commercial tennant problem



From: Louie Langov

Have recently purchased a commercial shop front, rent was below market value as per valuation, lease has now expired and tenant pays monthly. I have recently increased rent and have given 1 month notice, they are contesting the increase and calling for an indapendant arbiter. Since the lease is over do they have the right to contest the rise in rent?
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Reply: 1
From: Kristine .

Hi, Louie

In the absence of details, I can only make some general comments on the matter:

It seems that the tenant came with the property, which you bought subject to the existing lease. For starters, you should read and be very familiar with the lease document.

Legislation is more powerful than contractual leases and you should also become familiar with the relevant legislation in your State, but generally speaking once the fixed term of the lease expires the tenancy becomes periodic ie month to month, but otherwise the terms and conditions of the original lease continue to apply.

The lease will have conditions regarding the frequency of rent review, which party determines the rental and what notice must be given, what course of action the other party may take, what to do in the event of a dispute and so on.

Some leases have ratchet clauses, others relate to CPI, others to market review.

Leases should have an arbitration clause, usually being that in the event of a rental dispute, an independent valuer is appointed and both parties agree to abide by the valuers recommendations, with the expense being shared by both parties.

As a commercial landlord of retail property you should buy a copy of the relevant retail tenancies act for your state (for starters, look it up on your state govt website). Legislation will require a minimum period of notice of any increase. You may find that one month is not enough, usually it is 90 days notice, which gives everybody time to determine if the increase is fair and equitable in the circumstances.

The question to ask yourself is 'do I want the tenant or do I want an empty shop'? No matter how busy a shop may appear to be their margins may be slim, and any increase in rent may cause them to rethink their business plans. Never mind theoretical 'below market as per valuation', if there are empty shops nearby it is those vacancies which act as a rental moderator in the market.

Louie, I wish you a long and happy career as a commercial landlord. In many ways commercial property has advantages over residential, but it is also more fragile. We 'have' to have somewhere to live, but we don't 'have' to be in business.

Hope the issue is soon resolved amicably

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Reply: 2
From: Chris G

Hi peoples,

Great site for research into any legal situations including downloadable version of acts and regulations:

The following acts may also help those involved in commercial prop:

NSW - Retail Leases Act

QLD - Retail Shop Leases Act

VIC - Retail Tenancies Reform Act

SA - Retail And Commercial Lease Act

WA - Commercial Tenancy Agreements Act

Hope this helps and good luck with the commercial investing side of things

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