This is the third instalment in our series identifying how successful commercial property investors get ‘lucky’.
The standard leases most commonly used by private investors include refurbishment clauses.
In general terms, these require the tenant to maintain the standard of the premises over time. These clauses range from a general obligation to simply maintain the standard of the premises to a specific obligation to repaint and re-carpet the premises every five years if requested or on vacating the property.
If you are about to sign a lease as a tenant, it is important to think about the refurbishment obligations that you are assuming. After all, repainting and re-carpeting even a modest sized office can be a five-figure cost that needs to be budgeted for. You may be able to negotiate a less expensive obligation.
If you are looking to buy a property, this might be a source of hidden value. If the tenant has been there some time and the property has not been repainted or re-carpeted in the past five years, you may have the right to ask for this to be done once you settle your purchase. This depends on having both the right to request this under the lease and also being able to ask the tenant to comply without poisoning your relationship with the tenant.
However, knowing that you have a lease that allows you to require the tenant to cover the cost of repainting and re-carpeting may be a source of hidden value – both in the sense of improving the appearance of the property and also in possibly providing some leverage to convince the tenant to renew.
If you are thinking of buying a commercial property let us review the paperwork for you to see what hidden value and / or hidden issues may be contained in the small print.