Monday, November 22, 2010

10 Leasing Insights - Tip #3

J. Michael Hoeck, SIOR Industrial SpecialistPosted by: J. Michael Hoeck, SIOR
Industrial Specialist
775 336 4621

Mike began specializing in industrial brokerage with Colliers International in 1999, and in May 2005, joined Alliance Commercial as a Partner and as Vice President of its Industrial Properties Group. In May of 2007 Alliance Commercial became NAI Alliance and Mr. Hoeck became a Senior Vice President.

~10 Leasing Insights ~
Broker tips to better deals

Tip # 3
Beneficial Occupancy vs. Free Rent:

It’s common knowledge that you can often get a few months free to offset the cash flow crunch associated with a move. Landlords look at this period in one of two ways, Beneficial Occupancy or a Free Rent Period. ‘Beneficial Occupancy’ is the period of time before a lease starts when the tenant has access to the building to prepare it for operations -- think of installing the machinery associated with a manufacturing process or the racking for a distribution use. The language in a lease covering this period often specifically excludes normal business operations during this ‘Make Ready’ time. ‘Free Rent’ periods are less restrictive – you can be in full operation and are usually responsible for just the operating expenses during this time.
Tenants don’t often understand the difference – they think a discount is a discount by whatever name you call it! Some LLs look at it that way too. Some don’t, so over the term of a lease, there can be a significant savings associated with starting your lease the right way.

BROKER INSIGHT: Delineating Beneficial Occupancy separate from a free rent period can benefit a tenant because a landlord might be willing to grant two months Beneficial Occupancy and two months Free Rent but might be less willing to grant four months of free rent. If the intent is to use some of the free rent period for setup, separating the terms lowers the “free” rent requested. Definitions do make a difference and can result in a better deal for the tenant if properly defined and outlined in the contract.
Next Week.... You Covet Your Neighbor's Space
Last Week... Fixed Rate Options

1 comment:

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