Was curious if anybody could inform me as to what the minimum time requirements are for giving notice to a commercial tenant for a rent rise given the the tenant is under a periodic tenanacy agreement? (QLD) I'm finding it slow going on the web looking for the amswer.
does the lease mention anything about holdover? usually if the expiry date comes and passes and nothing is done the rent will immediately increase by say 108% provided its a good lease. you will have to read the lease because it is all dependent on what is written in it (which could be anything).
There is actually no formal lease and nothing in writing, hence the 'periodic tenancy'. Not having a lease might seem very irregular, especially in CIP, however the CIP I have is located in a small, but growing rapidly, near coastal mining town and of the three tenants I have in the CIP (owned for 6 years) not one of them has a formal commercial tenancy lease. It's just the way it has been and it has worked.
Problem is I haven't done a rent rise in some years, so applying the 'correct and proper' procedure to whatever the latest and greatest QLD legislation is on a periodic tenancy is the big trick.
Worked insofar as the rent rises I did make 3 years ago were accepted with 8 weeks notice from me. The thing is this time around i don't want to walk into a legislation 'pothole' and find myself being short changed if I don't follow the due process. What's happened in the past with the tenants may not be repeated, especially because the town is a growth story and these rents are currently sitting on a low base so the rent rise will be reasonably significant.
The retail shop leases Act (1994) doesn't address the matter of rent rise with respect to a 'periodic tenanacy' / 'tenanacy at will'. At least not what i can gather
Hi tollie. I know zip about commercial, but would you be well advised to seek out a commercial agent and find someone who can work through this with you, maybe get them into a lease that covers any issues that may arise?
I don't understand how there can be no lease at all. Did you buy the CIP with the tenants in situ? Shouldn't you have received a lease when you bought the CIP? How do you know when do do rent rises? It seems rather bizarre to me. Who found the original tenants? Wouldn't there be an original lease, or do you think it was all on a handshake?
I just don't understand at all how there is not SOMETHING covering what is paid to whom, and when. If that is truly the case, then I think you need professional help getting them to sign a lease going forward. Could you check with the solicitor or selling agent who sold you the CIP? How did you know how much rent to charge from when you bought them if there is nothing written down?
There are many occassions in life where the truth is stranger than fiction. This is especially the case in small regional towns, at least in QLD anyway.
Purchase the undervalued CIP with tenants in situ and through the local RE Agent with a commercial 'contract of sale' that noted the tenancies and the ammount of rent paid weekly. The CIP is a 100 yo building with three seperate tenancies. No formal leases when purchased. Nobody minded and as I was new to the town, an unknown factor, and needing to do some renovations and refurb I sought to maximize tactical flexibility. The absence of any formal leases supported this. Also, I had done my 'homework' and discovered the incumbent tenants were not wanting to go anywhere, so I could rely on their cash flow and their likely agreeance for renos that did, as it turned out, disrupt their businesses on occassions.
Division 7 of the Retail Shop Leases Act (1994), Implied provisions for compensation notes that compensation is provisioned for in certain leases, EXCEPT periodic tenancy or tenancy at will, when the tenant suffers disruption to their business by the lessor or lessor's agent. Suited me fine.
Of course there is SOMETHING covering what is paid to whom, which is is course seperate to the question of a rent rise. Getting the money from them has never been a problem, nor has getting access to do my renovation value adding (The nib of this CIP strategy). The latter, however, may have been a problem with narrow and tightly defined leases. Yes you don't get the 'security' factor of having a lease but you do get the almighty 'flexability' factor without one.
For many people buying a CIP the default position would a 'newer' or already 'renovated' properety with tight, long term leases. Safe stuff. However, I like to zig when others are zaging.
Wylie it irks me that I would have to consult some 'professional' in order to acertain my rent rise position for a periodic tenanacy. The retail shop leases act (1994) should clearly spell it out, which it does not. You would think in the 'nanny' (QLD) state where rules and regulations slime over every nook and cranny of existence that I could find out! The tenants and I are happy to motor along with the periodic tenancy in place. We all sleep well at night. No changes (yet) required.
......and now for something completely different. For those of you who have read this far in the post, despite the fact it may be of no relevance to you at all, I point below to my early retiremnet, 'golden key' analysis of a successful, ground level entry to CIP in QLD. The risk profile is medium but can be higher.
CIP entry via regional regional towns and small communities between 3,000 and 10,000 people located within 2-3 hrs of a very large regional town, not necessarily costal, riding the (preferably) early crest of an infrastructure or mining experience. Eg, towns on the Surat basin (Toowoomba hub) and towns in Capricornia (Rockhampton hub). Look for older buildings that need some TLC (hopefully just a lick of paint, the best profit maximizer) and sit on land that has enough 'scarcity' qualities (variables here include size, access, zoning reconfig potential and foot/vehicle traffic count).
Early growth wave, regional CIP investors can gather data from ASX company announcemnets and governemnt briefing papers. It can be as easy as buying the Australian newspaper on a Monday and studying the mining news in Robyn Bromphy's (spelling?) 'Pure Speculation' article (now online, too).
