Working Capital The Real Estate Podcast

Real Estate Negotiations from a Lawyer’s Perspective with Rosa Lupo | EP95

Mar 31, 2022

In This Episode

Rosa Lupo is a partner in the Corporate Commercial Group based in Gowling WLG’s Waterloo Region office. With nearly two decades of experience, Rosa practises in all areas of Corporate Commercial Law with an emphasis on Mergers and Acquisitions, Debt and Equity Financings, Licensing and Distribution Agreements, and Real Estate. As a member of the firm’s Real Estate Group, Rosa has experience in the area of Real Estate law. She has assisted her clients with respect to the development, leasing, purchase and sale of commercial and multi-residential Real Estate projects.  

In this episode we talked about:

 

* Rosa`s Bio & Background

* The Legal Profession

* Top 5 Issues facing Landlords and Tenants in Leasing

* Subleasing vs Assignments 

* Agreements to Agree

* Diversity in Real Estate

* Recommendations to younger people coming into the Commercial Real Estate Space

* Trends and Opportunities Outlook

Useful links:

rosa.lupo@gowlingwlg.com

https://gowlingwlg.com/en/

Transcriptions:

Jesse (0s): Welcome to the working capital real estate podcast. My name is Jesper galley. And on this show, we discuss all things real estate with investors and experts in a variety of industries that impact real estate. Whether you’re looking at your first investment or raising your first fund, join me and let’s build that portfolio one square foot at a time. Ladies and gentlemen, my name’s Jessica galley, and you’re listening to working capital the real estate podcast. My special guest today is Rosa Lupo. Rosa is a partner in the corporate commercial group at gala links with nearly two decades of experience Rosa practices in all areas of corporate commercial law with an emphasis on mergers and acquisitions, debt and equity financing.

 

Rosa is also a member of the real estate group at gatherings. She has experienced in the area of real estate law. She has assisted her clients with respect to the development, leasing purchase and sale of all commercial and multi residential real estate projects. Rosa, how are you?

 

Rosa (55s): I’m good. How are you doing? Just,

 

Jesse (57s): Just happy I got through that. Unscaved your day is your day is going to go in. Well, we’ve got a, a unusually warm weather today in, in March, early March in Toronto.

 

Rosa (1m 10s): Yeah, it’s pretty warm here today too, which I’m a little bit annoyed at, to be honest with you because it didn’t start out warm, which is when I wanted it warm to get outside before my day started. And now that I’m stuck inside working, it’s warm. So

 

Jesse (1m 24s): Yeah, you can have the spring

 

Rosa (1m 25s): In Canada,

 

Jesse (1m 26s): A hundred percent, a hundred percent. Well, thanks so much for coming on. Rosa. Really think that listeners will get a, a lot of good information and value in this episode. I, you know, we we’d like to have on the podcast real estate expert in experts, in different areas of real estate, whether that’s accounting, legal property management. And I think with your background from a legal perspective, it would be great to have this conversation today kind of revolve around aspects of leasing when it comes to commercial properties, as well as talk a little bit about development and you know, how contracts are structured.

 

And basically, you know what we’re thinking, the outlook looks like for real estate transactions in the near to midterm. So we’re going to ask for a bit of a crystal ball there. So before we get started for those that, you know, aren’t familiar with yourself, maybe you could give a little bit of a background as to how you got into the, the wild west of real estate and real estate law.

 

Rosa (2m 24s): Sure. That’d be great. So I have been at gasoline now for over 20 years. I’m what we call a lifer at Galileans I articled at Galileans and then returned as a first-year associate, became a partner in 2008 and am now ahead of our business law department in the Waterloo office and also our Waterloo lead on and our real estate NPG. So, and NPG is national practice group. I should probably clarify that. So, so I’ve been here and I’ve been in the region.

 

I grew up in wealth and I’ve been in the, my whole life. And as far as how I started in law, you know, lots of people give great stories about, I wanted to help people and I wanted to make a difference in the world. And I liked LA law in my teens and I, I got really hooked on that show and I thought, man, that is something I could do. And I’ve probably dated myself now as well saying that I watched LA law in my teens because you may not even know what show that is.

 

Jesse (3m 31s): Yeah. I’m, I’m aware of LA law, but some listeners might not

 

Rosa (3m 34s): Good. Good. So, so I watched that show of religiously and, and enjoyed the energy and, and, and I’ve always liked to argue and I’ve always liked to make a point and I’ve always been a person of great equilibrium. So I can always see the other side, which is a real strength in, in being a lawyer. And so I went to a business school in my undergraduate. I did an honors commerce because I wanted something real to fall back on.

 

And I did that. And then I took two years and I worked for two years at an advertising agency, which has nothing to do with the law. It’s the wild west of business. And I did that in Toronto for a couple of years and then went to law school and also did my MBA at the same time. So I did both programs in three years instead of in four, and then came to Kitchener, Waterloo, looking for a job to article and landed at Gowling WLG.

 

And it had been there ever since.

 

Jesse (4m 41s): So for those that don’t know, it’s one of our largest law firms in, I think probably one largest in Canada for, for the U S listeners, trying to kind of understand, you know, the scope of the scope of the company in terms of, you know, how you came up through the legal profession. Was it something that you jumped into real estate off the hop, or did you start in, in different areas of commercial law and then move into real estate?

 

Rosa (5m 6s): So that’s an interesting question because I didn’t, I started off in the corporate commercial department. I actually went to law school thinking that I wanted to do labor and employment law. And because that’s what I focused in, in my undergrad and on my honors commerce. And I thought that’s what I wanted to do. And I did do it for two years and hated it. So, so didn’t stay in that area and got back into corporate commercial and really had an aptitude for the real estate piece of it.

 

I could just, for me, it was something that made sense. You know, dirt always makes sense. We, we don’t, we don’t, it’s not sexy calling that a, you do dirt law. It’s not as sexy as saying I’m an M and a or securities lawyer, but the reality is, is that it hits every area of law. So every M and a deal that happens, somebody is either only property leasing property, every securities transaction that happens. Some entity within that corporate structure has an interest in land, either as a tenant, a landlord or an owner.

 

And so it actually permeates pretty much every area of law. And I just felt like I had a real aptitude towards that and it, and I kind of fell into it again, I’d love to say I had this big master plan, but I really didn’t. It was a need at the office at the time when I was coming through as an associate, I really enjoyed it. And I remained there.

 

Jesse (6m 35s): That makes sense. So a little bit of a career pivot there. I feel like the labor, the labor lawyers are pretty active over the last two years.

 

Rosa (6m 42s): Yeah. I’m glad I’m not in it. Over the last two years, it has been head spinning over the last few years, for sure. The amount of changes that have come through and the amount of clients that are looking to our labor and employment group at gasoline for answers, because we, you know, everything’s changing on a daily basis, what is the new law? And what’s going on? And new legislation was being passed and new rules and new terms of engagement with employees and our labor and employment group has been extremely busy over the last two years.

 

And their head is spinning. I’m sure at this point with the latest amount of changes with COVID. And so it’s an area I’m glad in right now, especially, but it has been very busy.

 

Jesse (7m 26s): So speaking of head spinning, we thought we’d kick this off with a little bit of a conversation about landlords and tenants and kind of the relationship between those two stakeholders. I think a lot of, a lot of our listeners are investors. And a lot of times we get caught up in the acquisition of deals and, and analyzing it from, you know, the vendor and the purchaser’s point of view, but really the nuts and bolts of our industry is, is lease or lease agreements is the relationship between those stakeholders.

 

So you mentioned that what would be, be able to give us a framework here was top five issues facing landlords and tenants to kind of give us a little bit of a way to navigate this. So maybe I’ll turn it to you. Well, first of all, you know, when you analyze or you’re working with clients from a leasing perspective, you know, what are those things that you’re looking out for, you know, off the hop and you know, whether you’re representing the tenant or the landlord?

 

Rosa (8m 27s): Yeah. The interesting piece about that is that the issues are actually pretty much the top five on both sides. It’s just that they, they see it in a very different way. So the reality is that the issue itself of what the two sides are facing is the same. And it’s the areas that are the highly negotiated areas of a lease. And every commercial lease that we do, and the biggest one is always maintenance and repairs. And so when it comes to maintenance and repairs, the there’s two questions you have to ask.

 

And that’s the other thing that people forget to ask it’s, who’s doing it. And then who’s paying forward because we’re not always the same person and in a commercial lease, there’s all sorts of things to be concerned about. So the landlord wants to make sure that base rent is, is complete profit, right? That repairs and maintenance, all of it is covered from the tenants perspective. They want to make sure that they’re not getting charged to make the landlord’s building pretty for the next tenant.

 

And, and there are things that drive that. So in, in most instances, if the tenant is a smaller tenant of a larger building, then they’ll just pay their proportionate share. And they don’t really have a lot of concerns. They wouldn’t be doing the repairs and the maintenance, it would be the landlord doing it and passing it on in people call it off costs, you know, operating costs, people call it a cam. It’s all the same thing at the end of the day. It’s everything that’s in addition to base rent. And so if you’re a smaller tenant in a larger building, not as much concerned about it, because you know, really what the landlord’s doing is maintaining the building in a reasonable manner.

 

And you’re going to get your proportionate share where it becomes really interesting and contentious is if you’re the sole tenant. So if you’re the sole tenant in an industrial building, or you’re the sole tenant in a distribution center, well, that becomes interesting because now there’s the risk. If you’re the tenant that the landlord doesn’t maybe repair and maintain throughout the term and chooses to do a lot of repairs and maintenance and upgrades at the end of the term, if you’re not renewing, because they would maybe want a shiny new, better building to show to prospective tenants.

 

And if you’re not careful in the lease to deal with things like capital costs, then you could be on the hook as the tenant. And the last couple of years of your lease with these huge expenditures for repairs and maintenance, and you don’t get the benefit of those. And so it’s finding that balance where the landlord wants to maintain their building. They don’t want the tenant to tell them when to do things because they own it, but the tenant has some risk in that and some skin in the game because they’re occupying and it’s finding that balance to maintain it in a prudent manner, but not to overly burdened the tenant with costs that they don’t get the benefits of.

