Introduction to Commercial Property Leasing: Compare Total Rent, Lease Terms and Common Pitfalls
Leasing commercial retail or industrial property and moving a business or company to a new location should be an enjoyable and exciting new journey into the future. Commercial leasing is often seen as complex by the business owner/leasee/tenant. This article is intended to provide them with a basic introduction to commercial leasing and assistance in the management of their change of location.
Basics of commercial rent comparison.
When comparing commercial property for lease it is important to compare the total costs. Find out what is included in the price advertised. Many agents advertise a nett rent per square metre, consequently many prospective tenants use that rate to compare.
The problem is some properties are advertised for example as gross rents. Those rents are typically inclusive of many of the items (but not all) listed below. Gross rents are much closer to the total cost and a better basis to compare commercial rents.
It is difficult to calculate a gross rent backwards to a Nett rent. Instead it is more common to add extra costs to a nett rent, making it the equivalent gross rent to compare with other commercial properties you may be short listing.
If the price advertised is a Nett rent, just ask the owner/agent for a breakdown of the costs below. You can then calculate the total cost and also the gross rent.
In order to compare the total cost of commercial properties for rent, the following costs need to be identified;
i. GST (taxes).
ii. Outgoings, both fixed and variable,
iii. Parking bays,
v. license costs (if applicable),
vi. Bank guarantee amount,
vii. Legal costs,
viii, Management fee’s (if applicable), and,
ix. Deposit amount.
Sometimes the location, your budget, architecture, timing, parking and many other factors may impact your decision beyond pricing alone. If that is the case you should focus on the two remaining sub-headings.
Seek independent professional advice.
As with any legal document (the lease), you are encouraged to seek independent professional advise. you are encouraged to seek in relation to an any offer to lease or signing a lease.
1. Your Accountant with regards to such things as the tax implications and the provision of your trading history to support any commercial property application. A certificate of incorporation and directors details would also need to be provided if the lease is in the name of a corporate body.
2. Contact the local government authority to determine; A The current and your proposed permitted use of the property and any parking requirements with the Planning Department, and B Any additional government agencies such as The Health Department and/or Liquor Licensing that may specifically relate to your business, such as a cafe, restaurant or retailing liquor to mention a few.
3. Your Solicitor in relation to items such as the lease terms and conditions, the offer to lease, any specific details in relation to your business, prior to the offer you wish to make and before signing the final lease.
Take care with the final formalities listed below. They are often overlooked by the leasee/tenant. They result in delays just prior to the anticipated start date, causing them frustration as keys and access are not able to be provided.
A. Return and sign all copies of the lease (engross) on/before the proposed start/access date,
B. Supply of the original bank guarantee, (ensure you have the correct owners name), and,
C. Identification of all directors, supply of a certificate of incorporation and directors, if applicable.
Without the above items, legally no lease agreement exists and is the reason keys and access to the property can not be supplied.
Leasing commercial, retail or industrial property makes sound economic sense for many businesses. The capital outlay associated with ownership can be diverted and invested within the leasee’s/tenant’s business and facilitate any expansion, relocation or establishment at new premises.
comments, queries, questions, corrections and feedback welcomed, contact Nigel Samuels directly via email [email protected]