Q & A for Owners requiring a new tenant
We work extremely hard to lease your property as soon as possible.
Firstly we invest in specialist staff training, carefully developed internal quality systems, databases and leasing programs.
We spare no effort to recruit and retain high quality experienced operators with a record and passion for high performance.
We provide recommendations on preparing the property for lease as well as proposing marketing elements such as boards and the internet to generate quality enquiries. We keep you informed of our progress throughout.
Upon finding a prospective tenant we make every effort to ensure they have good references and are suitable businesses for the property that will ultimately add value to your investment.
The following is a guide only and it is strongly urged you read all
associated documentation, and 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 effect 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
We have a disciplined leasing process which is summarised hereunder;
Formalise our appointment – by signing a standard REIV authority;
Property preparation – understand aspects of the property;
Heads of agreement (HOA) preparation – outline all aspects of the basic terms of the lease be sought;
Marketing preparation – remember we cannot lease a secret;
Negotiation phase – focus is on the Heads Of Agreement document;
Completion phase – tenant does not get access until lease documentation is signed by both parties, first month’s rent and security bond is paid;
Management phase – the property is then handed to our expert management team.
What is an agency authority and why do I need to complete one?
We need to pre-agree and formalise our role that you want us to perform.
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?
This is the contract between the landlord and the tenant. It sets out the obligations of each party. Whenever there is a query of dispute it is always the first document we refer to.
Heads of Agreement (HOA)
Most of our lease transactions involve the preparation of a HOA. This document summarises 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 rentals cover all tenant obligations in a single charge. Rent and all outgoings (excluding consumables) are combined together in a gross rental paid monthly.
Net rentals are paid monthly whilst outgoings are charged when they fall due. For details of types of outgoings see Frequently Asked Questions (FAQ) on this subject.
How is the rent determined?
The rent is based on the comparable rents of other properties within the area that are of similar size, presentation, and positioning. The rent is ultimately determined by the owner on the basis of these facts and on the advice of the agent.
How do rent reviews work?
Normally 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. Most commercial leases require the tenant to reimburse the owners outgoings. These are paid by the tenant in addition to the agreed rental.
For a ‘gross lease’, outgoings are included within the rental as a single payment. There are no further outgoings for the tenant to pay as they are settled by the owner of the property other than such things as phone, electricity and water consumption.
What do outgoings 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 is a company appointed to manage the shared areas of a building or a number of adjoining premises. The owners corporation will collect charges for utilities, cleaning etc for the common areas and will charge a portion to each premises as defined by the deed of
incorporation. The Owners Corporation charges will in most cases be chargeable to the tenant as part of the lease obligations.
An owners corporation exists where a property is part of a strata plan. The owners corporation ensures the wishes of the collective owners are implemented, owners corporate outgoings are paid and the owners corporate rules are adhered to.
It should be noted that with most owners corporations the building insurance is arranged by the owners corporation and incorporated into the owners corporation fees.
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?
This is the number of years the 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?
This will be determined by the owner, however under the Retail Leases Act, the minimum lease term allowed is five years. This can come in the form of a 2 x 2 x 1 year lease or a 3 x 2 year lease, as examples.
Short term leases (eg. 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 for the tenant to extend their lease by a pre-determined period.
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 to secure against non-performance of the lease obligations by the tenant – this will usually be between one and three months rent inclusive of the GST or more subject to the level of security provided.
What is a bank guarantee?
The Retail Leases Act requires landlords to offer tenants the opportunity to pay a cash security deposit or by bank guarantee. A bank guarantee is an irrevocable undertaking by an Australian Bank to pay upon demand.
A bank guarantee can be provided as an alternative to a security deposit but only if it is unconditional (Nil Expiry Date). Your bank can provide an unconditional bank guarantee. If a bank guarantee is provided with an expiry date, Nixon Industrial will require it to be returned to the bank to provide a nil expiry date bank guarantee.
Director’s guarantees are there to provide additional security to the owner. In the event that the lease of a premises is under a company name and these are in place, then the directors who signed the lease are personally liable for the company obligations under the lease.
Do all directors need to sign the Heads of Agreement (HOA) and Lease?
In a technical sense, yes they have to. If the lease in under a company name then the directors of that 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;
a) the certainty and fairness of retail leasing arrangements
between landlords and tenants; and
b) 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;
(a) 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 landlords agent
Why do we request a tenant provide credit/business references?
Credit references provide some indication to the owner and the agency that the potential tenant is reliable, timely, honest and trustworthy with regards to the payment of invoices and bills. The references could include, past landlord(s), regular business suppliers, audited financials, and estate agents who they have leased premises from previously.
Essential Safety Measures & Fire Safety
Under the Building Regulations 2006, owners are required to provide a 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.
Should the premises be found to be non-compliant then significant fines could be imposed.
Make good / Re-instate
Most leases state the premises upon lease termination must be in the same condition as the lease commencement fair wear and tear accepted. If we manage your property we ensure the tenant is aware of their obligations and inspect the premises to ensure the lease has been complied with.
Can the tenant request the owners to carry out works during their lease term?
Yes you can, but the details of the actual works including what needs to be done, time period, costs etc. needs to be correctly stipulated via a written request to the landlord which can then either be accepted or denied by them.
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?
Nixon Industrial issues Tax Invoices and collects “consideration plus GST” from tenants on the behalf of owners. Monthly statements are provided with the information necessary to complete BAS statements. Monthly statements also serve as a Tax Invoice and set out the management fees and GST levied and collected/deducted from the income collected.
What about GST on Outgoings?
Current tax law has a special interpretation of leases and considers that any amount which becomes payable according to the terms of an agreement (lease) is to be considered “consideration for supply”.
If under a lease a tenant is required to reimburse or pay an amount eg: council rates, then as soon as that payment is made by the tenant, that amount paid is deemed to be “consideration for supply”.
As soon as payment becomes due by the tenant, under a lease it changes its nature under tax law interpretation. Accordingly technically, 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?
The leasing fee is payable immediately the lease becomes unconditional. Nixon Industrial will issue a tax invoice and deduct this from initial rentals as they are collected.
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 Nixon Industrial. Interested parties should make their own enquiries.