How To Negotiate A Commercial Lease
The renegotiation of a commercial lease is sometimes a wise move for the landlord given that it recommits a tenant to the space they currently occupy and the new How To Negotiate A Commercial Lease created will consolidate the lease cash flow for the future term.
In this property market where lease occupancy is at a premium, the strategy of renegotiation is quite relevant in the property management plan for the property. On this basis every property manager should have a systemised approach to renegotiating leases with satisfactory tenants in all managed properties. Keeping well ahead of lease expires, options, and rent reviews will be part of the process.
The suitability factor
One of the key decisions to formulate early in this renegotiation process is the suitability of the tenant to the future of the property. The history of the tenant regards How To Negotiate A Commercial Lease payments and compliance with the terms and conditions of the previous lease document will be relevant. Essentially you should understand that the tenant involved in the renegotiation is the tenant you require for the future. A destructive and difficult tenant will not benefit the property over the long term; if it is better to replace the tenant at the end of their lease then start to work on the issue early to reduce vacancy downtime.
To How To Negotiate A Commercial Lease with the sitting tenant the following considerations can apply to both the property manager and the landlord.
Preparation is the key to the successful renegotiation process:
At the early stages it is wise to meet with the tenant to identify how they intend to run their business over the coming How To Negotiate A Car Lease Buyout term. That fact will have impact on expansion and contraction strategies within the adjacent tenancy mix of the property. It will also help you with an understanding of the suitability of the property to satisfy the ongoing occupancy.
Understand the pressures in the local property market together with the current levels of supply and demand together with market rental. The lease to be negotiated with the sitting tenant should be relative to the local leasing market otherwise they will look to alternative premises at more attractive rentals.
It is likely that some incentive should be incorporated into the new leasing package. Given that the tenant is already in occupancy, the size and type of the incentive may not need to be as high as that needed to attract a new tenant to the property. The tenant may have some priorities in their operational plan where some landlord works could satisfy the incentive factor. The cost of the incentive should be amortised into the new lease under negotiation.
The permitted use for the premises should be revisited to ensure that the relative description is suitably tight for the ongoing occupancy and the current tenant mix. A well drafted permitted use clause is quite specific and tight to the use of the premises.
The essential terms of the lease relative to the cash flow such as rent reviews, outgoings recovery, and option periods, should be structured to give the landlord suitable ongoing cash flow and parity to the prevailing local market rentals over the duration of the new lease term. The frequency and timing of the adjustment of the rental to a fresh market rate during the lease term will also require consideration.
Necessary cash flow security for the landlord will need to be restated and recalculated for the new lease term. That could include rental bonds, bank guarantees, and director’s guarantees.
The tenant may require adjustment to fit out, communication systems, security systems, air conditioning, or essential services within the premises. All of these items may have some impact on the structural or practical use of the property; they will also have elements of cost to be considered. In such case it is wise to get the landlords building engineer to vet any potential changes to the physical tenancy aspects and tenancy design.
These key factors will allow the landlord and the property manager to prepare for the new negotiation with the sitting tenant. Importantly the existing lease should not be surrendered, cancelled, or adjusted until the complete terms and conditions of the new occupancy have been legally and formally agreed between the landlord and the tenant. This will include the signing of the new lease and the supporting payment of new rental and all monies relating to the guarantees or bonds.