 

And so it is a highly negotiated term.

 

Jesse (11m 29s): So on that kind of demarcation between capital expenditures, which, which would not be downloaded to the tenants as opposed to a cost that that would be normal maintenance. So in, in your additional rent figure, so for instance, a landlord does a new roof say there’s an office building with three tenants. It would be that, that you’re saying depending on how the lease is negotiated, that you want to be careful about. If that is, if the expectation is that that’s going to be downloaded to the tenants proportionately, or if it’s going to be something that the landlord is going to take on, on his or her own.

 

Rosa (12m 6s): Right. Exactly. And, and again, it’s who does it, and then who pays for it? So the landlord is probably going to repair the roof. It’s not going to be up to the tenant to do it, but then how are they expensing it and how are they charging the tenants for it is the question. So if it’s just a repair and the roof is exactly the same, that means that it gets expensed in the year in which you incur it. And all of those costs go to that tenant. If they’re in the last year of their lease, they’re not going to want to pay for a brand new lead group that they don’t get the benefit of for the rest of the term.

 

Jesse (12m 38s): Yeah. I was just laughing there because it just reminded me of first year in accounting where they’re like, is it a repair or replacement? Well, what if it’s this piece? And then this piece, and then this piece, and you’ve got to kind of take a holistic look at what exactly is being done. Okay. So that would be kind of off the, you know, from the outset maintenance and repair, that’s definitely one, we come across all the time and it is something that, that the lawyers, you know, like yourself, they go back and forth on what would, what would be the next one,

 

Rosa (13m 5s): Th the next one’s the assignment, Elise. And again, both parties are equally interested in what’s happening. So from the landlord’s perspective, as you’re aware, when you get a tenant, there’s a lot of work that the landlord puts in to getting this tenant, right. They might have expended costs on leasehold improvements. They might’ve financed the leasehold improvements for the tenant. They’ve, pre-qualified that tenant and probably reviewed financial statements and historical statements to make sure that they can carry the lease because they don’t want to tenants that can’t carry the costs.

 

So they’ve put a lot of energy and time and costs up front for this particular tenant. So they are very lows to have that tenant, then just assign it to somebody else who they don’t know at the same time on the, from the tenants perspective. Again, it’s all a balancing act, but from the tenants perspective, they’re running a business. And if they sell all of their assets, they don’t want the landlord to be able to say, no, you can’t sell your business.

 

Or if they are a large multi-national tenant that has a parent in the U S and they have Canadian operations, the us, parent’s not going to want a local landlord to tell them that they can’t do a reorganization within their corporate structure, or if they are a business and they’re selling their shares because they have an exit strategy. So they’re going to sell their shares. Well, that’s a change control, and that’s usually captured in a lease to say, you can’t do that again, because the landlord has spent all this time to pre-qualify its tenant.

 

And so it’s a balancing act there to kind of reach the right balance where the tenant is not bootstrapped and can do things in their business and not have to be reliant on a landlord and individual landlord at one particular premise consenting or not consenting. But at the same time, recognizing that the landlord has an interest in who has who the tenant is and what they’re doing and what their finances are. So the tenant cannot have carte blanche either to do whatever it wants.

 

So,

 

Jesse (15m 13s): Yeah, go ahead.

 

Rosa (15m 14s): No, I was gonna say, so you gotta, you gotta meet a middle ground there.

 

Jesse (15m 18s): Yeah. I was just going to say one thing we found that was a recurring theme over, especially over the last five to 10 years, is that now that there have been more technology companies, startups in Toronto, a lot of these companies, they don’t have a time horizon of 5, 10, 15 years was trying to get past the next month. And often times we, we kept running into the same problem, usually under the transfers section of the lease saying, well, wait a minute, like, we’re our whole goal here is to sell in five years. So this idea of, and of having them, you know, be able to do so now, is it correct to say that the, the, the quid pro quo for that, or, or the, the compromise for that is potentially staying on covenant or the, or the landlord being the one to determine at their discretion?

 

If the transfer E I think is, is acceptable to them as a, as a tenant.

 

Rosa (16m 8s): So what we try to do is rather than giving just a cart launch like that, to say that they have to be satisfied with the transferee, for the landlord to say, yay or nay, or yes or no, or stand in the way of this deal. We try to put some parameters around it if we’re acting for a tenant. So what we say upfront is if the purchaser is actually an entity that has at least the same value as the existing tenant. So the landlord has the right to find out how much value and how much equity and what the financial statements look like of the purchaser.

 

But if they are as strong, a covenant or greater than the current tenant, you will consent. And so we have that upfront because the other risk from the tenants perspective, although most landlords are not like this, but if you’re in year three of a lease and you’ve negotiated a really good market rent three years ago, and rents have gone up extraordinarily, and there’s high demand, landlords could use the request for consent as a reason to get out of the lease and realist the property to somebody else.

 

And that could actually scupper the tenants deal. If that’s a key location for them, if the purchaser needs that location that could scupper their deal. So the reality is that the tenant has some skin in the game and doesn’t want to lose that. And so that’s why we try to get some parameters upfront to say, this is reasonable, this isn’t. And so you can’t say no. In these instances,

 

Jesse (17m 42s): I remember when I first got into the industry, when somebody explained that portion of it, you know, going to the landlord saying, we want to sublease, or we want to assign, and then they said, okay, you said, you said you wanted to, and then now they have all, all different rights. You know, it always reminded me kind of like kids on the playground say, no, no, no, I was joking. Don’t, you know?

 

Rosa (18m 2s): Yeah. And you’re talking about the provision that actually says, if you come to for consent, they can terminate. And then, and then the tenant gets to say, no, no, forget it. I don’t want that. I don’t want to assign it yet. You know? And the, and the problem is is that if you just asked for a sublease or an assignment, because you didn’t want to be there anymore, you might have the option to say, forget it. I don’t want to assign it. But if you’re actually like a tech startup, and you’re about to sell for a hundred million dollars, are you really gonna like, kill your a hundred million dollar deal? Because a world landlord at one location, you’re not like this, it’s not feasible to say I’ll revoke my request, but you could lose those premises for that rent.

 

Jesse (18m 40s): No, that, that makes sense. Okay. So that’s a assignments. And maybe even before we move to number three, it’s something that comes up. I find with younger people, especially on the brokerage and when they get into the industry, there’s always a confusion as to what we’re talking about in assignments and, and the distinction between that and subleasing or sublets. Could you just touch on, you know, the broadly the difference between the two?

 

Rosa (19m 5s): Yeah. So a sublet is I’m company. A and I occupy these thousand square feet. And now I want actually company B to occupy either a portion or all of the thousands of square feet instead of me. And that’s really a sublet and the landlord absolutely should have the right to consent to a sublet because the reality is, is that they’ve got new people on the premises. They want to check what kind of business they’re running for insurance purposes. Again, they want to know what’s happening for rent and to make sure they have enough money to pay the rent.

 

The difference on a sublet is that company B has no direct relationship with the landlord. Their only relationship is with company aid was the tenant. So company automatically remains on the covenant. As you said earlier, just they remain on the covenant. They are the ones with the lease with the landlord that have the obligations for the rent company, B has an obligation to company eight only not to the landlord directly. The difference on an assignment is that company a, maybe wants to leave the premises and actually have company B come in and to occupy the whole thing.

 

And they’re going to assign the lease. And that actually means that then company B has a direct relationship with the landlord. The other thing that I think most people miss is that in most leases an assignment, although at law, this is not an assignment, but they include language that says, if you change control and you sell your business. So if you sell the shares at company eight, we’re going to say that’s an assignment. And that legally is not an assignment. That’s actually just the change of control.

 

And you can do that without assigning, But most leases by contract scoop that in.

 

Jesse (20m 53s): Yeah. It kind of reminds me of, I was just reading a, kind of a bankruptcy ruling and talking about how prepaid rent a, you know, security deposits and prepaid rent. You have to be very clear, which ones are the tenants and which ones are the landlord where oftentimes, like you said, at law, people write in, no, no, no. It was a security deposit. You know how I know I wrote security deposit and it’s like, well, that’s not, you know, you have to be really clear in these, in these things. And it’s why we have, you know, people like you actually looking at these documents before we have our clients sign. Okay. So,

 

Rosa (21m 22s): Well, it is funny because I would say that in most instances, it’s funny leases are probably one of the least reviewed material contracts that a company will enter into. And I think it’s because they talk about it in terms of the $12 a square foot. And you’re like, wow, it’s $12, right. But if you actually take the $12, $24, depending on what you’re leasing, but if you actually take that and multiply it by the square feet and then multiply it by the five-year term, it’s probably the biggest contract that company will ever sign.

 

And they will often not have it reviewed by lawyers because it looks like $12, but it’s not.

 

Jesse (22m 3s): Yeah, that’s a really good point. I’ve never thought it thought about it that way. Cause it really is. If you take a look at the consideration, you know, and then if you really start putting in, you know, the likelihood of renewing options, these, these contracts are, can get very expensive very quickly, even for small space,

 

Rosa (22m 18s): Right?

 

Jesse (22m 19s): So assignment and subleases maintenance and repairs, number one, assignments and subleases or assignments number two, what, what it takes to the third spot.

 

Rosa (22m 28s): Well, the other, the third one, for sure. It’s funny. Cause we just talked about that as damage and destruction. So again, in most contracts, you’re not worried about fire and water damage and floods and all of those occurrences, you don’t deal with that. But because a lease is a dealing with physical premises and B over a term, as you say, it’s, you know, your typical terms five years plus a five-year renewal, lots of leases are much longer than that, even. So over that time, you gotta think things can go bad, right?

 

So something’s going to happen. And so the damage and destruction is a key provision. And so from the landlord’s perspective, if they have a building that is occupied by many tenants, they do not want you to touch that section when you come to negotiating the lease because they don’t want to have to rebuild for this tenant, but not rebuild for that tenant. And it has to be the same across the building, because if there’s a fire, pretty much everybody in the building is going to be affected in one way or another.

