During my tenure as a dealer principle, I had a conversation with an office equipment leasing company executive. We were discussing the return of a large population of multi-function copy equipment from a mutual customer. For this customer, my dealership had stayed on top of all the lease requirements for notification of intent to return equipment at lease expiration. On my customer's behalf, I was making the arrangements for the return of the equipment. The leasing company executive was reluctant to provide return authorization information for the equipment.
The first thing which commercial property owners and renters need to know about is that there must currently be a lease in place between the landlord and business owner tenant. As the purpose of a blend and extend lease is to get an early renewal with lease term changes it goes without saying that there must be an active lease agreement at the time in which a blend and extend lease is discussed. You should also be aware of why a blend and extend commercial property lease is desirable. Commercial office leases are often lengthy in duration and this makes altering terms more difficult as when compared to an annual lease. With that said, landlords do not like to take chances of having their office space be empty once their current tenant's lease expires. With a blend and extend lease, tenants benefit by negotiating for a more favorable monthly rent and lease terms and landlords benefit by ensuring that their current tenant remains in the premises for years to come.
I asked the executive how they could be so sure that equipment would go into renewal. Without hesitating, he answered because historically most of their equipment leases do. After getting up off the floor, I asked his opinion why that many leases went into renewal. He replied that it was either the lack of tracking the lease expiration or turnover in the customer position that was responsible for notifying the lease company in a specific time frame (designated within the lease agreement). The majority of copier leases are written for a 5-year lease term. Turnover (either promotions or by leaving) within a customer's business does usually occur before the end of the lease. In addition, during the course of busy days at the office, no one stops to document lease expiration dates. It seems so far away and therefore unnecessary at the time.
Generally, a major round of equity capital raised from credible investors or venture capitalists makes venture leasing viable for the early stage company. Lessors structure most transactions as master lease lines, permitting the lessee to draw down on the lines as needed throughout the year. Lease lines usually range in size from as little as $ 200,000 to well over $ 5,000,000, depending on the lessee's need and credit strength. Terms are typically between twenty four to forty eight months, payable monthly in advance. The lessee's credit strength, the quality and useful life of the underlying equipment, and the lessor's anticipated ability to re-market the equipment during the lease often dictate the initial lease term. Although no lessor enters a leasing arrangement expecting to re-market the equipment prior to lease expiry, should the lessee's business fail, the lessor must pursue this avenue of recovery to salvage the transaction. Most venture leases give lessees flexible end-of-lease options. These options generally include the ability to buy the equipment, to renew the lease at fair market value or to return the equipment to the lessor. Many lessors limit the fair market value, which also benefits the lessee. Most leases require the lessee to shoulder the important equipment obligations such as maintenance, insurance and paying required equipment taxes. Venture lessors target lessee prospects that have good promise and that are likely to fulfill their leases. Since most start-ups rely on future equity rounds to execute their business plans, lessors devote significant attention to credit review and due diligence - evaluating the caliber of the investor group, the efficacy of the business plan and management's background. A superior management team has usually demonstrated prior successes in the field in which the new venture is active. Additionally, management's expertise in the key business functions -- sales, marketing, R&D, production, engineering, finance --- is essential. Although there are many professional venture capitalists financing new ventures, there can be a significant difference in their abilities, staying power and resources. The better venture capitalists achieve excellent results and have direct experience with the type of companies being financed. The best VCs have developed industry specialization and many have in-house specialists with direct operating experience within the industries covered. Also important to the venture lessor are the amount of capital VCs provide the start-up and the amount allocated to future funding rounds.
The primary reason you don't want your lease to renew is that you are being forced to pay new equipment costs (i.e. the same lease payment) for your old and well used equipment. In essence, you have no options. In contrast, if you don't get snagged by the lease renewal, you can always lease more highly featured and productive equipment for the same or lower cost. Another available option is to release your same equipment (assuming it has been working well) for a shorter term at a significant discount. There has been some backfiring of this intentional upgrading plan when customers are so infuriated by the renewal that they refuse to work with either the equipment vendor or the leasing company. As a result, there has been a softening of some of the stringent requirements. You have to check the verbiage in your current lease agreement in the section labeled something like "End of Lease" or "Renewal" to determine the expiration criteria.
When all is said and done, a blend and extend lease can often be a good option for both landlord and tenant to consider. If the landlord/tenant relationship is a good one and the office building location works well for the tenant, then there really is no reason to ignore the blend and extend lease option. Even with the few potential negatives listed above, the pros often times outweigh the cons of this type of lease. A blend and extend office lease ensures that the office property remains rented and the tenant gets a better deal than it had previously. It is easy to see why blend and extend leases are becoming much more common in the commercial real estate market-place.
