Urgent help required on commercial lease

[tomoe]

Hi,

I am in the processes of signing a commercial lease(retail) in Melbourne for a new cafe that I will be opening. Several things seem out of the ordinary and Im hoping I can get some clarification, as I have the feeling that landlord/agent is being less than fair.

Would much appreciated if you guys can shed some light on each of the points below.

1. Before being advised whether I was accepted as a tenant, agent is requesting me to sign a head of agreement AND to pay an immediate one month rent deposit(deposit upon application?)

2. Further to this in the HoA its requested we give a Bank Guarentee or Cash security to the effect of 7 months rent. This seems ridiculous (its about 60k in holding deposit?!). This is in addition to the 1 month deposit we are required to pay. Is this normal? What is typical cash security required for a cbd commercial lease?

---- Please advise if this is common practise or reasonable?----- please see
http://www.sbc.vic.gov.au/retail-leasing-matters/security-deposits which says 2-3 months is standard

The following points are more general yet critical issues about the processes .

3. I assume we would need to apply to city council to alter the current signage(of the past business) , before we put our own business signage there. Would be required to pay rent during this application processes? What is the common practise here?

i) Typical turn around time for Melbourne city council to approve a basic signage change (Melbourne CBD) ?

4. Similar to the above their is paint on the building referencing the previous tenant's business. This will need to be painted over. I assume we need approval for the above from city council. Are we likely to be expected to pay for rent while this processes is happening?

i) Typical turn around time for approval from council?


Thanks for all your help in advance

 

[Dazz]

1. Life isn't fair tomoe. Commercial Leases even less so.

2. 6 month BG and 1 month in advance. Par for the course. 12 months would be better.

3. No it's not reasonable. Now do you wish to rent it ??

4. Signage / paint / council approvals....all of that malarkey is squarely in your lap. Do your due diligence.

5. Yes - you need to pay rent from the time you step thru the front door. Melbourne CBD property ain't some kindergarten 2 bed flat where the LL holds your hand every step of the way.


tomoe - it looks like you are contemplating being a Commercial tenant but still attempting to wear your residential tenant's hat.

Expect everything to be in your lap, and cost you thru the roof....then you won't be disappointed. Good luck !!

 

[rhyslivs]

It wholly depends on what is typical of the market at a point in time.

If there is demand for space then unfortunately the landlord can dictate its terms. However if there are other suitable locations that you could open your cafe it puts you into a better negotiating position. How long has the space been available for lease? Is there any other space in the area for lease? Depending on the answers to these questions you may be in a position to extract more from your landlord; incentives such as fit out contributions and rent free periods are not uncommon.

However, I am only familiar with the Brisbane market so I can't comment on the state of retail leasing in Melbourne. I would suggest ringing another retail leasing agent and ask if they have done any recent retail deals, on what terms, any incentives, bank guarantees, etc...

 

[tomoe]

Dazz- 7 Months Bank Guarentee is "par" for Melbourne CBD? (THis is excluding one month deposit.) so thats 8 Months...

 

[PrimeCommercial]

1. Before being advised whether I was accepted as a tenant, agent is requesting me to sign a head of agreement AND to pay an immediate one month rent deposit(deposit upon application?)

Yep, HoA is non binding and is used to instruct solicitors once signed by both parties. You'll find a section in the HoA that states that the one months deposit is fully refundable less any lease preparation costs should you decide to withdraw.
You wont be able to proceed without signing the HoA and paying the one months deposit, Very standard practice.

2. Further to this in the HoA its requested we give a Bank Guarentee or Cash security to the effect of 7 months rent. This seems ridiculous (its about 60k in holding deposit?!). This is in addition to the 1 month deposit we are required to pay. Is this normal? What is typical cash security required for a cbd commercial lease?

