Commercial Real Estate Agreements

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• Commercial Real Estate Agreements
• Endi Piper

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Assisting Your Client in Choosing a Location

• Client will want an affordable space that suits
  their needs
• Is the location important for the success of the
  business?
• What type of location is best?
• How much money does your client have for purchase
  or lease?
• Is the location appropriate for what your client
  plans to do there?

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• Lease or Purchase?

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Why Lease?

• Cash Flow
• Credit Rating
• Maintenance
• Unable to find Property for Sale
• Real Estate Values
• Mobility

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Why Purchase?

• Long-term Savings
• Location
• Control
• Unable to find suitable property to lease
• Real Estate Values
• Tax Savings

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Lease or Purchase?

• Gain use of asset whether lease or purchase
• Advantage of leasing less initial cash outlay
• Advantage of purchasing pay less in long run
  and get benefit of appreciation in value of
  property
• Do a cash flow analysis to determine best option
  for your client

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Lease with an Option to Purchase

• Agree that in return for a non-refundable
  deposit, lessee has option to buy at end of lease
• Pros
• Allows opportunity to buy if havent yet
  established credit
• Can build equity during lease and still buy for
  fixed amount
• Cons
• Dont receive tax deductions during lease

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• Negotiating a Commercial Lease

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EXERCISE Negotiating a Commercial Lease
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Negotiating a Commercial Lease

• Terms in initial lease provided will always favor
  landlord
• Do not be afraid to negotiate
• Do your research in advance
• Ability to negotiate terms is generally dependent
  on local commercial rental market and needs of
  both parties

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Term of Lease

• Short Term
• More Flexibility
• Best if business not location sensitive
• Comparable space available
• Longer Term
• Ensures that you will have space
• Landlord will make more concessions
• Business may outgrow space or may need less space
• Solution negotiate short initial lease with
  options to renew

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Rent and Rent Increases

• Check out rates for comparable spaces
• Usually determined by multiplying square footage
  by cost per square foot then dividing by 12 for
  monthly cost PLUS common area maintenance costs
• Most landlords wont reduce rent ask for reduced
  rent for of months to cover moving costs, etc.
• Annual increase standard try to exclude increase
  for year 2 and cap subsequent years
• Gross lease landlord pays utilities, repairs,
  taxes, insurance
• Net lease tenant responsible for extra costs
• Consider paying more rent to get gross lease

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Tenant Improvements and Maintenance

• Try to get Landlord to do build outs at no charge
• More willing with long term lease
• Limit tenants repair and maintenance
  obligations maximize landlords maintenance and
  repair obligations

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Permitted Use Clause

• Will contain clause about permitted use
• Must contemplate potential future uses of
  property based on your clients business
• Needs to be broad and all encompassing

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Subleases and Assignments

• Ask for option to sublease or assign
• Want ability to sublease the space in whole or in
  part
• Watch for clauses that say that change in more
  than X of companys stock ownership is
  considered an assignment

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What if Your Clients Business Fails?

• Option to Assign or Sublease the Space
• Option to Cancel the Lease
• Set Shorter Term with Options

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• Negotiating a Commercial Purchase Agreement

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Considerations

• Exact description of property you are buying,
  including land surrounding the building
• What is included in Purchase Price and when is it
  due
• Any contingencies that must be met before you are
  obligated to complete purchase (e.g. deal
  contingent on ability to get a mortgage loan)
• How property taxes and utility bills will be
  pro-rated between buyer and seller
• Type of title evidence or title insurance seller
  must provide
• Closing and delivery date
• Legal recourse if either party defaults