Why a commercial property tenant is a landlord’s partner

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Why a commercial property tenant is a landlord’s partner

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The relationship between commercial tenant and landlord is one of the most crucial in the commercial real estate game. After all, a tenant is one of the most valuable parts of a commercial property investment.

For a commercial property landlord to be a partner they should build a relationship with their tenant. Informing, and at the same time listening, makes a landlord who’s a partner standout from a landlord with a cloth ear.

But arguably most important is to understand a tenant’s business and help them get the most from the premises. Doing so will help property owner’s get the most from their investment.

If you’re a commercial property owner, or even a tenant looking for a thoughtful landlord, here are 7 reasons why a commercial property owner should partner with their tenant.

1.     Risk of vacancy is reduced

Vacancies can be a risk of owning commercial property.  If unprepared, the loss of a tenant can also mean the loss of property value and yield for a property owner. After all, the tenant pays the rent, generally covers the property expenses and is a major determinant of the overall property value.

Not only this, but a vacating tenant who is established as a flagship business in the area might also take with them the catchment’s usual customers.

As with most relationships, communication between both parties is key to avoid someone walking out.

By opening the floor for dialogue, a landlord can better understand their tenant’s intention or ability to remain in the property. And just as important, a tenant may feel more comfortable explaining what needs to be done to the lease agreement or the premises to keep them in it for another term.

2.     Cash flow for the investment

When a commercial tenant feels like a partner, it boosts income security for the property owner.

Paying the rent, on time and in line with lease conditions, is an obvious but crucial part of a tenant’s partnership with the landlord. Not only should commercial property landlords understand their tenant’s rental obligations, but also put in time to understand the business occupying their premises.

If it’s clear the tenant is performing strongly, and they recognise the threats and challenges in their industry, commercial property owners will have more comfort that their cash flow is ongoing.

3.     Negotiations are easier

Whether or not either party is a born negotiator, navigating through lease conditions and agreements is much easier when there’s mutual respect.

The “me against you” attitude fizzles out when tenant and landlord work together to get the most value from the property.

A great ethos for landlords is to look for the win-win. A commercial property owner will get the most out of their property when they help their tenant get the most out of it too.

4.     Property value is optimised

A quality tenant-landlord relationship holds the key to unlocking a property’s full potential.

Longer lease terms, lower vacancy risks and higher income certainty are all factors that funnel into a robust property value. The best chance a property owner has of achieving these is to keep their tenant happy and eager to stay in the property.

If an occupant is treated like a partner, they’ll partner with the landlord to keep the property running smoothly. Leaks, cracks and broken fixtures can be repaired but an owner needs to know about them first.

This is important during the due diligence phase, where potential landlords should be uncovering any hidden nasties by talking with the tenant. This could save a new owner from buying the vendor’s problems, and it’s why their partnership with a tenant begins before the property is acquired.

5.     Comfort for the bank

One party who loves landlords to partner with tenants is the bank. If valuations and tenancy schedules are rosy, thanks to owner and occupier working together, then a financier will feel their interest is secure. Keeping the bank happy is as important a job for commercial property owners doing the same for their tenant.

6.     Tenants might spend on upgrades

A happy tenant, who holds their landlord in good stead, can sometimes pay the costs to upgrade the premises without asking to split the bill. Who knows, if a tenant gets along with the property owner, there’s every chance of them calling to say, “We’d like to paint the property.” A tenant who wants to reinvigorate an asset themself is a landlord’s dream.

On the other hand, a tenant will be the least bit inclined to do so if they don’t like the property owner.

7.     Happy tenant means happy landlord

Most assets held by commercial property owners, investors and syndicators are workplaces for someone. Of course, many commercial property owners are businesses themselves, so part of that property business is to make sure their tenant has the right platform to operate from.

This comes from good communication and a solid understanding of their tenant’s business. The likely result for a commercial property landlord who partners with their tenant will be a flourishing occupant and a more successful investment.

For the best advice regarding commercial property investmentget in touch with Heath Bedford at Performance Property Advisory on (03) 8539 0300 or heath@performanceproperty.com.au