Hi All I have had a potential tenant approach me direct for my warehouse space and ask if i will pay for a fitout which would include a 6T crane. Currently the property is valued at circa 950k-1m and leases for 55k/pa which i believe is about 5k less than it could command if i opted to go to market and lease it out once the current tenant vacates mid year. I have made the tenant aware that I would be seeking 60k/pa (+gst) once put up for lease. They believe the fitout will cost circa 200k. I am yet to do any research however this seems a little bit high. Nonetheless, assuming I spend 200k on a fitout, What can I expect in terms of increasing the rent? Also, can a crane be considered add value? I presume depreciation will also be a benefit of this fitout.
What length of lease ? 10 year lease ? 5+5+5 ? What is their business? An overhead gantry crane, can this attach to the existing frame/structure or will it require columns (restricting use of ground level space) ?
capital works required may include: steel frame (crane cannot attach to current structure) footings (potential) crane electrical works permits engineering structural civil No discussion on length and value lease yet as it will be influenced by the fitout. What i can fairly request is what i would like to ascertain. Note: the tenant (neighbour) requesting this fitout is not the current tenant.
As a landlord, would they also potentially be eligible for the instant asset write off? I presume that would be dependant on the ownership structure...?
Hi. Can you please elaborate/clarify this? I am the landlord and they have requested I pay for their fitout. the current ownership structure is premises in owned in a trust.
further to this, what i am wondering is if i spend say 200k, can i reasonably charge 10% yield on this capital outlay? ie can i raise rent 20k? can i charge more than 10% because i am taking on the fitout risk?
The ownership structure is something that I do not know about, but a business buying capital may be eligible for the current incentives to either immediately write off the investment, or have an accelerated depreciation schedule. My question would be to the tax gurus about whether you would be eligible for this, and I would guess it depends on the ownership structure...
I would be expecting that the cost recovery over the term certain of the lease (the longer the lease, the lower the annual cost recovery). If they require a gantry, then they would need to submit full engineering and pay for engineering approvals, provide warranties on liability for damage, certification by Workcover etc. Will this be of benefit to you in the future? What is the life of a gantry? As a means of protection, I would also be seeking that the incentive is repaid if they seek to assign or dispose of the lease (sale of business), that you have the right to purchase the equipment for a peppercorn at the end of their tenure, teremination or default (but retain the rights to full make good). As you would not own the equipment, I don't believe that you could claim the investment allowances (don't quote me on that). Tenant would have to provide evidence that they had spent $200k + GST on fitout to get the incentive Bank guarantee or other security would need to be increased.
thanks for the reply ScottNM there are some good conditions in here. The tenant has requested that I pay for the fitout though which would include planning, certification and install. That said, is there a typical structure or cost recovery rule of thumb i could apply to the lease?
Pretty expensive for you - clearly it will take years to recoup $200K If you don't get this neighbour tenant, how difficult do you think it would be to get another tenant? Would the fitout and/or gantry help you in getting any other tenant? Apparently this tenant can't afford to purchase it themselves - are they moving "out" of next door or expanding? Might be interesting to talk to the existing landlord.
I am the landlord. The neighbour is looking to expand into my premises. I believe the space to be quite desirable. Near Dandenong bus depot.
I'd probably ask the tenant to pay for the fitout themselves and in exchange offer them slightly reduced rent.
I believe my property can command more rent on the open market in its current state than it is currently getting so I will definitely not be offering any discounts. This would also effect my ability to refinance.
You are the landlord for the proposed tenant already, ie the neighbouring property as well? I would have asked if they were OK in terms of paying the rent & disbursements at present.
I am the landlord of the subject property A. My Tenant in property A is vacating mid year. The neighbour in property B has inquired about leasing my property A to expand his business. He has inquired if I would pay for his fitout should he move into my property, A. Edit. The tenant of property B is an owner occupier if that makes any difference. Hope this clears things up!
So you are not B's existing landlord? Why don't you ask B's existing landlord? Do they have a gantry crane already at those premises?
Normally a warehouse is let as-is. And the crane etc is their cost to buy, install and REMOVE (make good) at the end of the lease. You cant depreciate it. It wont necessarily benefit your premises unless a similiar lease occurs in future. Fitouts are their issue. If you do consider it the extra lease should fully recover the cost PLUS a hefty margin PLUS GST in the sortest period of initial lease. If they are chasing cheap finance you arent the lender taking on the risk.
I suggest that you are going to have to spend some time verifying if a 200k fitout is indeed close to the mark. Once you establish some figures I imagine you will be in a stronger position to negotiate. A lot will depend on your skill negotiating really.
Tenant has withdrawn his offer in the end. The roof height is a touch too low for him. I think I would have passed on the offer anyway. Appreciate all the feedback and if anyone wants to rent a ~620 sqm warehouse in the centre of Dandenong let me know!
