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Posted By admin on February 22, 2009

Also called a land lease, the ground lease is one in which a tenant simply rents land, often without improvements of buildings. This is typically a net lease, with the tenant responsible for taxes, insurance and maintenance.

With ground leases, the tenant will then develop the property and build on the land. Because the tenant will need to recoup the high cost of development, most ground leases are long-term. Typical ground leases begin with at least a 40-year term, and sometimes provides for extensions.

This can be an advantageous arrangement for developers and tenants, as they avoid the cost of having to purchase the land. This is particularly true in areas with high land costs, such as downtown urban centers. Leasing also has certain tax advantages compared to purchasing.

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Tags: cash, credit, insurance, loan, maintenance, Tax

Posted By admin on February 22, 2009

Most long-term leases have some sort of variable lease arrangement that allows the property owner to raise the rental payment charges. The basic methods for such adjustable leases are the graduated and the index leases, which are similar to their mortgage counterparts.

The index version of the variable lease makes periodic adjustment to the rental rate based on a predetermined index. The most commonly used index is the consumer price index (CPI), issued by the Federal government. However, other indices may also be used, such average rents reported by industry groups, trade journals, governmental bureaus or business media.

For example, to guarantee that they are not being overcharged for their penthouse office space, the Chicago accounting firm of Dewey, Cheatham and Associates negotiate an index leases that ties their base rent to the average base rent paid in the downtown area, as reported each year by Crain’s Chicago Business.

Because index leases can become complicated and expose landlords to disputes about calculations, some landlords opt for the graduated lease format. The basic graduated lease normally sets up a stepladder arrangement, in which the base rent increases at predetermined anniversary dates. For example, an industrial lease may charge a base rent of $4 per square foot, with annual increases of 7.5% beginning on the third anniversary of the lease signing.

The graduated lease may also be arranged on a seasonal schedule. For example, a storeowner on the tourist destination of Mackinac Island negotiates a lease, which arranges the rental payments so that they coincide with the tourist season. So, winter rents are dropped to $100, while summer rents may be adjusted to $1,200 per month.

Category: Long-term lease | Comments Off
Tags: currency, exchange, financial market, Lease, Tax

Posted By admin on February 22, 2009

A lease arrangement used by many larger shopping centers is the percentage lease. This arrangement ties the rental payments to the success of the tenant’s business, and is often used with properties in which the property itself (and its location) promises to bring customers to the tenant. A portion of the tenant’s rental payment is based on the tenant’s gross income.

With shopping malls and centers, for example, where the success of the tenants relies heavily on the marketing draw of the shopping mall, this gives both the landlord and tenant equal impetus to successfully market the entire mall.

The percentage lease is normally structured as either a gross or net lease, and occasionally with a variable lease feature. However, the entire rent payment is not based on a percentage of the tenant’s gross income. A useful example would be a triple-net arrangement, with a base rent of $5 per square foot plus 1.75% of the tenant’s gross income.

Obviously, the lease agreement will require the tenant to open the business’ books and accounts to the landlord’s scrutiny. Certified copies of the tenant’s business tax returns, audited financial reports and, sometimes, personal tax returns are normal disclosure requirements. Property owners who use the percentage lease are usually astute enough to know what market averages are for the local area and the tenant’s industry.

To protect the landlord’s bottom line, percentages leases typically give the landlord a recapture clause, which allows the property owner to reclaim the rental property if minimum sales projections—as pre-stated in the lease agreement—are not satisfied.

Category: Lease | Comments Off
Tags: market, money, price, property, property owners, shopping, value