Tenancy

As a tenant in commercial real estate, you need to be aware of the different kinds of tenancy, what they mean and how they affect you. By working with a commercial real estate attorney, you can be sure that you are entering into a commercial lease that benefits you.

Tenancy at will

This type of tenancy can be terminated at any time. It can be terminated by the tenant, owner or landlord. There is often no written lease or contract and no specification about how long the lease is or how rent is paid.

Tenancy at sufferance

Generally, the tenant is legally permitted to remain on the property after the lease has expired but before the landlord demands the tenant to vacate. The original lease conditions must be met, including the rent payment. Otherwise, the tenant can be evicted at any time without notice.

Month-to-month

The easiest and most beneficial for many tenants is a month-to-month rental. This lease does not tie the tenant down as a long-term lease often does. It allows for flexibility and is particularly favorable for a new business.

Holdover

A holdover tenant remains in a property after the lease expires. If the tenant continues to pay rent and the landlord accepts, the tenant can continue to occupy the property. State laws and court rulings determine the length of the new rental term after the lease expires. This is common law and avoidable. Month-to-month is preferred, as it will not cost additional legal fees to determine the rental term.

Option to Extend

At the end of your lease, you may have an option to extend the lease. This is a pre-negotiated agreement that allows the tenant to continue renting the property at a set rate and set term. The tenant and landlord agree on the option terms when the lease is signed.

Fair Market Value

Sometimes, the landlord and tenant can’t agree on the rental amount in an option, but they agree that the amount should be determined fairly. This is know as setting fair market value, and the method for the determination should be included in the lease. Some of the more popular methods are:

Two-Broker Method: The landlord uses a broker and the tenant uses a broker. The brokers determine the fair market value of the property and, that becomes the new rental amount.

Three-Broker Method: If the landlord and tenant brokers cannot make a decision, they bring in a third broker. The third, neutral broker determines the fair market value based on the information provided from each broker.

Option to Negotiate an Amendment

This isn’t a true option, but it’s an agreement that the landlord and tenant will extend the current lease, but negotiate the terms of the extension, not at lease execution, but sometime before the lease expires. Tenants need to be cautious- sometimes the landlord will require the tenant to agree to the rent before telling the tenant what the new rent is!

A commercial real estate attorney understands these tenancy terms in full and is familiar with working in each area. By partnering with an attorney, she will make sure that your lease works best for your particular needs. It is crucial that your tenancy be feasible. After all, it is a commitment, whether it’s 30 days or three years.

Call me today to discuss which type of tenancy is best for your business!

Disclaimer
The transmission and receipt of information contained on this website does not constitute an attorney-client relationship. Persons should not act upon information found on this website without first seeking professional legal counsel.

Did you know?

Contrary to the online shopping craze, 85% of consumers prefer to shop at a physical store. Timetrade found that:

  • Consumers prefer brick and mortar stores
  • In-store expertise drives purchase volume
  • In-store purchasing preferences span generations
  • Mobile purchasing

Shopping In-store

A major reason shoppers are still physically going in stores is because of the experience. When walking into the location, shoppers use their senses. They see the patterns, feel the fabrics, and smell the fragrance. It’s all about creating an experience. This doesn’t only fall on the retail tenant. It also falls on the landlord – making sure there is adequate parking, clean restrooms and welcoming common areas all play into the experience.

Ripen cited the reasons people shop in-store as opposed to online:

  • Want items right away
  • Protects privacy
  • Save on shipping costs
  • Easier returns
  • See products in person

Think about how you shop. Do you plan a specific day and time to go to a specific store? Sure. Do you walk around a local shop after your date on Saturday night? Yes. You are taking part in impulse shopping – which is a large reason that retail locations are flourishing.

So what?

This is all good news for landlords, tenants and investors. More in-store shoppers mean more money in the tenant’s pockets. A building full of tenants means more money for the landlord. Successful landlords mean new investment properties.

It’s a ripple-down effect. In order to remain successful, all parties must keep up with the ever-changing industry. While name brand and national stores are closing, many retailers across the country are thriving. Through a mixture of tenants including discount retailers, service-oriented businesses and tech shops, commercial real estate is booming.

Warehouses

The explosion of e-commerce has benefited investors and landlords alike. All of those packages that are dropped off at shoppers’ doorsteps each day have to be packaged somewhere. Warehouses and packaging facilities are popping up all over the country. Texas specifically has seen growth in the area of warehouses due to an increase in online shopping.

The Houston Chronicle stated, “Commercial tenants in distribution and consumer goods leased more than 6.7 million square feet of space over the last two years in Houston, a 60 percent increase over the two years prior, real estate service firm JLL reports. Of 27 industrial facilities completed in Houston in the fourth quarter of 2016, 25 were warehouse and distribution spaces, according to market research by CBRE.”

Changes

  • Commercial real estate properties are now including multiple tenants in their property instead of just one.
  • Lease terms are evolving as the type of stores that come into the property are evolving. Month-to-month has become popular for pop-up shops.
  • Knowing how people shop and why they shop that way is beneficial to everyone involved in commercial real estate.
  • While e-commerce is continuing to grow, retailers are realizing the need for a physical location to please their customers and provide a pleasurable experience.

Being flexible and growing with the changes is essential. Call me to learn more about creating a unique commercial real estate lease that works for you.

Disclaimer
The transmission and receipt of information contained on this website does not constitute an attorney-client relationship. Persons should not act upon information found on this website without first seeking professional legal counsel.