Proposal for Lease of Factory

I am looking to expand my business and looking at renting a factory shortly

I have found 1 I like and looking to find out what to offer / negotiate terms too

What should I be looking for inside the lease for hidden costs, etc.
What incentives etc.

1 of my clients tells me he asked for 6 months rent free and they agreed to 3 months free.

I have heard others saying 6 months half price rent.

I will be looking to spend money on fitting out the factory with offices, and working bays. Should i ask the owner to contribute to these capital improvements?

Any advice would be appreciated.

Regards
 
Basically everything is up for negotiation so ask away!

As for incentives/costs etc it depends on how big the space is and which market you are looking at.

Where are you looking? Roughly how big? In Melbourne I assume?
 
Lots of things are possible

Some may be more tax effective than others. Chatting to your accountant about possible benefits tax wise would be a good move.
 
There are lots of variables to be considered and lots of trade-offs to get the deal you want.

A longer lease term is a great trade off for better incentives ie you may get 1 month rent free on a 3 year lease but get 3+ on 5 year lease.

A capital contribution/fitout incentive has to be well thought out - if you want $30k fitout on a 3 year lease, be prepared to pay for it by way of increased rent.
 
Thank you for the replies so far.
yes the place is in Melbourne.

its around 300 Sq MTrs, and they are asking $24,000 a year

There is a good amount of Factories in the area that are also Vacant.

Within 5 minutes walk there is a factory about the same age, 10 Sq Mtrs more and asking $18000 per year. I prefer the location of the smaller factory only because i have a college accross the driveway. We constantly feed each other work all the time so would be a benifit to be directly accross the drive way but that benifit is not worth $6k extra in costs.

From what I know about the place. The previous tenant defaulted about 3-4 months ago on there lease which I beleive ends at the of May anyway.

The factory is a blank canvas. It only has 2 rooms setup. A single upstairs office, a smaller down stairs reception area. There is a kitchen and toilet, but it is open to rest of the factory. Previous tenant ripped down all there fit out including air conditioning that they had installed as landlord wasnt intersted paying for these items.

I have put together a list of things I need to do to the place to get it to the standard i want to trade from.
Setup rooms, Paint, additional ligting, flooring, wiring, phone systems, etc.

I Presume the landlord wont be interested in assisting in paying for any fit out costs as the last tenant didnt get anywhere.

RPI. thank you for the advice regarding tax benifits.. can you possibly please give me some examples so i can talk to my accountat about this thanks.


Is there any hidden extras in the lease agreements i should look for?

Rent increases/rent reviews.. CPI, Fixed % or Market review? Whats your thoughts?

Anything im missing

Thanks again
 
....
A capital contribution/fit out incentive has to be well thought out - if you want $30k fit out on a 3 year lease, be prepared to pay for it by way of increased rent.

I have never seen a commercial lease so i don't know what is in there to negotiate on.

I know there is the basics like cost of rent, increases to rent, and terms of use, but what else is there that i should be aware of or areas I could possibly negotiate on.

I am happy to pay for the actual fit out and do it in sections as needed.
Im looking at how can it be arranged that the fit out be either purchased/paid back to me by the landlord or wording the lease that capital improvements to the facility remain mine unless the landlord is willing to purchase it. I will be making the walls removable so if I move to another factory i can pull it back down and relocate and not have to make it all again. If that makes sense.


I am not in a position to purchase the factory but i would love to be in a year or 2. I have heard a rumor the owner may be considering selling in a years time. He is looking for a good tenant and then sell. Can I put into the lease i get first option to buy and if so how do i word it.?
 
I am looking to expand my business and looking at renting a factory shortly

I have found 1 I like and looking to find out what to offer / negotiate terms too

What should I be looking for inside the lease for hidden costs, etc.
What incentives etc.

1 of my clients tells me he asked for 6 months rent free and they agreed to 3 months free.

I have heard others saying 6 months half price rent.

I will be looking to spend money on fitting out the factory with offices, and working bays. Should i ask the owner to contribute to these capital improvements?

Any advice would be appreciated.

Regards
Hi xcesiv,

Everything is negotiable. Ask about what the owner wants to find out what situation the owner is in. Are they in a position to offer incentives and rent free in order to secure a good tenant, or would they prefer to secure a tenant and start receiving rent immediately, even if it is at a lower rate?

You can ask for a few things:
- Reduced rental
- Rent Free Period
- Assistance with fitout cost

Asking for all of the above will often offend the owner. I have various owners who refuse to deal with tenants who come in with lowball offers so be careful not to do this.

You can help convince them to give you the above by offering:
- A long lease
- Showing you are a good tenant (most tenants fill out an application form, but giving additional information about your business background, telling the owner you own property yourself etc etc can help convince them)
- Including in the lease that you will leave some/all of the improvements to the property (some improvements are not worth your while removing but may improve the owner's property). Keep in mind that if you are doing a fitout specific to your business, the owner will not care how much it costs you and will not likely be willing to help out.
- Look at other things you could do to help improve or maintain the owner's property

Make sure you confirm what outgoings/utilities are payable.

