Lease contracts: in writing please

Posted On Monday, 18 June 2012 12:25 Published by eProp Commercial Property News
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Lease contracts, no matter how surreal or incomplete, are absolute and binding. “But we agreed to add XYZ when I met the broker” and “But that’s not in the spirit of our agreement” doesn’t count in a court of law, if its not actually added to the lease. The golden rule therefore is 'get it in writting'!

Property-Housing-ResidentialDevelopers, ever-enthusiastic and optimistic souls, are often guilty of extending promises and waxing too lyrical about the great tenants that are coming (“subject to board approval”, of course) and other issues. And leasing brokers are not far behind when sharing comments such as “Ja, the guys next door to the shop I’m leasing you are flying – their turnover is up 20% on last year” and other rose-tinted views on the target centre.  

   
Finally, the landlord is inevitably described as a reasonable guy that will bend over backwards should something untoward crop up. So no need to add anything to the lease...

Here’s the property version of the triple bottom line:

1. If its not reduced to writing in the lease, any verbal issues/offers/terms may as well not exist.
2. If the broker/owner won’t commit in writing to terms you’ve agreed, via lease amendments or a Special Conditions paragraph, then the stench you smell is of the “I smell a rat” variety.
3. Add in every extra clause possible, in great detail:  i.e. plan for the worst, as the best-case scenario will sort itself out. While the lease/renewal is being negotiated, centre managers/ brokers are always saying “Don’t worry about the sub-leasing clause [and others], we’ll make a plan if you ever get into trouble”, which sounds reasonable in the euphoria that accompanies a lease agreement. But its critical to cover every angle prior to signature, when you still have some bargaining power. My experience is that landlords become quite forgetful and even intransigent when a situation crops up at some future point, and it doesn’t suit them to flex.

BEST ADVICE:

Before beginning the negotiation process, consider appointing a tenant representative who deals with tricky leases on a day-to-day basis. While you’re an expert at your core business, you may not be up-to-speed on the detailed ins-and-outs of the landlord’s lease, and you’ll  be up against seasoned property negotiators who are concluding handfulls of deals each month Vs the handful you may conclude each year (or two).

With a trusted tenant advisor, you will have added leverage. Beyond benefits like peace of mind, enormous monetary risks are tied up in lease terms & conditions - internationally, tenant rep firms have demonstrated that they can save clients up to 10-15 percent in total project costs through market negotiations, project construction cost management, avoidance of future risks and reduced client man-hours.


 

 

Last modified on Monday, 19 May 2014 14:20

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