Over the next few posts, I am going to explore some issues that are relevant to commercial property leases. I will leave the basic issues for another time.
These advanced issues are less obvious to many investors – and beginner investors often attribute too much to pure luck. I don’t believe in luck.
I do believe in getting better results from better knowledge, skills and advice – which can materially contribute to your success as a commercial property investor.
The first of these issues is the ownership of fixtures and fittings.
Recently, a commercial property tenant vacated leaving some shelving and other items of fit out behind. Our client sought advice as to what to do about the left over items. The first question was who owned these items. The property owner, despite having owned the property for some years simply didn’t know…. I have queried other clients and too many landlords have never thought about it.
This is both a problem and an opportunity.
It’s a problem because we don’t know what the tenant is entitled to take on lease expiry – and also what we can require the tenant to take and get rid of. This means there is nothing to stop the tenant taking what they want and leaving the junk.
It’s an opportunity, because if the landlord owns the fitout then the landlord may be entitled to depreciation benefits during the term of the lease and may, depending on the nature of the property, have a more attractive property to re lease if all of part of the fitout remains.
This leads to a couple of very simple recommendations:
- When you purchase a property ALWAYS ask for and expect a complete list of landlord’s fittings and fixtures. If the vendor doesn’t know – you may need to work this out with the tenant before you purchase or during your due diligence period;
- When you negotiate with a tenant in relation to rent increases, lease renewals of option periods always think about whether it would be worth having an option to buy the fitout (assuming it is owned by the tenant) for $1.00 when the lease is terminated.
Lewis O’Brien & Associates are experienced with commercial leases and are here to assist when you buy commercial property, renew leases and terminate leases.