Tuesday, May 18, 2010

Protect from Undue Rent Escalations in the Term of the Lease

This can happen in any type of lease from retail to office or industrial.

Many times there are different rent escalations and to protect your client from it by knowing the market and what is typical in your market per product type.

Don’t let an aggressive landlord or developer get huge escalations that can ruin your client’s profit margin. What is fair? That will depend on how much money the rent is; the improvements are costing the landlord and how long the lease is and the credit of the tenant. If it’s a large tenant with good credit many of these you can reduced or eliminated. If it’s a small tenant and they want a deposit have this be able to be reimbursed or put towards rent after a time of showing good payment history.

Escalations that come because of large improvement outlays from the landlord should then be taken off once that extra amortization is completed in that term of the lease. Be careful not to let a high rental rate continue if the escalation was caused from these extra improvement costs!

Doing rent surveys and tracking the market can help you greatly in this area.
If you don’t know the market learn it, and get with other professionals and organizations that sell this information to make sure you are on top of what is market at the time of your assignment.

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