Commercial Lease: Who pays?

Question

I recently closed on a property in San Antonio. Half of it is a commercial property...a bakery. My insurance company is requiring a few different repairs. One is "clean the cooking equipment ventilation ductwork". I'm currently working on a lease for these tenants as they were month to month with the previous owner. I was wondering if anybody has experience with restaurants. What's fair/standard for the tenant to pay for and what should the building owner pay for?

Any advice or information would be great! Thank you.

Ash Patel · Answer

@Kristina Modares - you have all the cards in your favor if you are working on their lease.  A NNN lease would be ideal but may be too much for the tenant to swallow.  What I always do when I inherit a tenant is throw them a bone.  Tell them you will upgrade all of the exterior lighting if they clean the hoods/vents regularly and service the fire suppression equipment annually.  The bone I typically throw benefits the property.  Things like CCTV cameras, signage and exterior lighting go a long way with tenants.

Timmi Ryerson · Answer

Kristina:  I suggest that you get a good book on leases and read it carefully. There are articles available on google search as well. Commercial properties are very different from residential properties. You need to know how to set up a lease whether it is net, net net or triple net  or the gross lease mentioned earlier.    Most commercial leases are written for multi-year periods.  You can build in rent increases tied to Cost of Living increase or just a % per year increase or a certain $ amount.  Once you get the basics down then you need to figure out your rent increases and the time frame for those increases.  You will also want to build in provisions for inspections to show that the required maintenance is being done by the tenant, in this case, the bakery, which may not have the best record of compliance for cleanliness.  You can hire professionals to do these inspections if you are not familiar with how to do them.

There are online commercial leases available or you can hire a lawyer or paralegal to write the lease agreement for you. Once the lease is written you will be able to use it as a template in the future for new tenants and even other similar properties.  Another thing that often happens is a negotiation process between the owner of the building and the tenant regarding the terms for the lease.  Do this before you enlist the services of a professional to write you leases.

Good luck with your new investment.  The better you prepare yourself for management the easier it will be.

Dale Shin · Answer

I agree with everyone here that the restaurant should be put on a NNN lease so they are responsible for all maintenance, including the hood and any grease trap on the roof.  These grease traps really need to be looked at regularly and you'd be surprised that even multi-national large restaurant chains don't have their act together when it comes to this.  to ensure this gets done, you  may want to specify in the lease that landlord will contract with the vendor for periodic maintenance but tenant is to pay for this cost and is ultimately responsible.  You may want to do the same thing with the HVAC.

Ryan Leavitt · Answer

I have several restaurant clients here in Chicago.  It is fair and reasonable to have the hoods/vents/ducts cleaned every 6 months and have the filters changed in those systems quarterly or weekly depending on the type of cooking and if they are baffle or mesh filters. Most people outsource the cleaning to the same company that is in charge if managing the fire suppression systems for the kitchen/building.  The filter/duct cleaning is also usually a requirement by preferred insurance companies that provide coverage for the restaurant.

Rick Pozos · Answer

I responded to your other post, but I will respond here also.

It depends. If it is a house that was cut up in half with part of it being a bakery and half an apartment, it sounds like it would be a gross lease. They just pay the rent. They will pretty much take care of their equipment(fryers, grill, display cases, bakery racks, etc). They should be good tenants and keep the visible part of the hoods clean. You would probably be the one to take care of cleaning up above in the attic and out the top. Everything is negotiable though. You might not want to pile everything up on them at once, they may leave and you are stuck with an empty half of the building for months until you can find someone who wants to be in that space.

Like @Kim Koster said, when you get to the bigger commercial buildings you will probably be triple net and the tenant pays everything.

Martin Z. · Answer

In NET leases, tenant pretty much pays for everything listed there. On common areas, they pay their portion that's most of the time calculated as a percentage of total cost based on their unit's SF or their usage. But if you're looking to bring in a new tenant, I would make sure everything is handed over to them in good condition.

Commercial Lease: Who pays?

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