The Wholesale Forums

[andy]

I have a bit of a question about leasing comercial property.

If I owned a company and I also owned the premises from which it trades from, a shop for egxample.

And for financial reason I rent the premises to the company to create a revenue stream,

Say I wanted to sell the property to an investor who would then rent it back, I would free up a lot of cash and loose me altermative revenue stream but the company itself is in the same potition because it is still rentingthe premises.


with me so far?

my question is, will it be possible to creat a contract to specify the terms of lease to the degree of outlining that for the next 15 to 20 years they would rent the premesis to my company at an agreed price?

Could you also specify in a contract that the premesis could be bought back by the company at an agreed price?

Could you also specify that after the initial 15 to 20 years lease, as long as my company can afford to keep up the rent for the following x amount of years the lease will be renewed?

Basically I need to know if a contract can outline such terms and if so what type of contract will it be???

I understand these may be questions for an accountant but they are very expensive and this is all hypothetical.

[Anthony]

I highly doubt you could get a rental agreement for that length of time. Firstly I doubt that an investor would want to agree to such a long period of ownership and secondly to keep it at a static rental price. Considering the current market and the fact that both upkeep and market fluctuations what you are suggesting seems to be unrealistic. Certainly for that length of time anyway.

[MustHaveMobiles]

That question is best answered by a legal advisor...

[greedyboy]

I ahve experience of this. When I purchased commercial premises with tennants their lease was going to expire before the sale went through. The current owners asked me what the new terms would be and the rent etc.

When you rent the building that you own, you in effect have two companies . The company that owns the building (Company A) and the company that operates from the building (Company B).

The first thing a purchaser will ask for Company A for the terms of Company B's lease, rent etc. If company B has a crazy 20 year lease with no rent reviews the building will not be sellable. When you buy a commercial property with a lease, the purchaser will be an investor. They expect to make a modest income (10% - 15% anually) plus their capital should also rise in line with local commercial property (10 - 15 year return on their investment).

Commercial property prices are completely different to residential propery as commercial values can go down as the value of a building is based on it's rentable value only. So if there is a large amount of local commercial space empty the sq foot price value is reduced and therefore the rent is reduced and then the building value is reduced.

So a basic calculation to value a building is:

Annual rent x 15 plus a little on top for owning the freehold.

10 or 20 year leases are plausable but with at least 3 - 5 year rent reviews and maybe at an agreed % increase or tied to current market rates at the time. You may also have a break clause at this time also.

So in order to answer your question, you can do what you are asking but you will not sell the building.....ever.

[Pete]

In the US most commercial leases I've seen or had were for 5 years. Some less. And with the 5 year leases there is usually a clause the holds the lessee responsible for any increases in taxes on the property, so the owner is covered.

Another point with leases is subrogating fire insurance. In some cases the tenant can be relieved of some of the cost if the landlord will stipulate that he also carries coverage and the is no need to duplicate.

As suggested, consult an attorney. Never use advice on a forum in legal matters.

Not even mine.

[DSC]

15- 20 years for a commercial lease is nothing so that won't be a problem, as has been mentioned you will have to increase the rent over time. You can set out in the tenancy when the rent will go up, often its inline with RPI, however you can also do fixed increases.

Buying back would have to be written into the sale contract of the building, its not a problem to do but could harm the value of the building.

So most of it can be covered within a non standard tenancy agreement, its not that complicated but of course you will need to consult professionals.

Finally in alot of areas the retail commercial sector is struggling so if you are serious about getting a shop it is worth speaking to some landlords as you can often negotiate good incentives. Such as a years rent free in some cases.

Again you can specify in the tenancy to have the lease renewed after the initial term. Although what price that would be at may be a complication.