How can you identify commercial real estate contract types?

1 Lease contracts

A lease contract is an agreement between a landlord and a tenant that grants the tenant the right to use and occupy a property for a certain period of time and under certain conditions. Lease contracts are one of the most common types of commercial real estate contracts, and they can be classified into different categories based on how the rent, expenses, and responsibilities are shared. For instance, in a gross lease, the tenant pays a fixed rent that includes all the operating expenses of the property, while in a net lease, the tenant pays a base rent plus some or all of the operating expenses. Additionally, there is also percentage lease, where the tenant pays a base rent plus a percentage of the gross revenue or sales generated from the property. Furthermore, there is also modified gross lease which is a compromise between gross and net leases.

2 Purchase contracts

A purchase contract is an agreement between a buyer and a seller that outlines the terms and conditions of the sale of a property. Also known as sales contracts, purchase agreements, or contracts of sale, these documents are usually contingent on certain events or conditions such as financing, inspections, appraisals, title searches, and environmental assessments. Purchase contracts can be classified into different categories based on how the price, payment, and ownership are determined and transferred between the parties. For example, a cash sale involves the buyer paying the full price of the property in cash at the time of closing with no financing or mortgage involved. The seller transfers the title and possession of the property to the buyer immediately. In an installment sale, the buyer pays a portion of the price of the property as a down payment at the time of closing and the rest in regular installments over a period of time. The seller retains title and possession until payment is made in full. A lease-purchase involves the buyer leasing from the seller for a certain period with an option or obligation to purchase at the end of this term. Lastly, an exchange involves both parties swapping properties or assets of similar value either directly or through an intermediary. The title and possession are transferred simultaneously.

3 Development contracts

A development contract is an agreement between two or more parties that outlines the scope, terms, and conditions of a real estate development project. It is also known as a development agreement, joint venture agreement, construction contract, or public-private partnership agreement. Development contracts can be classified into different categories based on the roles, responsibilities, and rewards of the parties involved. Ground lease contracts involve the developer leasing the land from the landowner for a long period of time and developing, owning, and operating the property on the land. The developer pays rent to the landowner and retains title and reversionary interest in the land and property. Build-to-suit contracts involve the developer building a property according to the specifications of a tenant who agrees to lease it for a long period of time. The developer owns and operates the property and receives rent from the tenant. Turnkey contracts involve the developer building a property according to the specifications of a buyer who agrees to purchase it upon completion. The developer transfers title and possession of the property to the buyer at closing and receives full payment for it. Joint venture contracts involve two or more parties forming a partnership to share risks, costs, and profits of a real estate development project. They each contribute resources, expertise, and responsibilities to receive income and equity from the property.

4 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?