VIC Lease a house to a business

Hey guys,

Are there any gotcha(s) I should take into account if I lease a house to a business for them to use it as an office?

Right now the house is leased as regular residential agreement and the tenant is leaving.
I guess the new contact will be a commercial contract rather then residential one.

Apart from letting the insurance know, are there any other things I should know?

Cheers

 

Application to council for change of use?/
Planning approvals.
Solicitor to draw up commercial letting agreement.
Insurance.
Fire.
etc etc etc
I hope this helps

 

Calling @Beano @Scott No Mates
Commercial leases are different, they are usually multiple years with options to extend (And conditions regarding when the option needs to be exercised), they are usually drawn up by a solicitor (think it was a requirement, it's been a while), you can throw in things like director(s) guarantee and all sorts (like the tenant is responsible for land tax, rates, entire water bill, all repairs and maint, but these are usually for industrial/larger retail).
In the case of a house, well it would prob be simiar to the old resi agreement, hopefully with a higher rental return......

 

Are you sure they want to use it for commercial purposes? I have had business's take residential leases on my IPs for various reasons - to house staff etc which meant that it could still be a residential lease.

 

Why would the council care if a property is used by a family or by 2 people who sits on computers and file stuff?
It's not going to become a business with people going in and out.

Thanx @Stoffo
I'm aware that commercial leases can have a whole lot of provisions that can make life easier then resi agreement.
However, in this case, I wouldn't mind to have the same terms as the resi has (same rent, I pay for rates and stuff).
While at the same time, it won't be multi year contact and no automatic renew of contract.
I will go year-by-year with renewal review every year.

The reality is that this is exactly what's going to happen.
So in your case, what type of agreement do you have with those businesses?
I guess it's not the usual resi, as you have nothing to do with the people who actually reside in the house, they are basically sublet.
Did you just sign a commercial agreement with them?

 

Sorry, I misread this.
So you effectively signed a resi with the company as the tenant and they sublet?

 

I used to have a tenant wanted to use my IP (residential) as a homeopathy practice. She said it was only for private clients but need council approval to put a sign at the front. The property has a big shed at the back the ex-owner used it as an office/band room. She applied to the local council and her wish was granted. However, the council asked the owner (me) to upgrade the shed so that it was fit for the practice purpose. I object to the approval saying it was a residential lease, not commercial. The council said the approval was based on the application, not the lease.

Anyway, I then realise, according to the council, the shed was not a certified structure. I have to pay for a professional to certify it and put on the council record as a legal structure. Quite a hassle and a few dollars spent.

Now I put into my rental contract a strictly residential purpose clause and exclusively no commercial activities conducted on the premises.

 

I had a standard residential lease with a business as the applicant/tenant. It was no business of mine if they charged rent to the people living there or if that was included in their wages etc

It is no different to renting a house out to a charity, immigration service, disability service, government department. All can be done on a residential lease providing the usage is for residential accommodation.

What do you need to know?
- might be difficult to get a rental history but this might not be the first time they have done this
- make sure that it doesn't contravene anything on your landlord insurance
- make sure it's a residential lease for residential purposes - working from home and a home office are generally allowed but nothing more.

PS Council do care if you rent your property out for non residential accomodation because it needs to be a permitted use in the town planning scheme. Permission must be granted for uses outside of it's residential and associated uses.

 

An alternative may be a license to occupy rather than a lease. There is no exclusivity with a license and they would not be considered a tenant.

I suggest you seek legal advice to ensure you are engaging with the other party correctly.

 

Do you mean a company? A business is a thing someone does not an entity.

 

If it's for residential purposes just use the standard form tenancy agreement.

If it's going to be business premises,then a standard form commercial lease will do so you can specify any required compliance matters be dealt with by the occupants eg exit and emergency lighting, services usage, annual fire safety statement, accessibility matters etc.

 

Great info guys!
Thanx.

I wiser now, but now I'm not sure which way to go...

The lessee is going to be a company.
However, the purpose or rather the use of the premise is kinda mixed; I believe one of the employees is going to live there (may be casual, not necessarily every day.
They will also use the house as an office, quite sure it can be defined as home office. It's not going to be a client facing office, so basically just usual office work.

That's an interesting take. But I think they would like to be able to let someone live there.

To make it a bit clearer, I'll provide some background info that might shade light on the property and the person who's going to be leasing from me;
The property is a semi-rual acreage property which has a house, 2 big machinery sheds and big farmland.

