Your stress free guide to leasing commercial property.

 Thinking about leasing a shop, office or factory and not sure what the process is?

Here are the 10 steps you need to follow:

1.       What building will suit my business?

2.      How do I find properties?

3.      Arrange an inspection.

4.      Making an offer.

5.      Acceptance and deposit.

6.      Leases and Disclosure statements.

7.      Before lease commencement.

8.      Key handover.

9.      Traps.

10.  Grand opening. 

If you follow these you will hopefully achieve your goal of securing the right leasing package for the right property. We want to encourage you whether you are just  starting out in your business or leasing something larger or a second or third building. The 10 steps are discussed in more detail below. 

1.      What building will suit my business?

a.      What location, size and budget do you have in mind?

b.      Do you need certain features such as a wide frontage, a particular zoning, parking and access, exposure, building height, power or gas supply.

c.       You need to have a shortlist to avoid wasting time looking at the wrong property.

d.      Are you after a short 1 – 2 year or a longer 5 year lease?

2.      How do I find properties?

There are several ways of doing this.

a.      Word of mouth. Someone tells you that a building is soon to become available.

b.      A search of internet sites such as:

https://www.realcommercial.com.au/

https://www.commercialrealestate.com.au/

https://www.commercialview.com.au/

or agent web sites such as ours.

c.       Agents Signboards

d.      Contacting agents directly.

3.      Arrange an inspection and weigh up the options.

Simply make a mutually convenient time after establishing that the property suits your criteria and then weigh up the following:

l Are there features that you need on site such as NBN, air conditioning, grease traps, 3 phase power, gas, parking and access that may not be evident at the inspection?

l What work is required (if needed) to suit your needs? You may need to bring through consultants to price this.

l Are there any council or other permit issues?

l When is the property available?

l Will this property suit my customers?

4.            Making an offer.

If the property is suitable we will give you an indication of the terms on offer. If that is attractive, we will provide you with a letter of offer also known as a Heads of Agreement (H.O.A.) covering the broad terms. If the lease is a retail lease as defined by the Retail Leases Act 2003 we will also provide a copy of the proposed lease, usually a 2014 Law Institute of Victoria or 2016 R.E.I.V. format and tenant fact sheet which you can find here: https://www.vsbc.vic.gov.au/wp-content/uploads/2018/10/vsbc-retail-leases-brochure.pdf This is useful even if you are not a retail tenant. Once you have received an offer to lease, obviously you need to read it and familiarize yourself with the terms. Many prospective tenants also take the opportunity to speak to a friend or relative or even a solicitor familiar with the process to ensure everything is recorded correctly. If you have any questions or need something clarified, now is the time to do it. The agent will then answer any questions and amend the offer if needed.

5.      Acceptance of the offer and payment of a deposit.

This is done when the offer is made and is normally two months rent and gst where applicable. Provided there is no last minute adjustment and the offer put is in line with earlier discussions, the landlord counter signs the offer and the lease and disclosure statement are prepared and issued.

6.      Leases and disclosure statements.

Leases and disclosures statements normally take from 2 – 14 days to prepare. The disclosure statement is a list of items some of which are in the lease such as the lease term and options and rent reviews but specifically list outgoings payable, fitout requirements, fixtures and fittings, special conditions and the like. Once you receive this you need to read it again to check that the items agreed to in the offer to lease are included. Now is not the time to see an advisor for the first time. If you have had advice initially, you should return to that person if need be and makes sure everything is clear in the documentation.

7.      Before lease commencement there are items to be attended to.

During this time you need to attend to the following:

a.      Sign and return the leases for the landlord to sign and include a signed and dated disclosure statement.

b.      Arrange to connect services such as gas, power and internet.

c.       Book any removalists.

d.      Organise any final inspections with contractors for fit out and signage.

e.      Apply for any permits or owners corporation approval needed.

f.        Pay the security deposit and or provide the bank guarantee.

8.      Key handover.

This is done on the commencement day of the lease provided items 7. a and f. above have been completed. Make sure you record the keys, pass cards and any remotes for doors including car parks, air conditioners or security alarms. You should also take photographs as a record of handover and send these to the agent. Whilst it is recommended that you change the locks for your own security, make sure you ask in case they are restricted keys.

9.      Traps to be aware of.

Sometimes things go wrong. Parties get cold feet, have acted in haste, do not realize the time and financial commitment involved or have simply not done their homework. To avoid this you need to get advice when needed and ask questions, often frequently. The agent is there to assist you in the process but cannot alas be your advisor. The landlord too, wants you to be successful but cannot run your business or pay the bills as they fall due.

10.  Grand opening.

Make sure you start with some fanfare. Celebrate the opening of the business with friends and neighbours and on social media. You have worked hard to get to this point and everyone involved on the journey will wish you well.

 

Essential Services 2018. What’s new?

The Retail Leases Amendment Act which will commence in 2020 will now override this and these costs will be recoverable under certain circumstances from tenants.

When the Victorian Building Act 1993 was introduced it required owners of buildings to comply with regulations or the occupier was able to attend to those repairs and seek reimbursement or rent offset from the owner. The extract from the Act is fairly straight forward and is listed here: http://classic.austlii.edu.au/au/legis/vic/consol_act/ba199391/s251.html A further requirement concerning the maintenance of Essential Services is listed in part 12 of the Building Regulations 2006 and is listed here: http://www.legislation.vic.gov.au/Domino/Web_Notes/LDMS/PubStatbook.nsf/93eb987ebadd283dca256e92000e4069/79D66077DE4827BCCA2571850013458E/$FILE/06-068sr.pdf  Such items as fire equipment, exit lights, fire doors, paths to exits and the like had to be maintained rather than merely installed when new to satisfy an occupancy permit and left to the whim of the owner or tenant to service. The Regulations also require annual inspection reports signed off by the building owner which must be produced within 24 hours if required.

