Buying a commercial property may look like a straightforward transfer of ownership. But when tenants already occupy the space, their lease rights do not simply disappear with the sale. The agreements signed by the previous owner may affect your business considerations and your plans for the site.
How leases affect your deal
An existing lease may provide rental income, but its terms may limit how you use the property. Renewal rights could delay redevelopment, while purchase rights may affect a future sale.
Lease terms may also affect the property’s financial performance. Maintenance obligations or commitments to improve tenant spaces could add costs after the transaction closes.
Legal issues with existing leases
As the buyer, you may become the new landlord and assume certain obligations tied to existing leases. The original agreements and later amendments may define the tenant’s rights and the landlord’s responsibilities after the sale. Lease provisions that may affect the transaction include:
- Renewal or extension options
- Maintenance obligations
- Tenant improvement commitments
- Purchase rights or rights of first refusal
- Security deposit requirements
Side agreements may add other commitments. Unresolved tenant disputes and claimed landlord defaults may also affect the transaction.
Existing leases can change the deal
A commercial property may fit your investment or development goals on paper, but existing lease rights can change what the property offers in practice.
Before closing, it can be useful to compare the lease terms with your intended use of the property. That comparison may reveal costs, restrictions or tenant rights that could affect the value of the deal.