Jun
09
what happens when the existing lease on a commercial property expires? Does landlord pay it back to tenant?
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I’m thinking of investing on commercial property. However, I still don’t know what happens when an existing lease expires! Does the landlord pay back the amount of lease to the tenent? If so, is it calculated according to the current market value or is it as much as was paid in the first place?
Sell and Rent Back
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2 Comments
April 29th, 2009 at 4:37 pm
Your question makes no sense.
When the lease expires, the tenant has to either move out or negotiate a new lease.
If the tenant moves out before the lease expires, then the tenant owes the landlord the rest of the monthly payments. So if the tenant has a 2 year lease and moves out after one year, the tenant still has to pay the remaining year’s worth of rent, even if the tenant is not in the building.
You want to invest in this commercial property?
Here’s what it’s worth:
Rent minus all expenses equals net income.
The property is worth about 5 to 8 times the annual net income.
So, the landlord collects $100,000 a year in rent. The landlord spends $80,000 a year on loans, maintenance, salaries, fees, etc.
That leaves $20,000 per year. Thus, the property could be worth between $100,000 to $160,000, depending on lots of things such as location, ease of finding tenants, physical condition, etc.
May 1st, 2009 at 9:10 am
The landlord grants or sells the lease to the tenant. Say the lease is for 10 years. The tenant pays for the lease and probably annual rent , maybe with 5 year rent revisions (nearly always upwards) .The tenant stays in the property until the rent expires. Unless he renegotiates an extension of the lease he must vacate the premises and that’s that. Of course while the lease is running the Lessee could sub-let to another tenant or sell the remaining lease to someone else at a premium, or possibly at a discount, if the Head Lease allows it. In a commercial lease it would preferably(from the landlord’s point of view, be a fully repairing and insured agreement. I.e. the lessee has to maintain and insure the premises and leave it in the condition it was in when the lease was first granted. The building freehold is owned by the landlord or by a mortgagor. Obviously the freehold lasts for ever. Some mortgages have a value covenant or threashold.value. If the value of the property falls below a certain figure the mortgagor could foreclose on the mortgagee.