Tenant of a member of parliament

I believe the leases for MP offices are centrally managed. Its not unusual that a new elected member will take on the former members lease as a matter of convenience (they also may take on the former admin staff who are experienced). I would think the lease itself needs to be considered and there may be merits of it being funded from treasury funds. One downside is they do tend to often find cheapie offices but they are usually conveniently located. And consider who the person is eg I would think a long term lease by Daniel Andrews is a risk but if the lease is with Vic Treasury it wont matter who the member is. And if its a 4 year lease its still a 4 year lease no matter if they win or lose

 

Hi

I have leased an office to a member of state parliament here in Victoria. The lease is with the "Parliament of Victoria". The member of parliament has very little to do with the office other than approving the location I believe, and then the State Parliaments property department takes over, liaises with landlords, make payments etc. They came in initially and found a long list of flaws and compliance issues that required rectification, ramp access, auto opening doors for handicapped etc.

They provide a lease that is written by their own lawyers and there is little to no room for negotiation on the terms offered. They spent and I'm guessing about $80,000 on fit out and security and as per the terms of the lease there is no "make good clause" and they can move out and leave it as is without removing the fit out. They were insistent that it is a 4 year lease with 2 x 4 year options so a maximum term at signing of 12 years if they wish. There was a relocation, get out clause in the event the member loses his seat.

Generally they have been a very good tenant for the past ten years having taken up both 4 year options. They have now advised they will be leaving at the end of the 12 years. They are very good payers, generally paying 10 to 15 days before the funds are due. They negotiate very hard at market reviews and the leases are gross lease with rent paid by them being inclusive of rates, insurance and most other outgoings etc.

They can be a hard tenant, but fair, they know every rule and they know their leases.

I have had no regrets leasing to them, would lease to them again, but they are no pot of gold.

Hope that helps.

 

Really helpful insight. If you don't mind sharing, what was the reason why the lease was not renegotiated? Did they decided on another location?

What sort of exit clauses do they have in the leases?

 

Hi

They dont give reasons, they just say not looking to extend beyond current term.


Regarding the exit clauses and I'm going from memory here as I recall questioning them on it, in the event the member resigns or loses his seat the relevant department can provide one months notice to the landlord and walk with no further obligations. The clause was non negotiable, and I am paraphrasing there words here, "its in the lease or you get no lease however we are not spending all this money to vacate in 6 months". So it was one of those clauses that was in there in case they needed it but was very, very rarely used, I believe the property department would try and get the new member to take the old premises/office (to save money) but in the event it wasn't suitable they had an out.

 

The exit clause sounds pretty harsh, they are not secure as a tenant I thought them out to be lol.

Have you managed to lease your commercial property since them vacating?

If yes, how long did it took and were you able to get the same amount of rent from the new tenant or was it lower?

I noticed that parliament of Victoria tend to pay slightly higher than market rent but am happy to be corrected.

Thanks.

 

The exit clause is potentially very harsh I agree, but it wouldn't bother me if offered a new lease by Parliament on another property, they spend so much on the fit out and security they won't walk on a whim. Based on my experience would I deal with them on another property again, yes absolutely. Would I pay a premium to buy a premise with them as a tenant though, NO.

They haven't vacated they have only advised that when the lease runs out in 2022 they are not extending.

They are not paying over market in my opinion. The leases they sign are a gross lease so I as the landlord have to pay the outgoings, the council rates, insurance. After I pay all the outs I would consider it a fair market rent. Other properties may be different though, I only have a sample size of one to draw my conclusions on.

 

Makes sense. What sort of net yield will you pay or expect if you were to purchase another property with this tenant in place to ensure that you are not paying a premium for it?

 

I couldn't really answer that, it would depend on comparable rents relevant to the area at that time.

I wrote up my last purchase a few years ago and have been dormant since as I'm pretty much capped out since the Royal Commission and just consolidating my portfolio and doing some minor renovations. The current one that is tenanted by Parliament is probably around a 2.5% yield based on current valuation as the site is a development site now with potential for multi story apartment. But as per the one below I'd like a 7 or 8% yield as a minimum and I spread myself around to minimise the ever increasing burden of state land tax.


Recent commercial deal in Hobart

 

are there REIT's currently providing 7% net return at the moment?

15% p.a. net is not something i have seen for commercial properties unfortuntely

 

No negotiation.
Break the lease when they want.
Use their own contract, rather than standard law society or real estate leases.

We should call this what it is. Unconscionable Conduct, where a stronger party over dominates a weaker party.
In simple terms, commercial bullies. Except the thing is, it's illegal, as promoted by the ACCC, see Unconscionable conduct
One rule for us, another for them.

But no surprises here.
Biggest land thief in the country - state governments
Biggest thief of intellectual property in the country - government
Greatest abuser of commercial terms in contracts - government

But they pay, they always pay.
So i will roll and beg for their contracts and leases any day.
Just know the beast you are up against.

 

my thoughts too. they will always pay as long as you listen to them

 

I wouldn't hold those two forms of lease as shining examples and try to avoid them wherever possible too.