Commercial Leases

Commercial leases are established between landlord / owners and tenants on all types of commercial property.  Commercial leases are legally binding private contracts with provisions that spell out; the leased space, unit or building, the term of the lease in months or years, the lease rate, optional extensions (if any), adjustments to the rental rate and related details that govern the the parties.  

Some leases indicate that the tenant pay for taxes, insurance, utilities and maintenance.  Leases of this type are called triple-net (NNN) leases.  Under the terms of a triple-net (NNN) lease, a landlords would pay only for structural repairs and management.

Modified gross leases, which are most often used, establish terms whereby the landlord and the tenant share expenses.  The tenant, for example, may pay for their own utilities while the landlord may pay for property taxes, insurance and property maintenance. 

When a gross lease is used, the landlord pays for all typical expenses and the tenant pays a flat rent.  In Las Vegas some spaces are leased using a full service gross (FSG) lease that may include services above and beyond those typically paid by a landlord like; secretarial / phone attendant services, mail delivery / forwarding and Internet access.

Appraisers are often asked to analyze lease terms either as part of the appraisal assignment or they are asked to analyze them to determine whether or not the rate is in keeping with other market rates.  An "economic" rate is the rate that would be expected under open market conditions.  Lease rates are usually expressed on a dollar per square foot basis like $ 24.00 per square foot per year or $ 2.00 per square foot per month.

Important to appraisers are the leases contract date, the occupancy date and the termination date.  Dates of rental increases / adjustments are important as are provisions for optinal renewal.  All lease provisions must be considered when future lease income is being analyzed over time by the appraiser.

Commercial appraiser usually review many leases during their appraisal of various commercial properties.  There is a great deal of variability with regard to lease terms.  Some leases that we have reviewed were at rates well below the market or in excess of market rates.  Atypical lease terms can lead to leased-fee market value conclusions that benefit or detract from the value of a property.  If, for example, a lease calls for a percentage of the gross sales, and the business conducted becomes very profitable, a landlord can receive a significantly larger cash flow than was anticipated, and this added income can effectively increase the value of a property.     

Contact us with your questions or concerns regarding commercial leases in Las Vegas or regarding your specific appraisal assignment in Nevada at 1-702-568-6699.  We can also be e-mailed at grigdon@cox.net.  

Commercial Real Estate Appraisals in the Las Vegas & Henderson, Nevada Area.