A lease is an agreement granting use or occupation of real property during a particular period in exchange for a specified rent. At common law, the lease was traditionally regarded as a conveyance of interest in land, subject to the doctrine of caveat emptor ("let the buyer beware"). The landlord was only required to deliver possession to the tenant; the tenant, in return, was required to pay rent to the landlord. Davidow v. Inwood North Professional Group, 747 S.W. 2d 373, 375 (Tex. 1988). The modern commercial lease, however, is a complicated instrument that spells out many aspects of the relationship between landlord and tenant, including tenant's use of the property, services that will be provided by the landlord, allocation of costs associated with maintenance of the leasehold, responsibility for utilities, improvements to the premises, insurance, assignment and subletting, events of default, remedies of the parties, expansion rights, and options to extend the lease term.
To help me understand why I was hearing the reluctance on the part of the leasing company executive, I began asking probing questions to determine if he felt our customer had not fulfilled the terms of the lease contract. I quickly confirmed that all the lease's provisions had been followed to the letter. The real problem was that the leasing company expected their leases to renew for at least one additional renewal term. The leasing company executive admitted that their business model incorporated them receiving the additional revenue of at least one renewal term. Their residual position (what they expected to receive by selling the equipment to someone else) was set expecting this additional revenue. If they didn't receive the renewal revenue, their profits were off (low) for that transaction.
Commercial leases can be further described by the type of use associated with the property - office, retail, warehouse, pad, or "ground". An office lease is generally used in buildings intended for non-industrial business use. Retail leases are generally utilized for shopping malls and strip centers. Warehouse leases are generally seen for industrial or light industrial uses. Pad or ground leases are often used for restaurant premises or for premises where the tenant will be responsible for building and maintaining the structure. Texas law does not require a commercial landlord to utilize any specific form of lease, and the type of lease a prospective tenant may be faced with signing will vary by the type of building, intended use of the premises, and preference of the landlord.
Venture lessors target lessee prospects that have good promise and that are likely to fulfill their leases. Since most start-ups rely on future equity rounds to execute their business plans, lessors devote significant attention to credit review and due diligence - evaluating the caliber of the investor group, the efficacy of the business plan and management's background. A superior management team has usually demonstrated prior successes in the field in which the new venture is active. Additionally, management's expertise in the key business functions -- sales, marketing, R&D, production, engineering, finance --- is essential. Although there are many professional venture capitalists financing new ventures, there can be a significant difference in their abilities, staying power and resources. The better venture capitalists achieve excellent results and have direct experience with the type of companies being financed. The best VCs have developed industry specialization and many have in-house specialists with direct operating experience within the industries covered. Also important to the venture lessor are the amount of capital VCs provide the start-up and the amount allocated to future funding rounds.
The primary reason you don't want your lease to renew is that you are being forced to pay new equipment costs (i.e. the same lease payment) for your old and well used equipment. In essence, you have no options. In contrast, if you don't get snagged by the lease renewal, you can always lease more highly featured and productive equipment for the same or lower cost. Another available option is to release your same equipment (assuming it has been working well) for a shorter term at a significant discount. There has been some backfiring of this intentional upgrading plan when customers are so infuriated by the renewal that they refuse to work with either the equipment vendor or the leasing company. As a result, there has been a softening of some of the stringent requirements. You have to check the verbiage in your current lease agreement in the section labeled something like "End of Lease" or "Renewal" to determine the expiration criteria.
In addition to base rent, the tenant customarily will be asked to pay "additional rent", which constitutes pass-throughs (CAM, taxes, and insurance) and any other charges that landlord might deem to include in your lease. CAM, pass-throughs, and other charges reimbursable under the lease are the primary source of tension in the modern commercial landlord/tenant relationship. The tenant wants the certainty of knowing what his rent and charges are going to be on a monthly and yearly basis. The landlord wants protection from unexpected rises in taxes or the costs of providing services to the property. The key: read your lease and KNOW every charge you will be faced with once your tenancy begins. In the retail context, in addition to base and additional rent, the prospective tenant is often asked to pay landlord a percentage of tenant's gross sales on a monthly or quarterly basis. The landlord usually justifies these charges as a necessary component of compensating landlord for providing a vibrant mall or strip center for tenant to conduct business. In most commercially viable retail property, payment of percentage rent is unavoidable. However, the "breakpoint" and amount of percentage rent should be negotiated.