This has caused much consternation in the property industry as the maintenance of this equipment was no longer something that could be passed onto a tenant as an outgoing cost. My favourite expression at the time was that the change in the law  “overturned 800 years of case law”. It also resulted in an advisory opinion being made on May 1^st 2015 by the President of V.C.A.T. here: https://www.vsbc.vic.gov.au/news-publication/vcat-advisory-opinion-essential-safety-measures/  which supported the view that these service costs could not be recovered from tenants. Retail or otherwise.  Substantial alterations to make buildings comply can also be paid by the owner despite it being for the tenants exclusive use such as in the Panmure Hotel case: https://www.vsbc.vic.gov.au/wp-content/uploads/2014/08/vsbc-vcat-submission-15-May-14.pdf  Whilst the prohibition on the collection of State Land Tax under the Retail Leases Act 2003 is now accepted, essential service costs and compliance still cause concern.  
Some of the issues confronting agents and property owners are as follows:

●             The legislation is not well known and is complex.

●              Assessing a building and applying the appropriate Australian Standard in relation to 
                 essential safety features requires expert advice.                                                

●             Often the person conducting essential service inspections – a growth area – is not a                 building surveyor and the advice offered is limited.

●             Occupancy certificates are rarely available which list essential safety features.
                Council records are often years out of date.

●             Tenants often undertake fitouts or alterations without permits being undertaken
               or do not provide them (nor are they sought) upon completion.

●             Smaller clients and others who should know better are just not interested or feel
                that the law does not apply to them. The V.C.A. T. advisory opinion is not law, it’s
                just an opinion!

●             Clients in denial often say that they will do this themselves or just service the
                extinguishers and exit lights only.

●             Some agents still seek to pass these costs onto tenants.

●             Most tenants are not aware that they do not have to pay these costs and when they
                realize they often demand a refund of their payments.

●             Councils rarely inspect properties unless there is a report. It is also rare that they
                impose a fine.

●             Your insurance cover is likely to be void if the building is not compliant.

●             Arguments can arise as to what is a base building essential service

                and what the tenant added and should be responsible for. It does not matter either way

                as it falls back on the owner 100%. 

●             A minor change with a building alteration may require the whole building to be brought                up to code.  

●             Unless your property manager has a building qualification, they aren’t qualified to                 give advice on this subject and are likely to be not covered by professional                 indemnity  insurance. 

OK, so what are some practical approaches to this? The easy answer is to engage a company nowadays who can contract out the work, maintain the equipment on site and prepare an annual report. You are however in their hands and sometimes the most expensive solution or maintenance system seems to confront you rather than the most sensible and cost effective.

Accordingly, you should try to be aware of these issues as much as you can otherwise, the advice you receive cannot be considered properly. Some items to consider are as follows:

1. If you have not read as much information as is available on the internet articles produced by law firms and the R.E.I.V. you should and keep notes in a file. Not just court cases, but notes put out by fire service companies, locksmiths and the like who are highlighting various issues.
2. Is there an occupancy permit? What are the essential services listed? You should familiarize yourself with this even if you don’t know what the exact Australian Standard referred to means. Glazing, lighting, air handling, canopies etc will all be included.
3. Inspect the building. Is the fire equipment tagged and current? Is there rubbish or other items stored in stairwells and in front of exits? Do the exit doors close and are they in good condition? Has the mezzanine got a permit or is it assembled with timber left over from a previous job? Are the steps and handrails to code? In food premises, are there fire blankets? Are the exhaust fans and ducts cleaned as per code? Are the exit lights on? Is there any obvious new work to alter a fitout? In the basement, have holes been drilled through slabs without fire collars (let alone owners corp consent). Sprinklers, block plans, fire indicator panels and hard wired smoke detectors may also be present. Are there service logs on site for these items? Inspections also pick up illegal works. If it does not look right or appears dangerous such as a trip hazard there are O.H.&S considerations to be considered and action taken. If it does not look right you have to start asking experts about the issue.
4. Has there been a change in the type of use? The current occupier may have been there for decades and does not need to upgrade to a fire hose or single handed door locks as at 2018. They may only need to comply to what the regulation was in say 1975 when the property was constructed. Consider this.
5. Be aware when leasing properties that require extensive renovation or the tenant intends to do substantial works that you cannot contract out of section 251 of the Act despite what the lease might say. The Panmure Hotel case is a good example where the owner thought that the tenant had to bear the cost of upgrading works and instead the owner was compelled to absorb the cost of a new stairwell.
6. If in doubt, ask the service contractor and normally they will give you positive feedback about servicing fire equipment every 6 months for example. Some contractors may also offer different solutions to the same problem. You may need other advice for this.
7. When you have a letter from the council about illegal building works, you need to act quickly. Speak to the tenant and owner to engage a builder or an architect as project manager. A building surveyor will then assess the works required and provide the specification needed. A draftsman will have to prepare plans and you may need a fire engineer, plumbing and electrical input before the builder can quote their part. This can be a very involved process involving many inspections and extensions of time with the council building surveyor.
8. Educate your clients on the importance of compliance. They cannot merely seek to pass on these costs to a tenant or refuse to do the works. You as the agent may end up in court explaining why you let this happen if an accident occurs.  

       Hopefully armed with this information you are better equipped to see that essential services are efficiently serviced and that you are able to have a grasp of the problems and be able to explain them to your clients.