Could I get a little advice about renting a commercial property as a tenant.

Hi all,

I know this is not the usual type of question in this forum ie from the view of a tenant but I wondered if I could get some advice about the things I should be asking when going into a lease with a commercial unit. I have never gone down this path before and I am scared of getting stung by inexperience.

I have just contacted a commercial solicitor under advise from my accountant and hopefully that will offer us the protection we need and they should hopefully ask all the right questions but in case they do not, would anyone be happy to highlight some of the things we should be asking?

Many thanks

Paul

 

First and foremost there is no tribunal to run to in commercial - the lease document is the instrument to which both parties are held.

Key items to address at a first stab, @Scott No Mates @Beano can further refine

- Increases, defined %, CPI, CPI + %?
- Ratchet clause
- Repairs and maintenance obligations on both parties, especially on fixed plant eg AC units
- Permitted uses and is change of use DA required
- Lease term and options
- Personal guarantee and bond/bank guarantee required
- Who holds bond/bank guarantee
- How guarantee is funded
- Outgoings paid by whom and split of outgoings
- Is lease structured to make tenant liable for special levies in a strata scheme
- Land tax paid by whom
- Rubbish/trade waste services to premises
- Power supply to premises
- Leasing incentives (rent free period, fitout contribution)
- Make good requirements (painting, removal of fitout, carpet replacement etc)
- Ongoing upkeep during tenancy eg is repainting every 3 years a requirement

 

@Paterson00 - To follow on from @DaveM,

• Lessor's mortgage consent fee - they will try to put this on you, push back as you don't care if it's mortgaged by the lessor it should be borne by them
• Lease registration cost, this is yours to pay if the lease requires to be registered
• Land tax - at most agree to land tax on a single holding basis ie so the threshold is applied in full against the property (if it is a strata unit, then this reduces your liability substantially
• Avoid a personal guarantee if possible (unless you have no assets)
• A bank guarantee is better than cash though it may cost a little annually in bank fees, it provides you more security in the knowledge that the lessor can't spend it at the casino.
• A cash Bond, if unavoidable request that OT be banked in a term deposit with the interest paid to your account (it's your money not theirs)
• Prefer to go for a gross lease rather than nett, this limits your exposure to increases in strata levies, special levies, insurance hikes etc and puts risk back to the owner

Lawyers are good for checking the agreement for compliance (as per the heads of agreement) but not for the negotiation of commercials.

 

Thanks guys. That will take a little time to digest and understand but I very much appreciate it. Scary waters to tread for the first time.

 

@Paterson00

Other things which may impact on your decision making process:

• Incentives (what can the lessor offer you in addition to the bare shell?) - this may take the form of rent free 5-20% of the lease value, fitout contribution (ie $$)
• Make good provisions (if the lessor has contributed to fitout, do they own it/is it yours/are you responsible to remove it/does it transfer to them at expiry of the lease)
• Options - window for exercising the option (usually 3-6 months out from expiry but differs on the length of the lease)
• Market rent reviews (try to avoid wherever possible), usually at the start of the new lease (option term) but may be mid-term if it is a longer lease
• How is the market rent review triggered?

 

How relevant are some of these tips in todays market may i ask?

We are hoping to lease a light industrial space in Perth. There is a very large glut of spaces on the market - though looking at some of the prices you would think it was pre-covid.

 

Don't worry, if you wanted to, you can royally screw the landlord now which is what half the commercial tenants are doing. Not sure why old thread is revived though.