Agreement To Lease - I'm Confused

[Davo36]

Hi guys,

I have a retail tenant I want to sign up tomorrow using an Agreement to Lease.

So I've ordered and received the latest Agreement to Lease forms and I've been so inactive in recent years, it's all changed and I have no idea what a couple of the terms mean!

The first one is this:

14. No Access Period (subclause 27.6 of the Lease) (1) 9 months OR (2) Blank space here...

So what is that please?

And the second is this:

16. Limited Liability Trustee: And a blank space for something to be written in here.

Can anyone help with these 2 items?

[eri]

this might help

http://www.glaister.co.nz/new_commercial_lease_form_lots_of_changes

[Wayne]

The no access period was as a result of the Christchurch earthquakes where tenants couldn't access their space due to cordons etc.
Allows an out if the bulding is still fine but the tenant, for all intents and purposes, can't use it.

[Davo36]

Ok thanks very much guys.

I'd still like to find out what the Limited Liabiliy Trustee bit means.

[eri]

this probably won't help

but it's supposed to

http://ip28.publications.lawcom.govt.nz/chapter+7+-+creditors+and+trading+trusts/liability+of+a+trustee+and+the+right+of+indemnity+against+trust+assets

[Davo36]

Yeah it must be something to do with trustees having limited liability.

So if the lease is signed by a tenant who is a trust, then I guess the trustees may want to name themselves as having limited liability.

Anyway, the tenant has just rung and said he wants the rent reduced - this after he had said he'll take it. Annoying.

[learner]

Hi Davo36

The Limited Liability Trustee is for the insertion of the name of the Professional Trustee (eg. a lawyer, accountant, or another person who is not a beneficiary, but acts as a professional trustee). Non-professional trustees are still personally liable.

The No Access Period (eg 9 months) applies when a tenant cannot access the building for the stated period (9 months), after which the tenant can terminate the lease. As Wayne points out, this was put in after the Christchurch earthquakes, when tenants were not able to get into their buildings through no fault of their own, but were still responsible for paying the rent.

If the Agreement to Lease has been signed, then it would be difficult for the prospective tenant to get out of it unless there are conditional clauses in the agreement.

[Davo36]

Thanks Learner. So if there is no Professional Trustee involved, then just leave this blank, or cross it out?

No the Agreement to Lease has not been signed.

I was away on holiday last week, so couldn't sign him up. Might end up being an expensive holiday!

[learner]

Hi Davo36

I would just leave it blank.

If the rent is at market level in terms of $/m2, then you could show him the comparative rentals for similar properties and see what the response is. You probably know what to do, but if I were in this situation, I would:

1. Ask him what is a reasonable rental. If the property has been empty for a long time, and the difference between what you are asking, and what is offered by the prospective tenant is not too far apart, then I would accept the request for a lower rent, provided that the lease period is extended (say, by 2 years or so). You could then increase the rent to a more acceptable level at the next rent review.

2. If the difference in the rent expectations between you two is too great, then I would split the difference, and see if the half-way figure is acceptable to both of you. I would also ask for an extension of the lease by at least one more year, if the middle figure is accepted

3. If your offers are not accepted, then stand firm, and wait for the next person to come along. If your property is well-located, and fairly-priced, then it should be easily tenanted. On the other hand, it could remain empty for months.

That's the difference between commercial and residential: drop the residential rent and you will get tenants easily. Drop the commercial rent, and still no one wants it, and you can't do much about it. Commercial property owners have to have deep pockets to survive the difficult times when no one wants to lease any space - recessions, unemployment, changes in traffic patterns etc.

What you want to do next depends on your personal situation; whether you can afford to stick to your rent level for what could possibly be a long period of vacancy, or take a tenant at a lower, but still acceptable rent (assuming it's a quality tenant) to provide the cashflow

All the best in finding a tenant.

[Davo36]

Hi Learner, thanks for your comments.

The property only became empty on the 15th Jan, so he was looking at it when it was still occupied.

And I have a cash buffer built up as I knew some time ago it was likely to come empty.

It is well located, but in a suburb with a number of empty properties around, so I'm pretty flexible.

Here is the TradeMe listing for anyone who's interested: http://www.trademe.co.nz/Browse/List...?id=1175541473

The sticking point right now is that the prospective tenant wants extensive alterations costing around$38k! Which is far too much, so we're going to have to think again.

Will let you guys know how I get on.

[learner]

Hi Davo36

It looks a fine building, and it appears to be on a commanding corner site. You shouldn't have much trouble leasing it, not that I know much about Papakura.

One of my retail properties was empty for more than a year. It's also in a good location, and there were a number of inquiries about leasing it. Some wanted me to pay for the fit out, and others I didn't think were suitable tenants. Then one tenant said he wanted to do an extensive fit out, and wanted some assistance. The fit out would be between $60,000 to $75,000. I thought about it, and then offered to contribute $10,000.00 plus several months rent free for the fit out. He took the lease, and is now operating quite well from the premises.

What contributed to the decision were:

1. The property was empty for more than one year, so was not earning any income
2. Giving away a rent-free period was not a loss, as there was already no income anyway
3. Contributing $10,000.00 was roughly two months' rent. For this, the property was getting around $60,000 to $75,000 fit out or improvement - that's not a bad return
4. The tenant, by spending $60K to $75K in the fit out, shows that he was willing to risk a fair chunk of money in the business, and was likely to stay in it for a while.

So, it's good you are going to think about it. I think the main thing is: is the tenant any good. If he is, then a little help would go a long way to establishing a good and long relationship. In the end, if the tenant is successful, then it's got to be good for the landlord. That's how I see investments in commercial property.

All the best.

[Davo36]

Hi Learner, whereabouts is your property?

I agree with your lines of reasoning. I think pretty much the same.

I often offer rent free time, because as you say, it might sit empty for that time anyway.

Sounds like you got a good tenant.