The performance of a commercial or retail investment property will largely be driven by the impact of each individual lease document. In a property with many tenants the sheer number and variety of leases will complicate things somewhat. That is why it pays for you to understand how to read lease documentation and understand how it works for a client.
Given that we work for many different clients with shifting and changing investment requirements, if we spend time on optimising leases and the tenant mix, the performance of any property can be improved.
It is worth remembering that a lease is created as a result of a lease negotiation. Preparation for leasing premises and setting up the required documentation will help you directly with a lease negotiation. Understand what the client wants from any tenancy lease and how that can be reflected in the lease documentation.
Understand Tenants and Leases
Here are some ideas to help you work with tenants as part of the leasing process:
- Select the right lease term – Most leases will be for a multiple of years and typically 3 or 5. Sometimes a longer lease may be appropriate if the tenant is national high profile business. That being said, in a property with many tenants it pays to stagger the lease expiry dates so the landlord is not threatened with loss of rent pressures from a number of tenants at the one time.
- Is an option a sensible idea? – It’s a valuable question to think though and also discuss with the landlord property owner. In larger properties and particularly shopping centres, most landlords will and should avoid giving a lease option wherever possible. That is because it restricts tenant movement and placement; it is harder to improve a property and its market rent if you can’t move tenants around. In a retail property it is common to move people around regularly and to create ‘clusters’ of tenants to improve the tenant mix.
- Will renovation be important to property occupation? – In older properties and in situations where longer leases exist (5 years or more), it is wise to put the onus of premises renovation on the tenant during and at the end of the lease term. Also have a serious look at the make good provisions at the end of the lease to ensure that you will be getting back the premises in a reasonable standard internally for re-leasing.
As you can see from these points, you can prepare for a leasing of investment properties and premises well in advance. It is a matter of understanding the tenant and the landlord and then balancing both needs into the property configuration.