What is a standard bond for commercial leases?

My dad owns a commercial premises and rents it to my brother who runs his business out of it. For the last 3 years they have been working off a handshake deal when it comes to rental terms. But now that my dad is looking to sell the premises we are getting a lease made up to make everything official for the sale.

The one tricky point im encountering is the selling agent and our solicitor telling me that 2 months bond is standard, and doing less could be seen as liability for anyone looking to buy.
On the other hand my brother only wants to pay 1 months bond and is not keen to compromise on this point.

the questions I have are
- Is it usual to allow one months bond on commercial property, and what would be standard in the industry?
- How would a low bond be perceived by a buyer?

 

If I was looking to buy the property I would want longer than a month. Even two months is on the skinny side. As the purchaser I'd want a minimum 3 months plus GST bond, by way of cash or bank guarantee.

 

Bond is usually determined by lease length. For a 5 + 5 + 5 mine are normally a 3mth bank guarantee

 

There is no "normal" and the willingness of the two parties and the area they are renting etc will have its "norms". Some places where there is one owner and a large number of factory units can have small bonds as may a suburban strip of shops with high vacancy where Westfield, Stockland, AMP and QIC can be ruthless with wanting months of bond / guarantee. And if you miss a due date they can lock you out and impose massive fees. They can also have nasty make good clauses and fitout schedules using their contractors who are a rip off.

You could use a commitment bond ie a promise to pay eg one month cash + commitment to pay one week more each quarter so that within 2 years the bond is three months. The cash bond is then progressively increased. Perhaps get guidance from a commercial agent on whats expected in your area. You dont want it too high or too low.

Bonds: everything you need to know… | Small Business Commissioner

 

Make good is back to a shell, that is neither harsh nor unconscionable. Basically, they don't want your crap and be left with a liability or any grey areas when it comes to the replacement tenant arguing over make good.

They do require that base services are modified by their base building contractors to ensure a specific standard (dang expensive ), that the contractor is aware of the standards expected.

In most instances a tenant has a four week fit out period - if you haven't negotiated adequate time for DA/CC, design, tendering, fabrication & installation it is not their problem, they want rent, footfall & trading shops. Empty hoardings don't pay the freight.

 

1) Not normal. 3 months gross rent including GST is normal for smaller premises
2) Increased risk = will require higher return/cap rate = lower price achieved