bond for commercial

[long88]

hi everyone,

just want to ask quick question here,

we just settled on a small commercial in regional.

question here is who hold the 2 month bond that tenant has ? is it going into our accounts or is there a trust account like residential property ? situation is, the tenant is changing, and the new tenant has send the cheque but it is addressed to the old owner, and the obviously the old tenant wants their bonds back.

also benefit of having an agent managing the place ? apart from collecting rent, what else is the plus ?

thx again all.

 

[Aaron_C]

Leasing agents are helpful when it comes to lease negotiations because they (presumably) know the market rental so you know where you stand.

In commercial leasing the 'bond' (more commonly known as security deposit) is held where the lease says it will be held. Usually this is in the landlord's bank account. It doesn't have to be held in a trust account - but there are rules in the Retail Leases Act 2003 governing it - see http://www.austlii.edu.au/au/legis/vic/consol_act/rla2003135/s24.html

Also read the Act because it is important: http://www.austlii.edu.au/au/legis/vic/consol_act/rla2003135/

 

[long88]

thx aaron,

the lease is thick, and i guess i havent master it yet (being this is the first one to learn on).

Leasing agents are helpful when it comes to lease negotiations because they (presumably) know the market rental so you know where you stand.

In commercial leasing the 'bond' (more commonly known as security deposit) is held where the lease says it will be held. Usually this is in the landlord's bank account. It doesn't have to be held in a trust account - but there are rules in the Retail Leases Act 2003 governing it - see http://www.austlii.edu.au/au/legis/vic/consol_act/rla2003135/s24.html

Also read the Act because it is important: http://www.austlii.edu.au/au/legis/vic/consol_act/rla2003135/

 

[Aaron_C]

thx aaron,

the lease is thick, and i guess i havent master it yet (being this is the first one to learn on).

The lease is your bible. Treat it as such.

 

[long88]

The lease is your bible. Treat it as such.

bond is kept by landlord, it is specified in the lease agreement.

thx aaron.

this makes me have to study the lease more now.

 

[Dazz]

this makes me have to study the lease more now.

....yeah, not really the optimum time to start taking a look to see what it says....

 

[chilliblue]

Agree with the above. You need to have understood the lease inside out and have asked the question much earlier.

Rental Bonds can normally be held in two ways:

Bank Guarantee: wherein the tenants bank provides a guarantee for an amount of money to undertake certain things. These would be spelt out in the lease and normally would encompass payment of rent, undertaking of make good at end of lease etc.

Check to see what the expiry date is. If you ever draw up a new lease, have any bank guarantees unconditional.

Security Deposit: where a defined amount is held in trust by the landlord in case of defined default by the tenant. Again the terms are spelt out in the lease.


If this is your first commercial property, I would strongly suggest that you get an agent until you have a better understanding of what your investment entails. Especially for the initial transfer period.

 

[long88]

yep my first one..

bought with current lease in place, so all the conditions are spell out in the lease already.

i suppose it will be tweaked if there is any requirement to.

and since the entry are not that expensive, it will be a good stepping stone to understand & learn the cip side.

thx for the feedback so far

Agree with the above. You need to have understood the lease inside out and have asked the question much earlier.

Rental Bonds can normally be held in two ways:

Bank Guarantee: wherein the tenants bank provides a guarantee for an amount of money to undertake certain things. These would be spelt out in the lease and normally would encompass payment of rent, undertaking of make good at end of lease etc.

Check to see what the expiry date is. If you ever draw up a new lease, have any bank guarantees unconditional.

Security Deposit: where a defined amount is held in trust by the landlord in case of defined default by the tenant. Again the terms are spelt out in the lease.


If this is your first commercial property, I would strongly suggest that you get an agent until you have a better understanding of what your investment entails. Especially for the initial transfer period.

 

[Scott No Mates]

Long, generally you won't change a current lease unless there is a compelling case to do so. If there is an option term, then often the new lease is created via a variation of the existing lease (some terms are deleted, others amended).

A bank guarantee should always be unconditional and not have an expiry date (that way when the lease ends there is still coverage under the bank guarantee for any default). Security bonds, if held in cash, will also note how the interest is to be treated ie if it remains the property of the tenant/split between owner/tenant or kept by the owner.

 

[kum yin lau]

Hi, did you check if the 'bond' is held by the previous owner? If so, you need to get him to pay your outgoing tenant.

In SA, the Tenancy Board holds the bond. I'm allowed to charge a tenant only one month's rent as bond.

However, with a changeover of tenant, I insisted on 2 months' bond which I hold. What I did was to write into the lease a forward payment of 90 days' rent.

I was self managing then. You need to assess the tenant & the type of business that rents your premises. Hairdressers & food outlets have residual value & when an old tenant sells his business, you can reword the terms of the lease once the old lease has expired.

But while the lease is ongoing, you have to abide by the terms that you bought it for.

Good luck,
Kum Yin

 

[long88]

hi kum yin lau

yes, the bond is held by previous agent, i think they are releasing to the old tenant, as they already know about the change over.

what do you mean by forward payment of 90 day ? is this prepay the rent for 3 month ahead ?

and yes, it happens to be hairdresser, what is residual value here ?

thx again.

