Commercial real estate investors looking for their next property may be open to casting a wide net in order to find the right opportunities. Sometimes that includes landing on a property that already has an existing tenant and lease agreement in place. If you choose to pursue this property, what are some considerations you need to factor into your decision?
Below we’ll discuss some of the considerations you should be thinking about when looking at buying a retail location in Florida that already has an existing lease agreement in effect.
An Important Consideration When Buying a Commercial Property with Tenants
While many professionals, including financial institutions, think it is a massive benefit to purchase leased properties because you will already be generating income on day 1, there are other considerations that are important.
The most important consideration when buying a retail location with an existing lease agreement is that you have to honor those lease terms until you are able to negotiate a new agreement. That means there will be less flexibility in terms of potentially raising the rent or passing on other costs to the tenant until a new agreement can be signed.
Commercial lease agreements are often 3-5 years in length, so it’s essential to consider all possible options when it comes to your commitment to the existing lease. We advise consulting with a commercial real estate attorney before committing to a real estate transaction.
While you won’t have to advertise to fill the space and go weeks or months without a steady stream of revenue, plus the fact that banks are more willing to loan money to properties that are leased, being locked into previous agreements you did not negotiate is a potential hinderance.
On the other side, properties with existing tenant leasing agreements that are below market rates can be a benefit – when the property value is determined by Net Operating Income (NOI), a below-market lease will mean that the property value is below market as well. When an investor has cash-on-hand to buy it can create a valuable opportunity.
Negotiating the Lease Agreement With an Existing Tenant On a Property You Are Buying
At the end of the day, every agreement is negotiable. Should the right property become available at a good price – with the only setback being existing tenant lease agreements – it would be prudent to hire an experienced real estate attorney to review the lease agreements so that you can go into the closing with all the information and options at your disposal. As you consider commercial real estate opportunities in Florida please get in touch with our experienced attorneys at the Law Offices of Alex D. Sirulnik, P.A. to analyze existing lease agreements and developing a strategy to find the ideal resolution.