When you negotiate a commercial or retail lease, it is not just a matter of getting the tenant to agree to some form of lease deal and then putting a lease ‘heads of agreement’ together.
We as agents can provide a lot of value to the client by helping them through strategies and decisions relating to the lease. The end result lease can then be quite special when it comes to property performance and landlord returns.
A Lease for the Duration
A lease in commercial or retail real estate can exist for some years. The fact of the matter is that the lease can be shaped at the time of the lease negotiation to help the landlord’s position over the lease term. Out of every lease, the final lease document between the parties is a reflection on a number of things such as:
- What the tenant sees as acceptable when it comes to the level of rent and the conditions of occupancy
- What the landlord wants in the lease terms and conditions for occupancy to be provided for the duration of the lease
- What the legislation may be for leasing the particular property type in its location and given the prevailing local property laws
- What property improvements are in the property now and how they should be reflected in the lease document and ongoing tenant use
All of these things require strategy. That is what we as agents are good at when it comes to leasing negotiation and finalisation. Knowing what works when it comes to a lease in today’s property market is part of the equation. Knowing how to put a lease together for a landlord is our high-value skill.
What are the Lease Facts?
Here are some considerations that can apply to lease a property in commercial real estate today:
- The level of rent start will be relevant to the prevailing property market and supply and demand for space today. The success of a lease is not so much about where you start the rent, but rather where you finish the rent and how you build the lease returns. Over the lease term, you can improve the rent and the returns for the landlord. That is what a lease is all about. Far too many landlords focus on the starting rent which is only a small part of the leasing process.
- Negotiate every lease with due regard for rent type, outgoings recovery, market incentives, rent reviews, lease options, and length of the lease. All of these things will impact the landlord’s returns.
- The permitted use for the premises will need to be well-considered and documented, particularly if the tenant is part of a larger building with other tenants nearby. Control the tenant use of the premises by the permitted use clause.
- Relocation and renovation provisions in the lease may be a consideration depending on the age of the property and the use of the premises by the tenant. The longer the lease, the chance that you will need to consider these factors.
- Guarantees will apply to establish the lease. The guarantees will protect the landlord in times of tenant default. It is important that the level and type of guarantee is appropriate. You can also have bonds or other securities.
- Make good provisions will apply at the end of the lease. Ensure that the landlord gets the premises back in good condition and with little cost to them in re-letting the premises to other tenants.
Given all of these things, there are many things that we can do to help our clients through the leasing process. Look at every lease strategically for the entire lease term. Package up a good lease for the client that you serve and their property investment targets.