Commercial Property Landlord chat
Discussion
So the next step for me is going into the world of commercial property letting we are in the process of buying a site that we are basically developing into a small industrial estate that will have 7 units on the site. As we grind through the tediously slow conveyancing process I'm just on with preparing some leases.
I know there are a few commercial LLs on here so really picking brains....do you contract out your leases? Is there any reason not to contract leases out?
Will probably be back to ask a load of questions around planning/building it's something totally new to me. We have been into residential for 20 years and only really had commercial stuff I have flipped before so yeah a new adventure with a lot to learn.
I know there are a few commercial LLs on here so really picking brains....do you contract out your leases? Is there any reason not to contract leases out?
Will probably be back to ask a load of questions around planning/building it's something totally new to me. We have been into residential for 20 years and only really had commercial stuff I have flipped before so yeah a new adventure with a lot to learn.
Your buying a site for xxxx then presumably paying xxx. You are an inexperienced commercial landlord,
And trying to do the contract which governs how much you are paid, what you are liable for and what you can pin on the tenant, how you can get your property back, on the cheap.
I think proper paid advice would be a good idea.
And trying to do the contract which governs how much you are paid, what you are liable for and what you can pin on the tenant, how you can get your property back, on the cheap.
I think proper paid advice would be a good idea.
surveyor said:
Your buying a site for xxxx then presumably paying xxx. You are an inexperienced commercial landlord,
And trying to do the contract which governs how much you are paid, what you are liable for and what you can pin on the tenant, how you can get your property back, on the cheap.
I think proper paid advice would be a good idea.
I'm not understanding that first point?And trying to do the contract which governs how much you are paid, what you are liable for and what you can pin on the tenant, how you can get your property back, on the cheap.
I think proper paid advice would be a good idea.
B2B leases are a different kettle of fish - get a solicitor to draft you one up for sure. Will cost now but will save you a world of pain if/when something crops up.
Relative to buying and developing a site of 7 units it ll be small change.
To add, most tenants will also have a solicitor review their lease (see 1st point) - in order to handle that even vaguely competently you want it to be well drawn up.
Relative to buying and developing a site of 7 units it ll be small change.
To add, most tenants will also have a solicitor review their lease (see 1st point) - in order to handle that even vaguely competently you want it to be well drawn up.
Edited by Dg504 on Friday 12th December 07:11
The LL of the site my unit is on does his own viewings, invoicing etc - no agent involved, although I'm sure he would have initially used a solicitor to make the leases for signing. I think a lot depends on what size the units are, price, and type of tenant that would be attracted to them as to whether you want to be full hands on or not. Bear in mind the chances of getting a PITA tenant is higher the more units you have, but equally you want them to be as cheap as possible to attract tenants in the first place. Also bear in mind empty units are sitting empty for a LONG time currently. It's not like it was 3 or 4 years ago...
Yeah I will be self managing I've no issue doing all that side of things. The contracts will be done properly or was the specific issue of contracting out I was mainly interested in. In the units I occupied when renting for my own business 1 LL food this but 2 didn't.
I don't think we will have any problems letting is in a very good area and Im aiming to have mainly motor trade so going after a customer base most LLs won't touch but I'll know the good ones locally.
I don't think we will have any problems letting is in a very good area and Im aiming to have mainly motor trade so going after a customer base most LLs won't touch but I'll know the good ones locally.
fridaypassion said:
surveyor said:
Your buying a site for xxxx then presumably paying xxx. You are an inexperienced commercial landlord,
.
I still don't understand this point? .
I am taking advice on board by the way that's the whole point I'm keen to learn!
surveyor said:
Essentially you are spending a lot of money on the site then developing it. Then not taking legal advice on a vital ingredient of getting and maintaining your income is penny wise, but pound foolish....
Crickey there's a lot being incorrectly inferred from my post there I don't remember saying I wasn't taking any professional advice my specific question was around contracting out. The usual procedure I remember from back when I rented was that the new tenant has the legals as part of their moving in costs. Contracting out is to your benefit. The purpose of the 54 Act it to protect the tenant. By contracting out you put yourself in a much stronger bargaining position at lease renewal, as you can effectively tell them - take it or leave it. Also gives you more control of the property, although that point is mute on a new build as it's unlikely you'll need vacant possession for redevelopment purposes.
The reason not to do it, is that any tenant that has professional representation will resist it and it may negatively impact your marketability.
I'll be honest, I got the impression from what you've written you were planning to draft your own leases, I'm very pleased you're not.
The reason not to do it, is that any tenant that has professional representation will resist it and it may negatively impact your marketability.
I'll be honest, I got the impression from what you've written you were planning to draft your own leases, I'm very pleased you're not.
fridaypassion said:
surveyor said:
Essentially you are spending a lot of money on the site then developing it. Then not taking legal advice on a vital ingredient of getting and maintaining your income is penny wise, but pound foolish....
Crickey there's a lot being incorrectly inferred from my post there I don't remember saying I wasn't taking any professional advice my specific question was around contracting out. The usual procedure I remember from back when I rented was that the new tenant has the legals as part of their moving in costs. Pleased you are taking advice. Was not the impression i had from the OP.
Why do you specifically want the leases contracted out? Only really matters if you intend to redevelop the site in years to come, or if you want to hold the tenant to ransom at renewal and be viewed as a pretty unreasonable landlord.
Best get off on the right foot with a decent relationship with prospective tenants at the outset. Also if you want to contract out then you will have to get the tenant to sign away their right to renewal in front of a solicitor so don’t think you can do it sneakily - any solicitor worth their salt will explain all the pitfalls to a tenant.
