Understanding Commercial Property Leases [leasingexecutive]

Understanding Commercial Property Leases [leasingexecutive]

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leasingexecutive.blogspot.com Commercial Tenant Strategies when Buying, Leasing or Renewing Leases

Investing in commercial properties and setting up their leases is easier than you may think. The key to doing it successfully is first understanding what will be required of you as a professional landlord, and putting this information into action. Know that and you will easily be able to recognise the distinction between residential property leases and commercial property leases.

Commercial leases themselves are fairly straight forward. You just need to make sure that it contains the following components before you sign up. All of which we shall now explain:

Parties

These are the official names of the individuals involved in your property. Namely you and your tenant. But if for example you find yourself renting out your rental property to a business, make sure that you name the business itself as the party on the lease, not the person who manages the company.

Managers can change whereas companies as a whole do not.

Premises

When you invest in a property, and in turn rent it out, you need to be aware of the property in its entirety. It is not just a block of offices, but are individual units that can be rented out. So all premises essentially describe is the space you are renting out, for this reason within the lease you need to verify what is actually being rented out to your tenant and what space is involved.

Rent

This section of the lease explains to the tenant how the rent for your investment property has been calculated (including common area maintenance and other costs linked to the rental property). Also within this section it is not uncommon to find the phrases 'gross lease' or 'triple net lease'.

At this point it is valuable that both you and your tenant gain a firm grasp of what these terms mean, before you continue with the agreement.

Term

All this section actually confirms is the length of the agreement i.e. when the lease begins and when the lease ends. One thing to consider here is the inclusion of 're-negotiation'. If for example you are renting out your rental property to a business, it is fair to say that at the end of the term they may want to renew their lease. With this in mind, it is a good idea to keep this option open for discussion within the lease.

Deposit

Now this one is an important one as it enables you to receive a security deposit from your tenant for your rental property. Within this section of the lease it is also important to include an agreement over what shall happen should their lease be forfeited. This ensures both security for yourself and your tenant.

Hold Over

This term you may be less familiar with, but all it actually represents is an overview of what will happen should your tenant choose to not vacate the property once the lease ends.

Use/Restrictions

It is important to know what your commercial property is going to be used for. After all the last thing you want to find out is that your tenants are committing illegal actions there. So within your lease make sure there is a reference to this stating what can and cannot be used in terms of signs, hours of use, limits on occupancy and sub-leases within your property.

Tax and Insurance

Of all the points listed here this one is probably the most important as it will prevent confusion later down the line. In this section of the lease, issues such as property taxes and insurance are agreed upon, in relation to who will actually pay the fee. To ensure that your rental property is fully covered, tenants will need to provide proof of insurance on the property and all its containing equipment, plus liability insurance which should protect you as the landlord.

Maintenance

Similar to the one above, it is important that whoever is responsible for the properties maintenance is identified within the document. In most leases of this kind, tenants are traditionally expected to pay for all repairs that relate to common usage. Landlords on the other hand will be in charge of paying for 'extraordinary repairs' that are as a result of major damage or equipment failure.

Now these are only a sample of the many features involved in the creation of a commercial property lease. There are other key areas that you need to take into consideration. These shall be discussed in part two of this article.

Natalie Cunningham is a professional copywriter specialising in Property Investment advice and commercial property investment She has over 8 years experience in the property development industry and is currently working on educating members of the public via London property investment seminars.

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Question by Don T: As a buyer of a foreclosed (REO) commercial property, can I start all new leases with current tenants? Some of the current tenants of the foreclosed commercial property (I am buying it) changed their lease rate and term (in comparison to the lender's record ones). Thus, can I start all new leases and evict the tenants that don't want to sign the new lease? Best answer for As a buyer of a foreclosed (REO) commercial property, can I start all new leases with current tenants?:

Answer by KKup
Honestly, depends on your state. Consult a real estate lawyer. It is a big legal issue that shouldn't be left to our hands. Use the money you saved on an REO and spend it on a good lawyer.

Answer by estielmo
Some tenants sign low-price sweetheart deals with the old landlord. But all leases are void if the bank takes possession. If you bought it from the bank you start them all with a fresh slate. If you bought it from the old owner just before the bank got it you are stuck.

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