Leasing commercial property is a little different to residential. This guide walks you through some of the key things ot be aware of.
Total occupancy cost
One of the first things that you will want to get a gauge on to begin with is what will be the total occupancy cost?. Is the rent inclusive of the landlord’s operating costs of owning the property, or do you have to pay the landlord’s outgoings which may include land tax, council rates and water connection rates?
For example, you might be paying rent of $50,000 a year but you might have further operating costs or outgoings of another $30,000 a year.
This is something you will want to know in advance, you need to know whether you’re getting into a gross rental deal or net rental deal so you can know your total occupancy
costs and project that forward and understand for the life of the lease how much it will cost you to be there.
Another thing to look out for are escalation clauses. The lease will likely be increased annually on the anniversary date by a percentage. That can be as little as CPI which varies. Or the landlord might try to secure a fixed rate of between 3% – 5%.
Your rent is likely to go up annually so it’s very smart to project that out in advance in terms of the cash flow and see what your costs are going to be and what you will be paying each year.
It is possible to negotiate incentives like rent-free periods by offering the landlord a long-term lease but you should be careful. If you’re going in to get the cheapest possible rent, the landlord will be less likely to build you any office space or provide you with any extra incentive to be there.
Fit-outs are usually done at the tenant’s expense unless of course, the tenant might be offering the landlord the opportunity of long term lease.
Tenants should also be mindful of the make-good clause in the lease.
You might see changes to the property as an improvement, but to the landlord, they’re not worth anything. A standard make-good clause ensures you return the place to the condition it was in when you took over the premises.
Commercial leases can be very much written by the landlord and there is no industry standard, so make sure you read the conditions of your lease carefully.
Retail leases have a bit more protection in them but a commercial lease might have things where you have to repaint and recarpet before you leave.
To get the best deal, look around. Speak to commercial agents to see what the going market rents are for the premises you are looking at. Seriously evaluate each propert you are looking at because each property will be different and offer different things to your business.
That also means evaluating what’s important for the business, such as exposure or parking. Some businesses go into a place and realise they don’t have enough parking and their business is in a lot of trouble.
Another important thing to evaluate as part of the commercial lease is the council zoning.
The means prospective tenants need to look at the council website, the planning documents and speak to the duty planner. And remember, it’s not the responsibility of the landlord or real estate agent to pass this information on.