THE LOW-DOWN ON LEASES
Paul Corey, Realtor®
Bosshardt Realty Services, Inc.
8/22/2006
BY DEFINITION:
According to Webster, a Lease is “a contract for the use or occupation of real estate usually for a given period in exchange for rent.”
The Landlord may be referred to as the leasers. The Tenant may be referred to as the lessee.
A Full Service Lease is where the Landlord pays for utilities, janitorial, real estate taxes, repairs, building insurance, and common area maintenance.
A Gross Lease is where the Landlord pays for real estate taxes, building insurance, and common area maintenance.
Net Leases refer to the expenses that are passed thru to the tenant. A Triple Net Lease is where the tenant pays for the real estate taxes, building insurance, repairs, and common area maintenance. These are ever changing expenses that are adjusted every year.
Most leases usually have an escalation charge which may be a set percentage or tied to something like the Consumer Price Index or any other index that will take inflation into account.
A Ground Lease may be structured the same as the above types of leases; however, it is only for the land and the tenant therefore is responsible for the construction of the building and the building of roads, utilities, etc. Consequently, the term of the lease is generally very long.
TO LEASE OR BUY
I believe this quote can be attributed to Dale Carnegie: “If something is going to appreciate in value, buy it. If something is going to depreciate in value, lease it.” This would apply to the tenants’ decision process. Conversely, the landlord position is exactly opposite. If the property is going to appreciate, the landlord would consider leasing it. If the property is going to depreciate, it would be prudent for the landlord to sell it.
That having been said, it is not always possible to follow this advice. Location is usually the most important factor particularly if the tenant requires high traffic. If the tenant requires business that is destination-oriented, then location may not be quite as important.
Funding is usually the ultimate decision maker for the tenant. If he doesn’t have the financial strength, he may be limited to renting. If there isn’t anything for sale (WHICH USUALLY IS THE CASE IN GAINESVILLE), he is destined to rent.
However, at the same time, the landlord may well be motivated to sell because of financial needs on his side. This has been the only trend for selling property in Gainesville recently.
In the future, you can look forward to articles on the following:
- Why is it important for a landlord to maintain a consistent rate of rent?
- As a tenant can I afford that consistent rate of rent? What % of operational expense should be rent?
- How do I market my property if I want to become a landlord?
- How do I find the perfect location for my new business?
- What is a proper mix as a landlord?
- What should I do with property if I am buying into the future?
If you have any questions about this article or any of the above topics, contact “THE COMMERCIAL BOSS” or Paul Corey, realtor, ‘the Leasing Expert”, 352-246-6646 at Bosshardt Realty.
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