The Lease Buyout

Over the past 4 months I have put together buyout options for 3 Tenants.  In the process I have developed a handy spreadsheet that makes the math and presentation come together much more quickly.  A buyout sounds simple enough; pay the remaining amount on the lease.  There are other costs however for landlords consider when a tenant requests an early termination.

1) The remaining amount on the lease, or the difference between what a new tenant will pay and what the current lease schedule states.

2) Rebate for commissions paid in advance for the lease.  A lease is a promise to pay and typically the landlord will pay a leasing agent or broker a percentage of the gross rents for the lease in advance.  If the tenant moves out however, the promised income may not come, and therefore a rebate on the commissions can also be requested.

3) Present value of cashflows.  The present value, or lump sum right now value of periodic payments over time is less than total amount over time.  This is also referred to discounted cashflow.  It was somewhat tedious to figure out, but now it's a handy tool in my toolbox.  

4) Any unpaid rents

In the buyouts mentioned above, the landlords decided not to demand the full payment but rather enough to cover the costs of releasing the space, such as vacancy loss, preparing the unit for another tenant, leasing fees etc...

Although the market and economy are turbulent, there are so many things to be learned now that will improve business practices during fatter times.