Net Lease Renewal Options

Q. What are the Lessee’s renewal term options under the CRIC Capital net lease program?

A. The Lessee usually has the right to extend the lease for several renewal terms at rents equal to the then fair rental value of the property.

Q. What happens if, during the lease term, the property becomes uneconomic for continued use in my business?

A. The CRIC Capital Net Lease gives you the right to sublease the property and retain any excess rent. In many cases, particularly in multi-property transactions, you will also have the right to substitute another property of equal value for the property that is no longer economically useful to you.

Q. Can I, as the Lessee, have an option to purchase the property?

A. If the property is not part of a sale-leaseback transaction, you, the Lessee, can have an option to purchase the property at the end of the lease term. If the Lessee requests this option, the purchase price will be negotiated on an individual transaction basis.

As discussed earlier, an option in a sale-leaseback transaction at any price will constitute a “continuing involvement” under FASB No. 98, and will therefore jeopardize the Lessee’s “off-balance sheet” treatment.

Q. Are there circumstances under which I, the Lessee, can terminate the lease?

A. Yes, in the event of a major casualty or condemnation or in the event of a major environmental problem, the Lessee may elect to terminate the lease by paying CRIC Capital the unpaid balance of its investment plus a make-whole premium. This right of termination is usually implemented through CRIC Capital’s Rejectable Offer Mechanism.

Q. Will I be giving up the residual value of the property?

A. A CRIC Capital net lease transaction can create significant short and long term financial and tax advantages for your business that far outweigh the benefits of the residual value of a business property. Equally as important, the future value of the residual in a property is speculative—being ten to twenty-five years in the future. The present value of a residual interest can be quite nominal. For example, the present value of $1,000, twenty years in the future, will be less than $150 (assuming a 10% discount rate). Contact CRIC to learn more.