect their businesses.  While Washington courts have always imposed limits on their validity, they are frequently enforced by the courts.  In Olympia, there are two bills currently under consideration that would impose further restrictions on the use of non-competes in Washington.

House Bill 2406 would amend the current statute to specify that non-competes are void and unenforceable against employees who work 1) as a hair designer, barber, manicurist, or esthetician, as defined by statute, 2) as a drywall applicator, 3) as a musician, or 4) in a fast-food establishment.  The House Committee on Labor & Workplace Standards held a public hearing on the proposed bill on February 1, 2016.  The proposed bill received a do pass and the majority report was signed by five members of the committee.  On February 5, 2016, the bill was passed to the Rules Committee for review.

House Bill 2931 is significantly broader and specifies that non-competes are void and unenforceable against employees who are 1) temporary or seasonal employees, or 2) who are terminated without just cause or laid off by action of the employer.  The proposed bill would also consider non-competes involving independent contractors to be unreasonable and void and unenforceable as a matter of law.  Finally, the proposed bill creates a rebuttable presumption that a non-compete is unreasonable, void and unenforceable if its duration is for more than one year or the employee is not an executive employee, as defined by statute.  The House Committee on Labor & Workplace Standards held a public hearing on the proposed bill on February 1, 2016.  The proposed bill received a do pass and the majority report was signed by four members of the committee.  On February 5, 2016, the bill was passed to the Rules Committee for review.

If you have questions about how either of these proposed bills may impact your business, please contact Holmquist & Gardiner, PLLC to discuss further.

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What happens when a tenant doesn’t pay rent?

As landlords in Washington State area well aware, the Landlord-Tenant Act (RCW 59.18 et seq.) and Seattle Just-Cause Eviction Ordinance (SMC 22.206 et seq.) are heavily weighted in favor of tenants’ rights. These laws have created a daunting and oft confusing legal process for landlords to navigate when an eviction becomes necessary. The first step in evicting a tenant is to place the tenant on notice that they are in default of their lease.  The type of default and issues surrounding the tenancy will dictate the type of notice a landlord is required to serve.

The most common notice a landlord will utilize is when the tenant fails to pay rent.  This post will address some of the pitfalls that landlords often fall victim to when serving a 3-Day Notice.

One of the most frequent mistakes our firm sees landlords make is what dollar amounts to include in the 3-Day Notice. Simply put, a landlord should include only the amount of unpaid rent.  Nothing more.  Do not include utilities, unpaid deposits, late fees or other miscellaneous charges; just the unpaid rent should be listed on the 3-Day Notice.

The next step is service of the 3-Day Notice. Ineffective service is perhaps the biggest and most costly mistake we see landlords make. A landlord’s failure to strictly adhere to the guidelines associated with serving a 3-Day Notice can lead to a dismissal of the court eviction, costing extra time, money, and leaving the tenant in the unit.  In order for service of the 3-Day to be considered effective, it is critical to serve the notice according to RCW 59.12.040. We encourage all landlords to become familiar with service requirements. In a nutshell, the 3-Day Notice must be served in one of two ways, however, a landlord must always knock first. If the tenant answers, one copy per each tenant of the 3-Day Notice must be hand-delivered to any person 18+ years of age. If the knock goes unanswered, then again, one copy per each tenant of the 3 Day Notice must be posted in a conspicuous place at the premises AND mailed to the tenant.  When mailing is necessary, one day is added by rule to the tenant’s response time; therefore, a 3-Day Notice in reality becomes a four day notice. Finally, the day after the 3-Day Notice is served is when the clock starts to tick on the tenant’s time to respond by curing the default or by vacating the premises.

In a legal environment that favors tenants’ rights, a good offense is the best defense, and knowledge is power.  Landlords must arm themselves with a working knowledge of the eviction process, both on a county and municipal level.  While the purpose of this and future blogs is to provide a legal overview of the procedural processes involved in evictions, there is no better offense than having an experienced legal team.  Holmquist & Gardiner, PLLC has been assisting both residential and commercial real property landlords for years. If you find yourself in the unfortunate position of dealing with deadbeat tenants, please call our firm at 206-438-9083, and we would be happy to help.

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Seattle’s 61% Minimum Wage – Now What?

On June 2, 2014, after great debate and protracted negotiations among various business and labor representatives throughout the City, the Seattle City Council made history by voting unanimously to pass Mayor Ed Murray’s $15 per hour minimum wage plan. The goal of the plan, according to the Mayor, is to “grow the middle class.”  This new minimum wage will eventually be a sixty one percent (61%) increase over the current state minimum wage of $9.32 per hour (already the highest state minimum wage in the United States), and is a dramatic wage escalation for those affected businesses.

So, what now? If you conduct or own a business in the City of Seattle, you need to know how and when your business will be impacted by this ordinance. The plan is complicated and will be implemented in series of phases over a period of three to seven years, with the first phase starting on April 1, 2015. The implementation of the different phases depends on two factors: the size of your workforce and whether or not you offer benefits. The chart below attempts to illustrate the timeline for the different phases and is included for your reference. Unfortunately, how your business will be impacted cannot be neatly illustrated in a graph, so if you would like to discuss and plan a strategy to minimize the impact this plan may have on your business from a legal perspective, please contact us at 206-438-9083 to set up a consultation.