I hope this helps!
 
Good info from John above.

If you wish you can PM me the address/location of the property and I'll see if I have any information on recent leasings in our database.
 
Thank you for the reply JonnoM

I am meeting with the agent later in the week so i will see what they are after.

I wont be going in low balling as such, but it needs to be good value.

There is 2 very similar spec places on the market at moment, 400 meters apart so its basically choosing 1 over the other.

Basic specs are
Property 1
Size: 302 Sq Mtrs with No current fitout.
Asking 24K+outgoings

property 2
Size: 310 Sq Mtrs with No current fitout.
Asking 18K+outgoings,
Only different this has 2 toilets.

Property 1 would be a few years newer, but both are of similar quality in finish. Property 2 would have more drive by traffic but not really important to me. Property 2 has been vacant for longer. I believe its been vacant for some time now, like years which may explain the lower price rent.

I am meeting with both agents later in the week to inspect both.

Knowing what i can get Property 2 for it sets a benchmark for offers for property 1.
I planned to offer something around the following

Without looking at them yet, basing this on what is seen on the advert online i prefer property 1.
For Property 1 I was thinking of offering something like
* 3yr +3 lease.
* First year, $17k PA +Outgoings.
* Second year $18.5k PA +outgoings.
* Each year after this. Either a fixed rate increase per year or CPI (not sure which is the best option for me.)
* First option to buy before put on the market
* If gets advertised, last chance to match offer before sold.
(if owner decides they want to sell i want to have first chance to buy or at least last chance to match a current offer on the table for its a signed deal. Just dont know how to word this)
I cant afford to buy now, but i will be able to in 2-3 years if the opportunity is there.
* 3 Months rent free or 1 month free and 5 months at half rate.
* Option to sublet (I am considering my options here. 1 business plan option I am considering is to have a small business share the facility. This concept is not set in concrete but I want the option there if its the option i choose)

* Ground level fit out at My Expense with option for landlord to buy fit out at termination of lease or remove at my expense. (don't know exactly what to do here, how to word it, etc)
* Open door for negotiation in future expansion of fit out for Mezzanine.
I don't know how this will work but my thoughts are if i expand my business i may need to increase the floor space with a mezzanine. Do i put in the contract either, that i have permission to put in a mezzanine if i wish at my expense, or do i add more to it about possibility of negotiated rates and landlord expense?
My business model has my requiring a mezzanine in around 3-5 years.
With mezzanine I believe the extra space will make the factory suitable for an additional 5+ years (past where my current business model goes to.
* Landlord (or who ever needs to approve) to approve my suggested Fit out plan before signing lease.

Including
fit out of office space, and fabrication rooms
Exterior signage, A Frame at front of driveway

I think that is it. If i have missed something let me know
Or if you think i have something wrong please help with wording.

Once i have everything i want in my offer i will put it together with a nice speal about my business and details about me.

1 more question.
Should I engage someone to help ensure the lease is right or is this something i can comfortably do myself ?

Thank you again everyone

Regards
 
Thank you for the reply JonnoM
No problems, see responses below in red.


I am meeting with the agent later in the week so i will see what they are after.

I wont be going in low balling as such, but it needs to be good value.

There is 2 very similar spec places on the market at moment, 400 meters apart so its basically choosing 1 over the other.

Basic specs are
Property 1
Size: 302 Sq Mtrs with No current fitout.
Asking 24K+outgoings

property 2
Size: 310 Sq Mtrs with No current fitout.
Asking 18K+outgoings,
Only different this has 2 toilets.

Property 1 would be a few years newer, but both are of similar quality in finish. Property 2 would have more drive by traffic but not really important to me. Property 2 has been vacant for longer. I believe its been vacant for some time now, like years which may explain the lower price rent.

I am meeting with both agents later in the week to inspect both.
A good idea to compare both. There's definitely a reason why P2 is significantly cheaper on face value. Also request outgoings for both properties

Knowing what i can get Property 2 for it sets a benchmark for offers for property 1.
I planned to offer something around the following

Without looking at them yet, basing this on what is seen on the advert online i prefer property 1.
For Property 1 I was thinking of offering something like
* 3yr +3 lease.
* First year, $17k PA +Outgoings.
* Second year $18.5k PA +outgoings.
* Each year after this. Either a fixed rate increase per year or CPI (not sure which is the best option for me.)
* First option to buy before put on the market
* If gets advertised, last chance to match offer before sold.
(if owner decides they want to sell i want to have first chance to buy or at least last chance to match a current offer on the table for its a signed deal. Just dont know how to word this)
I cant afford to buy now, but i will be able to in 2-3 years if the opportunity is there.

This is referred to as a 'first right of refusal'. Basically if the owner decides to sell down the track, they can't sell without first asking you if you're interested.

