Leasing a commercial property? Few q's, need advice.

[DRUSS]

Hi Guys,

Im looking at starting a business soon, and I have no Idea about the workings of leasing out a commercial property.

Is there any advice when I talk to the managing agent of the property?

Any questions I should ask?

Basically how it all works.

Does anyone have an good links on the subject?

_____________

Few specifics Like;

Am I stuck into the lease if my business doesn't prosper? Can something be negotiated?

Do I pay for all utilities?

The place will be fully fiitted out, what issues does this cause. Equipment ranging in the $200k zone.



Thanks,

Daniel

 

[Ausprop]

comm leases are usually for a long duration, say 2 to 10 years or more. as a small business you will be required to offer a personal garuantee on the lease. think carefully about this... where are your assets held... in your name? don't be too optomistic. recognise the huge failure rate of start up businesses.

give it a go but at least have your battle armour on

 

[Dazz]

Daniel,


You are asking questions from a Tenant's point of view about a fairly complex subject that many people study for their whole lives. If they are old and crusty, they get pretty good at it. That is what you are up against.


There was a post just recently on this forum, on the 16th of July from a first time poster called netlawman in the Comm section. He had something to sell apparently with his first post and so it got deleted by the moderators. I printed it off before it got zapped, and it contained a few good tips for trying to go up against comm. Landlords.


Perhaps google netlawman and see what comes up.

 

[DRUSS]

appreciate the reply's.

I know the risk's associated and the statistics with start up business's, this is just part of my due diligence. I need to start writing my plan.

- I have to work out how much its going to cost me to lease the premises, besides the weekly rent?

- And if my business fails, how much its going to cost me to get out of the lease?

They are the two main things.

Also, I see alot of 5x5 leases etc. I have no Idea what this means. I'm assuming it means a 5 year lease with the chance to lease it again for another 5 years at the end of the initial period?
_____

And you are right its alot of experience, but I'd rather learn off of other people's mistake's and experience then do it myself - its not efficient.

Appreciate the feedback and advice so far.

Cheers
Daniel

 

[Ausprop]

appreciate the reply's.

I know the risk's associated and the statistics with start up business's, this is just part of my due diligence. I need to start writing my plan.

- I have to work out how much its going to cost me to lease the premises, besides the weekly rent?

yes all outgoings such as rates, land tax, etc... the agent will tell you what the VOs are.

- And if my business fails, how much its going to cost me to get out of the lease?

well you cant get out, you will need to cover it until you pay an agent when and if they find a new tenant. vacancies can be long in commercial. Try start with a 2 year lease if you can find one, or get an assigend lease from someone else

Also, I see alot of 5x5 leases etc. I have no Idea what this means. I'm assuming it means a 5 year lease with the chance to lease it again for another 5 years at the end of the initial period?
_____
l

yes a 5 year lease with an option to extend for another 5

 

[Aaron Sice]

we got a 12 month lease. no option.

you're up for rent + outgoings.

if you fail to pay, you're out on the street and still pay until another tenant is found.

it's hardcore mate. nothing like resi. no appeals tribunals. nothing.

you, the landlord, and a contract.

 

[DRUSS]

excellent, more info.


Blue Card - What happens if at the end of the 12month lease they decide not to continue the lease? That wouldnt be good for someone who has a major fitout in place.


Ausprop, okay I knew I'd pay rates, but land tax? Wow!

Okay I'm going to give the managing agent a call..

Any advice when talking with the agent?

D

 

[rugrat]

Sorry I don't know much about commercial, so cann't help - but I was wondering what the business is going to be?

 

[DRUSS]

Kids Soft play Centre

 

[boods99]

Kids Soft play Centre

I'm guessing that this will probably be classed as a retail tenancy, therefore you will need to get your head around what outgoings the landlord will be able to revover from you. For example, if retail, you should'nt pay land tax. Retail tenancy = good for tenant, bad for landlord.
Each state differs.

Boods

 

[boods99]

Okay I'm going to give the managing agent a call..

Any advice when talking with the agent?

D

Ask the agent for a Disclosure Statement. This will outline all of your expenses in regards to VO's.

 

[Pushka]

I think it is much easier to obtain a lease at the moment. Currently we have a commercial lease for 1 + 2 + 2 as the property was pretty neglected, had been on the market for a while and we were not sure if it was going to be big enough. We have installed security and phone systems ourselves and other major repair issues were signed as being owner's costs and to be completed ASAP. The owners, three weeks after we moved in, have decided to sell. At least it means the major repair issues were completed.

We pay outgoings like water, council rates and electricity. But not Land Tax. We also didnt need to make a personal guarantee on the lease. Not sure if we will stay - the location is perfect but the offices just a little small. We need just one more office and it would be totally perfect.

There are issues with the other group who rent the other half of the building - they were promised car parks (they work 24/7) but unfortunately the owners didnt work out that their entrance was through a private road of a new development. Not sure where that one is heading. Also the owners didnt really think about what it meant to have two separate tenants - eg they have had to install two separate power meters (again, we wrote that on the lease); and access to their power fuses is on our premises as is their telephone installation. Normally it wouldnt matter during the day, but during the night time it is proving a problem for them. But as tenants we get on well together, but the owner probably should have thought it through better.

 

[Dazz]

1+2+2 is great for the Tenant but gives almost no security for the Owner.

Are they having trouble selling it ?? It would be OK for a potential Buyer who had the cash to buy it, but any Lender would immediately reject the application as the Owner has zero cashflow surety.

Looks like they didn't think about that either when they agreed to that woeful term structure. You guys sound like you are in the box seat. Good negotiating.

 

[Pushka]

1+2+2 is great for the Tenant but gives almost no security for the Owner.

Are they having trouble selling it ?? It would be OK for a potential Buyer who had the cash to buy it, but any Lender would immediately reject the application as the Owner has zero cashflow surety.

Looks like they didn't think about that either when they agreed to that woeful term structure. You guys sound like you are in the box seat. Good negotiating.

Hey thanks Dazz. We were lucky about the 1 year thing but it had been in the rental pool for a while and they were getting desperate for a tenant. Obviously they were planning to sell and needed a tenant to do that. And it is Adelaide and there are 'for lease' signs everywhere!

They are having trouble selling it; the co-tenant has signed up for 5 years as they have invested in a lot of IT installation for their business. Their rent is about 50% higher than ours so we are the small fish. Rent wise, it is a great buy - we would buy it if we had the cash but not in the market to buy at the moment. Council valuation (just received) is about $200k below the asking price. I think if they sell they will lose out as they have spent quite some money on renovations. But asking price just a bit high at the moment.

 

[Cashflow]

Your public insurance will be huge so a good idea to get in quotes.

Remember you will have to restore the premises to the way it was before the fit out (unless stated in the lease).

Also check whether you have to pay for the upkeep of airconditioning units - you may have to carry out (and provide evidence of) annual inspections and repairs.

Also check whether rent includes the GST component.

Generally you pay for all outgoings - check carefully!

Other insurance may include plate glass - check with solicitor what you will be up for.

Does the lease include off street parking - if so make sure its stipulated in the lease as well as to exactly where the parking is.

Will the Council allow you to have external tables and seating? Check this out as it will also give you additional income and area usage.

Do you know what hours you will be allowed to operate? We have one of these near where we live and they hold what they call "family nights" a set price for a pasta meal and the kids can run free - very popular. Make sure you include themed party rooms as these also do well. Also a disco night where you can hire out the whole building (great for fundraisers as well as parties).

Good luck - keep us informed.

Peter
www.cashflowcalculators.com.au
www.privaterealestate.net.au