With commercial premises, the leasing process should involve ‘Agreements to Lease’ or ‘Letters of Offer’ between the tenant and the landlord. This enables you to negotiate the final terms and conditions of the lease quite effectively.
When the final ‘Agreement to Lease’ has been achieved between the parties, then that document can be sent to the landlord’s solicitor to prepare the final and original lease documentation. The whole process is clean and straightforward.
It is always desirable to let the landlord solicitor prepare the lease and arrange for the signature of both parties. Invariably solicitors come across smaller matters of dispute which still need to be resolved between the landlord and the tenant. The solicitors are the best ones to do that for the landlord.
Whilst all premises are unique and special, the following is a checklist around which the ‘Agreement to Lease’ could be structured. Simply then add other elements special to the property as appropriate.
- The name of the landlord together with contact detail
- The name of the tenant together with contact detail
- Description of the premises including the reference to any plans or drawings
- The area of the premises
- The term of lease
- The lease commencement date and the end date
- Option for a further term if applicable and how that option should be exercised with due regard to timeframes prior to lease expiry
- Details of contributions to outgoings expected from the tenant
- Details of recoverable outgoings that are normally considered as every day consumables in the premises and how they are to be recovered from the tenant. This would be cleaning, electricity, communications, and energy.
- Permitted use of the premises
- Details of any incentive to be provided by the landlord
- Details of the make good expected from the tenant at the end of the lease term
- Car parking detail
- Signage detail and approvals
- Air-conditioning supply and hours of operation
- Access details to the premises including a statement of how the tenant will access the premises at different times
- Details of works to be undertaken by the landlord prior to occupancy by the tenant
- Details of approval processes that need to be observed by the tenant in any fit-out works
- Rent review structure and frequency
- Details of the initial starting rental
- Details of the guarantees expected to be provided by the tenant as part of the agreement to occupancy
- Insurance obligations of the tenant
- Confidentiality agreement between the parties
- Any other obligations of the tenant to be undertaken during the lease term
- Any other obligations of the landlord to be undertaken during the lease term
- Special terms and conditions that need to be incorporated into the lease document by the solicitor prior to the signature an agreement of the parties
- Obligations of the lease with regard to legislation current in your location or the property type.
This list should not be regarded as finite given that every property is unique and special when it comes to lease negotiations. The list will however give you the main things to look for in the first instance of lease negotiation, and to which you can add the other special terms and conditions of the negotiation in the ‘Agreement to Lease’.
Any lease or tenancy negotiation should include evidence of the condition of the current premises before they are handed to the tenant. At the end of the lease term, you will then know to what condition you expect the premises to be returned to.
‘Agreements to Lease’ are standard procedures used by experienced landlords and real estate brokers. When you have structured a document that works well for you in your location with your property types, it pays to create a number of templates which simplify the task of leasing and negotiating. Generally speaking, the ‘Agreement to Lease’ is not legally binding but it will facilitate the negotiation and move you towards the creation of a real lease where the solicitor takes over.
About the Author:
John Highman is an expert coach in investment real estate, property performance, and tenant mix analysis for Real Estate Agents and Brokers.
John helps brokers, and real estate agents improve their listing opportunities and commission targets. He has personally specialised in major commercial, industrial, and retail property for over 30 years and knows what works and what doesn’t. Get John Highman’s free tips and tools in commercial, industrial, and retail property at http://www.commercial-realestate-training.com