Another major difference between residential and retail leases is that
the tenant is required to pay additional costs.
Whereas a residential tenant is required to pay rent, and perhaps excess
water in some locations, a commercial tenant is also generally financially
responsible for things like:
· council rates;
· water rates;
· insurance;
· owner’s corporation fees;
· air-conditioning
maintenance costs;
· land tax(if a
non-retail lease is in place);
· landlord’s legal
costs (if a non-retail lease is in place);
· mortgagee’s consent
(if a non-retail lease is in place);
· repairs;
· refurbishments; and
· make good at the
end of the lease.
And the tenant often has to provide a bank guarantee or a larger
security bond – often the equivalent of 3- or 6-months rental – at the
commencement of the lease
Of course, as a commercial property investor, that means there
is the less financial outlay for you, but it’s also important to remember that
most small businesses fail within five years.
While periods of short-term vacancy are normal in residential real
estate if your tenant’s business fails – or worse goes bankrupt – you could be
left with a commercial premise that is vacant for months or even years if
bought in the wrong location.
This is why, just like residential property investment, location is
vital to ensure you are buying premises with the best chance of attracting, and
keeping, long-term tenants as well as the best chance of achieving solid
capital growth.
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Jason Gwerder
Wednesday, 28 July 2021
