I am currently looking at some buying some commercial property that already has tenants in place. Given that the main attraction is the fact that it is already tenanted. What can I do to ascertain that these tenants are fairly likely to stay on. One tenant has a 4 year contract, expiring in May next year, the other is on a month-by-month (no lease).
For example is it appropriate to talk to the tenants and ask them direct questions about how their business is going etc? Should I ask the agent to tee-up a meeting with the tenants?
In case you hadn’t guessed this is my first commercial property deal. So any pointers from more experienced people would be very welcome.
Damian
Hi Damian,
Just remember anything is negotiable.
Eg. Look for something different that would benefit the tennants you mentioned, and see if they would agree to a longer/new contract.
See if you can dig up any past history of the tennants and review that- you don’t want to keep any trouble makers. Why is the owner selling?
Maybe look at your options closer.Luke.
Hi Damian,
One tip from someone who has leased alot of commercial property over the years but never bought one, make sure you have a savvy solicitor and check that the directors’ or personal guarantees the current tenants have given the current owners under their leases are assignable or transferable when you buy that property and hence those leases. Sometimes you need to get fresh guarantees specifically for YOU from the tenants.
skippygirl[8D]The best way to be able to sleep at night instead of worrying about whether the tenants will stay on or not is to realise that security doesn’t lie in a tenant but in the location.
If the location is first class and you lose a tenant it is the location which will fill the vacancy quickly.
If you think that prime locations are too dear I suggest you consider whether it isn’t perhaps better to start looking for a prime location in a country town (or one of the suburbs) rather than settle for an inferior location in a major town.
Yes, I know there may be less capital gain but then again, the returns are a lot higher than buying in a major town.
Pisces133
Damian,
When I purchased my commercial property the offer was subject to a ” deed of extension to the lease” for three years. Once the offer was accepted this was written into the special conditions of the contract so that if the extension was not signed the deal would not go through.
MJK
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