 

Or if there’s a flood, pretty much everybody’s going to be affected. So they don’t want to have different obligations for different tenants. So if you are a small tenant in a larger building, you’re pretty much not going to be able to negotiate that section, then what you do to cover because you go to your insurer and make sure they have business interruption insurance for as long as what’s in your lease that says, you’re going to give the landlord this long to rebuild because you won’t have those premises, but you will still have the obligation under the lease to continue to pay rent and to go back when it is rebuilt.

 

So you got to make sure that you have insurance coverage for your rental amount.

 

Jesse (24m 8s): It

 

Rosa (24m 8s): Changes, oh, sorry.

 

Jesse (24m 9s): Just a quick question on that. So would that be kind of the umbrella, be careful to say the word umbrella regarding insurance, but we, for a long time in Toronto, $2 million liability insurance was our recommendation to tenants. Now I think table stakes are 5 million for the most part that would cover the, this type of interruption that you’re describing.

 

Rosa (24m 28s): Yeah. So business interruption insurance is usually different than your liability, which is what you’re talking about, which is like slip and falls and things happening. I think it might be covered under the actual general liability, but it is its own its own a line item. And you, you have to read the fine lines because you have to figure out how long are you covered for and how many months of rent in case there is damage.

 

Jesse (24m 52s): Got it.

 

Rosa (24m 53s): Yeah. And so if you are though the sole tenant in a building in a, in a distribution center again or in an industrial law and you’re the sole tenant, well now you might have some more negotiating power to, to actually do something that’s bespoke between you and the landlord. And in that instance, it’s very important for us tenants that the landlord is obligated to rebuild, especially if this is your sole premises and you can’t move to anything else. So you want to make sure that there is very good language for you to say that the landlord real will rebuild the building.

 

So you have somewhere to go. You may, you you’ll have to find swing space at some sport at some point and find somewhere to be in the meantime, but you want to be able to go back if it’s your sole place. And so in that instance, the tenant might have more negotiating ability to actually have some damage and destruction provision that works for them.

 

Jesse (25m 49s): Okay. And that is not a bar in Toronto swing spaces. Other space you utilize at the time.

 

Rosa (25m 55s): Yes. Well not a bar.

 

Jesse (25m 58s): Okay.

 

Rosa (25m 59s): Yeah, for sure.

 

Jesse (26m 1s): So, okay. So that, that makes sense. And so what would be next? Rosa? What do we, what do we have for number four?

 

Rosa (26m 8s): I think environmental and you know, and I’m, I’m clearly this is not an office building, right? Cause that, that generally doesn’t have a lot of risks. But when you start talking about distribution centers or you started talking about industrial environmental is a big deal and it is a heavily negotiated provision. And, and what the landlord wants from their perspective is they may not be at that building on daily basis, right. You’re running your operations, but they’re an owner. So they have some risks.

 

Vis-a-vis the Moe, if there’s contamination. So they want to be made whole, they want to know that you as tenant are going to clean up whatever shows up on that property or look after it. The flip side to that from the tennis perspective is there’s all sorts of reasons. There could be contamination there and it may not be at their fault. So there may be preexisting examined a contamination on the premises. It may have migrated from adjoining lands. And so they want to make sure that they don’t have an obligation to actually clean up, unless it’s something they did against what the rules are and how they run their business.

 

So if they’re doing everything they need to versus the Moe and handling their hazardous materials correctly, in accordance with guidelines, they don’t want to be on the hook for something that migrated from an adjoining property owner or from something that pre-existed, and the way you get there on the preexisting is if it’s an industrial or a distribution center as a tenant, you should do an environmental test. You should do a phase one or phase two before you commenced. So you have a bright line test of what did preexist and what you caused post, because if it’s discovered that there’s gas under underground and that’s at year three of your lease, how do you know from when it was there?

 

And so you need that bright line test and, and then you usually try to carve out anything in the lease that migrates from adjoining lands that you didn’t actually, cause if you caused it, you’re on book and you’ve got accept that liability as tenant. And I don’t mean you in the instance of just the tenant, it’s anybody they’re responsible for their invitees. If somebody comes on, that’s delivering stuff and spills, that’s still the tenant’s fault. So that’s okay. What you’re trying to alleviate as all these other liability issues.

 

Jesse (28m 32s): I would say this is an interesting one in the sense that when I’m typically drafting offers to lease or letters of intent, there’s some clearly there’s key points. There’s term there’s rent. Environmental is probably the one I find that is not translated from often, oftentimes not even there in the offer to lease that is expounded on and debated much more in the, in the lease stage. And that, I mean, part of that is probably the fact that, you know, we’re not the subject matter experts on that, but it’s a good point because, you know, I’m sure there are certain states have their provisions.

 

I’m not a hundred percent sure on different provinces, but USTs are underground storage tanks. For instance, there, you know, we have by law, you have to take those out of the ground. If, if you find them, would this be a, also an example though, of how business terms can kind of crowd out legal, legal recommendations in the sense that in a hot market, I could only imagine like industrial right now where you have Mr. Landlord is, is the request of the tenant is to do this phase phase one or phase two, but he or she has multiple other tenants and maybe he doesn’t want to go down that, that kind of rabbit hole for lack of a better.

 

Rosa (29m 42s): Yeah, for sure. And it’s interesting you say that because I think all of my top five are not covered in the offer abilities. Right. For sure. And, and, and it slows things down when you get to the negotiations and, and I think the parties for sure, in today’s market, that’s so hot and everybody’s moving so fast and then you start humming and Hine about who caused the environmental contamination and, and everybody’s annoying. And, and we feel that as the lawyers and, and all we can do is advise our clients right.

 

And give them the advice and warn them. My hope is that in year four, when something happens on the environmental, they hear my words and say, oh, she was right. But, but the likelihood, the reality is is that probably a 90% of the instances, there’s not going to be any contamination and it’s going to be okay. Right. But that’s not what we guard against. And not when we negotiate contracts, it’s not the 90%, the 10,

 

Jesse (30m 40s): Yeah. It’s those low probability high impact or high risk aspects. I will say this though, Rosa, I am, I am a good boy most of the time. And at the very least like assignments and subleases, those are absolutely in our, in our letters of intent or offers to Lisa at this point, because it is something that materially impacts the deal. If they start negotiating after, and, and the two parties had different views of, of what they think should be the case. Okay. So that’s environmental. So what do, what do we cap off with?

 

I think that’s, this is number five.

 

Rosa (31m 12s): Yeah. So I think this one’s kind of about bacon space and how it, and two things that it affects. So when there’s vacancies, which there are not a lot of right now. So I’m talking back from my history of my, of my, my career when there was vacancies and, and people used to apply to get real estate tax breaks for vacancies and properties. We don’t see that anymore because there aren’t any, but for sure when there’s vacancies, there’s a couple of things to be careful of.

 

So the landlord, again, wants to be made whole on the building, whether there’s vacancies or not. And so when we’re talking about proportionate share in a, lease the tenant at the same time, doesn’t want to suddenly have their proportionate share increased because they’ve got to pay for vacancies. And so the way that common area costs and operating costs work when you’re one tenant with several tenants in a building, is that there’s this concept of proportionate share. And it’s calculated by saying the number of square feet of your space on the numerator and the number of square feet, square feet of the total building on, on the denominator.

 

And that’s your percentage of those costs. There is often language that creeps into leases that says if there’s a vacancy, every other tenant that is occupying will bump up their proportionate, share by a certain amount to cover those vacancies and tenants don’t realize that that’s what’s in there. And then they’re usually surprised during the term. And so it’s just being aware of that and knowing that and knowing what kind of building you’re going into. The one that is always gets me though, is that I have had some tenants when I point this out to them and we start talking about it, but then say, but you know, maybe it’s a strip mall and it was six years ago.

 

And they say, well, but there’s four stores that are empty there. And it’s like, okay, but you’re, you’re paying that now. So you’re, you’re paying that from day one, you’re paying for those vacant spaces. So that’s it, you know, when they go into it with open eyes, they understand that

 

Jesse (33m 15s): It’s funny, you bring this up. This was probably when I first started in brokerage, probably one of the most confusing aspects of explaining things to your clients. And it was kind of one of those jokes where we don’t tell clients, or we try not to explain rates in terms of net effective rates. And it doesn’t really matter for listeners. You know what? You can look that up what that is, but you get down a rabbit hole of getting into the minutia, the deal with this one, correct me if I’m wrong, we often see it as gross up that you gross up the building. And a lot of times the closet you’ll see, you know, assuming that even if it’s 50% vacant, we assume 99% or 95% or a hundred percent occupied.

 

And that, yeah, that was one where, oh, man, I needed people like you to kind of walk me through it. Because from a, just kind of a layperson’s perspective, when we have clients, they, they were from a fairness point of view. They’re like, no, that doesn’t make sense. Why am I, why am I paying if it’s half full?

 

Rosa (34m 10s): Right. Right. And, and, but from the landlord’s perspective, they want to make sure that the hallways and the reception area and the elevator banks, that all of that maintenance is being paid for no matter how many tenants are there, the building, because even if there aren’t even if all the building is in full, you know, you think your typical office building where you walk into reception, you use the elevator banks, you go up to four or five, there’s 10 floors. Let’s say only half of the building, even though you’re only using half of the building, you’re using all of that area, that half that’s there, right?

 

Like that’s the flip side to that story. And they have to pay to maintain the lights on the heat, on fixing the elevators, cleaning it, all of that for that elevator bank, the HVAC that runs the whole building, the reception area, they have to pay for all that. So that’s the flip side story to that, right? Yeah.

 

Jesse (35m 2s): I used to always use just because to me, the, the most non-variable cost was security cameras. So I used to always explain it from that point of view that, you know, whether it’s one, 10 at 10 tenants, five tenants that you’re going to have to have the, the building monitored for security and just cause you know, a couple of tenants leave doesn’t mean you shut off half of the cameras, but, but all those other ones are a hundred percent. That makes sense. Yeah. I do have a question. So th so those are the five, I think it’s a great framework for people that don’t think about this as often, or even, you know, people like myself that do work with us on a day-to-day basis.

