Information on Commercial Leases in Tucson

Is a sublease a good deal?

Tucson Lease Pro — Fri, 28 Mar 2008 03:57:02 +0000

A sublease is when Tenant A negotiates a lease with another Tenant B to take over the commercial space that Tenant A is responsible for. The answer to the the question, “Is a sublease a good deal?” depends upon what has happened to the market for the type of space that is being considered since the lease was originally agreed to. For example, if the market is tight and the vacancy rate is lower than when the lease was originated, then Tenant A may be able to make money on the lease by negotiating a new sublease at a rate that is higher than what Tenant A is paying. This is only possible if the existing lease or master lease does not restrict Tenant A from subleasing the property or if it is permitted, does not restrict Tenant A from charging a rate higher than Tenant A is paying. On the other hand, if the market has an over supply of available space and the vacancy rate is higher, then Tenant A may have to subsidize the rate to make it attractive for potential Tenants. How big this subsidy turns out to be depends upon not only the market, but what the reason is that Tenant A is needing to get rid of the space. It could be that the space does not meet a growing companies needs, and Tenant A may be more than willing to make a very attractive deal for Tenant B. If Tenant A is subleasing the space because of a business failure and is financially in a bad way, Tenant A may not have the financial ability to help out. Both Tenant A and Tenant B need to make sure that the master lease allows Tenant A to sublease the space. A sublease agreement will usually bind Tenant B not only to the sublease agreement but also to most of the terms of the master lease. In addition to the possibility of making an attractive deal for Tenant B, Tenant A may be willing to leave behind office furniture, phone equipment and other items for Tenant B to use. As always in my blog, make sure both parties to a sublease understand all of the terms and conditions of both agreements and seek legal counsel for advice. If you have more questions about leasing, you can contact the Tucson Lease Pro at www.tucsoncommercial.com.

Rent Escalation and Rent Tax

Tucson Lease Pro — Fri, 21 Mar 2008 04:57:50 +0000

Most lease agreements include a provision for rent escalation. While it is possible to have a fixed rent for the term of the lease, an agreement that escalates every year or on agreed to periods is more common and benefits both the tenant and the landlord. The tenant benefits because whether the business is a new start or an established business relocation, setting up and establishing at the new location or the expense of moving is costly and having the rent increase as the business grows helps the tenant to budget the rent expense. The landlord benefits by the ability to attract a larger pool of prospective tenants based on the competitiveness of the first years rent and as a result, find the most stable tenant for the space. Rent increases or sometimes referred to as “bumps” can be tied to the consumer price index, a fixed percentage each year or adjustment period, or a fixed dollar amount each year.

Rent tax is a charge assessed by the municipality that the space or property is located in. In our market place, communities like Marana, the City of Tucson or Pima County charge 2.5% of the total rent. In other words, if the base rent is $22.00 a square foot for a 1200 SF retail space and the estimated amount to cover triple net charges for expenses such as property taxes, insurance or common area maintenance is $5.00 a square foot, then the annual total rent will be $32,400 or $2700.00 a month. With the rent tax, the monthly payment will be $2,767.50. There many other aspects of a lease and the issues that are addressed here plus all of the additional terms of the agreement are part of the negotiations. If you have questions or would like to find out more about how an experienced leasing professional can help you, go to www.tucsoncommercial.com.

What is a triple net or NNN lease?

Tucson Lease Pro — Sat, 15 Mar 2008 05:28:42 +0000

A triple net, net net net, NNN or net lease is when the tenant pays the expenses such as property taxes, insurance and maintenance costs in addition to the base rent. The triple net expenses are usually quoted as a cost per square foot per year which is added to the base rent cost per square foot per year. Depending on how the lease agreement is written, there may be a provision for an annual review of annual expenses and if the amount collected was less than the actual expenses, the tenant may be billed for this difference or the triple net charge for the next 12 month period may be increased or both of these. There also could be a refund or a reduction in the triple net charges. It is the lease agreement that will define how this is handled. It is common for the tenant to also be responsible for maintenance and repairs to mechanical systems such and heating and air conditioning, entry doors and glass. This arrangement is typical in many retail space properties and some office lease agreements. Triple net lease provisions are also found in most warehouse or industrial leases. So your question might be, why do some landlords pay for these expenses and others don’t? There are a variety of reasons ranging from the vacancy rate in the complex or market place, the age of the complex, the demand for space in the geographical area, and the history or credit worthiness of the tenant. Another commonly asked question is what is the best type of lease to have if you are the tenant or more favorable if you are the landlord? The truth is, it all depends. A tenant could be looking at three or four different options for space that may involve three different types of leases. The only way to know which is more attractive is to do an analysis of all three and then compare the total cost of each. I will continue through out these postings to remind you to not assume when you hear the terms, triple net or full service lease that you understand what that means. Always refer to the lease agreement to understand the total picture of the agreement. If there is language in the agreement that is not clear, ask questions. Have an experienced real estate attorney review and explain the document to you. If you have questions about this information or need assistance in finding space and negotiating a lease, go to my web site at www.tucsoncommercial.com.

Introduction to Commercial Leasing in Tucson Arizona

Tucson Lease Pro — Fri, 14 Mar 2008 01:25:31 +0000

Commercial leasing of space may seem confusing as a result of “lingo” used in the commercial real estate industry. I have created this blog to address some of the common questions and to provide assistance to anyone that may need help. There are a variety of different types of leases with names such as “full service lease”, “modified gross lease”, “triple net, net net net, NNN” or “percentage lease”. These terms are used by agents, tenants and landlords in an attempt to define what is included in the rental rate for expense items such as property taxes, hazard insurance, common area maintenance, utilities and cleaning. It is important to remember that the most important thing about your lease, commercial space or rent quote that you are considering is not what the lease is called but what does the lease or rent agreement say. In my future postings, I will go into more detail about each of these types of leases and how they may be used most frequently in Tucson; yes, different parts of the country may interpret these terms differently. I will also post information about the different types of commercial real estate such as office, retail, and industrial. I will also talk about the difference in how rates may be quoted for the different types of buildings or use. Always remember that you can go to www.tucsoncommercial.com for more information or to contact me directly.