An occupied commercial property can generate income from day one, but the existing leases and tenant relationships become part of the investment. Taking time to review them before closing can help you better understand the property’s financial outlook and the responsibilities that come with ownership. Here are the key areas to examine.
Review the existing lease agreements
The lease agreements define the rights and responsibilities that transfer to you when you purchase the property. They also determine how the property generates income and what obligations you assume as the new owner.
Review the following parts of each lease:
- Lease term
- Renewal options
- Rent amounts
- Maintenance responsibilities
Under Louisiana’s commercial lease laws, landlords and tenants can reasonably negotiate existing terms. As a result, each agreement may contain provisions that affect how you manage the property after closing.
Evaluate the tenant mix and occupancy
The businesses already leasing the property can influence how the investment performs over time. Reliable tenants with established operations often provide more stable rental income than spaces that frequently change occupants.
Pay close attention to:
- Occupancy rates
- How long tenants have been in the building
- When leases expire
If several leases end around the same time, you could face multiple vacancies at once. You should also consider whether the mix of businesses supports the property’s long-term appeal to customers and future tenants.
Confirm the property’s financial records
The property’s income should match what the leases promise. Reviewing rent rolls, payment histories and operating expenses can help you verify that the numbers reflect the property’s actual performance.
As you compare those records, look for:
- Unpaid balances
- Inconsistent rent payments
- Differences between the lease agreements and the reported income
Identifying these issues before closing gives you a better understanding of the property’s current condition and whether it meets your investment goals.
Start your investment with fewer surprises
Taking time to evaluate the property’s leases, tenants and income before closing helps you decide whether the investment fits your goals and expectations. It also gives you the chance to spot concerns while you still have options to address them during the transaction.
An attorney can review the leases, tenant obligations and property records with you. They can explain how specific provisions may affect your ownership and help you resolve potential issues before you take ownership.