commercial office leases

[Brougham]

anyone here in the know?

i've got the opportunity of leasing an office direct from the owner, but want to clarify a few things.

i.e. - what exactly makes up "outgoings?"
- what should i be asking for/about?
- is there a std lease agreement i can DL and use?

[Dubs]

bro ham

email me your exact queries to work and [L] will answer them

Dubs

[Brougham]

email sent mate.

[shmoo]

outgoings is generally a monthly amount that comes from a yearly budget. It covers the things like strata fees, building insurance, a gardener, perhaps a cleaner for the outside of the building, general maintenance, water rates, land tax etc etc etc. Its basically ALL the costs incurred by the owner, then apportioned to the tenant on a rate per square metre.

Each year there should be a reconciliation of the outgoings and if it works out that you've overpaid throughout the year, you get a refund, and if underpaid, you get a bill. Then they do a new budget for the next year and your outgoings will change. If its managed properly, the readjustment at the end of the year will be minimal if at all.

So outgoings you pay to the owner/agent dont actually cover any of "your" outgoings like power etc.

As to the standard contracts, is it for commercial premises or for a retail shop? If shop, then it falls under the Commercial Tenancy (Retail Shops) Agreement Act and everything is specified. If its other commercial premises, then basically anything goes, but sure there are common elements to most leases.

[ButtNekid]

nice answer Shmoo

[xphread]

Yeah, agreed. Shmoo has it covered fairly well.

There is no such thing as "a standard lease".... but that said people like REIWA have a moderately decent doco thats fairly straight forward (as far as legal BS goes) and doesnt attempt to screw the tenant too much.

The first lease doco we were offered was unbelievably bad. I can only assume they thought we were young first timers and wouldnt read the fine print (or understand it).
It had all sorts of crap like agreeing to sign over power of attourney etc so they could remove any caviets we placed on the premesis etc.
They also wanted to slug us $1500 in legal fees plus an hourly rate if we wanted to change or negotiate any of it. (Sure, here, take our blank signed cheque!)

I heard murmors that the retail tennancy act was going to be changed so landlords couldnt pass on legal fees to tenants. Not sure if that is inffect or not, but my advice is in this "tenants" market... dont accept this condition.
We negotiated directly with the owner and pissed off the crap realestate agent - zero cost to establish the lease, used the standard REIWA lease doco and added in a clause that allowed us to sublease with permission of the landlord. (also you should probably include the clause that the owner cannot reasonably withhold permission. As there is an exclusion clause in the REIWA doco that attempts to remove this statement from the relevant references to the tenancy agreement act (or whatever its called)

Just be exceptionally weary of open clauses in regards to what you are responsible for covering in regards to landlords expenses. Ie - be wary about signing blank cheque agreements. It seems to me that in residential leases, the tenant has most of the power/rights. In commercial leases its usually the other way round.

I recommend the Small Business Development Centre (in Hay St?).
www.sbdc.wa.gov.au
Free service and you can make an appointment with someone in the right area to talk over your concerns and they can even look at a particular lease doco and advise you to some extent before you sign it or look for further legal info.

[shmoo]

^^ i dont know how it goes with legal fees, but if you question a rent increase and each party engages a valuer to determine what the rent should be, then those costs are shared between the parties. Might be similar with legals???

[xphread]

^^ i dont know how it goes with legal fees, but if you question a rent increase and each party engages a valuer to determine what the rent should be, then those costs are shared between the parties. Might be similar with legals???

It all depends on what you have signed that you agree with in your contract!
If its not stated in the contract, then things can default to statements in government acts etc. (which I'm not sure where that stands now.)

Disclaimer: I'm not from a legal background - just coming from a commercial tenant point of view with basic legal advice that has been given to me.

And sorry... back to the original question.
I have yet to double check it all but budget for more than you expect with electricity costs as an outgoing. We just got our first bill and its about $70 per month for a 38 square metre office that gets used about half the time and has 3 computers apart from lights and aircon that is only on when we put it on. I knew synergy charged a higher rate for business, but I'm a little shocked that its almost three times our home bill.

(anyone else got a business electricity bill that could be compared to this to see if its about right or worth investigating?)

