commercial lease for daycare

[John Coffey]

I have purchased a small private school building.  It's about 12,000 sf of classroom, kitchen etc and 4000 sf of gymnasium/workout area.  The daycare is interested in the whole building.  I have priced it to them but said this is just to help you get started and I would need more of a lease payment once you exceed  a certain number of kids.  Any suggestions on what this formula should be?  I'd rather not get involved in someones finances but I need to do something to make it have upside.  I have not given them a lease yet.  Thank you for your time. 

[Joel Owens]

You need to asses the daycare.

Are they currently in compliance for operating a business in your building? Is this their only location or are they multiple unit operators? What is their experience level as business owners? What are their business  financials and personal. Right now they make up a small percentage of the building. If they take up the whole thing you might have just one tenant but the landlord is also now relying on one tenant for the full potential income stream of the property.

Are they asking for any TI improvements money? Even if they are not you need some control over the process such as the contractors being licensed and insured etc. and that your tenant will fully defend against any contractor liens put on the building for non-payment etc. Generally subs could be paid directly for a release for each one. This way GC doesn't say he paid the money and subs claimed GC didn't pay anything or only partial and now they want to lien the property until they get payment.

You could offer base rent and then percentage rent above a certain sales number.