Landlords & Property Owners

Drone use in the real estate industry has exploded in recent months. The utility of drones in sales, marketing, construction, surveying, and inspection of real property is undeniable. There is vast potential for commercial use of drones in the real estate industry.  Their use has become very important in marketing strategies for brokers and developers, for inspection teams on construction projects and even for construction of high-rise cable structures. For example, drones can assist with moving dirt on a construction site using autonomous dump trucks, bulldozers, and excavators with real time mapping of the movement of soil and cement. Drones have also been extremely useful to surveyors in preparation of property reports and for owners who use drones for property security.

Drones are also increasingly used in other industries, like retail, as has been in the news lately. Both Amazon and Walmart are testing the waters of drone usage for faster retail package delivery. Most recently, Walmart is looking to use drones to increase the efficiency of their distribution warehouses. UPS has jumped on the bandwagon, delivering an inhaler via drone recently in Boston and even 7-11 recently delivered slurpees, a chicken sandwich, donuts and hot coffee to a private home that placed an order in Reno. Smaller local businesses are finding ways to utilize drone technology, like a local pharmacy in San Francisco that is testing the use of drones for delivery of prescription drugs and other items.

With the increasing popularity of these uses of drone technology comes the need to address the potential risks and threats to real property rights, privacy rights, liability and personal injury. Here is short list of what property owners should be thinking about with the increasing use of drone technology:

  • Owners and operators of office, industrial and retail operations have a number of issues to concern themselves with. Upgrading of building rules and regulations should be considered to accommodate drone technology. Drones can be tricky to navigate, and it takes skill to avoid hitting poles, trees and buildings. If tenants do business with vendors or retailers that use drone delivery, should building rules and regulations address delivery schedules? How will liability be addressed?
  • As always, commercial property owners need to consider their tenant mix. Is a drone user tenant going to interfere with other tenants’ quiet use and enjoyment? One North Dakota business park caters exclusively to drones with the park’s tenants all involved in the training and development of drones.
  • The low cost of drones is making it easier to invade low-altitude airspace and drones are increasing the value of low-altitude airspace. Do drone users need to acquire easements or licenses from property owners before flying through their airspace?
  • Will governments exercise their eminent domain authority to condemn public drone pathways or corridors through private airspace?
  • Drone zoning ordinances could allow drone usage in certain locations and certain times so as not to invade the privacy of property owners. They could also set forth hover rules so that delivery drones are constantly moving to their destination and not hovering in places like outside high-rise windows. Drone zoning could even involve conservation areas where drone usage would be excluded all the time. However, even if zoning regulations limit drones to flying only above roads, there could still be privacy issues. Drones will likely still have vantage points into high-rise windows looking into confidential meetings, work spaces and private residences.
  • The patchwork of existing property laws will need to adapt to give property owners clear rights. Would surface trespass and takings laws apply to situations involving low-flying drones? Will municipal or state laws exclude drones or other aircraft from entering into low-altitude airspace up to the existing navigable airspace line (typically 500 feet above ground)? A 2013 Oregon state statute permits a civil claim for drone trespass against anyone who flies a drone over their parcel a second time at a height of less than 400 feet after being asked not to do so. Remedies under that statute are treble damages for personal injury or property damage and up to $10,000 in attorneys’ fees. One drone owner filed suit against his neighbor in Hillview, Kentucky in January 2016 when the neighbor shot down the $1,800 drone that was flying low, hovering over the neighbor’s pool and daughter who was sunbathing at the time. This case, known as the ‘drone slayer’ case could, as reported in Fortune, “lead to a reconsideration of that standard [the exclusion of aircraft below 500 feet], or it could reaffirm it. If private property owners retain the right to limit drone access to their airspace—including, perhaps, via shotgun—it would represent a significant wrinkle for many of the most ambitious plans for putting drones to work.”

As recently reported in Fortune, “[b]ecause of the long list of potential commercial uses for drones, the drone industry is expected to expand dramatically over the coming years. By one estimate, as much as $89 billion could be invested worldwide on drones over the next decade and the FAA has forecasted that, by the year 2020, as many as 30,000 drones will be coursing through skies above the United States at any given time.”  Given the significant growth of the drone industry that is being predicted, it will be interesting to see how property laws will transform to deal with the issues drones create and what protections property owners will take on their own to secure their property rights.

 

 

 

The Financial Accounting Standards Board (FASB) is expected to finalize new lease accounting standards (“Standards”) within the coming months which will have very real consequences for owners and lessees alike. Under current accounting standards, a lease is classified as a “Capital Lease” or an “Operating Lease.” A capital lease is treated similarly to a loan; the asset is treated as being owned by the lessee and must be recorded as an asset on the lessee’s balance sheet. By contrast, an operating lease gives the lessee a right to use the owner’s asset without the requirement of including the lease on its balance sheet. The lessee never owns the asset and must return it to the owner after the lease ends. Most office building, retail, or other standard commercial leases are operating leases under the current standards.

The new Standards will, among other things, eliminate the above classification and instead classify most capital leases –including existing capital leases –as a “Type A Lease”, which will be accounted for in substantially the same manner as capital leases are accounted for under existing generally accepted accounting principals (GAAP), and most operating leases – including existing operating leases –as a “Type B Lease”, which will be accounted for in a manner similar to operating leases under existing GAAP, except that lessees will now be required to include lease obligations on their balance sheets increasing assets and liabilities. Shorter term leases, leases of 12 months or less, must also be included on balance sheet if, considering all relevant economic factors, the lessee is “reasonably certain” to exercise an option to extend the lease beyond 12 months. Continue Reading FASB Lease Accounting Changes

Our colleague Steve Friedberg recently spoke at the ICSC Shopping Center Law Conference in Phoenix, Arizona on the topic of “Financeable Retail Leases: A Guide to the Perplexed”.  The seminar explored the requirements for creating financeable retail leases from the perspectives of landlords, tenants and leasehold and fee mortgage lenders. Five key takeaways from Steve’s presentation were:

  1. The users of these leases are generally national credit tenants who require control over the construction of their buildings through long-term ground leases (the term generally is at least 25 years, plus 4 or more 5 year renewal options—the term, including options, has to be at least 20-30 years longer than the term of a leasehold mortgage to satisfy rating agency requirements). Because of their credit standing, these tenants can build their improvements much less expensively than a landlord (and the landlord does not have the risk of construction and its cost). Continue Reading Financeable Retail Leases: A Guide to the Perplexed

We are seeing more and more of our clients branching out into international markets.  My partner, Dawn Saunders, wrote an interesting article about navigating international leasing transactions and the importance of having experienced international leasing counsel review these transactions. For example, experienced U.S. based attorneys have vetted and worked with local counsel. Additionally, they understanding key differences like how local contracts differ from contracts in the U.S. and how risk is assessed.