When you list the properties you want to sell or rent, you need to know the type of lease you are working on. There are significant differences in leases at all levels, so the lease must be fully read before proceeding.
Leasing is the basis of real estate performance. The best sales people understand the leasing process and the high value it brings to future sales. A good lease can increase the selling price when the time is right.
As mentioned above, there are many different types of leases, but there are some rules and common basic elements that allow you to understand leases or potential leases that can be applied to a property. This is entirely an explanation of the rental document, which means you have to read it.
Professional property service
After years of industry work, I have seen the best people lay the foundation for success in the leasing process. This means they have acquired investment skills and knowledge by renting a property for several years. So let us now look at how to go on the road to technological development.
The better you negotiate, the more fully you explain the lease, the more professional you are, and the people you work with or serve.
You can and should add strategic value to your customers in each lease you negotiate. A lease is not just a document that allows tenants to take up a franchise; it is a tactical cash flow that can attract or detract from property.
The way in which a lease works for a real estate investor will have a solid impact on the property and its performance during the lease period. When you work with a tenant or buyer of a property, the type of lease that applies will also affect the negotiation. Let's take a look at the main types of leases and expand some of the most relevant issues for you.
Total lease:
Under the general lease, the lessee pays the full rent, which includes the expense portion, and the building owner will pay for all building operating costs [also known as expenses]. This means that the lease itself will have a rent review clause that only increases the total rent.
In this type of lease, the landlord needs to know that they can maintain the building's expenditures at a predictable level during the lease period because the landlord bears all the risks of paying the expenses. The rental review upgrade level in the lease must be expected to cover or exceed the upgrade of future annual expenditure levels, otherwise the landlord will relax the funds.
Total leases are common in retail and office properties. Your choice in using this type of lease and lease should be balanced against projected cost levels and future changes in the subject property.
Obviously, spending on older buildings will steadily increase spending on younger buildings. As buildings age and deteriorate, the total leasing approach becomes less attractive and riskier for landlords.
Semi-total lease:
In this type of lease, the landlord initially sets the total rent paid by the tenant and reviews it during the lease term, but the landlord also receives some regular funds for additional expenses under specific calculations. How is this done:
The landlord specifically resumed the expenditure upgrade above the designated expenditure base year. The base year is selected at the beginning of the lease and is usually the last reconciliation expense year prior to the lease arrangement, usually the last fiscal year at the start of the lease [because it is fully reconciled and referred to as the set value].
As the new semi-lease contract is completed during its term of office, the tenant must pay an increase in expenses over the specified base year. For example, if in the lease, the base year of expenditure is set to fiscal year 08/09, and the known level of expenditure for that year is $85 million per year, then the expenditure for the fiscal year 09/10 increases to $97 square meters, tenant Will pay $12 million in expenses. With the extension of the lease and the fiscal year of 12/13, spending may reach $108 million, in which case the tenant will have to pay $23 million.
In this type of lease, the base year is set and the "gap" is paid. As the lease increases, this number will increase significantly. This type of lease is beneficial for landlords with younger properties because it protects the landlord from an increase in spending above the base year, but still allows the landlord to use the total rent as the basis for rent collection.
This type of lease typically updates the base year's expenditures during any market rent review during the lease period. If the lease is lengthy [more than 3 years], a market review of such leases will take place, so market rent reviews will occur, for example every 3 or 4 years.
There is no need to conduct a market rent review at any particular time in the lease, as the matter can be negotiated at the beginning of the lease, but pay attention to the fact that the base of the expenditure is reset and its impact on the landlord.
As a further explanation of such leases, you should review the type of expenditures recovered in the calculation. It is not uncommon to rent a savvy tenant. For example, the government or a large company nominates the type of expenditure applicable to the base year upgrade.
Of course, it is best for landlords to be able to restore all expenditures for buildings above the base year, but government and corporate tenants are well known to limit calculations to rates and tax upgrades.
Obviously, a lease is a product of negotiation, but you need to understand what you can do and then get the best rental agreement for your customers.
Net lease:
The term net lease is first and foremost; because you should know that there are three types of net leases in this category. So let's take a look at them.
Net lease: In this lease, the lessee pays taxes and taxes on some or all of the property or concession.
Net net lease: In this lease, the lessee pays the tax rate and tax nominated in the "net lease". The method, but they then also pay the property and concession insurance premiums.
Net - Net - Net Lease: In this lease, the lessee will pay the rate and taxes, insurance, and then they will also pay for the repair and maintenance costs associated with the concession.
So what type of lease is best for the landlord? In most cases, Net-Net-Net Lease is a viable option, but tenants will accept and sign such leases.
As an aspect of the negotiations, any net lease or net lease should wisely provide landlords with higher rents and better rent review terms to offset the landlord's recovery.
Net-Net-Net leases are common in a property that is fully occupied by tenants. This is a method of leasing structure that is widely used in industrial property and office properties.
Rental percentage:
This type of lease is more common in retail properties because the calculation of rent is related to the number of transactions of the tenant. In most leases of this type, the tenant first pays a fixed base rent that is commensurate with certain rent review methods, and then the tenant also pays an additional rent calculated from its turnover or sales. As tenants improve their transactions, rents rise.
An important part of this leasing structure is to require the lessee to provide you with accurate and regular audited turnover data. The lease must support and enforce the landlord's audit procedures. The monthly turnover figure is the best way for tenants to provide recorded data to the landlord on the 7th of next month. The landlord then collects the revenue leased to the tenant based on the audited figures.
This type of rental also appears in new shopping centers as new tenants stabilize the level of customization and sales for the same reason, in hotel or motel supermarkets. The basic strategy for turnover is to give the landlord some cash flow to establish a basic rent from the start of the lease and then collect additional rents as the property and lease become more successful in generating sales and customers.
Spelled out
In all leases, the recovery of rents and expenses must be clearly defined to avoid debt and differences with tenants. As you can see now, choosing the type of lease you want to use on your property will have a major impact on the landlord's future. It also affects any sales situation.
Know what's happening in the market about leasing and leasing types so you can lease deals that are similar or better to other markets. The right rental structure, documentation and rent will help to sell the property at a better price.
Orignal From: Understanding commercial real estate leasing
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