Real Estate Investing : Graduated Lease

New business start-ups need at least a few months to stabilize and it could take a few months before a break-even point occurs. To help such businesses as well as to counter he slack in rentals, commercial, industrial property owners have designed a lease called the graduated lease to entice new tenants. In a graduated lease, the lease amount is low for the initial couple of years and gradually increased proportionally the next three years in a typical five-year contract. This strategy worked so well that people have applied graduated lease to residential property too.

Graduated Lease: How does it Work? Let us say there is a person x who leases a commercial space using a graduated lease for a period of five years. The lease includes the maintenance, taxes, insurance, utilities and janitorial services charges. His office space is 2,000 squares in a 30,000 square building. He pays $20 for each square foot so his yearly base rent will be $40,000 and for fiver years $200,000. In a graduated lease he can pay $2,500 each month for the first year {$30,000}, $3000 each month for the second year {36,000} and $ 3,500 each month for the third year {42,000} and $ 3,833.3 each month for the next two years {$91,999.9}. The low monthly rental for the first three years gives X the chance to utilize the money to develop his business and stabilize financially, hence a graduated lease will work to the advantage of the lessee.

Lessees who lease commercial and industrial properties therefore prefer this kind of lease. Usually, graduated leases are offered at a flat rate for the first two years, and gradually increased as per the lease term typically five years. Lessees can negotiate to get as low an escalation cap as possible for each additional year. The lessee should make sure he understands the terms of the contract properly and that he is not paying rent for space he does not use such as a foyer or lobby to which he has no access as it is on another floor. The landlord has to ascertain that the lessee has no deceitful intent and has no record of fraud or history of delinquent rental payment. The lessee should not cause damage and or repair to the property and abscond without a trace, leaving the landlord in a lurch. It is therefore necessary for both parties to hire an experienced attorney and see to it that they are not being cheated, by carefully verifying the due-diligence and all documents presented.

Graduated leases are helpful for new entrepreneurs who can use the money saved on the first few years of the lease to build and establish their business.

There are firms that offer services and products to help new entrepreneurs run a successful business.

Alexander Gordon is a writer for – The Small Business Consulting Community. Sign-up for the free success steps newsletter and get our booklet valued at $24.95 for free as a special bonus. The newsletter provides daily strategies on starting and significantly growing a business.

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