Frequently Asked Questions about Commercial/Industrial Leases

Are new tenants checked for suitability?

New tenants are required to fill in an application, supply credit references, and provide full identification. All references are checked, and various searches carried out to make sure they have a clear track record.

How long are Commercial/Industrial leases?

Most small businesses are constantly changing. They are either growing larger or growing smaller, and need flexibility. They usually prefer short term leases of 1 or 2 years initially. If their business stabilises, and they settle into the property, they may stay on for up to 5 years or more. On average, smaller tenancy turnover would be about once every 3 years.

Larger businesses have high relocation costs, and are more stable. They usually prefer lease terms of at least 5 years, plus option periods to extend the lease. It is not uncommon for the larger tenancies to continue for 10 years or more at the same premises.

What are lease options?

When a tenant signs a lease, they may want the option to extend the lease for a number of years, such as 1+1 yrs, 2+2 yrs, 5+5 yrs, etc. While this is an advantage to the tenant, since they can stay or go as they choose at the end of the initial term, it is no advantage at all for the owner, since he is obligating himself and his property for many years to come.

How do tenants pay their rent?

Most Commercial/Industrial tenancies operate on a calendar monthly rental payment. Each month our office issues a Tax Invoice to the tenant, and the tenant then pays their rent into our trust account by cheque or direct deposit.  We have automated systems in place to keep track of rent reviews, end of lease alerts, arrears collections, and repairs.

What about outgoing expenses?

The payment of outgoings, such as Council Rates, Water Rates, Insurances, Strata Levies, Land Tax, and so on are negotiated at the beginning of the lease as part of the terms and conditions.

Gross Leases

In a gross lease, the tenant makes only the agreed rental payment each month, and the owner pays all outgoing expenses. Generally speaking, most smaller tenancies operate on this basis.

Net Leases

In a net lease, the tenant makes the agreed rental payment each month, plus is invoiced every quarter for any outgoings agreed upon in the lease conditions. The owner still pays the outgoings, but is reimbursed by the tenant.

When does GST apply?

If a property owner (whether an individual or a company) is GST registered, GST has to be charged on both the rent and any outgoings collected, but not on bonds. A tax invoice must also be provided. If the tenant is registered, he may claim a credit for any GST he has paid.

What happens if a tenant stops paying the rent?

Maintaining a good relationship with the tenant is of paramount importance at all times, especially if they are going through a period of tight cash flow. A good line of communication can usually avoid most problems. But stringent collection procedures must still be in place. If a number of phone calls, a reminder letter and a site meeting has not resolved the situation, a “Notice To Quit” is issued, and the tenant must vacate the premises immediately.