Pankaj Raval (00:03)
back to Letters of Intent, the podcast for deal makers and risk takers who understand that the devil’s in the details and we’re here to be your holy water. I’m Pankaj Raval, founder of Carbon Law Group and I’m joined by my cohost Sahil Chaudry, corporate attorney here at Carbon Law Group. Today on our show, we have a returning guest, Robby Pinnamaneni, real estate lawyer and commercial lease expert as used in the most colloquial sense because you got to be careful about what you say when it comes to the law. But Robby has a lot of experience with commercial leasing.

and real estate in general that we’re going to learn about today. And we’re going to do a deep dive into commercial leasing, the ins and outs, the issues that come up oftentimes, and how you can actually prepare yourself better when you’re negotiating a lease or thinking about entering a commercial lease or before you sign a lease. Because there’s a lot of issues to address. These are very long documents usually, and a lot of areas that you can negotiate to protect yourself going forward. Robbie, welcome to the podcast again.

Robby S. Pinnamaneni (00:52)
Thank you. Thanks for having me, Sahil Pankaj. Always excited to be here with Carbon Law Group.

Pankaj Raval (00:57)
know, we’ve known each other a long time and you have a lot of experience in kind of the world of real estate, also commercial leasing. I know you’ve done major deals for very large companies. Could you share a little bit about your background in commercial so the audience gets a little better understanding of what you’ve done?

Robby S. Pinnamaneni (01:11)
Yeah, so I’ve been practicing law for 16 years now. I started my career in the large law firms in Chicago, New York.

And so had the opportunity to work for lot of large commercial clients, doing specifically real estate and leasing Some of these notable clients that I work with are LinkedIn, Salesforce, Facebook, who have large, large real estate portfolios. often think of them as just tech companies, but these tech companies are large real estate conglomerates in terms of the property that they own and the leases that they’re.

part of, so I’ve had that opportunity to work on a lot of those complex leases. And then I’ve also done a lot of just your sort of main street retail. And I think there’s a lot of similarities there in terms of that kind of work as well.

Pankaj Raval (01:57)
you we dive into the tactical curious, what’s kind of the most counterintuitive thing you’ve learned about commercial that most business owners get wrong or is there something out there that, you you feel like, as a lawyer, you know, this reasonable to consider, but a lot of business owners don’t realize it’s important to keep in mind?

Robby S. Pinnamaneni (02:16)
Yeah. So I think like, you know, in terms of if we’re talking kind of about Main Street, you know, sort of tenants, right. I think, you know, we’re all used to signing, or apartment leases, like in college, right. And there’s like really no negotiation there. It’s sort of a take it or leave it scenario. And we’re all used to just sort of like signing it. But in the commercial leasing context, that’s not the case. So I think.

We see a lot of new tenants let’s say for example, that want to do a retail store somewhere and they often feel like they don’t have the negotiating power, they don’t have the leverage. I think incorrect, right? So I think there’s an opportunity always to get some favorable terms and to protect yourself when you’re entering into these long-term agreements. So I think that would be the first kind I see that are kind of making that switch into a commercial leasing context.

Pankaj Raval (03:06)
I’ve fair amount of leasing too. agree. Like sometimes people feel rights do they have to like argue against these landlords, but you always have a right. I think it’s kind of shift that they have to have should advocate for what you want. And that’s where a lawyer can come in because we can advocate for think very well, because that’s what we’re used to doing.

right, I think people don’t realize that most things are negotiable, but you gotta ask.

Robby S. Pinnamaneni (03:29)
Yeah.

And I think people like often, you know, rightfully so, like they focus on, well, what’s my monthly payment and how long is the lease? And then they think we’re done. then there’s so much other stuff in there that can impact you financially and economically that people don’t pay attention to because it’s not the monthly payment amount and it’s not the term. And so I think the opportunity to kind of review everything with a fine tooth comb and understanding the economic impact.

is what’s really essential because it’s the devil’s in the details, right? And so it’s the stuff that you don’t really pay attention to or that you gloss over that always ends up coming back to, you know, sometimes haunt you.

