INDUSTRIAL & COMMERCIAL REAL ESTATE BRISBANE QUEENSLAND AUSTRALIA

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Minimising your exposure on Vacant Premises

It is no surprise that the market is getting tougher to complete deals. Regarding leasing, there is more choice in the number of vacant premises for lease and generally fewer Tenants. 

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Critical in this market is that point that Landlords are often asked to make decisions within very short time frames. Landlords who take time to contemplate options may find that the Tenant has gone elsewhere. 

If a Landlord is advised that the Tenant is considering vacating prior to the completion of the end of the lease, this can be a great opportunity. Depending upon the balance time left on the lease, the outgoing Tenant should be asked to pay for lease preparation fees, agent’s commission, loss of rental, lease incentives and other costs associated with re-leasing. However, if explained correctly to the outgoing Tenant, this can represent a saving for them as well. 

Again, assuming there is still time left on the lease, you would work to assign the lease unless it is a blue-chip Tenant; in which case you would write a new lease. The reason for assigning the lease is, you get the commitment of the new Tenant and you have the back-up of the former Tenant paying rent and charges until the end of the first term. 

If the incoming Tenant is a different use to the exiting Tenant, consideration needs to be given to make-good provisions and/or lease fitout incentives for the new Tenant. Provided there is reasonable time left on the existing lease, the Landlord has reasonable leverage over the above issues. 

If a Landlord comes to us and advises that the premises are already vacant and there is no lease in place, then the first thing we recommend to clients is to tidy and if necessary, repaint to make it presentable. That also often means removal of rubbish, servicing equipment and removal of worn carpets or vinyl. Experience has shown that prospective tenants cannot look beyond the basics and will focus on worn carpets and marked walls as reasons not to proceed. 

Given that most Tenants in the market know there is increasingly more space available and that they are able to ask for greater incentives. It is suggested that any negotiated incentives be amortised over the balance term of the lease. We at Raine & Horne Commercial also advise our clients to add a clause to the lease regarding default during the term and the right to recover immediately, any previously waivered charges. 

If it is a new lease, then it is critical that there be an entry report including photos so that all parties are clear on how it looks prior to commencement and future expectations upon vacating of the premises. 

Should you have any questions in relation to lease renewals, assignments or incentives, please do not hesitate to contact Daryl in our office on 3216 6666.