Things to know about commercial leases – Additional costs

Another major difference between residential and retail leases is that the tenant is required to pay additional costs.

Whereas a residential tenant is required to pay rent, and perhaps excess water in some locations, a commercial tenant is also generally financially responsible for things like:

· council rates;

· water rates;

· insurance;

· owner’s corporation fees;

· air-conditioning maintenance costs;

· land tax(if a non-retail lease is in place);

· landlord’s legal costs (if a non-retail lease is in place);

· mortgagee’s consent (if a non-retail lease is in place);

· repairs;

· refurbishments; and

· make good at the end of the lease.

And the tenant often has to provide a bank guarantee or a larger security bond – often the equivalent of 3- or 6-months rental – at the commencement of the lease

Of course, as a commercial property investor, that means there is the less financial outlay for you, but it’s also important to remember that most small businesses fail within five years.

While periods of short-term vacancy are normal in residential real estate if your tenant’s business fails – or worse goes bankrupt – you could be left with a commercial premise that is vacant for months or even years if bought in the wrong location.

This is why, just like residential property investment, location is vital to ensure you are buying premises with the best chance of attracting, and keeping, long-term tenants as well as the best chance of achieving solid capital growth.

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Jason Gwerder
Wednesday, 28 July 2021

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