Commercial Real Estate Regulations That May Surprise You

I am a political junkie. While most kids may have gotten autographs of their favorite baseball player, or perhaps a rock star, when I was younger I got an autographed Union Leader from the all of the1992 Presidential Primary’s…. Yes I am a political dork. Where else then would I find excitement but by being down in Washington DC for the National Association of Realtors’ (NAR) midyear political meetings. We had a chance to meet with New Hampshire’s entire delegation as well as their staff. The discussions we had with the delegation were mostly dealing with real estate issues affecting the residential industry. However it was in DC at these meetings that I was made aware of a few items that are on the rule making side of the coin, and not tied in with the current legislative session.

You may have heard that the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) have proposed changes to how tenants place their leases onto their financial statements. The old method of noting them will no longer apply and the new method, if adopted, will require leases be capitalized on the balance sheet. There will be an obligation of payment as a liability, and then offsetting “right of use” as an asset. The details are immense, complicated and raise questions such as lease options, net payments and percentage rents. According to NAR, in April of this year both Boards agreed to delay the finalization of these rules for at least a few months. If adopted, these rules could be a huge change for a property manager accounting for nets, and large public tenants who may require shorter term leases in order to protect their balance sheet.

According to NAR, on May 6, 2010 the Environmental Protection Agency (EPA) released an Advanced Notice of Public Rulemaking concerning the renovation, repair and painting programs for commercial and public buildings. You may be familiar with this if in the last 18 months you have done any renovation to an older residence. Under the residential rules contractors conducting any repair on a home or apartment have to adhere to many new rules including the quarantining of the area. The new proposed rules, if the go into effect, would make these same measures applicable for commercial buildings, both interior and exterior. While it is unclear when and if these will come into play, there is no question what the impact could mean for commercial real estate property owners.

NAI Norwood Group and this news blast will keep you abreast of anything we hear on these and other rules that may affect you and your business. In the mean time it may be important for you to discuss these issues with other provisional advisors such as accountants and CPAs. Be it rulemaking or legislation, there is no question that we must always take part in the process and be proactive to learn more.

Written by Chris Norwood, NAI Norwood Group, cnorwood@nainorwoodgroup.com.