No matter how well you perform your due diligence when qualifying prospective tenants, occasionally less than ideal tenants slip through. Commercial property managers have an important responsibility to negotiate a lease that ensures them the best possible protection from tenants who might destroy property or fail to pay their lease on time… or at all.
The following are several tips that will help you negotiate your next lease — so the property you are responsible for is protected and your job remains secure.
Designing the lease
Customising a lease specifically for each individual tenant is a common procedure. It is the commercial lease that essentially acts as a guiding document for the relationship between the tenant and the management company. Legal experts and property managers recommend focusing on the following critical areas during the negotiation phase.
Consider the financial position of the prospective tenants. This can include any guarantors they might have, if applicable. The tenant’s’ financial standing affects their credit worthiness score, and directly influences the lease pricing and any possible concessions or incentives you might be inclined to provide. A tenant’s financial standing will also impact any decisions you make regarding flexibility of lease arrangements and late fee schedules.
The term and the rent are the two most likely points that tenants will attempt to negotiate. Having a full picture of the tenants’ financials will give you strong position from which to negotiate.
Clearly define all of the expectations and the different types of activities that are allowed on the premises. Set expectations regarding matters of provisions, exclusive use, and exclusions, as well as your access to inspect the property. You also want to be clear about the legal rights and responsibilities on the part of the property management team.
State whether there are any warranties being offered and what remedy clauses will cover you legally for anything that gets overlooked during the course of due diligence.
Describe what termination options are available. This is another strategy for strengthening your risk management.
Using technology to your advantage
Property managers these days have the advantage of technology on their side. From advertising your properties to gathering background information and screening prospective tenants, so much can be done online now.
For example, you’ll be able to find a large supply of potential tenants by posting listings of your property vacancies online (on your website and/or on a website like Gumtree that allows you to list office spaces and other commercial properties). Be sure to include the size of the office space and whether you have more than one unit available.
You can use advanced screening tools to find out more about your applicants’ credit performance, their work history, and even their criminal records, if any. Be sure that you are prepared to handle the highly sensitive personal information of your tenants in a confidential manner. Store records on a secure server and take the adequate security measures to protect them.
Use the available rent comparison tools in order to find out what the going rates are for comparable properties in your area. This will be invaluable to helping you set lease rates that are fair and profitable.
Having a strong grasp on what is currently going on in the market will keep you from negotiating terms that could put the property management company at risk. While most things in the lease are negotiable, before going into negotiations you want to know what the limits on your end are.
The author, Cindy Boesel, is part of the team behind BizStats.co.uk. She is interested in entrepreneurship and developing business ideas. When not working, she’s enjoying her cup of tea and a good book.