Are there guidelines for a landlord to calculate lease amount for a business operating on 35 acres?
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Are there guidelines for a landlord to calculate lease amount for a business operating on 35 acres?
We own approximately 35 acres which we have a triple net lease agreement/contract with an individual that is coming up for renewal. The land has been used for operating a dirt race track for the past 88 years. We have also allowed the tenant to operate a successful landscape business . The new lease will be set for a 5 year period. Are there any guidelines for calculating what should be charged – such as dollar value per acre, or a percentage of the value of the land, or possibly a percentage of their yearly income? Not sure what is appropriate. Should we speak with a business law attorney? In Bloomington, IN.
Asked on January 18, 2011 under Real Estate Law, Indiana
Answers:
SJZ, Member, New York Bar / FreeAdvice Contributing Attorney
Answered 13 years ago | Contributor
There are no "legal" guidelines--a landlord may charge whatever a he or she wants, or whatever the market will bear. In terms of practice, since the market is the key determinant, you should look at what similar land, similarly situated or located in your area, leases for. That will give you an idea of market rate. You can then adjust that based on relative leverage (i.e. how badly does the tenant need to stay; how badly do you need to rent?) and other factors, such as the value you ascribe to the relationship. I would--speaking as a businessman myself, rather than as an attorney--advise against charging based on the tenant's yearly income; that is susceptible of "manipulation" by the tenant--even without any ill-will towards you; e.g. just in the name of managing their business and their tax liability--which means it's not an easily determined, set amount. You want to have a predictable income stream where you don't need to try to get access to someone else's "books" to see what you are owed.
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