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Seattle’s Paid Sick and Safety Time Requirements

Starting on September 1, 2012, employees of businesses operating in Seattle began accruing paid sick and paid safe time (PSST), defined as the “same hourly wage that the employee would have earned during the time PSST was taken.”  The new requirements apply to employers with more than four (4) full-time equivalent employees and cover all full and part-time employees, as well as temporary and occasional employees who work more than 240 hours in a calendar year.  Employers must also be aware that these regulations extend to employees who telecommute in Seattle as well as those who stop in Seattle for any purposes related to their employment. Employees working in business employing up to 249 employees accrue 1 hour of PSST for every 40 hours worked; in businesses with 250 or more employees, an hour of PSST is accrued for every 30 hours worked.

In addition to time off to address their own health conditions, employees are entitled to use their accrued time to care for family members with health conditions, as well as “for reasons related to domestic violence, sexual assault, or stalking.”  Relatedly, employees can take up to three (3) consecutive days of PSST without providing any documentation to the employer.  The benefit will continue to accrue even if the business is closed by order.

Employees cannot waive their PSST rights except by collective bargaining agreements.  But, the ordinance has a built-in two-year exemption for new small and medium-sized employers (up to 249 employees) beginning on the date the first employee is hired.  However, it is critical to understand that there are rather onerous record-keeping and notice requirements imposed upon employers.

If you have any questions about this new law and how it may impact your business, please feel free to contact a Holmquist & Gardiner PLLC attorney.

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Interpretation of Indemnity Clauses

A February 2012 Washington State Supreme Court decision, Snohomish County Public Transportation Benefit Area Corp. v. First Group America, Inc., clarified how Washington courts are to interpret indemnification clauses.  The facts of the case are interesting and the ruling provides a tie in to our daily work since indemnification clauses often arise in lease and purchase and sale negotiations.  Specifically, the case addressed the question of whether a party can receive indemnity from another party for its own negligence and described the type of contractual language required to secure indemnity.  These issues come up frequently in leases and often the word “solely” is included or stricken depending on which side of the table you are on.

According to the facts of the case, First America Group (d.b.a. First Transit) and the Snohomish County Public Transportation Benefit Area Corporation (d.b.a. Community Transit) entered into a contract where First Transit agreed to provide bus service on behalf of Community Transit between Snohomish County and parts of King County.  An indemnification clause was included in the contract, which stated that First Transit shall indemnify Community Transit “from any and every claim and risk…and all losses…in connection with the work performed under this contract…except only for those losses resulting solely from the negligence of Community Transit.”

Subsequently, a multiple vehicle accident occurred on I-5.  A driver of a Toyota Corolla braked suddenly which prompted a chain reaction accident.  Essentially, a driver of a Honda Accord (which was the second car behind the Corolla) was unable to stop in time.  The Accord smashed into the car immediately in front of it, and that car rear-ended the Corolla.  As a result, the Corolla was pushed into the adjacent High Occupancy Vehicle lane where it was struck by an oncoming First Transit bus.  Then, a Community Transit bus traveling immediately behind the First Transit bus rear-ended the First Transit bus.  As a result, Community Transit was left with 42 claims for damages.  However, when it sought indemnity on the claims, First Transit refused to pay and the case was argued all the way to the state Supreme Court.  At trial, the parties stipulated that both the driver of the Corolla and the driver of the Community Transit bus were negligent.  The driver of the First Transit bus was not negligent.

The issue in the case was whether the indemnity agreement between the parties “clearly and unequivocally show[ed] the parties’ intent that First Transit would be required to indemnify Community Transit for losses resulting from Community Transit’s own negligence.”  In deciding the case, the Supreme Court applied a general rule of contract interpretation adopted by many other states.  This general rule states that indemnity contracts will not be construed to indemnify a party against losses resulting from its own negligence unless that intention is “expressed in clear and unequivocal terms.”  The Court reasoned that First Transit was required to indemnify Community Transit because the express language of the contract revealed a clear and unequivocal intent to indemnify Community Transit for any amount of negligence unless it was solely negligent.  The opinion states:

“It cannot be said that the parties did not consider the possibility of losses resulting from[Community Transit]’s own negligence or the effect of such negligence.  The language shows that the parties consciously and deliberately considered the question of indemnity in connection with [Community Transit]’s negligence and, having done so, decided to exclude only [Community Transit]’s sole negligence as a trigger.”

This case is important because it shows the need for scrutiny of these clauses in the negotiation process.  If an indemnity clause is not articulated with specificity, a Tenant or Buyer may be inadvertently granting full indemnity to a Landlord or Seller for Landlord or Seller’s own negligence.  Prior to this opinion, there was a variety of case law on point. With this opinion the Court confirms that it will allow this result in commercial settings if the language of the contract shows that it was the clear and unequivocal intent of the parties.

Please call Imants at (206) 438-3851 if you would like to discuss this further.  If nothing else, reading the case should give you some insight into how these indemnification clauses will likely be construed by Washington courts.

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