Sahil (04:09)
really interesting that there are these contractual terms that someone who isn’t familiar with the law might miss. Have you seen any dramatic shifts in terms of the regulatory landscape or the market landscape over the years that you’ve been practicing in this industry?

Robby S. Pinnamaneni (04:24)
Yeah, I mean, that’s a great question, Sahil. you know, I think, you know, post COVID, I think we’ve seen it and we’ve seen it here in Los Angeles, right? Like, you know, commercial tenants, a lot of them disappeared, right? You drive down Wilshire, you drive down Melrose, like a lot of these iconic establishments that we used to see are gone, right? And so I think we’re starting to see a slow recovery here, but I think commercial landlords, in these larger markets are open.

to kind of having a deal and getting tenants back in there. And so I think there is an opportunity, a tenant perspective to have a little bit more leverage now and getting into these leases, because I a lot of these landlords are still feeling the effects and recovery from the COVID days.

Sahil (05:02)
I just had a follow up on that, which is that such interesting point that I hadn’t thought of that.

Pankaj Raval (05:03)
Yeah, sure.

Sahil (05:06)
other markets are affecting the real estate market, like consumer goods. And for example, effects of work from home from COVID are impacting industries. And then those industries are in turn affecting real estate. there certain industries right now that you’re noticing are particularly hot in terms commercial space? And on the flip side, are there any industries that you’re seeing have kind of like maybe they needed commercial space before, but now they just don’t need it?

Robby S. Pinnamaneni (05:32)
Yeah, no, that’s, that’s a great question. So I think, you know, we’re seeing data centers, right. I think with AI, there’s a lot of AI data center development. There’s a lot of know, Pankaj and I, from Arizona. We were actually just chatting the other day. have a colleague and a friend that, is part of a billion dollar development out in Pinal County, a lot of these AI data centers. So I think we’re seeing a lot of growth there and these are complex.

Sahil (05:38)
Right.

Robby S. Pinnamaneni (05:58)
developments, right? You need cooling, you need power, you need water. And so there’s like a lot of special requirements to run these data centers. So I think we’re seeing a lot of investment along those lines. I also had the opportunity to go to the Milken conference here in LA several months ago, and met a lot of investors from the UAE from Dubai, a lot of funds that are focused on deploying capital into data centers, particularly on the real estate side. So I think we’re seeing some growth there.

You know, on the flip side of an industry that’s kind of in a tough spot right now and maybe is divesting a little bit is cannabis. I think we’ve seen a boom. Similarly, cannabis, if you look at a cannabis cultivation, you also need cooling and power and water. Right. So I think there will be an opportunity to transition some of these assets into data center assets, but, setting that aside, I think we’re seeing.

Sahil (06:33)
Interesting.

Robby S. Pinnamaneni (06:50)
you know, that industry is having a contraction both from a retail and a manufacturing and a cultivation perspective. And these are large capital projects with large swaths of real estate. So I think we’re seeing a significant contraction in that space as well.

Pankaj Raval (07:03)
So Robbie, talking about just the change in use and getting into some of those details in the commercial lease. One issue that I think some clients have run into recently is importance of…

confirming that you can in fact change use. the property is zoned a certain way and if you need to get a change in use, if you need to get some variance in zoning, are issues you’ve seen around that and how do people navigate those it comes to starting with, know, thinking about a commercial lease and whether it’s going to even fit the use for their business.

Robby S. Pinnamaneni (07:31)
Yeah. I mean, look, I think you always want to think about optionality, right? And so you definitely want to check the zoning regulations and the just understand like know, it’s not even about you wanting to do a different use, but let’s say you want to get out of the lease or you want to assign the lease or sublet the lease. Like there might be another tenant that has a different use than yours. So you want to try to attempt to maintain some flexibility and optionality there.

So most leases have a permitted use section that talks about like what the permitted use is. And what I like to always do you can specifically state the use that this tenant has, but then also add in around, you know, all other, lawful, law, to kind of give that optionality, in terms of use. But I think it’s super important because I think, you know, use comes down to

Pankaj Raval (08:13)
Yeah.

Robby S. Pinnamaneni (08:17)
Do I want to divest this business? Do I want to change the business? Do I want to sell the business? Those things become very important.

