All Topics / Commercial Property / About to sign a new lease and have no idea what the landlord is meant to pay for and what I should be paying myself

Viewing 15 posts - 1 through 15 (of 15 total)
  • Profile photo of melb15melb15
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    @melb15
    Join Date: 2005
    Post Count: 25

    We’re about to sign a lease on a brand new warehouse/office. Downstairs is warehouse upstairs is the office. The place is brand new so it is like a blank canvas. We let the landlord know what modifications we required and they proposed the below allocation of who will pay for what. I just have two questions:

    1. Does this allocation sound fair and standard for a commercial lease (it’s our first commercial lease so I have no idea)?
    2. If we have to pay for improvements to the property such as shower/kitchen etc we obviously can’t easily remove them when we leave. Is there any provision we can make to recover some cost upon leaving considering we would have added to the value of the property?

    The items proposed are:

    1. Phone and Ethernet sockets/cabling will be up to the tenant to arrange at their own cost.

    2. Upstairs Heating/Cooling will be installed by the landlord and will be factored into the rental over the first 3 years of the lease agreement.

    3. Downstairs kitchen with stove, exhaust fan, pantry will be up to the tenant to arrange at their own cost.

    4. Downstairs shower will be up to the tenant to arrange at their own cost.

    5. Bars on downstairs windows will be installed by the landlord and will be factored into the rental over the first 3 years of the lease agreement.

    6. Alarm system will be up to the tenant to arrange at their own cost. (note; unit 2 installs are alarm installers)

    7. Standard roll down blinds will be installed by the landlord and will be factored into the rental over the first 3 years of the lease agreement, any other type of blind (wooden slat etc) will be up to the tenant to arrange at their own cost.

    8. Doorbell system will be up to the tenant to arrange at their own cost.

    9. Upstairs to be painted (white) will be installed by the landlord.

    10. Stair well to be painted (white) will be installed by the landlord.

    11. Floor coverings upstairs will be installed by the landlord and will be factored into the rental over the first 3 years of the lease agreement.

    Thanks in advance

    Profile photo of calvin_thirty4calvin_thirty4
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    @calvin_thirty4
    Join Date: 2004
    Post Count: 556

    G’Day melb15,
    standard in commercial leases is the Tenant pays for it all!

    So if you can get the Landlord take some of the cost that would be a win for you straight-away…

    Good luck.

    Profile photo of Mick CMick C
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    @shape
    Join Date: 2010
    Post Count: 1,099
    melb15 wrote:
    We’re about to sign a lease on a brand new warehouse/office. Downstairs is warehouse upstairs is the office. The place is brand new so it is like a blank canvas. We let the landlord know what modifications we required and they proposed the below allocation of who will pay for what. I just have two questions:

    1. Does this allocation sound fair and standard for a commercial lease (it’s our first commercial lease so I have no idea)?
    2. If we have to pay for improvements to the property such as shower/kitchen etc we obviously can’t easily remove them when we leave. Is there any provision we can make to recover some cost upon leaving considering we would have added to the value of the property?

    The items proposed are:

    1. Phone and Ethernet sockets/cabling will be up to the tenant to arrange at their own cost.

    2. Upstairs Heating/Cooling will be installed by the landlord and will be factored into the rental over the first 3 years of the lease agreement.

    3. Downstairs kitchen with stove, exhaust fan, pantry will be up to the tenant to arrange at their own cost.

    4. Downstairs shower will be up to the tenant to arrange at their own cost.

    5. Bars on downstairs windows will be installed by the landlord and will be factored into the rental over the first 3 years of the lease agreement.

    6. Alarm system will be up to the tenant to arrange at their own cost. (note; unit 2 installs are alarm installers)

    7. Standard roll down blinds will be installed by the landlord and will be factored into the rental over the first 3 years of the lease agreement, any other type of blind (wooden slat etc) will be up to the tenant to arrange at their own cost.