Hi, did you check if the 'bond' is held by the previous owner? If so, you need to get him to pay your outgoing tenant.

In SA, the Tenancy Board holds the bond. I'm allowed to charge a tenant only one month's rent as bond.

However, with a changeover of tenant, I insisted on 2 months' bond which I hold. What I did was to write into the lease a forward payment of 90 days' rent.

I was self managing then. You need to assess the tenant & the type of business that rents your premises. Hairdressers & food outlets have residual value & when an old tenant sells his business, you can reword the terms of the lease once the old lease has expired.

But while the lease is ongoing, you have to abide by the terms that you bought it for.

Good luck,
Kum Yin

 

[long88]

hi dazz, the place is bought with existing lease in place, so still learning to what it means as to have it in writing. as this is small regional place, mistake would not be too bad to learn from.

i thought we all learn from making mistakes ?

cheers

....yeah, not really the optimum time to start taking a look to see what it says....

 

[Aaron_C]

Even if it is an existing lease you still have to know what it says...why make mistakes if you don't have to?

 

[Dazz]

hi dazz, the place is bought with existing lease in place, so still learning to what it means as to have it in writing

...not quite sure what you mean by that, but if what you say is correct, and you've bought a small hairdressing shop in a small strip....then what you've really bought is the Lease.

To not have read it and know exactly what it says, but plough on thru and buy it anyway, well yeah, I guess you'll find out soon enough.

My only question is - why didn't you read it prior to buying it ??

 

[long88]

i suppose this is like exam, you read about it, but you dont memorize it until it is needed.

now that i have asked the question of the bond, i know where to find it next time.

and obviously do not want to make any mistake, but i guess this is more forgiven when there is mistake, as it wont costs arm and leg.

Even if it is an existing lease you still have to know what it says...why make mistakes if you don't have to?

 

[Aaron_C]

and yes, it happens to be hairdresser, what is residual value here ?

Residual Value = The value that someone will pay to buy the business from the existing owner. This is also known as 'goodwill' - as there is no physical asset apart from a few things like stock and equipment.

Just remember that for ANY business - without a secure lease in place, the goodwill or residual value of the business is basically 0.

 

[long88]

yes, dazz, i would say i bought the lease along with some other commitment that comes with it.

i did read about it, but i don't memorize all of it, all i know is this stack of paper that is presented to me favor the landlord more than the residential lease agreement that i have before.

it seems covers almost every aspect that could happen during the tenancy.

one thing that i wonder here is "make good" clause, how do we prove the original condition, when there is already tenant in it ? does it mean, if the tenant move out, they have to make the place like a new box again ?

thx for all of the input so far

...not quite sure what you mean by that, but if what you say is correct, and you've bought a small hairdressing shop in a small strip....then what you've really bought is the Lease.

To not have read it and know exactly what it says, but plough on thru and buy it anyway, well yeah, I guess you'll find out soon enough.

My only question is - why didn't you read it prior to buying it ??

 

[long88]

aaron,

with the residual value, it doesnt affect me as the landlord ? i would have thought it would be more to do with the tenant ?

please correct me if i am wrong.

and the place is basically just an ugly concrete shell with hot water system fitted, and plumbing installed to get the water out, couple of mirror + chair.





thx

Residual Value = The value that someone will pay to buy the business from the existing owner. This is also known as 'goodwill' - as there is no physical asset apart from a few things like stock and equipment.

Just remember that for ANY business - without a secure lease in place, the goodwill or residual value of the business is basically 0.

 

[Aaron_C]

Yes it's a tenant issue rather than a landlord one. But it was raised to demonstrate how important a lease is to a tenant so you have to make sure it's in your favour as much as possible.

 

[kum yin lau]

Hi, as far as I'm aware, the agent cannot hold the bond. It has to be lodged with the appropriate tenancy board.

In your case, the changeover of tenant comes with the sale as the property is sold as an ongoing concern with a tenant in place.

When the lease expires, you can then 'insist' on your terms. You need to be sure that your terms are agreeable to your tenant otherwise they may elect to walk away.

Hairdressers can sell their business to another hairdresser. My tenant did that when I increased the rent. The premises were grossly under-rented & the new tenant came from a place that he had to vacate because the rent was 4x what he had to pay for my shop even after we increased the rent by 20%

The 90 days forward payment I referred to was what I insisted on for a Chinese takeaway when the old tenant decided to retire & sold to a young chap who had no guarantor & no house. He has to maintain rental payment 3 months in advance. He's been good as gold because he knows that if he lapses, I'll give notice to vacate.

As for agents, I always use them as I don't like to deal with tenants. But they are bad agents. I had 2 really horrible ones hence I self managed for ayear.

My present agent [Brock's] is really good. She wrote into the lease mgt fees & land tax to be paid by the tenant & rounded it off for good measure. It added more that 25% to the rent! And her experience of how to advertise [internet only] saved me a stack as well.

KY