Pankaj Raval (08:23)
made a good point. You talk a lot about like optionality I guess giving people your flexibility, right? In terms of they can do with the lease. And that’s so how do you approach this idea of like flexibility, optionality when you’re first discussing, you know, an a client.

Robby S. Pinnamaneni (08:26)
Mm-hmm.

Yeah, I mean, sometimes it’s awkwardness of a prenup, right? Like, cause you kind of want to talk about, things don’t work out. And usually people are like pretty excited and you know, they’re ready to go and things like that. I think they’re important conversations in any legal agreement, you know, beyond leases, right? You always want to think about like, what if this thing doesn’t work What are my options at that point? And so I think, you know, at the LOI stage, you’re like, you always want to kind of have that in the back of your mind and

You know, that’s of the fortunate reasons why people have attorneys, right? Like, is the attorney can kind of think about that and kind of build that into whatever lease agreement that you’re thinking about entering into. it’s super important. You never know how the world’s going to change. You don’t know how industries are going to change. Right. Like I think crypto was really hot for a second. Right. Everyone was set doing this crypto mining. I think that’s died down a little But.

A lot of those centers can be used for AI or they could be used for manufacturing or they could be used for other things. So you definitely want kind of think about that.

Sahil (09:36)
You know, California seems like a state that’s different to do business in than other states. I mean, naturally, every state has their own social policies own specific state laws. If you could only give a business owner one piece of advice before they sign their first California commercial lease, what would that advice be?

Robby S. Pinnamaneni (09:55)
Hire a lawyer to be honest. I know it sounds a little trite and a little self-serving, but these things, I’ve seen it just too many times where you’re gonna miss some nuance and it’s gonna come back to haunt you. think that’s one piece of advice I’d I’ll add another one. think when we talk about LOIs, people assume because most LOIs are non-binding that it’s not a big deal and we can kind of treat it casually and not really pay attention to it.

But it creates a lot of problems later because often the other side has multiple lawyers working on it. You know, we’re often working on it, obviously. And then if things change along the way and you don’t have that holy grail of what was kind of agreed upon in the beginning, then it just adds time and it protracts the process and ultimately adds costs, unnecessary costs. think taking that LOI very seriously, particularly in California where

are lot of than other states, and I think you’ll want to be mindful of that.

Sahil (10:49)
Can you elaborate a little bit on what is an LOI? mean, it’s kind of the namesake of this podcast, Letters of Intent, but I would love to hear what that means in a real estate context.

Robby S. Pinnamaneni (10:59)
it’s a letter of intent as you noted or term sheet, right? And it’s really just a summary in the beginning. Because lease documents, they give you like 100 page plus documents, right, with exhibits. And so the LOI or the term sheet is literally a one, two, three page summary of material terms. So it’ll just kind of walk through like.

Obviously, what is the rent payment? What is the term? what is the indemnification? What is the assignment? Say, you what are the maintenance obligations? What is triple net? What is cam? So these are all things that are material to the lease that the parties will agree upon before they start the drafting of the long form lease.

And I think that just streamlines the whole process because there’s a meeting of the minds in the beginning. then there’s always still a negotiation because, you know, you can take a term, but once you put it into a written format and kind of add in all the bells and whistles, there’s always a little bit of room for negotiation. seen clients make the error of taking that process casually at the term sheet LOI level. And it just leads to a protraction of the process, you know, later down the line and costing them more money.

Pankaj Raval (12:05)
I would echo that because sometimes we see that people come to us and say, hey, we have an LOI, we signed it, now we’re negotiating of the terms in the lease. definitely, think as lawyers ties your hands a little bit, even clients, Because the other party can argue, you’re negotiating in bad faith because we’ve already discussed some of these issues. I think if anyone’s listening out there and they have an LOI,

would say definitely get your lawyer involved, get us involved point because like, before you signed that LOI, because once you sign that, you’re now kind of confining yourself, constricting yourself in some ways in terms of what you can in that final lease.

Robby S. Pinnamaneni (12:38)
Yeah, I think that’s exactly right. People just assume because it’s non-binding that they’re okay, it really, you know, frankly pisses people off like later down the line, even though it’s non-binding. you’re trying to change things that were, you know, theoretically agreed they’re, just going to be like, I don’t want to do business with this person.

