A successful negotiation of the lease is one of the most important responsibilities for both parties involved in the process. The results of a lease negotiation have long-term effects on the landlord’s property as well as the tenant’s business. The ideal outcome of lease negotiations is a win-win situation for each party, which occurs when each party achieves its desired outcome. The person (or persons) responsible for negotiating the lease on behalf of the landlord must understand how each lease provision impacts the cash flow and value of the property, as well as its tenant mix and daily operations.
The person (or persons) negotiating the lease on behalf of the tenant must understand how each lease provision impacts the operations and the profitability of the tenant’s business. Since the landlord and the tenant are obligated to fulfill their responsibilities described in the lease, they both should understand their rights and obligations in the lease they are signing and how the lease impacts them. With a thorough understanding of the lease document, the leasing agent, property manager, attorney, landlord, and tenant can negotiate each provision to achieve the best possible deal. The lease document is a lengthy and, for some people, an intimidating document; yet reading the lease reveals that most of the provisions are relatively easy to understand. Those provisions that may seem a little complicated can be explained by an attorney, or by an experienced leasing agent or property manager.
The general lease form is discussed, along with its required components; this is followed by an extensive review of specific lease provisions. The landlord’s and the tenant’s positions are presented, and in some cases there is a discussion on how the provision impacts the landlord’s property and/or the tenant’s business. When both parties to the lease negotiations understand the other party’s point of view, they are more likely to work towards a successful compromise that will meet the concerns of both.
It is not the brick and mortar, or the land, but the lease document that creates value in in comeproducing
commercial properties. This is the main reason why lease administration must be accurate, and the efforts to make it so reassure property owners that their property manager fully understands the inherent value in the property’s leases. A successfully administered lease has a positive impact on tenants and their perception of the property owner and property manager. Unless tenants have the perception of a competent and capable landlord, they are not likely to want to do more deals with that person. This is especially significant in retail properties, where multiple deals are quite common. Lease administration is a tedious but essential activity. Lease administration comprises three very distinct areas that combine to enhance the value of a property: human relations factors, bookkeeping and recordkeeping procedures, and fiscal issues. Each of these aspects is quite important to the entire process, and
all must be done in a complete, accurate, and timely manner or the property will suffer.
Muhlebach, Richard; Alexander, Alan (2010-06-14). The Leasing Process (Kindle Locations 5191-6337).
Institute for Real Estate Management. Kindle Edition.
Lesson Learning Objectives
By the conclusion of this Lesson you should be able to:
- Thoroughly evaluate a lease document and all of its provisions.
- Execute the eight steps necessary to create an effective lease administration program.
- Create a lease abstract form.
- Evaluate and apply the many fiscal issues in the process of lease administration.
The following Assignments should be completed and submitted to the course faculty via the learning platform for evaluation and grading. Submit your responses to these questions in one WORD document. List the question first, and then your response.
Below is a template for a Lease Evaluation Form. This assignment requires you to locate and analyze a space offered for lease which could be acceptable for a type of business in which you are interested.
The space can be office, industrial, or retail as appropriate for the type of business. Complete the information requested on the forms and attach any relevant information. If you need additional space, you may expand the form as necessary.