[Brougham]

oh damn, that's something.

this is 80sqm or so, decorative lighting, kitchenette (coffee machine!), i'll probably have 3-4 computers, server, routers, printers, big-ass photo printer, airless spray gun, etc, etc.

i may need to sub-let a room to break even!

[shmoo]

oh damn, that's something.

this is 80sqm or so, decorative lighting, kitchenette (coffee machine!), i'll probably have 3-4 computers, server, routers, printers, big-ass photo printer, airless spray gun, etc, etc.

i may need to sub-let a room to break even!

thats pretty much the same as our setup (except for the commercial photo printing stuff) and we pay about $140-150 ish per bill. Air con use depends on the layout I guess, but we tend to have it on all the time.

It aint cheap running an office. By the time you count everything up, like your interwebs, your phones, your rent and outgoings, blah blah blah. Its never ending.

Good luck with it all mate.

[Brougham]

$150 per month? or 2-3mth bill?

[shmoo]

nah thats per month dude.

[Brougham]

cheers mate. must be a much higher rate, as our home (including all that gear, plus TVs, oven, etc) is less than that per month as it is.

what else is there as ongoing costs?

gas usage (if any).
phone line/usage costs.
ADSL costs.
insurances (contents, liability, etc).

water costs are in outgoings, right?
anything else obvious i'm missing?

[xphread]

management fees if owner decides to get someone else to manage it (of which they usually add 10% to the bill.) That tab may fall on you, depending on how the contract is worded.

[Brougham]

nah, it'll be direct with owner.

[xphread]

nah, it'll be direct with owner.

same with us, but technically there is nothing stopping him from handing over to a manager now and us having pick up the tab. (apart from him losing us at the end of the year by going back on his word.)
Its a risk we took based on a few meetings with him and seeming like a decent guy. (which is usually not recommended practice if you ask most lawyers )

[shmoo]

yeah electricity costs are going way up. Our last bill was 16.67 cents per unit, but the tarrifs increased another 10% as of july 1. As I said, we pretty much run the air con all the time, so we aint exactly energy savvy in our office . We also run a server and three workstations, workgroup printers and a fridge, lights, etc etc. Nothing too extraordinary really.

As for other costs - the owner will pass onto you their land tax, council rates, water rates, building insurance and all the other incidental bits and pieces.

FYI this is the budget for my place;

Water Rates - $1,100
Council Rates - $1,600
General Repairs - $500
Land Tax - (nil in this case)
Strata Levies - $2,099.64
TOTAL - $5,299.64

Total Outgoings per month - $441.64.

This place does have fairly low costs. The owner of our office isnt registered for GST, so obviously we dont have to pay it. (but you'd get it back, so doesnt really matter anyway, but its better from a cash flow POV). Also, this is the only other property they own (other than their house) and it is below the land tax threshold so we dont pay land tax.

Something I underestimated was the full establishment costs when setting up new premises.
Things like:
$75/$125 to Telstra to connect each phone line.
Cabling within your office for phone/data.
Alinta and Synergy charge account establishment fees. (not much, but it all adds up).
ISP relocation/establishment costs.
Sign writing.
New stationary.
etc etc etc.

One thing I cant stress enough is to thoroughly inspect the place BEFORE you move in. With residential rentals you do a property condition report. That doesnt happen with commercial, so you need to do it yourself. Generally the owner/agent doesnt do regular inspections of commercial property, so at the end of your lease, you will get slugged for everything that isnt perfect. So you need to have made them aware of everything in writing right from the outset. For eg blind broken, stain on carpet, wall scratched.

Also, it is normal to have a clause requiring you to paint the whole place when you move out.

On a strata property, yes, the water is generally paid by the strata company, so that should be covered in the outgoings you pay with rent. But sometimes properties do have individual water metres, in which case you pay for usage too.

Edit - also car parking. That is often listed and charged separately, ie the quoted rent doesnt always include it.

You should also see how the lease handles it if you want to leave. ie with ours, all that happens is we are responsible for the rent until a new tenant can be found. We can also sublet space to someone else if we inform the agent in writing beforehand. Which is a handy clause to have just in case.