It’s beneficial for the investors to let out to a business because it’s a rewarding venture: the tenant will sign often an insuring & full repairing lease- yields are higher than expected. Though, there are multiple mistakes that investors make or fall foul of, some of them can threaten potential demise & higher penalties of the business altogether.
So, in this insightful guide we’ve outlined the 5 key mistakes all investors should avoid when buying commercial property…
1/ No plan
Benjamin Franklin- one of the founding fathers of the US, said “If you fail to plan, you are planning to fail!” & he was right! Having a plan is the most necessary thing to be successful when investing in a commercial property. It’s important especially if you’re going to be using a loan as lenders don’t want to see you without a thoughtful plan in place- because buying a property on whim is not recommended on the serious note.
2/ The Potential Tenants Are Not Interested
That means, if the price is too high or the building is not preferred by the targeted demographic, you may end up with small tenant demand and your investment property could stay vacant for a long time. For purposes of acquiring a property, try to look at the property from the perspective of the tenant. Location is key here. Are they going to require own parking space or will they be able to use public transportation? Are there other competitive commercial real estate properties in the surrounding areas or are there any other constraining factors such as zoning laws? This is especially an important question to know whether the property has the good footfall. The better the passing trade, the higher your the rent can be and the lost time in letting and re-letting the business premise.
3/ Unauthorized Improvements
Business tenants for their part may undertake improvement to the property either at the inception of their lease or at the time when the lease has been granted. This could include fitting out, procuring additions, acquisitional changes in structure, and adopting air conditioning. Here a common mistake is not to approach their landlord seeking the appropriate legal clearance as required by their lease agreement. The result of this could be the tenant is requested to restore to the initial state which is usually unrealistic and expensive. And in the end, they can end up paying additional rent and the applicant is likely to pay a premium for the works in addition to rent.
Hence one should always seek formal landlord’s permission for any changes before necessarily incurring any expense or better still consult a professional to tell one what is required. The only special circumstances that are free from this rule are the cases when alterations are minor and do not need the landlord’s permission and do not contribute to the rentable value.x
4/ A Lease, Means A Contract
For A Certain Period, Which Cannot Be Altered. Remember that a lease is a contractual agreement that exists between two party, however, there is no structured guarantee with a lease because it can be technically annulled at the pleasure of the parties to it. However, it is understood that many of the contracts have to be modified over time and are redone in order to meet the requirements of the both parties. Not always possible though but if there’s something in it for both then it would be most effective. There has never been a surety that you are locked down by the contract. It is always better to look to a far more efficient plan rather than be stuck with liability and spending for it when it is not even necessary.
5/ Renewal Rights
All business tenancies under the business tenancy law have rights to renewal. However, both can, and frequently do, ‘contract out’, of this protection; the effect of which is that tenants enjoy no rights to continue in occupation beyond the lease expiration. As a rule, it is Always wise to take renewal rights wherever possible and wherever not it is wiser at least to be aware of these risks and control them elaborately because otherwise you may find that your business is effectively worthless as a result of poor planning and negotiating.
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