Commercial Property – What to Do If the Lease Is Unsigned

In commercial property management and leasing you frequently come across the problem of the tenant delaying the signing of the lease. It can be for a number of reasons such as:

  • The complete terms of the lease are still being negotiated
  • The tenant is still finalizing their fitout design
  • The various partnership members are not all available for signature
  • The documentation is still with the tenants solicitor
  • The business or government department is taking time to process the document
  • The decision makers are away
  • Approvals for permitted use are delayed at local council

So the list goes on and you will see many variations of the problem. Tenants will give you so many different reasons why the lease is still outstanding. Frequently the delay process is not as it seems and there are other alternatives that the tenant is adopting for their own reasons. Tenants will not tell you the whole truth; that is a fact.

The signature on a lease is then a critical element of making the tenancy available for occupancy. In almost all lease situations, you would want the tenant to satisfy the following criteria before the keys to the tenancy are handed over:

  1. The lease is totally and correctly signed
  2. The plans and drawings associated with the tenants fitout have been submitted to the landlord and are approved
  3. The plans and drawings associated with the tenants fitout have been submitted to the building control board or local council and are approved
  4. The first months rental is paid in advance in accordance with the lease documentation
  5. The appropriate personal or bank guarantees are provided to the landlord in accordance with the agreement to lease
  6. All associated documentation and disclosures tied to the lease implementation are correctly served and satisfied
  7. The deposit required under the lease agreement or lease arrangement is paid

The golden rule in the leasing a property to a tenant is that all lease requirements are satisfied in accordance with the property managers instructions and the landlord’s requirements before any keys and tenancy access are given.

It should also be said that any incentive to be made available to the tenant as part of the new lease structure should not be released or made available until all the six points above are satisfied.

In most instances with commercial property, the tenants you work with are very experienced in business and negotiation. They are likely to be more experienced than the property manager or the landlord. The tenants will set up the leasing situation to their own advantage during the lease negotiation.

So the clear message here is that the premises should not be handed over to the tenant until all lease documentation requirements have been satisfied correctly and legally.

Commercial Property Managers – Tenant Retention Plans Are Beneficial for the Long Term

As part of a comprehensive commercial property management service, you should be providing a quality tenant retention program and service. In simple terms, the good tenants in a property should be part of a retention strategy, whilst the other weaker tenants should be part of a replacement strategy.

Here are some issues to help you establish a professional tenant retention plan in a managed commercial or retail property.

  1. Review all the competing properties in the local area to understand their vacancy factors, and tenant mix profiles. Look for any strengths and weaknesses in each of those properties. Understand how those properties can relate to the function of your property. Could those properties be attracting your tenants to move? Make sure you understand this fact.
  2. Check out the local municipal council regards upcoming future property developments. Understand if any of those property developments could have impact on the supply and demand ratio for occupied space. If you do have new local property developments coming up, check out the timing of the property release, and the potential rentals that could apply to attract new tenants. Expect that those properties will also offer large incentives as part of the property release strategy. Those properties could soften the effective market rental due to incentives offered.
  3. Review your existing property as to tenancy mix and lease profiles. Identify those leases that will soon to expire. That will normally be leases to expire inside the next two years. Those leases will be of immediate concern given that you will need a strategy to handle the expiry and or tenancy replacement. Planning and preparation is everything.
  4. Split your tenancies in your managed property into desirable and undesirable tenants. It is the desirable tenants that you will be encouraging to remain in occupancy. You will need a standard set of rentals and lease conditions to apply as part of negotiating with existing tenants. You will need to set market rentals that apply to existing tenants. The market rentals that you choose should be carefully considered with regard to recoverable outgoings and property expenses. You may choose gross or net market rentals but in each case the recovery of outgoings needs to be optimized for the landlord.
  5. The undesirable tenants should be identified and monitored as they get closer to the end of their lease. When the expiry of the lease is less than 12 months away, you will need a replacement tenant strategy. That will include target market rental, incentive allowance, landlord works, and permitted use.
  6. If your property contains one or more anchor tenants, pay special attention to the existence of the anchor tenant and how they are interacting with the specialty tenants across the property. A productive and proactive anchor tenant will encourage customers to the property and underpin the rental overall. A good anchor tenant helps the property to be successful.

So these are some of the issues to consider as part of preparing for your tenant retention strategy and tenancy mix plan. The property ownership requirements of the landlord should also be considered in balance to the decisions that you make with regard to leases. The rental for the property will also be set with relevance to the prevailing property market conditions through the local area.

