When it comes to renting and leasing commercial property today, the ultimate target should be to establish a stable and professionally prepared lease that encourages cash flow on the property over future years. Every landlord will have a different focus points and ideas relating to their investment. It is important that the lease matches the intentions of the landlord. The commercial agent needs to understand what the landlord wants to do and how the plan should work.
So when you find a tenant today, it is critical to know the lease terms and conditions that will be presented to the tenant. Hopefully you will have advised the landlord at an earlier stage so that the critical decisions here are well understood and have been set.
The different types of rental strategies to consider in commercial property include the following:
- The outgoings for the property should be identified and quantified. It is possible that the landlord will want to recover some of those outgoings from the tenants within the premises. This matter becomes more complex when it comes to multiple tenant occupancy in large premises such as shopping centres.
- The property type will have set trends and averages in the local area when it comes to lease procedures and rental levels. Ensure that you understand the factors here so that any advice that you give to the property owner will be accurate and correct as it relates to the property market at the moment. Market rentals change frequently, so speak to a number of other property agents and property valuers who can advise you of the recent benchmarks and new property deals locally.
- There is a significant difference between gross and net rental. The main difference is the recovery of outgoings and how it will occur. When it comes to a gross rental, the tenant is only paying one amount of money so the landlord has to gross up the rental to include the outgoings component that they would have normally recovered in a net rent situation. When it comes to net rental, the landlord will set a base rental above which the tenant will contribute towards particular outgoings relating to the tenancy and or the property. Clearly some decisions need to be made here before a tenant is located.
- When a lease is under negotiation, the factors of lease option come into discussion in cases where the tenant wants to remain in occupancy for an extended period of time after the first lease term. Options are useful property investment strategies although they do have limitations and frustrations from a landlord point of view. One option may be acceptable to the landlord after the initial term, but numerous options of three or four years for multiple renewals are to be discouraged. Multiple options remove the control of the property from the landlord and this can be a negative factor at the time of renovation or relocation. Options of this type also impact the property at time of sale.
- The rent reviews to be set for the growth of rental over the lease term should be discussed with the landlord prior to the location of the tenant. It is preferable for the landlord to set their own rules regards rent review processes rather than let the tenant dictate lower levels of rental escalation.
The rental strategies in commercial property are complex and critical to the future of the property. Take time to carefully consider the rental strategies with your client the landlord, prior to undertaking any special marketing campaign relating to leasing and tenant location.