Let’s begin with the Landlord and the question “What is a Landlord?”.
Landlord, most simply, is the one who receives rent. The Landlord can be an individual person like my Mom, or it can be a global investor like Blackstone. You may deal directly with my Mom, or the regional manager of the local company or a fund (group of investors) that may own the property. Regardless of who you deal with as the Landlord (and don’t underestimate Mom), they are in the role to manage and increase the value of the property. This is very important to be aware of because it creates adverse position to that of a Tenant. Exactly what the Landlord bargains to provide to the Tenant will vary based on multiple factors, but for now lets stick to a suburban retail shopping center building as the property the Tenant would like to Lease. In our Shopping Center, let’s call it “Charleston Square,” the Landlord provides a weathertight building shell with a roof, 3 walls (2 sides and a rear with a door), storefront glass, and a concrete floor. Inside the space is an electrical panel with lights and outlets, HVAC and a couple restrooms, and a huge pylon sign for all the Tenants in the Center. The Landlord wants to create an environment where the Tenant will thrive….and pay more rent!
That’s it, that’s all you get.
That brings us to the question, “What is a Tenant?”.
Tenant, most simply, is the one who pays rent, and it’s share of the maintenance, taxes and insurance charges on a per square foot basis. The Tenant can be an operating company like Publix or it can be an individual retailer like my son. The Tenant leases from the Landlord and pays at the beginning of each month to occupy the space in order to sell their groceries or widgets or whatever it is. The Tenant is in business to make money — that means lower expenses like rent are good. Anything you need to operate your business (trade fixtures)—like inventory, equipment, shelving, storage, machinery, etc.— expect to pay for. Think of the trade fixtures like the ovens in a restaurant. Do not expect the Landlord to finance or partner in your business. The “credit risk” the Landlord takes is that the Tenant will pay the rent every month of the term. Expect to deliver financial statement, a credit check, and some investigation into your business operations history. Once approved by the Landlord and the lease is signed, Tenant, go forth and sell stuff so you can pay your rent!
So Landlord delivers and maintains the building in good repair. Tenant, all you have to do is pay your rent. I’ve outlined it in a table format to simplify below:
Provide the building
Pay the Rent
There are a few other points I will cover that the Landlord and Tenant typically have adversarial viewpoints and explain each. The Landlord and Tenant need to understand and agree on each of those points in the document memorializing the agreement – the Lease Document. Before we get ahead of ourselves, we will cover the homework the Tenant should have accomplished before looking for space.
Photo Credit: “Rental Agreement” by phasinphoto Source: freedigitalphotos.net
Original Source: John Orr CCIM Blog