To help me understand why I was hearing the reluctance on the part of the leasing company executive, I began asking probing questions to determine if he felt our customer had not fulfilled the terms of the lease contract. I quickly confirmed that all the lease's provisions had been followed to the letter. The real problem was that the leasing company expected their leases to renew for at least one additional renewal term. The leasing company executive admitted that their business model incorporated them receiving the additional revenue of at least one renewal term. Their residual position (what they expected to receive by selling the equipment to someone else) was set expecting this additional revenue. If they didn't receive the renewal revenue, their profits were off (low) for that transaction.
Commercial leases can be further described by the type of use associated with the property - office, retail, warehouse, pad, or "ground". An office lease is generally used in buildings intended for non-industrial business use. Retail leases are generally utilized for shopping malls and strip centers. Warehouse leases are generally seen for industrial or light industrial uses. Pad or ground leases are often used for restaurant premises or for premises where the tenant will be responsible for building and maintaining the structure. Texas law does not require a commercial landlord to utilize any specific form of lease, and the type of lease a prospective tenant may be faced with signing will vary by the type of building, intended use of the premises, and preference of the landlord.
Venture lessors target lessee prospects that have good promise and that are likely to fulfill their leases. Since most start-ups rely on future equity rounds to execute their business plans, lessors devote significant attention to credit review and due diligence - evaluating the caliber of the investor group, the efficacy of the business plan and management's background. A superior management team has usually demonstrated prior successes in the field in which the new venture is active. Additionally, management's expertise in the key business functions -- sales, marketing, R&D, production, engineering, finance --- is essential. Although there are many professional venture capitalists financing new ventures, there can be a significant difference in their abilities, staying power and resources. The better venture capitalists achieve excellent results and have direct experience with the type of companies being financed. The best VCs have developed industry specialization and many have in-house specialists with direct operating experience within the industries covered. Also important to the venture lessor are the amount of capital VCs provide the start-up and the amount allocated to future funding rounds.
The primary reason you don't want your lease to renew is that you are being forced to pay new equipment costs (i.e. the same lease payment) for your old and well used equipment. In essence, you have no options. In contrast, if you don't get snagged by the lease renewal, you can always lease more highly featured and productive equipment for the same or lower cost. Another available option is to release your same equipment (assuming it has been working well) for a shorter term at a significant discount. There has been some backfiring of this intentional upgrading plan when customers are so infuriated by the renewal that they refuse to work with either the equipment vendor or the leasing company. As a result, there has been a softening of some of the stringent requirements. You have to check the verbiage in your current lease agreement in the section labeled something like "End of Lease" or "Renewal" to determine the expiration criteria.
In addition to base rent, the tenant customarily will be asked to pay "additional rent", which constitutes pass-throughs (CAM, taxes, and insurance) and any other charges that landlord might deem to include in your lease. CAM, pass-throughs, and other charges reimbursable under the lease are the primary source of tension in the modern commercial landlord/tenant relationship. The tenant wants the certainty of knowing what his rent and charges are going to be on a monthly and yearly basis. The landlord wants protection from unexpected rises in taxes or the costs of providing services to the property. The key: read your lease and KNOW every charge you will be faced with once your tenancy begins. In the retail context, in addition to base and additional rent, the prospective tenant is often asked to pay landlord a percentage of tenant's gross sales on a monthly or quarterly basis. The landlord usually justifies these charges as a necessary component of compensating landlord for providing a vibrant mall or strip center for tenant to conduct business. In most commercially viable retail property, payment of percentage rent is unavoidable. However, the "breakpoint" and amount of percentage rent should be negotiated.
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