Allen Matkins University: Lease Due Diligence in Acquisitions

Rent and operating expense recoveries are the main sources of income for a commercial building owner. That is why due diligence of leases is imperative when when purchasing a commercial property. Due diligence usually happens before the purchaser of the property goes none refundable with their deposit money, and is an important element of underwriting a commercial building. The key provisions of every lease that have material economic impact should be identified and assessed. Included in these are: rental rates, unexpired rights to expand, renewal rights, reimbursement to tenants for improvements, Proposition 13 impacts and rights to terminate.