Commercial Leasing 101
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Commercial Leasing 101

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Information on Commercial Leasing by Cheryl Hamm, Joyner Commercial.

Information on Commercial Leasing by Cheryl Hamm, Joyner Commercial.

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Commercial Leasing 101 Commercial Leasing 101 Presentation Transcript

  • COMMERCIAL LEASING 101 Cheryl Hamm Joyner Commercial
  • Richmond Map SOUTHWEST QUADRANT SOUTHEAST QUADRANT NORTHEAST QUADRANT NORTHWEST QUADRANT
  • Lease Terminology
  • Types of Leases
    • Net Leases
    • Industrial Gross Leases
    • Full Service Leases
  • Single Net Lease
    • Who is responsible for what?
    • Tenant:
    • Base rent
    • Plus an operating expense such as janitorial, electric or property taxes
    • Personal property and liability insurance which once in place must show the Landlord as additionally insured
    • Personal property taxes
    • Phone
    • Internet services
    • Landlord:
    • All other operating expenses of the property
    • What type of property would use this?
    • Small Multi-Tenanted Office with separate utility metering
  • Double Net Lease (NN)
    • Who is responsible for what?
    • Tenant:
    • Base rent
    • Two other operating expenses such as janitorial and electric or the property taxes and property insurance.
    • Personal property and liability insurance which once in place must show the Landlord as additionally insured
    • Personal property taxes
    • Phone
    • Internet services
    • Landlord:
    • All other operating expenses of the property
    • What type of property would use this?
    • Multi-Tenanted Office Buildings (usually small) with separate utility metering
  • Triple Net Lease (NNN)
    • Who is responsible for what?
    • Tenant:
    • Base rent
    • Property taxes
    • Property insurance
    • Pro-rata share of common area maintenance (CAM) which can include common area landscaping, utilities, snow removal, repairs, etc.
    • Personal property and liability insurance which once in place must show the Landlord as additionally insured
    • Personal Property Taxes
    • Janitorial services
    • Utilities
    • Phone
    • Internet
  • Triple Net Lease (NNN) (cont.)
    • Landlord:
    • Property Management
    • What type of property would use this?
    • Single Tenant Office Buildings
    • Retail
  • Industrial Gross Lease
    • Who is responsible for what?
    • Tenant:
    • Base rent
    • Utilities
    • Janitorial
    • Interior property repairs (HVAC, water heater, lights, walls, floors, windows)
    • Pro-rata share of the common area maintenance
    • Personal property and liability insurance which once in place must show the Landlord as additionally insured
    • Personal property taxes
    • Phone
    • Internet services
    • Pro-rata share of any increase in property taxes and building insurance after the 1st year of the lease
  • Industrial Gross Lease (cont.)
    • Who is responsible for what? (cont.)
    • Landlord:
    • Base year property taxes and building insurance and exterior roof and structure
    • What type of property would use this?
    • Warehouses
    • Flex/Office Space
  • Full Service Lease
    • Who is responsible for what?
    • Tenant:
    • Base rent
    • Personal property and liability insurance which once in place must show the Landlord as additionally insured
    • Personal property taxes
    • Phone
    • Internet services
    • Could be made responsible for pro-rata share of any increase in base operating expenses over a base year or expense stop
  • Full Service Lease (cont.)
    • Who is responsible for what? (cont.)
    • Landlord:
    • Building taxes
    • Building insurance
    • Maintenance
    • Utilities
    • What type of property would use this:
    • Multi-tenanted Office Buildings
  • Important Definitions:
    • Pro-Rata Share
      • Calculated on a square footage basis.
      • Tenant’s SF divided by Total Building SF = Tenant’s pro-rata share
    • Base Year
      • Calculated on a calendar year basis or the first 12 months of tenant’s occupancy
      • The base operating expense account is the floor over which any increases in operating expenses will be passed on to the tenants
  • Important Definitions :
    • Expense Stop
      • Preferred method for expense calculation by a Landlord
      • Allows Landlord to estimate the approximate expenses the building will incur and the tenant is responsible for payment of his pro-rata share of actual operating expenses over the estimated expense stop.
      • Be careful – has led to fraudulent estimates of expenses in the past and unexpectedly high operating expense pass-throughs to tenants
  • Important Definitions :
    • Percentage of Sales
      • Used in retail leases
      • Landlord would receive a percent of the gross sales of the business after reaching an established dollar volume of business
      • Infrequently used in leases for smaller retail establishments
  • Important Definitions:
    • Tenant Improvements (TI)
      • Work that is required to make space inhabitable for your use
      • Amount covered by owner is dependent on lease term
      • Tenant could be made responsible for any and all of the cost of improvements
      • The cost can be paid two ways:
        • At time of completion of work (Cash or Business Loan)
        • Amortized over the term of the lease and added to the monthly rent
  • Expectations of Landlord for Tenant
    • Business Plan in place
    • 2 years tax returns and/or Financial Statement prepared by accountant
    • Financial wherewithal to pay the rent for at least 12 months
    • Personal Guarantee (Guarantor of Lease)
      • Allow plenty of time for identifying property, negotiating, and ratifying lease, and completion of tenant improvements
      • This could take anywhere from 3 months to 9 months, start to finish!
    Tenant Expectations