    8. Doorbell system will be up to the tenant to arrange at their own cost.

    9. Upstairs to be painted (white) will be installed by the landlord.

    10. Stair well to be painted (white) will be installed by the landlord.

    11. Floor coverings upstairs will be installed by the landlord and will be factored into the rental over the first 3 years of the lease agreement.

    Thanks in advance

    Everything you mentioned, if not 90% of it are payable by the Tenant! – it MAY kill the deal…but forking all this cost is def a no no…be aware if you agree to instal and do the work then any damage to the item you will have to maintain and repair (unless the tenant directly damaged it).

    As a matter of fact the tenant should be paying for the water sewage fee as well.

    You should only be paying for the outgoing- council rate, strata( if any), insurance

    Regards
    Michael

    Mick C | Shape Home Loans
    http://www.shapehomeloans.com.au/
    Email Me | Phone Me

    Same Banks. Better Rates. Served With a Passion.

    Profile photo of melb15melb15
    Participant
    @melb15
    Join Date: 2005
    Post Count: 25

    Hi Michael,
    I think you were thinking I was the landlord but we are in fact the tenant in this case. So what you are saying is that we should be paying for most of this stuff right?

    Liam

    Profile photo of TerrywTerryw
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    @terryw
    Join Date: 2001
    Post Count: 16,213

    Generally the tenant pays for all fitouts and is not compensated on exit for this either.

    It is up to your negotiating skills on how you can factor this in to the rent, if at all.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    https://terryw.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://Terryw.com.au/

    Profile photo of Scott No MatesScott No Mates
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    @scott-no-mates
    Join Date: 2005
    Post Count: 3,856

    it all comes down to what you negotiate. What Fitout contribution and rent free period have you agreed?

    why aren’t you negotiating a gross lease?

    Why aren’t base services already in the building?

    Why are you paying the initial telco install to the first point?

    How does this deal stack up against other property in the area?

    Pm me for more.

    Profile photo of Mick CMick C
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    @shape
    Join Date: 2010
    Post Count: 1,099
    melb15 wrote:
    Hi Michael,
    I think you were thinking I was the landlord but we are in fact the tenant in this case. So what you are saying is that we should be paying for most of this stuff right?

    Liam

    Hi Liam,

    Sorry yes i was referring from a landlord’s point of view.
    If you want to negotiate with the landord i would highly suggest you cut down on the list and focus on the item that cost the most…showing a landlord a list of 5+ request would just put them off!

    When you exit; you most likely can’t ask for any cost back due to you “adding” value to the property.. because in the landlords eye it may not be useful items for their purpose ie the next tenant that moves in may want more space and want storage only and may not want a shower? etc..You most likely would have to pay some cost when you leave to “remove” some stuff.

    Regards
    Michael

    Mick C | Shape Home Loans
    http://www.shapehomeloans.com.au/
    Email Me | Phone Me

    Same Banks. Better Rates. Served With a Passion.

    Profile photo of melb15melb15
    Participant
    @melb15
    Join Date: 2005
    Post Count: 25
    Scott No Mates wrote:
    What Fitout contribution and rent free period have you agreed?

    This hasn’t been discussed. I am a 100% newbie to commerical leasing. Is the rent free period for you to fit out the property before you take it over for business?

    Scott No Mates wrote:
    why aren’t you negotiating a gross lease?

    Again apologies for my ignorance but I don’t even know what a gross lease is. Is this where you negotiate a total lease including all of the required fitout expenses?

    Scott No Mates wrote:
    Why aren’t base services already in the building?
    Scott No Mates wrote:
    Why are you paying the initial telco install to the first point?

    Base services are connected I just have to confirm with the phone.

    Scott No Mates wrote:
    How does this deal stack up against other property in the area?

    Stacks up great!

    Profile photo of Scott No MatesScott No Mates
    Participant
    @scott-no-mates
    Join Date: 2005
    Post Count: 3,856

    1 Fitout period is usually shorter than a negotiated rent free. What incentives have you agreed?

    2 a gross lease includes outgoings – you have no control over o/g increases on a net lease

    3 what rent review mechanisms apply?

    4 insurance provisions?

