Attracting and then finding the right tenant for your commercial property can be challenge. Once the right tenant has been found, as a commercial landlord, you will need to draft a lease that protects your property and it’s assets.
Each commercial lease you draft should be customized to the specific tenant, but the following protections should always be consider and then implemented when entering in to a new lease for your commercial space.
Review the potential tenant’s business plan
As a commercial property owner, attracting successful tenants who can carry out a long term lease is offers security in your investment. Request a copy of each tenant’s business plan for review before entering into a lease. Be confident in your tenant’s ability to excel in their line of business and consider how that business would fair in your properties location.
Verify the tenants insurance and check their credit
Mitigate any financial or disaster based risks. Require that your potential tenant and their guarantor provide personal credit history as well as sufficient insurance coverage from a reputable company.
Implement annual adjustment to rent
A static rent rate over a long term lease is a poor business decision as a commercial landlord. In order to ensure that your tenants rent rate remains consistent with it’s actualized value, implement an escalation-in-rent term in the conditions of your lease. Typically, landlords base their yearly percentage of rent increase on Ontario’s Consumer Price index (CIP). In 2015, this translated to a 1.6% increase in rental fees.
Review how the each tenant compliments other tenants and impose a specific-use provision
Informed tenants will request an exclusivity clause in their agreement, but it is important that you as a landlord, also evaluate each tenants field of business for your own protection. Commercial properties will be most successful if the tenant is complimentary to both your property and surrounding businesses, direct competition drives down business and prospects. Your lease with each tenant should include a specific-use provision to ensure that the tenant cannot change their business to something uncomplimentary.
Maintain control of transfer rights
Potential tenants may be advised to request a right to reassign their lease or right to sublet the space. This protects the tenant in the case that they are unable to continue their business or if they want to relocate. The tenant could then find another tenant to cover the rent. Stipulate in the lease your right to accept or deny the transfer.
When drafting commercial leases, you want to make sure that your interests are protected. Working with a commercial real estate advisorwill ensure that you are making informed decisions when drafting a commercial lease.