 

What I, what I’m curious to talk about, just it touches all of these things. And it was something that I realized pretty early in my career that we are oftentimes as brokers, we’re given kind of this leeway or latitude to write offers and write letters of intent, oftentimes maybe without knowing, binding making your, your client bound to a deal. And I think there’s some best practices when it comes to making sure that if you’re negotiating a non-binding LOI, make sure that’s, you know, indicated and is, and is clear because oftentimes early in my career, or even, you know, with younger individuals, I would see that they would take this off or at least give it to the lawyer.

 

And the lawyer would be like, well, I’m hamstrung here on a lot of things. So I’m just curious what your thoughts are on, on the process. And, and when our clients should be thinking about legal or engaging legal.

 

Rosa (36m 29s): So I think two things, the, the legal doesn’t have to get too, too involved in the offer to lease there’s two key areas where they can offer some value. And the reality is is that you, as the realtors are the best people to do that offered a lease because I don’t have comparables for other space. I don’t have the market knowledge about, you know, what is rent for this type of building? What else is available in the area?

 

I don’t, I don’t have access to that. So you’re the best one to do that, to hammer out those business terms, the piece that the lawyers have to make sure they’re happy with is aid it, make it a hundred percent clear that it is non-binding because my problem with most offers to lease and especially the urea commercial offer to lease it, actually doesn’t say it’s non-binding right. Actually it doesn’t say that it says offer to lease. And the fact that you use the term offer does not inherently make it binding.

 

You have to say, it’s, non-binding what the landlord doesn’t want is they don’t want the tenant to then in the lease to renegotiate those business terms. And that’s a fair ask. So you can be very clear to say the offer is nonbinding, but neither party will renegotiate the business terms that are clearly here. Because as we said, a lot of the terms that I mentioned as the top five are not in your offered. At least it only comes up in the lease context. And so you can meet that middle ground by having that language.

 

And then the other piece that’s key from the tenants perspective is for example, on the urea offered, at least the provision that talks about delivering the lease actually says it will be the landlord standard form. And so that leaves the tenant, no room to negotiate. All of these things that we just talked about today that are not in the offer to lease, you have to actually sign it in the landlord’s standard form. So one little tweak to that section, which is it will be in the landlord standard form was such reasonable amendments as requested by the tenant.

 

It’s all you need in order to give you enough room to negotiate these other trucks.

 

Jesse (38m 42s): Yeah. And then that makes a lot of sense. And I guess the, the, so for those that don’t, aren’t aware of Maria Ontario, real estate association, you know, every state and province has some version of this, or I think every, every one does, we oftentimes don’t use those. I find commercial, especially office leasing. You know, we talked to folks like yourself that try to inform our boiler plate, but then, you know, just for that, but from a, from a kind of legal philosophical point of view, I’m always curious of lawyers views on the agreement to agree, because like you said, we’re taking a document that’s five, maybe even less pages long, turning it into document that’s could be 60, 7,000 pages.

 

So from that perspective, you know, what is the reasonable test? You know, when you have these terms agreed to, but like you said, a lot of these are not even covered in the offer. So there has to be some good faith happening one once you are at the least stage, even though you, you know, you technically agreed that you would agree.

 

Rosa (39m 45s): Yeah. And so I think there’s a, there’s always in every negotiation, there’s a duty to negotiate in good faith at law for both parties. So you have to be fair in your negotiation from the lawyer’s present perspective, whether it’s a lease, whether it’s an M and a transaction, when there’s an non-binding LOI signed, we do tell our clients because it is very true that if something’s written in black and white in that LOI man, we are going to have a tough time to negotiate it differently in the definitive agreement, in the final lease, share, purchase agreement, whatever that is.

 

If you’ve said, you know, the rent, the base rent is this per square foot, there is no way I’m going to be able to successfully negotiate it at a different grant. Right? So if you’ve said in there that you’re going to pay common area costs and cover, you know, landscape, garbage removal cleaning, and those things are listed. I’m going to have a really tough time in the lease. Even if, even though that original agreement is not binding to get those out. So whatever’s covered in black and white, you know, we’re, we’re going to respect the deal that the two parties struck at the offer letter and maintain it in the final agreement, the rest of the terms that are not covered, because you can’t, you can’t cover it all or else you’d be just jumping to the final agreement.

 

Those everybody’s just going to negotiate in good faith and be reasonable. And I think that’s the way it goes. And, and, and the reality is I think most tenants and their lawyers understand that this is the landlord’s building, right. And they have lots of tenants in there, and this is they’re the owner. And so you have to be reasonable with how you’re negotiating those terms.

 

Jesse (41m 29s): Yeah. That makes sense. And it kind of just reminds me of like, there’s this fallacy of a complete contract. You’ll never completely be able to think of everything and, you know, nobody would approach it that way. Just take, take too long and cost too much. I’ve noticed we’re, we’re coming up to, to the time here, but before, and Rosa, we definitely have to get you on again, maybe in six to eight months from now, because there’s just, there’s so much interesting stuff that we could come, that we could discuss from a legal perspective. I did want to touch before we, before we end two things, I wanted to talk a little bit about your outlook given, you know, the last two years, you know, where you see certain trends going.

 

So we talked a little bit from the outset crystal ball, but before we do, it’s something that, you know, comes up in our industry. There has been more of an emphasis, I think, in all industries on diversity, on having representation of different groups, whether that’s, you know, gender color, creed, and one thing we’ve noticed, or I’ve noticed in commercial real estate, as opposed to residential real estate, is that we have been slower to adapt, to having more females come into our world.

 

I assume real estate law would probably look fairly similar. So I thought, you know, you could kind of give me your perspective on, you know, how that has been an impact if it has on your career and maybe what you would recommend to younger people coming up and looking at commercial real estate or real estate law is a viable option.

 

Rosa (42m 59s): Yeah, I think for sure, I think every place has recognizing the benefits of diversity, equity and inclusion for sure. And, and, and the benefits to the bottom line and not just because it’s the right thing to do, but it is the right thing to do. And for sure, I think it is difficult in real estate to kind of break down those barriers. It has been traditionally a white male dominated industry. I have clients though that are in the construction industry and it’s a completely woman-run construction industry.

 

So we’re coming, we’re, we’re definitely coming. And, and, and so I think it’s, it’s definitely something that Galileans is very cognizant of. We have a very strong focus on DEI in our firm. We have a DEI manager that runs everything that runs that part and, and it’s, and it has become a key in our strategic planning to make sure that there is diversity and equity inclusion in every office at every level.

 

Law is not that much different from other areas. We might be even a little slower than some other areas of getting there. We do every, at every level in a law firm, you know, articling student associate partner at every level in a law firm, we lose a few women, we lose a little bit of diversity and that that’s a shame and we have to do better. And we are definitely trying to do better. I think on, and I, I can’t speak as much to other enumerated grounds of diversity, but on the, on the woman’s side of thing, I think, I think my advice to people would be to marry well, isn’t that an awful piece, but that sounds old school, but it really is.

 

I think, I think the reality is your career as part of your life. And you need a life partner that’s going to bolster your career. And I think for a lot, and that’s true for every sex as true for men. That’s true for women. That’s true for those who identify as men and those who identify as women, it’s true for them. And you need a life partner that’s going to bolster your career. The problem is that historically men haven’t seen that as the role and that’s the problem. And so I think when people are finding life partners is finding one, who’s going to, who’s going to maybe take a back seat in their career and allow yours to shine.

 

Jesse (45m 24s): So we need you to draft a marriage letter of intent.

 

Rosa (45m 27s): Yeah, exactly. Exactly. You shout. So, yeah, I think that, I think that’s definitely something that, because the reality is at the end of the day, no matter how much you want to do, there’s 24 hours in a day. And so you have to figure out how you’re going to split that day. And if you can’t, if you can’t focus enough on the job and on the career piece of it and dedicate enough time to make that successful, then it won’t be successful. And so you need somebody who’s going to focus on the other aspects of your life to allow you to focus on that.

 

Jesse (46m 3s): That makes complete sense. All right. So Rosa, crystal ball for us, you know, are there trends that you’re seeing opportunities or things that you’re excited about? You know, what, what does the world look like from your vantage point? Like, like we said, at the beginning in the, the short to mid term?

 

Rosa (46m 21s): Well, I think, I think there’s going to be lots of people out with their backhoes building distribution and industrial centers, seeing the rents and how that’s gone. Absolutely crazy in that, that market space. I think it’s like three fold over the last two years, right. Is where rents are going to, so I think you’re going to see lots of landlords trying to focus on that and COVID has done wonders for that industry because everybody’s home cooking and getting things delivered just Yeah, for sure.

 

And it’s changed how we all shop and how we all are consumers and how we consume things. And so I think that area is going to see a huge growth. I am an optimist and I do not think that the office industry is going to be decimated. I think that the commercial office is still, it might shrink a bit. I kind of feel like it might shrink a bit because everybody’s feeling pretty good about working from home. And everybody feels like that’s going to be a small part of their life, but I do think people want to get back to the office.

 

I mean, I do, I want to get back to the office on a regular basis. I want to start seeing my colleagues again on a regular basis. And as much as we think it’s a cost savings by having everybody, not at an office and paying that rent for office space, I think it’s going to be a cost in the end because I think you’re not going to have that cohesiveness amongst teams. You’re not going to have that idea generation amongst teams. You’re not going to have a culture.

 

How can you have a culture if you never see each other? And so, and those are all key, important things. And especially for this next generation of feeling connected to something they want to be somewhere. I don’t think they want to be in their living rooms. I’m done being in my living room. I don’t know about everybody else, but I’m done being in my living room. I don’t want to, I want to be somewhere. And so I don’t think the office space is going to be as decimated as people thought at the beginning of COVID.

 

Jesse (48m 25s): Yeah. I think it’s definitely something where we’re seeing a change. There was this, there was, I think I talked to a lot of people about the office, obviously for what I do and what I tell people outside of our industry, that this was a, this was a secular trend, a secular trend that preexisted COVID office was changing. It was evolving. This kind of pushed, put it into high gear, but I do think it’s in cities like Toronto, it’s a huge benefit because we were too far. The other side, it was way in favor of the landlords for a long time with vacant vacant space being at one, two, 3%.

