Commercial Property Leases: beware the paper cut that can bleed your profits

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Commercial Property Leases: beware the paper cut that can bleed your profits

This next series of articles concern one of the most important processes a commercial property owner can undergo post property purchase, and it results in probably the most vital piece of paper after the title deed. Of course, I am talking about the lease process and the commercial property lease documentation.

It’s easy to get bogged down by HVAC repairs, tenant demands or the multitude of daily dramas that come with building ownership and forget about the leases. Just as easily as sloppy lease documentation can get you into trouble, a well considered and documented lease can save you.

A commercial property lease must always be intact and complete.

Lost or missing amendments can cost thousands of dollars and impact the profitability of your entire investment. Make sure you and your property manager document and keep track of changes to leases, and stay on top of them. Do they have proper follow up processes in place? A slip of procedure or sloppy practices can have expensive consequences for you. How one administers leases is critical. It is not uncommon to bind them, file them securely and have electronic copies or duplicates stored on a common server for easy accessibility by everyone who has to work with them. This applies to owners as well as their property managers.

So it goes almost without saying then that a verbal lease or amendment is unacceptable. Agreements should be documented in writing no matter how trivial.

This series of articles will cover lease documentation.  Apply the principles and you will be in great shape.  Ignore them and your stress and aggravation is likely to rise.

An Offer to Lease

The process begins with an offer to lease. Leases can come in all sorts of shapes and sizes. While there are standard lease document formats, many companies design their own offer to lease  (often called a lease proposal) and include provisions unique to themselves. One has to be adroit enough to accept offers in other forms. An easy way to be prepared for anything is to have a checklist that ensures that the offer has all the elements you need. This checklist must carry through to the execution of the lease to make sure your interests and your investment is protected.

Commercial property lease creation

Once the offer to lease has been accepted, and any conditions have been waived, the process moves on to the creation of the lease itself. It is usually best practice to have your lawyer draft a standard form of lease for your property. Green leases are becoming popular, and some lease companies, as well as the government can and often do demand their own lease. It would be in your best interests to get legal help.

In the following articles I will discuss items within the lease document, like notice provisions, insurance requirements and standard forms; what happens after the lease is signed; renewals, amendments, extensions and reviews; finally we will cover how best to manage leases administratively within the office environment, what documentation you need, how best to file it and using software for effective filing.

After all, managing your lease is critical to managing your building. It’s a simple truth.

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