A Brief Introduction About the Build to Suit Lease
Build to Suit Lease is a commercial agreement in which the landlord constructs a custom-built property and rent it out to the tenant. The tenant gets an efficient and large space to carry on their regular office tasks conveniently. In return, the tenant pays a certain rent to the landlord. The rent is decided as per the construction cost and property value.
Basically, it is a detailed contract that features the crucial steps to find, select, finance, and rent a particular property. On this property, the builder constructs the commercial building for the tenant. To know the build to suit definition, steps to drafting the agreement, and how does a build to suit lease work, keep reading.
Who Takes the Build to Suit Lease?
The contract is signed by the tenant (who rents the custom-built building) and the landlord (who owns the property and invests in its construction). As soon as this agreement is signed, the developer starts the construction process according to the client’s requirements. The client becomes the sole occupant of this building.
Purpose of the Build to Suit Lease
The agreement is the best way to acquire a custom-built office, restaurant, school, college, and other such commercial space. For example, a build to suit a restaurant lease is the best agreement for the aspiring restaurant owner who wants to start a restaurant without having to invest a large capital. The main purpose of this agreement is to clarify the lease terms to the tenant and landlord.
Contents of the Build to Suit Lease
Signing this lease form is an important aspect of renting a custom-built property. It works as an evidence of your deal. Additionally, this agreement clears all the confusion about the delivery date, tenant’s requirements, the expiry date of the lease, and other essential terms that both the landlord and tenant are supposed to adhere to. The contract contains:
- The Landlord Work Letter: these papers involve the details of the landlord work i.e., the work required by the builder or landowner before the tenant acquires the building.
- Other crucial built to lease agreements, in which, the improvement allowance and delivery date are specified.
- The final agreement that entails the responsibilities of the landlord and tenant after possession.
How to Draft the Build to Suit Lease?
To reap the maximum benefits, you must draft a perfect lease agreement. Here are some of the imperative components that must be involved in the contract.
- Involves Parties: The Involve Parties specify the name of the people involved in the contract. It includes the landlord, tenant, guarantor, and tenant contact information.
- Premises Description: Before the tenant signs this lease contract, they must check the description of the premise to ensure that the property is legally owned by the developer. The premises description section specifies the necessary information about the owner of the property, upon which, the purpose-built building will stand.
- Terms of Service: Terms of service is the most imperative part of the lease agreement. In this section, the lease period is specified. Make sure that the terms of the lease are non-cancelable and inflexible parts of the agreement.
- Renewal Options: If the tenant is satisfied with the commercial building, then he can apply for renewal or lease extension option after the expiration of the lease period.
- Rent: The tenant gets a custom-built property, and in return, they are supposed to pay a specific amount of rent to the owner. This rent is calculated by the landlord. Before you sign the agreement, calculate and discuss the rent with your landlord.
Other than this, the lease contract involves plans, maintenance and repairs, uses and restrictions, tax-based information, work letter, and more.
Negotiation Strategy
Once the agreement is drafted, the next step is to understand and agree to the terms and obligations mentioned in the document. Both the landlord and tenant must accept the conditions before proceeding with the acquisition.
Benefits and Drawbacks of Build to Suit Lease
The pros of build to suit agreement are:
- Capital Preservation: By renting a custom-built building, the tenants can preserve capital. The capital you would invest in buying a property and constructing it according to your needs can now be used for growing your business. In return, you only have to pay a small amount of rent to the landlord.
- Flexible Option: Buying a property can involve a long-term commitment. But leasing the same is a much flexible option since you only occupy the property for a specific period.
- Efficient and Customized Building: The best part about this agreement is that the tenant gets to work in a customized office or building. The building is designed to suit the requirements of the tenant.
Cons of build to suit lease agreement:
- It is Expensive: To recover the cost of construction, the landlord can fix a high monthly rent that can cost a bomb to the tenant.
- Long-term Commitment: Although it is flexible, this is a long-term commitment. You cannot cancel the deal before the expiration of the lease.
What Happens in Case of Violation?
This agreement can be violated if the landlord and tenant do not stick to the terms and conditions given in the lease contract. Failure of the rent payment, property construction that’s not up to the tenant’s expectations, and other conditions can result in the termination of the deal(1).
A build to lease agreement is a necessity for landlords and tenants who wish to come into the build to lease contract. You must check the build to suit lease agreement template to get a better understanding of how the agreement must be crafted.