 

So I think it’s in the long run. It’s going to be a positive trend, but that’s cause I’m like you, I’m an eternal optimist. Rosa. If people want to kind of connect with you, reach out, you know, or even engage with you on the real estate front, where it’d be the best place to, to send them to.

 

Rosa (49m 19s): I am available by email all the time. And if so, my email address is Rosa doc equal Gowling wlg.com. Or if you want to go to the website and connect with me that way, it’s www.gowlingwlg.com.

 

Jesse (49m 35s): My guest today has been Rosa Lupo. Rosa, thank you for being part of working capital. Thank you so much for listening to working capital the real estate podcast. I’m your host, Jesse for galley. If you liked the episode, head on to iTunes and leave us a five star review and share on social media, it really helps us out. If you have any questions, feel free to reach out to me on Instagram, Jesse for galley, F R a G a L E, have a good one take care.

 

Transcript

ions:

Jesse (0s): Welcome to the working capital real estate podcast. My name is Jesper galley. And on this show, we discuss all things real estate with investors and experts in a variety of industries that impact real estate. Whether you're looking at your first investment or raising your first fund, join me and let's build that portfolio one square foot at a time. Ladies and gentlemen, my name's Jessica galley, and you're listening to working capital the real estate podcast. My special guest today is Rosa Lupo. Rosa is a partner in the corporate commercial group at gala links with nearly two decades of experience Rosa practices in all areas of corporate commercial law with an emphasis on mergers and acquisitions, debt and equity financing.

 

Rosa is also a member of the real estate group at gatherings. She has experienced in the area of real estate law. She has assisted her clients with respect to the development, leasing purchase and sale of all commercial and multi residential real estate projects. Rosa, how are you?

 

Rosa (55s): I'm good. How are you doing? Just,

 

Jesse (57s): Just happy I got through that. Unscaved your day is your day is going to go in. Well, we've got a, a unusually warm weather today in, in March, early March in Toronto.

 

Rosa (1m 10s): Yeah, it's pretty warm here today too, which I'm a little bit annoyed at, to be honest with you because it didn't start out warm, which is when I wanted it warm to get outside before my day started. And now that I'm stuck inside working, it's warm. So

 

Jesse (1m 24s): Yeah, you can have the spring

 

Rosa (1m 25s): In Canada,

 

Jesse (1m 26s): A hundred percent, a hundred percent. Well, thanks so much for coming on. Rosa. Really think that listeners will get a, a lot of good information and value in this episode. I, you know, we we'd like to have on the podcast real estate expert in experts, in different areas of real estate, whether that's accounting, legal property management. And I think with your background from a legal perspective, it would be great to have this conversation today kind of revolve around aspects of leasing when it comes to commercial properties, as well as talk a little bit about development and you know, how contracts are structured.

 

And basically, you know what we're thinking, the outlook looks like for real estate transactions in the near to midterm. So we're going to ask for a bit of a crystal ball there. So before we get started for those that, you know, aren't familiar with yourself, maybe you could give a little bit of a background as to how you got into the, the wild west of real estate and real estate law.

 

Rosa (2m 24s): Sure. That'd be great. So I have been at gasoline now for over 20 years. I'm what we call a lifer at Galileans I articled at Galileans and then returned as a first-year associate, became a partner in 2008 and am now ahead of our business law department in the Waterloo office and also our Waterloo lead on and our real estate NPG. So, and NPG is national practice group. I should probably clarify that. So, so I've been here and I've been in the region.

 

I grew up in wealth and I've been in the, my whole life. And as far as how I started in law, you know, lots of people give great stories about, I wanted to help people and I wanted to make a difference in the world. And I liked LA law in my teens and I, I got really hooked on that show and I thought, man, that is something I could do. And I've probably dated myself now as well saying that I watched LA law in my teens because you may not even know what show that is.

 

Jesse (3m 31s): Yeah. I'm, I'm aware of LA law, but some listeners might not

 

Rosa (3m 34s): Good. Good. So, so I watched that show of religiously and, and enjoyed the energy and, and, and I've always liked to argue and I've always liked to make a point and I've always been a person of great equilibrium. So I can always see the other side, which is a real strength in, in being a lawyer. And so I went to a business school in my undergraduate. I did an honors commerce because I wanted something real to fall back on.

 

And I did that. And then I took two years and I worked for two years at an advertising agency, which has nothing to do with the law. It's the wild west of business. And I did that in Toronto for a couple of years and then went to law school and also did my MBA at the same time. So I did both programs in three years instead of in four, and then came to Kitchener, Waterloo, looking for a job to article and landed at Gowling WLG.

 

And it had been there ever since.

 

Jesse (4m 41s): So for those that don't know, it's one of our largest law firms in, I think probably one largest in Canada for, for the U S listeners, trying to kind of understand, you know, the scope of the scope of the company in terms of, you know, how you came up through the legal profession. Was it something that you jumped into real estate off the hop, or did you start in, in different areas of commercial law and then move into real estate?

 

Rosa (5m 6s): So that's an interesting question because I didn't, I started off in the corporate commercial department. I actually went to law school thinking that I wanted to do labor and employment law. And because that's what I focused in, in my undergrad and on my honors commerce. And I thought that's what I wanted to do. And I did do it for two years and hated it. So, so didn't stay in that area and got back into corporate commercial and really had an aptitude for the real estate piece of it.

 

I could just, for me, it was something that made sense. You know, dirt always makes sense. We, we don't, we don't, it's not sexy calling that a, you do dirt law. It's not as sexy as saying I'm an M and a or securities lawyer, but the reality is, is that it hits every area of law. So every M and a deal that happens, somebody is either only property leasing property, every securities transaction that happens. Some entity within that corporate structure has an interest in land, either as a tenant, a landlord or an owner.

 

And so it actually permeates pretty much every area of law. And I just felt like I had a real aptitude towards that and it, and I kind of fell into it again, I'd love to say I had this big master plan, but I really didn't. It was a need at the office at the time when I was coming through as an associate, I really enjoyed it. And I remained there.

 

Jesse (6m 35s): That makes sense. So a little bit of a career pivot there. I feel like the labor, the labor lawyers are pretty active over the last two years.

 

Rosa (6m 42s): Yeah. I'm glad I'm not in it. Over the last two years, it has been head spinning over the last few years, for sure. The amount of changes that have come through and the amount of clients that are looking to our labor and employment group at gasoline for answers, because we, you know, everything's changing on a daily basis, what is the new law? And what's going on? And new legislation was being passed and new rules and new terms of engagement with employees and our labor and employment group has been extremely busy over the last two years.

 

And their head is spinning. I'm sure at this point with the latest amount of changes with COVID. And so it's an area I'm glad in right now, especially, but it has been very busy.

 

Jesse (7m 26s): So speaking of head spinning, we thought we'd kick this off with a little bit of a conversation about landlords and tenants and kind of the relationship between those two stakeholders. I think a lot of, a lot of our listeners are investors. And a lot of times we get caught up in the acquisition of deals and, and analyzing it from, you know, the vendor and the purchaser's point of view, but really the nuts and bolts of our industry is, is lease or lease agreements is the relationship between those stakeholders.

 

So you mentioned that what would be, be able to give us a framework here was top five issues facing landlords and tenants to kind of give us a little bit of a way to navigate this. So maybe I'll turn it to you. Well, first of all, you know, when you analyze or you're working with clients from a leasing perspective, you know, what are those things that you're looking out for, you know, off the hop and you know, whether you're representing the tenant or the landlord?

 

Rosa (8m 27s): Yeah. The interesting piece about that is that the issues are actually pretty much the top five on both sides. It's just that they, they see it in a very different way. So the reality is that the issue itself of what the two sides are facing is the same. And it's the areas that are the highly negotiated areas of a lease. And every commercial lease that we do, and the biggest one is always maintenance and repairs. And so when it comes to maintenance and repairs, the there's two questions you have to ask.

 

And that's the other thing that people forget to ask it's, who's doing it. And then who's paying forward because we're not always the same person and in a commercial lease, there's all sorts of things to be concerned about. So the landlord wants to make sure that base rent is, is complete profit, right? That repairs and maintenance, all of it is covered from the tenants perspective. They want to make sure that they're not getting charged to make the landlord's building pretty for the next tenant.

 

And, and there are things that drive that. So in, in most instances, if the tenant is a smaller tenant of a larger building, then they'll just pay their proportionate share. And they don't really have a lot of concerns. They wouldn't be doing the repairs and the maintenance, it would be the landlord doing it and passing it on in people call it off costs, you know, operating costs, people call it a cam. It's all the same thing at the end of the day. It's everything that's in addition to base rent. And so if you're a smaller tenant in a larger building, not as much concerned about it, because you know, really what the landlord's doing is maintaining the building in a reasonable manner.

 

And you're going to get your proportionate share where it becomes really interesting and contentious is if you're the sole tenant. So if you're the sole tenant in an industrial building, or you're the sole tenant in a distribution center, well, that becomes interesting because now there's the risk. If you're the tenant that the landlord doesn't maybe repair and maintain throughout the term and chooses to do a lot of repairs and maintenance and upgrades at the end of the term, if you're not renewing, because they would maybe want a shiny new, better building to show to prospective tenants.

 

And if you're not careful in the lease to deal with things like capital costs, then you could be on the hook as the tenant. And the last couple of years of your lease with these huge expenditures for repairs and maintenance, and you don't get the benefit of those. And so it's finding that balance where the landlord wants to maintain their building. They don't want the tenant to tell them when to do things because they own it, but the tenant has some risk in that and some skin in the game because they're occupying and it's finding that balance to maintain it in a prudent manner, but not to overly burdened the tenant with costs that they don't get the benefits of.

 

And so it is a highly negotiated term.

