FAQ

Frequently Asked Questions

Selling

In order to market a property, the Georgia Real Estate Commission requires that brokers obtain a written, signed listing agreement from the property owner. This agreement sets forth the duties of the broker and the client and establishes how the broker will be compensated for his or her efforts.


Leasing

Normally, in the case of commercial properties, lease rates are a factor of the annual cost per square foot of the leased space. The annual rent for a property is determined by multiplying the quoted rent per square foot by the number of square feet being leased. The resulting product is then divided by twelve to arrive at the monthly rent figure. One must then know whether the quoted rent is a gross rental rate, gross plus utilities or a triple net rate.
Example:
1000 square feet x $18 per square foot = $18,000 annual rent.
$18,000 annual rent / 12 months per year = $1500.00 rent per month.

Net and gross are different ways of quoting rent. A gross lease means that the stated rental rate includes the major expenses from real estate taxes, property insurance and common area maintenance, and that no additional rent for those items is required to be paid. In an absolute gross or full service lease, the quoted rate will include basic utilities such as electricity, gas, water and sewer. A triple net or NNN lease is one where the rent is quoted as a base rent net of, or not including, the expenses for real estate taxes, building insurance and common area maintenance. These three expenses, as well as the utilities, are an extra charge over and above the base rent. Under a NNN lease, the tenant will also be responsible for utilities in addition to the NNN expenses. In between a gross rental and a NNN rental is a gross plus utilities rental where the quoted rent covers the taxes, insurance and maintenance expenses but does not include utility charges for the leased premises such as gas, electricity, sewer and water. Typically, tenants will provide their own telephone and internet services under any of these lease types.

CAM stands for common area maintenance and typically includes the costs of snow removal, lawn mowing, common utilities, janitorial services for common areas, etc. Landlords and tenants should be careful to note all the things that can be included in CAMi charges and whether it can include things such as management fees, administrative costs, seasonal shopping center decorations, etc.

A letter of intent is a non-binding document signed by a prospective tenant or buyer and expressing the primary deal terms of the transaction such as price, term, build out, etc. It is generally not considered to be a binding document and does not contain the level of detail of a final binding contract document such a lease or a purchase agreement. It is simply a good faith statement that the tenant or buyer is willing to lease or buy the property on the terms stated if all other conditions can be agreed upon. Often a letter of intent will be signed subject to various contingencies such as licensing, financing or agreement on terms that cannot yet be solidified.

Tenant improvements are the improvements or remodeling tasks that need to be completed before the tenant can use the leased premises as intended. This can be a moot issue if the space is move in ready, or can involve construction of an addition to a building or a significant structural change to the building.

The cost of tenant improvements is typically negotiable as are other portions of a lease agreement. Often, a property owner will offer a stated build out allowance with new construction property ranging from $10 to $30 per square foot to assist the tenant with build out expense. With space that has previously been built out, the property may or may not offer an allowance to the tenant. The amount of money that a property owner will be willing to offer to a tenant may depend on a number of factors including the length of the lease term, the rental rate the tenant is paying, the nature of the improvements the tenant wants to build and how usable they will be by subsequent tenants, and the financial strength of the tenant. When a tenant is evaluating a build out allowance, the tenant should be clear as to what improvements, if any, will be made by the owner prior to the allowance figure being applicable. In other words, will the allowance apply to a dirt floor with no interior walls, or will it apply to space that already has a concrete floor, constructed demising walls and plumbing and electrical utilities brought to the Leased Premises.

Investment

A 1031 exchange is a method of trading properties that, under Section 1031 of the Internal Revenue Code, is done without the current payment of tax on the capital gain. Rather, the owner’s tax basis in the property is transferred to the replacement property received in the exchange. When a property is exchanged in accordance with the rules promulgated by the IRS, the tax on the gain is not eliminated, but is deferred until the replacement property is subsequently sold or transferred. By continuing to elect Section 1031 treatment on subsequent real property exchanges, a property owner can defer taxes indefinitely. Another section of the tax code allows heirs of a deceased property owner to inherit the property at a stepped up date of death fair market value tax basis, thus eliminating the capital gains tax entirely and leading to the strategy of swap ’til you drop transactions. Under the IRS rules, once a taxpayer sells a property, he or she is allowed a specified time period to identify the replacement property and then to close on its acquisition. At no time during this process, however, can the taxpayer have access to the sale proceeds from the first transaction. Thus, those funds need to be held by the title company or other qualified intermediary until used to acquire the replacement property. There are many technical requirements for this type of exchange, and we can help connect with the right people to prepare the necessary paperwork and guide you through the process.