Leasing commercial properties can be a complicated process, particularly if you are new to property investing. There is a lot at stake when it comes to leasing commercial properties, which is why it is important to avoid making mistakes that could cost you time, money and credibility in Melbourne’s competitive market. With the high demand for commercial properties in Melbourne, it can be tempting to make hasty decisions, but rushing into a lease agreement can lead to costly mistakes. In this blog post, we will delve into some common mistakes that investors and property owners make when leasing commercial properties in Melbourne. We will provide you with practical tips to avoid these blunders and ensure that you lease your properties successfully.
Mistakes to avoid when leasing commercial properties in Melbourne
Poorly Written Leases
Poorly written commercial leases can lead to a lot of frustration and lost income for both the owner and tenant. Simple clerical errors, like miscalculating lease terms, can confuse everyone and potentially result in vacancies that take months or years to refill. Additionally, specifying the use of the space and outlining the rights and responsibilities of both parties can go a long way in avoiding disagreements and legal fees. It’s essential to review every clause of the lease carefully, including rent due dates and cost escalation over time. By creating a well-written and organized lease, both parties can save time and money in the long run.
Errors in Lease Term Calculations
One of the most common mistakes in leasing commercial properties is the error in lease term calculations. This mistake happens when the specified lease time in the agreement is not correctly computed based on the listed dates. It may seem like a simple clerical error, but it can become a significant source of trouble, resulting in tenants leaving the property before the owner is prepared to refill it. This type of mistake can be costly, causing lost income for the owner, and it may lead to legal disputes. It is essential to prevent such issues by carefully calculating the lease period and double-checking the listed dates.
Lack of Clarity around Operating Expenses
Another common mistake when leasing commercial properties is a lack of clarity around operating expenses. Tenants are typically responsible for common area maintenance, taxes, and insurance as part of their lease. However, it is important to clearly outline what is included in the term and how it is calculated to avoid potential disputes. Taxes are usually the largest portion of the expense, so it is essential to specify how any increases in real estate taxes will be applied. Unclear language in the lease can result in landlords unintentionally absorbing these additional costs. It is always better to specify details in the lease, rather than relying on ambiguous language.
Incomplete or Outdated Rentable Square Footage
When creating a commercial real estate lease, it is essential to include accurate and up-to-date rentable square footage. Incomplete or outdated information can lead to problems during reconciliation and potentially result in lost income. Rentable square footage includes usable square footage and common areas, which means it’s crucial to list the exact square footage in the lease. This information is particularly important during reconciliation, as operating expenses are calculated based on the rentable square footage. Landlords must ensure that the lease provides reliable and current rentable square footage to avoid making errors when calculating expenses and charges.
Unclear Rent Due Date
One common mistake when leasing commercial properties in Melbourne is not clearly defining the rent due date. While the original parties involved in the lease negotiation may understand that rent is due on the 1st of each month, this information may not be explicitly spelled out for future staff or team members responsible for rent collection. This lack of clarity can lead to confusion and potentially late payments. To avoid this issue, it is important to clearly outline the rent due date in the lease agreement. Landlords should also ensure that all dates included in the lease, such as the date the tenant signed the lease or the commencement date, are clearly indicated and accurate.
Undefined Use of Space in Lease
The undefined use of space in a commercial lease can lead to future problems for both the landlord and the tenant. It’s crucial to have a clear understanding and agreement on how the space will be used. Is it for office space or retail? Will there be any limitations on the type of products or services that can be sold in the space? These details should be specified in the lease agreement to avoid confusion and potential legal disputes. It’s also important to consider any zoning regulations or building codes that may impact the use of the space.
Increasing Cost of Lease over Time
In commercial leasing, landlords sometimes include provisions that increase the cost of the lease over time. This can be a surprise for tenants who are not aware of it. It is important for tenants to review the lease carefully and understand the terms. Look for clauses that specify how much the rent will increase each year. Sometimes, landlords use a percentage or a fixed dollar amount. Additionally, look for clauses that allow the landlord to increase the lease for certain reasons such as inflation or increases in taxes. The tenant should negotiate to cap the rent increases or to have the ability to terminate the lease if the increase exceeds a certain percentage or dollar amount.
Length and Cost of Lease Period
The length and cost of lease period are crucial factors to consider when leasing a commercial property in Melbourne. A lease renewal clause should also be included. The budget for rental expenses must be set beforehand to avoid negative effect on the cash flow. Tenants must also calculate the cost of outgoings, which include council rates, taxes, and insurance. These costs must be factored in the budget as they increase annually. The tenant must verify every clause of the agreement with their lawyers before committing to its terms, which states that the commercial property must be returned in the same condition in which it was leased.
Leasing a commercial property in Melbourne can be a complex process, and there are several common mistakes to avoid. Poorly written leases, errors in lease term calculations, and lack of clarity around operating expenses are just a few examples of mistakes that can have costly consequences for tenants and landlords alike. It’s also essential to ensure that the rentable square footage is accurately measured and that the rent due date and use of space are clearly defined. Finally, it’s important to carefully consider the length and cost of the lease period to avoid unexpected expenses and to negotiate terms that are fair and beneficial for both parties.
If you are looking for a reliable commercial real estate agency that helps you to avoid these common mistakes and secure the best lease for your business, look no further than Axis Property. Our experienced team specializes in commercial leasing in Melbourne and can assist you in finding the perfect property to meet your needs. Contact us today to schedule a consultation and start your search for the ideal commercial space.