Things to look out for in a commercial leasing agreement.
You have just purchased a commercial property space and are now looking to rent it out to generate passive income.
Mr Benny Koh, 57, a consultant at a wealth management firm that specialises in real estate investments, said: “Commercial properties have a lower cost per sq ft and shorter leases that range from 30 to 60 years.
“Tenant agreements are often more flexible. But it is prudent to include certain clauses in the lease agreements.”
Here are some of them.
1. Tenant subletting and lease assignment
This clause protects your rights as the owner of the commercial property. It prevents a tenant from subletting your commercial property space or assigning the lease to another party without your consent.
Mr Koh said: “An assignment and subletting clause must be included in the lease agreement to outline the tenant’s limits on occupancy. It should further state that any assignment, sublet, or concession granted by the tenant is invalid, and that the landlord has the option to terminate the lease agreement and evict the tenant on these grounds.”
2. Maintenance issues
A lease agreement should clearly outline the tenant’s responsibilities with respect to repairs and maintenance issues.
“These include the terms for keeping the space clean and sanitary, and payment for any damages caused by neglect or abuse by the tenant. These clauses will give you legal backing in the event of a dispute over the security deposit,” said Mr Koh.
If you prefer your tenant to handle all repairs and insurance for the property, get a legal firm to draft an agreement that removes your liability as a landlord for the cost of all insurance and repairs.
3. Mediating disputes
Provisions should be included in an agreement to outline how disputes should be handled.
Mr Koh said: “Common disputes include rental reviews. Commercial lease agreements usually highlight that the rent may be reviewed every five years, typically to increase the rent according to the property’s market value.
“Rent review clauses should include steps on mediation, arbitration, or engaging the services of a third-party.”