6 Essential Keys to Lease Negotiation

Investment Property performance is not just about rents and cash flow. There is a strategy that underpins the future of the property. This is in tenant mix, tenant selection, and tenant movement. This is ever so important in retail property given the need to generate sales and customer interest. Get the balance wrong and everything goes downhill fast.The strategy of tenant location and mix is geared to the lease that you implement and the terms and conditions therein. The lease for property occupancy should be well chosen and structured by someone who really knows what they’re doing. The ‘off the shelf’ generic lease document really does not talk to the special elements of the individual property or the investment plan for the landlord. For this singular and most important reason, property investors should select a good solicitor to help them with the correct lease document that they need.The lease rent reviews and option periods are the only opportunity that you have as a property manager to maximise the effects of a sitting tenant on your Landlords property after the lease has commenced. Rent Reviews and options should thereby be well planned and negotiated in consultation with the Landlord and in keeping with the standard lease.Care should also be given to the impact of legislation on some negotiated lease terms. It is very common in retail property to have strict terms and conditions that must be offered to the tenant to comply with local legislation. It is also common in retail property to have disclosure documentation relative to occupancy and the lease. Failure to implement and serve the disclosure document can very well invalidate or jeopardise the lease. If in doubt see a good solicitor.Forward planning can be achieved through good lease selection and lease management. In a property containing a number of tenants, it is good practice to plan and monitor rent reviews and lease options up to two years out from the event. You can then watch the upcoming changes to rent reviews and options, and make choices based on market trends. Planning well in advance is the key. Investment considerations for your property should include the following:Desirable and undesirable tenants need to be handled differently. Make your choices and protect the tenants that you really want for the future of the property.
The need for more or less space on a tenant by tenant basis and will vary throughout the year. This is where you need to meet with tenants regularly to ascertain what is changing for them.
Consolidation of larger tenants and the growth in to extra space needs to be monitored. You cannot afford to lose large tenants. Know that the competition agents and landlords will be attracting your tenants elsewhere.
Market Rent levels versus lease rent should be monitored. When the market rents become significantly different, it will create problems for the tenant and the landlord. Cash flow is impacted.
Vacancy exposure of the total site is always a concern. The vacancy aspect of the property has to be minimised, and at the very least controlled.
New Lease opportunity should always be looked at. The larger tenants from the surrounding business community and competition properties should be nurtured for relocation to your property.In the property planning process you are balancing the risk or the opportunity that the tenant lease event gives you in relation to the whole property and market. Look at any lease ‘globally’. See it as part of the larger investment profile. It may be advantageous for you to obtain either a longer lease term or a higher rent. This is where your skills as a property strategist and lease negotiator come into play.

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