3 KEY STEPS to Safeguard Your Commercial Property

You may have recently become the proud owner of your first piece of commercial property or you may be a long-term, experienced commercial property investor. Regardless, there are 3 key steps that you must take to keep your commercial property safe.

However, let’s initially take a look at a basic question - what is commercial property? When lawyers, accountants and investors consider commercial property, they usually have in mind one of three main types, being:

·         Retail

·         Industrial (think warehouses, factories and mixed office/warehouse space)

·         Office

These can be immediately contrasted with residential property. While it too is used for investment purposes, the agreement entered into is different. Instead of being described as a lease, it is usually known as a ‘residential tenancy agreement’ and is governed by the Residential Tenancies Act.

When dealing with small retail tenancies of less than 1000 m², you must also consider the provisions of the Business Tenancies (Fair Dealing) Act. This provides for minimum lease terms of five (5) years, disclosure statements, a ban on ratchet (rent increase) clauses and establishes a mediation and/or compensation regime.

So, for your retail, industrial or office property, what are the most important things to do to keep the property safe?

1)    Have your tenants sign a lease!

I cannot stress enough how important this is - you must have a lease!

Technically, a lease is an interest in land given by a landowner (or lessor) to another person (the lessee) for a set period of time, and it allows the lessee to have exclusive possession to the property - that is, the lessee is allowed to use the property to the exclusion of all persons, including the lessor, unless access is granted by the lease.

Practically, the lease should clearly set out all of the key terms of the relationship between the lessor and the lessee, and guide the usage of the premises by the lessee. It will include matters such as what the premises is actually being used for, the term of the lease, rental and how it is paid, and what happens in an emergency situation.

Importantly, it will also provide a guide as to what happens if and when a dispute arises.

To look at it another way, if there is no lease, when an issue arises concerning any of these important matters then it becomes a case of identifying what has been said between the parties, what has been written between the parties (e.g. by email), and then making an assessment of what in fact was agreed between the parties. Inevitably, particularly if lawyers become involved, this can become time-consuming and expensive.

In addition, you should also make sure that the lease is registered on the title so that its existence is formalised. This is, however, more of a protection for the tenant rather than landlord and is usually left to them to arrange and pay for.

 2)    Get insurance

Just like you would do with your residential property, it is important you make sure adequate insurance is in place for your commercial property should anything untoward occur. As the recent destruction of a warehouse in Darwin by fire demonstrates, such events can and do happen unexpectedly. So, be prepared and be insured.

When negotiating the lease, you are then able to pass the responsibility of taking out such insurance to the lessee. When doing this, make sure you include a requirement for the lessee to provide a copy of the certificate of insurance to you which notes your interest on it.

3)    Be proactive with tracking rent and maintenance

There is no point having an excellent commercial property if the lessee is not paying the rent at agreed intervals. To ensure that this occurs, you will either have to monitor the nominated bank account on a regular basis or engage a property manager to do so on your behalf. In either case, early communication with the lessee should there be issues with the rent is crucial for resolving matters before they become too serious.

Further, make sure that you understand what your responsibilities are when it comes to maintaining the property. Again, one of the key benefits of having a written lease is that this will set out who is responsible for fixing what. Usually, anything related to the main structure of the property is the lessor’s responsibility; day-to-day maintenance matters are usually the lessee’s responsibility. Overall, if you play your part and ensure that the building is functioning well, your tenant will enjoy using the premises, will look after it and wish to stay while paying a fair rent.

So, whether you are an experienced property investor who owns multiple buildings, a tradie looking to rent out excess warehouse space, or someone who has purchased office space to rent for the first time, following these 3 key steps will ensure that you have a strong foundation – a signed lease, insurance protection and consistent rental flows from a well-maintained premises.

If you are a commercial property owner and would like assistance with putting a lease in place, please feel free to call Peter Walker or Samantha Hansen on (08) 8941 6355 or email peter@bowden-mccormack.com.au or sam@bowden-mccormack.com.au.

If you are about to purchase a commercial property and need a conveyancer, then give us a call or send us an email! We can handle your commercial transaction. We can also give you recommendations when it comes to mortgage brokers.

Please feel free to call us on (08) 8941 6355 or email conveyancer@bowden-mccormack.com.au or hannah@bowden-mccormack.com.au should you wish to discuss your property transaction needs.