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Commercial and Retail Property Managers - How to Avoid Tenant Default Today

February 16, 2012 | Comments: 0 | Views: 119

When it comes to commercial property management and leasing, the fact of tenant default can be all too common today. When the tenant does default, this has impact on the landlord's cash flow in both rental recovery and outgoings recovery. In a property with many tenants, the matter becomes more challenging and difficult for the property manager.

A property manager should assume that every tenant can default for a variety of situations and circumstances; watch the tenants for these events. The most common factors of default today are the following:

1. Nonpayment of rental as required under the lease

2. Dispute or default relating to the payment of outgoings under the terms of lease

3. Noncompliance to the terms of occupancy relating to the physical premises

4. Failure to implement the necessary make good requirements at the end of lease

5. Failure to implement the appropriate requirements of risk management and insurance as they apply to the occupied premises

There are also other matters of default that can occur beyond this simple list. Importantly the property manager and landlord should be very diligent in the process of tenant management. This says that all the terms and conditions in each lease should be accurately enforced and monitor. This will become a complex challenge when you are dealing with properties of multiple tenants and large size.

The thing that can help you here is some form of Property Management Software System where critical dates can be entered at the commencement of each and every lease. The Software System can then alert you every day to the upcoming critical dates.

Here are some tips to help you avoid the tenant default process:

Stay in close contact with the tenants on a weekly basis. This is very important when it comes to the activities within a retail property. Retail tenants are more closely aligned to the pressures of the global economy and the customers spend. Identify the requirements of tenants to expand or contract as part of their business process. It is better to help them with an adjustment to the size of the premises, than see them default or move to other nearby properties. Every morning check the rental payments that are due from all the tenants within the tenancy mix. In this way you will see the rental or lease default when it occurs. Immediate action is required and should be documented on file. It may be necessary to talk to the landlord to seek the landlord instructions in a matter of default. If a lease default appears to be serious and of significance, get approval from the landlord to talk to appropriate solicitors to seek legal guidance. In any lease default, due legal process needs to occur given local property legislation that applies to the property type and the lease. To do otherwise can see you fail in the actions against the tenant. Stay well ahead of the lease expiry dates and the lease options. This says that the critical dates for each tenancy should be closely monitored. From a practical point of view, any dates inside the next 12 months will be part of that process. Lease expiries and lease renewals would be considered in balance with the existing tenancy mix and around the subject tenancy. Negotiate your rent reviews with some consideration for the landlord's cash flow, but also the tenant's business viability. When the property market is volatile, aggressive high rents can destroy a tenancy mix and escalate the vacancy factors.

As mentioned earlier, the tenancy default process is a common event. Through good business practice and lease management, you can stay ahead of the problem or manage your way through it. Inaccurate lease documentation and poor instructions can derail your intended outcomes.

If you want some more tips and ideas to help your commercial real estate agency and convert more opportunity into listings and commissions, you can get a free eBook of tips and tools at

John Highman is an experienced Commercial Real Estate Agent, International Speaker, and Sales Coach.

Source: EzineArticles
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