Friday, May 10, 2013

Commercial Real Estate Leasing Checklist

Leasing check-lists help the agency process

In commercial or retail real estate leasing you will strike many different types of leases and occupancy situations.  On that basis every lease needs to be understood and read.  The matter gets a lot more complicated when you have a number of tenants in the one property.

The lease complication issue feeds through to the sale situation for the property, or any property management activities.  For example:

  • When you are preparing to market and sell any commercial, industrial or retail investment property, the leases will be quite important to the buyer and the price that they pay for the property.  Some leases will be better than others when it comes to rent structure, outgoings recovery, and cash flow.  That will impact the price paid.
  • In undertaking regular property management tasks and issues, every lease will reflect the different arrangements between the landlord and the tenant.  Some of those leases are quite long and complicated.

Given these two facts it is easy to see why every commercial real estate agent or broker should be able to read and interpret a complex lease.  From that assessment they can move on a marketing campaign or a property negotiation.

There are significant differences between the way in which an office, industrial, and retail property would operate, and the leases reflect that difference.  At the basic end of the equation an industrial property is generally the easiest property and lease structure to understand.  Conversely a retail property or a shopping centre is at the other extreme end of complexity with many occupancy issues written into the lease itself.

If you specialise in a property type, it is a good idea to formulate a leasing checklist that will take you to the key facts of occupancy and leasing.  In saying that, recognise that any lease can be different and unique so you really have no choice but to read and understand each lease before you take any action with a tenant or a property.  A good lease will help a property sell; the inverse can be said about a poor quality or generic lease.

Here are some of the bigger things to help you set up a ‘lease analysis checklist’.  They are in no particular order and you can add to the list based on your property type and the location:

  1. Status of the current lease negotiation
  2. Details of the parties to the lease
  3. Rent payments (gross or net rent)
  4. Rent reviews (timing and type of review)
  5. Rent structures including outgoings recoveries
  6. Renewal and lease options to be actioned or outstanding
  7. Insurance and risk issues
  8. Outstanding maintenance matters (tenant or landlord)
  9. Renovation requirements (tenant or landlord)
  10. Lease incentives current
  11. Guarantees and bonds paid for the current lease
  12. Make good requirements at end of lease
  13. Permitted use of the premises
  14. Inspection details
  15. Fit out approvals
  16. Tenant history
  17. Plans and drawings
  18. Improvements and ownership of them
  19. Services and amenities use
  20. Tenant contact detail

So the list can go on.  Start a list like this and add to it based on your property involvement and speciality.

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