---- Please advise if this is common practise or reasonable?----- please see
http://www.sbc.vic.gov.au/retail-leasing-matters/security-deposits which says 2-3 months is standard

The one months deposit will be paid against your first months rent.
7 months bond, Its a bit rich. I haven't been keeping up to date with all the changes in the retail leases act but your solicitor should be able to advise you whether 7 months bond is kocher.
I've never done a lease with any more than 3 months bond (retail or commercial office space). It is always a negotiating point, and reflects how desperate the landlord is, the risk the landlord associates with you as a tenant, what type of fit out works you propose to do to the tenancy, and how good you are at negotiating.

The following points are more general yet critical issues about the processes .

3. I assume we would need to apply to city council to alter the current signage(of the past business) , before we put our own business signage there. Would be required to pay rent during this application processes? What is the common practise here?

i) Typical turn around time for Melbourne city council to approve a basic signage change (Melbourne CBD) ?

4. Similar to the above their is paint on the building referencing the previous tenant's business. This will need to be painted over. I assume we need approval for the above from city council. Are we likely to be expected to pay for rent while this processes is happening?

i) Typical turn around time for approval from council?

Yep, In Sydney (and most commercial markets around the country) tenants are able to negotiate reasonable rent free periods. DA applications and fit outs are able to be completed during this time. Length of rent free periods vary. When I was in retail with AMP Capital, 28 days was it. Currently in the North Sydney commercial market 1 month per year of the lease is standard at the moment (except for 1 year leases, usually zero).

Its all a matter of demand and supply....

I have no idea what the retail market is like in Melbourne but nothing sounds out of order except maybe for the bond amount. There are plenty of tenant reps that are experts in negotiating retail leases in your area. They will know the current market and know how far they are able to push to get the best deal for you. The $10k you spend on them is chicken feed against being committed to a $500k-$1mil retail lease over the next 5 years and having your home on the line.

 

[chilliblue]

Be thankful that you are not becoming one of my tenants.

My minimum expectation is a 12 month gross rent BG that increases to 24 months should the lease be in holdover, assigned or in default. I also expect a personal guarantor to be nominated.

The one months rent cheque with the HoA is normally used as a security deposit that should you not proceed to signing leases, then that amount will be used to reimburse legal costs. Otherwise, if everything goes ahead, it becomes part of the rent. This is clearly detailed in the HoA.

As one of my tenants, you will only receive one months net rent free for every five years initial rent.

In some of my new buildings, the tenants are having to be "green" and spending additional costs on eco paint, coverings etc.

Business is good.

 

[Dazz]

Dazz- 7 Months Bank Guarentee is "par" for Melbourne CBD?

Dunno chief - don't own any Melbourne CBD property - wish I did. That building with the two bunny rabbit ears (aerials ??) looks fantastic - 360 Elizabeth St.

What is "par" ?? Are you entitled to par ??

You aren't trying to lease the Melbourne CBD so that doesn't matter. You are trying to lease one tiny little section of it, and are up against one individual owner. It doesn't matter what the rest of the CBD is doing, it only matters what that Landlord will accept.

I'd suggest you stop trying to find out what is "normal" or "par" or "standard"....and start concentrating on your business cashflows, that is the revenue side of your business, rather than the cost side of things. Costs are important, don't get me wrong, but your revenues are far more important.

I would of thought the best location and hence the best presence would impact heavily on the revenue side of your business. Given that, the Lease conditions are something you don't want to push too hard, as without it, you don't have a business.

Your call.

 

[Kenster]

... stop trying to find out what is "normal" or "par" or "standard"

... start concentrating on your business cashflows, that is the revenue side of your business, rather than the cost side of things. Costs are important, don't get me wrong, but your revenues are far more important.

I would of thought the best location and hence the best presence would impact heavily on the revenue side of your business. Given that, the Lease conditions are something you don't want to push too hard, as without it, you don't have a business...

I think Dazz' wise words are worth highlighting.

Play based on your original plan and purpose.

Feel happy when you see obstructions along the way, as it means you are moving forward.

Stay true on your course.

Cheers