Leased before the property is developed

[bonanzawealth]

Hi guys,

This is my first post in this forum. I have learnt a vast amount of knowledge in regards to CIP here in this forum just by reading your posts. Thank You for that!

I was wondering how a developer can legally secure a tenant before they actually develop the property? Let's say you want to build a small shopping center and you want anchor tenant like Aldi, Coles, Woolworth etc. and of course some small start up businesses like cafes and retails.

I know that the developer would contact these potential tenants and let's say at this stage the developer has not yet build anything. My question is revolved around what sort of legally binding agreement that they use to get the tenant commitment to lease their property when the property is developed?

Would a standard lease contract suffice even the property not yet developed? What if during the development process, the tenant change their mind and perhaps would like to fallback from leasing the property?

cheers!

 

[Aaron_C]

Security deposit...

 

[SB25]

The scenario you describe is a pretty stock-standard pre-commitment and is probably best described as the CRE version of "selling off the plan". As Aaron said there would be a deposit in place and binding documentation executed, either through heads of agreement or letters of offer/intent. Usually the lease agreement would come into effect on handover/commencement date.

If the tenant did back out they might not only lose their deposit but could possibly be sued for specific performance, ie the full value of the lease or the shortfall in rental if a new tenant is found at a lower rent. Note these aren't always definite outcomes but are possibilities.

In the case of a major retail anchor tenant they will also have critical points - ie it must be delivered by X date, specialty occupancy of Y % upon opening and Z % within a certain timeframe otherwise they only pay nominal rent etc etc.

 

[RPI]

Both a heads of agreement and a letter of intent have been found to be binding on parties in Court.

 

[John M]

AFL (Agreement for Lease) contracts are commonly used in NSW for pre-lease commitments.