Leases

[TKLaundry]

Hello all,

we are in the process of trying to re-negotiate our lease. I'm curious to know if most of you who have leases pay more every year or if increases in the rent is increased every few years. Is the increase a percentage increase or flat rate in most cases?

Dave

[Dave_in_Minnesota]

I have two leases and one has a set schedule that it steps up each year (like $0.50/a square foot) and the other is tied to the CPI index published in the Wall Street Journal on a specific date each year. There are pros and cons to each approach. Good luck in your negotiation and make sure to get a couple of 5 year options on it...
dave.

Using the CPI is a good index to increase your rent. Make sure that you ad a cap that the CPI is not to exceed.
If your in a shopping center make sure you add a major tenant pull out clause ( if K Mart leaves the center your rent should be reduced until a major tenant is found).
Have a lawyer that specializes in commericial leases look over your lease.
It will be the best $500 you've ever spent.
Good luck

[Howard]

Be careful with CPI. We have been in a very low inflation period, what will you do with a CPI based lease if we hit inflation like the early 80's? If you use CPI try to use a component of it that relates to realestate, not things like food and clothing and labor.

[TKLaundry]

I have told my landlord I'm looking for a 10 year extention on my lease, I have 2 1/2 years left on it. He wants the extention to take effect immediately with an increase in my rent of $350 a month with an annual increase of $50 for the life of the lease. Given what the laundromat is doing now, at the end of his proposal I'd probably be out of business. I was just curious if there is an industry standard or just make the best deal you can.

Thanks for the ideas

Dave

[michaelweldy]

I agree with Dave. Be sure you have at least 10-15 years. Most leases allow for annual increases of about 2%-3% or are tied to CPI. Depending upon the type of property and landlord, I have been able to obtain flat rates in 2 to 5 year increments.

Good luck.

[petefritz]

Both flat and CPI have faults. One mat I had was a flat rate the previuos owner negoiated, seems it was an average of cpi for 5 years, then averaged into one price. When that lease came up for renwal, then owner bumped the rent up another 30%. Had it been CPI from the start and stayed with it, the rent would have been about 50% less than what the owner was trying to charge. The avearge flat rate ended up being 25% high after 5 years than cpi got, and with the 30% increase I was screwed. I ended up moving the store. I would also be careful with pre determained rate increases. Another mat I had, the previous owner had a flat rate increase per year. It was way ahead of CPI and I ended up stop paying the increase for a couple years. The landlord did not like it, but I got away with it. They knew it was a lousy deal for me. I have all on CPI, at least you can raise prices a little to keep up with it.