Property Maintenance

Property owners must make it clear in lease agreements, their responsibilities for maintaining and improving the commercial real estate. If you do not clarify this point in the lease, tenants could make unreasonable demands that you must comply with. Explain in the lease agreement that the tenant is responsible for returning the property to its original condition at the end of the lease terms or risk losing the security deposit.

Use and Exclusivity Clauses

Tenant problems could arise if you do not build in use and exclusivity clauses into your commercial lease contract. Use clauses dictate the type of activities permitted on the premises. Illegal activities must be prohibited to protect your business from liability. Also, if you have a personal aversion to a type of business and worry about the effect on your company’s image, you have the right to forbid the tenant from performing certain activities. If you rent multiple commercial properties, the exclusivity clause prevents you from renting spaces to competing businesses in the same complex or shopping center.

Eviction Process

To protect yourself in the case of tenant issues, build in eviction clauses into your leasing contract. For instance, commercial leases typically give the owner the right to evict a tenant if he violates the lease terms. The violation must be remedied within three to ten days or the eviction process can commence. Non-payment of rents could also launch the eviction process and require tenants to settle rents or be removed from the property.

When I first heart this, I thought it was something from a fishing show. As I read further, I realized just how important this concept is to real estate buyers.  This describes the predicted shape of the recovery from this recession.  Predicting what may happen can be a huge benefit for investors deciding when and how to get into this market if buying real estate is part of your business plan.

See the different types of potential recovery shapes at this link:
http://en.wikipedia.org/wiki/Recession_shapes

The following business week article discusses the W shaped recovery prospects that we face. I invite you to search the Internet for descriptions of the different recoveries. 

http://www.businessweek.com/news/2010-03-25/ecb-s-wellink-says-global-economic-recovery-could-be-w-shaped.html

The bottom line with respect to recovery shapes is to try and time the market. The good thing regarding the W shaped recovery, it that the bottom may exist at least a couple times and even it you do not time it just right, if you wait long enough, the property will go up in value (as long as your original fundamentals are right)! 

If you do not know the fundamentals of investing in real estate, STOP and do not move forward until you do.

It is all included in this months issue of the Tenant Buyer’s Bottom Line Secrets- January 2010 Newsletter Edition

Think about it for a second, if the landlord fails to pay his mortgage, taxes, utility bills or any similar related expense, those vendors who have not been paid can (and will) take legal action. That action can be anything from foreclosure, to disconnection of services.

So what can a tenant do?

Enter a good real estate attorney. Assuming the tenant used a tenant rep broker to assist him with the transaction, that broker would have negotiated important lease terms in the form of a request for proposal and received a written answer. The mechanisms in that letter would state how the final lease should be prepared in order to protect that tenant.

Once the broker received the lease which was drawn using the business points negotiated in the request for proposal letter and it response, he would have made informal lease comments and incorporated them with the comments of the tenant. These comments are then given to the tenants real estate attorney for proper legal review and manipulation.

I have NEVER been through that process with a tenant where important lease terms did not need to be changed. It is at this point where the real estate attorney will ensure that the necessary protection is in that lease document prior to signing.

If the landlord will not accept these important changes, then the good tenant broker will have an alternative property to consider before making their final decision.

This process is important given the economic environment today. How bad would it be for the tenants business to get locked out of the property until payments can be brought current?