Commercial Property Realtors – How to Review Lease Documentation When Listing a Property for Sale

When you as a commercial real estate agent inspect commercial or retail investment property, it is important to get to all the right facts about the leases before you form an opinion regards price, rent, or methods of marketing.

The leases of an investment property will have an impact on the sale or lease process. The leases may also need addressing in one form or another before you list the property and take it to the market.

Here are some of the main things to question and look at:

  1. The tenancy schedule that you are given for the property may be wrong in some detail. So many property managers and or landlords do not keep the tenancy schedules up to date; it’s a common problem. If you are given a tenancy schedule and feel that the facts are relevant to your marketing, prices, or rent recommendations, then ask if you can see a copy of the leases as well.
  2. Check out all the current rents that are charged on the rent invoices to see if they tally with the conditions of the current leases. It is not unusual for some rent reviews or outgoings charges to be overlooked or to be incorrectly charged.
  3. Are there any lease incentives current with the tenants that impact the property cash flow? If this is the case, find out when the incentives expire; you may need to consider paying out the incentives at time of sale or settlement to ensure that you get a good property enquiry in the marketing campaign.
  4. The permitted use of the leased areas should comply with the description on the lease or leases. It pays to inspect the premises to ensure compliance here by all the tenants.
  5. Review all leases in detail, looking at the terms and conditions to see if any weaknesses or advantages are apparent. The buyers to a property will do the same as part of their due diligence assessment.
  6. What is the tenant mix in the property today and how does it work? In retail properties this will be a large fact in property performance and operational strategy.
  7. The Landlords outgoings for the property can be partially or totally recoverable tenants depending on the terms and conditions of each lease. On this basis it is important to read the leases before you talk about price, marketing, or rent. The net income for the property will have bearing on the asking price.
  8. The levels of supply and demand for space and buildings in the local area will be a factor that can be tracked. Oversupply will mean lower prices and rents; in such a market lease incentives are very relevant. Undersupply will mean better (higher) prices and rents for the landlords to seek. The only way you can track this is to monitor listings and sales in the area with all the agents, and all new property developments or approvals coming up.
  9. Understand what the market rents and sale prices are doing in the local area. Are they trending up or down? What levels of property enquiry are coming in today and where from?

These facts will help you with your property inspections and lease reviews. Ask the questions and keep notes of the responses and findings.

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