commercial-real-estate-lease-michigan

by Chris Prefontaine

Chris Prefontaine is an Internationally recognized real estate coach & trainer. He has built over 100 homes in the new construction business, was a ...

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A wide range of commercial leasing possibilities exist today. Unlike residential leases that can be pretty boiler plate, in commercial leasing there are a variety of types and options. For example, an office lease in a major city and a retail lease in a suburban shopping center will be considerably different. From a broad perspective, there are a few types of leases commonly found that you should familiarize yourself with. Then within these categories, leases may vary as well. Here are some types for you to be familiar with:

• Land or ground lease: This is where the tenant leases the grounds and builds on the property. Typically, with a land or ground lease, all improvements on the property, including any building or buildings revert back to the landowner at the end of the lease period. This is a terrific cash generator for land owners and often is a fit for larger National chains.

• Gross lease: The tenant pays a set amount of rent and the landlord is responsible for payment of taxes, insurance and other costs associated with owning the property. This is the opposite of a net lease.

• Net lease: Opposed to a gross lease, this is where the tenant pays the rent plus a portion of the maintenance fees, insurance premiums and other operating expenses. Sometimes when you take over a building with gross leases, a move towards all net leases would be the first step. This would bring more profit directly to the bottom line as an owner.

• Triple-net lease: Typically, for a freestanding facility, this type of lease has the tenant paying for all fees and operating expenses associated with the space, thus, the preferred lease for an owner.

• Shopping center leases: The tenant pays a base rate in conjunction with the square footage of the retail facility. You'll also find with these leases that the tenant will also pay some common charges and frequently a certain percentage of the gross sales. The tenant may also be assessed part of the property taxes. A shopping mall lease will often include terms about signage, hours of operations, common areas and deliveries. The landlord may also have the right to relocate the tenant.

• Master Lease - This is a lease controlling other leases. It also may cover more property than the "other" leases. For example: "John Jones" leases an office building, containing ten offices, to "Bob Jones". "Bob Jones" subsequently subleases the ten offices individually. The ten subleases from "Bob Jones" as sub lessor are controlled by the lease from "John Jones" to "Bob Jones" (master lease).

• Step Leases - This is when the rent is increased at a set amount on an annual basis during the life of the agreement. This can be included in all the different types of leases I've listed above. The increase is to cover the landlord's expected increases in expenses. The increase can also be based on estimated rather than actual costs.

• Cost-of-Living Leases - This would tie the rent increases to the rises in the cost of living. Sometimes you'll see a straight tie to cost of living or a lease that includes language that says the larger of the cost of living or 5%. Generally speaking, the rent goes up with general inflation. As you can see with the Master Lease and Step Lease, the basics outlined here are just that - basic forms. There are numerous variations on common lease forms. For example a lease may cover both office and warehouse space in one facility with separate rental amounts and separate options.

Understanding different types of leasing is just the tip of the ice berg when being trained on residential or commercial investing. The best I've found for commercial training is at http://www.dirtintocash.com

Chris Prefontaine is a Internationally recognized real estate coach & trainer. Whether you're a seasoned investor, or new to the industry be sure to check all state guidelines and laws before you invest.

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Commercial Real Estate Michigan by Betz Properties