    5 make good requirements?

    6 guarantees? Security bond?

    Need I go on?

    Are you convinced this is still a good deal? or back to the negotiating table?

    Profile photo of melb15melb15
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    @melb15
    Join Date: 2005
    Post Count: 25

    Thanks Scott, food for thought. Am looking into everything now

    Profile photo of commpropcommprop
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    @commprop
    Join Date: 2011
    Post Count: 24
    melb15 wrote:
    We're about to sign a lease on a brand new warehouse/office. Downstairs is warehouse upstairs is the office. The place is brand new so it is like a blank canvas. We let the landlord know what modifications we required and they proposed the below allocation of who will pay for what. I just have two questions: 1. Does this allocation sound fair and standard for a commercial lease (it's our first commercial lease so I have no idea)? 2. If we have to pay for improvements to the property such as shower/kitchen etc we obviously can't easily remove them when we leave. Is there any provision we can make to recover some cost upon leaving considering we would have added to the value of the property? The items proposed are: 1. Phone and Ethernet sockets/cabling will be up to the tenant to arrange at their own cost. 2. Upstairs Heating/Cooling will be installed by the landlord and will be factored into the rental over the first 3 years of the lease agreement. 3. Downstairs kitchen with stove, exhaust fan, pantry will be up to the tenant to arrange at their own cost. 4. Downstairs shower will be up to the tenant to arrange at their own cost. 5. Bars on downstairs windows will be installed by the landlord and will be factored into the rental over the first 3 years of the lease agreement. 6. Alarm system will be up to the tenant to arrange at their own cost. (note; unit 2 installs are alarm installers) 7. Standard roll down blinds will be installed by the landlord and will be factored into the rental over the first 3 years of the lease agreement, any other type of blind (wooden slat etc) will be up to the tenant to arrange at their own cost. 8. Doorbell system will be up to the tenant to arrange at their own cost. 9. Upstairs to be painted (white) will be installed by the landlord. 10. Stair well to be painted (white) will be installed by the landlord. 11. Floor coverings upstairs will be installed by the landlord and will be factored into the rental over the first 3 years of the lease agreement. Thanks in advance

    To be honest, I'm surprised you got this far with the LL, perhaps the building is difficult to rent out, but we wouldn't even entertain these kind of requests.

    Apart from the paintwork which is even questionable in itself, the rest of it sounds more like "furbishment" type works that most of the benefit will be received by the tenant than landlord…

    Profile photo of NIMBYNIMBY
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    @nimby
    Join Date: 2011
    Post Count: 12

    For what it is worth, I fully agree with Scott no mates comments – those items he mentioned are the difference between a great deal and a real shocker. As for your list, all items that you have noted as "installed by the tenant at their cost" I agree with, but those items being installed by the landlord and amortised (air con, carpet, blinds, security bars) would seem to be standard inclusions and I would have thought would be included in the base rent. It is a bit much to expect a tenant to lease an office without carpet or air con in this day and age (I have tenants who expect a rent holiday if the air con breaks down for a day!).

    Also, just be careful you don't end up with a gross rent + increases in outgoings over base year – it is a great deal for a landlord but you will pay for the increases twice.

    Profile photo of melb15melb15
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    @melb15
    Join Date: 2005
    Post Count: 25

    Thanks NIMBY and commprop, will post here once done and the lease is signed. All of the inputs here have been a great help

    Profile photo of commpropcommprop
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    @commprop
    Join Date: 2011
    Post Count: 24

    If anything is to go by, a lot of the leases we see on the websites come with a "white/vanilla" box – i.e. 4 concrete/brick walls, roof and door. Anything else/improvements is generally at the tenant's expense.

    Profile photo of steve54123steve54123
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    @steve54123
    Join Date: 2004
    Post Count: 19

    It’s your business.
    You pay, everything. Some businesses lease the land and build their own buildings! Then leave them
    There when they move 10 years later…
    All the cat5 cabling will be the bomb, ever think of wireless? $$$

    All other comments are correct in my experience too.

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