Memorandum on US Property Law: Should You Buy or Lease a Garage? - Essay Sample

Introduction

This particular memorandum presents vital information concerning the United States property law. The aim is to inform you on property law that will aid in making an informed decision concerning the expansion plans for your company. Ultimately, the memorandum draws a standpoint whether you should purchase or lease a commercial space to be used as a garage. The recommendation is informed by the findings presented herein.

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This entry first presents terms of leasing a commercial space as directed by the United States property laws. In so doing, crucial leasing tenets are highlighted, for instance, the meaning of leasing, terms of extending and renewing a lease, restrictions on subleasing, and other payments apart from the base payment. Further insights are provided on a triple net lease form of investment and ways of avoiding a guaranty in order to minimize exposure.

Secondly, the entry presents viable options that can be exploited if your company decides to purchase commercial space. Under this section, possible ways of soliciting growth capital are explained. As a result, it is recommended that you should opt to lease the commercial space rather than buying. The supporting fact is that the former option will guarantee your company leverage and more control over its assets. Should there be any questions concerning the recommendation and information presented, do not hesitate to reach out.

The Leasing Option

Prior to taking this option, you are obliged to comprehend the very essence and meaning of leasing. First, when leasing property, the owner also referred to as the lessor, and in other terms, the landlord transfers his rights to possess the property to a second individual. The latter is referred to as the lessee under which you belong. The tenant is obligated to remit rent to the lessor at the set periodic intervals. Under leasing terms, the transferee of property is given full rights to exploit the property usually temporarily economically. Furthermore, the terms of the transfer of property are clearly stated under the United States property law which you should be acquainted with before deliberating on the next course of action.

Of essence is that the lessee, who in this case is you, should be well versed with the terms of the lease. The term hereby implies the duration during which the commercial space shall be under the occupancy of the lessee. Under given conditions, the terms of the lease are subject to circumstances that can commence, or termination of the covenant. Also, such a term is limited to the lifetime of the landlord. Despite the agreement between the landlord and the tenant, the United Statutory limits the term to a period not exceeding 99 years. You should also be informed that there exist no statutory limitations that limit the term of the lease in the United States; however, such a covenant may be limited to a period of 99 years.

Consequently, you should be acquainted with the renewal and extension of the lease. Renewing the lease establishes fresh tenancy. Furthermore, the property law of the United States does not serve any statutory provisions for the lessor to grant the lessee renewal of the lease covenant. Nevertheless, the lessee should continue remitting rent to the landlord upon holding over. The renewal duration for the lease is dependent on the intent of both the tenant and the lessor and may be equal to or less than that specified in the original term. If you are served with a contractual right to either have the lease renewed or extended, then the lessor is not in a position of altering the leasing terms in the future. This provision is contained within the Statue of Frauds that in case the renewal and extension are covered by it, then such should be done in writing for it to be enforceable.

Despite the possibility of restriction of subleasing of the commercial space, the lessee who satisfies the bankruptcy code of the United States may be at will to transfer the lease without seeking consent from the lessor in accordance to 11 U.S.C sections 365 once the terms of such a transfer are met.

As part of contracting a commercial space, you should be aware that payment of rent is binding. This is because the lessor has granted the lessee the full rights to exploit the premise commercially and therefore, rent is a remittance for the possession of the property. Under the privity of contract, the tenant is obligated to pay rent that spells out the terms of a lease. Additionally, the privity of state obligates the lessee to remit rent by a mere fact of occupying the space. Such payments are not restricted by the statute to currency only but are subject to the covenant between the lessor and the lessee. You will, therefore, be mandated to pay rent at the end of each term successively, which may daily, weekly, monthly, quarterly, or yearly.

In addition to the rent payment, you may also be obligated to remit other payments, for instance, a late charge or security deposit. The former is enforced by the lessor if the payable amount, as stated in the lease cuts into the administrative costs or results in the loss of interest. For such a case, the landlord cannot terminate the lease when you late in rent payment. On the other hand, you may be charged a security deposit to secure your outcome on lease obligations. The security charges can either be prepaid, nonrefundable, or forfeitable, which the lessee can claim.

Triple Net Lease Work

Before deciding on whether to adopt the triple net lease or not, you should consider several factors. For instance, the duration of the lease agreement. It is recommended that you subscribe to commercial area maintenance charges (CAM) of which triple net lease is one of them. This will allow the lessee to benefit from standardized and reviewed maintenance expense in addition to remittance of the small base rent. Despite risks associated with the triple net lease, such undoing can be mitigated by negotiating standard charges for repairs.

Subscribing to the personal guarantee request by the lessor will do more than required exposure on private entities. Such a move will also be a liability to you in case the business crumbles. Nevertheless, such a demand can be negotiated via several strategies which will limit the exposure. First, you can opt to put a limit on the personal amount. For instance, if the lessor requires five years before getting another tenant, the lessee can decide to hard cap the rent he could owe the landlord in case of default.

It is important for you to note that selecting a half a year rent worth will demand that the tenant settles the rent of the remaining half a year in case of a failure to honor financial lease obligations during the first 12 months of the tenancy. Alternatively, the identified guarantor can present a letter of credit in the place of signing a personal guaranty. Such a letter can be obtained from a financial institution. For you, therefore, there is the option of presenting to the landlord with the letter of credit to stand in as a security in case he defaults the commercial lease obligations.

Your company is subject to expansion with time, thus necessitating adjustments to the lease terms to cater for the change. The lessee may be required to obtain an expansion right clause. Such a clause should clearly state the time the tenant will require additional space which can be best exercised by granting oneself a considerable time, for instance, three years. Considering that it is recommended for you to adopt the triple net lease, the expansion negotiations should settle on the first lease year as the base year to reduce on the amount paid for increased maintenance and operating costs.

The Buying Option

If you decide to buy the commercial space, it is vital that you comprehend the effect of zoning on the business. Accurate identification of the allowed zoned is essential for profitable operation as it dictates the type of structures that can be set up. For instance, you should identify a commercial zone that will allow the erection of structures for business activities.

In order to be in apposition of purchasing the commercial space, your company requires growth capital. At this stage, its business needs are similar to that of a startup corporation. Considering that your company is still growing, Company Y can finance the acquisition of the commercial space by purchasing the shares of the former organization. Thus your company can raise the required capital through equity financing. By so doing, your company shall have sold part of its ownership to company Y in that the latter shall have acquired some of the former's equity assets.

As a consequence, the two companies enter into a limited liability form of partnership, which will also dictate the form of ownership of the newly acquired commercial space. However, you should realize that you are losing control over your ownership as you continuously become diluted. The far worse outcome is that you may lose the future direction of your corporation as well as the decision making process to company Y.

Apart from purchasing your company's shares, company Y can decide to purchase several assets from the former company under what is popularly referred to as merger and acquisition. It plays a significant role in the expansion of corporates in bid to restructure fueling accelerated growth. Via acquisition, company Y gets the possession of the majority of the stakes of your company. Despite the move, the former still maintains its legal structure as well as the company name. Therefore, you should first seek the approval of the shareholders before giving away the assets of the corporation. When the second approach is taken, the acquirer of the commercial space will jeopardize its existence while that of the financier remains.