Many property owners and developers create edifices first, such as multi-tenant office buildings or strip malls, and then look for tenants to occupy individual units. Others might specifically offer build-to-suit leases. They do not make any improvements to the property until they have a lease in place with a prospective tenant.
Build-to-suit leases can help tenants conform to requirements imposed by franchise businesses and meet the unique needs of unusual business models. Commercial property owners and developers may need assistance drafting custom build-to-suit leases that protect their financial interests.
Opportunities for losses abound
There are many risks involved in a build-to-suit lease scenario. The landlord assumes much of the risk, as they must cover the initial costs of property development. If the tenant business fails or files for bankruptcy, the landlord may have few options for recovering their investments.
Drafting leases that have clear provisions regarding lease assignment to other parties can be beneficial. Landlords may also want to limit the use of force majeure clauses or other terms that could eliminate the tenant’s responsibility to pay rent.
The amount of rent imposed and the duration of the lease generally need to directly reflect the current and future development and maintenance costs incurred by the property owner or developer. There are so many details to consider that even successful real estate developers could easily make mistakes or oversights.
Partnering with an experienced commercial real estate lawyer can make a major difference for those offering build-to-suit leases. Custom lease documents can provide the most protection when a property owner or developer must make substantial investments before a tenant acquires possession of the property.