Pankaj Raval (12:56)
In terms of the elements of a You know you have the lease documents itself, you have all these different terms involved in, you know, oftentimes also there’s a commercial guarantee. Explain to us like, how do you negotiate a commercial guarantee? Is there a way to negotiate one, you know, where you don’t have a personal guarantee? do you advise clients when faced with a personal guarantee requirement?

Robby S. Pinnamaneni (13:15)
Yeah, you know, in most commercial leases, they’re gonna more likely than not ask for a personal guarantee unless it’s a very well established and well capitalized business has significant assets and a significant balance sheet to backstop any defaults in the lease. Unless you have something like that, they’re almost always going to ask for a personal guarantee. And just to kind of explain it to the peanut gallery out there.

when your tenant is a corporate entity, whether an LLC or a corporation, you know, technically, if there’s a default, like, they go after the assets of that corporation or that entity or the LLC. And what a personal guarantee is, it says that, you know, if that entity is not able to satisfy its obligations, then they’re personally going to go after someone else.

to guarantee the obligations of the tenant, right? So that could be significant liability, you know, for, someone, let’s say, you want to open up a significant, just make it up like a pickleball franchise or something like that. And you’re a new company and you sign a franchise agreement and your rent’s 50 grand a month. And then, is not good, the tenant defaults, then, you know, they’re going to come after you and your personal assets. So.

That can sometimes be scary and daunting. So it’s definitely, a lot of instances, not something you can avoid, but it’s something we’ll want to look at and negotiate. Some of the things that we’ll want to negotiate with respect to a personal guarantee are just, you know, how long is it in effect? Is it in due perpetuity? Is it for a few years? Is it for five years?

Is there an obligation for the landlord to, you know, go after the tenant first before coming to the guarantor? Can they go directly to the guarantor? there’s going to be a lot of different considerations like that. Is there a notice period? Is there an opportunity to cure? These are all things that we would want to look at to kind of limit the scope and breadth of the personal guarantee. And it’s going to become pretty important because I think that’s when you, you know, people often forget, they think, oh, this

a company or it’s a corporation and this is okay but you know that’s not the case if you’re saying they can personally come after your assets.

Sahil (15:15)
want to get tactical now. I mean, you’ve been across the table from every type of landlord and tenant. in one sense, what we do, there’s an academic element of intellectually solving a problem, looking at a document, and coming up with the ideal outcome. you’re dealing with real human beings and very different personality types, egos.

If you’re sitting across from a landlord who says, this is our standard lease, take it or leave it, what’s your next move?

Robby S. Pinnamaneni (15:41)
I mean, look, that’s obviously like, a red flag, right? Because, you want to be doing business with someone that is collaborative. and that is not going to just draw lines in the sand. doesn’t mean you’re always going to get what you want. but I think that’s a flag, right? Because ultimately later down the line, if you want to sell the business or you want to do something else, or you want to change the use, like, and this is the person that you’re going to be, you know, ultimately dealing with. So I think.

that’s definitely a red flag. I also think it could be a negotiation tactic. A lot of people sometimes say that, but they’ll still negotiate with you and you to contribute to the lease in a way that helps you. So I think you’ll want to be cautious. You’ll want to tread lightly and navigate.

Pankaj Raval (16:21)
Yeah.

Robby S. Pinnamaneni (16:22)
What’s really good about kind of the three of us and I’d like to say is that, you know, we’re investors. We’re also business people. we’ve also been part of other operations, like outside of just the legal context. And I think when your attorney like really understands your business beyond the four corners of the document that helps, right? Because a lot of times if I’m negotiating a lease for someone in a particular industry, and if the landlord says, take it or leave it, then I can.

I might know like, that’s market or that’s not market or that’s traditionally what’s done or it’s not done. And a lawyer who’s just focused on the legal that doesn’t get the operations or doesn’t understand what the market comp is, you know, could be at a disadvantage by not being able to kind of understand, what those nuances are. So.

Sahil (16:50)
Mm-hmm.

