Commercial Real Estate in California
Are you allowed to contact a triple net tenant of a property you are interested in purchasing to gauge their interest in renewing their lease? If so are there any limits on what the conversation can be?
That is generally a NO. You are not the owner of the property that the tenant answers to. If you are thinking of buying put in an offer subject to a renewal of the lease. You can have in the offer that seller cannot negotiate a lease extension without your approval while under contract.
Are you paying all cash or trying to get a loan with some down?
That makes a big difference.
Thanks. It will be all cash. Seller seems reluctant to let potential buyers negotiate with the tenant out of fear of the deal falling out of escrow and him having to deal with the tenant wanting what ever terms were negotiate by the potential buyer. So i was just wondering if there were in rules about calling the business owner to gauge their interest in renewing the lease.
As long as you don't interfere with the contractual rights of the landlord, for example, by telling the tenant not to renew if the landlord doesn't sell you the property, then depending on how you approach, it's not illegal (as always this is not legal advice, and you should consult your attorney). That being said, you should be careful that you don't get a tenant to commit to a renewal prior to being under contract because that will be good reason to significantly increase the purchase price on you. A 30 yr lease with 2 yrs left is worth way less than 2 yrs+a 10 yr option exercised. Practically speaking, though, knowing that the seller could get a way higher price if there are only a few yrs left, likelihood is the seller has already tried to contact the tenant and either couldn't get an answer, or the answer was no. If there are many years left in the current term, and it wouldn't really impact the price if a tenant seemed to intend to extend down the road, the seller may be ok with you asking, and you can always request the ability to contact (not harass, contact) the tenant during due diligence. Landlord will likely want a representative to be allowed to be present during communications, but that's up to your lawyer to work out.
If you were to sign anything after you were under contract, changing terms, extending, etc. (assuming that's not prohibited under the contract) make sure it is very clear that you are only the contract purchaser and the lease is subject to your closing title. I would even have the title company or a lawyer hold the signed lease in escrow until you close with an agreement that it is void if for any reason you don't close. Morally, is it wrong to go behind a landlord's back? Maybe, again, depending on the specific facts, but the answer is, yes, under the right circumstances, you definitely can contact the tenant from a legal standpoint. I would reach out to an attorney with the details of your situation to get a more definitive answer. Hope that helps!
When is the tenant's lease expiring? if the end date is far from now, it would be kinda pointless to contact the tenant and may work against you as other's mentioned above. I personally wouldn't cut through the owner/listing broker, I'd just move analyze the deal in terms of the worst case scenario. You may also want to requesiton gross sales figures if that's something the lessee is required to report to the lessor.
From your post it looks like you just want to gauge their interest, you aren't actually asking them to extend. I've had lots of discussions with existing tenants on properties I'm purchasing and I'm a big advocate of conducting tenant interviews. That being said, this needs to be part of your negotiations with the seller and usually these interviews are conducted during the due diligence phase. Some sellers are reluctant to allow potential buyers to contact their tenants (I even had one seller meet with each of his tenants a couple of days prior to my meeting with them and he flashed them all his gun when he was talking with them and telling them what to say...), but I'd see it as a red flag if the seller doesn't allow you this opportunity ONCE YOU ARE UNDER CONTRACT.