 

Jesse (11m 29s): So on that kind of demarcation between capital expenditures, which, which would not be downloaded to the tenants as opposed to a cost that that would be normal maintenance. So in, in your additional rent figure, so for instance, a landlord does a new roof say there's an office building with three tenants. It would be that, that you're saying depending on how the lease is negotiated, that you want to be careful about. If that is, if the expectation is that that's going to be downloaded to the tenants proportionately, or if it's going to be something that the landlord is going to take on, on his or her own.

 

Rosa (12m 6s): Right. Exactly. And, and again, it's who does it, and then who pays for it? So the landlord is probably going to repair the roof. It's not going to be up to the tenant to do it, but then how are they expensing it and how are they charging the tenants for it is the question. So if it's just a repair and the roof is exactly the same, that means that it gets expensed in the year in which you incur it. And all of those costs go to that tenant. If they're in the last year of their lease, they're not going to want to pay for a brand new lead group that they don't get the benefit of for the rest of the term.

 

Jesse (12m 38s): Yeah. I was just laughing there because it just reminded me of first year in accounting where they're like, is it a repair or replacement? Well, what if it's this piece? And then this piece, and then this piece, and you've got to kind of take a holistic look at what exactly is being done. Okay. So that would be kind of off the, you know, from the outset maintenance and repair, that's definitely one, we come across all the time and it is something that, that the lawyers, you know, like yourself, they go back and forth on what would, what would be the next one,

 

Rosa (13m 5s): Th the next one's the assignment, Elise. And again, both parties are equally interested in what's happening. So from the landlord's perspective, as you're aware, when you get a tenant, there's a lot of work that the landlord puts in to getting this tenant, right. They might have expended costs on leasehold improvements. They might've financed the leasehold improvements for the tenant. They've, pre-qualified that tenant and probably reviewed financial statements and historical statements to make sure that they can carry the lease because they don't want to tenants that can't carry the costs.

 

So they've put a lot of energy and time and costs up front for this particular tenant. So they are very lows to have that tenant, then just assign it to somebody else who they don't know at the same time on the, from the tenants perspective. Again, it's all a balancing act, but from the tenants perspective, they're running a business. And if they sell all of their assets, they don't want the landlord to be able to say, no, you can't sell your business.

 

Or if they are a large multi-national tenant that has a parent in the U S and they have Canadian operations, the us, parent's not going to want a local landlord to tell them that they can't do a reorganization within their corporate structure, or if they are a business and they're selling their shares because they have an exit strategy. So they're going to sell their shares. Well, that's a change control, and that's usually captured in a lease to say, you can't do that again, because the landlord has spent all this time to pre-qualify its tenant.

 

And so it's a balancing act there to kind of reach the right balance where the tenant is not bootstrapped and can do things in their business and not have to be reliant on a landlord and individual landlord at one particular premise consenting or not consenting. But at the same time, recognizing that the landlord has an interest in who has who the tenant is and what they're doing and what their finances are. So the tenant cannot have carte blanche either to do whatever it wants.

 

So,

 

Jesse (15m 13s): Yeah, go ahead.

 

Rosa (15m 14s): No, I was gonna say, so you gotta, you gotta meet a middle ground there.

 

Jesse (15m 18s): Yeah. I was just going to say one thing we found that was a recurring theme over, especially over the last five to 10 years, is that now that there have been more technology companies, startups in Toronto, a lot of these companies, they don't have a time horizon of 5, 10, 15 years was trying to get past the next month. And often times we, we kept running into the same problem, usually under the transfers section of the lease saying, well, wait a minute, like, we're our whole goal here is to sell in five years. So this idea of, and of having them, you know, be able to do so now, is it correct to say that the, the, the quid pro quo for that, or, or the, the compromise for that is potentially staying on covenant or the, or the landlord being the one to determine at their discretion?

 

If the transfer E I think is, is acceptable to them as a, as a tenant.

 

Rosa (16m 8s): So what we try to do is rather than giving just a cart launch like that, to say that they have to be satisfied with the transferee, for the landlord to say, yay or nay, or yes or no, or stand in the way of this deal. We try to put some parameters around it if we're acting for a tenant. So what we say upfront is if the purchaser is actually an entity that has at least the same value as the existing tenant. So the landlord has the right to find out how much value and how much equity and what the financial statements look like of the purchaser.

 

But if they are as strong, a covenant or greater than the current tenant, you will consent. And so we have that upfront because the other risk from the tenants perspective, although most landlords are not like this, but if you're in year three of a lease and you've negotiated a really good market rent three years ago, and rents have gone up extraordinarily, and there's high demand, landlords could use the request for consent as a reason to get out of the lease and realist the property to somebody else.

 

And that could actually scupper the tenants deal. If that's a key location for them, if the purchaser needs that location that could scupper their deal. So the reality is that the tenant has some skin in the game and doesn't want to lose that. And so that's why we try to get some parameters upfront to say, this is reasonable, this isn't. And so you can't say no. In these instances,

 

Jesse (17m 42s): I remember when I first got into the industry, when somebody explained that portion of it, you know, going to the landlord saying, we want to sublease, or we want to assign, and then they said, okay, you said, you said you wanted to, and then now they have all, all different rights. You know, it always reminded me kind of like kids on the playground say, no, no, no, I was joking. Don't, you know?

 

Rosa (18m 2s): Yeah. And you're talking about the provision that actually says, if you come to for consent, they can terminate. And then, and then the tenant gets to say, no, no, forget it. I don't want that. I don't want to assign it yet. You know? And the, and the problem is is that if you just asked for a sublease or an assignment, because you didn't want to be there anymore, you might have the option to say, forget it. I don't want to assign it. But if you're actually like a tech startup, and you're about to sell for a hundred million dollars, are you really gonna like, kill your a hundred million dollar deal? Because a world landlord at one location, you're not like this, it's not feasible to say I'll revoke my request, but you could lose those premises for that rent.

 

Jesse (18m 40s): No, that, that makes sense. Okay. So that's a assignments. And maybe even before we move to number three, it's something that comes up. I find with younger people, especially on the brokerage and when they get into the industry, there's always a confusion as to what we're talking about in assignments and, and the distinction between that and subleasing or sublets. Could you just touch on, you know, the broadly the difference between the two?

 

Rosa (19m 5s): Yeah. So a sublet is I'm company. A and I occupy these thousand square feet. And now I want actually company B to occupy either a portion or all of the thousands of square feet instead of me. And that's really a sublet and the landlord absolutely should have the right to consent to a sublet because the reality is, is that they've got new people on the premises. They want to check what kind of business they're running for insurance purposes. Again, they want to know what's happening for rent and to make sure they have enough money to pay the rent.

 

The difference on a sublet is that company B has no direct relationship with the landlord. Their only relationship is with company aid was the tenant. So company automatically remains on the covenant. As you said earlier, just they remain on the covenant. They are the ones with the lease with the landlord that have the obligations for the rent company, B has an obligation to company eight only not to the landlord directly. The difference on an assignment is that company a, maybe wants to leave the premises and actually have company B come in and to occupy the whole thing.

 

And they're going to assign the lease. And that actually means that then company B has a direct relationship with the landlord. The other thing that I think most people miss is that in most leases an assignment, although at law, this is not an assignment, but they include language that says, if you change control and you sell your business. So if you sell the shares at company eight, we're going to say that's an assignment. And that legally is not an assignment. That's actually just the change of control.

 

And you can do that without assigning, But most leases by contract scoop that in.

 

Jesse (20m 53s): Yeah. It kind of reminds me of, I was just reading a, kind of a bankruptcy ruling and talking about how prepaid rent a, you know, security deposits and prepaid rent. You have to be very clear, which ones are the tenants and which ones are the landlord where oftentimes, like you said, at law, people write in, no, no, no. It was a security deposit. You know how I know I wrote security deposit and it's like, well, that's not, you know, you have to be really clear in these, in these things. And it's why we have, you know, people like you actually looking at these documents before we have our clients sign. Okay. So,

 

Rosa (21m 22s): Well, it is funny because I would say that in most instances, it's funny leases are probably one of the least reviewed material contracts that a company will enter into. And I think it's because they talk about it in terms of the $12 a square foot. And you're like, wow, it's $12, right. But if you actually take the $12, $24, depending on what you're leasing, but if you actually take that and multiply it by the square feet and then multiply it by the five-year term, it's probably the biggest contract that company will ever sign.

 

And they will often not have it reviewed by lawyers because it looks like $12, but it's not.

 

Jesse (22m 3s): Yeah, that's a really good point. I've never thought it thought about it that way. Cause it really is. If you take a look at the consideration, you know, and then if you really start putting in, you know, the likelihood of renewing options, these, these contracts are, can get very expensive very quickly, even for small space,

 

Rosa (22m 18s): Right?

 

Jesse (22m 19s): So assignment and subleases maintenance and repairs, number one, assignments and subleases or assignments number two, what, what it takes to the third spot.

 

Rosa (22m 28s): Well, the other, the third one, for sure. It's funny. Cause we just talked about that as damage and destruction. So again, in most contracts, you're not worried about fire and water damage and floods and all of those occurrences, you don't deal with that. But because a lease is a dealing with physical premises and B over a term, as you say, it's, you know, your typical terms five years plus a five-year renewal, lots of leases are much longer than that, even. So over that time, you gotta think things can go bad, right?

 

So something's going to happen. And so the damage and destruction is a key provision. And so from the landlord's perspective, if they have a building that is occupied by many tenants, they do not want you to touch that section when you come to negotiating the lease because they don't want to have to rebuild for this tenant, but not rebuild for that tenant. And it has to be the same across the building, because if there's a fire, pretty much everybody in the building is going to be affected in one way or another.

 

Or if there's a flood, pretty much everybody's going to be affected. So they don't want to have different obligations for different tenants. So if you are a small tenant in a larger building, you're pretty much not going to be able to negotiate that section, then what you do to cover because you go to your insurer and make sure they have business interruption insurance for as long as what's in your lease that says, you're going to give the landlord this long to rebuild because you won't have those premises, but you will still have the obligation under the lease to continue to pay rent and to go back when it is rebuilt.

 

So you got to make sure that you have insurance coverage for your rental amount.

