How do I negotiate new leases with my commercial tenants?

1 Reply

This question and will tell you just how inexperienced I am as a commercial landlord.   As a quick background, we inherited one of the tenants when we purchased the property for our business use, then acquired the other tenants after we closed our retail business but kept the real estate as an investment property. 

We currently have 3 commercial tenants whose leases have long passed their initial terms and have gone month-month. None of the leases have provisions for annual operating expense (ie CAM or NNN) adjustments, and my insurance and tax expenditures are increasing. So I need to write new leases with base rent plus NNN charges.

I have drafts of the new leases prepared, but I don't know how to present them and what the process is in regard to getting a response from them or negotiating with them.   I assume there's some official wording I need to use in a cover letter to let them know I'm terminating the existing lease and replacing it with the new lease.   

Additional wrinkle:  they're in Nebraska and I'm in Arizona, so I can't do this face-to-face.

Any advice on how to proceed would be appreciated.   If possible, I would like to do this myself without the aid of a lawyer.  My lawyer approved the actual lease wording, but if I get him involved in the negotiations it could get expensive.

I own 2 commercial buildings with some partners and the commercial side as you have found out is very different from the residential side.  

There are multiple options but you need to have someone meet face to face with the tenants.  This can be done over the internet with Skype or another software.  Additionally for a fee but I would consider it a wise investment, hire a commercial real estate agent to represent you with the leases.  They will have specific knowledge on the requirements, comp rent rates sq ft, how to add the expenses for (property tax above baseline, all taxes assessed against the lease)

The term and when the lease term expires that it converts to year to year renewal with a % increase per annum.  Assignment and Subletting, prohibited uses for property, remedies for default, Tenant requirement to have adequate insurance,  Utility Bills, Tenant Interior maintenance responsibility, pest control, damage by vandals, Signs, Improvements become landlord's property at lease end, damage and destruction, Tenant Public Liability Insurance, Environmental, and any addendum's.

As you just read, these leases are more complex and require professional representation as if you are trying to save $1000.00 by representing yourself and the lease has loopholes than you are opening yourself up for losses that can far exceed your initial savings.  

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