The purchase price is often a reflection of the lease rental.
Therefore the following is important:
- The calibre of the tenant. If the tenant collapses and the lease folds - you have an empty building.
- The current term of the lease. Beware the tenant might not exercise any rights of renewal.
- If the current rental is more than market rental then:
- The tenant may not renew the lease without prior negotiation as to a rent reduction.
- The tenant could approach you during the term of the lease for a rent reduction on the basis that it is not making enough money to pay the rent. Although there is no legal obligation to do so you may find that it is preferable to make a commercial decision such as agreeing to a reduction of rent in exchange for a longer term or other conditions.
- If the current rental is less than the market rental then you may have to consider whether it is commercially viable to increase the rental to market rental at the next rent review or whether to increase the rental slowly at each rent review until market rental is achieve. To assess what is the appropriate market rental for the building we suggest you engage the services of a registered valuer.
Before you sign seek advice from your registered valuer, your accountant and us.