Lease Proposal

[Anonymous]

I have been reading this board about 6 months. I have owned and operated a laundry for 20 years, however, this is the first time I've had to negotiate a lease renewal. I don't know where to begin learning about this. Is there any one area of this Web site which deals with leases, or should I start searching past posts by different topics? Is there anyone who specializes in leases that would like to communicate with me directly?
Thanks for your help.

[pete f]

Make up a list of things you really need out of a new lease, like parking, time term of lease,options, remodel clauses, etc, whatever you can think of. Then when the landlord jacks the rent on you, try to demand some of these things you need to stay in business. The fair rent increases seem to be "CPI" for the base. Rent, taxes, and insurance will always being going up, the landlord has you under the thumb, really. Try to get what you need out of the deal, some are easier to deal with than others.

[Anonymous]

Pete - Thanks for your input. I see you contribute to this board a lot and I appreciate your opinion. Can you tell me about 'options'. I asked for a 10 year lease with two 5 year options. The landlord gave me a fixed rent for the first 10 years, but the 5 year options were quoted as 'then market rent for comparable space'. I thought options would have a defined rent price. Isn't that why we ask for options? Also, you mentioned "CPI" What is that? Thanks for your help.

[mike]

CPI stands for consumer price index.

It is usually a government figure of inflation,
(in general, or as relates to store rents)

It is a protection to both of you against "unable to be agreed upon rents or figures" in the future.

[Anonymous]

While it would be nice to have the options at a fixed rate, it sounds like you may be getting a real steal if you are locking in rent for the first 10 years at a fixed rate - assuming that is a market rate as of today.

[Kitty]

As Howard said locking into a 10 year fixed rate is very desirable. By other means, any landlord could add increases every two year based on the cost of living or whatever he thinks to add with out an agreement that spelled out the terms

10 year fixed sounds pretty good. Negotiate a cost that the landlord is considering. Due your math and evaluate your business and its life span and goals. Don't do business with a slime dog, and there are plenty out there. Watch for the highlights that pass the wasted who says liittle and passes by.

[pete f]

AS the other have said, ten year fixed is great. The option simply means you are first in line to rent again, sometimes the rent gets higher at the end, other times it will continue at CPI, depending on the market at that time.

[Anonymous]

Let me explain this- I currently pay $2050/mo. The proposed lease would increase rent to $2750/mo. in yrs. 1 & 2; $3000/mo. in yrs 3-5; $3500/mo. yrs. 6-10. I think that is roughly 33% increase ($700/mo.). Last time I checked, the Consumer Price Index wasn't quite that high....

[pete f]

Let me explain this- I currently pay $2050/mo. The proposed lease would increase rent to $2750/mo. in yrs. 1 & 2; $3000/mo. in yrs 3-5; $3500/mo. yrs. 6-10. I think that is roughly 33% increase ($700/mo.). Last time I checked, the Consumer Price Index wasn't quite that high....


yee haw! mike will be chiming in quick about how it is better to own then rent! and I agree, if possible. I have had those type increases before, and recently did the same on to a tennant..
I hate big rent increase, it just devaules your business and you make less money also, so it is 2 edge sword at your pocket. If your rent is now very low compared to anything around you, then the landlord is trying to bring you up to market. If your rent is market then the landlord is screwing you. Not much you can do but move to a cheaper rent, and that cost a bundle. Some real estate markets have boomed, and the landlords want the cap rate to reflect the value, ie, the rents being a certain percentage of the market price of the building. With a jack in rent like that, is the owner selling? Maybe ask?

[Jim]

That was my first thought... that the owner maybe considering selling the place and a hike in rents makes it more attractive to buyers...

Other than what Pete said...that is a hell of a hike on rent..

[Anonymous]

Now that you understand the proposed rent increases, I will explain the history of the shopping center. I have very low rent compared to standard market per square foot. However, I am in a shopping center which has been let go and run down. I am estimating only 40% of SF is rented. Run down, run down, run down. The two grocery stores have moved out. We have no anchor. I am literally 'burried' in a back corner with NO visability from the street and no signage. In 1992 the landlord put in new sewer lines and vinyl tile floor. He has done nothing since then. The bathrooms are in major disrepair as nothing has been updated since I came in 20 years ago. There was NO insulation above the suspended ceiling until about 4 years ago when i paid for and installed it myself. (Note, this is OHIO, burrr in the winter.) The heating system is on it's last leg being 18 years old and there is NO air conditioning, but lots of flies. There are other issues, but I think you get the point. I have survived for two reasons - I am the cleanest mat in town and I am always attended. Up until a few years ago my advertising was taken care of by word of mouth and the foot traffic from two groceries. Not so anymore. However, my cheap rent has off set the problems but that will change with a hugh rent increse. The big news is that the shopping center was purchased in January by a real estate developement company who plans to refurbish the plaza. So far they have patched the parking lot and say they will repave before winter. They are planning a new facade to update the look. Thats all great, but none of that has a great impact on my business directly. I have been looking to move for some time. Ideally I would like to own property and building, and could probably put together the financing but I can't find any place to go. I think I have the ability to design and build a new store but I don't have the knowledge on how to acquire property.

[Anonymous]

Generally in a commercial triple net lease you are responsible for the interior. That means if you want the bathroom upgraded you do it and pay for it, if you want insulation you pay for it, if you want new heat or an a/c unit you pay for it, if you want .... well you get the idea. So, I would not be so quick to throw those darts at the property owner - read your lease.

It sounds like a case of supply and demand, he's got the supply and can demand what he wants. If you cannot find a suitalbe alternate location you have two choices pay what he wants or shut down.