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New and established businesses are becoming more and more energy conscious as they create business plans and make decisions for the future. However, the costs associated with transforming a building into an energy-efficient hub can be great. With businesses trying to protect their bottom line, how can anyone expect them to be able to fully invest in costly energy-efficient building materials and improvements? Luckily, there are tax incentives to help ease the transition.

Recently, the president signed an extender bill called Protecting Americans from Tax Hikes Act of 2015. The bill itself is in response to some incentives and tax breaks associated with a pre-existing bill that expired at the end of 2014. The new extension creates some permanent incentives while extending other incentives through this year.

Energy-Related Tax Credits

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When people consider leasing commercial spaces for their office or business needs, sometimes they do not consider the potential complications that can occur during the negotiation process. While not all commercial leases are complicated and may only require one or two points of negotiation, some may have several points to be discussed. That is why it is critical to contact a real estate attorney to help you through the process. The following are a few examples of common issues associated with commercial leases and how they can potentially impact your business.

Subleasing

Many tenants want the opportunity to sublease their building in case there are big changes in their business. Sometimes financial changes may require that the business take a step back from the space in order to save money, or if the business is doing well, the company may need to move to a different location. However, many landlords see subleasing as a potential risk because the person who subleases the space may not be financially responsible and this could mean a monetary loss for the landlord. This is certainly a situation in which give and take must be considered so that both parties are accepting of the terms of the lease.

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Being a brand new startup is exciting, but is not exempt from challenges. One of the very first things you have to decide right away is what type of business you will be. This decision alone will greatly impact any other business decision you make. It is absolutely critical that you work with a seasoned business attorney to help you navigate the complicated process of being a brand new business. The three key areas that California businesses should consider are: partnerships, corporations, and limited liability companies (LLCs). The following offers a brief explanation of each entity.

Partnership

A partnership business is exactly what it sounds like. It is a business where there are at least two owners. Each owner has equal decision-making power and is involved in all aspects of the business functions. It is absolutely critical to discussion various aspects of the business including:

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Intellectual property is best described as the property of the mind. Typically, this includes ideas or designs that are sparked from an individual’s own thoughts and creative processes. For a fresh startup, intellectual property is certainly an important aspect of the business that sometimes gets overlooked during the early stages of development. However, make no mistake, intellectual property is absolutely critical and should be protected from the very beginning. It could make the difference between failure or success.

What Falls Under Intellectual Property?

As mentioned, intellectual property is generally a person’s innovative thoughts and ideas. Some things that can fall under intellectual property may include:

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Environmental consciousness is theory that has grown vastly over the years. From the rise in organic product use, to lobbying for full disclosure of products that contain GMOs, to the move of some states to mandate energy disclosures, environmental issues have come to forefront of many legislative sessions. It has been reported that the State of California emits greenhouse gas at an alarming rate every year. Due to the rapid growth in population in recent years, California is the second largest greenhouse gas emitting state in the US. Over 30% of that greenhouse gas release can be attributed to the production of electricity taking place in the state. In response to the harmful nature and after endless lobbying, Assembly Bill 802 was drafted. Assembly Bill 802 focuses on disclosure.

In an effort to closely monitor the problem and resolve the issue, mainly in commercial buildings, Assembly Bill 1103 was enacted in 2009. This bill requires those who own commercial properties to allow public utility companies to regularly collect energy consumption data. Additionally, the public utility companies disclose the data collected to potential purchasers, financial institutions providing loans, and even individuals looking to rent space in particular building. Although the bill was adopted in 2009, it did not go into effect until 2014 due to pushback. Response to the implementation of the new law was not positive, especially because there were no clear and concise guidelines or protocols regarding violations of the law.

Those who had been ordered to comply by disclosing information decided that the fine was worth disclosure. Disclosure of energy use could result in several adverse issues for the owner of the building. Due to the noncompliance of a majority of owners, Governor Brown introduced Assembly 802, a new piece of legislation that replaced AB 1103 and modified the process in which data was collected. Effective January 1, 2016, AB 802 provides that public utility companies will be tasked with maintaining energy consumption data for the last year for all buildings serviced by their company. The goal and purpose behind introduction of this new piece of legislation all lies with disclosure. Those who own buildings that produce energy at a high rate or fail to meet energy efficiency standards are given incentive to make the necessary repairs. By not doing so, they stand to lose potential buyers and tenants. With this new law their insufficiencies are public record and out there for anyone to assess.

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Purchasing commercial real estate for a start-up business is one of the most exciting steps an entrepreneur takes toward achieving his or her goals. While this stage of the process can certainly be a rush of emotion, it is critical that buyers consider potential roadblocks. One of the most critical components to buying real estate, and especially commercial real estate, is ensuring that the property does not have an environmental claim. It is important for buyers to understand what environmental claims are and how they impact the value of a property.

What are Environmental Claims?

There is a broad scope of potential environmental claims that can range in severity. It is important for people to realize that although a building may appear to be in good condition, environmental impacts may not be readily visible and could have occurred many years ago. In fact, sellers may not even be aware that their building is in violation of environmental laws. Some of the most common environmental claims buyers encounter are:

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A provision commonly utilized in commercial real estate contracts is a liquidated damages clause. This clause is utilized as an incentive so all parties involved in the transaction perform as stipulated under the contract. If they fail to do so, the harmed party can pursue restitution through the liquidated damages clause.

You must be careful when drafting the language of the clause because in California a liquidated damages provision is presumed to be enforceable, but could be voided if it is viewed as a penalty by a court.

In the 1970s, California adopted a policy of presumptive validity for liquidated damages clauses in commercial contracts, including real estate contracts. This means that a clause in a contract liquidating damages for a breach is valid unless the party challenging the provision can show that the provision was unreasonable under the circumstances when the contract was formed, or is so draconian that it is essentially a penalty.

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Effective January 2016, California lenders will be able to work more easily with limited liability companies (LLCs). These new changes, referred to as Assembly Bill 506, come in response to the existing Revised Uniform Limited Partnership Act. The amendments simplify the lending process as well as the specifics of mergers in order to make each step run much more smoothly while simultaneously protecting the lenders.

While the amendments appear to greatly benefit lenders, likewise LLCs will benefit as well. For brand new businesses, this could certainly change the game for loan approval and for existing businesses it can impact how certain business is conducted. It is important that new and veteran LLCs alike take a look at the new amendments in order to better understand how certain aspects of their business will be influenced.

What are the Changes?

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Commercial real estate lenders need to be ready for a myriad of new regulations set forth by the Federal Reserve, Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC). These new regulations impose more stringent capital requirements on “high volatility commercial real estate” (i.e. HVCRE) exposures.

The FDIC, OCC, and Federal Reserve approved these rules in an effort to comply with the Basel III Capital Accords, which are international banking standards, along with new risk-based and leverage capital requirements for financial institutions under Dodd-Frank.

What Exactly is an HVCRE Exposure?

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Choosing to rent a commercial space for a start-up business is usually the most economic decision during the early years of the company. It is critical to the future of the business that buyers understand the ins and outs of leasing commercial real estate as well as the best way to negotiate terms that could greatly impact profit and future success. Having the appropriate facts will not only reduce the normal stresses associated with taking the leap into a brand new business, but will also protect your business for years to come.

What is a Commercial Lease?

A commercial lease differs from a residential lease in many ways. A commercial lease is used for people who will be serving the public and not used as a residential dwelling. Because a commercial lease is used for something completely different, many of the familiar terms associated with residential leases do not apply. Such as: