Q & A for Owners requiring a new tenant
Our real estate industry professionals work hard to lease your property quickly and seamlessly.
We pride ourselves on our carefully developed internal quality systems and leasing programs, and we invest in specialist training staff to ensure our clients receive unparalleled service.
On preparing the property for lease, we provide you with recommendations and proposed marketing elements such as boards and the internet to generate enquiries, while keeping you informed throughout the process.
Ultimately, our aim is to find a good tenant for the right property. We work hard to ensure they have sufficient references and are suitable businesses for the property that will add value to your investment.
Please read the following guide for reference and we also advise you make your own enquiries.
What do I need to know about leasing commercial & industrial property?
Leasing a Commercial & Industrial property is different to leasing a residential property. Every client’s property requirements are unique.
Activity within the local area that may affect commercial property values include:
- Current business confidence in the area
- Recent leasing evidence
- Council planning requirements
- Presentation and positioning of your premises in comparison to others
Please review our disciplined leasing process which is summarised below:
First, we will have to sign a standard REIV authority to formalise our appointment. We will then evaluate all aspects of the property. All aspects of the basic terms in the lease is then outlined in the Heads of Agreement (HOA) preparation.
Once that is completed, we will put the property on display. When we receive an offer, we will go through the negotiation phase, focusing on the HOA document. If the potential tenant decides to proceed, we will arrange for the lease documentation to be signed by both parties. We require the first month’s rent and bond (security deposit) to be paid by the potential tenant. It is important to note that the tenant does not get access until we acquire the mentioned deliverables by the tenant.
Once we have receive the deliverables, our management team will finalise the handover and the lease begins.
What is an agency authority and why do I need to complete one?
This enables you to appoint us to act on your behalf.
The Estate Agents Act requires that any arrangement for the provision of Agency services must be in writing. As members of the Real Estate Institute of Victoria (REIV) we use the standard REIV Authority forms which have been designed to meet the requirements of Estate Agency Law.
Why do I need a lease?
A lease is a contract between the landlord and the tenant to set out the terms and obligations of each party. If a query of dispute occurs, it is the first document referred to.
Heads of Agreement (HOA)
A HOA summaries the basic terms and conditions which upon agreement is signed off by both parties.
The HOA is then provided to the owner’s solicitor to prepare the lease documentation.
What is the difference between gross and net rentals?
Gross lease cover all tenant obligations in a single charge. Rent and all outgoings (excluding consumables) are combined together in a gross rental paid monthly.
Net lease only cover the base rent amount and are paid monthly whilst outgoings are charged when they are due.
How is the rent determined?
Rent is determined on the comparable rent prices of other properties of similar size, presentation, and positioning in the area. The rent is determined by the owner on the basis of these facts and on the advice of the agent.
How do rent reviews work?
On most occasions there is a fixed or CPI annual increase during the lease term. However, upon your lease renewal (if any) the rent is determined at market levels.
What is an outgoing?
Outgoings are the expenses attributable to and necessary to maintain a functional property. The majority of commercial leases require the tenant to reimburse the owners outgoings, which are paid by the tenant in addition to the agreed rental.
In the case of a ‘gross lease’, outgoings are included within the rental as a single payment. Other than electricity, phone and water consumption, there are no further outgoings for the tenant to pay.
What do outgoings and property charges consist of?
Property charges such as:
- Statutory charges such as: (council rates, water rates, drainage charges)
- Building operating costs
- Insurance costs
- Owners corporation fees if a strata title property
Who pays land tax?
Under the Retail Leases Act, the owner is required to pay land tax on their premises. This is a non-recoverable expense. For properties not covered by the Retail Leases Act, these outgoings are recoverable from the tenant based on a single holding basis.
What is an Owners Corporation fee and what does it include?
Owners Corporation is the new term for Body Corporate.
An Owners Corporation fee covers general administration, maintenance, insurance and other ongoing costs. Lot owners are charged their share of annual fees according to their lot liability. The Owners Corporation charges will in most cases be chargeable to the tenant as part of the lease obligation unless stated otherwise.
For further information refer to the Owners Corporation Act 2006 www.legislation.vic.gov.au
What is included under the term ‘insurance’?
This includes the lessor’s building, public liability and plate glass insurances.
Additionally, the tenant is required to take out their own contents insurance. For more specific information regarding insurance, contact your insurance provider.
What is a lease term?
A lease term is the number of years a tenant agrees to lease your property. If the landlord has undertaken their lease obligations, this term cannot typically be broken by the tenant. It is ‘term certain’ you are allowing the tenant to use the premises.
What is the minimum lease term allowed?
The lease term is determined by the owner.
However under the Retail Leases Act, the minimum of 5 years is allowed on the lease. For example, it can come in the form of a 2 + 2 + 1 year lease or a 3 + 2 year lease.
Short-term leases (e.g. 12 month lease) are acceptable but a waiver needs to be obtained and accepted by the Small Business Commissioner. For further information look up www.sbc.vic.gov.au
What is an option period?
After the initial lease term most leases provide the opportunity for the tenant to extend their lease to a specified timeframe.
What is the security bond?
This is a cash amount which is paid by the tenant and held in an interest bearing account. As required under the Retail Leases Act, the security bond secures against non-performance of the lease obligations by the tenant. The security bond is usually between one and three months rent inclusive of the GST or more, subject to the level of security required.
What is a bank guarantee?
Under the Retail Leases Act, tenants have the opportunity to pay a cash security deposit or a bank guarantee. A bank guarantee is an unconditional undertaking given by the bank on behalf of the customer to pay the recipient of the guarantee, the amount on the written demand.
Please note that we require an unconditional bank guarantee or a nil expiry date bank guarantee.
Director’s guarantees provide additional security to the owner.
If the lease of a premise is under a company’s name, then the director(s) who signed the lease is/are personally liable for the company’s obligations under the lease.
Do all directors need to sign the Heads of Agreement (HOA) and Lease
If the lease is under the company’s name, all directors of the company must sign the lease agreement.
What is the Retail Leases Act?
The Retail Leases Act was put into legislation in 2003, It is designed to enhance;
- the certainty and fairness of retail leasing arrangements between landlords and tenants; and
- the mechanisms available to resolve disputes concerning leases of retail premises
In the Act, retail premises means premises, not including any area intended for use as a residence, that under the terms of the lease relating to the premises are used, or are to be used, wholly or predominantly for;
- the sale or hire of goods by retail or the retail provision of services.
Retail leases legislation applies to a retail premises lease used for the sale or hire of goods by retail or the retail provision of services and where the occupancy cost is less than $1 million per year.
What is a Disclosure Statement?
The disclosure statement forms part of the lease and is a statement that is required to be completed by the landlord under the Retail Leases Act 2003.
The disclosure statement outlines aspects such as:
The landlords’ details
- The tenants details
- The details of the premises
- The retail shopping centre (if applicable)
- The terms of the lease
- The permitted use of the premises
- The occupancy costs
- The rent payable
- The outgoings and what they are
- Tenants fit out and/or refurbishment works
- Relocation/Demolition clause (if applicable)
- Additional Representatives (if applicable)
- The declaration by the landlord or landlord’s agent
Why do we request a tenant to provide credit/business references?
In order to ensure the potential client is reliable, timely, honest and trustworthy, we require the tenant to provide credit or business references.
The references could include past landlord(s), regular business suppliers, audited financials, and real estate agents from previously leased premises.
Essential Safety Measures & Fire Safety
Under the Building Regulations 2006, owners are required to provide premises that complies with the Essential Safety Measures legislation. Premises are required to be inspected annually (some bi-annually) to ensure the premises remains compliant.
The owner is required to pay for the cost of these inspections in accordance with lease obligations.
Significant fines could be imposed, should the premises be found to be non-compliant.
Make good / Re-instate
Upon lease termination, the premises must be in the same condition as the commencement of the tenancy. However, reasonable wear and tear is accepted. If we manage your property, we ensure the tenant(s) are aware of their obligations and we will conduct routine inspections to ensure the upkeep of the property.
Can the tenant request the owners to carry out works during their lease term?
Yes they can. The details of the actual works including what needs to be done, costs, time period, etc. needs to be communicated via a written request to the landlord, which can then either be accepted or denied.
Goods and Services Tax (GST)
Goods and Services Tax is added to charges relating to all commercial property. Once registered, GST can be claimed back as part of the quarterly BAS Statement, depending on the business ownership and reporting structure. If you need specific information regarding GST on leased premises, speak to your accountant.
Where does GST come into it?
North East Real Estate issues Tax Invoices and collects “consideration plus GST” from tenants on the behalf of owners. Monthly statements serve as Tax Invoices and it provides necessary information to complete BAS statements. Monthly statements also provide details on management fees and GST levied as well as other fees collected or deducted.
What about GST on Outgoings?
Under the current tax law, any amount which becomes payable according to the terms of an agreement (lease) is to be considered “consideration for supply”.
Under a lease, if a tenant is required to make a payment (e.g. council rates), that amount paid is deemed to be “consideration for supply”.
As soon as a payment becomes due by the tenant, it changes it’s nature under tax law interpretation. Reimbursement of rates becomes “consideration of supply” and is legally indistinguishable from rent.
The tax law deems that the payment has been received by the landlord and 1/11th of the amount received is payable by the landlord as GST.
When is a leasing fee payable?
Once the lease becomes unconditional, the leasing fee is made payable immediately.
North East Real Estate will issue a tax invoice and deduct this from initial rental collections.
What legal costs are involved in leasing a property?
The owner needs to have a lease prepared by their solicitor. There are no legal costs for the tenant unless they hire a solicitor to verify that the lease document reflects the agreements made between both parties.
Disclaimer: Particulars herein are for information only and do not constitute any representation by North East Real Estate. Interested parties should make their own enquiries.