4 things to know about commercial leases

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More and more sophisticated investors are considering commercial real estate as a viable investment strategy.

Hand With KeyThey have usually built a substantial asset base and are now looking for more cash flow in their investments.

Often, they buy smaller properties – such as a shop, strata office or perhaps an industrial warehouse – because the entry level price for larger commercial premises is quite high.

Commercial Property

Commercial property is any non-residential property used for commercial profit-making purposes.Commercial real is a term that covers industrial properties, retail properties (from the corner store to shopping centres) offices and hotels.Commercial property and residential real estate are(…)

“>Commercial property investment remains a sound strategy but, in my opinion, it shouldn’t be attempted without an expert team working with you.

Plus, commercial leases are very different to residential ones, they are more complex, usually prepared by a solicitor and run for 3 to 5 years.

Here are four things that you need to know about commercial leases.

1. Retail or not?

Many commercial leases are considered to be retail in nature (even if the premises is not a typical shop) because the tenant’s business is providing goods and services.

That means those leases are covered by their own legislation, the Retail Leases Act 2003 (Act), which can be a little tricky for the uninitiated to understand.

The Act imposes obligations on both parties, but protects the tenant more if they are covered by the ACT.

For example, landlords can’t pass on certain costs to tenants in a retail lease, things like legal costs for preparation of the lease, Land Tax

Land tax is a state tax, calculated on the freehold land you own in that StateThe tax rate that applies depends on: what type of owner you are (eg individual, trustee, company foreign resident)
the total taxable value of your land, and
if any exemptions apply.

In Victoria, Land Tax is payable(…)

“>land tax (which can be substantial for Commercial Property

Commercial property is any non-residential property used for commercial profit-making purposes.Commercial real is a term that covers industrial properties, retail properties (from the corner store to shopping centres) offices and hotels.Commercial property and residential real estate are(…)

“>commercial property), or costs relating to essential safety measures.

And owners must provide prospective retail tenants with a Disclosure Statement which outlines important information about the lease and the occupancy costs including outgoings.

2. Rent reviews

Retail lease rent increases generally happen every year and can be by a fixed rate, percentage increase, or commonly reflect the Consumer Price Index increase.

Then at the end of the lease, the rent is usually reviewed to the current market rent, if the tenant agrees to take up their option to release the premises.

If the tenant disagrees with the proposed market rental increase, it’s a good idea to get an independent Valuation