Buying your first office space is more straightforward than renting it. The process can be tiring and confusing,and signing the maiden lease is bound to give you the jitters. To make it smooth and seamless, you must understand the leasing procedure, the legal obligations, preparation of the agreement, rent negotiations and much more. It will require taking advice from professionals and experts in the field to make sure you follow the regulations correctly. Thus, if you are planning to invest in commercial real etate in Australia, then you should be well-versed with leasing.
Since office spaces are quick to find tenants in our commercially viable country, it might not take you long before you will be shortlisting the prospective lessees. However, do not forget about the finer details in your quest to start earning a quick rental income. Here is what you need to consider when you are leasing a commercial property.
Consult A Professional
Since the commercial lease is a legal contract, you need professional assistance to prepare the agreement with all the required clauses. After both the parties sign the agreement, it becomes legally binding, and the tenant has to follow the terms and conditions. It defines the rights and obligations of both the landlord and the tenant. It also includes the rent amount to be paid and the information regarding the annual adjustments. Since the clauses are challenging to understand, you need the help of a lawyer to prepare the legal document and help you understand your rights and duties. Also, an office lease will be different from a retail lease. Thus, you cannot do it alone.
Decide the duration of the Lease
When you plan to rent out your office space, you need to identify what will be the duration of the lease. Commercial leases are usually longer than residential leases. Also, a longer lease ensures that you will be able to get the returns from the investment for an assured period. If you plan to reconsider your decision after a few years, you can insert the lease renewal option after two years of tenancy. Since the reputation of a business and loyalty of the workers is connected with the location of the office, it is highly likely that the tenant will be opting for the extension of the lease.
Thus, you can happily extend it or end it depending on your need. The choice to renew the lease has to be informed by the tenant a few months before the end of the lease term.
Calculate the Rent and Its Adjustments
While deciding the rent for the office space, you must consider several factors, such as the location, market rates, size and type of business leasing the space, size of the office premises, fixtures at the office, etc. The lease amount will get negotiated by the tenant so make room for alterations. Also, ensure flexibility when it comes to negotiations to get a fair price from the tenant for using your property.
The rent review takes place annually and can be based on any of the following - the consumer price index, market rent, fixed percentage increase or a fixed amount.
Your lawyer will inform you about the importance of the ‘permitted use’ clause. It is essential to include this because it determines what type of business activity can be performed on your property. The agreement clearly defines what is allowed and what is not in the rented space. The tenant must thoroughly check whether the goods and services being offered by him can be sold at the premises or not. Any violation of this term by the tenant can lead to legal implications. As the landlord, you must have a broad ‘permitted use’ clause so that it accommodates the changes brought about by the expansion of the business.
Running Expenses and Bond
The operating costs of the commercial property have to be borne by the landlord. They include council rates, land tax, water rates, cleaning and sanitation of the common areas, structural repairs, etc. If you want the tenant to contribute to these expenses, then you must put the condition down in the agreement. Also, you must include the condition of the tenant getting an insurance cover for any damage to the building. Plus, make sure to add the term for legal costs which must clarify that each party will pay for its own legal expenses. The terms must also specify who will be obligated to pay for the expenditure related to fit-out requirements of the tenant.
The terms related to the security deposit, which will be paid at the beginning of the lease must be laid down in the agreement. The amount can be negotiated with the tenant, and the conditions related to withholding and repayment of the bond must be listed in the document.
Details of Premises and Common Areas
The landlord needs to provide the details of the property, which will be helpful for the tenant to understand the space and storage availability. Besides the office space, the lease must provide information about the common areas, such as the stairways, elevators, parking, toilets, garden, lounge area, etc. The common areas are to be shared with other tenants in the building. It will help the tenant to understand which parts can be utilised by his employees and clients and which are meant for private use.
Repair and Maintenance
The repair and maintenance of the commercial premises is the responsibility of the tenant during the term of the lease. However, fair wear and tear should not be included in maintenance. Also, the landlord should take charge of structural repairs and other problems related to the roof, elevators, common area, etc. The responsibility of repairing the air conditioners by the tenants should be mentioned in the lease so that there are no disputes related to it. Since the tenants use them during the lease term, it should be maintained by them. You can negotiate the terms of maintenance with the tenant and come to an agreement.
As the owner of the office property, you need to be careful about the default terms. If the tenant fails to pay the rent, then you have the right to lock him out of the premises. You can also claim the loss of rent up to the end date of the lease and the expenses incurred on re-letting the property.
To safeguard the rights of the tenant, you must include the term that the tenant will be provided with a written notice for any default or breach of the agreement and will be given ample time to fix the problem.
Renting out your office for the first time can make you nervous but preparing a solid legal lease agreement will help you to gain confidence. Thus, if you are planning to purchase a commercial property for sale in Australia, then make sure you are aware of the significant leasing terms and conditions.
Manish is founder of Business2sell Group of Websites.
Business2Sell.com.au is one of the leading business and franchise for sale listing websites. We work with our business brokers, commercial agents, franchisors and private sellers to help them connect with the right buyers for their opportunities.
With website now functional in Australia, United States, United Kingdom, Canada, New Zealand and South Africa. We have over 18,000 businesses for sale listed, with over 220 Business Broker and Commercial Agent.
I have over 20 years of experience in Web Industry; I have been involved in websites industry since the early years of 1996-97. In my professional career I may have worked for over 10,000+ websites. My Specialty is to build portals or complex online applications.
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