Buying a commercial property with existing tenants can be a smart investment, but it comes with its own set of challenges, especially in terms of lease negotiations. Since you’re inheriting lease agreements that were negotiated by the previous owner, you’ll need to carefully navigate your rights, obligations and opportunities to see where you may be able to make adjustments that align with your investment goals. Here are some key things to keep in mind when buying a commercial property with existing tenants.

First, Review the Existing Lease Agreement in Detail

Before you even think about negotiating changes in a commercial lease agreement, you need to understand the agreement as it stands. Ask the seller for a copy of all active lease agreements and review them carefully. As a landlord, these are a few key areas you need to home in on:

  • Lease duration and renewal options
  • Rent amount and escalation clauses
  • Tenant responsibilities versus landlord obligations
  • Common area maintenance (CAM) charges
  • Sublease provisions
  • Termination and eviction clauses

If anything seems unclear, consult a real estate attorney to ensure you fully understand your rights and limitations before moving forward.

Assess the Financial Impact of the Leases

Not all leases are created equally. Some may be favorable for the landlord, while others may be outdated or below market value. To assess the impact of a given commercial lease, consider the following questions:

  • Are existing tenants paying market rent? If rents are significantly lower than the going rate in your area, you may want to negotiate increases.
  • How stable are the tenants? A long-term, financially stable tenant can be an asset, while a struggling business could pose a risk.
  • Are there any upcoming lease expirations? If leases are set to expire soon, this could be an opportunity to renegotiate terms or seek new tenants (but keep in mind that turnovers can also be expensive).

While there are benefits and drawbacks of pre-existing lease agreements, understanding the financial impact of the commercial lease will help you determine if the pros outweigh the cons. This exercise will also let you strategize any changes you’d like to make when renewals come due.

Approach Negotiations with a Win-Win Mindset

When negotiating changes for any commercial agreement – and yes, all agreements are negotiable – it can be beneficial to create solutions that are viewed as a win-win by both parties. Partner with a skilled real estate attorney who has experience negotiating commercial contracts of all sizes to help secure a favorable outcome.  

Our attorneys at the Law Offices of Alex D. Sirulnik, P.A. are here to help. Contact us today to request a free consultation.