 

Jesse (24m 8s): It

 

Rosa (24m 8s): Changes, oh, sorry.

 

Jesse (24m 9s): Just a quick question on that. So would that be kind of the umbrella, be careful to say the word umbrella regarding insurance, but we, for a long time in Toronto, $2 million liability insurance was our recommendation to tenants. Now I think table stakes are 5 million for the most part that would cover the, this type of interruption that you're describing.

 

Rosa (24m 28s): Yeah. So business interruption insurance is usually different than your liability, which is what you're talking about, which is like slip and falls and things happening. I think it might be covered under the actual general liability, but it is its own its own a line item. And you, you have to read the fine lines because you have to figure out how long are you covered for and how many months of rent in case there is damage.

 

Jesse (24m 52s): Got it.

 

Rosa (24m 53s): Yeah. And so if you are though the sole tenant in a building in a, in a distribution center again or in an industrial law and you're the sole tenant, well now you might have some more negotiating power to, to actually do something that's bespoke between you and the landlord. And in that instance, it's very important for us tenants that the landlord is obligated to rebuild, especially if this is your sole premises and you can't move to anything else. So you want to make sure that there is very good language for you to say that the landlord real will rebuild the building.

 

So you have somewhere to go. You may, you you'll have to find swing space at some sport at some point and find somewhere to be in the meantime, but you want to be able to go back if it's your sole place. And so in that instance, the tenant might have more negotiating ability to actually have some damage and destruction provision that works for them.

 

Jesse (25m 49s): Okay. And that is not a bar in Toronto swing spaces. Other space you utilize at the time.

 

Rosa (25m 55s): Yes. Well not a bar.

 

Jesse (25m 58s): Okay.

 

Rosa (25m 59s): Yeah, for sure.

 

Jesse (26m 1s): So, okay. So that, that makes sense. And so what would be next? Rosa? What do we, what do we have for number four?

 

Rosa (26m 8s): I think environmental and you know, and I'm, I'm clearly this is not an office building, right? Cause that, that generally doesn't have a lot of risks. But when you start talking about distribution centers or you started talking about industrial environmental is a big deal and it is a heavily negotiated provision. And, and what the landlord wants from their perspective is they may not be at that building on daily basis, right. You're running your operations, but they're an owner. So they have some risks.

 

Vis-a-vis the Moe, if there's contamination. So they want to be made whole, they want to know that you as tenant are going to clean up whatever shows up on that property or look after it. The flip side to that from the tennis perspective is there's all sorts of reasons. There could be contamination there and it may not be at their fault. So there may be preexisting examined a contamination on the premises. It may have migrated from adjoining lands. And so they want to make sure that they don't have an obligation to actually clean up, unless it's something they did against what the rules are and how they run their business.

 

So if they're doing everything they need to versus the Moe and handling their hazardous materials correctly, in accordance with guidelines, they don't want to be on the hook for something that migrated from an adjoining property owner or from something that pre-existed, and the way you get there on the preexisting is if it's an industrial or a distribution center as a tenant, you should do an environmental test. You should do a phase one or phase two before you commenced. So you have a bright line test of what did preexist and what you caused post, because if it's discovered that there's gas under underground and that's at year three of your lease, how do you know from when it was there?

 

And so you need that bright line test and, and then you usually try to carve out anything in the lease that migrates from adjoining lands that you didn't actually, cause if you caused it, you're on book and you've got accept that liability as tenant. And I don't mean you in the instance of just the tenant, it's anybody they're responsible for their invitees. If somebody comes on, that's delivering stuff and spills, that's still the tenant's fault. So that's okay. What you're trying to alleviate as all these other liability issues.

 

Jesse (28m 32s): I would say this is an interesting one in the sense that when I'm typically drafting offers to lease or letters of intent, there's some clearly there's key points. There's term there's rent. Environmental is probably the one I find that is not translated from often, oftentimes not even there in the offer to lease that is expounded on and debated much more in the, in the lease stage. And that, I mean, part of that is probably the fact that, you know, we're not the subject matter experts on that, but it's a good point because, you know, I'm sure there are certain states have their provisions.

 

I'm not a hundred percent sure on different provinces, but USTs are underground storage tanks. For instance, there, you know, we have by law, you have to take those out of the ground. If, if you find them, would this be a, also an example though, of how business terms can kind of crowd out legal, legal recommendations in the sense that in a hot market, I could only imagine like industrial right now where you have Mr. Landlord is, is the request of the tenant is to do this phase phase one or phase two, but he or she has multiple other tenants and maybe he doesn't want to go down that, that kind of rabbit hole for lack of a better.

 

Rosa (29m 42s): Yeah, for sure. And it's interesting you say that because I think all of my top five are not covered in the offer abilities. Right. For sure. And, and, and it slows things down when you get to the negotiations and, and I think the parties for sure, in today's market, that's so hot and everybody's moving so fast and then you start humming and Hine about who caused the environmental contamination and, and everybody's annoying. And, and we feel that as the lawyers and, and all we can do is advise our clients right.

 

And give them the advice and warn them. My hope is that in year four, when something happens on the environmental, they hear my words and say, oh, she was right. But, but the likelihood, the reality is is that probably a 90% of the instances, there's not going to be any contamination and it's going to be okay. Right. But that's not what we guard against. And not when we negotiate contracts, it's not the 90%, the 10,

 

Jesse (30m 40s): Yeah. It's those low probability high impact or high risk aspects. I will say this though, Rosa, I am, I am a good boy most of the time. And at the very least like assignments and subleases, those are absolutely in our, in our letters of intent or offers to Lisa at this point, because it is something that materially impacts the deal. If they start negotiating after, and, and the two parties had different views of, of what they think should be the case. Okay. So that's environmental. So what do, what do we cap off with?

 

I think that's, this is number five.

 

Rosa (31m 12s): Yeah. So I think this one's kind of about bacon space and how it, and two things that it affects. So when there's vacancies, which there are not a lot of right now. So I'm talking back from my history of my, of my, my career when there was vacancies and, and people used to apply to get real estate tax breaks for vacancies and properties. We don't see that anymore because there aren't any, but for sure when there's vacancies, there's a couple of things to be careful of.

 

So the landlord, again, wants to be made whole on the building, whether there's vacancies or not. And so when we're talking about proportionate share in a, lease the tenant at the same time, doesn't want to suddenly have their proportionate share increased because they've got to pay for vacancies. And so the way that common area costs and operating costs work when you're one tenant with several tenants in a building, is that there's this concept of proportionate share. And it's calculated by saying the number of square feet of your space on the numerator and the number of square feet, square feet of the total building on, on the denominator.

 

And that's your percentage of those costs. There is often language that creeps into leases that says if there's a vacancy, every other tenant that is occupying will bump up their proportionate, share by a certain amount to cover those vacancies and tenants don't realize that that's what's in there. And then they're usually surprised during the term. And so it's just being aware of that and knowing that and knowing what kind of building you're going into. The one that is always gets me though, is that I have had some tenants when I point this out to them and we start talking about it, but then say, but you know, maybe it's a strip mall and it was six years ago.

 

And they say, well, but there's four stores that are empty there. And it's like, okay, but you're, you're paying that now. So you're, you're paying that from day one, you're paying for those vacant spaces. So that's it, you know, when they go into it with open eyes, they understand that

 

Jesse (33m 15s): It's funny, you bring this up. This was probably when I first started in brokerage, probably one of the most confusing aspects of explaining things to your clients. And it was kind of one of those jokes where we don't tell clients, or we try not to explain rates in terms of net effective rates. And it doesn't really matter for listeners. You know what? You can look that up what that is, but you get down a rabbit hole of getting into the minutia, the deal with this one, correct me if I'm wrong, we often see it as gross up that you gross up the building. And a lot of times the closet you'll see, you know, assuming that even if it's 50% vacant, we assume 99% or 95% or a hundred percent occupied.

 

And that, yeah, that was one where, oh, man, I needed people like you to kind of walk me through it. Because from a, just kind of a layperson's perspective, when we have clients, they, they were from a fairness point of view. They're like, no, that doesn't make sense. Why am I, why am I paying if it's half full?

 

Rosa (34m 10s): Right. Right. And, and, but from the landlord's perspective, they want to make sure that the hallways and the reception area and the elevator banks, that all of that maintenance is being paid for no matter how many tenants are there, the building, because even if there aren't even if all the building is in full, you know, you think your typical office building where you walk into reception, you use the elevator banks, you go up to four or five, there's 10 floors. Let's say only half of the building, even though you're only using half of the building, you're using all of that area, that half that's there, right?

 

Like that's the flip side to that story. And they have to pay to maintain the lights on the heat, on fixing the elevators, cleaning it, all of that for that elevator bank, the HVAC that runs the whole building, the reception area, they have to pay for all that. So that's the flip side story to that, right? Yeah.

 

Jesse (35m 2s): I used to always use just because to me, the, the most non-variable cost was security cameras. So I used to always explain it from that point of view that, you know, whether it's one, 10 at 10 tenants, five tenants that you're going to have to have the, the building monitored for security and just cause you know, a couple of tenants leave doesn't mean you shut off half of the cameras, but, but all those other ones are a hundred percent. That makes sense. Yeah. I do have a question. So th so those are the five, I think it's a great framework for people that don't think about this as often, or even, you know, people like myself that do work with us on a day-to-day basis.

 

What I, what I'm curious to talk about, just it touches all of these things. And it was something that I realized pretty early in my career that we are oftentimes as brokers, we're given kind of this leeway or latitude to write offers and write letters of intent, oftentimes maybe without knowing, binding making your, your client bound to a deal. And I think there's some best practices when it comes to making sure that if you're negotiating a non-binding LOI, make sure that's, you know, indicated and is, and is clear because oftentimes early in my career, or even, you know, with younger individuals, I would see that they would take this off or at least give it to the lawyer.

 

And the lawyer would be like, well, I'm hamstrung here on a lot of things. So I'm just curious what your thoughts are on, on the process. And, and when our clients should be thinking about legal or engaging legal.

