Lease to purchase on commercial real estate?

Question

I am looking for a building to open up a bar/club. The seller of the building has the option to either lease or purchase. I was hoping to set up a 'lease with the intent to purchase' agreement. If the selling price of the building is $250,000, what is a reasonable lease cost? Who pays for improvents to convert the interior and exterior? Who pays property taxes and insurance on the building? Should I receive discounts for permanent improvements I make to the building (such as adding bathrooms, bar, DJ booth)? Is it going to be difficult to get permits, if I don't own the building? What are some website or sources for 'lease to purchase' contracts? And on top of it all, the building might be historic and reside in an 'Empire Zone' (New York Sate's draft enterprize zone, for tax breaks to attract businesses). Any help or advice would be highly appreciated! Thanks.

Answer 1

To lease or purchase depends entirely on crunching the number to see which is the best option depending on your budget and plans. Everything on commercial lease agreements is ofter negotiable such as deals with leasehold improvements where they are done by the landlord and your rent increases and you should negotiate a better rent deal if you do the improvements and increase the value of the property. Usually insurance on a building is only available to the owner but you need to insure the contents and consider business interruption insurance.

Permits for the building should not be a problem but you will need to follow building codes and do upgrades as required by the city. There are limits to what you can do to a historic building in most cities. You should know all this before you sign a lease.

At this level of investment it would be a good idea to contact a good business start up lawyer and a good accountant for advise. There are too many pitfalls to go in blind or on the advice of strangers.

Answer 2

The price of the lease should be the same of lease without the option to buy; ask what other properties in the area are paying. If the selling price is $250,000 rent should be about $4,200 per month. Ownership pay off in 5 years.

If you Rent or Lease purchase, you as tenant is responsible for improvements and conversions (inside & out). Property taxes and insurance is the property owners expense, in lease purchase you will have to assume this expense when you excersize the option. I would not give you any discounts for bathrooms, bar,DJ booth.

The property owner will track down all the things needed to write up the agreement. Zoning is no different for a business, based on rent versa ownership. The EMPIRE ZONE component I have no idea. You have an enterprise that will need $500,000 to open the doors, and $250,000 to cover contingencies for 6 months. Make sure that you have enough funding before you comit to even a $10 expense. If you don't have it when you start you will spent too much time working on getting it and cause yourself to fail because you are not doing what you need to do.