Commercial Property Leases

[thesuperman]

If a commercial property lease says that the tenant is to pay 100% of Outgoings:

(a) insurance;
(b) land tax;
etc.

Does that mean the tenant has to pay all the insurances the landlord takes on the property? So they pay the Landlord Insurance & Building Insurance? Correct?

Would that mean you get the bill then pay it then the tenant re-imburses you? Or you or the Real Estate Agent will give the bill directly to the tenant to pay?

What about Land Tax? Would the land tax bill be in the tenants name & they pay the bill directly? Or you pay for it then get the Real Estate Agent to charge the tenant?

 

[John M]

Depends how the lease is worded, and what is counted as an inclusion within the Lessee's responsibility to pay outgoings. You can have a net lease where tenant pays 100% of council rates and water rates, for example, but they don't pay insurance, management fees, land tax etc.

Usually bills are kept in your name as you are the owner of the property, but the tenant pays them either by:
- paying the bill on top of their rent when the bill is received
- paying an agreed amount of money on top of their net rent in order to cover the budgeted outgoings expenses. At the end of the year, the outgoings are reconciled and the balance of outgoings is adjusted accordingly. ie if you budget for $10k worth of outgoings and there is actually $12k, they pay the difference.

Just depends how you/your PM manages it.

Land tax bill will have to stay in your name as it is your property. Also check the wording of the lease, as it usually stipulates that land tax is to be paid by the tenant based on a single holding basis (ie if this was the only property you owned in that entity, how much land tax would you pay?).

Hope this helps

 

[thesuperman]

Thanks for your comments Jonno.

Say the lease says the tenant is to pay 100% of Outgoings:

(a) insurance;
(b) land tax;
etc.

Since it just says "insurance", the tenant pays all the insurances that the landlord holds for that property. Meaning they pay the Landlord Insurance & Building Insurance, correct?

If the property was held in a trust, the tenant would pay land tax since $1.

 

[Aaron_C]

If the property was held in a trust, the tenant would pay land tax since $1.

Why would this be the case?

 

[Scott No Mates]

Insurance - there will be a clause outlining the insurance required eg building, public liability, glass etc but probably not lmi or landlord insurance. It may not cover the brokerage or valuer fees determining building value either.

Land tax may revolve around the wording of the clause not the schedule.

 

[thesuperman]

Why would this be the case?

I believe a property in NSW & held in a Discretionary Trust or Hybrid Trust isn't exempt from land tax. Am I correct?

As Scott said, it won't just say 'insurance'. It should specify building insurance, PL etc.

I doubt the tenant would pay landlord insurance, and they may be hesitant to pay PL insurance as they have to pay their own already.

Hope this helps.

No, the lease just says the tenant is to pay 100% of Outgoings. Then the outgoings are specified & all it says for those 2 things are:

(a) insurance;
(b) land tax;

It doesn't specify anything further what type of insurance is payable by the tennat. So I presume all insurances that the landlord takes, the tenant pays.

 

[Scott No Mates]

It doesn't specify anything further what type of insurance is payable by the tennat. So I presume all insurances that the landlord takes, the tenant pays.

The lease schedule should also refer to a clause (eg: if it is a standard Law Society or REIA lease the schedule will note the items covered and the body of the lease will clarify - there is a clause titled insurance and the types of insurance wil be covered in the clause).

Likewise, Land Tax shoud also be explained in the lease.