NNN Lease From Landlord's View

I need some advice. I have a commercial/retail building that I am completely gutting down to the brick walls (old car dealership) It's in a downtown retail area that's going through a revitalization. It's 13,500 sq ft. I'll divide it into separate spaces as tenants sign leases.

I have someone who wants to open a restaurant in about 3,500 sq ft. Since restarants usually want longer leases to cover all their upfitting costs I need to think out how to write a lease that is both fair to tenant and me.

Property taxes and insurance will go up as time goes on and I want to make sure I'm covered. Also some rent increases along the way. (Don't know how long a lease they want yet) So, I'm thinking that a NNN lease might be the best way to deal with that.

I've been looking online for leases that have NNN. I haven't seen yet how you actually charge the tenant. Lets say the property taxes are $1,000. Do you take $1,000 and divide by the sq footage and then charge the tenant for the sq ft they rent? Do you get this prorated and add this to their monthly rent? or pay once a year? Insurance is much higher on restuarants then regular retail. How do I charge for that?

I could probably absorb the property taxes BUT the insurance for a restarant is so much higher then retail.

Is there anything else I should be thinking about renting to a restaurant?

Everything in the building will be new so they shouldn't have any problems. But, if some one breaks a new window or cloggs a toilet I don't want to be called, I want that to be their responsibility.

How would I build in rent increases?
I want to be fair to both tenant and myself.

Thanks for your help!

Barbara

Can any of the commercial experts give me some advice?

Hi Zoe Girl. I have some NNN properties so I speak from experience.

You are in control of the property taxes, so when you get the bill from the county you then invoice your tenant that amount. It's usually twice a year. prorated of course.

The tenant is responsible for getting and paying for insurance on their business. Although in your case you will have to pay some liability for your building.

If you can get it try and shoot for 3% annual increases maximum, enough to cover inflation. Most major chains have 10% increased once every 5 years.

Don't forget maintenance such as road maintenance, landscaping, common ground stuff that the tenant needs to pay. Make them pay their portion.

Most importantly, make sure your property is setup as an LLC to protect your personal assets. Make sure your LLC name is in the lease.

Hope this helps



[ Edited by johnmckee on Date 10/22/2007 ]

[ Edited by johnmckee on Date 10/22/2007 ]

Thanks for the reply John!

Do I need anything special in the lease when dealing with a resturant? My insurance company wanted to see a maintenance agreement that the resturant has with a company to clean hood on a regular basis. Any other unusual thing????

Or comments from anyone dealing in commercial leases.

thanks,
Barbara