MLO agreement determine amount of lease


#1

I will be negotiating a MLO this week on my first park. In reviewing the documents available in the MHU reference library, there is a Mobile Home Park Lease and Purchase template. My question pertains to Item #4 in that document which is the Option to Renew. It states…“additional years upon the same terms as the primary lease; provided however, at the option of the LESSOR, the amount of rent shall be equal to __________of the net operating income.”
My question is two fold:

  1. Why am I giving the Lessor the option to raise the monthly lease payment as I would expect the park to be more profitable at the time of renewal than it is at the onset? Is this simply a negotiating tool, where we can possibly negotiate a lower lease payment early on, providing the owner with the hope of a higher payment later? If so, I understand it, but would like some clarification.
  2. What percentage of NOI is recommended? I believe this provides a limit to the increase in lease payments, so as to maintain sufficient profitability. I am assuming this amount is equivalent to the percentage of NOI I would allow for a mortgage payment.
    Thanks for your help,
    George