Taking the gamble out of property leases

The reality for most businesses when they are setting terms for a commercial property lease is that there is a bit of hit & miss about planning.

Generally, property managers put together a guesstimate about a business’ needs regarding property over 3, 6 or 12 years, which are the sort of timeframes on offer for property leases.

Many make a bit of a real estate bet or, to use its more palatable term, a calculated risk. They decide (hope) that if they sign a lease for 12 years and need to get out earlier, it won’t be a problem and they will simply find someone to sub-lease the space to.

When it comes to a portfolio of leases, the risk of a lease not serving a company well for the long term increases with rent reviews and lease terms occurring in isolation from one another without an overall plan.

In these days of keeping costs to an extreme minimum and carefully managing risk, it is prudent to eliminate the betting element.

It is easy to sign an agreement to lease, but what is tricky is how you deal with property at the end of the lease, or if you have to make changes along the way.

There are many layers that can be unpeeled to ensure a lease contract is drawn up to cover off a full range of eventualities so that all risks are accounted for.

There are often unforeseen circumstances that should be accounted for. An example might be that a lease is signed for ten years, then a business is unexpectedly sold after seven years, and when it comes to wanting to sub-lease the property, there is not sufficient flexibility in the lease to do this with incurring penalties or other costs.

The reality is most commercial property landlords today utilise sophisticated financial modelling for all the scenarios that might occur throughout the duration of a tenancy agreement to ensure the best possible return is achieved for investors.

It is important then to ensure there is a level playing field and that a similar approach is taken on behalf of the tenant, to ensure all eventualities are investigated, taken account of, and planned for.