Planning to Lease Commercial Real Estate for The First Time

vietbargain on 31/07/2020 - 11:35

Ozb fam, my TRUSTED advisers for anything and everything.

I'm planning to lease a retail space in Sydney, around the inner west. The ad is asking for $5,000pm, not sure what terms for the lease duration are, but probably looking at a 2x3x3.

Some of my basic questions:

  • negotiating the rent, especially during covid times, should I put my ozb gameface on and squeeze every dollar out of them
  • are there additional operating costs that i should be aware of
  • should i get talking to the council about any fitouts/approvals before signing? or does that happen after

Any experiences you have please share

Education & Work

Comments

  • mskeggs on 31/07/2020 - 11:40

    Is the property currently vacant?
    What sort of business? Food, manufacturing, merchandise, office are all different considerations.

    • vietbargain on 31/07/2020 - 11:45

      It's vacant, the building itself is it final stages of completion, ready in September.

      Planning to open a medical centre / rehab consulting.

      • [Deactivated] on 31/07/2020 - 12:05
        +1

        Planning to open a medical centre / rehab consulting.

        popcorn

        • vietbargain on 31/07/2020 - 12:12

          Not a good idea? I've got some gps and physios that have been working for someone else, and now we want to combine efforts to do it ourselves. How else to health professionals start out on their own?

          • [Deactivated] on 31/07/2020 - 12:19
            +2

            @vietbargain: Its a great idea, getting it to actually work as intended, this is why I come to OzB

            • vietbargain on 31/07/2020 - 12:23
              +1

              @[Deactivated]: Aha thanks. It's risk vs reward, I'm under no illusion that it will be easy to setup or manage, but being able to work for myself has been a career goal for a long time.

      • mskeggs on 31/07/2020 - 13:31
        +2

        Landlord will seek either a directors guarantee or bank security. The first could be a risk, the second has extra costs.
        NSW has form leases for small business. I would aim to use that - it offers a few protections for smaller traders.
        That said, a lawyer is likely necessary for you to understand what the lease commits you to (like mandatory periodic refits, how rent is indexed, processes for exercising options, what happens if you want to break the lease). Be aware though, that landlords are often reticent to make changes to the lease terms if they feel they can find an alternative tenant who will just accept them as is. So don’t set your hopes on lots of changes.

        Council can be painful for some changes, easy for others, but usually slower than you will want to work. There are consultants who specialise in shepherding DA’s speedily through council - depends on whether your works will be complying applications (approval is automatic if you meet the standards) or requiring bespoke approvals and the complexity as to whether they are useful.
        There is a development officer rostered on to the public inquiry line every day, so you can call and have a chat about what you are planning and see if they foresee any obstacles, and give you an estimate on approval timelines.

        I would ask what rent free initial period or other sign on terms the landlord is offering. Perhaps ask if they can be improved for a longer commitment. It is also possible for the landlord to contribute to upfront expenses like fitout if they are struggling to find tenants. With a new build you could get them to agree to things like painting etc. in the colours you want, perhaps.

        • vietbargain on 01/08/2020 - 19:23

          Thank for the detailed reply and good insights. Seems like alot more work to do with council side

  • Caped Baldy on 31/07/2020 - 11:47
    +1

    Talk to Council before. Ask to speak to a duty planner on the requirements.

    Whereabouts is it? there's a lot of cheap rent on Parramatta Road.

    Is that lease agreement for two years and two options for three years?

    • vietbargain on 31/07/2020 - 12:13
      +1

      I haven't contacted agents as yet, getting as much ozb info first, however I'd like to do 2 years to start, the options for 3 years after

      Whereabouts is it? there's a lot of cheap rent on Parramatta Road.

      I drive past all the new developments every other day, whilst rent may be cheaper, downside is parking convenience and there is a risk that these Parramatta Road shopfronts just won't attract much foot traffic

  • donbot on 31/07/2020 - 11:50
    +5

    Screw for a rent free period as part of the initial term. I've not seen a lease deal without one… a month for each year of the first term should be minimum target.

    Annual CPI increment, not fixed %.

    Retail Lease Act in VIC determines how the outgoings are dealt with (rates/land tax/water rates/insurance/etc)… there are specific rules as to whats in/out. NSW might have similar legislation.

    • vietbargain on 31/07/2020 - 12:17

      I like this idea hahaha

  • Kail on 31/07/2020 - 11:52

    Agree with asking for a rent free period to start.

    Also make sure you check out the parking situation, toilets for staff & customers, and disabled access including disabled toilets.

    • vietbargain on 31/07/2020 - 12:19
      +1

      Yep, there's definitely council requirements for proper accessibility when it comes to medical practices, thanks for reminding me

  • Ocker on 31/07/2020 - 11:57

    The landlord may ask for a bank guarantee for the rent

    • vietbargain on 31/07/2020 - 12:18

      I think that's fair. Our company has been established for 3+ years and we've been operating clinics in other medical centres to date, this is our first time that we're looking to have our own shopfront

  • [Deactivated] on 31/07/2020 - 13:00

    negotiating the rent, especially during covid times, should I put my ozb gameface on and squeeze every dollar out of them

    Negotiations are as usual. Compare the market and do your best.

    are there additional operating costs that i should be aware of

    Yes. Unlike residential rentals, you pay all outgoings such as rates and water supply (not limited to).

    should i get talking to the council about any fitouts/approvals before signing? or does that happen after

    Always have your contract subject to council approval for items that you absolutely require. You wouldn't lease a building just to find out that the use permit doesnt allow your type of business.

  • Typical16-bitEnjoyer on 31/07/2020 - 13:47
    -2

    Get a lawyer.

    There will be zoning considerations
    There will be council permits
    There will be significant outgoings and "additional running costs"
    Someone will likely have to sign a personal/director's guarantee
    The Landlord will ask for a security or bank guarantee
    There are several ways to reduce financial risk that only a lawyer can advise you on

  • jm7 on 31/07/2020 - 14:27

    I would suggest negotiating a gross rent. Definitely get some advice and know how much the outgoings will be. Also make sure there are not extensive make good provisions, and rent increases linked to CPI (given the current climate)

  • datafellows on 31/07/2020 - 14:33
    +1

    Brand new building may not have all connections you may need immediately available.

    Make sure you can have the fitout you need, if council/strata etc doesn't allow something make sure you you can rescind the contract.

    Location and convenience is more important than the age of the building. Enough customer parking or easy access of customer parking is very important. If majority of your customers come from one direction and to reach you they have to make several U turns and wait in traffic lights they might choose another clinic.

  • Icecold5000 on 01/08/2020 - 17:10

    Take out the make good clause or get them to contribute an incentive. If the rent is good get some options in there.

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