Watch for Critical Dates and Lease Issues in Commercial Real Estate
In commercial property management and leasing, the leases and the tenants in a property are critical to the income cash flow for the landlord. You as the property manager must watch for the upcoming lease changes and renewals. They are called ‘critical dates’ and they should be tracked and actioned early or on time in accordance with the terms of the lease.
It should be said that many a commercial or retail property manager has forgotten or not identified a ‘critical date’. The end result is not ‘pretty’. The landlord is potentially placed in a position of weakness with loss of rental income, vacancy risk, and or tenant volatility. Some of these dates are ‘time critical’ and are referred to as ‘time being of the essence’. In other words certain things must happen on or before the date referred to in the lease.
Every property manager has to understand the leases that they manage in every property. If you manage many properties or clients, the issue gets complicated and time demanding. Every now and then someone asks me the question as to ‘How many properties can a person manage?’ The answer is not straight forward. The answer depends on things like these:
- Property type (retail is the most time demanding),
- Tenant mix
- Tenant numbers
- Lease complexity and lease terms
- Critical date management
- Landlord reporting needs
- Maintenance needs
- Risk management
- Property marketing needs
- Vacancy threats and minimization
So the list goes on. The management fee that you set should not be based on a basic percentage of income; whilst that calculation may give you a base to start from, you really should consider all of the issues in the list above before you set the final fee for property management services.
All the terms and conditions of the leases should be reviewed at the start of the new management process and then tracked towards the actions and issues required under each lease. That is why the ‘handover process’ at the start of a new management appointment is so critical. In those first few weeks you have to get on top of all leases, tenants, maintenance, and occupancy issues. When you take short cuts or overlook key issues, problems will occur later on.
So let’s go back to the importance of knowing your leases and the issues that come from them. Here is a short list of some of the biggest problems and dates to watch for with the leases and tenants under management:
- Rent reviews and changes to rental in the lease term
- Rent payment and arrears recoveries
- Option dates for another lease term
- Renovation requirements on the part of the tenant
- Incentive dates that impact occupancy or rent
- Lease expiry dates
- Outgoings recoveries and reconciliations
- Guarantees or rental bonds geared to shifts in rental or rent review
Get your properties under control. Get to know your dates and all the leases that you manage. In this way the ‘critical dates’ will be less of a disruption to property performance.
