SW Florida Commercial Real Estate - Types of Contracts & Leases

Contracts and Leases take many different forms. Today's complex and sophisticated real estate market is challenging the SW Florida Real Estate professional to be on the cutting edge of creativity when structuring a commercial transaction. While it is always recommended to have legal representation in a transaction it is also important to have a qualified professional associate that is knowledgeable to the ever changing real estate market. There are many types of commercial real estate contracts. Contracts can be written or oral, contracts can be unilateral or bilateral, there are listing contracts and sale contracts which are broken down into many categories. Simply Stated...A contract is an agreement in between two parties that must include and offer, an acceptance and a consideration. A contract itself is not implied, but the terms of a contract may be implied. There are a variety of different types of contracts used for different purposes. In addition, certain types of contracts may be more popular in certain areas than in another. 

Here a a few of the most common types of contracts used in Charlotte & Sarasota County Commercial Real Estate that we will discuss...

Purchase and Sale contract is a bilateral contract where both parties to the transaction must perform to have a successful transaction. A bilateral contract is one where both parties are to perform their promises or obligations at some future time but not necessarily at the same time. Bilateral contracts make up the majority of the contracts drafted. For example, a contract for the sale of goods is a bilateral contract. The buyer promises to purchase the product and, in turn the seller promises to supply the product. 

Option Contract is a unilateral contract and are less common, but are one of the many valid types of contract. A unilateral contract is one where one of the parties performs his promises at the time of making the contract and the other party promises to perform in the future. This type of contract often has a fee associated with it known as option consideration. This is cash or the equivalent and generally forfeited by the buyer if they do not per under the terms and conditions of the contract or do not exercise the option. Potential buyers should be careful that the option fee they pay to get a real estate option contract is not too high. In the case of a lease-purchase or rent-to-own transactions, potential buyers may agree to a higher-than-market-value rent in order to apply part of the rent towards the purchase price. If such potential buyers later decide not to exercise their purchase option they normally forfeit the higher rent already paid. Option contracts often have a specified time frame for the buyer to notify the seller of their intent to continue the contract and this act is referred to as exercising the option. 

Commercial Lease is an agreement in which an owner agrees to allow a tenant the use of a space in exchange for money. Leases are considered valid enforceable contracts. Most commercial leases are long-term, set for several years, and include other financial considerations in addition to simply rent. Some commercial leases require a portion of the profit of the renter's business as part of the rent, this is referred to as percentage rent or a percentage lease. Others include a percentage of taxes, maintenance and insurance to be paid by the tenant as part of a rent payment, which is commonly referred to as common area maintenance (CAM) or termed recoverable. A gross lease is a lease that does not generally have a CAM addendum or rider and is a fixed amount per month although it might have a reimbursement cost clause, it would then be referred to as a Modified Gross Lease. Most commercial leases have escalations or annual adjustments as part of the lease. The adjustments can be a percentage or fixed amounts and can vary from annually or other periodic times during the lease term. These can be referred to as "step leases". Some even tie the increase to the rate of inflation, known as cost-of-living lease. Commercial leases in Florida are subject to Florida Sales Tax. 

In summary...if your are considering buying, selling, leasing or optioning real property consult a qualified SW Florida Real Estate Professional or Real Estate Attorney. 

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