Commercial style lease for residential

From: Rosemary McKenzie


We have found a residential property owned by a local restaurant, one block from the main street. He has extended the restaurant and wants to sell the house on a lease back arrangement (3yr x 3yr x 3yr) for one of his employees (already in residence). The back yard seems to have been set up market garden style possibly for the restaurant.

The real estate agent has indicated that the lease requested is similar to a commercial style lease. Has anyone had any experience with this type of leasing for residential?

Also, I've never purchased a tenanted place. Can anyone give any hints about what to particularly look out for?

TIA.
 
Last edited by a moderator:
W

WebBoard

Guest
Reply: 1
From: Steve Piggott


Sounds like you've got a reasonable deal if you want a long term tenant.
Commercial style leases are being applied to residential property more often as investors are looking to guarantee tenancy for longer periods. Also with the 3x3x3 lease there is scope for cpi/set % increases and also 3 yrly
review. More often now landlords are constructing leases specific to their investor needs and simply merging the deeds of the lease over a standard residential agreement. Gee who wouldnt want a blue chip tenant to go with their blue chip property.

Happy Investing Neb :)
 
Last edited by a moderator:
Reply: 2
From: Kristine .


Rosemary

Residential and commercial are a little like oil and water - they may appear to mix but are best kept separate.

If you are not at the legal stage yet with this and therefore have not yet engaged a solicitor, check with your local real estate institute, and certainly with fair trading or corporate affairs. Depending what state you are in, there will be various restrictions on length of term of residential leases and of retail tenancies.

Alternatively, some/most solicitors will 'give' you fifteen minutes of initial consultation 'free' - the law institute should have information on who participates in this program in your area.

Rosemary, this may not be unlike a 'serviced apartment' type of arrangement, where a commercial lease is taken over a residential property. However, in that instance there are lots of checks and safeguards in place, and the building is used for 'accommodation', as distinct from 'domicilliary residential'.

This would be a one-to-one arrangement and it would be very important to protect your own interests within the legal framework of also respecting the tenants rights. As the landlord, it would be up to you to present the lease to the tenant, unless one is already in place and runs with the property upon sale, in which case it is like it or lump it.

May I suggest you also run this past your accountant - if you haven't used a solicitor before, maybe your accountant can refer you to one who is familiar with commercial situations and leases.

This certainly sounds like a deal with potential - hope the deal 'stacks up' for you!

Regards

Kristine
 
Last edited by a moderator:
Reply: 1.1
From: Kristine .


Steve

Just read your comments, which raise some interesting points.

On residential property, or property leased for residential purposes, (in Victoria) any term more than thirteen weeks and under five years comes under the Residential Tenancies Act.

As such, to the best of my knowledge, rental adjustments cannot be agreed as part of the lease, and any increases must follow strict procedure. To be outside the RTA, the minimum first term would therefore have to be five years and one day. This sounds idyllic, but how many residential tenants are going to commit themselves to that length of time, being financially responsible for the full term of the lease as soon as it is signed?

Remember, a 'guarantee' to the landlord means a restrictive action to the tenant, and the law exists always to protect the weaker party.

On the other hand, the Retail Tenancies Act mandates that a first time retail tenant - no matter the technical length of the first term of the lease - can claim a minimum tenancy of five years. This is to protect the interests of a fledgling business in establishing its business, uninterrupted, at the same premises for not less than five years, at the option of the tenant.

First time retail tenant is taken to mean a tenant which has never been in retail (in the broad sense of the word) before.

So as we take turns at changing commercial sides, from landlord to tenant and back again, the law exists to ensure a fair deal no matter which side of the counter we are on.

Cheers

Kristine
 
Last edited by a moderator:
Reply: 2.1
From: Tibor Bode


Hi everyone,

I just set up a tenant in QLD for a 3 years lease and another is being negotiated presently. I could not go further due to the GST legislation which (if I remember correctly) mentions somewhere that GST is applicable if the lease is longer than 3 years. At this stage I am not sure (still considering to talk to Dale about it) whether it is a so positive or so negative that it would / would not be worth to consider. The rent is reviewed annually with CPI increase. If rent increase for area is greater than CPI then tenant wins. I win as I will have a tenant for the period and my variable expenses are CONTROLLED! 52 weeks lease for each year with no re negotiation fee, re-letting fee, any other bloody fee.

Just another view.


Tibor
 
Last edited by a moderator:
W

WebBoard

Guest
Reply: 2.1.1
From: The Wife


My tenant had a 5 year lease on a residential property, at the end of the lease, the tenants challenged us as owning equity,( apparently at the time the tenant was within his rights) it was a nasty fight, we won, but goodness, what trouble it was.
 
Last edited by a moderator:
W

WebBoard

Guest
Reply: 2.1.1.1
From: Peter Boyce


I don't understand how they could 'challenge' you for your equity? Could you pls explain.
 
Last edited by a moderator:
W

WebBoard

Guest
Reply: 2.1.1.1.1
From: The Wife


Peter,

I dont understand it either, this was a few years ago now, and we won so I didnt pursue it any further, so I am not sure if it still applies, I think some of the wrappers around have a better working knowledge of equitable title and who is entitled where and when. Any wrappers out there?
 
Last edited by a moderator:
Top