Commercial Property Leasing – Pain Points to Lease Negotiation

When leasing commercial or retail premises there are certain points of negotiation that always create pain for the parties concerned. Here are a few of the big and most common ones:

  1. The landlord wants a high starting rent
  2. The tenant wants a big incentive
  3. The tenant wants a huge option term for further potential occupancy
  4. The landlord wants a tenant but is not prepared to provide an incentive to attract them to the property
  5. The last tenant left the premises in a mess and the landlord will not fix it up until a new tenant is found
  6. The landlord will not refurbish the premises before they have a tenant on a signed lease
  7. The tenant does not want to give any form of guarantee as security in the case of any default of lease

These are the most common problems for the average lease negotiation. Most landlords also think that their property is better than anything else around and on that basis will not negotiate down on any rent to get the premises let. So often you hear that the landlord is prepared to wait it out and see what the next tenant will offer.

In this market there are limited numbers of active tenants looking to relocate to new premises. In some cases there can be 5 properties available for every tenant to choose from. Urgency in the lease deal is not high from the tenant’s perspective; landlords need to know this. They may only get one tenant to make an offer for the premises.

When it comes to leasing premises it is not where you start your lease and rent, but it is more important to know where you are headed and where you will finish. Rent reviews during the lease term can take care of rent escalation to improve the lease, providing the real estate agent negotiates the lease well.

So what can you do with this list of common leasing problems? The best way is to use the pain of the vacancy (in the case of the landlord), or the pain of the need for new premises (in the case of a tenant) to move the deal forward. You should work with the offer that you have and not hope that another will come again soon to replace a low offer today.

Take today’s lease offer and turn it into a valuable lease over the term. Show the landlord the real value of the lease by doing an analysis of the deal using a net present value approach on the lease cash flow over the lease term. It is remarkable how the landlord will soften their negotiation position when long term lease value is explained in numbers.

Commercial Property Leasing Activity Report – Your Complete and Foolproof Guide

When you manage or lease a commercial, industrial, or retail building you have to track the leasing issues, not only for the landlord, but also for the tenant. The performance of an investment property is impacted by rental and lease documentation in a variety of ways; you do not normally want a vacant property.

The Property Manager or Leasing Manager for the property has to keep things under control and on track to the property strategy, business plan, and tenancy mix.

To solve the problem it is best to run a leasing activity reporting process and update it at least monthly. Within each month the report becomes a moving tool to support the property investment for the landlord. It is a document that tracks:

  • Current lease activity
  • Forward lease changes
  • Vacancies

What you are normally looking to avoid here with the report is disruption to cash flow or something that disturbs the function of the property outside of any plans you may have. Accuracy in the report is paramount as it is likely to be the main document that keeps you abreast of critical lease issues. If there is an error in the report then you will likely miss a critical date on a lease, and that can be significant in the function of the property over the longer term for the landlord.

The leasing activity report is a forward looking report usually covering the next 12 months and everything that can happen to leases and licences therein. Special attention has to be given to anchor tenants, and tenancy mix strategies that are already in place; these strategies are already active and should be continued.

In a multi-tenant occupancy, the number of leases in the building can become daunting and diverse. When the landlord owns and operates a number of properties at the same time, the matter of lease stability is also complex. The leasing activity report keeps you on track.

A leasing activity report should include the following issues:

  1. A tenancy schedule of current leases including upcoming predicted or known changes such as rent reviews by type and timing, options for a further term, and expiry dates.
  2. Status of any current negotiations with tenants both new and established.
  3. Signed leases report (that is for existing leases for occupying tenants)
  4. Submitted leases report for documents that are outstanding for any reason
  5. Proposals for new leases pending a decision by the landlord or tenant
  6. Vacancy report of areas that are soon to be or are already vacant
  7. Marketing strategy and inspection feedback for vacant areas currently
  8. Prospects currently looking at the property and status
  9. List of vacant areas in competing properties nearby
  10. Changes to tenancy mix recommended
  11. Schedule of rentals in the current surrounding market to which you compete
  12. Overview of the types and level of incentive that exists in the surrounding market
  13. Target rentals and target lease terms
  14. Summary of recent leasing decisions made by the landlord in the last month that impact the property or any vacancy.

When you use these topics for your leasing report, it is clear for you to see that most things are covered and under control. In addition to the items above it is best to provide a time line graph of events both current and foreseen to help track events before they happen.