Can residential property be given a commercial lease!

[Plumber]

Hi all,

I've spent all weekend on the net and asking people opinions on this question.

I havent spoken to a property professional yet and I'm getting miffed that I cant really get any "expert" information over the weekend.

My enquiries are a follow on from this thread http://www.somersoft.com/forums/showthread.php?t=67440 .

One of my tenants is looking for a domestic house type set up from which to run a business. Some of the responses from SSer's suggest that I could possibly offer them our IP as a business premises with a commercial type lease.

It may eventuate that my tenants want to continue leasing under a more commercial type lease and may ask for this.

Is this a real option ? Do I have to look into zoning and local council approvals? Do owners of surrounding properties have to approve?

In what way do commercial leases vary from residential leases ? Is there somewhere to see a typical "commercial" lease template?

As a LL what responsibilities and legal obligations would I have above and beyond a residential tenancy ?

Thanx Dave

 

[Plumber]

I finally found a template commercial lease.

 

[chilliblue]

Council will dictate exactly what type of commercial activity can and cannot be done from the premises and these terms should be detailed in any lease drawn up.

Most Councils have a list of approved activities and if you want a heads up, take a look at the sale contract as the zoning explaination should be detailed.

Do you want to PM the commercial lease that you have as I happy to assist.

 

[Peterw]

Chilliblue. I think this needs to be really thought through. From my understanding, there are some "home occupations" that the Brisbane City Council will allow to be run from Residential Property, and yes, they list those on their website. You have to ask yourself, are you better off with a residential lease, with a sepcial condition allowing the tenant to run the permitted "home occupation" business, or enter into a commercial lease, and then not be sure if it can be overturned by challenge, as the zoning is residential. I must say, I believe a landlords rights are better under a commercial agreement, however I am nervious that it could be overturned. Hopefully some one with some actual experience with a similar situation, may chime in.

 

[JohnJC]

Any chance you want to pass on your commercial lease contract?

 

[chilliblue]

Chilliblue. I think this needs to be really thought through. From my understanding, there are some "home occupations" that the Brisbane City Council will allow to be run from Residential Property, and yes, they list those on their website. You have to ask yourself, are you better off with a residential lease, with a sepcial condition allowing the tenant to run the permitted "home occupation" business, or enter into a commercial lease, and then not be sure if it can be overturned by challenge, as the zoning is residential. I must say, I believe a landlords rights are better under a commercial agreement, however I am nervious that it could be overturned. Hopefully some one with some actual experience with a similar situation, may chime in.

I agree that considerable thought should be placed into it, however, as a landlord you will find yourself unable to stop a tenant running a home business from a residential property under a residential lease so long as it complies with the local council.

In this instance, it appears that the tenant is wanting to be upfront and so long as the landlord has taken all care and duty in understanding their requirements and responsibilities and any required by the tenant are passed on under clauses in the lease then so be it.

Personally, I would always use a legal advisor where a standard lease may not be suitable but that is up to the individual.

 

[Peterw]

Chilliblue, I think the standard Qld lease will allow you to stop a tenant running a business, final stop is notive to leave. 1stly, you need to find out and be certain. If you allow it in a special condition, and he does get the relevant council OK, I am not certain, that would be a bad situation. I think that the OP, is being preemptive, and thinks the tenant may ask. Lets wait and see.

 

[Plumber]

Any chance you want to pass on your commercial lease contract?

This is what I was looking at yesterday. I'm guessing it is only a general primer.

http://www.morebusiness.com/templates_worksheets/samples/commercial-lease.brc

I am investigating council guidelines now. I'm just gathering information at the moment to see what might be possible.

Cheers Dave

 

[kathryn d]

You have allowed your tenant to take control of your property (IMHO)
I'm not sure exactly what is required, but was all the work organised by this tenant have approval?
Was it enough of a change, that permits were required..if so, do you have a copy?
What you think may be a great deal, may backfire, if it all has to be undone, at your expense, after he leaves.

In our leases, we do not permit tenants to run a business from the property, without permission.
If we do permit any work on the property by the tenant, it must be done by code,all permits obtained, etc., and approved by us first....in writing.

If there is any question about the zoning permitting their business, you may want to remain with your current RTA.

 

[Plumber]

I'm not sure exactly what is required, but was all the work organised by this tenant have approval?

Was it enough of a change, that permits were required..if so, do you have a copy?

What you think may be a great deal, may backfire, if it all has to be undone, at your expense, after he leaves.


If there is any question about the zoning permitting their business, you may want to remain with your current RTA.

Hi Katherine,

All the meter box work was done professionally and the electrician sent us a certificate .

The security grilles are also professionally done and 3 sets of grilles have panic releases (as per what I think are the guidelines).

It did occur to me that some of the garden work, would probably deteriorate with uninterested tenants, and also may put new tenants off because they think the maintenance on the garden may be too high. But Pop likes gardening and says he'll go round and dig up the flowers if the tenants leave them.

The other work doesnt need approvals etc.

 

[Compropmanager]

If I may is the tenant living in the place?

Does the zoning allow such use for the property?

You can set them up on a commercial lease even if they could live their however it really depends on the first question.

The difference between commercial and resi is that with commercial you most likely can pass on those nasty council fees, and other outgoings. 10K on fitout damn that is good for you provided they did it correct.

