What else should a business look for before deciding to commit to a lease?
It is important to consider location. For example, if looking at space in a lifestyle center, there will likely be at least one anchor tenant, usually a big box tenant. It is important to understand who the anchor tenants are. In this economy, it is unlikely that a grocery store will vacate their space, whereas an electronic store may.
If a business is in a location where the anchor tenant has vacated, the lease may contain a co-tenancy clause allowing the lessee to pay a reduced or percentage rent for a period of time or to terminate the lease early if the landlord is unable to find a new anchor tenant within a period of time.
Having a lawyer or accountant review any lease prior to executing is a good idea. Most business owners are not familiar with all the nuances of a lease, like a co-tenancy clause, or the rights they have under the terms of the lease.
How can a business save money after it already signed a lease?
A common clause included in leases is a provision allowing the lessor to pass through common area maintenance and real estate tax costs. A tenant has the right to audit the lessor’s books and records to verify the lessor’s calculation of the tenant’s share of common area maintenance and real estate tax costs, which could result in potential savings.
Another provision typically found in leases allows the lessee the right to their share of any refund of real estate taxes received by the landlord. Often, landlords petition a property’s assessed value used to calculate real estate taxes. If the assessed value is less than what had originally been used, the landlord will receive a refund, which should be passed on to the lessee.
Does the down economy also make this a good time to buy commercial real estate?
There are opportunities to purchase commercial real estate at a significant discount, but many questions must be addressed. If a distressed property is underwater, do you have sufficient capital to cover the financing gap or obtain financing? Would you want to tie up that much cash in an uncertain time? Will you need to provide a personal guarantee? Will increased interest from others drive the purchase price higher? Careful consideration and due diligence must be exercised prior to a final decision.
Marc Newman, CPA, is an assurance manager of real estate services at SS&G Financial Services, Inc. Reach him at (800) 869-1835 or [email protected].