5 things to remember as a commercial landlord
So you’ve invested in commercial property and have negotiated with a tenant to move in.
Great start, but where do you go from here? As a landlord, what do you need to know and how is it different from owning a residential investment property?
We sat down with Rolf Howard, Managing Partner at Owen Hodge Lawyers to get the lowdown on a commercial landlord’s rights.
Here’s his top five things to remember.
1. Make sure the lease is correct
“The lease is usually a fairly lengthy document containing the rights and responsibilities of both parties.”
Howard says everything should be noted in the lease terms, including rent, time period, option rights for renewal, maintenance and fitout responsibilities, costs and the address.
“Ensure the correct address of the premises is on the lease.
“It sounds simple, but in some circumstances, like a shopping centre, it can be a little more difficult.”
2. The tenant pays
“In many commercial leases the tenant will pay the expenses associated with the property.”
Landlords have the right to make the tenant pay outgoing fees.
Howard says landlords have the right to make the tenant pay outgoings, including rates, taxes and levies, and water and utilities. Once negotiated it needs to be clearly documented.
3. Maintenance falls with the tenant
“Anything to do with the structure is usually the landlord’s responsibility, whereas fit-out and maintenance are the responsibility of the tenant,” Howard says.
He says it’s important to note this in the lease and for both parties to have an understanding of what constitutes maintenance and what is a structural change.
Structure is the responsibility of the landlord; fit-out and maintenance falls to the tenant.
4. Fitout and make good
Howard says the lease should include clarity around fit-out and what is permitted and should also include provisions for the tenant to ‘make good’ upon the lease ending.
It is commonly the responsibility of the tenant to ‘make good’ – returning the property to the condition it was before the uptake of the lease. However this is an expensive responsibility and must be clear in the lease.
Clear terms: 3 tips to make good in commercial real estate
5. Know your rights
Every state has different laws around leasing that relate to payment defaults, debts and eviction. Howard recommends talking to an experienced legal practitioner before taking any action against a tenant.
Howard says the best commercial lease agreements work when the property owner and the tenant work together.
“I think a good thing is for (landlords) to understand is they are running a business, they are in the business of renting out property.
“Their business clients are their tenants and they should treat them like clients. They are interested in their client’s business making money so their client can continue to pay the rent.
“It’s about working together in partnership for the same outcomes.”