That’s a very good point,

Robbie. feel like you can be like, well, I’ve said that before. You can be like, I was in that position and I’ve used that negotiation tactic. It might be BS and you can confidently say that because you’ve been in every seat. You’ve been business person, you’ve been the attorney, you know the law, you know the I feel when you have some entrepreneurial experience, which I agree, yet luckily the three of us do,

Robby S. Pinnamaneni (17:10)
Yeah.

Sahil (17:30)
You kind of know how money and risk flow and also what the games are that people play to try to get a deal done on their terms. So I agree with you. I think that’s great that you have that real world experience to advise your client. And it’s not just academic. Yeah.

Robby S. Pinnamaneni (17:41)
Yeah. Exactly. like, look, to the

extent there’s attorneys listening, you know, I know we have a lot of attorneys that also listen to this, to our content. If you don’t have that operational experience, like get to know the brokers, get to know the real estate agents, get to know the different parties that are involved, talk to them, learn from them, take them out to lunch. Like that’s how you can sort of pick up those skills in terms of what’s market and what’s not.

And then also if you have that relationship, you can pick up the phone, right? And you can talk to the business people and kind of get their sense on some of these terms too. And that’s where I think you really add value to the client is like, they’re trying to achieve a goal, and marking up and negotiating a document is part of that goal. But I think there’s so many other things that go into getting them to their goal that a good attorney can offer.

Pankaj Raval (18:06)
Yeah.

Yeah.

So true, so true. I think that industry knowledge, that experience so important. And I think separates, just a standard attorney from someone who really can help you know, help you navigate these complex leases understand some of those, issues on the ground, right? Because it’s hard to know without context what issues could really be the most challenging.

Robby S. Pinnamaneni (18:44)
Mm-hmm, that’s right.

Sahil (18:46)
Pankaj I feel like we’re approaching that new segment that we’ve introduced called the lightning round, where Pankaj is about to hit you with rapid fire questions so our audience can hear how you react to some very interesting circumstances and the way you think about matters as a lawyer, but rapid fire style.

Pankaj Raval (18:53)
Yes.

Robby S. Pinnamaneni (19:07)
Let’s do it.

Pankaj Raval (19:07)
Yes.

All right. So these are going be short questions answers. may be more nuanced, I realize, but this is supposed to be kind of just rapid fire. triple net versus gross. When does each make sense or you fight for one versus the other?

Sahil (19:16)
Yeah.

Robby S. Pinnamaneni (19:22)
Look, I think most people, most commercial leases are triple net. So it’s not necessarily about fighting for it. I think it’s just learning how to navigate it.

Pankaj Raval (19:30)
Percentage rent clauses, negotiable or should you just always shy away from them?

Robby S. Pinnamaneni (19:34)
I think it’s negotiable. I mean, lot of landlords shy away from them because they want to have a fixed fee and know what they’re getting, but negotiable.

Pankaj Raval (19:41)
Is there a certain time of the year that’s best to negotiate a lease in California?

Robby S. Pinnamaneni (19:45)
I would say anytime here. Anytime.

Pankaj Raval (19:46)
Okay. Okay. Well, I just

know sometimes, you know, California people tend to go away during, the holidays. certain industries tend to kind of grind to a halt, but you feel estate things are happening.

Robby S. Pinnamaneni (19:55)
I think we have

360 days a year of sunshine. So we’re very fortunate.

Sahil (19:58)
There we go. The park

Pankaj Raval (19:59)
Yeah.

Yes.

Sahil (20:02)
open 24-7, 365. If you’re talking with Robbie, yeah.

Robby S. Pinnamaneni (20:04)
Yeah, and it’s a hustle culture. It’s a hustle culture

out here. So everybody’s always trying to do deals and make money and do business. So I think it’s 24 seven. That’s why I love California.

Pankaj Raval (20:10)
That’s true.

Absolutely. What’s one clause you for or try to include in a lease that sometimes is not there? Or is there a certain clause that you look for to make sure that that’s there to client a tenant?

Robby S. Pinnamaneni (20:25)
Yeah, I think it’s like maintenance obligations. You kind of want to understand what those are and most tenants do have maintenance obligations, which

requires you to do an inspection before you get into the lease and try to understand like, are the different components that you’re going to be maintaining? And, you know, what is their condition? Because like an HVAC, for example, could be a six figure expenditure. And if the tenant’s obligated to maintain it, you want to understand what you’re getting into. So people always overlook it because they think it’s boilerplate or there’s no negotiation. And there may be no negotiation, but then you can still do an inspection and try to understand what your exposure is. So.

