Commercial tenant - lease ending want month to month

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Commercial tenant - lease ending want month to month

Jason K
Member since 2008 · 11 posts · 0 votes

I have a commercial office building and my biggest tenant is now looking to buy their own building. They just now started looking and their lease is up and the end of July.

It will be almost impossible for them to find and buy another location in 25 days, especially since we live in a small community and there is a total of 15 commercial listings for sale. Then they would have to enter escrow and than probably remodel the building to fit their needs.

Since I don't think they could make the deadline due to the # of days left and they have a pretty big operation, I have feeling they are going to ask to go month to month.

Would you hold your guns and only offer a 1 year lease. It really straps me in terms of seeking additional financing for new property when I can't show the lender leases for my current rental property. However the possibility because of the size of their operation the building and the economy, their space could sent vacant rendering me no rent.

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  • Jason K
    OP
    Member since 2008 · 11 posts · 0 votes
    17y

    anyone

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  • Michael Rossi
    Real Estate Investor · OH · Member since 2008 · 4k+ posts · 1k+ votes
    17y

    Hi Jason,

    I would not insist on a one-year lease renewal if your current tenant is planning to buy their own building. Obviously, I'm never happy to see a good tenant leave, but when they leave because they are successful enough to buy their own property, I'm certainly not going to make their life miserable. Furthermore, if the lease ends well, you may get a referral from them now or in the future.

    I would let them go month to month until they can find a building. It's entirely possible that they will change their mind and stay. If you feel strongly about this issue, you could raise their rent if they go month to month, which will give you a little more money each month and give them a little push to move.

    Good Luck,

    Mike

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  • Jon Klaus
    Developer · Garland, TX · Member since 2008 · 8k+ posts · 4k+ votes
    17y

    Jason, have you considered selling your building to them? A business as an OO, can typically justify paying more than an investor. Plus they will save moving expenses, which can be substantial.

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  • Adam Anderson
    General Contractor · Midland, TX · Member since 2008 · 160 posts · 24 votes
    17y

    Could you have a 1 year lease with a provision for terminating the lease with 2 months notice on condition of them buying a new location?

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  • Jason K
    OP
    Member since 2008 · 11 posts · 0 votes
    17y

    Thanks for the help, great answers and angle that I did not see.

    Yes I have considered selling them the property. I will bring that up to them this afternoon.

    I agree I don't want to hold someone, especially if the intent is to buy their own building.

    I love the idea of a provision for terminating the lease with 2 months notice. That would give me time to market the space and try to prevent any lapse in rent.

    Thanks again

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  • Jason K
    OP
    Member since 2008 · 11 posts · 0 votes
    17y

    Good news

    We are going to do a 6 month lease and he would possibly be interested in having the option to buy in the lease.

    Just need to work out the value for the building or what I would be willing to sell for.

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  • Jason K
    OP
    Member since 2008 · 11 posts · 0 votes
    17y

    Also 6 month lease will not have the option for a termination, but probably the option to apply the rent toward a purchase price.

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  • Colleen Sheridan
    Real Estate Consultant · Wethersfield, CT · Member since 2009 · 25 posts · 7 votes
    17y

    You should not apply all the rent to their purchase price. You deserve to get a return on your investment for the next 6 months and you should not eat the expenses of running the building for the next 6 months. By crediting the rent, in effect you are giving thema discount off the purchase price. Keep that in mind when you are pricing your property.

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  • Jason K
    OP
    Member since 2008 · 11 posts · 0 votes
    17y

    I am keeping that factor in the purchase price, but putting it in the lease as an incentive to buy.

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