Buying Or Leasing Commercial Real Estate MA Massachusetts NH New Hampshire Cale Commercial Realty Group Andover

Should you buy or lease commercial real estate?

If you buy, what do you need to know? And what type of leases are available anyways?

Factors That Affect Your Decision On Whether to Buy or Lease Commercial Real Estate:

Access to cash at start-up.
The type of business you wish to engage in.
Whether your company has established credit.

Buying Commercial Real Estate Property
If you have decided to buy commercial real estate, you should be aware of many factors included in your offer and affecting your possession and title to the piece of commercial real estate.

Material defects within the seller's knowledge - Many states require a seller who knows of a problem with the property that may influence the decision to buy to disclose the presence of this problem to the buyer.
Actively conceal material defects - Generally, a seller cannot actively hide a defect in order to get you to buy the property.
Buyer's duty to inspect - Before you purchase commercial real estate, you should hire someone to inspect the property for any defects that are not easily noticeable. Generally, the seller will not be held liable for problems with the property that she did not know about and did not actively conceal.
Encumbrances - An encumbrance is something that may burden your rights as an owner of property.
Other potential environmental and zoning problems - See Environmental Law and Zoning, Planning and Land Use for more information.

Types of Commercial Real Estate Leases
There are many different types of commercial real estate leases a business owner may enter into with a landlord. Some examples of commercial leases are:

Fixed leases - A fixed lease is much like a typical residential real estate lease. In a fixed lease, the parties agree to a specific amount of rent for a fixed period of time.
Step leases - In a step lease, the parties agree to increase the rent a certain amount yearly. The step lease is meant to acknowledge the potential cost increases the landlord may incur. ( Also called Escalators)
Gross leases - In a gross lease, the tenant will pay a set periodic (or fixed term) rent to the landlord. The landlord in a gross lease will agree to pay for some or all of the operating costs of the property.

What Is a Gross Lease?
A gross lease is a lease where the landlord agrees to be responsible for all expenses which are normally associated with ownership of the leased premises, such as maintenance (includes utilities and repairs), insurance, and taxes. A tenant with a gross lease is only responsible for paying the monthly lump sum base rent and the landlord is responsible for operating the building and all other costs associated with the premises. The tenant's base rent usually includes the building operating costs. Today, a gross lease is very rare.

What Is a Modified Gross Lease?
A modified gross lease is really a net lease disguised as a gross lease. Under a modified gross lease, the tenant is responsible for paying the monthly lump sum base rent and the landlord is responsible for operating the building and all other costs associated with the premises. The modified gross lease usually passes any increases in operating costs to the tenant by way of a pass through provision such as an operating expense escalation clause.

What Is a Net Lease?
A net lease is a lease where the tenant has primary control of the premises and agrees to be responsible for some or all of the operating expenses of the premises, such as utilities, repairs, insurance, or taxes. A tenant who has a net lease is responsible for paying the monthly lump sum base rent as well as some or all of the operating and common area maintenance expenses.

Types of Net Leases
Net leases define the responsibilities of the landlord and the tenant differently. The following are types of net leases:

Single Net Lease - A single net lease is a net lease where the tenant agrees to pay a monthly lump sum base rent as well as the property taxes. The landlord is responsible for all other operating expenses of the premises.
Double Net Lease (NN) - A double net lease is a net lease where the tenant agrees to pay a monthly lump sum base rent as well as the property taxes and the property insurance. The landlord is responsible for all other operating expenses of the premises.
Triple Net Lease (NNN) - A Triple net lease is a net lease where the tenant agrees to pay a monthly lump sum base rent as well as the property taxes, the property insurance, and the maintenance. Under a triple net lease there are a few legal defenses which may relieve a tenant of his responsibilities. For example, a triple net lease may relieve the tenant of his responsibility if the property is subject to an eminent domain proceeding.
Absolute Triple Net Lease (Bond Lease) - An absolute triple net lease is a net lease where the tenant agrees to pay a monthly lump sum base rent as well as the property taxes, the property insurance, and the maintenance. Under an absolute triple net lease there are no legal defenses if a tenant fails to meet his responsibilities.

Commercial Real Estate Leases vs. Residential Real Estate Leases
Is Looking for a Commercial Lease Substantially Different Than Looking for a Residential Lease?

There are some aspects of a commercial lease that make it significantly different from a residential lease. For one thing, a commercial real estate lease tends to last longer and is more difficult to get out of than a residential real estate lease.

Commercial real estate leases also tend to have less consumer protections. In terms of negotiating, commercial leases tend to have a lot more flexible terms that can be negotiated and worked out between the parties.

Is usually negotiated - Unlike in residential leases where the landlord and tenant usually sign a "form lease," parties to a commercial lease typically negotiate the terms of the lease and will tailor the lease according to their negotiations.
Length of tenancy - Parties to a commercial lease will typically want a longer term so as not to disrupt the business for lease renewal.
Evictions - The procedure and timeframe for commercial versus residential evictions varies drastically depending on your state.

What Are Some of the Terms I Should Pay Close Attention to When Determining if the Lease is Right for My Business?
There are numerous provisions you should examine, including:

Lease term - you need to consider how long you will want to use the property for your business, and what kind of renewal options the lease provides for.
Rent - know how much the rent is, the method for payment, and if there are any opportunities for an increase in rent.
Additional Costs - know what the property taxes are and if you will be responsible for paying for the maintenance of the property.
Security Deposit - know how much you will need to put down for a deposit and what conditions you need to meet to get your deposit back.
Modifications - do any improvements or modifications need to be made in order for you to conduct business on the property.
Subleasing - find out if you can sublease the property to another party.
Disputes - set up a system ahead of time for resolving any disputes involving provisions of the lease.

Should I Consult A Commercial Real Estate Broker & Attorney About My Commercial Property Issues? DUH!!!!!
Before making or accepting an offer regarding a piece of commercial real estate or deciding to lease a particular property, you should consult a Commercial Real Estate Broker and a Real Estate Attorney. This is YOUR TEAM and they will make certain that YOUR INTERESTS are represented in the negotiation process.

Your REAL ESTATE TEAM can also help inform you about whether renting or buying a space would be best for your business. Additionally, your real estate TEAM can inform you about whether your proposed business will comply with local land use and zoning laws.

Many times business owners will miss one or more of the legal formalities in a lease that could make all the difference later on. It's important to consult with experienced Commercial Brokers and Attorneys before you sign a lease for your business. YOUR TEAM can help you understand all the provisions of the lease and help you negotiate for the terms that would best suit your business.

When you need a commercial real estate broker in the Merrimack Valley of Massachusetts and in Southern New Hampshire:

who knows the market
who knows the area
who will pay tremendous attention to you

Call Cale Commercial Realty Group at 800.720.2253

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Cale Commercial Realty Group, Inc., 157 Berkeley Road, North Andover, MA 01845-5265 USA
Phone: 800.720.2253 Direct: 978.857.7662 Fax: 978.686.6674

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