Lease/Option Formulas

We found an attractive parcel of land, ideal for our buyer client's latest commercial venture. But coming to terms on price turned into a battle of wills between a well-heeled, unmotivated seller and our buyer. The seller knew the location and its growing demographics would one day justify his inflated number. The buyer knew the future was good for his business but could not justify the seller's price at that time.

All through the negotiations, the seller learned about the buyer's financial strength and integrity. Through that growing relationship, we negotiated a transaction in which the seller advanced substantial money to the buyer so he could construct a brand-new facility. In exchange, buyer and seller entered a long-term lease, with the buyer holding an option to purchase over a period of years.

Once his business was proven up, my buyer exercised his option.

The seller received a solid net income stream for years, kept pride of ownership over that period, and ultimately received his full asking price through the exercised option. The buyer took advantage of an excellent location, expanded the business, and financed the purchase readily against the appraisals at the time of exercise.

We took the same formula to another location in another city, with similar success.

There are several more ways lease-and-option structures create benefits for sellers and buyers alike. The buyer realizes benefits of ownership, including appreciation, without the early financial strain.

Split the land and building

Another solution for price-point challenges: sell the improvements and lease the land, with an option to purchase at a future date. Variations in lease priority and subordination become part of meeting both sides' needs.

Head-lease the vacant space, with an option to buy

Every jurisdiction has multi-tenant and single-tenant buildings with challenged occupancy. There is ample opportunity to structure head-lease and option transactions for entire buildings. The existing owner gets rent that cures negative cash flow, capital for needed improvements, or a way out of management. The experienced buyer gets upside cash flow from re-leasing plus the ability to complete a timely purchase at a favourable price after repositioning and proving up the income. Various forms of additional security are available to the existing owner through negotiation.

Home land-lease with an option to buy

An attractive form of home ownership, popular in many North American jurisdictions and not yet well known in others. It offers distinct advantages for attainable housing, and a sound, reliable return for passive investors through the land lease over a predetermined period.