I note your background is in residential. Remember that taking back possession is much easier for commercial than residential if a tenant breaks their covenants.
Best get off on the right foot with a decent relationship with prospective tenants at the outset. Also if you want to contract out then you will have to get the tenant to sign away their right to renewal in front of a solicitor so don’t think you can do it sneakily - any solicitor worth their salt will explain all the pitfalls to a tenant.
I note your background is in residential. Remember that taking back possession is much easier for commercial than residential if a tenant breaks their covenants.
JQ said:
Contracting out is to your benefit. The purpose of the 54 Act it to protect the tenant. By contracting out you put yourself in a much stronger bargaining position at lease renewal, as you can effectively tell them - take it or leave it. Also gives you more control of the property, although that point is mute on a new build as it's unlikely you'll need vacant possession for redevelopment purposes.
The reason not to do it, is that any tenant that has professional representation will resist it and it may negatively impact your marketability.
I'll be honest, I got the impression from what you've written you were planning to draft your own leases, I'm very pleased you're not.
Yes my thinking was around when the time comes to do the development we'll needed some cooperation from one of the tenants as it will involve some alterations so it would be handy to have some control there just in case. The reason not to do it, is that any tenant that has professional representation will resist it and it may negatively impact your marketability.
I'll be honest, I got the impression from what you've written you were planning to draft your own leases, I'm very pleased you're not.
It's interesting reading some of the comments which to be honest come over a bit passive aggressive. One of the units I rented was a 5000 ft city centre building that the contract was done on a single page 8th generation photocopy from a family business with £10 million in property on the books so there are some big hitters out there taking less care than I am! I wasn't contracted out and they weren't able to push a 50% rent increase onto me and I dealt with that myself vs their solicitor so I'm not thick.
I guess some things will be area dependant but where we are this is a sellers market if you have any small to mid sized space it's like gold dust so I think if we stipulated contracting out it wouldn't be a huge issue. We will be very competitive anyway just not being greedy. Just recently we saw 2 x 1500 ft new build units being advertised at 30k each we would be in the low 20s max we plan to add 2 x 1500 footers and one 1300ft unit and there's 10,000ft existing splitting into 4 self contained. We will see 15/16% yield on the old bit of the site. New build part hopefully a bit over that without having to hold out for crazily high rent.
soxboy said:
Why do you specifically want the leases contracted out? Only really matters if you intend to redevelop the site in years to come, or if you want to hold the tenant to ransom at renewal and be viewed as a pretty unreasonable landlord.
Best get off on the right foot with a decent relationship with prospective tenants at the outset. Also if you want to contract out then you will have to get the tenant to sign away their right to renewal in front of a solicitor so don t think you can do it sneakily - any solicitor worth their salt will explain all the pitfalls to a tenant.
I note your background is in residential. Remember that taking back possession is much easier for commercial than residential if a tenant breaks their covenants.
Nonsense. As an example. We’ve just had it with one of our units, which we bought out of auction and the tenant was inside the act. The tenant kept saying they were going to renew, blah blah blah. Then 3 months after the lease expired, they said they would be leaving. If they weren’t in the act, we would have started marketing the unit before the end of the lease, which should have reduced the void. Then with the dilaps, we had a gap between the tenant leaving and being able to get trades booked in, again if outside of the act, we would have known they were going and would have had our guys ready to start as soon as the lease expired. Best get off on the right foot with a decent relationship with prospective tenants at the outset. Also if you want to contract out then you will have to get the tenant to sign away their right to renewal in front of a solicitor so don t think you can do it sneakily - any solicitor worth their salt will explain all the pitfalls to a tenant.
I note your background is in residential. Remember that taking back possession is much easier for commercial than residential if a tenant breaks their covenants.
Lynch91 said:
Nonsense. As an example. We ve just had it with one of our units, which we bought out of auction and the tenant was inside the act. The tenant kept saying they were going to renew, blah blah blah. Then 3 months after the lease expired, they said they would be leaving. If they weren t in the act, we would have started marketing the unit before the end of the lease, which should have reduced the void. Then with the dilaps, we had a gap between the tenant leaving and being able to get trades booked in, again if outside of the act, we would have known they were going and would have had our guys ready to start as soon as the lease expired.
Do you routinely contract out? fridaypassion said:
Lynch91 said:
Nonsense. As an example. We ve just had it with one of our units, which we bought out of auction and the tenant was inside the act. The tenant kept saying they were going to renew, blah blah blah. Then 3 months after the lease expired, they said they would be leaving. If they weren t in the act, we would have started marketing the unit before the end of the lease, which should have reduced the void. Then with the dilaps, we had a gap between the tenant leaving and being able to get trades booked in, again if outside of the act, we would have known they were going and would have had our guys ready to start as soon as the lease expired.
Do you routinely contract out? We have also done it before and charged a premium on the rent for a company that was building a manufacturing plant in the unit. Then had it written into the rent review clause that we could charge a 5% premium on market rent for the lease being inside the act. I’ve generally found with the valuations, the yield is down 25 bps when inside the act, so for me, only worth doing for a rock solid covenant or charging a premium.
fridaypassion said:
Do you ever get any resistance from tenants over it?
Rarely. And as you said earlier, not much industrial stock round. So generally they agree and I think it is fair to say, that generally it has now become accepted that most landlords don’t do leases inside the act now. Gassing Station | Business | Top of Page | What's New | My Stuff