 

[Compropmanager]

Also one last point to add the zoning of said property has little or no effect on the lease that you can offer. the only thing that states whether it is resi or Comm lease is the act that applys

 

[Mick C]

Hi all,

I've spent all weekend on the net and asking people opinions on this question.

I havent spoken to a property professional yet and I'm getting miffed that I cant really get any "expert" information over the weekend.

My enquiries are a follow on from this thread http://www.somersoft.com/forums/showthread.php?t=67440 .

One of my tenants is looking for a domestic house type set up from which to run a business. Some of the responses from SSer's suggest that I could possibly offer them our IP as a business premises with a commercial type lease.

It may eventuate that my tenants want to continue leasing under a more commercial type lease and may ask for this.

Is this a real option ? Do I have to look into zoning and local council approvals? Do owners of surrounding properties have to approve?

In what way do commercial leases vary from residential leases ? Is there somewhere to see a typical "commercial" lease template?

As a LL what responsibilities and legal obligations would I have above and beyond a residential tenancy ?

Thanx Dave

It might cause problem with your IP insurance company, give them a call.


Michael

 

[Xenia]

You cannot have a commercial lease on a residential property. If it ever ends up at a tribunal hearing due to a dispute it will be dealt with as if it were a residential lease under residential tenancy law. You could even be fined for trying to override legislation. However that view is for SA, it could be valid for other states but best to check.

 

[willair]

Is this a real option ? Do I have to look into zoning and local council approvals? Do owners of surrounding properties have to approve?

Dave,if you intend to go down this road maybe start with the BCC,and talk too a Town Planner they will tell you upfront what can be done for free no soap box hand holders needed ,because perceptions as well as realities make and underpin all investment markets and too make serious money you have too see what all the other can't,and be prepared to go it alone..

 

[marg4000]

You will need commercial use insurance - don't rely on a standard household insurance as that does not apply if the property is for commercial use.
Marg

 

[Dazz]

the zoning of said property has little or no effect on the lease that you can offer. the only thing that states whether it is resi or Comm lease is the act that applys

I would be very interested to learn more of this, as currently I disagree with your statement.

My understanding of the situation is similar to Xenia's, whereby the zoning of the land has everything to do with whether a particular activity can take place, and hence whether the Lease governing that activity between Landlord and Tenant within the property is enforceable.

Every single one of my Leases has a condition that the Tenant must satisfy themselves that the activity they wish to partake is suitable for the zoning, and they warrant that they have checked with Council and the activity is consistent with, and does not break any zoning restrictions placed by Council.


There are many examples ;

1. People cannot reside on-site in an industrial zoning
2. Cannot carry out heavy industry in a light industry zoning
3. Cannot carry out a doctors surgery in a resi zoned house (can if it's dual listed res / comm)
4. Cannot run a midnight newspaper wrapping business from the big shed out the back if it zoned res only.


Landlord's, generally speaking, do not have much authority at all to grant things regarding their properties. It's always the local council / state govt dept who has that authority.

 

[Compropmanager]

Maybe I need to explain a little more the use of a property govens what Act is in use and the Act govens what lease you can offer for example:

Retailing of goods = Retail/commercial Lease under the Retail Leases Act
Residing at a property = Residential Tenancies Act.

That means that if the lawfull use of the premises includes the tenants in this case conducting their business from the property and they are not residing there then you may offer them a Commercial Lease.

If the zoning prohibits that use from being conducted there then no Act/Lease will change that. Why it is of little or no effect is that all leases (all good ones anyway) prohibit unlawful use.

Case Example:

Landlord A has a zoned property that they can offer both to a residential tenant and to a commercial one they of course decide to offer it to commercial. The lease as you pointed out makes the tenant need to check with local by-laws zoning restrictions as to whether that use is lawfull.

example residential zone 1 linky
Means that they can without a planning permit conduct a B&B Business. They may also live in said location so the landlord can offer both types of lease.

Zoning is something to be aware of however it is not the be all and end all of what lease you can offer.

 

[Dazz]

If the zoning prohibits that use from being conducted there then no Act/Lease will change that.

Exactly - case closed.

 

[Dazz]

One of my tenants is looking for a domestic house type set up from which to run a business.

Why would they be looking for that Dave ??

Some of the responses from SSer's suggest that I could possibly offer them our IP as a business premises with a commercial type lease.

I think the SSers were incorrect to suggest that, as you are not in a lawful position to offer anything of the sort. If you own a domestic house and it is zoned residential only, you cannot offer anything but a residential lease, for a residential activity only.

It may eventuate that my tenants want to continue leasing under a more commercial type lease and may ask for this.

It doesn't matter Dave. The landlord and Tenant have absolutely no say in what type of Lease you may offer or accept. The local Council dictates that via their zoning.

Is this a real option ?

No it is not - if land your domestic house rests upon is zoned ressy only.

Do I have to look into zoning and local council approvals?

Yes you most certainly do.

Do owners of surrounding properties have to approve?

No - the council does....but as part of that process, if it's zoned appropriately, the council may very well ask their opinion / call for objections prior to granting you approval to proceed.


Perhaps this is another one of the many cases where the Landlord falsely assumes that because they own the property, they have the ultimate say in what happens on the land. Nothing could be further from the truth.