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One of the most important aspects of a commercial investment property is the lease or leases. When buying a commercial investment property it is very important to review the commercial leases. Your solicitor may review the lease from a legal perspective but it is also important to review the lease from a commercial point of view. |
Provided below is a checklist of items that should be considered when conducting a review of a lease from a commercial point of view.
TENANT SECURITY
- What security has the lessee provided. Is the security a bank guarantee, bond, guarantee or a combination of these.
- What is the name of the lessee on the lease, is it the head company or a subsidiary company.
- If a bank guarantee or bond is provided does this security include contributions for outgoings and GST.
- Does the bank guarantee and bond increase each year in line with the annual increases in rent.
- Does the current security amount held by the lessee reflect the lessee’s lease obligations.
RENT REVIEW MECHANISMS
- What are the annual rent review mechanisms; a fixed % or amount, CPI, or a combination of these.
- What is the end of term or option review mechanisms; a fixed % or amount, CPI, or market value.
- Is there a ratchet clause in the option reviews.
- Does the current passing rent paid by the tenant reflect the rent that should be paid under the terms of the lease.
MAKE GOOD
- Who owns the fit out in the property, and what is the extent of the ownership.
- Who is responsible for the maintenance of the fit out and removal of the fit out at the end of the lease.
- Is there a requirement for the property to be redecorated (painting, and replacement of floor coverings) during or at the end of the lease, and who is responsible for this redecorating.
INSURANCES
- What insurances are required to be held by the tenant; public liability, plate glass, replacement of tenant’s property, workers compensation, or machinery breakdown.
- Does the tenant reimburse the landlords insurance expenses for building replacement and loss of rent insurance.
- Is the tenant required to have the landlords name nominated on their policy as an in interested party.
- Do the current certificates of currency held by the tenant reflect their lease obligations.
OUTGOINGS RECOVERABLE
- What percentage of the outgoings can be recovered from the tenant.
- Is there a specific list of outgoings recoverable.
- Is a management fee recoverable from the tenant.
- Is land tax recoverable from the tenant.
- Is an annual outgoings statement required to be submitted to the tenant.
- Does the tenant pay a budgeted monthly payment with an adjustment at the end of the year or do they pay expenses as they arise.
- Do the outgoings paid by the tenant reflect their lease obligations.
REPAIRS AND MAINTENANCE
- Who is responsible for general repairs and maintenance.
- Who is responsible for the repair, regular maintenance and replacement of plant equipment including air conditioning, fire equipment, and lifts.
- Is the tenant responsible for structural repairs that are caused by them.
- Who is responsible for the general cleaning and pest control of the property.
ASSIGNMENT AND SUBLEASING
- Is the consent of the landlord required for any assignment of the lease or subletting of the property.
- Where the lessee is a corporation are there any provisions to protect the landlord against any change in the initial corporate structure.
GST
- Is the lessee required to pay GST.
SPECIAL CONDITIONS
- Are there any incentives or rent free periods mentioned in the lease.
- Are there any demolition clauses.
- Are there any early termination clauses.
- Are there any specified car parking requirements in the lease.
- The information provided above is intended as a brief guide to some of the key items you should consider when reviewing a commercial lease.
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If you are looking to buy a commercial investment property and are thinking of using a commercial buyers agent to gain more advantages with your purchase, call Prosper Group now on 1300 664 373 or email us on enquiries@prospergroup.com.au |
