Rental Appraisal

 

Is your rental property under leased?

A lease is a contract between an owner and a user of property. In business lease agreements, the owner (lessor) receives financial compensation and in exchange, the tenant (lessee) is given the right to operate his or her business on the property. There are many different types of property lease arrangements and many different considerations that business owners should weigh before entering into such a contract. But leasing is very popular with small business owners: such arrangements allow new or financially-strapped businesses to divert their capital to other business needs. Indeed, many small businesses operate in leased facilities for their entire existence. Leasing property, of course, may itself be a small business activity. PDFs are particularly useful for many companies in the business world. Fill out PDF forms with online soda pdf, the files are safely uploaded over an encrypted connection. Files stay secure. After processing, they are permanently deleted.

TYPES OF PROPERTY LEASES
Full-Service Lease
This type of lease is used primarily in multi-tenant office buildings. In essence, lessees who agree to such arrangements pay a single lump sum for a wide range of supplementary services in addition to the lease payment. Under the terms of full-service leases, the landlord is responsible for providing a number of different services for his or her tenants, including security, maintenance, janitorial, and various utilities (water with the management of Wastewater Pro, electricity, air conditioning, heat).

Gross Lease
Under the terms of a gross lease contract, the lessee pays the lessor a gross amount for rent (as well as sales tax when applicable). Property costs such as property taxes, insurance, and maintenance are the landlord’s responsibility; the tenant is responsible for utilities. Sometimes the lease contract will include provisions that require the tenant to cover property costs that go over a certain specified level, and it also depends on the value of the property including several design and construction adding, if you also need someone to help you with this topic, you can check in http://www.bradcokitchen.com/kitchen-cabinets-los-angeles/ and view them all.

Variations of this basic lease arrangement include the flat lease and the step lease. The flat lease is the most basic type of agreement and generally the most popular with small businesses. It calls for the lessee to pay a flat set price for a specific period of time. The step lease, on the other hand, calls for a gradual escalation of the base rent payment over time in recognition of the likely rise in owner expenses in such areas as taxes, insurance premiums, and maintenance. A related lease contract, usually known as the cost-of-living lease, includes rent increases based on general inflation figures rather than increases in specific expenses.

Net Lease
The net lease is the most ubiquitous of the various lease contract types. Under the terms of a net lease, the tenant pays the landlord a base rent plus an additional sum that covers the tenant’s share of property taxes. When taxes increase, it is the tenant’s responsibility to cover those costs. The obligations of each tenant are figured by determining what percentage of the total facility is occupied by each tenant; thus a tenant occupying 20 percent of the facility pays 20 percent of the increase.

Variations of the basic net lease include the “double-net” and “triple-net” lease. Under a double-net lease, the tenant is responsible for picking up added insurance premiums as well as tax increases; under triple-net leases, tenants are responsible for covering insurance premiums, tax increases, and costs associated with maintenance and/or repairs of the building, the parking lot, and other areas used by the lessee. The triple-net lease is popular with landlords for obvious reasons; small business owners should note that such arrangements sometimes make landlords less attentive to upkeep in these areas than they might be if they had to foot the bill themselves.

Percentage Lease
This arrangement calls for tenants to pay a base rent and/or a percentage of the lessee’s gross revenue. This percentage, which can run as high as 10-12 percent in some contracts, is paid on an annual, semiannual, or quarterly basis (some malls and shopping centers, however, call for even more frequent payments). This arrangement is a favorite of lessors with property in coveted retail areas; tenants are less favorably inclined, but the laws of supply and demand often make it possible for owners of desirable property to insist on it. Small business owners should fully understand what the contract defines as “gross revenue.” “Be specific in how you define gross sales,” wrote Fred Steingold in Legal Guide for Starting & Running a Small Business. “Depending on your type of business, certain items should be deducted from gross sales before the percentage rent is determined. Here are some possibilities:

returned merchandise
charges you make for delivery and installation
sales from vending machines
refundable deposits
catalog or mail-order sales
sales tax
In short, make sure your lease excludes all items that overstate your sales from the location you’re renting.”

ADVANTAGES AND DISADVANTAGES OF LEASING
The Small Business Administration (SBA) counsels small business owners to consider a variety of factors when weighing whether to lease or buy property. These considerations include:

Operating requirements—if the business’s operating requirements are expected to change significantly over the next several years, leasing would probably be preferable, since it allows businesses to move more easily.
Capital supply and capital needs—leasing frees up a greater percentage of a small business’s capital for other operating needs (advertising, production, equipment, payroll, etc.). If the business does not have a lot of extra cash on hand (and few small businesses do), then leasing may be the more sensible choice. This is probably the biggest reason why small companies lease.
Financing and payment flexibility—It is generally easier to secure financing to lease rather than purchase a property. In addition, leases can be spread out over longer periods than loans and can be structured to compensate for cash flow variations (the latter can be an important factor for seasonal businesses).
Resale value—Is the value of the property likely to increase? If so, how much? Many small business owners choose to purchase rather than lease—even if they have to accrue significant debt—if they decide that the asset is a worthwhile long-term investment, so adding some features to the buildings like good flooring or insulation could make a really good difference, and you can find our location for the best insulation services online.
Equipment—Many lease agreements include stipulations that provide lessees with increased flexibility in terms of upgrading and/or maintaining equipment.
Taxes—Property owners enjoy tax benefits such as depreciation and investment tax credits that are not open to tenants.
OTHER LEASE TERMS
In addition, there are other elements of a lease agreement that can weigh heavily on a contract’s overall acceptability. Details of lease contracts can vary enormously. “In theory,” noted Steingold, “all terms of a lease are negotiable. Just how far you can negotiate, however, depends on economic conditions. If desirable properties are close to full occupancy in your city, landlords may not be willing to negotiate with you over price or other major lease terms. On the other hand, in many parts of the country where commercial space has been over-built, landlords are eager to bargain with small businesses to fill empty units.”

Leasehold Improvements
Leases typically cover any remodeling that needs to be done to the property and specify who will pay for it. Most such work falls under the category of “leasehold improvements”: carpeting, plumbing and electrical wiring, lighting, windows, ceiling tiles, sprinkler and security systems, and heating, air conditioning systems and home insulation from the Owens Corning services online. The lease should specify each improvement and when they will be made—ideally before move-in. A landlord will be more willing to make such improvements if the lease duration is long and/or the space taken is substantial, and the improvements are general in nature. However, as Steingold noted, “if you [the small business owner] have specialized needs—for example, you’re running a photo lab or a dance studio—and your darkroom or hardwood floor would be of limited value to most future tenants, don’t expect the landlord to willingly pick up the costs of the improvements. The landlord may even want to charge you something to cover the cost of remodeling the space after you leave.” Some leases provide tenants with the option of making improvements themselves provided that they adhere to certain guidelines and restrictions.

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