The sheds and land are leased to a guy. We will call him A.
He's running a manufacturing business from the sheds, with proper permit and run another agriculture business on the land.
That's all sorted out.

The house is currently leased on resi lease to one of his guys, we call him B (the lease is with B himself, nothing to do with A's business [A actually paid the lease, but that's between them]).
Now B needs to leave.

A prefer to have the house leased to him so he won't have to deal with tenants that complain about the work in the sheds and stuff (the contact I have with him on the sheds clearly state that he has to make sure their quite enjoyment has to be respected).

A came to me today and said he'll take the house. As in the company he owns will.
He said he needed an office anyway and instead of putting a portable on the land, the house will be perfect.
There will be no signage on the house (all signs and people who are coming will be at the sheds, where a proper insurance is set - both mine and his - for public liability and stuff)
He did mention one of his guys might wanna live there while he works, but I'm not sure it'll be a full on tenancy.

From most of the info you've provided here, it seems I'd better sign a resi contact with A's company as tenant.
Since it's going to be "home office" at most, I don't need anything special from the council.
Work with the insurance to make sure they are on top of what's going on there.

And then Bob's my uncle?
Sounds about right?

 

I reckon that's the closer setup to mine.

As mentioned above, we're in bed already, so I know it's good tenancy.

That's for sure. After I get the right agreement, I'll check with the insurance how we go about it.

What will be "more" then home office? Do you mean clients coming in and out, providing services in the premise? More traffic?

Do I care if someone sleep there at night or only comes in the morning, makes coffee and file 3 papers?
I mean from a council point of view?

 

Could be a fringe benefit and/or a division 7A issue.

 

That's not @Ronen's problem.

A residential lease will do the job just like now.

 

Thanx mate.
And the rest who replied.
Makes total sense.

 

Non arms length arrangement could see deductions denied. Zets assume thats OK.
Land tax issues shouldnt change. Still taxable.
Council can have issues if home is a place of business. More likley for having people in, parking, storage of goods, warehousing etc.
There can also be ripple effects when you allow a small busienss operator to run a business from rental. Next thing the garage is a warehouse and they have a crew of workers upsetting neighbours etc. You should impose some conditions on what USE the premises have. eg The tenant needs to obtain council permits for the site prior to operating any busienss activity. Make good clauses ? Rubbish ?

Your rent sounds like 100% commercial rent . You need a ABN. Assuming annual lease is under $75K no GST. However if it was GST would apply for a lease to a trading entity. The fact it is resi premsies has no effect. We see this with consulting rooms in a old house leased to a doctor etc . The USE of the property is commercial. Its not being USED for residential rents when leased to a enterprise.

 

If that's the case and can't be considered anything else,then vary the existing business lease to include the house. Tenant becomes responsible for everything under the lease.

It may then require registration for GST if you aren't already and your costs varied accordingly (not a straight 10% increase).

 

As mentioned, it will be used for (casual?) living and home office.
To be completely honest - I reckon they lease the house from me cause they don't want resi tenants next to their main operation at the sheds whinging and whining.
They prefer to shell the additional $550 PW and have somewhere to be able to do accounting and order management (paperwork wise) cause the whole lease is by far cheaper than anything else he could find.

There will be no additional "effects" of this part of the property, since the main business is done on other part of the property and it has a permit.

There are no nearby neighbours, and those who are in the vicinity - has similar agriculture setups, so no one complains.

It a win-win type of lease.
I'm getting as much as I wanted (I know I could get more, but I prefer good renter than just good money)
He's paying what I estimate as 50% of similar properties.

I checked with my accountant. I can't really have ABN for this. Cause it's resi property.

I actually reckons you're previous post makes more sense.
I'm doing resi agreement with the company.
They use the house the way they see fit. By that I mean they can allow their employee to live there (sublet) or put 2 computers and filing cabinet and coffee machine and use it to go to toilet during the day.
What do I, or anyone else care?

Do we have any say if a resi tenant of ours rent a place from us, but then lives with their girlfriend and only comes to the property during the day using it as his home office?
Given he's not "conducting business" from the premise (no clients, no signage, no manufacturing)
I reckon that's the case here.

 

I can see merit in both options and can understand @Terry_w comments as well.

The commercial route might be slightly more advantageous as you can recover the entire water services charges however for the additional hassles of recording GST if you're not already registered can be an added burden.