How to Read Commercial and Retail Tenancy Leases

When you work in commercial or retail property, you will find that leases feature as a critical part of property performance. On that basis you really do need to know how to read and interpret leases; they will impact property sales and investment performance.

Having been a specialised real estate agent for many years and worked on many large properties, I have used a checklist model to help me read leases and interpret them prior to selling or analysing the tenant mix in the property. Here is the start of my checklist and some of my main items I look for. You may use it or add to it as required given your local property market and the property type.

  1. Get the up to date tenancy schedule to cross reference against the leases
  2. Review the original leases plus any supplementary amendments or alteration documentation
  3. Chase down any licences or deed relating to occupancy and tie those to the leases and relative tenants
  4. Have a copy of all the latest tenant rent and outgoings invoices so you can see what they are paying now
  5. Understand that all rent reviews and options in the property have been correctly processed and that you have been given the latest correct documentation regards that
  6. Know who the tenants are and the contact detail. Does that information cross reference to the leases?
  7. Check out:
    1. Tenant names and business structures
    2. Tenant identifiers or suites
    3. Area occupied versus lease plan description
    4. Plans of tenancies and access details
    5. Plans of the property and relevance to tenancies
    6. Common area proximity to tenants and impact
    7. Options coming up and method of implementation
    8. Rent reviews coming up and the type of review
    9. Lease expiries coming up and the threat to vacancy levels
    10. Current vacant tenancies and details of asking rents.
    11. Outgoings payments under the leases
    12. Recoverable outgoings under each lease
    13. Market rent structures versus fixed and percentage or other types of rents
    14. Insurance risk matters for the tenant and the landlord
    15. Permitted use in the leases and current compliance
    16. Make good obligations for the tenant
    17. Handover strategy at end of lease
    18. Landlord obligations written into the lease (and current compliance)
    19. Tenant obligations written into the lease (and current compliance)
    20. Refurbishment requirements
    21. Relocation provisions
  8. Inspect the property as part of understanding the leases

So this list can go on but it will give you a good start with some of the key things to look for with tenants and landlords leases. Remember that every property is unique and on that basis should be individually reviewed. Expect the unusual and look for it.

You can get more tips for real estate agents in commercial and retail property at http://www.commercial-realestate-training.com/

Author: John Highman

Commercial Real Estate Broker, Coach, Speaker, Author, Broadcaster.