Tenant or Owner Expenses?

Discussion in 'Commercial Property' started by jackbak, 18th Jan, 2013.

  1. jackbak

    jackbak Member

    Joined:
    27th Feb, 2012
    Messages:
    847
    Location:
    Melbourne, VIC
    Hi all, I'm exploring the possibility of buying a commercial office with a warehouse at the moment. From what I gather through reading this forum its generally the tenant who bares the expenses. I've got a list of all the expenses associated with this property and hoping that you could give me your opinion on which costs the tenant would pay and which the owner would pay.

    Accounting Fees
    Bank Fees & Charges
    Real Estate Management Fees
    Body Corp Fees
    Body Corp Building Insurance
    Insurance (Fit out)
    Power
    Rubbish Removal
    Security
    Water Rates
    Council rates
    Land tax


    PS this is not my list, it is the list I have obtained form the owner of all the current expenses. It's a little complicated so lets just assume that at the moment it's unoccupied.

    Thanks!
    Jackbak
     
  2. John M

    John M Member

    Joined:
    30th Jun, 2012
    Messages:
    126
    Location:
    Sydney, NSW
    Jack,
    Depends on whether it is a net lease or a gross lease. With a net lease, the tenant pays for outgoings on top of their 'net' rent, such as:
    - building insurance
    - strata fees
    - land tax
    - water rates
    - electricity rates
    - property management fees

    With a gross lease, the outgoings (as per above) are payable by the owner.

    Usually, tenants will also pay for:
    - air conditioning maintenance and servicing
    - fire equipment maintenance and servicing
    - rubbish removal (this sometimes comes under strata though)
    - electricity usage
    - water usage
    - any fit out
    - any increase in building insurance as a result of their intended use
    - any alterations to the building required in order to fulfil legal requirements due to their intended use

    This depends entirely on the lease, however. The lease could stipulate the owner pays for everything, it could stipulate the tenant pays for everything.

    If the property is vacant, you will have to assess comparable leases which will tell you:
    - what your property is worth
    - the acceptance of net leases within the local area (some areas are more accepting than others)
    - how long it may take to lease out
    - what incentives may have to be given (ie how many months rent free is the norm in the local area for a 3 year lease?)

    Often smaller Commercial and Industrial buildings run on gross leases as tenants don't like the uncertainty that net rentals can bring (as an increase in rates could hurt their bottom line more).

    Net rentals are often the norm for larger buildings. But again, this will depend on what is negotiated between the Lessor and Lessee, and accordingly, what is stipulated within the lease.

    I hope this helps somewhat! Good luck with it all.
    Jonno
     
  3. jackbak

    jackbak Member

    Joined:
    27th Feb, 2012
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    847
    Location:
    Melbourne, VIC
    Great, thats a big help thanks Jonno
     
  4. John M

    John M Member

    Joined:
    30th Jun, 2012
    Messages:
    126
    Location:
    Sydney, NSW
    No problems at all!