If you’re preparing to lease a space or you’re in the middle of a negotiation now – maybe the LOI stage or the actual lease review – now’s the time to involve your property manager. Unfortunately, most owners only share the lease after it’s been signed.
Why is it a good idea to get input from your property manager in advance? Simple: Lease administration is probably the most significant and important job of your property manager. Essentially, that means enforcing the agreed-upon terms of a lease and making sure your interests are properly and fairly represented with your tenant in that enforcement.
You see, if a relationship that starts between landlord and tenant is cemented with a lease that’s potentially worth hundreds of thousands or millions of dollars, and if that lease is ambiguous, confusing or left open to interpretation, I can guarantee the only thing that will follow is confusion, frustration and probably unfounded accusations, and maybe even losing a potentially lucrative long-term tenant.
This is fresh in my mind as I work through a lease review with one of our clients. The subject property is a multi-tenant property in an area, that while nice, isn’t exactly booming commercially. It’s more of a steady-Eddy community. Things appreciate, but slowly. They rarely drop in value. It’s not like the residential housing market in the Willamette Valley – which is going crazy and has been now for a few years. So, when tenants come along, you want to make sure you get them signed up and keep them as long as you possibly can!
Knowing the value, we can provide during this process, our client asked us to review the lease for this very reason. Not once, but three times now in the negotiation process, he’s asked for our opinion. And, every time, we’ve caught revisions made by the tenant or requests made by the tenant, that will likely lead to what I mention above: Confusion, frustration and probably unfounded accusations and maybe even losing a potentially lucrative long-term tenant. Each time, his attorney has also expressed the value of our input. Nice to hear, but frankly, let’s be blunt and real: Our self-interest is in play – you see, we want the tenant and landlord to have a great, long-term, smooth and happy relationship, which means ours will be, too.
What did we find and bring to our client’s attention? For us, at issue were lease terms such as what was being included (or excluded) in Operating Expenses (OEs) and Capitalized Expenses. Since this is a triple net lease, the tenant is responsible for CAM charges (OEs), some Capitalized Expenses and of course, Property Taxes. The lease did a mediocre job at best, spelling out what was included and what was not. There is room for interpretation and the language is not as clear as it could be. Which for us means it’s crystal clear. When a layperson can’t read a lease and understand what it means, while the attorneys get style points, the tenant, landlord and property manager get screwed trying to decipher the complex legalese.
(The above paragraph was intentionally written the way it was. I think you’d agree: It could be much more clear, and written in such a way that you need not re-read it 2 or 3 times to get the meaning!)
In this case, we simply suggested the attorney for our client include a list of the expenses included in the CAM charges (and Capitalized Expenses to include how those are calculated, which is consistent with OTHER leases at this same property), which we provided from past operating statements. It’s simple. And, we have a history of those charges, so it makes it easy for everyone to see the charges are fair, and, a history of such can be reviewed upon a tenant’s request.
There are lot of areas we can help you in reviewing leases. While we’re not attorneys, we can work together with you and or your attorney to help ensure your leases, which frankly, represent the value of your property, are simple, clear and easy for everyone to understand. Having a well-written and clear lease will also help you when it comes time to sell your property. You see, if the buyer can’t understand them, it may well give them pause and move on to another investment. That alone could cost you a sale! Reach out if we can help.