* 3 Months rent free or 1 month free and 5 months at half rate.
It's good that you're giving the owner options, as they may prefer one or the other. However, offering a price significantly below the asking price, and asking for a further 8.3% rent free incentive may offend them so be careful.

* Option to sublet (I am considering my options here. 1 business plan option I am considering is to have a small business share the facility. This concept is not set in concrete but I want the option there if its the option i choose)
Usually you have the right to sublease - but the owner has to approve the sub-tenant and their proposed usage.

* Ground level fit out at My Expense with option for landlord to buy fit out at termination of lease or remove at my expense. (don't know exactly what to do here, how to word it, etc)
I've never seen an owner purchase a fit out installed by a tenant. They may allow you to leave it, but usually there will be a make good clause in which you will have to remove it. A fit out will not improve the value of their property, as future users may or may not see value in it.

If you offer to leave improvements such as air con, new carpet etc this may help you get the rent free and/or reduced rental but don't expect them to pay you for something you've installed which is specific to your own usage.


* Open door for negotiation in future expansion of fit out for Mezzanine.
I don't know how this will work but my thoughts are if i expand my business i may need to increase the floor space with a mezzanine. Do i put in the contract either, that i have permission to put in a mezzanine if i wish at my expense, or do i add more to it about possibility of negotiated rates and landlord expense?
Owner is unlikely to pay for mezzanine space as this is specific to your needs. In fact, they may even want it removed once you leave.

If council comes in and sees it after you leave, the owner will incur a cost to remove it. If it is being properly constructed and DA approved by council, then you might have a slight chance as this adds value. You probably won't have enough car parking to do this anyway, and you wouldn't want to put an improvement of this quality into someone else's property.


My business model has my requiring a mezzanine in around 3-5 years.
With mezzanine I believe the extra space will make the factory suitable for an additional 5+ years (past where my current business model goes to.
* Landlord (or who ever needs to approve) to approve my suggested Fit out plan before signing lease.
Usually you can do whatever you want internally, but you need to ask for owner's permission to do anything structural. You may be best to send through a rough drawing of what you intend on doing before moving in anyway. This will be covered in any lease.


Including
fit out of office space, and fabrication rooms
Exterior signage, A Frame at front of driveway
Exterior signage and A Frame will be the Strata Manager's decision, unless the owner owns the whole complex. I recommend looking at what signage everyone else in the complex has, as this is exactly what you'll be allowed to do. Most owners don't care about A Frame signs at the front, but council might.


I think that is it. If i have missed something let me know
Or if you think i have something wrong please help with wording.

Once i have everything i want in my offer i will put it together with a nice speal about my business and details about me.
A good idea. Shows you're serious and committed.

1 more question.
Should I engage someone to help ensure the lease is right or is this something i can comfortably do myself ?
Yes, get a lawyer to look over the lease. Also make sure you get an estimate of the latest outgoings (not the outgoings from 3 or 4 years ago).

Thank you again everyone

Regards
 
Thank you everyone for your help

P2 is significantly cheaper because the landlord is fussy on the tenant that goes in. No Mechanics, no fabrication, wants a retail client. Previous client damaged the floors causing $20k worth of damage. the manager said he would rather get less rent for a better client than have to go through this hassle again. Been vacant now for 2 years.

I put in an offer late Friday so i will hopefully hear back from them later today.

I justified my offer by mentioning 2 similar factories in the area
first is the facility next door. Advertised the same size, Mirror image layout and right next door asking $19k, then (P2 mentioned earlier) 400m away there is a slightly larger factory asking $18k.

My offer is very close to this.

I provided a quick brief about me and my business. I gave them a quick outline of my business plan and where I see the business in 3 and 6 years time.

I detailed the work that i will be doing, a rough layout/fit out proposal, and in my offer i said i will cover all costs associated with fit out and removal at termination of lease. This includes cleaning up and repainting of the current factory floor, walls, reception and admin offices. They are all flaking and don't look nice (didn't mention it looks bad). Also new carpet in reception and office all in neutral colours.

I didn't mention anything about option to buy the fit out. My thought is if the lease is expiring and they want it to stay they can ask me and we can take it from there.

3 year lease, option of +3+3 and 3 months rent free for fit out time.
2 months rent in advance

I detailed in my business plan about why i request the option to sublease That it would be part of a joint venture with another business. That they will only be using it as admin and meeting space in the upstairs office.

Hopefully i hear back from them later today

Ill keep everyone posted


Thank you again for your help

Regards
 
I just received a copy of the rates and body corp on the place i put an offer on

Rates: $507.10 per Quarter
Body Corporate: $846.60 inc gst

To me the body corporate costs are very high.

the neighbors have said they are not aware of any plans for future renovations or expenses for repairs. They have questioned the body corp costs with the landlord and agent and have not had a response.

does this body corp cost look right ?

thanks
 
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