commercial real estate training

Commercial Property Leasing Agents – Reviewing Leases and Tenant Mix

When you look at a commercial or retail property for the first time, it is important to review the leases and the tenant mix.  In a property with multiple tenants it can be a complex and daunting task.  In such case the only way to really get the job done well is to use a checklist approach.  When you follow a list process you can go through many leases and tenant situations with ease.  Here are some tips from our Newsletter.

So why would you want to check the tenant mix and the leases?  You should be looking for occupancy issues that are relevant to each tenant and ensuring that those occupancy issues agree with what you are seeing in the property.

Here are some ideas to help you establish your lease and tenant mix review process.  You can add to this list given your property type and location.

  1. Get the names of the tenants and make sure that they agree with the tenant positioning that you have observed in the property.  What you are looking for is any situations of unauthorised or undocumented occupancy.  As part of that process you could find some sub-tenants, assignments of lease, lease alterations, and many other changes within the property. They will all need to be checked out.  Whatever issue you find, ask for the supporting documentation as proof of the current situation.
  2. Ensure that the lease description corresponds to the tenancy location and the permitted use for the premises.  Is the tenant using the premises in accordance with the lease terms and conditions?  When in doubt go to the lease for the details.  Any sub-tenant or assignment situation should also be in compliance to the terms of the lease.
  3. Review all the leases for critical dates.  They are the dates relating to things that have to be done between the tenant and the landlord.  Most particularly they are rent reviews, options, lease expiry dates, renovation provisions, and insurance obligations.
  4. Check out the outgoings that should be paid under the terms of the lease for each tenant.  Make sure that all outgoings charges and payments are in accordance with the leases in all respects.
  5. Make sure that the current rents for each tenant are in balance and accurate for the lease for each tenant.  Ask about any arrears that could be outstanding and why that is the case.
  6. In a property with a large number of tenants it pays to look at how the overall property performs with the tenants in current locations.  Look at the tenant clusters to see how they work. Some of those clusters may be impacted by relocations or renovations in the property.

The reviewing of the tenant mix is a hands-on issue that should be personally undertaken.  It has to be done with great accuracy before you do anything else in the property.  Learn to read and interpret property leases.  You will also find that a checklist will help keep you on track.

Like to know more about leases and tenant mix?  You can get more detail in our Newsletter.

By John Highman

John Highman is an International Commercial Real Estate Author, Conference Speaker, and Broadcaster living in Australia, who shares property investment ideas and information to online audiences Worldwide.