The first thing which commercial property owners and renters need to know about is that there must currently be a lease in place between the landlord and business owner tenant. As the purpose of a blend and extend lease is to get an early renewal with lease term changes it goes without saying that there must be an active lease agreement at the time in which a blend and extend lease is discussed. You should also be aware of why a blend and extend commercial property lease is desirable. Commercial office leases are often lengthy in duration and this makes altering terms more difficult as when compared to an annual lease. With that said, landlords do not like to take chances of having their office space be empty once their current tenant's lease expires. With a blend and extend lease, tenants benefit by negotiating for a more favorable monthly rent and lease terms and landlords benefit by ensuring that their current tenant remains in the premises for years to come.
I asked the executive how they could be so sure that equipment would go into renewal. Without hesitating, he answered because historically most of their equipment leases do. After getting up off the floor, I asked his opinion why that many leases went into renewal. He replied that it was either the lack of tracking the lease expiration or turnover in the customer position that was responsible for notifying the lease company in a specific time frame (designated within the lease agreement). The majority of copier leases are written for a 5-year lease term. Turnover (either promotions or by leaving) within a customer's business does usually occur before the end of the lease. In addition, during the course of busy days at the office, no one stops to document lease expiration dates. It seems so far away and therefore unnecessary at the time.
Generally, a major round of equity capital raised from credible investors or venture capitalists makes venture leasing viable for the early stage company. Lessors structure most transactions as master lease lines, permitting the lessee to draw down on the lines as needed throughout the year. Lease lines usually range in size from as little as $ 200,000 to well over $ 5,000,000, depending on the lessee's need and credit strength. Terms are typically between twenty four to forty eight months, payable monthly in advance. The lessee's credit strength, the quality and useful life of the underlying equipment, and the lessor's anticipated ability to re-market the equipment during the lease often dictate the initial lease term. Although no lessor enters a leasing arrangement expecting to re-market the equipment prior to lease expiry, should the lessee's business fail, the lessor must pursue this avenue of recovery to salvage the transaction. Most venture leases give lessees flexible end-of-lease options. These options generally include the ability to buy the equipment, to renew the lease at fair market value or to return the equipment to the lessor. Many lessors limit the fair market value, which also benefits the lessee. Most leases require the lessee to shoulder the important equipment obligations such as maintenance, insurance and paying required equipment taxes. Venture lessors target lessee prospects that have good promise and that are likely to fulfill their leases. Since most start-ups rely on future equity rounds to execute their business plans, lessors devote significant attention to credit review and due diligence - evaluating the caliber of the investor group, the efficacy of the business plan and management's background. A superior management team has usually demonstrated prior successes in the field in which the new venture is active. Additionally, management's expertise in the key business functions -- sales, marketing, R&D, production, engineering, finance --- is essential. Although there are many professional venture capitalists financing new ventures, there can be a significant difference in their abilities, staying power and resources. The better venture capitalists achieve excellent results and have direct experience with the type of companies being financed. The best VCs have developed industry specialization and many have in-house specialists with direct operating experience within the industries covered. Also important to the venture lessor are the amount of capital VCs provide the start-up and the amount allocated to future funding rounds.
The primary reason you don't want your lease to renew is that you are being forced to pay new equipment costs (i.e. the same lease payment) for your old and well used equipment. In essence, you have no options. In contrast, if you don't get snagged by the lease renewal, you can always lease more highly featured and productive equipment for the same or lower cost. Another available option is to release your same equipment (assuming it has been working well) for a shorter term at a significant discount. There has been some backfiring of this intentional upgrading plan when customers are so infuriated by the renewal that they refuse to work with either the equipment vendor or the leasing company. As a result, there has been a softening of some of the stringent requirements. You have to check the verbiage in your current lease agreement in the section labeled something like "End of Lease" or "Renewal" to determine the expiration criteria.
When all is said and done, a blend and extend lease can often be a good option for both landlord and tenant to consider. If the landlord/tenant relationship is a good one and the office building location works well for the tenant, then there really is no reason to ignore the blend and extend lease option. Even with the few potential negatives listed above, the pros often times outweigh the cons of this type of lease. A blend and extend office lease ensures that the office property remains rented and the tenant gets a better deal than it had previously. It is easy to see why blend and extend leases are becoming much more common in the commercial real estate market-place.
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