Purchasing a commercial property in Miami is already a big decision, but when that property comes with an existing tenant lease agreement in place, the stakes – and the complexity – get a bit higher. As a buyer, you’re not just acquiring a building; you’re also stepping into a landlord-tenant relationship. 

Whether the current tenant is a dream renter or a potential headache, understanding what you’re walking into is essential. Here are some key things to consider before buying a commercial property with an existing lease agreement.

Understand the Tenant’s History

An existing tenant can either be an asset or a liability. Before closing the deal, do your due diligence to understand who you’ll be working with. Review things like:

  • The tenant’s payment history – Request records of the tenant’s payment history. A tenant with a history of late or missed payments might signal trouble ahead.
  • The business’ stability – If the tenant is a business, research their industry and financial health. Are they stable and likely to remain in the space long-term, or are they at risk of default?
  • The tenant’s compliance with lease terms – Ask the current property owner if the tenant has adhered to all lease terms, such as maintenance obligations and use restrictions.

Understanding the tenant’s behavior and financial health can help you decide whether this is a good investment or if it’s a property you should walk away from.

Understand the Legal Implications of “Inheriting” the Lease

When you buy a property with an existing lease, you typically inherit all of the rights and obligations under that lease until you are able to negotiate a new agreement with the tenant. This means you’re bound by the terms agreed upon between the previous landlord and the tenant even if you wouldn’t have agreed to those terms yourself.

If the lease is about to expire, you may have more flexibility in adjusting the lease or seeking new tenants, but bear in mind that commercial lease agreements are often 3-5 years in length, so it’s essential to consider all possible options when it comes to commiting to the existing lease. 

Assess the Property’s Income Potential

An existing tenant lease can be a double-edged sword: It provides instant rental income (which makes lenders happy) but also locks in terms that may not align with your long-term goals. Consider whether the current rent is aligned with market rates (if not, you may be missing out on income). Also, think through what will happen when the lease expires. If you have to find a new tenant, there will be turnover costs and other vacancy expenses. Analyzing the numerous variables that make up a property’s cash flow potential is key to determining whether it’s a worthwhile investment.

Contact Us at Sirulnik Law

If you have plans to purchase or sell a commercial property in South Florida, let us help you navigate the process. At Sirulnik Law, we’ve managed and negotiated a broad range of transactions. We provide services from the early pre-due diligence stage through to transaction closing. To learn more about how we can help you, contact us at the Law Offices of Alex D. Sirulnik, P.A. to request a free consultation.