Significantly, lots of smaller towns have lots of CIP's that are real shabby looking (take a look yourself) so when you 'spunk' up your newly acquired CIP you immediatly crystalize a point of difference (doesn't matter what CIP class - industrial, retail etc..), making it attractive for business (your tenants or future tenants) and their customers. People in smaller towns just luuuuuurrrrrrvvvvvvv something new looking and mostly they are people with great town pride, so seeing part of their town look and feel good generates high revving, positive word-of-mouth. Critically, this positiveness feeds your local networking experience so you get to know all the right people, especially tradesman, who you'll need to fix your CIP, RE agents, who give you the inside word on all matters property and local councillors, call them direct with any issues. This is my experience.
Probably could/should have stuck my 'golden key' writings above on a seperate post, might make for interesting dialoge exchange.
Anyway time to cap my rambling. I'm still stuck with my original problem of the rent rise for a periodic tenancy. Must be someone who can post a help?
Have no experience in this area but my strategy would be to do smaller but more frequent (say every 6 months) rises until such time that you have achieved market rent.
As far as notice question I would go the 8 weeks because this has worked for you in the past.
Ones you achieve market rent I would approach them with leases in hand with the argument that by signing a lease it would ensure them more certainty as to when future rent rises will occur. I am assuming that all reno work is finished.
Obviously with leases you will have a much better investment in the eyes of the bank and/or any future purchaser.
Thanks for the insight, tollie. My first thought was similar to many others, that not having a lease in place is madness. But now that you've explained your reasoning, I see where you're coming from. I'm glad it's worked out for you thus far, but perhaps - if you've completed renovations - it's now time to formalise things a bit more. If nothing else, it would help you leverage your increased equity and perhaps buy some more CIP in this town.
I'm sorry that I can't help you with advice on increasing retail rents, but I'm sure somebody will be able to, and I look forward to hearing more from you in future.
The only thing I could find, which I assume you know, is that rent can't be increased more than once per year, and that you must use only a single method for calculating increases. (ie No ratchet clause, or "higher of CPI and market", etc.)
Tollie, I read your posts with interest. You do seem to take things on, in a very rational and considered way.
First to assist, it is a pretty well recognised practice in CIM, or CIP, that all that is needed, is one months notice. In QLD at least, all leases tend to be from the 1st of the month. Even if the tenant starts mid month or so, they pay to the end of the month, so the rent is then due on the 1st thereafter.
That having been covered, may I now question you view that it is Ok not to have a formal lease in place. You justify this, if I read correctly, by your flexibility to do renovations etc, which you believe that the lease would have made difficult.
It has been my impression, that the only time a lease, or legal document is taken from the desk drawer, is when there is a disagreement. To have a lease in place, would not have prevented you from doing what you described, as you discused it etc with the tenants. Again, if I read correctly, they would have seen improvements etc, why would they have disagreed ...
Now, my concern is ..... what will you do if things fall off the rails, and in particular ... a member of the public ... is on the property has sustained an injury. You have no documentation to protect your self. If it is common practice, that a LL, has indemnity from tenants, why would your insurer cover you, if they find out, you do not take the "usual" protections etc.
In my ... years, in this business, the greatest fear I have seen amongst people, particularly investors, is personal liability, when there has been an accident, eventuating in a death, and even worst when it is a child. The judgement is in the millions.
That is when clearly defined documents, ie leases, as to who is responsible for what, and backed by directors guarantees when in the case of companies, will be a great bum saviour.
I have no problem with epeople doing as much as they can, firstly to expand their knowledge, and secondly to save money, but on some things, when the risks, ( and they are not obviuos) are high, engage a professional.
Firstly it needs to be clarified whether these are retail tenants or commercial tenants. If retail they will have more rights because of the dreaded Retail Shops Act. If commercial things are a bit more on your side and there is no real act to govern you and what you do.
I think you are playing a very dangerous game not having leases in place, irrespective of your above reasoning. Each to their own but I would never ever let that run as-is. You should be getting a copy of the tenant's insurance docs for liability and glass noting you as an interested party each year, protecting your interests, what happens if one of the tenants does major modifications to your property or changes without you knowing and no lease in place? What happens if they burn the place down? When they decide to leave, how are you going to make them complete a make-good and not just lock the door and wave goodbye to you? Do the tenants have a 6 month bond/guarantee in place? Do you increase this each time the rent increases?
If the market is reasonable, and there is positive feedback from your refurbishment then I would take this opportunity to try and convince the tenants to sign leases. Go in at market rental. You can always come down. Even try a bit lower first year with a larger than normal increase in Year 2 to claw your rents back up if need be. Even if it is just at the same rate they are paying or 4% above you will have a solid document.
IMO Qld market is not good at present but this is more for City areas I am not very familiar with regional area markets.
I know you might not be planning to sell, but this is going to affect resale value, you need to protect yourself by getting leases in place and secure your yields by locking tenants in with leases.