Real estate sector is a kind of relationship that involves the tenant and the landlord. The interest of divergent beach party seeking to benefit from that relationship. Like any relationship, there is an agreement that brings together various parties to a mutual agreement; this bond is the lease. Therefore, the right kind of leasing approaches and lease clauses can help mitigate unnecessary losses and significantly increase a property’s value.
To help you increase your property value, we will give you useful leasing decisions that are accompanied by lease clauses examples.
- Strong screening standards for the tenants
To have a successful real estate investment, a landlord should try the best possible way to seek quality tenants. It is not enough to look for tenants that have a strong business plan but also find those that are in harmony with other tenants in the property. A landlord should go another mile to look for those tenants who have some business experience as well as good credit rating.
In case you get a tenant who has a weak credit score, it is not good to ignore the individual but give an option to bring along a guarantor or cosigner on that lease. The importance of the guarantor is to shield the tenant for the full time that the lease will take in case of rent nonpayment.
If the tenant consistently keeps paying the rent on time and you are confident with the business model used, you can let the guarantor or cosigner go; preferably at the close of the initial lease term.
It is also wise to find out what happens when the tenant of a successful business decides to sell part or the whole business to a new owner.
- Rent being clearly defined
Due to capitated or sloppy leases, landlords usually loose potential good return deals. Therefore, to the best interests of the landlord, the base rent together with the payment commencement date should be clearly defined and also the person to pay the operating expenses should be known. The lease should further state what will happen when there is a delay in construction where tenant improvement construction activities are ongoing. Improvement delay usually emanates from government authorities not releasing permits, unavailable materials, and missing contractors.
In the modern working environment, rent is not limited to lease space that also entails important things like signage rental, parking bill parks, storage space overage and rental space charges.
- The rented space be clearly described
If both the landlords and tenants use the same type of measurements to establish the rented space, negotiations will become much easier. There should be a drawing that stipulates the total square footage area of the property that is leased.
A landlord should know that many buildings around have facilities like electrical/phone communications rooms, janitorial closets, hallways, restrooms, generator spaces, and elevators. As such one needs to establish the usable square footage from the rentable square footage which usually entails the above-loaded areas. Therefore, any prudent landlord usually accurately establishes and maintains a schedule that describes the usable and rentable square footage so that the tenants are not disadvantaged with the additional loading space factor (space that includes the common facilities).
- Non-compliance and infractions penalties being detailed
To ensure that the lease agreements are respected, the landlords ought to impose non-compliance penalties as well as late rents penalties together with other essential terms. For instance, a landlord can levy to the rent a penalty of around 100 to 150 % when a tenant chooses to stay after the lease term has expired. This may look very hefty but in some cases, the landlord will need a clause such as this to better negotiate for future rent and extension of term period whenever a lease expires.
Such a move caters to the expensive tenants’ relocation costs like attorney fees, tenant improvements, brokerage commissions. With that thought, it is preferable to include holdover penalties instead of default clauses in the lease agreement. This is because tenants will be forced out of the commercial properties when default clauses are utilized as opposed to a peaceful negotiation settlement and lease renewal when holdover costs are considered.
- Consideration of rent increases
After the lease is agreed between the tenant and the property owner, it is good to make plans for the future period. As a landlord, you will want to recapture the operating increases that occur due to the yearly operating properties cost increases.
It is a common phenomenon for the landlord to request the tenant to pay additional property costs other than the base rental payment. Therefore, that should be requested to cover for the building operations cost increases as well as any insurance and annual tax increases.
A landlord often negotiates for the base rent increase on the basis of an annual incremental. However other mechanisms can also be used like CPI increases, percentage rent clause or operating cost increase adjustment.
The landlord can choose to retain the tenant in the commercial building for a longer pre-negotiated initial lease term when payment is made on time or negotiate for a lease renewal all of which is beneficial for both parties.
- Ensuring lease terms are optimized
When accounting for the opportunity cost of the tenants, a landlord should also calculate the leasing fees, tenant improvements, free rent costs, cancellation clauses, go out clauses and early out clause. This will enable landlords to balance their personal needs against the successful needs that the tenants require. Essentially, such a move will optimize the landlord’s benefit out of the lease and also retain tenant during the rental cycle.
- Making the property attractive to potential tenants
Failure to commit to putting the building’s physical condition good renders any written retail less useless. In that regard, it is the task of the landlord to continually improve the commercial property so that it satisfies the quality that tenants need. The tenant can move out or negotiate for lower rent when the building or its systems are not upgraded from time to time. Therefore, if the landlord does not care for the commercial space being rented, the tenants are bound to move out even if the costs of moving are high.
In summary
As a discussed above, a landlord can attain success through having a lease that caters to the interests of the owner and the tenant. This will enable build confidence for both parties that are involved in such an agreement. Therefore, when the landlord pays attention to the lease clauses and other obligations towards the tenant, the wealth that the building generates will increase as income is maximized.
In summary
As a discussed above, a landlord can attain success through having a lease that caters to the interests of the owner and the tenant. This will enable build confidence for both parties that are involved in such an agreement. Therefore, when the landlord pays attention to the lease clauses and other obligations towards the tenant, the wealth that the building generates will increase as income is maximized.
