CIP - Lease query

We are currently in the process of purchasing our first CIP and have a couple of queries that we would like your opinions on. Have had a look through a lot of old posts and haven't found anything similar.

We will also be discussing each of them with a Commercial Property Lawyer.

1) The tenants are currently paying less than what the lease agreement states - this has verbally been agreed between the current landlord and the tenant. What are the consequences of this on the lease agreement - are they in default or would the lease agreement not be applicable now?

2) The lease finishes in 1 year at which point there is a 5 year option - if the tenant wishes to take up the option they must do so between 6 and 3 months before the end of the current lease. There is a market review of the lease at this time as well. We would be happy for the tenant to not take up this 5 year option, do we need to advise them of the timeframe in which they need to renew or can we just sit back and hope they either want to move out and not renew or miss the timeframe in which they are meant to renew?

We have a copy of the lease agreement and it looks pretty standard for WA.

Any feedback would be appreciated.
 
I don't know about WA, but in Victoria, in relation to (2), you cannot refuse an exercise of a lease option unless there has been a history of defaults by the tenant.

Regarding (1), a verbal agreement doesn't really mean anything unless it's in writing. I would say that you are entitled to recover the full amount of the rent, especially if no consideration was given for the rental reduction.
 
Thanks for the quick reply Saber,

In regards to point 2 we wouldn't be planning on refusing the renewal if they took up the option but if they missed the timeframe in which they are meant to renew then we would.
 
The tenants are currently paying less than what the lease agreement states - this has verbally been agreed between the current landlord and the tenant. What are the consequences of this on the lease agreement - are they in default or would the lease agreement not be applicable now?


Easily dealt with in many ways using the waiver / variation and entire agreement clauses.


The lease finishes in 1 year at which point there is a 5 year option - if the tenant wishes to take up the option they must do so between 6 and 3 months before the end of the current lease. There is a market review of the lease at this time as well. We would be happy for the tenant to not take up this 5 year option, do we need to advise them of the timeframe in which they need to renew or can we just sit back and hope they either want to move out and not renew or miss the timeframe in which they are meant to renew?


As the Landlord, you are not obligated to remind them of anything.
 
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We are currently in the process of purchasing our first CIP and have a couple of queries that we would like your opinions on. Have had a look through a lot of old posts and haven't found anything similar.

We will also be discussing each of them with a Commercial Property Lawyer.

1) The tenants are currently paying less than what the lease agreement states - this has verbally been agreed between the current landlord and the tenant. What are the consequences of this on the lease agreement - are they in default or would the lease agreement not be applicable now?

They are not in default to you so there is not much that you can do in this respect. Just make it clear that you will be buying on the proviso that the terms of the Lease will be adhered to. Alternatively, tell the REA that you based your offer on yield as worked out from the Lease, and if you were to get less income, you will have to adjust your price (southward)

2) The lease finishes in 1 year at which point there is a 5 year option - if the tenant wishes to take up the option they must do so between 6 and 3 months before the end of the current lease. There is a market review of the lease at this time as well. We would be happy for the tenant to not take up this 5 year option, do we need to advise them of the timeframe in which they need to renew or can we just sit back and hope they either want to move out and not renew or miss the timeframe in which they are meant to renew?

We have a copy of the lease agreement and it looks pretty standard for WA.

Theres no such beast as a "standard commercial Lease...it all depends upon who wrote it and who they were writing it for"

Any feedback would be appreciated.

Care to post up a copy of the Lease...?you never know, someone here might give you some handy hints...would understand if you were not comfortable in doing so, the REA might not like it too much either...

Boods
 
Definitely don't remind them of the option. don't remind them of anything. You know if you do this you also give them more time to shop around even if you are planning on keeping them.

If it hits 3 months prior to lease expiry and you haven't heard you should be good. The only other way is if you keep issuing them with defaults etc now if they are actually in arrears you may be able to deny them of their option (this method opens a real can of worms so make sure you get proper legal advice if you go down this path).
 
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