PM contract for commercial property VIC

Hi everyone,

I would like to seek everyone's opinion regarding PM for commercial property.

I have just leased out a commercial property under 5+5 terms. Our current PM is asking us to sign a management contract for the property for the next 5 years.

Is the term the PM is asking of 5 years normal? I don't have any experience with commercial property, nor with this agency and therefore not very comfortable being locked in to a long term contract with the PM.

Another thing is regarding rent received. Contract for the lease states that rent should be received on or before the 1st date of every month. The PM has still not forwarded the 1st month's rent after 2 weeks. Is this normal, considering that this is the 1st month.

Many thanks

 

5 year management is excessive, 12 months with ability to terminate with 60 days notice.

Also re first months rent, how were the leasing costs paid? Typically agents take their leasing fee from the forward rent received

 

Hi @DaveM,

Thanks for the advise, we also think that 5 years contract is excessive.

I should correct my sentence to '1st month that I should receive rent'.

Lease started 2 months ago. The leasing cost was already deducted from the full first month's rent + part of the 2nd month's rent. This balance of the 2nd month's rent has not been passed on to us. ( Our PM has confirmed that he has received the rent, but he has not forwarded it to us )

 

No to 5 years, 12 month ok
30 days notice
They will still expect management fees if there was any rent free period
Their management period can commence month 3 as they have no instructions or right to fees until you have a signed agreement in place.

 

Didn't realize that management fee is charged during rent-free period

Is there anything I should be wary of in a contract? Or perhaps some tips on what I should negotiate with the PM?

 

The fee should be lower than residential in most cases, they're only handling one payment per month.
charges will generally be for all rent & outgoings collected
watch that they don't charge gst on top of gst on the expenses
Water attracts gst when you charge the tenant (this is a supply not directly to the tenant). Ensure that the agent bills the tenant + gst for water services.

 

Was this new lease created by a Solicitor, or is it just a generic Victorian Commercial Lease drawn up via the PM?

It appears (also reading your other thread) that the lease is all signed up, and what is written now is set in stone for the next 5 years.

Does the tenant pay all outgoings? If yes, you may be able to charge the PM fees back to the tenant to protect your net earnings from the property depending on the wording. If this is the case, and you're not confident in your ability, this would be the way to go. You do risk the tenant being put off guard by this move, however the protection of the clauses will dictate what can and cant be done.

If the tenant does not pay outgoings, then these fees will come out of your net rent, and it may be better for you to take on the management to keep your net rent. Does the lease have rent increases that might make the PM viable if you are not confident in your ability and soak up the costs?


Commercial all comes down to the lease.


pinkboy

 

@pinkboy ,

Lease is created by solicitor (I will certainly take a look at wording in the contract, now that you have mentioned this). Currently a 3.5% increase per annum is in our contract.

 

Even if you have the tenants paying outgoings, I would still only have the property management on 1yr term with 30-60 day termination (to be renewed 30-60 days prior to following year). Gives you flexibility. Commercial is all about negotiating.

pinkboy

 

Yes, I must agree with you on the terms.
As I've previously said, I am terrible at negotiations.

 

Hi everyone,

Just an update. This is the 3rd month that I have not received rent on time. Contract states on, or before the 1st of every month. I have given leeway for Christmas and New Years, but I still have not received rent for this month until now.

I have still not signed the management contract until now, hoping the PM can be organized with payments so I can feel rest assured for the next 12 months. I am hoping that they step up soon, but in meantime will need a backup plan. Does anyone know any good PM for commercial property in South Yarra?

 

Hi @Adele

Just wondering whether the agent's trust account ledger for your property would show rent coming in on time and agent sitting on it for longer than necessary. Might be worth asking to see it.... together with records showing what they did to immediately action any rent that was paid late by the tenant.

 

Is there anything in the lease on what happens if rent is not paid on time? Just to clarify, is this retail or commercial lease? What have you been doing so far when the rent is late?

I don't know a good agent in South Yarra, but you could check realcommercial and look for prominent agents in the South Yarra area.

 

Hi @JacM

I don't think it is the tenant that is late with payment, as I received an e-mail from PM last week saying that they will deposit the rent last Friday. I still have yet to receive it.

@S.T

It is a commercial lease, and to clarify again, I don't think it is the tenant that is paying late.

 

Complain to the principal of the agency about tardiness of payments by the agency to landlord

 

Thanks @JacM,

Managed to contact the PM. Turns out it is the tenant
Told the PM of my concerns, hopefully this will not be a monthly occurence

 

Ah well at least communication with the PM is clear