Commercial Property Leasing ABCs

If you have not reviewed all of your vacant listings, you should act without delay or you will be looking over your shoulder. The start of a new year demands that all of the things you said you would do differently this year are now put into practice. Leasing can result in some of the best and lowest fees payable but all listings should be approached with the same enthusiasm. The best operators I have seen have done over 75 lettings in a year. Average ones 35 or less.

Your biggest draw card used to be the largest sign board you could fit on the building but now it’s the Elite Plus internet listing. Meeting anyone on site who rang up used to get results but time spent sitting in Melbourne traffic is time wasted and prospects need to be better qualified as you are working against the clock at all times. You also need to know as much about the property as you can upfront. Demand answers from the PM or landlord. If you are still asking questions after more than a month you will appear either as either lazy or a goose. Don’t be that guy.

1.   Photos.
Professional is best. Don’t have one photo of the shop with the old tenant's signage on there. Take lots of photos or better still, a video. Ensure it is clutter free and as bright as possible. Capture any views, historic features and high quality neighbours if they are there.

2.   Condition of the premises.
If work is needed, consult the landlord and PM. Damage should be repaired not left to the imagination of a new tenant to see beyond. The property should also be clean including windows and lawns mowed. Whilst the building is vacant it is the best time to attend to any general maintenance. Do stair rails, bollards or windows need painting? Exit lights that work and up to date fire equipment mean that the owner cares about the property. A run down building says to a tenant that nothing will change once they move in. Old signage should be painted out as well. Arrange for the power to be connected. You can’t inspect a property if it is in the dark!

3.   Advertising.
Signs are still good publicity for the agent and still pull enquiry. Install prominent and neat signage where you are able to. As for internet advertising, buy the best you can afford. Unless there are only a handful of listings in the suburb, a standard listing will see you off page 1 very quickly and once you are at page 3 or later you are wasting your time. You can get deals such as free enhancements and upgrades and you should consider these. The layout of the ad is also important. The caption which also applies to the signboard should be attention grabbing. “Fact / Warehouse” or “Shop or Office” are lazy. A caption is not easy but well worth the time spent. Borrow or reword headings that leading agents use if you must but avoid cliche. From time to time update the ad with a new caption or photo.

4.   Property features.
You need to highlight the key points. Avoid residential style War and Peace narratives. Often this is placed on an elevated board where you can barely make out the agent's number whilst driving by at speed, let alone discover that the property has two kitchen sinks. Highlight items such as position, size, condition of the premises, ideal user, key issues such as existing new fitout and car parking. Secondary features which can be included but do not need to paint the primary picture are air conditioning, amenities, signage, state of fitout, NABERS rating if over 1000m2 in the case of offices. Springing heights, roller door numbers, heights, hardstand, canopies, power capacity, sprinklers and proximity to ring roads in the case of industrial properties. Grease traps, frontage, neighbours, signage, canopies, permits, any fitout in situ in the case of retail premises. You need a floor plan, zoning, a car park plan, details of service contracts, all outgoings and anything else you would need if were leasing it for your own use.

5.   Price.
If it is still at last year’s price then consider reducing it. If you have just completed a mild renovation and there is no interest then increase the price. The market is not perfect and tenants are not valuers. You need to do something different if you are not getting enquiry. If you are seeking $52,000 p.a. for example, consider $49,500 as any internet search by a prospective tenant looking in the range $40,000 - $50,000 will now capture the listing.

6.   Client Liaison.
Once you have put the listing up on the net, if you don’t call the landlord for three weeks, there is something very wrong. The best agents can usually keep in touch with clients weekly or daily if they have a hot prospect or an offer. Average agents struggle to keep in touch at least once weekly even if it is only via a brief email. Only you can decide which one you are. No landlord trying to lease their property ever said they were sick of the agent ringing all the time. Conversely, the landlord who rings every day or several times a day will make the agent as anxious as they are but will rarely achieve a better result.

Beware! A hidden trap in the 2016 R.E.I.V. Lease.

The R.E.I.V recently updated their standard commercial lease which was basically unchanged from 2003. Whilst there are several changes to the new document, one in particular needs to be considered carefully. It concerns the requirement of a tenant to give notice to vacate once the lease is three months from its expiry or has expired and has continued on a monthly basis.

Clause 22 of the lease states “If the tenant does not have an option to renew this lease for a further term or if having an option to renew does not exercise it in the required manner, then if at least 3 months before the term expires, unless otherwise agreed in writing” : sub clause 22.1 (v) states “ the landlord or the tenant may end the tenancy at any time by giving three months prior written notice”.

This clause is intended to compel a tenant who does not take up an option or is uncertain of their intentions, that they must give 3 months written notice and afford the landlord some time to relet the property. Previously, the lease only provided for one months notice in writing by either party.

At first glance this appears to be a win for the landlord. In practice it may not as it can create the following problems:

1. The tenant is not likely to have read the lease and when advised will be in a state of disbelief.
2. The tenant may claim that the clause is unconscionable and therefore unenforceable. A claim against the landlord may then ensue or an offset is sought.
3. If the landlord had intended to rely on this clause then a tenant may claim it should have informed the tenant 3 months out from the expiry of the lease or when the option renewal notice (if any) was issued.
4. The tenant may simply vacate after one months notice and refuse to pay any further. Unless the security deposit is substantial, losses will be incurred.

For landlords and agents this could be the end of what was a good relationship with the tenant, legal
action and loss of reputation.

This is not the end of the matter. The leasing agent appointed may be unaware of the notice provision and proceeds to lease the property assuming wrongly that one months notice is all that is required once a replacement tenant is secured. The sitting tenant may then turnaround and advise the agent upon receipt of notice that they need to give 3 months notice. The new lease with a new tenant is then not capable of performance and the agent and landlord risk being sued by, compensating or losing the new tenant.

How do agents and landlords protect themselves?
The following procedures are suggested:

1. When a property is first leased, if this clause is intended to be relied upon then include it in the conditions of the offer to lease. Then there is no doubt as to the intentions of the parties.
2. Consider reminding tenants of this clause in written communication concerning the exercise of option or intention to renew.
3. Ensure that the offer to lease and the lease itself with the incoming tenant includes a clause to the effect that the lease is subject to the existing tenant vacating the premises and that the landlord will not be responsible for any compensation arising.
4. Delete the clause from the lease.
5. Agree in writing a date on which the premises will be vacant up front with the sitting tenant.
6. Agents and landlords should read the existing tenant’s lease at the start of the leasing campaign.