A real estate property investment can produce cash flow in many ways, the most common is by renting or leasing the property. When real estate property is leased the tenant need to abide by contract, which locks them in a period of time they agree to occupy the property. This is wonderful for the real estate property investor since it make it easier to project future cash flows. However there are times when the tenant decides to leave the contract preemptively.
After some time in commercial real estate property space, you will find some tenants might have valid reasons for cancellation of their lease. Common causes are:
A. The company grew faster than expected and needs more space
B. It needs a better place because of a change in the direction of your company or client needs
C. The company is in decline, and it requires a lower payment, or want you just to close its business, or both.
D. dissatisfaction with the owner or administrator.
If the tenant move, because the company needed more space or a better location they may be able to transfer its current space. The advantage is that normally it is a quick process, requiring no extra cost to them. The disadvantage is that they are still ultimately responsible for the rent of the tenants. Investigate possibilities and conditions of the licensed premises. The sublease is also a possible solution, if things are going badly for the tenant and they need capital to reduce debt.
If they upgrade to a more expensive area or, more space, they might try persuade you (the owner) that they are getting a more expensive space in order to to rent a larger room and in order to meet their needs. They can earn more capital, and the other space can be rented to another company. This works best when it comes to large real estate property management companies, which have more more to offer; if this is your situation then this might be a sensible solution. They can leave a bid for the remainder of the contract with a single payment.
The sooner they return to the owner leased space, the lower the lump sum payment. The advantage of this approach is that they can move to their new location, without regret. The downside to the tenant is that the lump sum is held by the leasing agent, and if the leasing agent does not works hard to lease then the law can intervene. Keep in mind the the value of a real estate property investment that is occupied is higher than one that is not.
You real estate property investment is your source of cash, therefore it wise to be reasonable when this situations arise. In one hand to need to fight hard for your investment and rights. In the other hand it is important to look at things from a human perspective. Another point of interest is that if a tenant nees or wants to leave the contract prematurely, they eventually will; if their reasons are justified, it might be better to give them a break and keep a strong relationship with the tenant, which might be benefitial for future references. Afterall a real estate property investment is only good if there are tenant to rent to, when things are going well a good relationship with a prior tenant might not seem that important, but when things are touch this might be your best tactic to stay profitable.