Commercial Real Estate – Check Lease Documents
Buying commercial real estate can be a lucrative way to invest your money, however, you need to be aware of what the current owner has done with the property. If the commercial property is currently under lease, you need to know what the terms are of that lease. Often, you can find a copy of the lease held in the county records. If not, you will need to ask for a copy of that lease, an option not always available prior to entering into a sales contract.
One option that is sometimes placed in leases is the option to purchase the property. Of particular concern should be any clause that gives the tenant the ‘right of first refusal’. This clause gives the tenant the option of purchasing the property at the price that you have negotiated. In other words, once you agree on a price, the tenant has the right to accept that price and purchase the property before you, or reject it and continue as a tenant – hence the term ‘right of first refusal”.
Other clauses to be aware of when buying tenanted commercial real estate is whether or not you have the right to terminate the lease after purchase. Some leases have this clause inserted, particularly when the owner knows they will soon be placing the property on the market. You should be aware that leases do not terminate on the sale of a commercial property.
Tenanted commercial real estate can be an attractive investment option. Just be aware of the rights of the tenant and clauses that may have been inserted into any lease. As a footnote – if you are looking to enter into a tenancy agreement as the tenant, be aware of what options you can have included in the lease, and what options the owner wants to include.
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