There are all sorts of property investors, from “institutional” investors owning hundreds of properties (and if you are not one yourself you may have money invested in one in your pension), to owner managed property companies with dozens of properties all the way to individuals who own one property, perhaps as part of a SIPP.
When you want to let your commercial property what form should that lease take?
One form of lease is the “institutional lease”. This type of lease used to be dominant, but has become less so over the years. I recently advised a tenant on a lease from an institutional landlord, running to 60 pages. This type of lease makes sure the tenant is responsible for rent, the landlord’s insurance premium, keeping the property in good condition, repairs and everything else. Not surprisingly landlords prefer this type of lease and often the tenants have limited negotiating strength, particularly if the property is in demand.
However lots of landlords aren’t lucky enough to be in that position. If you have an office or industrial unit that is difficult to let do you need to have all your tenants on 60 page leases? Of course not.
In these cases you may find it easier to attract tenants with some or all of the following: a lease for a short period of time, a break clause, limited repairing obligations or rents including the cost of insurance and services.
I am currently working on simpler leases of this type for a charity shop, and an industrial unit that has stood empty for many months.
Of course there might be other people with an interest in your property that control the type of lease you use. If you have mortgaged your property then the bank will need to approve the lease and make sure their loan is protected. Similarly if the property is in your pension there will be a pension fund trustee with a long list of requirements to comply with. However if you are lucky enough to own your own property without these controls it really is up to you.
[Another issue is your long term plan. If you want to fill the property up and then sell it on as an investment using a simpler lease might mean the buyer is willing to pay less. I acted for a property company a couple of years ago buying a multi let office park. The seller had quickly filled it up with tenants, but on simple leases that were clearly prepared hastily and without the correct professional advice. He had taken the short lease to the extreme which led to price negotiations and difficulties with my client’s bank.]
You will see it is vital to use the correct lease for each set of circumstances. This article can only scratch the surface when it comes to leases. This is where experience comes in. If you tell me or one of the other property experts at Short Richardson & Forth what you want to achieve we will be able to give you first class advice on the best route to get there.