Pankaj Raval (20:49)
Right.

Robby S. Pinnamaneni (20:59)
a lot there on maintenance I think that people need to look into.

Pankaj Raval (21:02)
Absolutely and get your inspection done for sure. Like 100 % anyone renting commercial you’ve got to what the landlord tells Biggest red flag that makes you tell a client should walk away from this deal

Robby S. Pinnamaneni (21:04)
Yes.

Wow. I think it’s like what you touched on earlier. I think if the landlord is just always, you know, kind of threatening divorce at every juncture, like everything that you bring up, then I think that’s just how that relationship is going to be. And a lot of these leases are five, 10, 15 year leases with renewal options. So it’s like, do you want to be doing business with this person for that long? Sometimes people are so myopic on just getting their business going that they forget that they’re getting married to someone effectively in a business sense.

Pankaj Raval (21:35)
Yeah.

So good. That was lightning round. I appreciate you answering those so We have a few, know, ended questions and then we can wrap up.

Sahil (21:50)
Absolutely. So what’s one question you wish more business owners would ask you about commercial leasing that they never do?

Robby S. Pinnamaneni (21:58)
what is one question that they would hope they would ask me? I mean, really just like, I mean, it’s kind of what we touched on before. I think it’s just like, they’re so focused on like, what is the monthly rent and like, how long is the lease that they’re not really thinking about everything else. So I think it’s just, you know, I wish they would ask me like, please tell me everything in here that affects, me in an economical or financial way. And you’re going to come up with a lot more than just the rent.

Right? There’s rent escalations. There’s, you know, common area maintenance. There’s triple net charges. You know, there’s indemnification obligations, you maintenance. Like there’s so many different things that affect, you know, the bottom line that I wish they were more focused on discussing those versus just, you know, disposing of everything else once they’re comfortable with the monthly lease payment.

Sahil (22:46)
So if someone is right now in the middle of a lease negotiation, what’s one thing that they should do before their next conversation with their landlord?

Robby S. Pinnamaneni (22:57)
I would contact Carbon Law Group right away.

Pankaj Raval (22:59)
Yeah. and, and, unbiased opinion. And just so our people know, Robbie is a counsel with carbon law groups. So when you, when you contact us, you get the expertise of Robbie, Pinnamaneni in the flesh, or virtually at least, and you know, he can definitely guide you. yes, if you do have questions, concerns about your commercial lease, you know, Robbie and the team, we’re ready to help you.

Sahil (23:00)
Absolutely, there we go. That’s the perfect way. Yeah.

Robby S. Pinnamaneni (23:09)
Yes.

Yeah. Yeah.

Fantastic.

Sahil (23:25)
Well, Robbie, this has been incredibly valuable for our listeners who want a deeper dive into these issues or who just want to be in touch with you. Where can they find you?

Robby S. Pinnamaneni (23:34)
Yeah, they can just contact Carbon Law Group and I’m available and eager to talk about all your lease issues and help you out.

Pankaj Raval (23:41)
Awesome. Well, that’s a wrap on another episode of Letters of Intent. Remember, in deal making, preparation isn’t just helpful, it’s profitable. For show notes, including Robbie’s recommended lease clauses, a checklist of maybe things to go through, we’ll include those in the show notes as part of the podcast. Please click on those. Like, share, follow for more of this kind of content. We always love to hear back from you, so please send us your messages, comments on the videos.

If you want to know more, we’re here to help. really want this to be a zero cost resource for all of you looking start a business. We believe in entrepreneurs. We believe in entrepreneurship. We’re here to really support all of you. Thank you again for taking the time to listen to Letters of Intent. Robbie, always great chatting man. really appreciate you sharing all your insights and experience and expertise over the commercial leasing. think this was super helpful.

Robby S. Pinnamaneni (24:31)
Thank you both.

Sahil (24:32)
Thank you.

Pankaj Raval (24:32)
Thank