Commercial lease and tenancy play a significant role in determining your return from the investment. It is vital to conduct thorough research of the market and the potential lessees to ensure you have found the right match for your property. It is not as simple as residential tenancy and needs the understanding of a variety of industry jargons and trends. From understanding your roles and responsibilities as the landlord to drafting the lease agreement and filtering through the qualified businesses, there are a lot of crucial things that need to be taken into consideration.
Thus, if you are looking for commercial property for sale in Australia, you should be aware of the fundamentals of leasing. It will help you to make the most of your investment and avoid losses. So here are the most critical aspects of becoming a commercial landlord that should be understood by property owners.
1. Identify the Right Property
When you are planning to invest in commercial property, you must conduct a thorough research about the types of properties available in the location. The three types of real estate include retail, office, and warehouse or industrial. The final decision should depend upon the budget, the accessibility and prominence of the location, market trends, available space, neighbouring commercial buildings, infrastructure, and tenant turnover.
Although retail and office spaces have been a favourite among the buyers, the COVID-19 pandemic has brought industrial properties in the limelight. The rise of the e-commerce industry and social distancing has made sure that warehouses are in high demand and offer a great return. Thus, you must determine the best property for investment before taking the plunge.
2. Know Your Privilegesas a Landlord
As the owner of the property, the landlord has certain rights which cannot be disputed. These include charging rent for leasing the property and the right to review it at regular intervals as per the lease agreement. The landlord also has the right to take stock of the premises during business hours. However, he/she needs to provide advance notice for the same.
The property owner can demand bond or security deposit, which can also be a bank guarantee. It is usually a month’s rent or more and is mutually decided between the two parties.It keeps the landlord’s income from the real estate safeguarded in case the tenant fails to pay the rent. The deposit has to be returned to the tenant after the end of the lease.
3. Understand the Responsibilities to be Fulfilled
Becoming the landlord is not all about enjoying the perks of being the owner. You will have to work towards the maintenance of the property to improve its curb appeal and find a suitable tenant. A business owner will be interested in making space his office if it is in good condition and has all the required amenities in place. The lease should follow all the legal obligations laid down by the state government.
The landlord has to fulfil the duty of identifying the right insurance for the real estate so that they are aware of the cover provided by the policy. The payment for the insurance is made by the tenant. Another important task is to acquire all the certifications that will be needed by the tenant to operate on the property, such as the Fire Safety Certificate. In addition, the property owner has to pay for the body corporate fees and the rent must suffice for it.
4. Prepare an Accurate Lease Agreement
The legally binding document enlists all the rules and responsibilities for both the landlord and the tenant. It must include the rent amount, rent review, duration of the lease, repair and maintenance clause, sub-leasing, tenancy mix, costs related to bond, insurance, fit-out and outgoings, actions for violations and breaches, lease renewal, and termination.
The location and the date of paying the rent should be clearly mentioned on the agreement without any errors as it can lead to complications. If the tenant is going to be responsible for the payment of the outgoings, maintenance, insurance, taxes, etc., it should be documented specifically after negotiations with the tenant.
5. Locating and Managing Tenants
Finding tenants is a time consuming and challenging task. The landlord has to advertise the property to find suitable tenants and then conduct inspections for them. The next step is to identify the qualified business owners and carry out a background check about their business, its stability, and their credit history. The landlord can hire a property manager for these activities as it can be too demanding to handle everything.
Besides finding the tenants, the landlord has to invest time and effort in managing the tenancy. The laborious task involves ensuring compliance with the legislation, maintaining payment records, conducting repair work, negotiating with the potential tenants, and resolving disputes related to property damage or defaults with payments.
6. Handling Disputes
If there is a conflict with the tenant over the rent payment, repair costs or the bond, you must maintain a calm and objective approach. Do not get agitated. Make the other party understand your point of view and make them aware of the related clause in the lease agreement. You can also provide them with copies of the receipts to prove your point. Try to hold meetings with a cool mind and conclude without escalating the matter further. If you do not want to talk, you can have formal written conversations. If everything fails, then you must contact the free dispute resolution service in your state to reach a settlement.
7. Making Good by the Tenant
Make good is a common term used in commercial leases which is applicable to the tenants. They are responsible for returning the property back to the landlord in the same condition as it was at the beginning of the lease term. Normal wear and tear should be exempted by the landlord.
The tenant can offer the landlord cash payment to complete the make good work or can hire a contractor for the job. The lease agreement must have a clause for dispute resolution of problems related the make good work. Usually, tenants fill out the condition report to identify any pre-existing damage to avoid any disagreements later.
When you have the intention of investing in commercial real estate in Australia, you must equip yourself with all the knowledge about the role and responsibilities of a landlord. It will help you to prepare for the upheavals and know about the details of a commercial tenancy.