You find a commercial building with tenants who already pay rent. That income might help cover your mortgage. But what if one tenant pays less than you expected or plans to stay for years? You want to know whether you can change the terms or use the space yourself.
Buying a commercial building generally does not end its existing leases. You collect rent as the new landlord, but you also take on duties under those agreements. The lease terms and the law set limits on what you can change.
Existing leases can limit your plans
Suppose a shop pays $1,500 a month and has two years left on its lease. The sale alone does not let you raise that rent or end the lease early. Any right to do either depends on the lease and the law.
A tenant may also have the right to renew when the current term ends. If you hope to move your own business into that space, the renewal right affects when you can use it. Reading each lease and any signed changes helps you plan around those rights.
How rent and deposits change hands
The sale raises another issue: who receives rent for the month you buy? Suppose the seller collected the full month’s rent, but you close halfway through the month. Your purchase contract typically gives you a credit for your share. It might also address past-due rent.
Tenants give landlords security deposits in case they fail to pay rent or damage the property. At closing, the seller could pass those funds to you or give you a credit for them. The closing papers explain how you and the seller handle the deposits. Your duties to tenants still depend on the leases and the law.
Review the details before closing
You may want to compare each lease with the seller’s rent records. It also helps to plan how you will tell tenants where to send rent and whom to contact about repairs. This review gives you a better idea of the income and duties that come with your property purchase.