Selling a commercial property can be a complex and challenging process, especially if you have existing tenants who are affected by the change of ownership. As a seller, you want to ensure a smooth transition for your tenants, as well as for yourself and the buyer. Here are some tips on how to achieve this goal.
One of the most important steps in ensuring a smooth transition for tenants is to communicate with them early and often about the sale process. You should inform them about your intention to sell, the potential impact on their leases, the timeline and the expectations from the buyer. You should also address any questions or concerns they may have and reassure them that their rights and obligations will be respected. By keeping them in the loop, you can avoid surprises, conflicts and misunderstandings that could jeopardize the sale or damage your relationship with your tenants.
It is imperative to inform the tenant much in advance. Without putting a number of months, the landlord should assess and decide when they’d like to inform the tenant. Also, it is better to convey the news in-person. This gives both parties the opportunity to discuss matters at length, ask questions and seek solutions. Informing in advance also allows both sides to decide on whether they wish to continue the tenancy and/or on what terms.
Another key step in ensuring a smooth transition for tenants is to review your leases and contracts with them and the buyer. You should make sure that your leases are up to date, accurate and enforceable, and that they reflect the current market conditions and terms. You should also check for any clauses that may affect the sale, such as assignment, subletting, termination, renewal, rent adjustment, maintenance and repairs. You should disclose any relevant information to the buyer and negotiate any necessary changes or amendments with the tenants and the buyer. By reviewing your leases and contracts, you can avoid legal disputes, liabilities and delays that could affect the sale or the tenants' satisfaction.
A simple way to achieve this with the buyer is to provide them with the copy of the lease when giving them the Agreement for Sale and Purchase. At this stage, the buyer would seek independent legal advice on both agreements and make an informed decision. As for the tenant, it would be assumed that they signed the lease only after seeking legal advice. However, discussing matters in-person, would give them the opportunity to raise questions or remind them to revisit the lease provisions.
A third step in ensuring a smooth transition for tenants is to prepare your property and documents for the sale. You should conduct a thorough inspection and appraisal of your property and fix any issues or defects that could lower its value or attractiveness. You should also gather and organize all the documents related to your property and tenants, such as title deeds, tax records, insurance policies, utility bills, service contracts, tenant files, rent rolls and financial statements. You should provide the buyer with a due diligence package that contains all the relevant information and documents they need to evaluate and verify your property and tenants. By preparing your property and documents, you can facilitate the sale process and demonstrate your professionalism and transparency.
This is directly linked with communicating early (with the tenants). Most leases have provisions which limit the landlord’s access to the premises. The only written/unwritten exception to this is when the landlord needs to remedy a defect or “make good” any part of the property. Commercial properties with existing leases often give the buyer a scope to negotiate the purchase price. This is because the property would have depreciated due to regular wear and tear. As a landlord, this can be overcome by giving oneself enough time to repair the property, thereby presenting a well-maintained property to a potential buyer. It is common practice to provide the buyer with a full lease package and all documents that they would request for review.
A fourth step in ensuring a smooth transition for tenants is to coordinate with the buyer and the tenants during and after the sale. You should work with the buyer to agree on a closing date and a transfer of ownership that minimizes the disruption and inconvenience for the tenants. You should also inform the tenants about the new owner's contact details, policies and procedures, and introduce them to each other if possible. You should also assist the buyer and the tenants with any administrative or operational tasks, such as updating the leases, transferring the security deposits, switching the utilities and services, and handing over the keys and access codes. By coordinating with the buyer and the tenants, you can ensure a smooth handover and a positive impression.
A simple way to achieve this would be to pass on contact details of the buyer and tenant, to each other once the deal goes unconditional. This gives both parties the chance to get acquainted (if they wish as this is optional and not mandatory) until the closing date. The landlord’s main responsibility would be to carry out other operational tasks, the main one being switching the utilities and services which oftentimes gets left out.
A fifth step in ensuring a smooth transition for tenants is to seek professional advice and assistance from experts in commercial leasing and real estate. You should consult with a lawyer, an accountant, a broker, a property manager and other specialists who can help you with the legal, financial, marketing, management and technical aspects of the sale. You should also seek feedback and recommendations from your tenants, your peers and your network on how to improve your performance and service as a seller and a landlord. By seeking professional advice and assistance, you can benefit from their knowledge, experience and resources and avoid costly mistakes and oversights.
A final step in ensuring a smooth transition for tenants is to maintain a good rapport and reputation with them and the buyer. You should treat your tenants with respect, courtesy and gratitude, and acknowledge their contribution to your success and growth. You should also follow up with them and the buyer after the sale and offer your support and assistance if needed. You should also ask for their feedback and testimonials on your service and performance, and use them to improve your skills and credibility. By maintaining a good rapport and reputation, you can foster loyalty, trust and referrals among your tenants and the buyer, and enhance your reputation as a seller and a landlord.
The best way to achieve this is to make the transition process as smooth and seamless as possible, from your (the landlord’s) side. You as the landlord are the common link between the buyer and tenant. Answering questions, carrying out deal related tasks and keeping transparent communication are some of the few ways in which a buyer/tenant would remember you (the landlord) in good light.
In my experience, if you approach tenants once the property is under contract and let them know that an Estoppel will be needed prior to closing, those discussions will often result in a more complete understanding of the property as tenant will let you know if they are pleased or displeased with the current status of their lease, condition of the property and actions of the property manager. Not all of these conversations will be enjoyable but they will typically result in a better understanding and positioning of the property in the long run.