Monthly Archives: November 2017

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Three things to consider (other than rent) when entering into a commercial lease with your Tenant

By | Commercial | No Comments
We delve into what Landlords should consider when entering into a commercial lease with a Tenant (other than rent)
Tenant
This one is obvious however the type of Tenant you Lease your property to can affect the rent achieved and even the potential sale price should you consider to sell. Demand for strong listed companies (or their subsidiaries) is very high, a building with a Bunnings for example is hot property. Is your Tenant a seasoned operator? Do they understand how to run a successful business and will they be long term? How do they want to structure their company and how does this affect you if they do not meet the requirements of the Lease or default? If you are uncertain on the Tenant but you still want to give them a go, it is important to mitigate your exposure by having guarantees or increased security deposits for example.
Lease Term and options
This depends on your strategy and the type of property, is a sale on the horizon, is it a long term family asset etc? The strategy of a long lease may not always be the best solution especially if you do not account appropriate rent reviews, or say for the example of a shopping centre if the presentation of the Tenant is low and this brings down the perception of quality for the rest of the Tenants. Allowing an appropriate length of Lease allows you to control your property which can be critical.
Rent reviews
Keeping rent at or above market levels is one of the basics of a having an investment. No one wants an underperforming asset and one way a property underperforms is by not allowing for high enough rent reviews. The amount of rent review varies from property to property, as does when to allow for market reviews. For example an outer suburban property would not command as high an annual rent review as most comparable city properties. However if you have negotiated a higher annual review than market, you would not want to allow for an early market review as it would be unlikely that the market rent would be higher than your rent with increases, assuming your initial rent was at or above market.
The above gives you a glimpse of the intricacies of a commercial lease and what a Landlord should consider when renting. Please feel free to contact our office should you wish to discuss further.