[Landlord - ON- CA] - commercial leasing - terms for termination of lease
Landlord for CRE property first time. Looking to lease a commercial retail space for 5 yr lease. But due to volatile market situation I may choose to sell the unit if the interest rate keeps jumping as I have a variable rate on my mortgage. But is it possible to ask the tenant to vacate by giving Xx months notice in case I choose to sell? Is that clause allowed or should I wait for lease to end to sell my property? Advice pls
[{"id": "izybh5p", "text": "I am not expert on commercial real estate investment. But what is stopping you to put your property on sale with tenants in place? It will be lot easier to sell your property when it is already fully rented.!", "replies": [], "depth": 1}, {"id": "izybjfy", "text": "If they have a lease you abide by that lease. If you think you want them out in 6 months, you can have a month to month lease but that will limit the tenants you would get. Most retail leases with quality tenants are 10 to 20 years with many, many options to renew. \n\nSo if you have a micky mouse lease you will get micky mouse tenants.", "replies": [], "depth": 1}, {"id": "izychho", "text": "Why would you want it vacant to sell it? Did you buy it vacant or occupied?", "replies": [{"id": "izygft4", "text": "I am the first owner. So it was vacant while we bought from builder. But with raising interest rates I m afraid we may land in negative cash flow (rent vs the mortgage) so if I choose to sell I may not get prospective buyers. I do not want to end up paying $$ compensating the negative cash flow for long hence looking for options that I can get my way out if worst occurs.", "replies": [], "depth": 2}], "depth": 1}, {"id": "izynm1x", "text": "Not knowing the general commercial laws in CA however you can insert a break clause in the lease which provide a notice period to vacate. You will be hindered by the covenant of tenant willing to take that sort of risk, as businesses don\u2019t like to move frequently, and you\u2019ll likely need to lease under market in order to get that sort of flexibility. \n\nAs another person said, usually easier to sell a retail space with a good, long lease in place. Empty space in a high interest market isn\u2019t as desirable.", "replies": [{"id": "izzsulk", "text": "Got it. But what if the rent amount is lesser than the mortgage ?", "replies": [{"id": "j058mo9", "text": "Huh\u2026. Don\u2019t buy it if you can\u2019t afford it\u2026.. 101 investing - buy what you can afford and account for higher rates than rock bottom. \n\nRemember some people by things with equity, not 100% leverage\u2026 so rates will be different for all investors.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "izzraxs", "text": "If you are going to add a clause that the landlord can terminate the lease on X months notice you can expect any tenant that signs that lease to also want a clause where tenant can terminate lease on X months notice.", "replies": [{"id": "izzt0o1", "text": "That's fine with me actually. But as everyone mentioned above it seems like the number of prospective tenant may fall if I add the clause like that as retail businesses are long term. Will think about it", "replies": [{"id": "izzwvps", "text": "Yes, that clause will definitely scare off some of the higher quality tenants which will leave you with the guys who always wanted to try to start a gym/pool hall/tattoo parlor/cannabis shop....", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "j003xwp", "text": "Commercial re performs better being occupy. You have to perform to the lease and a potential buyer have to assume the lease, unless you can buy them out of the lease. \nThat being said, can you increase your income? Rent? Refinance to a fixed rate. If you have a quality property - new, with positive cash flow and your personal financials are strong, should be no issues finding a fixed rate term loan.", "replies": [], "depth": 1}]