 

Rosa (36m 29s): So I think two things, the, the legal doesn't have to get too, too involved in the offer to lease there's two key areas where they can offer some value. And the reality is is that you, as the realtors are the best people to do that offered a lease because I don't have comparables for other space. I don't have the market knowledge about, you know, what is rent for this type of building? What else is available in the area?

 

I don't, I don't have access to that. So you're the best one to do that, to hammer out those business terms, the piece that the lawyers have to make sure they're happy with is aid it, make it a hundred percent clear that it is non-binding because my problem with most offers to lease and especially the urea commercial offer to lease it, actually doesn't say it's non-binding right. Actually it doesn't say that it says offer to lease. And the fact that you use the term offer does not inherently make it binding.

 

You have to say, it's, non-binding what the landlord doesn't want is they don't want the tenant to then in the lease to renegotiate those business terms. And that's a fair ask. So you can be very clear to say the offer is nonbinding, but neither party will renegotiate the business terms that are clearly here. Because as we said, a lot of the terms that I mentioned as the top five are not in your offered. At least it only comes up in the lease context. And so you can meet that middle ground by having that language.

 

And then the other piece that's key from the tenants perspective is for example, on the urea offered, at least the provision that talks about delivering the lease actually says it will be the landlord standard form. And so that leaves the tenant, no room to negotiate. All of these things that we just talked about today that are not in the offer to lease, you have to actually sign it in the landlord's standard form. So one little tweak to that section, which is it will be in the landlord standard form was such reasonable amendments as requested by the tenant.

 

It's all you need in order to give you enough room to negotiate these other trucks.

 

Jesse (38m 42s): Yeah. And then that makes a lot of sense. And I guess the, the, so for those that don't, aren't aware of Maria Ontario, real estate association, you know, every state and province has some version of this, or I think every, every one does, we oftentimes don't use those. I find commercial, especially office leasing. You know, we talked to folks like yourself that try to inform our boiler plate, but then, you know, just for that, but from a, from a kind of legal philosophical point of view, I'm always curious of lawyers views on the agreement to agree, because like you said, we're taking a document that's five, maybe even less pages long, turning it into document that's could be 60, 7,000 pages.

 

So from that perspective, you know, what is the reasonable test? You know, when you have these terms agreed to, but like you said, a lot of these are not even covered in the offer. So there has to be some good faith happening one once you are at the least stage, even though you, you know, you technically agreed that you would agree.

 

Rosa (39m 45s): Yeah. And so I think there's a, there's always in every negotiation, there's a duty to negotiate in good faith at law for both parties. So you have to be fair in your negotiation from the lawyer's present perspective, whether it's a lease, whether it's an M and a transaction, when there's an non-binding LOI signed, we do tell our clients because it is very true that if something's written in black and white in that LOI man, we are going to have a tough time to negotiate it differently in the definitive agreement, in the final lease, share, purchase agreement, whatever that is.

 

If you've said, you know, the rent, the base rent is this per square foot, there is no way I'm going to be able to successfully negotiate it at a different grant. Right? So if you've said in there that you're going to pay common area costs and cover, you know, landscape, garbage removal cleaning, and those things are listed. I'm going to have a really tough time in the lease. Even if, even though that original agreement is not binding to get those out. So whatever's covered in black and white, you know, we're, we're going to respect the deal that the two parties struck at the offer letter and maintain it in the final agreement, the rest of the terms that are not covered, because you can't, you can't cover it all or else you'd be just jumping to the final agreement.

 

Those everybody's just going to negotiate in good faith and be reasonable. And I think that's the way it goes. And, and, and the reality is I think most tenants and their lawyers understand that this is the landlord's building, right. And they have lots of tenants in there, and this is they're the owner. And so you have to be reasonable with how you're negotiating those terms.

 

Jesse (41m 29s): Yeah. That makes sense. And it kind of just reminds me of like, there's this fallacy of a complete contract. You'll never completely be able to think of everything and, you know, nobody would approach it that way. Just take, take too long and cost too much. I've noticed we're, we're coming up to, to the time here, but before, and Rosa, we definitely have to get you on again, maybe in six to eight months from now, because there's just, there's so much interesting stuff that we could come, that we could discuss from a legal perspective. I did want to touch before we, before we end two things, I wanted to talk a little bit about your outlook given, you know, the last two years, you know, where you see certain trends going.

 

So we talked a little bit from the outset crystal ball, but before we do, it's something that, you know, comes up in our industry. There has been more of an emphasis, I think, in all industries on diversity, on having representation of different groups, whether that's, you know, gender color, creed, and one thing we've noticed, or I've noticed in commercial real estate, as opposed to residential real estate, is that we have been slower to adapt, to having more females come into our world.

 

I assume real estate law would probably look fairly similar. So I thought, you know, you could kind of give me your perspective on, you know, how that has been an impact if it has on your career and maybe what you would recommend to younger people coming up and looking at commercial real estate or real estate law is a viable option.

 

Rosa (42m 59s): Yeah, I think for sure, I think every place has recognizing the benefits of diversity, equity and inclusion for sure. And, and, and the benefits to the bottom line and not just because it's the right thing to do, but it is the right thing to do. And for sure, I think it is difficult in real estate to kind of break down those barriers. It has been traditionally a white male dominated industry. I have clients though that are in the construction industry and it's a completely woman-run construction industry.

 

So we're coming, we're, we're definitely coming. And, and, and so I think it's, it's definitely something that Galileans is very cognizant of. We have a very strong focus on DEI in our firm. We have a DEI manager that runs everything that runs that part and, and it's, and it has become a key in our strategic planning to make sure that there is diversity and equity inclusion in every office at every level.

 

Law is not that much different from other areas. We might be even a little slower than some other areas of getting there. We do every, at every level in a law firm, you know, articling student associate partner at every level in a law firm, we lose a few women, we lose a little bit of diversity and that that's a shame and we have to do better. And we are definitely trying to do better. I think on, and I, I can't speak as much to other enumerated grounds of diversity, but on the, on the woman's side of thing, I think, I think my advice to people would be to marry well, isn't that an awful piece, but that sounds old school, but it really is.

 

I think, I think the reality is your career as part of your life. And you need a life partner that's going to bolster your career. And I think for a lot, and that's true for every sex as true for men. That's true for women. That's true for those who identify as men and those who identify as women, it's true for them. And you need a life partner that's going to bolster your career. The problem is that historically men haven't seen that as the role and that's the problem. And so I think when people are finding life partners is finding one, who's going to, who's going to maybe take a back seat in their career and allow yours to shine.

 

Jesse (45m 24s): So we need you to draft a marriage letter of intent.

 

Rosa (45m 27s): Yeah, exactly. Exactly. You shout. So, yeah, I think that, I think that's definitely something that, because the reality is at the end of the day, no matter how much you want to do, there's 24 hours in a day. And so you have to figure out how you're going to split that day. And if you can't, if you can't focus enough on the job and on the career piece of it and dedicate enough time to make that successful, then it won't be successful. And so you need somebody who's going to focus on the other aspects of your life to allow you to focus on that.

 

Jesse (46m 3s): That makes complete sense. All right. So Rosa, crystal ball for us, you know, are there trends that you're seeing opportunities or things that you're excited about? You know, what, what does the world look like from your vantage point? Like, like we said, at the beginning in the, the short to mid term?

 

Rosa (46m 21s): Well, I think, I think there's going to be lots of people out with their backhoes building distribution and industrial centers, seeing the rents and how that's gone. Absolutely crazy in that, that market space. I think it's like three fold over the last two years, right. Is where rents are going to, so I think you're going to see lots of landlords trying to focus on that and COVID has done wonders for that industry because everybody's home cooking and getting things delivered just Yeah, for sure.

 

And it's changed how we all shop and how we all are consumers and how we consume things. And so I think that area is going to see a huge growth. I am an optimist and I do not think that the office industry is going to be decimated. I think that the commercial office is still, it might shrink a bit. I kind of feel like it might shrink a bit because everybody's feeling pretty good about working from home. And everybody feels like that's going to be a small part of their life, but I do think people want to get back to the office.

 

I mean, I do, I want to get back to the office on a regular basis. I want to start seeing my colleagues again on a regular basis. And as much as we think it's a cost savings by having everybody, not at an office and paying that rent for office space, I think it's going to be a cost in the end because I think you're not going to have that cohesiveness amongst teams. You're not going to have that idea generation amongst teams. You're not going to have a culture.

 

How can you have a culture if you never see each other? And so, and those are all key, important things. And especially for this next generation of feeling connected to something they want to be somewhere. I don't think they want to be in their living rooms. I'm done being in my living room. I don't know about everybody else, but I'm done being in my living room. I don't want to, I want to be somewhere. And so I don't think the office space is going to be as decimated as people thought at the beginning of COVID.

 

Jesse (48m 25s): Yeah. I think it's definitely something where we're seeing a change. There was this, there was, I think I talked to a lot of people about the office, obviously for what I do and what I tell people outside of our industry, that this was a, this was a secular trend, a secular trend that preexisted COVID office was changing. It was evolving. This kind of pushed, put it into high gear, but I do think it's in cities like Toronto, it's a huge benefit because we were too far. The other side, it was way in favor of the landlords for a long time with vacant vacant space being at one, two, 3%.

 

So I think it's in the long run. It's going to be a positive trend, but that's cause I'm like you, I'm an eternal optimist. Rosa. If people want to kind of connect with you, reach out, you know, or even engage with you on the real estate front, where it'd be the best place to, to send them to.

 

Rosa (49m 19s): I am available by email all the time. And if so, my email address is Rosa doc equal Gowling wlg.com. Or if you want to go to the website and connect with me that way, it's www.gowlingwlg.com.

 

Jesse (49m 35s): My guest today has been Rosa Lupo. Rosa, thank you for being part of working capital. Thank you so much for listening to working capital the real estate podcast. I'm your host, Jesse for galley. If you liked the episode, head on to iTunes and leave us a five star review and share on social media, it really helps us out. If you have any questions, feel free to reach out to me on Instagram, Jesse for galley, F R a G a L E, have a good one take care.